Chapter 7, Valuing bonds, Wk 3 - Practice: Ch. 8, Valuing Stocks, Wk 3 - Practice: Ch. 7 and 8 Knowledge Check, Wk 3 Apply Homework
Which of these descriptions apply to common stock? Select all that apply
an equity security that offers ownership benefits in a corporation. a security that provides the potential for its owner to receive both dividends and capital gains. A security that provides voting priviledges.
Investors sell stock at the
bid price.
To compensate the bondholders for getting the bond called, the issuer pays which of the following?
call premium
Many bonds are not callable, but for those that are, which of following is a common feature?
called any time after 10 years of issuance
As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?
common stockholders
Which of the following terms is the chance that the bond issuer will not be able to make timely payments?
credit quality risk
All of the following items would need to be included in the bond's indenture agreement EXCEPT
credit rating
We can estimate a stock's value by
discounting the future dividends and future stock price appreciation.
What is the primary purpose of the P/E valuation formula?
estimate the future price of a stock
The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's
market capitalization
Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called
market makers
Where does the majority of trading volume in bonds in the secondary markets occur?
over-the-counter
Investors buy stock at the
quoted ask price
What is the best definition of the variable-growth rate stock valuation method?
stock valuation method used when a firm's current growth rate is expected to change in the future
Which of these investors earn returns from receiving dividends and from stock price appreciation?
stockholders
Which of these is a correct interpretation of a P/E ratio?
the stock with the lowest P/E has the lowest current price per dollar of earnings
a___________ symbol is the unique code for a company on a stock exchange. It consists of one to five letters.
ticker
If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?
−1.83 percent
A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred stock is 12.1 percent, what is the value of the stock?
$42.15
If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?
$42.86
If a preferred stock from Ecology and Environment, Inc. (EEI) pays $2.50 in annual dividends, and the required return on the preferred stock is 5.8 percent, what's the value of the stock?
$43.10
Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?
$5,062.50
A firm is expected to have net earnings of $1,480,000 three years from now. There are 500,000 shares of stock outstanding. The firm's current P/E ratio is 18 and it is expected to remain at that level. What is the firm's expected stock price for year 3?
$53.28 Reason: P3 = 18 × ($1,480,000/500,000) = $53.28$53.28
A firm is expected to have net earnings of $4.00 per share of stock outstanding. The firm's current P/E ratio is 14 and it is expected to remain at that level. What is the firm's expected stock price for year 2?
$56.00 Reason: P2 = 14 × $4.00 = $56.00
A firm is expected to have net earnings of $4.00 per share of stock outstanding. The firm's current P/E ratio is 14 and it is expected to remain at that level. What is the firm's expected stock price for year 2?
$56.00 Reason: P2 = 14 × $4.00 = $56.00
Consider the following three bond quotes; a Treasury note quoted at 87.25, and a corporate bond quoted at 102.42, and a municipal bond quoted at 101.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?
$872.50, $1,024.20, $5,072.50, respectively
GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?
$892,500,000
At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?
$9,047.95
You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$9,624.00
A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?
$981.75
How much will you pay to purchase a $100,000 U.S. Treasury bond that is quoted at 99.6250?
$99,625.00
If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?
+1.69 percent
A 6 percent corporate coupon bond is callable in 10 years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
- $1,060
Corporate bond A has a 6 percent coupon and matures in 3 years. Corporate bond B has a 6 percent coupon and matures in 15 years. The current interest rate is 6 percent. By how much will Bond A and Bond B change in price if the market rate increases to 6.5 percent? Assume both bonds are currently selling at par which is $1,000.
-$13.43; -$47.45 Reason: Both bonds are currently selling at par, which is $1,000. At 6.5 percent: Bond A: N = 6; I = 3.25; PMT = 30; FV = 1,000; CPT PV; PV = 986.57 Bond B: N = 30; I = 3.25; PMT = 30; FV = 1,000; CPT PV; PV = 952.55 Bond B decreases more since it is the longer-term bond.
Approximately how much of a decline occurred in the NASDAQ Composite index in the two and a half years following its peak in March of 2000?
Approximately 78 percent Rationale: From March 2000 to October 2002, the NASDAQ Composite lost approximately 78 percent of it value.
How does the yield to call differ from the yield to maturity for the same bond? Select all that apply.
Credit quality, or default risk
What does a bond rating measure?
Credit quality, or default risk
The bond's annual coupon rate divided by its market price is referred to as the __________.
Current Yield
What is the definition of market capitalization?
Current stock price times number of shares outstanding
A stock quote shows a P/E of 18. How is the ratio defined?
Current stock price/Last four quarters of earnings
If you purchase shares of stock on NASDAQ, who is the most likely seller of those shares?
Dealer
Which of these is correct?
Dealers are willing to sell stocks at the ask price.
Which of these terms indicates a bond is unsecured?
Debenture
Which one of these terms indicates a bond is unsecured?
Debenture Reason: A debenture is an unsecured bond.
Defaults on subprime mortgages.
Defaults on subprime mortgages.
Which of the following was the catalyst for the recent financial crisis?
Defaults on subprime mortgages.
What is the yield spread?
Difference between the yields to maturity on bonds with differing levels of credit risk
Which one of these defines the current value of a stock?
Discounted value of both the future dividends and the future stock price
Which one of these is the oldest stock index?
Dow Jones Industrial Average (DJIA)
Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?
They are tax exempt—at least at the federal level.
Which one of these is most apt to disappear as a part of the stock trading process if current trends continue?
Trading posts Rationale: Trading posts are an integral part of floor trading. If floor trading continues to be replaced by electronic trading, then trading posts will disappear.
Which of the following would NOT be an example of an agency bond?
Treasury bills
True or false: The financial status of the issuer will affect the coupon rate that issuer pays on its bonds.
True
A P/E is a measure of relative value.
True Reason: P/E ratios are used to compare one firm's stock value to another firm's stock value.
True or false: If you buy a bond today at par value and sell it one year from today, also at par value, the rate of return you will earn will equal to current yield.
True Reason: If you sell a bond for the same price as you purchased it, there is no capital gain. Thus, the only return is the interest earnings. Current yield = Annual interest/Current price
Which of the following issues Treasury Inflation Protected Securities (TIPS)?
U.S. Treasury
Which one of these descriptions defines a Treasury inflation-protection security (TIPS)?
U.S. government bond with an inflation-adjusted par value and varying interest payments
Which one of these best defines the dividend discount model?
a stock valuation method based on the present value of all future dividend
The NASDAQ Composite includes
all of the stocks listed on the NASDAQ Stock Exchange.
Which one of these is the current yield formula?
Annual interest / Current value
A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?
$1,034.05
A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
$1,045
A 5.5 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?
$1,055
What is the price of a $100,000 par value U.S. Treasury security if the price quote is 102.1446?
$102,144.60
International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?
$104.05
Determine the semi-annual interest payment for the following three bonds: 2.5 percent coupon corporate bond, 3.15 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 10 years. (Assume a $1,000 par value.)
$12.50, $15.75, $0, respectively
At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?
$13,789.55
A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)
$15.09, $1,207.16, respectively
A 2.95 percent TIPS has an original reference CPI of 180.2. If the current CPI is 205.1, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)
$16.79, $1,138.18, respectively
A 3.25 percent TIPS has an original reference CPI of 194.1. If the current CPI is 210.3, what is the current interest payment? (Assume semiannual interest payments and a par value of $1,000.)
$17.61
A 3.25 percent TIPS has an original reference CPI of 194.1. If the current CPI is 210.3, what is the current interest payment? (Assume semiannual interest payments and a par value of $1,000.)
$17.61
JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?
$176.25
Calculate the price of a zero-coupon bond that matures in 20 years if the market interest rate is 8.5 percent. (Assume annual compounding and a par value of $1,000.)
$195.62
At your full-service brokerage firm, it costs $110 per stock trade. How much money do you receive after selling 100 shares of Time Warner, Inc. (TMX), which trades at $22.62?
$2,152.00
Determine the semi-annual interest payment for the following three bonds: 4 percent coupon corporate bond, 4.75 percent coupon Treasury note, and a corporate zero-coupon bond maturing in 15 years. (Assume a $1,000 par value.)
$20.00, $23.75, $0, respectively
A 3.75 percent TIPS has an original reference CPI of 175.8. If the current CPI is 207.7, what is the current interest payment and par value of the TIPS? (Assume semiannual interest payments and $1,000 par value.)
$22.15, $1,181.46, respectively
A stock quote displays the last price as 28.13, down 0.10. What was the previous day's closing price?
$28.23 Reason: Prior day's close = $28.13 + $0.10 = $28.23
You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and $25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$3,817.50
You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and $25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted prices. How much money did it cost to buy these shares?
$3,817.50
At your discount brokerage firm, it costs $8.50 per stock trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at $171.54?
$34,316.50
You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer?
$38,480.00
Assume a corporate bond pays a 5 percent coupon and matures in ten years. What will be the change in the current price of this bond if market interest rates increase from 5 to 5.5 percent?
-$38.07 Reason: When the coupon rate matches the market rate, a bond sells at par, which is assumed to be $1,000. Using a financial calculator, the price at 5.5 percent is: N = 20; I = 2.75; PMT = 25; FV = 1,000, CPT PV; PV = -961.93 Change in price = $961.93 - $1,000 = -$38.07
If Zeus Energy bonds are upgraded from BBB- to BBB+, which of the following statements is true?
. The current bond price will increase and interest rates on new bonds issues will decrease.
A 10-year Treasury bond has a 4 percent coupon and a yield to maturity of 4.62 percent. A 10-year, A-rated corporate bond has a 4.5 percent coupon and a yield to maturity of 5.98 percent. What is the yield spread between these two bonds?
1.36 percent Reason: Spread = 5.98% - 4.62% = 1.36%
A bond issued by a corporation on May 1, 1999, is scheduled to mature on May 1, 2019. If today is May 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)
10 years
The Dow Jones Industrial Average (DJIA) includes
30 of the largest (market capitalization) and most active companies in the U.S. economy.
A corporate bond has a yield to maturity of 6.48 percent, a current price of $916.58, and matures in 5 years. What is the coupon rate?
4.50 percent Reason: N = 10; I = 3.24; PV = -916.58; FV = 1,000; CPT PMT; PMT = 22.50, which is the semiannual interest payment. Coupon rate = (2 × $22.50)/$1,000 = 0.045 = 4.50%
What's the current yield of a 5.75 percent coupon corporate bond quoted at a price of 103.05?
5.58 percent
The Standard & Poor's 500 Index includes
500 firms that are the largest in their respective economic sectors.
What's the taxable equivalent yield on a municipal bond with a yield to maturity of 3.9 percent for an investor in the 35 percent marginal tax bracket?
6.00%
A corporate bond has a current yield of 6.39 percent and a price quote of 97.8. What is the coupon rate?
6.25 percent Reason: 0.0639 = Annual interest/$978; Annual interest = $62.49 Coupon rate = $62.49/$1,000 = 0.0625 = 6.25%
A 7.5 percent corporate bond matures in 16 years and has a price quote of 102.3. What is the yield to maturity?
7.2547 percent Reason: N = 32; PV = -1,023; PMT = 37.50; FV = 1,000; CPT I; I = 3.62735, which is the semiannual rate. YTM = 2 × 3.62735% = 7.2547%
A bond issued by a corporation on June 15, 2007, is scheduled to mature on June 15, 2017. If today is December 16, 2008, what is this bond's time to maturity? (Assume annual interest payments.)
8 years, 6 months
What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?
8.64 percent
Which one of these is the best description of a 5-year zero coupon bond?
A bond with a current value equal to its discounted par value
What is the key difference between a floor broker on AMEX and a dealer on NASDAQ?
A dealer buys and sells only from his own inventory while a floor broker executes trades both for himself and others.
What is the primary disadvantage of a limit order?
A limit order may not execute.
Which statements are correct? Select all that apply.
A limit sell order will only execute at the limit price or higher. A market order will execute immediately, regardless of the price. A limit sell order may never be executed
What is a zero coupon bond?
A zero coupon bond is sold at a steep discount and pays no semiannual interest payments.
What is the key premise upon which the dividend discount model is based?
All future cash flows from a stock are dividend payments.
Junk bonds are those bonds with a credit rating of _____________.
BB and lower
Yesterday, Beth placed a limit sell order on ABC stock at $36. The market price ranged from $34.80 to $35.50 yesterday. This morning, ABC opened at $36.50 a share. What is the status of Beth's order?
Beth sold her shares for $36.50, which illustrates an advantage of limit orders.
Most secondary trades in the U. S. bond market occur between which two parties?
Bond dealers and large institutions
Which of the following affects the coupon rate a firm must set on its bonds if the bonds are to be sold at par? Select all that apply.
Bond term Market rates of interest Default risk
Which of these statements is false?
Bonds are always less risky than stocks.
Which statement related to bonds is true?
Bonds have varying levels of risk.
Which of following are backed only by the reputation and financial stability of the corporation?
Both a and b
Which of the following are backed only by the reputation and financial stability of the corporation?
Both debentures and unsecured bonds
Which one of these is true?
Both the S&P 500 and the NASDAQ Composite indexes are based on market capitalization. Rationale: Both the S&P 500 and the NASDAQ Composite are based on market capitalization. Market capitalization equals the stock price times the number of shares outstanding.
located around the perimeter of the floor of the stock exchange, act as agents for those buying and selling stocks.
Brokers
Which of these characteristics apply to the New York Stock Exchange (NYSE)? Select all that apply.
Brokers Rationale: Brokers are floor traders who act as agents and execute trades by matching buy and sell orders. Specialists Rationale: Specialists operate at trading posts located on a trading floor and manage the trading process for their assigned stocks. Physical trading floor Rationale: The NYSE has a physical trading floor.
The interest rate used to compute the bond's interest payment each year refers to:
Coupon rate
The market rate of interest that is used to compute the present value of a bond is affected by which of the following? Select all that apply.
Credit quality of the bond Tax status of the bond
Which of these are current trends related to stock trading? Select all that apply.
Exchanges are relying more on electronic trading and less on open-outcry. Rationale: Electronic trading is replacing open-outcry systems, which may eventually disappear all together. Exchanges are becoming more global in nature. Rationale: Exchanges are merging across international borders. International trading of securities is rising. Rationale: International trading of both U. S. and non-U. S. securities is increasing.
The value of a firm as measured by its market capitalization is solely dependent upon the market value of the firm's stock.
False Rationale: Market capitalization depends on both the market price per share and the number of shares outstanding.
A dealer will buy stock from an investor at the ask price.
False Rationale: Dealers buy at the bid and sell at the ask. Investors buy at the ask and sell at the bid.
Investment grade bonds include those bonds with ratings _____________.
From AAA to BBB
Which of the following is a true statement?
If interest rates fall, all bonds will enjoy rising values.
Which of these services should you expect to receive from a full-service brokerage firm? Select all that apply.
In-depth research on individual stocks Rationale: In exchange for their high commissions, full-service brokerage firms conduct research and offer investment advice. Investment advice Rationale: In exchange for their high commissions, full-service brokerage firms conduct research and offer investment advice.
Which of the following is NOT true about EE savings bonds?
Interest payments are received annually but are tax deductible.
Which of the following is not true about EE savings bonds?
Interest payments are received annually but are tax deductible.
Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?
Interest rate risk
Under what conditions is a bond likely to be called?
Interest rates have significantly declined.
Which of these statements answers why bonds are known as fixed income securities?
Investors know how much they will receive in interest payments.
Which one of the following characteristics most applies to a discount brokerage firm?
Investors place trades on the firm's Internet site
Which of these is the key service provided by stock exchanges that attracts investors?
Liquidity
Mary placed an order to purchase 100 shares of ABC stock at the going price. The order was filled as soon as it reached the floor of the exchange. What type of order did Mary place?
Market buy order
Which one of the following is the key financial market feature that must be present if investors are to be attracted to equity securities?
Market liquidity
Which of these characteristics designates a premium bond?
Market price exceeds par value
Which of these characteristics apply to a discount bond? Select all that apply.
Market price is less than the principal amount of the loan Selling for less than face value
Marcos owns 1,500 shares of ABC stock which he purchased at $44 a share. The stock has been steadily decreasing in value and he wants to cut his losses now as he expects the stock price to decline further. Which type of order should Marcos place?
Market sell order for 1,500 shares Rationale: Marcos wants to sell, not buy.
All of the following are stock market indices EXCEPT
Mercantile 1000.
Which of the following are sources of information on the bond markets? Select all that apply.
Merrill Lynch Reason: This is a source of bond information The Wall Street Journal Reason: This is a source of bond information. Internet Reason: This is a source of bond information.
To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued
Mortgage-backed securities
Which of these terms best describes the trading process used by NASDAQ?
Multiple market maker system Rationale: NASDAQ uses a multiple market maker, or multiple dealer, system of electronic trading.
Which one of these formulas correctly computes the equivalent taxable yield?
Muni yield/(1-tax rate)
Which of the following is an electronic stock market without a physical trading floor?
Nasdaq Stock Market
Which one of these is a factor that has minimum requirements which a firm must meet to be listed on the NYSE?
Number of stockholders
A preferred stock has which of these characteristics?
Zero dividend growth
Which of these apply to publicly-issued common stock? Select all that apply.
Ownership position Reason: Common stock represents a residual ownership position. Value determined on the stock exchanges Reason: The value of publicly-issued stock is determined on the stock exchanges. Stock value depends on the issuer's business success Reason: The value of a stock is based on the business success of the issuer.
A firm does not pay any dividends at this point in time. Which valuation method should be used on this stock?
P/E Ratio Model
A firm does not pay any dividends at this point in time. Which valuation method should be used on this stock?
P/E Ratio Model
Which of these characteristics apply to the American Stock Exchange but not to NASDAQ? Select all that apply.
Physical trading floor Rationale: AMEX has a physical trading floor. NASDAQ does not. One designated market maker overseeing the process for an individual stock on a trading floor Rationale: Instead of one designated market maker overseeing the process for an individual stock on a trading floor, Nasdaq's system uses multiple market makers, or dealers.
Which one of these defines the yield to call?
Rate earned by buying a bond at today's price and holding it until the first call date
What is a common means of reporting the daily direction of overall bond price movements?
Reporting the yield-to-maturity on the 10-year Treasury bonds Reason: Since the rate of interest is the key factor that affects bond prices, it is common practice to report the latest rate and daily yield change for the 10-year Treasury. Remember, interest rates and bond prices are inversely related.
What is common means of reporting the daily direction of overall bond price movements?
Reporting the yield-to-maturity on the 10-year Treasury bonds Reason: Since the rate of interest is the key factor that affects bond prices, it is common practice to report the latest rate and daily yield change for the 10-year Treasury. Remember, interest rates and bond prices are inversely related.
Which of these are common features of a corporate bond? Select all that apply.
Semi-annual interest payments Face value of $1,000 Publicly traded debt security
Which one of these statements is correct?
The DJIA, S&P 500, and NASDAQ Composite tend to be positively related. Rationale: All three indexes tend to move in the same general direction, although by different amounts.
Which of these statements correctly applies to the NYSE bond market? Select all that apply.
The NYSE operates the largest centralized U. S. bond market. Corporate bonds are the primary source of bond trading volume on the NYSE.
Which of the following are sources of information on the bond markets? Select all that apply.
The Wall Street Journal Internet Merrill Lynch
Which of these statements is correct?
The average daily trading volume of the U. S. Bond market reached over $760 billion in 2017
Under which conditions will an investor demand a larger return (yield) on a bond?
The bond issue is downgraded from A to BBB
How does the yield to call differ from the yield to maturity for the same bond? Select all that apply.
The call price used in the yield to call usually exceeds the face value used in the yield to maturity Reason: The call price equals the face value plus the call premium. There are fewer time periods in the yield to call Reason: Bonds are called prior to maturity, so there are less time periods when computing a yield to call as compared to a yield to maturity.
What is the definition of credit quality risk?
The chance that an issuer will either be late paying or will not pay an interest or principal payment
Assume a $1,000 Treasury inflation-protected bond has a 2 percent coupon and a face value at issuance of $1,000. The reference CPI is 202.34 and the current CPI is 203.18. What do you know for certain about this bond?
The coupon rate is still 2 percent but the interest payments have increased.
All of the following items would need to be included in the bond's indenture agreement except _____.
The credit rating
Which of these best explains the current value of a bond?
The current value is the present value of the bond's expected future cash flows discounted at the market rate of interest.
If a bond is selling at a discount, which of the following statements is correct?
The current yield must be greater than the coupon rate.
Which of the following will increase the present value of an annuity?
The discount rate decreases
Which of the following will decrease the present value of an annuity?
The discount rate increases
How is the discount rate used to value a stock related to the expected return on the stock? Assume the stock price fairly reflects the stock's value.
The discount rate should equal the expected rate of return.
How is the discount rate used to evaluate a security related to the security's level of risk?
The higher the level of risk, the higher the discount rate needs to be.
Which one of these applies to stock valuation?
The value of a stock today equals the discounted value of the future expected cash flows.
Which of the following will increase the present value of an annuity?
The interest rate decreases.
Yesterday, Trevor placed a limit buy order at a price of $35 on 100 shares of ABC stock. Since the order was placed, the market price of ABC stock has ranged from $35.10 to $36.30 a share. What is the status of Trevor's order?
The order has not executed.
You own 500 shares of ABC stock. The stock has been declining in price and is now selling for $30 a share. You decide to sell all your shares and place a limit sell order at a price of $30 a share. When you order reaches the trading desk, the market price has declined to $29 a share. The next day the price falls to $18 a share. What is the status of your order?
The order has not executed. You still own 500 shares.
Just before the market closes, ABC stock is selling for $43 a share, so you place a market sell order for 300 shares. The order reaches the trading floor after the market closes for the day. The next morning, ABC stock opens at a price of $28 a share. What happens to your order?
The order is executed at a price of $28 a share. Rationale: This illustrates the disadvantage of a market order.
Which one of these is an advantage of a market order?
The order will execute immediately.
What is the key advantage of a limit order?
The order will only execute at the limit price or better.
Which one of these correctly defines equivalent taxable yield?
The pretax rate needed on a taxable bond to produce the same after-tax rate as a muni bond
Which one of these correctly defines a bond feature?
The principal value of a bond is referred to as the par value, or face value.
What is the definition of yield maturity?
The rate that will be earned if a bond is purchased today and held until maturity
What is the definition of yield to maturity?
The rate that will be earned if a bond is purchased today and held until maturity
car company is offering a choice of deals. You can receive $2,000 cash back on the purchase, or a 2 percent APR, 3-year loan. The price of the car is $17,000 and you could obtain a 3-year loan from your credit union, at 7 percent APR. Which deal is cheaper?
The rebate with the credit union's 7 percent 3-year loan.
What is the definition of current yield?
The return provided by the annual interest payments if the bond is purchased at the current price
Possible shapes for the yield curve include all of the following except ___________.
Vertical line
How important is the liquidity provided by stock exchanges to the equity markets?
Very important
If you want to estimate a future price, Pn, using the P/E valuation formula, you should use the estimated earnings for which year?
Year n
Which of the following statements is correct?
Yield spreads between bonds of different quality change over time.a
Which of the following should be used to compare various corporate bonds if you plan to purchase a bond today, hold it until maturity, and want to select the bond with the highest rate of return?
Yield to maturity
Which one of the following should be used to compare various corporate bonds if you plan to purchase a bond today, hold it until maturity, and want to select the bond with the highest rate of return?
Yield to maturity Reason: The yield to maturity is the annual return that will be earned if a bond is purchased at the current price and held until maturity.
Which of these are basic assumptions of a variable growth rate valuation
g1 can be negative, positive, or equal to zero g1 applies to a designated number of years g2 < i
Which one of these generally applies to preferred stock?
higher dividend yields than common stock issued by the same issuer
Stock valuation model dynamics make clear that lower discount rates lead to
higher valuations
Stock valuation model dynamics make clear that higher growth rates lead to
higher valuations.
If a bond is selling at a premium, then
its coupon rate must be greater than its yield
Speculative bonds are frequently referred to as which type of bonds?
junk bonds
Which of the following bonds carry significant risk that the issuer will not make current or future payments?
junk bonds