FI 623 Practice Final Questions

4) Which of the following would typically be considered a value stock? A. A stock with a low B/P ratio B. A stock with a P/E ratio significantly greater than its PEG ratio C. A stock with a high P/E ratio D. A stock with a low P/E ratio

D. A stock with a low P/E ratio

9) What is the quoted price of a bond that matures in exactly 6 years, has a coupon rate of 5% and a YTM of 7%? Assume the issuer just made a coupon payment. A. 90.34 B. 685.42 C. 90.57 D. 903.37

A. $90.34

5) A firm just earned $4 in EPS. The ROE is 8% and the retention ratio is 40%. If the firm market cap rate is 15%, what is the PVGO? A. -$6.53 B. $-5.68 C. $20.99 D. $26.67

A. -$6.53

7) According to CAPM? A. A positive alpha is considered a good buy B. A negative alpha is considered a good buy C. A zero alpha is considered a good buy D. A zero alpha is considered a good sell (short)

A. A positive alpha is considered a good buy

15) Bonds trade on an accrual interest basis. This means an investor A. Can sell a bond at any time without losing the interest that has accrued B. Can buy a bond at any time and gain the interest accrued from the time of the last payment C. Can sell a bond at any time and receive the interest portion of the bond at the next coupon payment D. Can buy a bond at any time and receive an immediate interest check

A. Can sell a bond at any time without losing the interest that has accrued

19) The maximum loss the buyer of a stock call option can suffer is A. The Premium B. Strike Price minus the Premium C. Stock Price minus Premium D. Strike Price minus Stock Price

A. The Premium

20) You are long a put option with a strike price of $50. If the current price of the stock is $40, which of the following statements is true? A. The option is in-the-money and your gross profit per share is $10 B. The option is out-of-the-money and your gross loss per share is -$10 C. The option is out-of-the-money and your gross profit per share is $10 D. The option is in-the-money and your gross loss per share is -$10

A. The option is in-the-money and your gross profit per share is $10

14) The expected rate of return on a bond if bought at its current market price and held to maturity is called the A. Yield to maturity B. Current yield C. Coupon yield D. Capital gains yield

A. Yield to maturity

11) Today is May 1, 2015. A bond matures on September 15, 2020, has a coupon rate of 5%, YTM is 6%, and a quoted price of 95.458. What is the invoice price of this bond? (Hint: 184 days between payments, 47 days since last payments) A. 95.514 B. 96.097 C. 94.612 D. 96.677

B. $96.097

2) Firm A is a high risk firm and Firm B is a low risk firm. Every else being equals, which firm will have the higher P/E ratio? A. Firm A B. Firm B C. It depends on the risk market premium D. It depends on the PEG of the two firms

B. Firm B

17) A corporate bond with a rating of BBB- is considered to be which of the following? A. Non-investment grade B. Investment grade C. Speculative grade D. Junk or high-yield

B. Investment grade

6) Netflix has a beta of 2.25 and an expected return of 18%. If the expected return on the market is 12% and the risk-free rate is 1.5%, is Netflix correctly priced according to CAPM? A. Yes B. No, it is overpriced C. No, it is underpriced D. There is not enough information to answer this question

B. No, it is overpriced

16) Bonds called in are likely to be A. Bonds already in default B. Replaced with new bonds that have a lower interest rate C. Replaced with new bonds that have a higher interest rate D. Junk bonds

B. Replaced with new bonds that have a lower interest rate

1) The holding period return on a stock is equal to A. The capital gain over the period plus the inflation B. The capital gain over the period plus the dividend yield C. The risk free rate plus the dividend yield D. The dividend yield plus the risk premium

B. The capital gain over the period plus the dividend yield

Company is expecting to earn $6 next year. The expected ROE is 18%. The dividend payout ratio is 30%. If the market cap rate is 14%, what is the firm intrinsic value? A. $75.00 B. $101.11 C. $128.57 D. $142.87

C. $128.57

21) You purchase one Apple July put contract with a strike price of 175 and a premium of $3. You hold the option until the expiration date at which time the Apple stock sells for $178. What profit or loss will you realize on this investment? A. $600 loss B. $0 C. $300 loss D. $300 profit

C. $300 loss

10) Last year you bought a 15-year bond with a 7% coupon for 103.45. Today the same bond is selling for 105.12. What was your holding period return on this position? A. 6.55% B. 7.00% C. 8.38% D. 9.06%

C. 8.38%

13) If a bond sells at a high premium, then which of the following relationships hold true? (P0 represents the price of a bond and YTM is the bond's yield to maturity.) A. P0 less than par and YTM greater than the coupon rate. B. P0 greater than par and YTM greater than the coupon rate. C. P0 greater than par and YTM less than the coupon rate. D. P0 less than par and YTM less than the coupon rate.

C. P0 greater than par and YTM less than the coupon rate.

12) Today is 7/1/2018. A callable bond with a maturity of 12/31/2024 and a 6% coupon sells for 93.40. The call date is 12/31/2018 and the call price is 102. Which of the statement is true? A. The bond is likely to be called and the YTC is 8.41% B. The bond is likely to be called and the YTC is 24.84% C. The bond is not likely to be called and the YTM is 7.29% D. The bond is not likely to be called and the YTM is 8.41%

C. The bond is not likely to be called and the YTM is 7.29%

23) You own 100 shares of Facebook selling at $134 and you bought a put option contract with a strike price of $125 and a premium of $3. If tomorrow there is another privacy scandal and the stock drop to $110, what will be the value of your position? A. $13,400 B. $12,800 C. $12,500 D. $12,200 E. $11,000

D. $12,200

18) You purchased a 5-year, 6% coupon bond with a YTM of 4%. If you sold the bond after receiving the second interest payment and the bond's YTM had changed to 3%, your annual total rate of return on holding the bond for that year would have been A. 5.00% B. 5.51% C. 6.68% D. 7.57%

D. 7.57%

22) You own 100 shares of AMZN which is priced at $1,684. You want to prevent the value of this position from falling under $1,600. What option position with a strike price of $1,600 do you take? A. Buy call option B. Write call option C. Write put option D. Buy put option

D. Buy put option

8) A 10-year bond is priced at 104.31 with a coupon rate of 3.75%. What are the cash flows associated with purchasing this bond? A. Pay $104.31 today and then receive $3.75 every year for the next ten years B. Pay $1043.10 today and receive $3.75 every year for the next ten years, and then receive $1000 at the end of ten years C. Pay $1043.10 and receive $37.50 every year for the next ten years, then receive $1000 at the end of ten years D. Pay $104.31 and receive $18.75 every six months for the next ten years E. Pay $1043.10 and receive $18.75 every six months for the next ten years, then receive $1000 at the end of ten years

E. Pay $1043.10 and receive $18.75 every six months for the next ten years, then receive $1000 at the end of ten years