FIN 3318 Exam 1

You write one GE July 30 call contract for a premium of $1. You hold the position until the expiration date when GE stock sells for $31 per share. You will realize a ______ on the total investment. ( remember a stock put or call usually cover 100 shares)

$0 profit

You purchase one MSFT July 40 call contract for a premium of $2. You hold the option until the expiration date when MSFT stock sells for $ 41 per share. You will realize a ______ per share on your investment.

$1 loss

You purchase one Walmart December 30 call contract for a premium of $1. You hold the option until the expiration date when Walmart stock sells for $26 per share. You will realize a ______ per share on your investment.

$1 loss

You purchase one IBM July 100 put contract for a premium of $3. You hold the option until the expiration date when IBM stock sells for $96 per share. You will realize a ______ on the total investment. ( remember a stock put or call usually cover 100 shares)

$100 profit

You write one GE July 30 put contract for a premium of $1. You hold the position until the expiration date when GE stock sells for $31 per share. You will realize a ______ on the total investment. ( remember a stock put or call usually cover 100 shares)

$100 profit

The price quotations of treasury notes show an asked price of 101.25 and a bid price of 101.20. As a buyer of the bond you expect to pay______if the face value is $1000.

(101+25/32)%x1000= 1017.81

A T-bill has the following quotes today: bid 3.22 Asked 3.20. If you are to sell at the above prices, how much do you have to pay if the FV is 10,000 and it has 60 days to maturity

10000(1-3.22% x 60/360)= 9946.33

A T-bill quote sheet has 60 day T-bill quotes with a 4.02 bid and a 3.96 ask. If the bill has a $1,000 face value an investor could buy this bill for

3.96%*60/360=0.0066 1000x(1-0.0066)= 993.4

__________ is a true statement. A) At issuance, treasury notes maturities range up to 10 years B) At issuance, treasury bonds maturities range up to 10 years C) At issuance, treasury notes maturities range from 10 to 30 years D) Treasury notes may be callable

A) At issuance, treasury notes maturities range up to 10 years

Which of the following statement is correct? A) Repurchase agreement is like a short-term collateralized loan. B) Eurodollars are dollar denominated bonds issued by firms outside their home market C) Treasury notes have initial maturities between 2 and 5 years. D) Large well-known companies often issue their own short term unsecured debt notes directly to the public, rather than borrowing from banks, their notes are called certificates of deposit.

A) Repurchase agreement is like a short-term collateralized loan.

You purchase one GE March 30 put contract for a premium of $1. You hold the option until the expiration date when GE stock sells for $31 per share. Your return is

A. -100%

__________ are real assets. A) Bonds B) Machines C) Stocks D) None of the above

B) Machines

Which one of the following statement is correct? A. A 15-year corporate bond typically has less risk than a 15 year US T-bond. B. Common stocks have residual claims on cash flows/revenue generated by the firm. C. A treasure note has a maturity up to 30 years. D. Preferred stocks have voting right.

B. Common stocks have residual claims on cash flows/revenue generated by the firm.

Which one of the following statement is correct? A. A futures contract calls for immediate delivery of asset for an agreed upon price. B. If you take a long position in futures then you have the obligation to purchase the underlying asset at the futures price. C. A call buyer is obliged to buy the underlying asset at the exercise price. D. A long position in futures benefit from price decrease.

B. If you take a long position in futures then you have the obligation to purchase the underlying asset at the futures price.

Which one of the statements is correct? A. Investment bankers accept deposits from savers and lend them out to companies B. The cost of IPO includes commission and under pricing. C. IPOs generally provide superior long-term performance as compared to other stocks D. Private placement is mostly for public firms to issue securities.

B. The cost of IPO includes commission and under pricing.

Which of the following is not a money market instrument? A) treasury bill B) commercial paper C) preferred stock D) banker's acceptance

C) preferred stock

Which one of the following statesmen is most correct? A. If you thought prices of stock would be rising over the next few months you may wish to buy a put on the stock. B. Call gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. C. Derivatives derive their values from the values of other assets. D. All of the above

C. Derivatives derive their values from the values of other assets.

Which one of the statements is correct? A. Short sale allows investors to profit from price increase B. An order to buy or sell a security at the current price is a limit order C. If an investor places a stop-loss (or stop-sell) order the stock will be sold if its price falls to the stipulated level D. None of the above

C. If an investor places a stop-loss (or stop-sell) order the stock will be sold if its price falls to the stipulated level

Which one of the following statements concerning the primary market is correct? A. A transaction in the primary market is between two private stockholders. B. The first public sale of a company's stock in the primary market is called a seasoned new issue. C. The first public sale of a company's stock is called an IPO. D. A rights offering is a direct sale of stock to an institution that participates in the primary market.

C. The first public sale of a company's stock is called an IPO.

Which one of the following statement is correct? A. Price-weighted index is constructed in such a way that as if the investor $1 in each of the component company's common stock. B. Equally-weighted index is constructed in such a way that as if the investor buy one share of each of the component company's common stock. C. Value-weighted index is computed by calculating a weighted average of each security in the index, with weights proportional to outstanding market value. D. Stocks indexes track average bond market returns and indicate average bond market performance

C. Value-weighted index is computed by calculating a weighted average of each security in the index, with weights proportional to outstanding market value.

Which one of the following statement is NOT correct? A) Money market securities are sometimes referred to as "cash equivalent" because they are safe and marketable. B) The most actively traded money market security is Treasury bills C) Banker's acceptance is widely used in international trade. D) Commercial papers are issued by Federal Government.

D) Commercial papers are issued by Federal Government.

Which one of the following is correct? A. The New York Stock Exchange is a good example of an auction market. B. The difference between the price at which a dealer is willing to buy, and the price at which a dealer is willing to sell, is called the bid-ask spread. C. According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for 2 years following initial registration. D. All of the above

D. All of the above

Which one of the following is right?__ A. securitization refers to the bundling and unbundling of financial securities. B. Financial engineering refers to repackaging individual cash flows of a security or loan into a new payment pattern C. Real assets can not be used to generate wealth D. Financial assets generally have three broad types of securities: fixed income, equity and derivatives.

D. Financial assets generally have three broad types of securities: fixed income, equity and derivatives.

Which one of the following is not a money market instrument? A. Eurodollar B. Fed Fund C. Repos D. Bankers Acceptance E. T Notes

D. T Notes

Which one of the following is correct? A. The bid price of a treasury bill is the price at which the dealer in treasury bills is willing to sell the bill B. Deposits of commercial banks at the Federal Reserve are called bankers acceptances . C. Commercial paper is a short-term security issued by government to raise funds D. The interest rate charged by large banks in London to lend money among themselves is called LIBOR

D. The interest rate charged by large banks in London to lend money among themselves is called LIBOR

Which one of the following securities is a monetary market instrument? A) Repos B) Fed Fund C) Euro Dollar D) Banker's Acceptance E) All of the above

E) All of the above

An investor buys a T-bill at a bank discount quote of 4.60 with 100 days to maturity. The investor's annual rate of return on this investment was

If face value is $1000 Buying price= 1000x(1-4.6%x100/360)=987.22 Return over 100 days is (1000-987.22)/987.22=1.2943% Return over a year is 1.2943%x (365/100)=4.72%

The interest rate charged by large banks in London to lend money among themselves is called _________.

LIBOR

__________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis

Passive

__________ assets generate net income to the economy and __________ assets define allocation of income among investors.

Real, financial

6. A security dealer (or it can be a firm) that has large securities holdings that wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?

Repurchase agreement

You short-sell 100 shares of APPL with 50% margin now selling for $80 per share. What is your maximum possible loss?

Unlimited

Money Market securities are characterized by _________.

a very short term to maturity

The difference between the price at which a dealer is willing to buy, and the price at which a dealer is willing to sell, is called the __________.

bid-ask spread

Stocks and bonds are ________securities

capital markets.

Security selection refers to the ________.

choice of specific securities within each asset class

__________ represents an ownership share in a corporation.

common stock

11. Euro dollars are __________

dollar denominated deposits at any foreign bank or foreign branch of an American bank

Deposits of commercial banks at the Federal Reserve are called ______.

federal funds

Stocks purchased in the secondary market are purchased

from other investors.

Stocks purchased in the secondary market are purchased:

from other investors.

Commercial paper is a short-term security issued by __________ to raise funds

large well-known companies

Short-term securities are _______securities

money market.

You purchased ABC stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a __________.

stop-sell(loss)order

Securitization refers to the creation of new securities by _________.

taking an illiquid asset and converting it into a marketable security

The most important feature of municipal bonds is their _______.

tax-exempt status

The bid price of a treasury bill is __________.

the price at which the dealer in treasury bills is willing to buy the bill