FIN 468-40

A treasury bill (money market) has the following characteristics: Currently trading at $9,780, Face value (or PAR) of $10,000, matures in 90 days. How much is the BEY (Bond Equivalent Yield)? Enter your answer in the following format: 0.1234Hint: Answer is between 0.0785 and 0.1022

((10,000 -9780)/9780) * (365/90) =0.0912

A treasury bill (money market) has the following characteristics: Currently trading at $9,780, Face value (or PAR) of $10,000, matures in 90 days. How much is the BDR (Bank Discount Rate)? Enter your answer in the following format: 0.1234Hint: Answer is between 0.0836 and 0.0959

((10,000-9,780)/10,000)*(360/90) = 0.0880

You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. StockPrice (t=0)Quantity (t=0)Price (t=1)Quantity (t=1)A $1040 $1540B $5080 $25160C $14050 $13050 If the Value-Weighted (VW) Index Value at t=0 is 100, what is the VW value at t=1? Enter your answer in the following format: 123.45Hint: Answer is between 87.63 and 111.97

((15*40)+(25*160)+(130*50))/((10*40)+(50*80)+(140*50) ) *100 = 97.37

You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. StockPrice (t=0)Quantity (t=0)Price (t=1)Quantity (t=1)A $1040 $1540B $5080 $25160C $14050 $13050 If the Price-Weighted (PW) Index Value at t=0 is 100, what is the PW value at t=1? Enter your answer in the following format: 123.45 Hint: Answer is between 83.54 and 107.83

(10+50+140)/3 = 66.7 (10+25+140)/dem = ? dem= 2.62 (15+25+130)/2.62 = 64.765 (64.765/66.7) *100 =97.14

You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. StockPrice (t=0)Quantity (t=0)Price (t=1)Quantity (t=1)A $1040 $1540B $5080 $25160C $14050 $13050 How much is the denominator used to compute the Price-Weighted index at t=1? Enter your answer in the following format: 1.23Hint: Answer is between 2.47 and 2.94

(10+50+140)/3 = 66.7 (10+25+140)/dem =66.7 dem=2.62

in 1980, the nominal annual interest rate was 13.4%, while the annual inflation rate was 12.4%. What was the real interest rate in 1980?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0078 and 0.0096

(13.4%-12.4%)/(1+12.4%) = 0.0089 answer: 0.0089

A treasury bill (money market) has the following characteristics: Currently trading at $9,780, Face value (or PAR) of $10,000, matures in 90 days. How much is the EAY (Effective Annual Yield)? Enter your answer in the following format: 0.1234Hint: Answer is between 0.0831 and 0.1039

([1+((10,000-9780)/9780)]^365/90 )-1 = 0.0944

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the expected annual return on Stocks?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.0189 and -0.0231

-0.0210(excel expected annual return of bonds and stocks)

Consider two Bonds with $1,000 face value: 10-year and 30-year maturity. Both Bonds offer 10% annual coupon, paid once a year.Assume that interest rates, hence YTM (Yield to Maturity) changed from 6% to 7%. By what percentage will the price of the 30-year Bond change?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.1024 and -0.1265

-0.1145 ("Key reasons why Bond Prices Change: 3 - Long term bonds" in Module 5)

This example is part of "Hedged Portfolios" to minimize risk.Assume you have $9000 to invest; A stock is trading at $90.00.A call option that expires in one year with a strike price of $90.00 is trading at $10.00.T-Bills are yielding a 1-year return of 2%.Suppose you invested $3000 in Options and the remaining $6000 in T-Bills. What is your portfolio's 1-year return if you invest in "Options and T-Bills" and the the stock price after one year is $48.00?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.2944 and -0.3584

-0.3200(excel)

This example is part of "Hedged Portfolios" to minimize risk.Assume you have $9000 to invest; A stock is trading at $90.00.A call option that expires in one year with a strike price of $90.00 is trading at $10.00. What is your portfolio's 1-year return if you invest in "Only Stocks" and the the stock price after one year is $48.00?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.4212 and -0.5042

-0.4667(excel)

This example is part of "Hedged Portfolios" to minimize risk.Assume you have $9000 to invest; A stock is trading at $90.00.A call option that expires in one year with a strike price of $90.00 is trading at $10.00. What is your portfolio's 1-year return if you invest in "Only Options" and the the stock price after one year is $48.00?Enter your answer in the following format: + or - 0.1234 Hint1: Answer is between -0.92 and -1.09 Hint2: +100% is same as 1, +50% is same as 0.5, -50% is same as -0.5, and -90% is same as -0.9

-1.00(excel)

Approximately, how many people are in this world? How much wealth do they have collectively?

-7 to 8 billion people -300 to 400 trillion wealth

Which of the following are the wealthiest places in the world?

-Australia -Western Europe -USA-Japan

Which of the following are "Lagging Indicators"?

-B. Change in consumer price index for services -Average duration of unemployment -commercial and industrial loans outstanding

Which of the following statements about "Bonds, Notes and Bills" are TRUE?

-Bills do not have a coupon (interest) attached -Notes have a maturity between 1 and 10 years -Bonds have a maturity of more than 10 years -Bills have a maturity of less than 1 years

Which of the following are "Asset Classes"?

-Bonds -Money Market -Stocks

Which of the following statements about the "Cyclical and Defensive Industries" are TRUE?

-Cyclical Industries have above-average sensitivity to state of economy -Defensive Industries have below-average sensitivity to state of economy -Cyclical Industries do well when the economy is expanding -Defensive Industries do well in a recession

Which of the following statements related to the "global wealth pyramid" are TRUE?

-Global wealth pyramid shows that less than one percent of the wealthiest population collectively own more than 40% of the wealth -Global wealth pyramid shows that more than 50 percent of the poorest population collectively own less than 2% of the wealth

Which of the following statements related to the "global wealth pyramid" are TRUE?

-In the global wealth pyramid, the tip of the pyramid signifies less than one percent of the wealthiest population -In the global wealth pyramid, the bottom of the pyramid signifies more than 50 percent of the poorest population

What is the difference between "income" and"wealth"?

-Income is what one earns in a year (ex: salary, rent, dividends) -Wealth is what one currently owns (ex: cash, stocks, bonds, real estate)

Which of the following terms related to "people-related investments" are used interchangeably (i.e., synonyms)?

-Personal investments -Personal Wealth Management -Financial Planning by Individuals

Which of the following statements related to the "Asset Classes" are TRUE?

-Professional call stock market as equity market -The bond market is much bigger than the stock market

Which of the following are the TOP investment choices of wealthy people?

-Real estate, Private Equity, and Venture Capital -Stocks and Bonds-CASH

Which of the following statements related to the "Asset Classes" are TRUE?

-Return on Options can be quite a lot compared to stocks and bonds on a given day -The futures market is very broad and includes agricultural commodities, energy, foreign exchange, metals, etc

Which of the following statements regarding "Sector Rotation" are TRUE?

-Some industries to invest in a business contraction cycle: Health care, Consumer Staples, Utilities -. In business contraction cycle, defensive industries often perform better E. Some industries to invest in a business expansion cycle: Consumer discretionary, Industrials, Materials F. In business expansion cycle, cyclical industries often perform better

Which country has the largest number of millionaires in the world? Approximately, how many millionaires live in that country?

-USA -18million

Which of the following top-10 global investment firms are located in Los Angeles area?

-Vanguard Group -Fidelity Investments -Capital Group

Which of the following can be classified as "financial goals"?

-being a millionaire by 40-years old -Have at least $50,000 yearly income after retirement

At a high level, there are two types of investments. What are they?

-people-related -institutional-related

Which of the following could you do as an investor, if you are convinced that NetFlix stock price will go up in the next six months by 50%?

. Buy a Call option on NetFlix that expires in six months D. Buy NetFlix stock

Which of the following could you do as an investor, if you are convinced that NetFlix stock price will go down in the next six months by 50%?

. Buy a Put option on NetFlix that expires in six months D. Short NetFlix stock

Which of the following statements related to a "Demand Shock" is TRUE?

. Demand Shocks are events that affect the demand for goods and services in economy

Which of the following are the determinants of an option's value?

. Dividends C. Time to expiration D. Interest rates

Which of the following is NOT a Major US stock index?

. Nikkei 225

Stock prices follow a sub-martingale process. It means ...

. Random changes are superimposed on the positive price trend C. Expected stock price at time t > Expected stock price at time t-1 D. Expected price change is positive over time

The value of a put option GOES UP if the following parameters change:

. Time to expiration increases D. Stock volatility increases E. Stock price increases (.66/1)

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the expected annual portfolio return?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0047 and 0.0057

0.0052( excel portfolio expected return and sd)

One year ago, Carson Industries issued a 10-year, $1,000 PAR coupon bond at its PAR value.This Bond's annual coupon rate is 13%. Coupons are paid 2 times in a year. The Bond is currently trading at $900.However, this bond can be called in 6 years from today at a price of $1065 What is the capital gains yield on this Bond for the coming year?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0057 and 0.0068

0.0062 N=(10-1)*2 =18 PV= -900 PMT =1000*13%/2 =65 FV= 1000 I/Y = (7.5327) 7.5327 *2 = 15.0653% (1000*13%)/ 900 = 14.4444% (15.0653-14.4444)/100 =

An investor is trying to create a MINVAR (minimum variance) portfolio based on two stocks, X and Y. The annual return on stock X is 8.00%, and on stock Y is -3.00%.The standard deviation of annual return on stock X is 13.00%, and on stock Y is 10.00%.The correlation coefficient between the returns on X and Y is -0.65. How much is the annual return of the MINVAR portfolio?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0149 and 0.0181

0.0163(excel MINVAR of weight, sd, and er)

Suppose the US government just issued a $1,000 PAR value coupon bond today. This bond will mature in 9 years from today.This Bond's annual coupon rate is 3%. Coupons are paid 2 time(s) in a year. The Bond is currently trading at $1038.32. What is the Yield to Maturity (YTM) of this Bond? In other words, what is the return on investment for the bond investor?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0224 and 0.0272

0.0252 FV:1000 PV=-1038.32 PMT =3% *1000/2 =15 N=9*2 =18 I/Y = (1.2607)* 2 = 2.5214/100 =0.0252

An investor is trying to create a MINVAR (minimum variance) portfolio based on two stocks, X and Y. The annual return on stock X is 8.00%, and on stock Y is -3.00%.The standard deviation of annual return on stock X is 13.00%, and on stock Y is 10.00%.The correlation coefficient between the returns on X and Y is -0.65. How much is the annual standard deviation of the MINVAR portfolio?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0434 and 0.0524

0.0472(excel MINVAR of weight, sd, and er)

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the expected annual return on Bonds?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0497 and 0.0599

0.0540 (excel expected annual return of bonds and stocks)

Suppose a zero coupon bond with a $100 face value due in 3 years from today is trading today for $83. How much is the YTM (yield to maturity) of this Zero-coupon bond?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0577 and 0.0692

0.0641 (Zero-coupon Bonds & Yield Curve" in Module 5)

You opened your credit card statement and observed that APR quoted is 7% per year What is the Effective Annual Rate (EAR), if interest is computed daily? Enter your answer in the following format: 0.1234Hint: Answer is between 0.0645 and 0.0798 Selected Answer:0.0725

0.0725 (1+ (0.07/365)^365 - 1 = daiLY answer: 0.0725

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the annual standard deviation of Bond returns?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0836 and 0.0982

0.0909(excel standard deviation of bonds and stocks)

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the annual standard deviation of the portfolio returns?Enter your answer in the following format: 0.1234Hint: Answer is between 0.1416 and 0.1693

0.1540( excel portfolio expected return and sd)

One year ago, Carson Industries issued a 10-year, $1,000 PAR coupon bond at its PAR value.This Bond's annual coupon rate is 13%. Coupons are paid 2 times in a year. The Bond is currently trading at $900.However, this bond can be called in 6 years from today at a price of $1065 What is the YTC (Yield to Call) of this Bond? In other words, what is the Bond investor's return if the Bond is called?Enter your answer in the following format: 0.1234Hint: Answer is between 0.1505 and 0.1816

0.1636 N= 6*2 = 12 PV= -900 PMT =1000*13%/2 =65 FV =1,065 I/Y= ?(8.1781) 8.1781 *2 =

Assets of a firm include Apple Shares of $110,000 and Computers worth $30,000.Those assets are financed with a Bank Loan of $50,000 and Shareholder's Equity of $90,000. How much is the ratio of Real to Total Assets? Enter your answer in the following format: 0.12 Hint: Answer is between 0.19 and 0.24

0.21

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the annual standard deviation of Stock returns?Enter your answer in the following format: 0.1234Hint: Answer is between 0.1938 and 0.2373

0.2177(excel standard deviation of bonds and stocks)

This example is part of "Hedged Portfolios" to minimize risk.Assume you have $9000 to invest; A stock is trading at $90.00.A call option that expires in one year with a strike price of $90.00 is trading at $10.00. What is your portfolio's 1-year return if you invest in "Only Stocks" and the the stock price after one year is $115.00?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.2505 and 0.3028

0.2778 (excel)

Assume that an economy can have four states: Severe recession, Mild recession, Normal growth, Boom.Probability of each scenario, stock and bond annual returns in that scenario are provided below.Let's also assume that you are creating a portfolio with 65% stocks and 35% bonds. Economy StateProbabilityStock Return (%)Bond Return (%)Severe recession 0.20-37-9Mild recession 0.30-1115Normal growth 0.40148Boom 0.1030-5 How much is the correlaton between Stock and Bond annual returns?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.2678 and 0.3207

0.2943( excel correlation based on sd of bonds and stocks)

Assets of a firm include Cash of $65,000 and Computers worth $30,000.Those assets are financed with a Bank Loan of $50,000 and Shareholder's Equity of $45,000. How much is the ratio of Real to Total Assets? Enter your answer in the following format: 0.12 Hint: Answer is between 0.27 and 0.35

0.32

An investor is trying to create a MINVAR (minimum variance) portfolio based on two stocks, X and Y. The annual return on stock X is 8.00%, and on stock Y is -3.00%.The standard deviation of annual return on stock X is 13.00%, and on stock Y is 10.00%.The correlation coefficient between the returns on X and Y is -0.65. In a MINVAR portfolio, How much is the weight of stock X?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.3749 and 0.4591

0.4212(excel MINVAR of weight, sd, and er)

Use Two-State Binomial Option (European) Pricing Model. Suppose you bought a stock today for $20.00.The stock price can either go up to $24.00 or down to $17.00 with equal probability in 0.25 years (or 90 days).Suppose the annual risk-free rate is 4.00% and the option exercize price is 21.00. How much is the Hedge Ratio?Enter your answer in the following format: 0.1234Hint: Answer is between 0.3857 and 0.4757

0.4286 (excel)

This example is part of "Hedged Portfolios" to minimize risk.Assume you have $9000 to invest; A stock is trading at $90.00.A call option that expires in one year with a strike price of $90.00 is trading at $10.00.T-Bills are yielding a 1-year return of 2%.Suppose you invested $3000 in Options and the remaining $6000 in T-Bills. What is your portfolio's 1-year return if you invest in "Options and T-Bills" and the the stock price after one year is $115.00?Hint: Answer is between 0.4569 and 0.5647

0.5133 (excel)

An investor is trying to create a MINVAR (minimum variance) portfolio based on two stocks, X and Y. The annual return on stock X is 8.00%, and on stock Y is -3.00%.The standard deviation of annual return on stock X is 13.00%, and on stock Y is 10.00%.The correlation coefficient between the returns on X and Y is -0.65. In a MINVAR portfolio, How much is the weight of stock Y?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.5093 and 0.6309

0.5788 (excel MINVAR of weight, sd, and er)

Suppose the S&P 500 stock index is currently trading at $1,900.If the 1-year T-Bill rate is 1.00% and the expected dividend yield on the index is 2.00%, What should be the index futures price with 1-year maturity?Enter your answer in the following format: 1,234.56Hint: Answer is between 1,692.90 and 2,106.72

1,900*(1+(1%-2%)) = 1,880.62 ANSWER = 1,881.00

Suppose the S&P 500 stock index is currently trading at $1,900.If the 1-year T-Bill rate is 3.00% and the expected dividend yield on the index is 2.00%, What should be the index futures price with 1-year maturity?Enter your answer in the following format: 1,234.56Hint: Answer is between 1,727.10 and 2,091.71

1,900*(1+(3%-2%)) = 1,919.00 ANSWER = 1,919.00

Match GDP growth rate of the following three countries from the highest (1) to lowest (3) a.Highest b.Medium c.Lowest 1. USA 2. Japan 3. China

1-b, 2-c, 3-a

Use Black-Scholes Option (European) Pricing Model. Suppose a stock is trading today for $27.00.Stock annual volatility is 32.00%, has a dividend yield of 0.00%.Suppose the annual risk-free rate is 3.00% and the option exercize price is $25.00. Option expires in 0.50 years (or 180 days). What is the value of a Put option? Enter your answer in the following format: 1.23 Hint 1: Answer is between 1.22 and 1.45; Hint 2: N(d1) =0.6983.

1.33(excel)

Use Two-State Binomial Option (European) Pricing Model. Suppose you bought a stock today for $20.00.The stock price can either go up to $24.00 or down to $17.00 with equal probability in 0.25 years (or 90 days).Suppose the annual risk-free rate is 4.00% and the option exercize price is 21.00. How much should be the Call option Value that expires in 0.25 years (or 90 days)?Enter your answer in the following format: 1.23Hint: Answer is between 1.19 and 1.49

1.36 (excel)

This example is part of "Hedged Portfolios" to minimize risk.Assume you have $9000 to invest; A stock is trading at $90.00.A call option that expires in one year with a strike price of $90.00 is trading at $10.00. What is your portfolio's 1-year return if you invest in "Only Options" and the the stock price after one year is $115.00?Enter your answer in the following format: + or - 0.1234 Hint1: Answer is between 1.38 and 1.665 Hint2: +100% is same as 1, +50% is same as 0.5, -50% is same as -0.5, and -90% is same as -0.9

1.50 (excel)

Between 1950 and 2020 (i.e., in 70 years), how many recessions has the U.S. experienced?

10 to 15

You are trying to create a stock index using three stocks. To recap, DJIA is a price-weighted index and S&P500 is a value-weighted index.Each stock's data at t=0 (begin of day) and t=1 (end of day) is provided below.Notice that Stock B is split 2 for 1. So, its price went down from $50 to $25, while the quantity went up from 80 to 160. StockPrice (t=0)Quantity (t=0)Price (t=1)Quantity (t=1)A $1040 $1540B $5080 $25160C $14050 $13050 If the Equal-Weighted (EW) Index Value at t=0 is 100, what is the EW value at t=1? Enter your answer in the following format: 123.45Hint: Answer is between 104 and 128

100/10 =10 100/50 =2, 100/25 = 4 140/50=.714 ((15*10)+(25*4)+(130*.714))/((10*10)+(50*2)+(140*.714) ) *100 = 114 incorrect

Suppose a company is paying $5.50 preferred dividend to its investors.Those who Invest in this preferred stock are expecting a return of 5.20% on their investment. How much is the Value of this Preferred Stock? Enter your answer in the following format: 123.45Hint: Answer is between 96.25 and 115.29

105.77(Refer to "Preferred Stock" in Module 4)

The following data is provided on two stocks, IBM and WMT, the market risk premium, and the risk-free rate. StockActual Stock ReturnMarket Risk PremiumRisk-free RateStock BetaIBM5.0%6.0%2.0%0.9WMT11.0%6.0%2.0%1.3 What is the abnormal return (i.e., alpha) for stock WMT? Enter your answer in the following format: 0.1234 Hint: Answer is between 0.0106 and 0.0130

11.0% - 0.0980 (2.0%+1.3*6.0%) = 0.0120 answer:0.0120

Consider a single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The one-year T-bill rate is 4.00%.If the Brandex stock price dropped from $115.00 by 4.00%, How much is the profit (or loss) for the Futures investor?Enter your answer in the following format: + or - 1234.56Hint: Answer is between -4,209.92 and -5,262.40

115*(1+4%[T-BILL])= 119.60 119.60*(1+4%[Price Drop])= 124.384 (124.384-119.60)*1000 = -4,784 answer: -4,784

Consider a single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The one-year T-bill rate is 4.00%.If the margin on the contract is $11,000 and the Brandex stock price dropped from $115.00 by 4.00%, How much is the percentage return for the Futures investor?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.3827 and -0.4871

115*(1+4%[T-BILL])= 119.60 119.60*(1+4%[Price Drop])= 124.384 (124.384-119.60)*1000 = -4,784 -4784/11,000 = -0.4349 ANSWER: -0.4349

Consider a single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The one-year T-bill rate is 4.00%.If Brandex stock now sells for $115.00, What should be the Brandex 1-year stock futures price?Enter your answer in the following format: 123.45Hint: Answer is between 107.64 and 130.36

115*(1+4%[t-Bill])= 119.60 ANSWER: 119.60

Consider a single stock futures contract on the stock of Brandex, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in one year. The one-year T-bill rate is 4.00%.If the Brandex stock price dropped from $115.00 by 4.00%, What will be the new futures price?Enter your answer in the following format: 123.45Hint: Answer is between 102.19 and 128.59

115*(1-4%[Price Drop])= 110.4 119.60*(1+4%[t-bill])= 114.816 ANSWER: 114.816

Jackson bought a 10-year, $1,000 PAR coupon bond today. Annual coupon rate is 13%. Coupons are paid 1 times in a year.When he purchased, Jackson was hoping for a YTM of 10% on this Bond. Assume that Jackson's return expectations did not change and 2 years have passed. How much should be the current value of the Bond that Jackson bought?Enter your answer in the following format: 1234.56Hint: Answer is between 1044.04 and 1264.45

1160.05 FV= 1000 PMT= 1000*13% =130 N=10-2 = 8 I/Y= 10 PV = ?

Suppose WMT (Walmart Inc.) Stock and Options information today is provided below.A Call option that expires in one year at an expiration price of $150 is trading at $8.45.A Put option that expires in one year at the same exercize price is trading at $18.00.One year risk-free interest rate is 0.87%. What should be the implied Stock price today, based on the Put-Call Parity?Enter your answer in the following format: 123.45Hint: Answer is between 126.63 and 153.07

139.16 (excel)

The latest financial information for The Procter & Gamble Company is provided below. The Procter & Gamble Company $ 5.47<- EPS (TTM), Earnings per share $ 140.82<- Latest Share price 2,420<- Shares Outstanding (in millions) $ 7.53<- Price to Book Ratio How much is the market capitalization of this company in BILLIONS of USD? Enter your answer in the following format as an integer: 123Hint: Answer is between 300 and 368

140.82(SHARE PRICE)*2,420(OUTSTANDING SHARES)= 340784.4/1000 = 341

The latest financial information for The Procter & Gamble Company is provided below. The Procter & Gamble Company $ 5.47<- EPS (TTM), Earnings per share $ 140.82<- Latest Share price 2,420<- Shares Outstanding (in millions) $ 7.53<- Price to Book Ratio How much is the Book Value Per Share of this company? Enter your answer in the following format: 12.34Hint: Answer is between 17.02 and 20.95

140.82(SHARE PRICE)/7.53(PRICE TO BOOK RATIO) = 18.66

The question below is based on the Khan Academy's video on "What it means to buy a company stock" from Module 2. The following data is gathered for 'The Procter & Gamble Company '. Follow the same steps shown in the video. The Procter & Gamble Company 151,383Total Assets (in $ billions) 70,845Total Current Liabilities (in $ billions) 35,650Long term debt (less current maturities) (in $ billions) 2,400Total number of Shares Outstanding (in millions) How much is this company's stock value? Enter your answer in the following format: 12.34Hint: Answer is between 16.83 and 21.32

151,383 - (70,845+35,650) = 44,888 44,888/2,400 = 18.70

Suppose WMT (Walmart Inc.) Stock and Options information today is provided below.Stock price is trading today at $139.16.A Call option that expires in one year at an exercize price of $150 is trading at $8.45.One year risk-free interest rate is 0.87%. What is the value of one-year Put today at the same exercize price as the Call, based on the Put-Call Parity?Enter your answer in the following format: 12.34Hint: Answer is between 16.38 and 20.16

18.00(excel)

Use Black-Scholes Option (European) Pricing Model. Suppose a stock is trading today for $142.07.Stock annual volatility is 23.50%, stock dividend yield is 1.54%.Suppose the annual risk-free rate is 1.22% and the option exercize price is $150.00. Option expires in 1.00 years (or 360 days). What is the value of a Put option? Enter your answer in the following format: 1.23 Hint 1: Answer is between 16.39 and 19.45; Hint 2: N(d1) =0.4494.

18.01(excel)

Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today.The annual coupon rate of this bond is 7.5% and the coupons will be paid 4 times a year. What will be the coupon payment each time it is paid?Enter your answer in the following format: 12.34Hint: Answer is between 16.50 and 20.25

18.75 =(7.5% *1000)/ 4

Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today. The annual coupon rate of this bond is 7.5% and the coupons will be paid 4 times a year. What will be the coupon payment each time it is paid? Enter your answer in the following format: 12.34 Hint: Answer is between 17.25 and 19.88

18.75=(7.5% *1000)/ 4

The latest data from the New York Stock Exchange (NYSE) is provided below. Number of stocks advanced (in millions) 1,984Number of stocks declined (in millions) 1,283Volumne of stocks advancing (in millions) 1,870Volumne of stocks declining (in millions) 946 How much is the TRIN ratio based on the data provided?Enter your answer in the following format: 0.1234Hint: Answer is between 0.6959 and 0.8523

1984/1283 = 1.5464 1870/946 = 1.9767 1.5464/1.9767 = 0.7823 answer: 0.7823

The following data is provided on two stocks, IBM and WMT, the market risk premium, and the risk-free rate. StockActual Stock ReturnMarket Risk PremiumRisk-free RateStock BetaIBM5.0%6.0%2.0%0.9WMT11.0%6.0%2.0%1.3 What is the expected return for stock IBM? Enter your answer in the following format: + or - 0.1234 Hint: Answer is between 0.0651 and 0.0829

2.0%+0.9*6.0% = 0.0740 answer: 0.0740

The following data is provided on two stocks, IBM and WMT, the market risk premium, and the risk-free rate. StockActual Stock ReturnMarket Risk PremiumRisk-free RateStock BetaIBM5.0%6.0%2.0%0.9WMT11.0%6.0%2.0%1.3 What is the expected return for stock WMT? Enter your answer in the following format: + or - 0.1234 Hint: Answer is between 0.0892 and 0.1088

2.0%+1.3*6.0% = 0.0980 answer: 0.0980

Approximately how many securities does it take to diversify almost all of the unique risk from a portfolio?

20

Stock valuation using the multiple (comps) method: Below, P/E ratio for The Procter & Gamble Company and four similar firms (comps) are provided.The annual earnings per share (EPS) of The Procter & Gamble Company is $7.53.Currently, the stock of The Procter & Gamble Company is trading in the market at $140.82. Stock Value: Four Comps Method 25.77 <-- P/E of The Procter & Gamble Company 19.96<-- 1) P/E of Target Corporation 46.08<-- 2) P/E of Amazon.com, Inc. 9.35<-- 3) P/E of Macy's, Inc. 39.84<-- 4) P/E of Costco Wholesale Corporation $ 7.53<-- EPS of The Procter & Gamble Company How much is the stock value of this company using the "Comps" method? Enter your answer in the following format: 12.34Hint: Answer is between 197.4 and 242.95

216.92(Refer to "Stock Valuation: Multiple method (Comps)" in Module 4)

The latest financial information for The Procter & Gamble Company is provided below. The Procter & Gamble Company $ 5.47<- EPS (TTM), Earnings per share $ 140.82<- Latest Share price 2,420<- Shares Outstanding (in millions) $ 7.53<- Price to Book Ratio How much is the P/E ratio of this company for the trailing twelve months? Enter your answer in the following format: 12.34Hint: Answer is between 23.43 and 28.32

25.67 (Refer to "Common Stock Basics (Apple Example using Yahoo Finance)" in Module 4)

Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 3 years from today.This Bond's annual coupon rate is 10%. Coupons are paid 1 time(s) in a year. The investors expect 4% annual return on this bond. What is the present value of all coupon payments for this Bond?Enter your answer in the following format: 123.45Hint: Answer is between 249.76 and 305.26

277.51 (Basic Bond Valuation Equation" in Module 5)

Suppose IGM paid a one-time special dividend of $3.50 on December 21, 2020.Assume that you bought the IGM stock for $29.35 on October 18, 2020, and sold it immediately after the dividend was paid for $31.43. How much was the dividend yield from holding this stock?Enter your answer in the following format: 0.1234Hint: Answer is between 0.1097 and 0.1288

3.50/29.35 = 0.1193 answer: 0.1193

Use Black-Scholes Option (European) Pricing Model. Suppose a stock is trading today for $27.00.Stock annual volatility is 32.00%, has a dividend yield of 0.00%.Suppose the annual risk-free rate is 3.00% and the option exercize price is $25.00. Option expires in 0.50 years (or 180 days). What is the value of this Call option? Enter your answer in the following format: 1.23 Hint 1: Answer is between 3.26 and 4.05; Hint 2: N(d1) =0.6983.

3.70(excel)

Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today. The annual coupon rate of this bond is 8% and the coupons will be paid 2 times a year. What will be the coupon payment each time it is paid? Enter your answer in the following format: 12.34 Hint: Answer is between 35.2 and 46

40=(8% *1000)/ 2

The following data is provided on two stocks, IBM and WMT, the market risk premium, and the risk-free rate. StockActual Stock ReturnMarket Risk PremiumRisk-free RateStock BetaIBM5.0%6.0%2.0%0.9WMT11.0%6.0%2.0%1.3 What is the abnormal return (i.e., alpha) for stock IBM? Enter your answer in the following format: 0.1234 Hint: Answer is between -0.0214 and -0.0264

5.0%-0.0740(2.0%+0.9*6.0%) = -0.0240 answer: -0.0240

Use Two-State Binomial Option (European) Pricing Model. Suppose you bought a stock today for $27.00.Stock price can either go up by a factor of 1.41 or down by a factor of 0.71 with equal probability in 0.50 years (or 180 days).Suppose the annual risk-free rate is 6.00% and the option exercize price is 24.00. How much should be the Call Option Value that expires in 0.50 years (or 180 days)?Enter your answer in the following format: 1.23Hint: Answer is between 5.74 and 6.93

6.25 (excel)

Suppose you bought a Call option for $3.00 on company ABCD stock with an exercize price of $60.At the time of expiration, ABCD stock is trading for $65. How much is the Call Option Payoff at the time of expiration?Enter your answer in the following format: 1.23Hint: Answer is between 1.82 and 2.2

60+3 =63 65-63 =$2 $2

Suppose you bought a Put option for $2.00 on company ABCD stock with an exercize price of $60.At the time of expiration, ABCD stock is trading for $47.00. How much is the Put Option Payoff at the time of expiration?Enter your answer in the following format: 12.34Hint: Answer is between 9.79 and 11.88

60-2 =58 58-47 = $11 $11

Jackson bought a 10-year, $1,000 PAR coupon bond today. Annual coupon rate is 10%. Coupons are paid 1 times in a year.Jackson was hoping for a YTM of 10% on this Bond. Few hours after purchasing this bond, a very bad economic event occurred and all interest rates (and returns) went down by 1%. How much is Jackson's profit today? Enter your answer in the following format: 12.34Hint: Compute the Bond PV before and after interest rate change, and take the difference. Answer is between 58.4 and 69.31

64.18 N= 10 FV= 1,000 PMT =1000*10% I/Y = 10 PV =? (1000) N= 10 FV= 1,000 PMT =1000*10% I/Y = 9 PV =? (1064.1766) 1064.1766-1000

Suppose WMT (Walmart Inc.) Stock and Options information today is provided below.Stock price is trading today at $139.16.A Put option that expires in one year at an exercize price of $150 is trading at $18.00.One year risk-free interest rate is 0.87%. What is the value of one-year Call today at the same exercize price as the Put, based on the Put-Call Parity?Enter your answer in the following format: 12.34Hint: Answer is between 7.6 and 9.21

8.45(excel)

Stock valuation using the 2-stage dividend discount method: Relevant data for Walmart Inc. is provided below.Currently, the Walmart Inc. stock is trading in the market at $146.81. Walmart Inc. Expected Annual DividendsYear $ 2.232022 $ 2.282023 $ 2.322024 $ 2.362025 1.93%Stage1 dividend growth (g1)2.00%Stage2 dividend growth (g2) 0.500Stock Beta (β)1.655%Risk-free Rate (Rf)6.00%Market Risk Premium (MRP) $ 146.81Current Stock Price How much is the value of this company's stock using the 2-stage dividend discount method? Enter your answer in the following format:12.34Hint1: Refer to the video 'Stock Valuation: Dividend discount model' and the Excel template. Answer is between 73.85 and 94Hint2: Compute R, CF1, CF2, CF3, and CF4 as shown in the video and then compute NPV; R=4.655%; CF4=$93.20Note: There is no need to change any underlying Excel formulas.

83.93 ("Stock Valuation: Dividend discount model" in Module 4)

Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 3 years from today.This Bond's annual coupon rate is 10%. Coupons are paid 1 time(s) in a year. The investors expect 4% annual return on this bond. What is the present value of the Bond's PAR (also known as the face value or principal) for this Bond?Enter your answer in the following format: 123.45Hint: Answer is between 817.88 and 995.68

889.0 (100/(1.04^1))+(100/(1.04^2))+(1000+100/(1.04^3)) = 1000 *10% = 100

Use Black-Scholes Option (European) Pricing Model. Suppose a stock is trading today for $142.07.Stock annual volatility is 23.50%, stock dividend yield is 1.54%.Suppose the annual risk-free rate is 1.22% and the option exercize price is $150.00. Option expires in 1.00 years (or 360 days). What is the value of this Call option? Enter your answer in the following format: 1.23 Hint 1: Answer is between 8.95 and 10.7; Hint 2: N(d1) =0.4494.

9.73(excel)

Suppose IGM paid a one-time special dividend of $3.50 on December 21, 2020.Assume that you bought the IGM stock for $29.35 on October 18, 2020, and sold it immediately after the dividend was paid for $31.43. How much was the Capital Gain yield from holding this stock?Enter your answer in the following format: 0.1234Hint: Answer is between 0.0645 and 0.0765

=(31.43-29.35)/29.35 = 0.0709 answer: 0.0709

Suppose you have four stccks in your portfolio. The stock weights and their previous year returns are shown below. StockWeightRate of ReturnIBM50%8.30%Starbucks25%12.50%Walmart25%4.70%Ford0%-13.50% How much is your portfolio's rate of return in the previous year?Enter your answer in the following format: 0.1234Hint1: Portfolio return is the weighted return, i.e., w1*r1 + w2*r2 + w3*r3 + w4*r4Hint2: Answer is between 0.0744 and 0.0946

=[(50%)(8.30%)+(25%)(12.50%)+(25%)(4.70%)+(0%)(-13.50%)]/10,000 = 0.0845 answer: 0.0845

Which of the following statements regarding the "Put-Call Parity" is FALSE?

A Fiduciary Call has less value compared to a Protective Put at expiration

Which of the following statements regarding the "Stradle" options is FALSE?

A long straddle is a call and a put, with different strike prices

Which of the following statements regarding the "Options Payoff" is FALSE? St represents Stock Price X represents Option Exercize Price

A put is "out of the money" if St < X

Refer to the below chart that shows the price and Fibonacci sequences for "GOOG" stock from May to April Between November and January, what is this chart suggesting?

A resistance level is getting tested

Refer to the below chart that shows the price and Fibonacci sequences for "GOOG" stock from May to April In October, what is this chart suggesting?

A support level is getting tested

Which of the following are TRUE regarding "Stocks vs. Bonds"?

A. A company can raise capital by either borrowing money (bonds) or by selling shares (equity) B. Bond is a debt, Stock is an equity

Which of the following are FALSE statements pertaining to "Yield Curve"?

A. A normal yield curve is upward-sloping B. A Yield Curve has maturity (years) on the x-axis and yield to maturity (YTM shown in percentages) on the y-axis C. The inverted yield curve is a sign of a booming economy D. A normal yield curve has lower yields for longer-term maturity and higher yields for shorter-term maturities

The following statement related to "Semi-Strong form Efficient Market Hypothesis" is TRUE?

A. All public information is incorporated in the market prices

Which of the following are the "Key Reasons why Bond prices change"?

A. Bond prices converge to PAR with passage of time B. Bond prices and yields move in the opposite direction C. Interest rate changes impact longer maturity bond prices more (compared to shorter maturity bonds) E. Interest rate changes impact low coupon bond prices more (compared to high coupon bonds)

The value of a call option GOES UP if the following parameters INCREASE:

A. Dividends B. Stock volatility F. Stock price (.5/1)

Which of the following are TRUE investment recommendations of "Warren Buffett"?

A. Don't sell a stock (unless the business fundamentally changes) B. When you see a great opportunity in your circle of competance, grab it C. Always buy a stock at a price below the intrinsic value

Which of the following statements related to the "Efficient Market Hypothesis (EMH)" are TRUE?

A. EMH suggests that trading rules will not work C. EMH suggests rapid assimilation of information into prices D. EMH suggests that professional managers will not beat the markets

Which of the following statements related to the "Efficient Market Hypothesis (EMH)" are FALSE?

A. EMH suggests that trading rules will work C. EMH suggests that professional managers will beat the markets (0.375/0.75) (incorrect)

Which of the following statements related to the "Efficient Market Hypothesis" are TRUE?

A. Efficient market believers use passive management D. Efficient market believers do not attempt find undervalued securities

Which of the following statements related to "Fundamental Analysis" in investing are TRUE?

A. Fundamental Analysis relies on valuation methods D. Fundamental Analysis relies on underlying asset cashflows

Which of the following statements on "Fundamental Analysts" are FALSE?

A. Fundamental Analysts use only past price information (and ignore volume) to predict future prices B. Fundamental Analysts use past price and volume information to predict future prices

Which of the following statements about Futures contracts is TRUE?

A. Futures are a zero sum game: it means the profits of long and short positions add up to zero B. Futures payoff is asymmetric (similar to options) C. Futures payoff is symmetric (similar to stocks)

Which of the following are TRUE regarding "Stock Valuation"?

A. If Stock Value < Stock Price, stock is overvalued, SELL. C. If Stock Value > Stock Price, stock is undervalued, BUY. D. Stock price (market price) depends on the supply and demand of stock, investor sentiment, and other market factors. E. Stock value (intrinsic value) depends on the underlying business cash flows and the cost of capital

Which of the following are TRUE investment recommendations of "Warren Buffett"?

A. Look for three things while hiring employees: Intelligence, Energy, and Integrity B. Buy wonderful businesses at fair price than a fair business at high price C. Invest by Facts (numbers), not emotions E. Only buy stocks in businesses that you understand (or stay in circle of competance)

Which of the following technical indicators are popular among some traders?

A. MACD B. Bollinger Bands D. RSI

Which of the following statements related to "Overconfidence" in investing are TRUE?

A. Overconfidence is the #1 sin in investing C. Overconfident investors overestimate precision of their forecasts, and overestimate their abilities

Which of the following are part of the "Bond Terminology"?

A. PAR (or face value or Principal) B. Maturity Date E. Coupon

Which of the following statements related to the "Efficient Market Hypothesis" are TRUE?

A. Securities should be neither over-priced nor under-priced on average B. Security prices should reflect all information available to investors

Which of the following are the main reasons for investors using Futures contracts?

A. Speculation B. Hedging

Which of the following are TRUE regarding "$100 invested in 1928"?

A. Stocks are risky (they go up and down a lot) compared to Bonds C. Bonds produce smaller returns but those returns are more stable (they do not go up and down a lot) compared to Stocks

Which of the following are types of Derivatives?

A. Swaps C. Options E. Futures

Which of the following statements related to "Technical Analysis" in investing are FALSE?

A. Technical Analysis relies on underlying asset cashflows B. Technical Analysis relies on valuation methods

Which of the following statements on "Technical Analysts" are TRUE?

A. Technical Analysts use both price and volume information to predict future prices D. Technical Analysts use a wide range of indicators such as support level, resistance level, etc.

Which of the following statements related to the "Efficient Frontier" are FALSE?

A. The efficient frontier represents a set of portfolios that minimize the expected return for a given level of risk B. The efficient frontier represents a set of portfolios that maximize the risk for a given expected return

Which of the following statements related to "Prospect Theory" in investing are TRUE?

A. The value function that passes through the reference point is s-shaped and asymmetrical B. The value function is steeper for losses than gains c.Investors value losses more than gains

A futures symbol, NGK22, means the following:

A. Third letter, K or May, for the month of expiration B. First two letters, NG or Natural Gas, for the contract type D. Last two digits, 22, for the year of expiration

Which of the following are the "big-three" issuers of Bonds?

A. US Treasuries D. Corporations E. Mortgages (Mortgage Backed Securities)

The following statement related to "Weak form Efficient Market Hypothesis" is TRUE?

All historical information is incorporated in the market prices

Which of the following statements regarding the "American" vs. "European" options is FALSE?

American option can only be exercised at the time of expiration

Which of the following concepts are NOT part of the "Modern Portfolio Theory"?

Analyst ratings

Which of the following statements about "Convergence Property" is TRUE in the Futures market?

At maturity, spot and futures prices converge

Which of the following are TRUE statements pertaining to "Yield to Maturity" and "Yield to Call"?

B. A callable bond can be bought back by the bond issuer before the maturity period C. An investor of a non-callable bond gets YTM (yield to maturity) as the return D. An investor of a callable bond sometimes gets YTC (yield to call) as the return

According to "Warren Buffett", why Stock valuation is difficult compared to Bond valuation?

B. Bond cash flows and dates are known in advance; Stock cash flows and dates are not known in advance. D. There are many bonds (2 million) to choose from compared to stocks (8,000)

Which of the following are part of the "Bond Definition"?

B. Borrower agrees to pay on specific and predetermined dates C. Long-term debt D. Borrower may pay interest in the form of Coupon E. Borrower agrees to pay back principal

"Total Stock Return" contains two components. What are they?

B. Capital Gain Yield D. Dividend Yield

Which of the following statements related to the "Efficient Market Hypothesis" are TRUE?

B. Efficient market believers do not time the market D. Efficient market believers hold a diversified portfolio

Which of the following technical indicators are popular among some traders?

B. Fibonacci sequences C. Bollinger Bands

Which of the following statements related to the "Randomness of Stock Prices" are FALSE?

B. Stock news can be predicted.However, stock prices change can not be predicted. C. Both (stock news and stock price changes) can not be predicted.

Which of the following statements related to "Technical Analysis" in investing are TRUE?

B. Technical Analysis relies on Fibonacci sequences C. Technical Analysis relies on Relative Strength Index A.Technical Analysis relies on price and sometimes on volume charts

Which of the following statements on "Technical Analysts" are TRUE?

B. Technical Analysts assume that prices can be predicted C. Technical Analysts use a wide range of indicators such as support level, resistance level, etc.

Which of the following are TRUE statements pertaining to "Treasury Securities"?

B. Treasury notes have maturities of 1-10 years (i.e., 2, 3, 5, and 10 years) C. Treasury bonds have maturities of more than 10 years (i.e., 20 and 30 years) E. Treasury bills have maturities of less than a year (i.e., 4, 13, and 26 weeks)

The following statement related to "Strong form Efficient Market Hypothesis" is TRUE?

B. All information (public and private) is incorporated in the market prices

Which of the following is a "valuation method" to compute an option price?

Black-Scholes

Which of the following is a "valuation method" to compute a bond price?

Bond valuation equation

Which of the following statement related to "Financial Derivatives" is FALSE?

Both Forward and Futures contracts are traded on an exhange.

The latest data from the New York Stock Exchange (NYSE) is provided below. Number of stocks advanced (in millions) 1,984Number of stocks declined (in millions) 1,283Volumne of stocks advancing (in millions) 1,870Volumne of stocks declining (in millions) 946 Based on the TRIN ratio, what is the stock market state?

Bullish

Which of the following are TRUE regarding "$100 invested in 1928"?

C. $100 invested in stocks in 1928 (before the great depressoin) is worth approximately $500,000 in 2021 D. $100 invested in bonds in 1928 (before the great depressoin) is worth approximately $10,000 in 2021 E. Between 1928 and 2021, the correlation between annual returns of stocks and bonds is slightly negative (close to 0)

Which of the following are TRUE regarding "Common Stocks"?

C. If a company's stock is traded at a discount compared to its book value, it means investors do not think the company's future is good. D. Buyer of a Stock becomes a part owner of the company

The value of a call option GOES DOWN if the following parameters INCREASE:

C. Interest rates E. Time to expiration F. Exercise price (0.5/1)

Which of the following are FALSE regarding "Stock Value and Price"?

C. Market price of a stock is not observable in the markets. It has to computed. D. Market price of an asset is always the same as the intrinsic value of an asset

The following statement related to "Systematic Risk" is FALSE

Diversification reduces Systematic Risk

What is the investment objective of a typical "bank"?

Earn a return on invested funds that exceeds the cost of acquiring those funds

Which of the following statements about "Investment Theory" is FALSE?

Earnings cannot be predicted easily. Consumption on the other hand can be predicted easily.

Lets assume the economy just came out of a recession and it is entering an expansion state. Rank the sectors to invest from the Best (1) to Worst (5). a.1 b.2 c.3 d.4 e.5 1.Utilies 2.Material 3.Technology 4.Energy 5.Consumer Staples

Energy, Technology, Materials,Consumer Staples, Utilites

Match the following Futures contracts with their type

Equity Indexes=NASDAQ 100 Interest Rate=LIBOR Metals=Gold Energy=Crude Oil Agricultural=Coffee Foreign Currencies=British Pound

Which of the following statements related to a "Fiscal Policy" is TRUE?

Fiscal Policy deals with the use of government spending and taxing to stabilize the economy

Which of the following is NOT a "valuation method" to compute a stock price?

Free cashflow until merger (FCFM)

Which of the following statements about "Preferred Stock" is FALSE?

From an investor perspective, preferred stock is more risky than a common stock

Which of the following statements about "Futures Valuation" is FALSE?

Futures Value = Spot price + Cost of carry

Refer to the below chart that shows the price and 50-day moving average (between Jan 1st and Apr 30th) for "GOOG" stock. What was the trading signal generated around 17th January?

Hold

Refer to the below chart that shows the price and Bollinger Bands (mean, +/- 2 x standard deviation) for "GOOG" stock from January to May What was the trading signal generated around 31st January?

Hold

Which of the following statement related to "Shorting (Long versus Short Positions)" is FALSE?

In a short position, loss is limited and profit is unlimited to the buyer

Match the "Investor Type" to "Investment Horizon".

Individuals and personal trusts- Life cycle Mutual Funds -Short (Investments) Pension Funds-Long (Retirement) Life Insurance Companies-Long (Insurance) Banks -Short (Deposits)

When it comes to investments, how individuals differ from institutions?

Individuals have limited life, institutions have unlimited life

Which of the following statements related to the "US inflation rate and interest rates" are TRUE?

Inflation rate and interest rates move in tandem (together)

Which is the LARGEST sector in the S&P500 index by Market Cap?

Information Technology

Which of the below statements on "Intermediaries" is FALSE?

Intermediaries connect borrowers and savers

Which of the following statement related to "Intrinsic Value" of an asset is TRUE?

Intrinsic value is hard to know

Which of the following statement related to the "Investments" is FALSE?

Investments is easy

What is one advantage of investment return over wages?

Investments produce a return 24x7 (even when the investor is sleeping)

The following is a strong signal to indicate that an investor does not believe in efficient market hypothesis?

Investor holds a concentrated portfolio

The following is a strong signal to indicate that an investor believes in efficient market hypothesis?

Investor holds a diversified portfolio

Which of the following statements about "Open Interest" is FALSE?

It is the volume of futures positions traded so far

What is the main contribution of the Black-Scholes equation, which resulted in Nobel prize for Professors Fischer Black and Myron Scholes?

It provided a mathematica framework for computing stock value,It increased profits to the Options traders(incorrect)

You purchased a Treasury-bond futures contract yeterday with an initial margin requirement of 15.00%.You purchased the contract for $115,098 yesterday which has a face value of $100,000.Today the futures price falls to $107,000. How much (in percentage) gain or loss did you make on your Futures position?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.4221 and -0.5113

MARGIN= 115,098*15% = 17,264.70 PROFIT=107,000-115,098= -8,098 %LOSS = -8,098/17264.70 = -0.4690 ANSWER = -0.4690

Which of the following statements about "Futures Trading Margin" is FALSE?

Maintenance margin is calculated frequently (i.e., daily) to minimize counter party risk (INCORRECT)

In a capitalistic economy (such as the U.S.), what is the primary goal of a company's top management?

Maximize the company's stock price

Which of the following currencies is NOT used to compute the "US Dollar Index"?

Mexican Peso (MXN), Chinese Yuan (CNY), also called the Renminb

Which of the following statements related to a "Monetary Policy" is TRUE?

Monetary Policy is implemented by the Federal Reserve by altering the money supply or interest rates

Which of the following statement related to "Shorting (Long versus Short Positions)" is FALSE?

Most investors are used to Short positions (i.e., buy a security such as a stock with expectation that price will increase)

Which of the following is NOT a top-three major US bond market segment?

Municipal Bonds

Which of the following statements about "Real and Financial Assets" is FALSE?

Net worth is the sum of financial assets

Which of the following is a "condition" to compute a futures price?

No arbitrage

Which two continents have the largest financial wealth (as of 2020)?

North America, Europe

Consider a 30-year Bond with $1,000 face value, which offers 10% annual coupon, paid once a year.Assume that interest rates, hence YTM (Yield to Maturity) changed from 6% to 7%. What is the duration of the Bond in years? Enter your answer in the following format: 12.34Hint1: Answer is between 10.24 and 12.77Hint2: Duration = (new bond price - old bond price) * (-100) / old bond price

OLD N= 30 FV=1000 PMT=1000*10% = 100 I/Y=6% PV=-1550.5932 NEW N= 30 FV=1000 PMT=1000*10% = 100 I/Y=7% PV=-1,372.2712 (-1,372.2712--1550.5932)*(-100/-1550.5932) = 11.50

Which of the following statement related to "Financial Derivatives" is TRUE?

Options contract gives the buyer a right but not an obligation to buy or sell

The following statement related to "Overconfidence" is TRUE?

Overconfidence is the #1 sin in investing

Which of the following is NOT a valid "Multiple" used in stock valuation?

P/C (Price to Capital Expenditure)

Which of the following is NOT a valid "Multiple" used in stock valuation?

P/P (Price to Profit)

You purchased a Treasury-bond futures contract yeterday with an initial margin requirement of 15.00%.You purchased the contract for $115,098 yesterday which has a face value of $100,000.Today the futures price falls to $107,000. How much (in $) profit or loss did you make on your Futures position?Enter your answer in the following format: + or - 1234.56Hint: Answer is between -7,207.22 and -8,907.80

PROFIT=107,000-115,098= -8,098 ANSWER = -8,098

Which of the following statements regarding the "Basic Bond Valuation Equation" is FALSE?

PV of Bond Coupons is computed using the Growing Annuity formula

Match the Institutional Investor Type with a Sample Firm type: Pension Funds, Corporations, Sovereign Funds, Endowments Example: Harvard University Endowment Example: CalPERS Example: Abu Dhabi Investment Authority Example: Microsoft

Pension Funds=CalPERS Corporations=Microsoft Sovereign Funds=Abu Dhabi Investment Authority Endowments=Harvard University Endowment

Suppose the US government is issuing a $1,000 PAR value coupon bond today. This bond will mature in 20 years from today.This Bond's annual coupon rate is 10%. Coupons are paid 2 times in a year. The investors expect 4% annual return on this bond. What is the present value of this Bond?Enter your answer in the following format: 1234.56Hint: Answer is between 1675.01 and 1966.32

Refer to "Basic Bond Valuation Equation" in Module 5

What is an investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts?

Sector rotation

Refer to the below chart that shows the price and 50-day moving average (between Jan 1st and Apr 30th) for "GOOG" stock. What was the trading signal generated around 9th April?

Sell

Refer to the below chart that shows the price and Bollinger Bands (mean, +/- 2 x standard deviation) for "GOOG" stock from January to May What was the trading signal generated around 3rd February?

Sell

Refer to the below chart that shows the price and RSI (80-20) for "GOOG" stock from August to May What would you do around 1st September, if your RSI threshold levels are 70-30?

Sell

Which of the following an oil producer may do to "Hedge Revenue"?

Shorting oil futures contract

Which of the following statements about Stocks is FALSE?

Stock investors receive coupon payments

Money Market Funds DO NOT invest in the following assets...

Stocks

Match each Asset Class to a City that is known for that asset class Stocks (Equity) , Bonds (Fixed Income), Derivatives 1. Los Angeles 2. Chicago 3. New York

Stocks (Equity) = New York Bonds (Fixed Income)= Los Angeles Derivatives = Chicago

Which of the following regarding "Synthetic Assets" is FALSE?

Synthetic assets involve margin

Which of the following statements related to the "US unemployment rate" is NOT TRUE?

The US unemployment rate during the COVID-19 pandemic was lower than the 2000 dot-com bubble's US unemployment rate

Which of the following statements regarding the "Options Payoff Diagram" is FALSE?

The payoff diagram of a "Long Call" option is a mirror image of the payoff diagram of a "Long Put" option

The following statement related to "Risk and Return" is FALSE.

The risk that remains, even in a diversified portfolio, is called systematic risk, The risk that diversification eliminates is called unsystematic risk(incorrect)

According to the Black-Scholes equation, which of the following will NOT happen if the stock volatility goes up?

The vlaue of a call option goes down

According to the Black-Scholes equation, which of the following will happen if the stock volatility goes up?

The vlaue of a call option goes up

Which of the following statement related to "Financial Derivatives" is FALSE?

There are two main uses of derivatives: day trading and long-term investing

Which of the following are the determinants of an option's value?

Time to expiration B. Interest rates C. Dividends

Which of the following statements related to the "US Budget Deficit" is FALSE?

US did not have a budget surplus since the world war II

Which of the following statements regarding Ultra High Networth Individuals (UHNI) is MOSTLY TRUE?

USA has 80,000 Ultra High Net worth Investors (U-HNI), those who have more than $50 million to invest

Which of the following statements related to the US Dollar is TRUE, If the US Dollar Index goes up?

USD is strengthening

Which is the SMALLEST sector in the S&P500 index by Market Cap?

Utilities

Create your "Sample custom personal portfolio" as described in Module #13. Which of the following ETF invests in developed market stocks?

VEA

Create your "Sample custom personal portfolio" as described in Module #13. Which of the following ETF invests in municipal bonds?

VTEB

Create your "Sample custom personal portfolio" as described in Module #13. Which of the following ETF invests in US stocks?

VTI

Create your "Sample custom personal portfolio" as described in Module #13. Which of the following ETF does NOT invest in US stocks?

VWO

Create your "Sample custom personal portfolio" as described in Module #13. Which of the following ETF invests in emerging market stocks?

VWO

Which of the following are NOT "measures of risk" in investments?

Value minus risk

The following data is provided on two stocks, IBM and WMT, the market risk premium, and the risk-free rate. StockActual Stock ReturnMarket Risk PremiumRisk-free RateStock BetaIBM5.0%6.0%2.0%0.9WMT11.0%6.0%2.0%1.3 Which stock will you Buy and Why?

WMT because it has a positive alpha

At a high-level, there are two types of income. What are they?

Wages and Investment Returns

Which of the following are NOT part of the "Investment Policy"?

Wall street expectations

What makes investments a hard subject?

When everyone knows what works, it stops working

Suppose IGM paid a one-time special dividend of $3.50 on December 21, 2020.Assume that you bought the IGM stock for $29.35 on October 18, 2020, and sold it immediately after the dividend was paid for $31.43. How much was the Realized Return (Total Return) from holding this stock?Enter your answer in the following format: 0.1234Hint: Answer is between 0.1730 and 0.2091

[(3.50+31.43)-29.35]/29.35 = 0.1901 answer: 0.1901

Which of the following are the purpose of Derivatives?

a. Price discovery C. Risk management D. Speculation E. Hedging

Which of the following statements about "Bonds vesus Stocks" are TRUE?

a.Bond quotes are not easily available (on websites such as Yahoo Finance), whereas stock quotes are available easily on many websites D. Investors purchase Zero coupon bonds at a discount (to PAR value) E. A company's stockholders have no payment guarantees from the company

A stock has a correlation with the market of 0.70.The standard deviation of the market is 25.0%, and of the stock is 33.0%. What is the stock's beta?Enter your answer in the following format: + or - 0.12Hint: Answer is between 0.85 and 1.01

ansswer: 0.924 (0.70 *0.33)/0.25 = 0.924

In 2021, the nominal annual interest rate is about 0.1%, while the annual inflation rate is 5.3%. What is the real interest rate in 2021?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.0444 and -0.0553

answer :-0.0494 (0.1%-5.3%) = -5.2% (1+5.3%)= 105.3% -5.2%/105.3% = -0.04938

Annual returns of three stocks are given below. Two of them (Air America and Air Brazil) are airline stocks and one (Star Oil) is an oil stock.In general, when oil prices go up, airline company stocks go down and oil company stocks go up. YEARAir AmericaAir BrazilStar Oil2016-28%9%-2%201730%-28%-5%20187%7%9%2019-5%-2%-28%2020-2%-5%30%20219%30%7% Create a porfolio (to diversify risk) by mixing 50% of Air America and 50% of Star Oil stocks.How much is the portfolio's annual return? Notice that annual return is the same for portfolio and individual stocks.Enter your answer in the following format: 0.1234Hint: Answer is between 0.0169 and 0.0205

answer: 0.0183 (excel hw.9 standard deviation of returns)

Annual returns of three stocks are given below. Two of them (Air America and Air Brazil) are airline stocks and one (Star Oil) is an oil stock.In general, when oil prices go up, airline company stocks go down and oil company stocks go up. YEARAir AmericaAir BrazilStar Oil2016-28%9%-2%201730%-28%-5%20187%7%9%2019-5%-2%-28%2020-2%-5%30%20219%30%7% How much is the mean annual stock return? Notice that all three company stocks have the same annual return.Enter your answer in the following format: 0.1234Hint: Answer is between 0.0169 and 0.0200

answer: 0.0183 (excel hw.9 standard deviation of returns)

Suppose the Markowitz family account is valued on Jan 1st at $1,000,000.Let us assume that the account received two cash flows: $15,000 on Jan 5th and $10,000 on Jan 16th.Suppose the account value was calculated as $1,045,000 on Jan 5th, $1,060,000 on Jan 16th, and $1,080,000 on Jan 30th. How much is the (Dollar-weighted Return) DWR of Markowitz family account?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0492 and 0.0595

answer: 0.0556 (used time-weighted return)

Researchers forecast the possible five economy states and their probabilities for the year 2023 as shown below.Also provided are the Stock return estimates in each of those five economic states. Economy State Probability Stock ReturnsBig Recession 0.20-27.0%Mild Recession 0.15-7.0%Normal 0.4015.0%Mild Boom 0.1530.0%Mega Boom 0.1045.0% How much is the expected stock return in the year 2023?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0778 and 0.0941

answer: 0.0855 (excel hw.9 standard deviation of returns)

Annual returns of three stocks are given below. Two of them (Air America and Air Brazil) are airline stocks and one (Star Oil) is an oil stock.In general, when oil prices go up, airline company stocks go down and oil company stocks go up. YEARAir AmericaAir BrazilStar Oil2016-28%9%-2%201730%-28%-5%20187%7%9%2019-5%-2%-28%2020-2%-5%30%20219%30%7% Create a porfolio (to diversify risk) by mixing 50% of Air America and 50% of Star Oil stocks.How much is the portfolio's risk (i.e., annual standard deviation)? Notice that risk goes down in a portfolio.Enter your answer in the following format: 0.1234Hint: Answer is between 0.1232 and 0.1550

answer: 0.1384 (excel hw.9 standard deviation of returns)

Annual returns of three stocks are given below. Two of them (Air America and Air Brazil) are airline stocks and one (Star Oil) is an oil stock.In general, when oil prices go up, airline company stocks go down and oil company stocks go up. YEARAir AmericaAir BrazilStar Oil2016-28%9%-2%201730%-28%-5%20187%7%9%2019-5%-2%-28%2020-2%-5%30%20219%30%7% How much is the risk (i.e., sample annual standard deviation)? Notice that all three stocks have the same risk.Enter your answer in the following format: 0.1234Hint: Answer is between 0.1718 and 0.2100

answer: 0.1909 (excel hw.9 standard deviation of returns)

Researchers forecast the possible five economy states and their probabilities for the year 2023 as shown below.Also provided are the Stock return estimates in each of those five economic states. Economy State Probability Stock ReturnsBig Recession 0.20-27.0%Mild Recession 0.15-7.0%Normal 0.4015.0%Mild Boom 0.1530.0%Mega Boom 0.1045.0% How much is the standard deviation of stock returns in the year 2023?Enter your answer in the following format: 0.1234Hint: Answer is between 0.2050 and 0.2456

answer: 0.2253 (excel hw.9 standard deviation of returns)

Researchers forecast the possible five economy states and their probabilities for the year 2023 as shown below.Also provided are the Stock return estimates in each of those five economic states. Economy State Probability Stock ReturnsBig Recession 0.20-27.0%Mild Recession 0.15-7.0%Normal 0.4015.0%Mild Boom 0.1530.0%Mega Boom 0.1045.0% How much is the Coefficient of Variation (CV) of stock returns in the year 2023?Enter your answer in the following format: 0.1234Hint: Answer is between 2.3978 and 2.9248

answer: 2.63 (excel hw.9 standard deviation of returns)

Refer to the below chart that shows the price and 50-day moving average (between Jan 1st and Apr 30th) for "GOOG" stock. What was the trading signal generated around 18th March?

buy

Refer to the below chart that shows the price and Bollinger Bands (mean, +/- 2 x standard deviation) for "GOOG" stock from January to May What was the trading signal generated around 25th January?

buy

At a high level, there are five types of asset classes. What are they?

d.Money market E. Alternative investments F. Derivatives G. Equity b. fixed income

What is the investment objective of a typical "pension fund"?

generate sufficient cash flow from investments to satisfy pension obligations

Refer to the below chart that shows the price and RSI (80-20) for "GOOG" stock from August to May What was the trading signal generated around 1st April?

hold

Investors who believe that markets are inefficient do the following...

hold a diversified portfolio of many assets

Many people face challenges in meeting financial goals because...

meeting goals is difficult for most people

A big increase in government spending is an example of a...

positive demand shock

Suppose the Markowitz family account is valued on Jan 1st at $1,000,000.Let us assume that the account received two cash flows: $15,000 on Jan 5th and $10,000 on Jan 16th.Suppose the account value was calculated as $1,045,000 on Jan 5th, $1,060,000 on Jan 16th, and $1,080,000 on Jan 30th.How much is the (Time-weighted Return) TWR of Markowitz family account?Enter your answer in the following format: + or - 0.1234Hint: Answer is between 0.0490 and 0.0594

r1 =[(1,045,000-15,000)-1,000,000]/1,000,000 = 0.03 r2 = [(1,060,000-10,000)-1,045,000]/1,045,000 = 0.0048 r3= (1,080,000-1,060,000)/1,060,000 = 0.02 twr = [(1+.03)x(1+0.0048)x(1+0.02)]-1 = 0.0556 answer: 0.0556

Suppose you purchased a stock today (i.e., t=0) for $100.00.Assume that the stock went up to $135.14 after one year (i.e., t=1) and fell to $75.00 after two years (i.e., t=2). How much is the arithmetic mean return of this stock per year?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.0417 and -0.0520

r1= (135.14 -100) /100 = .3514 r2=(75-135.14)/135.14 = -0.445 .3514+(-0.445)/2 = -0.0468 answer: -0.0468

Suppose you purchased a stock today (i.e., t=0) for $100.00.Assume that the stock went up to $135.14 after one year (i.e., t=1) and fell to $75.00 after two years (i.e., t=2). How much is the geometric mean return of this stock per year?Enter your answer in the following format: + or - 0.1234Hint: Answer is between -0.1179 and -0.1460

r1= (135.14 -100) /100 = .3514 r2=(75-135.14)/135.14 = -0.445 r3= {[(1+.3514)*(1+(-0.445))]^1/2}-1 = -0.1340 answer:-0.1340

All else being the same, a two-stock portfolio will have the LOWEST risk, If...

the two stocks are perfectly negatively correlated

All else being the same, a two-stock portfolio will have the HIGHEST risk, If...

the two stocks are perfectly positively correlated