MBA 630

The Ignite bond is a 20-year zero-coupon bond. If the YTM for this bond is 6%, what is the value of the bond. Assume semiannual compounding.

$306.96

An investor buys $100,000 in par value of TIPS with a coupon rate of 8%. Inflation during the first six months is 2.4%. The first semi-annual coupon payment is closest to:

$4,096

The Charlie bond is a 3% coupon bond with semi-annual coupon payments that matures in 30 years. If the YTM for this bond is 6%, what is the value of the bond?

$584.87

Parker buys ten zero-coupon bonds with a maturity of 20 years and a yield to maturity of 7% for a total of $2,584.19. Assume he buys the bonds on July 1st. How much interest will he have to report for tax purposes for the first year? Assume annual compounding for simplicity and round your answer to the nearest dollar.

$90

Jacques bought a bond with a modified duration of 4.90. By approximately what percentage will the bond price change assuming interest rates decrease by 110 basis points

+5.39%

1. Assume that the 1-year rate is 7% and the 2-year rate is 10%. Based on the expectations theory, what is the implied 1-year rate, 1 year from today?

13%

he issuing corporation has the option of retiring the bond, at a predetermined price, prior to the maturity date of the bond. What is this type of bond called?

A callable bond

Andrea believes that the economic cycle is at its peak and that a severe downturn is likely in the near future. She would like to invest in a stock that will remain relatively stable if the expected downturn does take place. Which of the following is the most suitable investment to meet goal?

A defensive stock.

Firms are least likely to use the primary equity market to raise capital for:

A desire to increase its financial leverage.

Which type of underwriting arrangement is the riskiest to the underwriter?

A firm commitment.

Annabelle purchased shares of Trinity Co. stock for $45 and the price has risen to $70. Annabelle would like to ensure that if the price of Trinity Co stock falls below $62, her shares will be sold. Which of the following will accomplish her goal?

A stop-loss order at 62.

Ellie would like to invest in a security that will provide a steady stream of cash flows to supplement her retirement income. Which of the following is the least suitable investment for meeting Ellie's goal?

A technology stock

A stock market participant that buys shares of stock in a secondary market and holds shares as part of its inventory is most likely a(n):

broker-dealer

A business seeking access to capital from investors will sell securities in the:

primary market

The stock prices of four companies are $20, $22, $27, and $28. What is the value of a price weighted index for these stocks?

$24.25

Wiley sold short 100 shares of ACME stock at a price of $80 per share. While the position was open, a dividend of $2 per share was distributed. Wiley covered the short position at $50 per share. What is his gain, ignoring commissions and borrowing costs?

$2,800

The Echo bond is a 6% coupon bond with semi-annual coupon payments that matures in 15 years. If the YTM for this bond is 4%, what is the value of the bond?

$1,233.96

Doug buys Mayonnaise, Inc. stock for $112 using a margin account with a 50% initial margin and a 35% maintenance margin. Assuming the price of the stock drops to $56, how much would Doug need to pay to restore the equity in his account to the maintenance margin?

$19.60

A coupon bond pays interest semi-annually and has an ask price of 107%. If the last interest payment was made 2 months ago and the coupon rate is 9%, what will the full "dirty" price of the bond be?

1000*107%+1000*9%*2/12 = 1085

Bud is considering purchasing an 8-year bond that is selling for $700. What is the YTM for this bond if it has a 6% coupon, paid semi-annually

11.92%

Elmira is single and in the 37% federal and 4% state tax brackets, and she is subject to the federal 3.8% Net Investment Income Tax. She is considering the purchase of a municipal bond, issued in her state of residence, with a YTM of 7%. What is Elmira's tax equivalent yield on the bond?

12.68%

Which of the following is closest to the number of stocks in the Wilshire 5000 Total Market Index?

3,500

Donna is considering purchasing a 3-year bond that is selling for $1,000. What is the current yield for this bond if it has a 4% coupon, paid semi-annually?

4%

Jack is considering purchasing a 6-year bond that is selling for $1,50. The bond can be called in 3-years at 104. What is the YTC for this bond if it has a 9% coupon, paid semi-annually?

4.82%

James is considering purchasing an 11-year bond that is selling for $1,250. What is the current yield for this bond if it has a 6.5% coupon, paid semi-annually?

5.2%

. The bonds have durations of 2 years, 3 years, 8 years, and 10 years, respectively. If Sam has 20% invested in Bond A, 30% in Bond B, and 25% invested in each of the other two bonds, what is the duration for the portfolio? Assume that the correlation between the bonds is 0.5.

5.80 years

Dirk is considering purchasing a 6-year bond that is selling for $1,150. What is the YTM for this bond if it has a 9% coupon, paid semi-annually?

5.99%

Holly bought a 7-year bond, with a 3% coupon paid semi-annually. It was priced to yield 3% when she bought it. What is the effective duration assuming a 100-basis point change in interest rates?

6.2775

What is the duration of a 10-year bond with a coupon rate of 6%, paid annually, and a yield to maturity of 11%

7.32

A convertible bond has a par value of $1,000, but its current market price is $750. The current price of the issuing company's stock is $17 and the conversion ratio is 30 shares. The bond's conversion premium is closest to:

750-17(30) = 240

Eunice is single and in the 24% federal and 5% state tax brackets. She is considering the purchase of a municipal bond, issued in her state of residence, with a YTM of 6.75%. What is Eunice's tax equivalent yield on the bond?

9.51%

Which of the following best describes the clean price of a corporate bond quoted at 98.03

980.03

Which of the following bonds will have the largest decrease in price if interest rates increase in Year 1 of the life of the bonds?

A 10-year zero coupon bond

Which of the following bond ratings indicates that short-term obligations remain very safe but payments over the longer term might not be sustainable in the event of a slowdown in the economy?

A.

Which of the following statements is correct? a. None of the above are correct. b. The coupon rate is the rate of interest paid on the market value of a bond. c. Callable bonds tend to have a lower YTM than non-callable bonds with the same default risk and maturity. d. The YTM for a bond is the IRR of the cash flows that the investor earns if the bond is held to maturity.

A: None of the above

Generally, fixed-income investors are subject to which of the following risks? a.Purchasing power risk. b.Interest rate risk. c.Default risk. d.All of the above.

All of the above

Parker is considering purchasing a 5-year bond that is selling for $1,079. Which of the following is correct if this bond has a 5% coupon, paid semi-annually? a.The coupon rate > current yield b.The current yield > YTM c.The YTM < coupon rated d. All of the above

All of the above

Convertible bonds typically have which of the following characteristics?

Allow bondholders to convert their bonds into shares of stock at a stated ratio

A certificate issued by U.S. banks representing ownership in shares of a stock of a foreign company that are held on deposit in a bank in the firm's home country is:

American Depositary Receipts (ADRs).

Jordan is considering purchasing a CMO. Which of the following is not correct?

CMO's are not subject to default risk

A bond that is divided into several tranches is most likely a:

Collateralized mortgage obligation.

Companies generally attempt to make a profit. When this happens, they have choices as to what to do with the positive cash flow. Which of the following represents the two choices a company has for positive net income?

Pay a cash dividend and / or reinvest cash flows back into the business.

An order to buy or sell a certain quantity of a security at a specific price or better, but only after a specified price has been reached, is called a:

Stop-limit order.

Which of the following statements about Treasury bills is correct?

T-bills are sold on a pure discount basis only

In a low interest rate environment, which of the following bonds are likely to be called?

Coupon bonds selling at a premium

The authority function of a self-regulatory organization is most likely characterized by:

Creation and enforcement of its own policies.

A type of preferred stock whose payments, when missed, must be paid prior to paying dividends to common stock is:

Cumulative preferred stock.

Which of the following is true regarding short positions? a. Short sales have limited risk as there is a limit on how low the price can go. b. If the stock appreciates after the shares are sold short, then the investor will earn money. c. Short positions work best when investors find securities in the market that they believe are undervalued. d. None of the above.

D. none of the above

What is a bond issued and supported only by the general credit standing of the issuing corporation called:

debenture bond

The Board of Directors announces the amount and date of the next dividend on the ____ date, while the ____ date is the first date on which the purchaser of a stock is no longer entitled to the recently declared dividend.

Declaration, ex-dividend

Thirty-year Treasury bonds are not subject to which of the following risks?

Default risk

The dividend-payout ratio is equal to:

Dividends per share divided by earnings per share.

An investor living in Pennsylvania who buys a municipal bond issued by the state of Wyoming will most likely

Have a Pennsylvania tax liability on the interest recieved on the Wyoming bond.

Harold would like to purchase shares of a large, established company. He will most likely make his purchase:

In the secondary market

Based on Malkiel's theorems, bond prices move _____ to bond yields and for a given change in yield, _____ term bond price changes are greater than changes for _____ term bond prices.

Inversely; longer; shorter

Blue-chip stocks are most likely:

Issued by reliable companies that have the potential to perform well in any market.

he purchase of a stock in hopes that it will appreciate over time is called a:

Long position.

Lisa, who lives in Georgia, is in the 32% federal tax bracket and 5% state income bracket. Which of the following bonds that she is considering purchasing has the highest after-tax yield (assume she is not subject to the federal 3.8% NIIT)?

Louisiana Municipal bond paying 2.6%

Which of the following statements regarding mortgage-backed securities and fixed-rate bonds is NOT correct?

MBSs are subject to interest rate risk while fixed-rate bonds are not.

Treasury bills are discount securities most likely because they:

Make no explicit interest payments.

All of the following statements regarding securities laws and regulation are correct EXCEPT:

The Securities Act of 1933 created the Securities and Exchange Commission (SEC).

Which of the following statements about Treasury bills and commercial paper is correct?

Neither A or B

Which of the following is correct about the application of duration? a.Duration can be used to provide an exact price impact from changes in interest rates. b.Yield curve risk does not impact duration. c.Effective duration is another name for the modified duration. d.None of the above.

None of the above

1. Beth, who lives in NY City, is in the 24% federal tax bracket and 6% state income tax bracket. Which of the following bonds that she is considering purchasing has the highest after-tax yield? 1. Treasury bond paying 5.4% 2. Corporate bond paying 5.5% 3. Florida Municipal bond paying 4.2%

Only 3

A type of preferred stock in which the dividend increases with increases in profit of the firm is known as:

Participating preferred stock.

A mortgage-backed security can be characterized as having:

Prepayment risk

All of the following statements regarding major securities laws are correct EXCEPT:

The Securities Act of 1933 established the Securities and Exchange Commission.

Donna is considering purchasing a 3-year bond that is selling for $1,000. Which of the following is correct if this bond has a 4% coupon, paid semi-annually

The YTM equals the coupon rate and current yield

Which of the following is correct?

STRIPS are subject to the OID rule

Assume that the shareholders of a company anticipate receiving a normal dividend. What benefit would shareholders receive if the company instead repurchased shares with the same total amount of dollars that would have been spent on dividends? Assume that the PE ratio is maintained under either scenario.

Shareholders can delay or reduce taxes.

Caroline is investing her funds for the next five years, when she will need the money for one of her goals. She is considering two high quality bonds: an 8-year bond with a duration of 5 years, and a 5-year zero-coupon bond. Which bonds should she use if she wants to attempt to immunize the portfolio and minimize reinvestment risk?

She should pick the 5-year bond because the bond will be fully immunized if held to maturity

A volatile stock can be pushed sharply higher by:

Short covering.

A split bond rating would most likely occur when:

Two ratings agencies disagree on the default level of an issue.

The yield to maturity on a bond is?

The discount rate that will establish the present value of the payments equal to the current bond price

All of the following are correct regarding private placements except:

The downside to private placement is that it is expensive and time consuming.

Which of the following is not a determinant of whether a financial professional must register as an investment advisor?

The financial professional executes trades based on recommendations about securities.

Which of the following is not correct about TIPS

The interest rates for TIPS changes based on Inflation

Acme, Inc. has net earnings of $2.1 billion this year. It has 700 million shares of common stock outstanding, and it paid 25 cents per share per quarter this year as a dividend. Which of the following is correct?

The payout ratio equals 33.33%

Jackson owns a 20-year, zero-coupon bond priced at $551. If interest rates increase by 50 basis points, how much will the bond price change?

The price will decrease between 5% and 10%

All of the following are correct regarding stock splits except:

The tax basis in each share remains the same after a stock split.

Which of the following is correct regarding the reasons an investor might consider investing in corporate bonds?

They offer higher security of principal than equities

Which of the following is not part of the Securities and Exchange Commission's mission?

To insure against large losses for issuers in the primary market.

Eric purchased a 12-year, 7% coupon bond that is callable in three years. Which type of duration is the best for Eric to use to estimate price changes?

effective duration

Which of the following statements is correct about duration?

effective duration can accommodate bonds with embedded options

A bond for which the bondholder has the right to cash in the bond before maturity at a specific price after a specific date is a:

puttable