Qbank 34-45

Which of the following classes of asset-backed securities typically includes a lockout period? A)Auto loan ABS. B)Non-agency residential MBS. C)Credit card ABS.

C

What is the value of a preferred stock that is expected to pay a $5.00 annual dividend per year forever if similar risk securities are now yielding 8%? A)$62.50. B)$60.00. C)$40.00.

A

Which of the following indexes is a price weighted index? A)The Nikkei Dow Index. B)The New York Stock Exchange Index. C)The Standard and Poor's Index.

A

An investor purchased a 6-year annual interest coupon bond one year ago. The coupon rate of interest was 10% and par value was $1,000. At the time she purchased the bond, the yield to maturity was 8%. The amount paid for this bond one year ago was: A)$1,092.46. B)$1,198.07. C)$1,125.53.

A

An investor purchases stock on 25% initial margin, posting $10 of the original stock price of $40 as equity. The position has a required maintenance margin of 20%. The investor later sells the stock for $45. Ignoring transaction costs and margin loan interest, which of the following statements is most accurate? A)Return on investment is 50%. B)Margin call price is $36. C)Leverage ratio is 3:1.

A The leverage ratio is purchase price / equity = $40 / $10 = 4. Margin call price is $40 × [(1 - 0.25) / (1 - 0.20)] = $37.50

The experience curve, which illustrates the cost per unit relative to output: A)slopes downward. B)slopes upward in the early years and downward in the later years. C)slopes upward.

A cost per unit to relative output

Which of the following industries is likely to be most sensitive to the business cycle? A)Automobile. B)Confectionery. C)Pharmaceutical.

A demand for autos fluctuates with the business cycle other two have stable demand

Mark Ritchie purchased, on margin, 200 shares of TMX Corp. stock at a price of $35 per share. The margin requirement was 50%. The stock price has increased to $42 per share. What is Ritchie's return on investment before commissions and interest if he decides to sell his TMX holdings now? A)40%. B)20%. C)10%.

A profit/initial

Of the following types of firm, which is most suitable for P/B ratio analysis? A)A firm with accounting standards consistent to other firms. B)A firm with accounting standards different from other firms. C)A service industry firm without significant fixed assets.

A, P/B ratios can reveal signs of misvaluation across firms

An analyst using the capital asset pricing model is most likely to use a security market index as a proxy for: A)the market return. B)the risk-free rate. C)beta.

A,

Starr Company is an asset management firm. Thomas Company is a manufacturer of apparel. Assuming these firms are representative of their industry groups, how are they best classified with regard to their sensitivity to the business cycle? Starr, Thomas A)Cyclical, Cyclical B)Non-cyclical, Non-cyclical C)Cyclical, Non-cyclical

A,

The industry experience curve illustrates the relationship between: A)cumulative output and cost per unit. B)productivity and average years of employment. C)company age and profitability.

A,

The least appropriate security for investing short-term excess cash balances would be: A)preferred stock. B)bank certificates of deposit. C)time deposits.

A,

With respect to auto-loan backed ABS: A)all of them have some sort of credit enhancement. B)some of them have some sort of credit enhancement. C)the underlying loans are collateralized so no credit enhancement is necessary.

A,

Assume the following corporate spot yield curve. One-year rate: 5% Two-year rate: 6% Three-year rate: 7% If a 3-year annual-pay corporate bond has a coupon of 6%, its yield to maturity is closest to: A)6.92%. B)6.08%. C)7.00%.

A, 1. determine current price 6/1.05 + 6/1.06² + 106/1.07³ = 97.58 2. find yield N=3 PMT=6 FV=100 PV=-97.58

Johnson Corp. had the following financial results for the fiscal 2004 year: Current ratio2.00 Quick ratio1.25 Current liabilities$100,000 Inventory turnover12 Gross profit %25 The only current assets are cash, accounts receivable, and inventory. The balance in these accounts has remained constant throughout the year. Johnson's net sales for 2004 were: A)$1,200,000. B)$300,000. C)$900,000.

A, 1. gross profit of 25% means cogs is 75% of sales 2. the difference between current and quick ratio is INVENTORY 3. find that inventory is 75 4. find that cogs is 900k 5. 900k/.75=1.2m

Given the following estimated financial results for the next period, value the stock of FishnChips, Inc., using the infinite period dividend discount model (DDM). - Sales of $1,000,000. - Earnings of $150,000. - Total assets of $800,000. - Equity of $400,000. - Dividend payout ratio of 60.0%. Average shares outstanding of 75,000. - Real risk free interest rate of 4.0%. - Expected inflation rate of 3.0%. - Expected market return of 13.0%. - Stock Beta at 2.1. The per share value of FishnChips stock is approximately: (Note: Carry calculations out to at least 3 decimal places.) A)$26.86. B)$30.89. C)$17.91.

A, DDM formula: P0 = d1 / ke - g d1: earnings x payout ratio / avg outstanding shres ke: since we have inflation we must add that to real risk free interest rate (we want nominal rate for capm) 1.04*1.03=7.12 7.12+21(13-7.12) = 0.19468 g = rr x ROE ROE = profit margin* asset turnover*leverage .15*1.25*2= 37.5 37.5*.4 = 15% SHEESH

A 30-year, 10% annual coupon bond is sold at par. It can be called at the end of 10 years for $1,100. What is the bond's yield to call (YTC)? A)10.6%. B)10.0%. C)8.9%.

A, N=10 PMT=100 PV=-1000 FV=1100

The pool of loans backing a commercial mortgage-backed security consists of: A)nonrecourse loans only. B)recourse loans only. C)both recourse and nonrecourse loans.

A, Nonresourse: can only go after asset, if that's not enough then it's a loss (higher interest rate, borrowers with best credit only) Recource: continue to go after wages and assets of borrower lender can seize asset in both

Assuming all other factors remain unchanged, which of the following would most likely lead to a decrease in the market P/E ratio? A)A rise in the stock risk premium. B)A decline in the risk-free rate. C)An increase in the dividend payout ratio.

A, P/E = 1 - rr / (k-g) rr increases g decreases k increases factors that make p/e smaller increase in risk premium increase k

Which of the following would provide evidence against the semistrong form of the efficient market theory? A)Low P/E stocks tend to have positive abnormal returns over the long run. B)Trend analysis is worthless in determining stock prices. C)All investors have learned to exploit signals related to future performance.

A, P/E is publicly available info so it relates to semistrong-form EMH

A semiannual-pay bond is callable in five years at $1,080. The bond has an 8% coupon and 15 years to maturity. If an investor pays $895 for the bond today, the yield to call is closest to: A)12.1%. B)10.2%. C)9.3%.

A, YTC: N=10 PV=-895 FV=1080 PMT=40 x 2 because semi annual

In a commercial mortgage-backed security (CMBS), which of the following is an example of CMBS-level call protection? A)Residual tranche. B)Yield maintenance charges. C)Prepayment lockout.

A, call protection = protection against prepayment risk residual tranche provides senior tranches with more protection

Other things equal, which of the following types of stock has the most risk from the investor's perspective? A)Callable common share. B)Callable preferred share. C)Putable common share.

A, callable shares most risky because issuer can exercise call option which limits investor's potential gain

Other things equal, preference shares have the most risk for the investor when they are: A)callable and non-cumulative. B)non-callable and non-cumulative. C)putable and cumulative.

A, callable, putable, cumulative (from risky to least)

Czernezyk Company buys a delivery vehicle for €60,000. Czernezyk expects to drive the vehicle 400,000 kilometers over 4 years, at the end of which the firm expects to be able to sell the vehicle for €10,000. At the end of Year 2, the vehicle has been driven 250,000 kilometers. If Czernezyk depreciates the vehicle by the units of production method, its carrying value at the end of Year 2 is: A)€28,750. B)€15,000. C)€31,250.

A, carry value = original cost - accum dep depreciation per unit 60-10 / 400 = 0.125 0.125x200k= $31,250 60k-31,250

Which of the following types of industries is typically characterized by above-normal expansion in sales and profits independent of the business cycle? A)Growth. B)Defensive. C)Counter-cyclical.

A, defensive: stable counter: negatively correlated

Equal weighting is the most common weighting methodology for indexes of which of the following types of assets? A)Hedge funds. B)Fixed income securities. C)Equities.

A, fixed income and equity indexes are market cap weighted

A renegotiable mortgage has a fixed interest rate that: A)changes to a different fixed rate during its life. B)the borrower may change to a variable rate. C)changes to a variable rate during its life.

A, fixed: goes from fixed to fixed hybrid: fixed to variable convertible: fixed to variable or variable to fixed

The spot exchange rate for CHF/EUR is 0.8342 and the 1-year forward quotation is −0.353%. The 1-year forward exchange rate for EUR/CHF is closest to: A)1.2029. B)0.8313. C)1.2022.

A, forward is spot x (1-fwrd quotation) = A 1/A = answer

Dart Corporation engaged in the following transactions earlier this year: Transaction #1: Retired long-term debenture bonds with a face amount of $10 million by issuing 500,000 shares of common stock to the bondholders. Transaction #2: Borrowed $5 million from a bank and used the proceeds to purchase equipment used in the manufacturing process. With respect to these transactions, should Dart report transaction #1 as a financing cash flow and/or transaction #2 as an investing cash flow? A)Only one should be reported as such. B)Neither should be reported as such. C)Both should be reported as such.

A, issuing stock to bondholders is a non-cash transaction

An analyst gathered the following data for the Parker Corp. for the year ended December 31, 2005: EPS 2005 = $1.75 Dividends 2005 = $1.40 Beta Parker = 1.17 Long-term bond rate = 6.75% Rate of return S&P500 = 12.00% The firm has changed its dividend policy and now plans to pay out 60% of its earnings as dividends in the future. If the long-term growth rate in earnings and dividends is expected to be 5%, the appropriate price to earnings (P/E) ratio for Parker will be: A)7.60. B)7.98. C)9.14.

A, long-term bond rate and risk free rate, same P/E = payout ratio / k - g

The spot rate for Japanese yen per UK pound is 138.78. If the UK interest rate is 1.75% and the Japanese interest rate is 1.25%, the 6-month no-arbitrage forward rate is closest to: A)138.44 JPY/GBP. B)138.95 JPY/GBP. C)138.10 JPY/GBP.

A, make sure you put the interest rates in the correct spot, jap yen per uk pound would mean jap/uk also, you divide by 2 here because 6 months

An investor bought a stock on margin. The margin requirement was 60%, the current price of the stock is $80, and the stock price was $50 one year ago. If margin interest is 5%, how much equity did the investor have in the investment at year-end? A)73.8%. B)67.7%. C)60.6%.

A, margin debt = 40% x $50 = $20 interest = $1 (found by margin interest x margin debt) equity % = value - margin debt / value

A firm's cost of equity capital is least accurately described as the: A)ratio of the firm's net income to its average book value. B)expected total return on the firm's equity shares in equilibrium. C)minimum rate of return investors require to invest in the firm's equity securities.

A, net income/avg book value is ROE

All of the following are considered a potentially dilutive securities EXCEPT: A)preferred stock. B)warrants. C)stock options.

A, only convertible preferred stock is potentially dilutive

A market that directs capital to its most productive use is best described as: A)allocationally efficient. B)operationally efficient. C)informationally efficient.

A, operationally efficient is low trading costs informationally efficient is all info reflects stock values

The yield on a company's 7.5%, $50 par preferred stock is 6%. The value of the preferred stock is closest to: A)$62.50. B)$12.50. C)$50.00.

A, preferred div is 0.07($50) = $3.75 value of preferred is $3.75 / 0.06

The traditional DuPont equation shows ROE equal to: A)net income/sales × sales/assets × assets/equity. B)EBIT/sales × sales/assets × assets/equity × (1 - tax rate). C)net income/assets × sales/equity × assets/sales.

A, profit margin x asset turnover x financial leverage

The following data pertains to the McGuire Company: Net income equals $15,000. 5,000 shares of common stock issued on January 1. 10% stock dividend issued on June 1. 1000 shares of common stock were repurchased on July 1. 1000 shares of 10%, par $100 preferred stock each convertible into 8 shares of common were outstanding the whole year. What is the company's basic earnings per share (EPS)? A)$1.00. B)$1.20. C)$2.50.

A, shares: 5,000 + (5000*10%) * 12 = 66,000 repurchased shares 6k shares 60,000 60,000 / 12 = 5,000 avg shares (ni - preferred divs) / avg shares

A bond is quoted at 96.25 bid and 96.75 ask. Based only on this information, this bond is most likely: A)relatively illiquid. B)non-investment grade. C)a corporate bond.

A, spread is .5% which means illiquid for a bond liquid bonds usually 10-12 bps

The primary motivation for investing in the support tranche of a planned amortization class CMO, compared to investing in another tranche, is that the support tranche offers: A)a higher interest rate. B)more protection against extension risk. C)more protection against contraction risk.

A, support tranches have more extension and contraction risk than PAC tranches, because of more risk you get higher interest rate

Which of the following statements about business risk and financial risk is least accurate? A)The greater a company's business risk, the higher its optimal debt ratio. B)Factors that affect business risk are demand, sales price, and input price variability. C)Business risk is the riskiness of the company's assets if it uses no debt.

A, the greater a company's business risk the lower its optimal debt ratio

Which of the following statements is most accurate regarding commodity indexes? A)Weighting methodology varies among index providers and leads to differences in index risk and returns. B)The return to commodity indexes consists of two major components: the risk-free rate of return and the roll yield. C)Commodity indexes are based on spot prices, while most investors purchase futures contracts.

A, there are several weighting methodologies that get used, differences in weighting cause differing exposures and indexes leading to different risk return profiles

Which of the following statements concerning market efficiency is least accurate? A)Market efficiency assumes that individual market participants correctly estimate asset prices. B)If weak-form market efficiency holds, technical analysis cannot be used to earn abnormal returns over the long-run. C)Tests of the semi-strong form of the EMH require that security returns be risk-adjusted using a market model.

A, they never correctly estimate the price

What is the probable change in price of a 30-year semiannual 6.5% coupon, $1000 par value bond yielding 8% if the yield decreases to 7%? A)$107.31. B)$106.34. C)$98.83.

A, this is asking for change in PV so solve PV for both

Which of the following is NOT a limitation to financial ratio analysis? A)A firm that operates in only one industry. B)The need to use judgment. C)Differences in international accounting practices.

A, would be difficult to compare firms across industries, if a firm only is in one industry then it's good

The zero volatility spread (Z-spread) is the spread that: A)is added to each spot rate on the government yield curve that will cause the present value of the bond's cash flows to equal its market price. B)results when the cost of the call option in percent is subtracted from the option adjusted spread. C)is added to the yield to maturity of a similar maturity government bond to equal the yield to maturity of the risky bond.

A, z-spread: interest rate that is added to zero-coupon bond spot rate that will cause pv of cf to equal market price nominal spread: spread added to ytm of similar maturity gov bond that makes it equal to ytm of risky bond z-spread is result of cost when call option % is added to option adjusted spread

Unemployment compensation is an example of: A)an automatic fiscal policy stabilizer. B)a discretionary fiscal policy stabilizer. C)an automatic monetary policy stabilizer.

A, compensation automatically rises and falls with the business cycle

A firm is most likely to have pricing power if: A)its product is differentiated. B)its market share is high. C)costs to exit the industry are high.

A, high market share does not implicate pricing power, four firms can have 25% but neither significant power

Private equity securities most likely: A)are illiquid and do not have quoted prices. B)are issued to individual investors. C)trade in over-the-counter dealer markets.

A, illiquid and do not trade in public security markets usually issued to qualified institutional investors

A covenant that requires the issuer not to let the insurance coverage lapse on assets pledged as collateral is an example of a(n): A)affirmative covenant. B)negative covenant. C)inhibiting covenant.

A, maintaining insurance coverage on assets is a good thing!!!! read the damn shit

Which of the following relationships in regard to the quantity theory of money is least accurate? A)Nominal GDP = Price × Money Supply. B)Money × Velocity = Money Supply × Velocity. C)Nominal GDP = Money Supply × Velocity = Price × Real Output.

A, money supply x velocity = nominal GDP = price x real output

The amount of money a commercial bank has available to lend is known as: A)excess reserves. B)required reserves. C)fractional reserves.

A, required reserves is just what they're required to have on hand

A banker's acceptance that is priced at $99,145 and matures in 72 days at $100,000 has a(n): A)discount yield greater than its bond equivalent yield. B)money market yield greater than its discount yield. C)bond equivalent yield greater than its effective annual yield.

B

Given the following information, what is the adjustment to net income when calculating cash flow from operations using the indirect method? Increase in accounts payable of $25. Sold one share of stock for $15. Paid dividends of $10 to shareholders. Depreciation expense of $100. Increase in inventory of $20. A)-$95. B)+$105. C)-$50.

B

Lynne Hampton purchased 100 shares of $75 stock on margin. The margin requirement set by the Federal Reserve Board was 40%, but Hampton's brokerage firm requires a total margin of 50%. Currently the stock is selling at $62 per share. What is Hampton's return on investment before commission and interest if she sells the stock now? A)-17%. B)-35%. C)-40%.

B

Under U.S. GAAP, taxes paid would be classified as: A)having no cash flow impact. B)operating cash flow. C)financing cash flow.

B

Which of the following sets of indexes are price-weighted? A)Dow Jones World Stock Index and Russell Index. B)Dow Jones Industrial Average and Nikkei Dow Jones Stock Market Average. C)S&P 500 Index and Dow Jones Industrial Average.

B

Nelson, Inc. has fixed financing costs of $3 million, fixed operating costs of $5 million, and variable costs of $2.00 per unit. If the price of Nelson's product is $4.00, Nelson's operating breakeven quantity of sales is: A)4.0 million units. B)2.5 million units. C)1.0 million units.

B 5m/2

The condition that occurs when a company disburses cash too quickly, stretching the company's cash reserves, is best described as a: A)liquidity premium. B)pull on liquidity. C)drag on liquidity.

B drag on liquidity would be when cash inflows lag

Market share stability within an industry is least likely to result from a high level of: A)barriers to entry. B)product innovation. C)switching costs.

B high barriers to entry and switching costs make it harder for people to change products new and innovative products coming out make it easier

The uncertainty in return on assets due to the nature of a firm's operations is known as: A)tax efficiency. B)business risk. C)financial leverage.

B main factors are demand, sales, input price

A company purchased a new pizza oven for $12,676. It will work for 5 years and has no salvage value. The tax rate is 41%, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is 35% of original cost in years 1 and 2 and the remaining 30% in Year 3. For this question ignore all expenses other than depreciation. What is the deferred tax liability as of the end of year one? A)$1,909. B)$780. C)$1,129.

B revenue - sl dep = 4,657 revenue - ogcost(.35) = 2,755 difference of these * 0.41

What is the value of a 10-year, semi-annual, 8% coupon bond with a $1,000 face value if similar bonds are now yielding 10%? A)$1,000.00. B)$1,373.87. C)$875.38.

C

An equity index comprised of value stocks, identified by their price-to-earnings ratios, is best described as a: A)fundamental weighted index. B)style index. C)sector index.

B,

An investor who is calculating the arbitrage-free value of a government security should discount each cash flow using the: A)risk-free rate. B)government spot rate that is specific to its maturity. C)government note yield that is specific to its maturity.

B,

Consider a bond selling for $1,150. This bond has 28 years to maturity, pays a 12% annual coupon, and is callable in 8 years for $1,100. The yield to call is closest to: A)9.25%. B)10.05%. C)10.55%.

B,

Given the following spot rate curve: Spot Rate 1-yr zero = 9.50% 2-yr zero = 8.25% 3-yr zero = 8.00% 4-yr zero = 7.75% 5-yr zero = 7.75% What will be the market price of a five-year, 9% annual coupon rate bond?

B,

Intangible assets with finite useful lives are: A)amortized over their actual lives. B)amortized over their expected useful lives. C)not amortized, but are tested for impairment at least annually.

B,

Which of the following is a limitation to fully efficient markets? A)There are no limitations to fully efficient markets because the trading actions of fundamental and technical analysts are continuously keeping prices at their intrinsic value. B)The gains to be earned by information trading can be less than the transaction costs the trading would entail. C)Information is always quickly disseminated and fully embedded in a security's prices.

B,

Which of the following statements regarding secondary markets is least accurate? Secondary markets are important because they provide: A)investors with liquidity. B)regulators with information about market participants. C)firms with greater access to external capital.

B,

Based on the following data, how many shares of common stock should be used to calculate diluted earnings per share? Net income of $1,500,000, tax retention rate of 60%. 1,000,000 shares of common are outstanding at the beginning of the year. 10,000, 6% convertible bonds with each bond convertible into 20 shares of common stock were issued at par ($100) on June 30th of this year. The firm has 100,000 warrants outstanding all year with an exercise price of $25 per share. The average stock price for the period is $20, and the ending stock price is $30. A)1,000,000. B)1,100,000. C)1,266,667.

B, # of bonds x par value x interest = 18,000 so numerator is $1,500,000 shares outstanding + (# of convertible bonds x months outstanding / 12) = 100,000 warrants are out of the money because AVERAGE price is less than exercise

The competitive forces identified by Michael Porter include: A)threat of substitutes and rivalry among suppliers. B)rivalry among existing competitors and power of buyers. C)power of existing competitors and threat of entry.

B, 1. rivalry among existing competitors 2. threat of entry 3. threat of substitutes 4. power of buyers 5. power of suppliers

Day and Associates is experiencing a period of abnormal growth. The last dividend paid by Day was $0.75. Next year, they anticipate growth in dividends and earnings of 25% followed by negative 5% growth in the second year. The company will level off to a normal growth rate of 8% in year three and is expected to maintain an 8% growth rate for the foreseeable future. Investors require a 12% rate of return on Day. The value of Day stock today is closest to: A)$24.05. B)$20.70. C)$18.65.

B, D1 D2 use d2 because that's the last one until growth stays constant d2/k-g = A A + d1 / 1 + k

A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of $100, and a yield to maturity of 12%. The current yield on this bond is: A)9.50%. B)10.65%. C)11.25%.

B, FV = 1,000; N = 4; PMT = 100; I = 12; CPT → PV = 939.25. Current yield = coupon / current price 100 / 939.25 × 100 = 10.65

Global depository receipts are most likely issued: A)outside the issuer's home country and denominated in the exchange's home currency. B)outside the issuer's home country and denominated in U.S. dollars. C)in the United States and denominated in U.S. dollars.

B, Global depository receipt: issued outside home country and denominated in U.S dollars Global registered shares are denominated in home currencies of exchanges on which they trade

Which of the following statements concerning the notes to the audited financial statements of a company is least accurate? Financial statement notes: A)contain information about contingent losses that may occur. B)include management's assessment of the company's operating performance and financial results. C)are audited.

B, MDA would not have audited financial statements and is not in financial statement notes

Consider a 5-year, semiannual, 10% coupon bond with a maturity value of 1,000 selling for $1,081.11. The first call date is 3 years from now and the call price is $1,030. What is the yield-to-call? A)3.91%. B)7.82%. C)7.28%.

B, N=6 pv=-1081.11 pmt=50 fv=1030

Earnings before interest and taxes (EBIT) is also known as: A)earnings before income taxes. B)operating profit. C)gross profit.

B, Operating profit = EBIT Gross profit = net sales - COGS Net income = EAT

An analyst has gathered the following information about a firm: Net sales of $500,000. Cost of goods sold = $250,000. EBIT of $150,000. EAT of $90,000. What is this firm's operating profit margin? A)18%. B)30%. C)50%.

B, Operating profit margin = (EBIT / net sales) = ($150,000 / $500,000) = 30%

Compared to a term repurchase agreement, an overnight repurchase agreement is most likely to have a: A)lower repo rate and higher repo margin. B)lower repo rate and repo margin. C)higher repo rate and repo margin.

B, Repo rate: annual rate for loan period Repo margin/haircut: % difference between market value and amount loaned

Which of the following is least likely an advantage of using price/sales (P/S) multiple? A)P/S multiples provide a meaningful framework for evaluating distressed firms. B)P/S multiples are more reliable because sales data cannot be distorted by management. C)P/S multiples are not as volatile as P/E multiples and hence may be more reliable in valuation analysis.

B, aggressive revenue recognition practices can influence reported sales

Which of the following forms of short-term financing is typically used to facilitate international trade? A)Overdraft line of credit. B)Banker's acceptances. C)Commercial paper.

B, banker's acceptance are for firms that export goods (guarantee from bank that firm has ordered goods and payment will be made) commercial paper: short-term debt security from large credit-worthy company,

If two banks fund a loan to a corporation, the loan is most accurately described as a: A)bilateral loan. B)syndicated loan. C)backup line of credit.

B, bilateral - one bank

A repurchase agreement is described as a "reverse repo" if: A)the repurchase price is lower than the sale price. B)a bond dealer is the lender. C)collateral is delivered to the lender and returned to the borrower.

B, bond dealers can use repo agreement as source of funding when bond dealer enters repo as lender instead of borrow, it's called reverse repo!

PRC International just completed a $234 million floating rate convertible bond offering. As stated in the indenture, the interest rate on the bond is the lesser of 90-day LIBOR or 10%. The indenture also requires PRC to retire $5.6 million per year with the option to retire as much as $10 million. Which of the following embedded options is most likely to benefit the investor? The: A)10% cap on the floating interest rate. B)conversion option on the convertible bonds. C)sinking fund provision for principal repayment.

B, cap would benefit issuer

Settlement for corporate bond trades is most likely to happen on what basis? A)Cash settlement. B)Trade date + 3 days. C)Trade date + 1 day.

B, corporate T+2 or 3 gov T+1

David Farrington is an analyst at Farrington Capital Management. He is aware that many people believe that the capital markets are fully efficient. However, he is not convinced and would like to disprove this claim. Which of the following statements would support Farrington in his effort to demonstrate the limitations to fully efficient markets? A)Stock prices adjust to their new efficient levels within hours of the release of new information. B)Processing new information entails costs and takes at least some time, so security prices are not always immediately affected. C)Technical analysis has been rendered useless by many academics who have shown that analyzing market trends, past volume and trading data will not lead to abnormal returns.

B, costs and time are the drawbacks of fully efficient markets

What is the present value, stated as a percentage of par, of a three-year security that pays a fixed annual coupon of 6% using a discount rate of 7%? A)100.00. B)97.38. C)92.48.

B, coupon/1+discount + coupon /1+discount²

An equity security that requires the firm to pay any scheduled dividends that have been missed, before paying any dividends to common equity holders, is a: A)participating preference share. B)cumulative preference share. C)convertible preference share.

B, cumulative preference shares must receive any dividends before the firm may pay to common

Which one of the following Federal Reserve monetary policies, when pursued in line with the U.S. government's fiscal policies, would help increase aggregate demand during a period of high unemployment? A)An increase in the reserve requirements for financial institutions. B)A decrease in the discount rate. C)The sale of bonds by the Fed.

B, decreasing rate increases money supply which increases demand,

The free cash flow to equity model is best described as a(n): A)enterprise value model. B)present value model. C)single-factor model.

B, estimates stock's value as pv of cash available to shareholders enterprise value is example of multiplier model

Which of the following statements regarding Eurobonds is least accurate? Eurobonds are: A)issued simultaneously to investors in many countries. B)typically registered rather than bearer bonds. C)issued in a currency other than the issuer's domestic currency.

B, eurobonds are bearer bonds rather than registered because they're issued outside any country

In a country that has a current account surplus, it is most likely that: A)private domestic savings are greater than the budget deficit. B)total domestic savings are greater than domestic investment. C)domestic investment is greater than domestic government savings.

B, exports - imports = priv savings + gov savings - investments exports is greater than imports with a current account surplus

Assume a company has earnings per share of $5 and pays out 40% in dividends. The earnings growth rate for the next 3 years will be 20%. At the end of the third year the company will start paying out 100% of earnings in dividends and earnings will increase at an annual rate of 5% thereafter. If a 12% rate of return is required, the value of the company is approximately: A)$92.92. B)$102.80. C)$55.69.

B, find d0-d4 2, 2.4, 2.88, 8.64, 9.07 5(1.2)³ = 8.64 d4/k-g = 129.57 129.57/1.12³ + 8.64/1.12³ + 2.88/1.12² + 2.4/1.12

An agency RMBS pool with a prepayment speed of 50 PSA will have a weighted average life that is: A)greater than its weighted average maturity. B)less than its weighted average maturity. C)equal to its weighted average maturity.

B, if there are any prepayments, then the life will be less then maturity

Treasury Inflation Protected Securities, which provide investors with protection against inflation by adjusting the par value and keeping the coupon rate fixed, are best described as: A)interest-indexed bonds. B)capital-indexed bonds. C)indexed-annuity bonds.

B, indexed bonds that adjust principle value while keeping coupon rate fixed is capital indexed bond

When constructing a peer group of firms, an analyst should least appropriately consider the firms': A)cost structures. B)business cycle sensitivity. C)industry classification.

B, lines of business including cost structure are important business cycle sensitivity not so much

Which of the following would be inconsistent with an efficient market? A)Price changes are independent. B)Price adjustments are biased. C)Stock prices adjust rapidly to new information.

B, market efficiency assumes investors adjust security prices to reflect their unbiased interpretation of new info

Which of the following statements about a firm with convertible preferred stock outstanding is most accurate? A)If diluted EPS is less than basic EPS then the convertible preferred is said to be antidilutive. B)If diluted and basic EPS are equal, the firm must report both basic and diluted EPS. C)Diluted EPS is calculated with net income minus preferred dividends in the numerator.

B, must report both, if diluted eps is less than basic, then the shares ARE dilutive

Johnson Company shuts down and is liquidated. Bob Smith owns 100 common shares of Johnson, but has a lower priority of claims than Al Jones, who also owns 100 common shares. Smith most likely owns: A)non-cumulative shares. B)Class B shares. C)non-participating shares.

B, participating/non-participating and cumulative/non-cumulative refer to characteristics of preferred stock

A mortgage-backed security has a pass-through rate of 4.3%. The average interest rate on its underlying pool of mortgages is 4.5%. The difference between these rates is most likely due to: A)slower-than-expected prepayments. B)issuance and servicing costs. C)faster-than-expected prepayments.

B, pass-through rates on MBS are less than avg interest rate on underlying pool of mortgages because some flows are used to pay issuance cost

A company has just received a $5 million shipment from a supplier. Its terms of trade credit are 2/15 net 30. It has access to a line of credit with an annualized cost of 9%. The best short-term financing strategy is to pay the invoice: A)on day 30. B)on day 15. C)immediately.

B, paying immediately is not best because you have financing charge or miss out on interest

One of the primary benefits of securitization is that it: A)removes problem assets from the issuing firm's balance sheet. B)improves the legal claims of the security holders to the loans that are securitized. C)improves the collectability of the loans that are securitized.

B, reduces funding cost of assets

A mortgage that includes some repayment of principal in each payment, and has an outstanding principal balance at maturity, is most accurately described as a: A)rollover mortgage. B)partially amortizing mortgage. C)hybrid mortgage.

B, rollover: changes from one fixed rate to another hybrid: fixed to variable

A firm is choosing among three short-term investment securities: Security 1: A 30-day U.S. Treasury bill with a discount yield of 3.6%. Security 2: A 30-day banker's acceptance selling at 99.65% of face value. Security 3: A 30-day time deposit with a bond equivalent yield of 3.65%. Based only on these securities' yields, the firm would: A)prefer the time deposit. B)prefer the banker's acceptance. C)prefer the U.S. Treasury bill.

B, sec 1: 3.6(30/360)=0.3% (0.3/99.7)(365/30)=3.661% sec 2: (.35/.9965)(365/30)=4.273% sec 3: 3.65

If a monetary policy is focused on combating inflation, which open market actions by the Federal Reserve will most effectively accomplish this? A)Sell Treasury securities, causing aggregate demand to increase. B)Sell Treasury securities, causing aggregate demand to decrease. C)Purchase Treasury securities, causing aggregate demand to decrease.

B, selling sec, increases interest, decreases demand, combats inflation

Consider a 10%, 10-year bond sold to yield 8%. One year passes and interest rates remained unchanged (8%). What will have happened to the bond's price during this period? A)It will have increased. B)It will have decreased. C)It will have remained constant.

B, sold at premium, price of bond will move towards 0 over time can use calc for N=10 and N=9

Which of the following statements concerning the support tranche in a planned amortization class (PAC) CMO backed by agency RMBS is least accurate? A)If prepayments are too low to maintain the scheduled PAC payments, the shortfall is provided by the support tranche. B)The support tranches are exposed to high levels of credit risk. C)The purpose of a support tranche is to provide prepayment protection for one or more PAC tranches.

B, support tranches are exposed to high levels of prepayment risk, not credit risk

Given the following information, compute price/sales. Book value of assets = $550,000. Total sales = $200,000. Net income = $20,000. Dividend payout ratio = 30%. Operating cash flow = $40,000. Price per share = $100. Shares outstanding = 1,000. Book value of liabilities = $500,000. A)2.50X. B)0.50X. C)2.00X.

B, total value of equity / sales

Contreras Fund is a mutual fund that invests in value stocks. The most appropriate type of equity index to use as a benchmark of manager performance for Contreras Fund is a: A)sector index. B)style index. C)broad market index.

B, value stocks are a type of "style" so it's style index style is also like strategy

Which of the following statements on the forms of the efficient market hypothesis (EMH) is least accurate? A)The strong-form EMH assumes perfect markets. B)The weak-form EMH states that stock prices reflect current public market information and expectations. C)The semi-strong form EMH addresses market and non-market public information.

B, weak-form assumes prices reflect all historical info, so you can't use technical analysis

For a firm that uses the cost basis for valuing its long-lived assets, fair value is a consideration when calculating a gain or loss on: A)abandoning an asset. B)exchanging an asset. C)selling an asset.

B, when exchanging, the difference is recorded as difference between carrying value and fair value when selling, gain or loss is on CV vs. money received abandoning would be loss of CV

Which of the following equity indexes is an example of a market capitalization weighted index? A)Dow Jones Industrial Average. B)MSCI All Country World Index. C)Nikkei Stock Average.

B, Dow and Nikkei are price weighed: highest stock price has highest weights

Bond X is a noncallable corporate bond maturing in ten years. Bond Y is also a corporate bond maturing in ten years, but Bond Y is callable at any time beginning three years from now. Both bonds carry a credit rating of AA. Based on this information: A)The option adjusted spread of Bond Y will be greater than its zero-volatility spread. B)Bond Y will have a higher zero-volatility spread than Bond X. C)The zero-volatility spread of Bond X will be greater than its option-adjusted spread.

B, Y will have higher because of call option, option benefits issuer so investors demand higher yield option adjusted spread removes value of call option from calculation and would always be less

Stages of an industry life cycle in chronological order are: A)growth, shakeout, mature, decline, and embryonic. B)embryonic, growth, shakeout, mature, and decline. C)embryonic, growth, mature, shakeout, and decline.

B, shakeout comes before maturity

Assume that a callable bond's call period starts two years from now with a call price of $102.50. Also assume that the bond pays an annual coupon of 6% and the term structure is flat at 5.5%. Which of the following is the price of the bond assuming that it is called on the first call date? A)$103.17. B)$100.00. C)$102.50.

Bond price = 6/1.055 + (102.50 + 6)/1.0552= $103.17

An investor purchases 200 shares of Mertz, Inc. on margin. The shares are trading at $40. Initial and maintenance margins are 50% and 25%. If the investor sells the stock when the price rises to $50 at year-end, the return on the investment would be closest to: A)20%. B)25%. C)50%.

C

In accounting for PP&E using the cost model, companies are required to disclose both gross asset value and accumulated depreciation under: A)IFRS but not U.S. GAAP. B)U.S. GAAP but not IFRS. C)both IFRS and U.S. GAAP.

C

Jayco, Inc. has a division that makes red ink for the accounting industry. The unit has fixed costs of $10,000 per month, and is expected to sell 40,000 bottles of ink per month. If the variable cost per bottle is $2.00 what price must the division charge in order to breakeven? A)$2.75. B)$2.50. C)$2.25.

C 40,000=(10,000)/p-2

Wanton's San Y'isidro Co. manufactures custom door knobs for international clients. Average Revenue is $35 per unit, variable costs are $15 per unit, and total costs are $200,000. If sales are 10,000 units, what is the firm's breakeven sales quantity? A)1,750 units. B)3,000 units. C)2,500 units.

C BE quantity = fc/price-vc fc = tc - vc 50/20

Stromburg Corporation's sales are $75,000,000. Fixed costs, including research and development, are $40,000,000, while variable costs amount to 30% of sales. Stromburg plans an expansion which will generate additional fixed costs of $15,000,000, decrease variable costs to 25% of sales, and permit sales to increase to $100,000,000. What is Stromburg's degree of operating leverage at the new projected sales level? A)3.50. B)4.20. C)3.75.

C DOL = (sales-vc)/(sales-tc)

An index provider maintains a price index and a total return index for the same 40 stocks. Assuming both indexes begin the year with the same value, the total return index at the end of the year will be: A)greater than the price index. B)less than the price index if the price index increases and greater than the price index if the price index decreases. C)equal to the price index if the constituent stocks do not pay dividends.

C total return includes prices and dividends paid in calculation of index value

Which of the following statements about U.S. Treasury Inflation Protection Securities (TIPS) is most accurate? A)The inflation-adjusted principal value cannot be less than par. B)Adjustments to principal values are made annually. C)The coupon rate is fixed for the life of the issue.

C adjusted semi-annually

For relative valuation, a peer group is best described as companies: A)at a similar stage of the industry life cycle. B)in a similar sector or industry classification. C)with similar business activities and competitive factors.

C peer groups: similar business activities, drivers of demand and cost, access to capital

An investor who is more risk averse with respect to potential negative outcomes than potential positive outcomes most likely exhibits: A)mental accounting. B)conservatism. C)loss aversion.

C risk averse: you prefer lower returns with known risk rather than higher returns with unknown risk

Strategic default by a mortgage borrower is most likely if the loan is: A)non-conforming. B)non-amortizing. C)non-recourse.

C savage

An analyst who is evaluating a firm's working capital management would be least likely to be concerned if the firm's: A)total asset turnover is lower than its industry average. B)number of days of inventory is higher than that of its peers. C)operating cycle is shorter than that of its peers.

C shorter operating cycle means shorter CCC which is good,

Jayco, Inc. sells 10,000 units at a price of $5 per unit. Jayco's fixed costs are $8,000, interest expense is $2,000, variable costs are $3 per unit, and earnings before interest and taxes (EBIT) is $12,000. What is Jayco's degree of financial leverage (DFL) and total leverage (DTL)? DFL, DTL A)1.33, 2.00 B)1.33, 1.75 C)1.20, 2.00

C, DOL = [Q(P - V)] / [Q(P - V) - F] DFL = EBIT / (EBIT - I) DTL = DOL × DFL

Compared to a value-weighted index, the type of index most likely to have a value tilt is a(n): A)price-weighted index. B)equal-weighted index. C)fundamental-weighted index.

C,

The value of a total return index: A)may increase at either a faster or slower rate than the value of a price return index with the same constituent securities and weights. B)is determined by the price changes of the securities that constitute the index. C)can be calculated by multiplying the beginning value by the geometrically linked series of periodic total returns.

C,

Which yield measure is the most appropriate for comparing a company's investments in short-term securities? A)Money market yield. B)Discount basis yield. C)Bond equivalent yield.

C,

For a non-dividend paying firm, an increase in net income must increase: A)both book value and market value of equity. B)market value of equity. C)book value of equity.

C, BV is assets - liabilities BV of equity increases when firm has positive net income and retained earnings

In contrast with most asset-backed securities (ABS), a collateralized debt obligation (CDO): A)is issued through a special purpose vehicle. B)has senior and subordinate tranches. C)employs a collateral manager.

C, CDO has collateral manager who buys and sells securities in collateral pool to generate cash to meet CDO's obligations

Total cash flows to investors in an ABS issue are: A)equal to the total interest and principal payments from the underlying asset pool if only one class of ABS has been issued from the trust. B)equal to the total interest and principal payments from the underlying asset pool. C)less than the total interest and principal payments from the underlying asset pool.

C, CFs are used to pay fees

Assume the following information for a stock: Beta coefficient= 1.50 Risk-free rate= 6% Expected rate of return on market= 14% Dividend payout ratio= 30% Expected dividend growth rate= 11% The estimated earnings multiplier (P/E ratio) is closest to: A)10.00. B)3.33. C)4.29.

C, D1/E1 = d/e1 / (k-g) d1/e1=div payout ratio

The spot exchange rate for United States dollars per United Kingdom pound (USD/GBP) is 1.5775. If 30-day interest rates are 1.5% in the United States and 2.5% in the United Kingdom, and interest rate parity holds, the 30-day forward USD/GBP exchange rate should be: A)1.5621. B)1.5788. C)1.5762.

C, Forward USD/GBP = spot USD/GBP × (1 + U.S. interest rate) / (1 + UK interest rate) you must first divide the interest rate by 12 (months)

Today an investor purchases a $1,000 face value, 10%, 20-year, semi-annual bond at a discount for $900. He wants to sell the bond in 6 years when he estimates the yields will be 9%. What is the estimate of the future price? A)$1,152. B)$946. C)$1,079.

C, N=(20-6)(2) 28 I/Y=4.5 PMT=50 FV=1000 solve for PV!

An investor is interested in buying a 4-year, $1,000 face value bond with a 7% coupon and semi-annual payments. The bond is currently priced at $875.60. The first put price is $950 in 2 years. The yield to put is closest to: A)10.4%. B)8.7%. C)11.9%.

C, N=2x2=4 PV=-875.6 PMT=35 FV=950 x2 because semi annual

An investor purchases 100 shares of Lloyd Computer at $26 a share. The initial margin requirement is 50%, and the maintenance margin requirement is 25%. The price below which the investor would receive a margin call is closest to: A)15.25. B)19.45. C)17.33.

C, P0 * (1-margin requirement)/(1-maintenance margin)

An investor purchases 200 shares of Rubble, Inc. on margin. The shares are trading at $40. Initial and maintenance margins are 50% and 25%. If the company pays a dividend of $0.75 and the investor sells the stock at year-end for $50 per share, the return on the investment would be closest to: A)15.75% B)39.55% C)53.75%

C, Profit/Initial investment

Which of the following changes would most likely cause a firm's return on equity to increase? A)Net income increases by 5% and average book value of equity increases by 10%. B)Net income increases by 5% and average book value of equity increases by 5%. C)Net income decreases by 5% and average book value of equity decreases by 10%.

C, ROE is NI/Average book value book value decreases more than net income decreases the total ROE will increase increase in ROE is not necessarily positive for a firm, you must look at what changed

Which of the following statements regarding the impact of financial leverage on a company's net income and return on equity (ROE) is most accurate? A)Increasing financial leverage increases both risk and potential return of existing bondholders. B)If a firm has a positive operating profit margin, using financial leverage will always increase ROE. C)Using financial leverage increases the volatility of ROE for a level of volatility in operating income.

C, adding financial leverage (debt) causes ROE to become more volatile

A 2-year option-free bond (par value of $1,000) has an annual coupon of 6%. An investor determines that the spot rate of year 1 is 5% and the year 2 spot rate is 8%. Using the arbitrage-free valuation approach, the bond price is closest to: A)$1,039. B)$992. C)$966.

C, arbitrage-free valuation: valuing fixed income instrument as portion of zero coupon bonds 60/1.05 + 60/1.05² = $966

The following data pertains to the Sapphire Company: Net income equals $15,000. 5,000 shares of common stock issued on January 1st. 10% stock dividend issued on June 1st. 1,000 shares of common stock were repurchased on July 1st. 1,000 shares of 10%, $100 par preferred stock each convertible into 8 shares of common were outstanding the whole year. What is the company's diluted earnings per share (EPS)? A)$1.15. B)$2.50. C)$1.00.

C, basic eps: ni-preferred divs/avg shares 5,000 (5,000*.1) x 12 = 66,000 - 1000(6months) = 60k/12=5k 1,000 x 1.1(8) = 8,800 ni/13800 = 1.09 since basic is higher we use basic

An investor pays $100,000 for a security that consists of a zero-coupon bond that will pay $90,000 in three months and $11,000 worth of call options on an equity index that expire in three months. This security is most accurately described as a: A)guarantee certificate. B)participation instrument. C)capital protected instrument.

C, capital protected: promised minimum value at maturity with some potential upside gain guarantee certificate: promised payment at maturity participation instrument: promise payments based on value of reference asset

Which of the following is least likely a common objective of governmental capital restrictions? A)Reduce the volatility of domestic asset prices. B)Maintain fixed exchange rates. C)Keep domestic interest rates high.

C, common objective of capital restrictions is to keep domestic interest rates LOW

In which of the following conditions is the bond selling at a premium? The coupon rate: A)is less than current yield, which is less than yield-to-maturity. B)current rate and yield-to-maturity are all the same. C)is greater than current yield, which is greater than yield-to-maturity.

C, coupon rate greater than current yield and current yield greater than YTM is premium

The principal value of a sovereign bond is $1,000 at issuance and $1,055 two years after issuance. This bond most likely: A)trades at a premium. B)has been upgraded. C)is indexed for inflation.

C, credit upgrades/downgrades do not affect principle value premium would mean market price higher than principle

When evaluating the loans backing a commercial mortgage-backed security based on debt service coverage (DSC) and loan-to-value (LTV) ratios, which of the following indicate better credit quality? A)Lower DSC and higher LTV. B)Higher DSC and higher LTV. C)Higher DSC and lower LTV.

C, debt service coverage: noi/debt service, coverage ratio loan-to-value: mortgage amount/appraised value (lower=more protection)

To convert an indirect statement of cash flows to a direct basis, the analyst would: A)add increases in accounts payable to cost of goods sold. B)subtract increases in inventory from cost of goods sold. C)add decreases in accounts receivables to net sales.

C, decrease in AR represents an increase in cash so add this to sales increases in AP is an increase in cash so subtract from cogs increase in inventory is use of cash so add to cogs

The interest rate on excess reserves borrowed by one bank from another bank is most accurately described as a(n): A)interbank lending rate. B)reserve swap rate. C)central bank funds rate.

C, excess reserves are in excess of what central bank requires so they borrow at central bank rate

A firm has average days of receivables outstanding of 22 compared to an industry average of 29 days. An analyst would most likely conclude that the firm: A)has a lower cash conversion cycle than its peer companies. B)has better credit controls than its peer companies. C)may have credit policies that are too strict.

C, firm's avg days receivables should be CLOSE to industry avg. lower avg days receivables would mean firm policies are too strict,

A manager tells a research analyst, "A thorough industry analysis should use more than one approach to estimate industry variables," and "An analyst should not compare his valuations to those of other analysts." Which of these two statements is (are) CORRECT? A)Neither of these statements is accurate. B)Both of these statements are accurate. C)Only one of these statements is accurate.

C, first statement is accurate

Fixed income classifications by issuer most likely include: A)Money market securities. B)Floating-rate bonds. C)Financial sector bonds.

C, floating rate is classification of coupon structure money market is classification of maturity bruh we call fixed income fixed income at ppa

Settlement for a government bond trade most likely occurs on the: A)third trading day after the trade. B)second trading day after the trade C)next trading day after the trade.

C, gov bonds trade (T+1)

If a stock sells for $50 that has an expected annual dividend of $2 and has a sustainable growth rate of 5%, what is the market discount rate for this stock? A)10.0%. B)7.5%. C)9.0%.

C, k = (d1/p) + g

Calculate the value of a preferred stock that pays an annual dividend of $5.50 if the current market yield on AAA rated preferred stock is 75 basis points above the current T-Bond rate of 7%. A)$78.57. B)$42.63. C)$70.97.

C, k = base yield + risk premium 0.07 + 0.0075 = 0.0775 value = 5.5 / 0.0775

Which of the following statements about the role of equities in financing a company's assets is most accurate? A)The book value and market value of equities is usually the same. B)Management can directly increase the market value of equity by increasing net income. C)Equity capital is typically used for the purchase of long-term assets and expansion into new areas.

C, management can only indirectly affect the market value of equity

Which of the following orders is said to be "behind the market"? A)Market sell order when the best bid is 38 and the best ask is 39. B)Limit sell order at 38 when the best ask is 39. C)Limit buy order at 38 when the best bid is 39.

C, market orders are never behind the market limit sell is behind if limit price is ABOVE the best ask here the person will buy when price is $38 or less, this is too low

All else equal, a firm's business risk is higher when: A)the firm has low operating leverage. B)variable costs are the highest portion of its expense. C)fixed costs are the highest portion of its expense.

C, more fixed cost = higher business risk

Common equity share types ranked from least risky to most risky are: A)callable, putable, option-free. B)option-free, putable, callable. C)putable, option-free, callable.

C, putable is least risky because investor can sell shares back to issuer at predetermined price callable shares are most risky because issuer can buy securities back at predetermined price which limits upside for investor

The most appropriate reference rate for a one-year, U.S. dollar denominated, floating-rate note that resets monthly is: A)1-year LIBOR. B)overnight LIBOR. C)30-day LIBOR.

C, reference rate for floating-rate debt should match frequency with coupon reset rate

A sequential-pay CMO has two tranches. Principal is paid to Tranche S until it is paid off, after which principal is paid to Tranche R. Compared to Tranche R, Tranche S has: A)less contraction risk and more extension risk. B)more contraction risk and more extension risk. C)more contraction risk and less extension risk.

C, sequential-pay cmo: each tranche amortized in order of seniority tranches with first dibs have more contraction risk tranches paid to last have more extension risk contraction: borrowers pre-pay loan, shortening duration extension: defer loan payments, increasing length of loan

On November 15, 20X1, Grinell Construction Company decided to issue bonds to help finance the acquisition of new construction equipment. They issued bonds totaling $10,000,000 with a 6% coupon rate due June 15, 20X9. Grinell has agreed to pay the entire amount borrowed in one lump sum payment at the maturity date. Grinell is not required to make any principal payments prior to maturity. What type of bond structure has Grinell issued? A)Amortizing maturity structure. B)Serial maturity structure. C)Term maturity structure.

C, serial: several maturity dates so portion of issue is redeemed periodically

Which of the following statements about securities exchanges is most accurate? A)Setting a negotiated price to clear the market is a method used to set the closing price in major continuous markets. B)Continuous markets are markets where trades occur 24 hours per day. C)Call markets are markets in which the stock is only traded at specific times.

C, setting negotiated price is to set opening price (not closing)

Which of the following statements about securities markets is least accurate? A)Secondary markets, such as the over-the-counter (OTC) market, provide liquidity and price continuity. B)Characteristics of a well-functioning securities market include: many buyers and sellers, low bid-ask spreads, timely information on price and volume of past transactions, and accurate information on supply and demand. C)A limit buy order and a stop buy order are both placed below the current market price.

C, stop buy is placed above the current market price

A collateralized debt obligation (CDO) in which the collateral is a pool of residential mortgage-backed securities is most accurately described as a: A)synthetic CDO. B)collateralized loan obligation (CLO). C)structured finance CDO.

C, structured finance CDO: pool of mortgage-backed securities, asset-backed securities or other CDOs synthetic CDO: backed by credit default swaps CLO: pool of leveraged bank loans

Which of the following arguments in favor of trade restrictions is least likely to be supported by economists? A)Infant industries should be protected. B)National defense industries should be protected. C)Trade with low-wage countries depresses wage rates in high-wage countries.

C, trading with low-wage countries does not itself depress wage rates (productivity must also be considered)

Which of the following statements about market efficiency is least accurate? A)The strong-form EMH assumes cost free availability of all information, both public and private. B)The semi-strong form EMH addresses market and non-market public information. C)The weak-form EMH suggests that fundamental analysis will not provide excess returns while the semi-strong form suggests that technical analysis cannot achieve excess returns.

C, weak form = no technical semi-strong form = no fundamental

Assume that the exercise price of an option is $9, and the average market price of the stock is $12. Assuming 992 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the Diluted EPS? A)992. B)744. C)248.

C, you gotta subtract the shit at the end 9*992=8928 8928/12 = 744 992-744 = 248

Yangtze Delta High Technology produces multimedia-enabled wireless phones. The factory incurs rent, depreciation, salary, and other fixed costs totaling RMB 10 million per year. Also, the company incurs annual interest of RMB 3 million on debt. Each phone sold by Yangtze Delta sells for RMB 200. The variable cost per phone is RMB 150. Yangtze Delta's operating breakeven quantity of sales is closest to: A)260,000. B)65,000. C)200,000.

C, 10m/50 do not include interest

With which of the following types of equity shares does the investor typically have the greatest voting power? A)Participating preference shares. B)Unsponsored depository receipts. C)Common shares.

C, preference shares typically do not have voting rights unsponsored depository receipts, the bank retains right to vote

Which type of issuer is most likely to issue bonds by auction? A)Municipal. B)Corporate. C)Sovereign.

C, sovereign is national government

Interest Paid (us gaap and ias)

GAAP = CFO IAS = CFO or CFF

BEY is calculated as

HPY (365/30)

ROE

NI / AVERAGE EQUITY

Market Cap weighted

current market cap/year 0 market cap