FIN 430 Chapter 2 Assignment/Poll Questions

$9,854.75

A T-bill quote sheet has 90-day T-bill quotes with a 5.87 bid and a 5.81 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____.

a. Price of the bill $ 9,940.00 b. Bond equivalent yield 2.75 %

A T-bill with face value $10,000 and 80 days to maturity is selling at a bank discount ask yield of 2.7%. a. What is the price of the bill? b. What is its bond equivalent yield?

3.53%

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $26, $34, and $80. The number of outstanding shares for each is 690,000 shares, 590,000 shares, and 290,000 shares, respectively. If the stock prices changed to $30, $32, and $82 today respectively, what is the 1-day rate of return on the index?

6.18%

An investor buys a T-bill at a bank discount quote of 6.00 with 90 days to maturity. The investor's actual annual rate of return on this investment is _____.

Minimum municipals offer 5.36 %

An investor is in a 35% combined federal plus state tax bracket. If corporate bonds offer 8.25% yields, what must municipals offer for the investor to prefer them to corporate bonds?

5% and 5.28%

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.6%, respectively. If the investor is in the 20% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____.

a. Rate of return 3.31 % b. Rate of return 1.68 %

Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. Calculate the first-period rates of return on the following indexes of the three stocks: a. A market value-weighted index b. An equally weighted index

a. Rate of return 4.55 % b. Divisor 2.35

Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). b. What will be the divisor for the price-weighted index in year 2 if the initial divisor is 3?

Equal-weighted

For which of the following indexes will rebalancing occur most frequently?

Value-weighted

In which of the following weighting schemes do firms with greater market capitalizations have a greater impact on the index than do firms with less market capitalization?

they are safe and marketable

Money market securities are sometimes referred to as cash equivalents because _____.

Price-weighted

Stock splits potentially cause a downward bias in which of the following index weighting schemes?

the federal government

Treasury bills are financial instruments issued by ____ to raise funds.

5.25%

What is the tax exempt equivalent yield on a 7% bond yield given a marginal tax rate of 25%?

360

When computing the bank discount yield, you would use ____ days in the year.

Equal-weighted

Which index weighting scheme would produce returns closest to those of a portfolio of index stock with an equal dollar investment in each stock in the index?

Price-weighted

Which index weighting scheme would produce returns closest to those of a portfolio of index stocks with an equal number of shares of each index stock?

preferred stock

Which of the following is not a money market instrument? Treasury bill commercial paper preferred stock bankers' acceptance

A municipal bond is a debt obligation issued by the federal government.

Which of the following is not a true statement regarding municipal bonds? A municipal bond is a debt obligation issued by state or local governments. A municipal bond is a debt obligation issued by the federal government. The interest income from a municipal bond is exempt from federal income taxation. The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

How the data are collected

Which of the following will have the least effect on index returns? How the data are collected The weighting scheme for the index firms The computational procedure for calculating the index

a. A 10-year Treasury bond with a 9.25% coupon rate b. A three-month expiration call option with an exercise price of $32 c. A put option on another stock selling at $47

Which security should sell at a greater price? a. A 10-year Treasury bond with a 9.25% coupon rate or a 10-year T-bond with an 8.25% coupon. b. A three-month expiration call option with an exercise price of $32 or a three-month call on the same stock with an exercise price of $37. c. A put option on a stock selling at $57 or a put option on another stock selling at $47. (All other relevant features of the stocks and options are assumed to be identical.)

A Treasury bond

____ is not a money market instrument.

Canada

______ would not be included in the EAFE index.