Investment Management Chapter 3, Chapter 3, Homework 2, Investments Test 1, Chapter 6 FI, Investments Exam 1, FIN 427 Exam 4, Quiz 2, Chapter 2 Mult, Ch. 2 chapter questions, exame 4200

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Investment Banks and IPOs

"Roadshow"- lead firm markets the new shares to investors purpose: to generate interest in new issue "bookbuilding" - get estimate of fair offer price by getting a sense of the interest in the new issue

If the strike price is less than the current stock price, it is considered to be an....

"in-the-money" call

If the strike price is greater than the current stock price, it is considered to be an...

"out-of-the-money" call

The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive _________.

$ 1,045.31

A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ______ per share.

$0.45 [(60 x .03)/4] = $0.45

The price quotations of treasury bonds in the Wall Street Journal show a bid price of 102:12 and an ask price of 102:14. If you sold the bond you expect to receive _________.

$1,023.75

Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit fees were $90,000. The offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the equity issue?

$1,690,000 90,000 + (43-35)200,000

If you invested $1,000 at the beginning of 2005 your investment at the end of 2008 would be worth ___________.

$1,785.56 $1(1.3523)(1.1867)(1 + -.0987)(1.2345)

You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain ignoring transactions cost?

$10,000

You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost?

$10,000

If you decide to hold 25% of your complete portfolio in the risky portfolio and 75% in the treasury bills then the dollar values of your positions in X and Y respectively would be __________ and _________.

$150, $100

You invest $10,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a treasury bill with a rate of return of 5%. How much money should be invested in the risky asset to form a portfolio with an expected return of 11%?

$6000 15x + 5(1 - x) = 11; x = 60%; 0.60(10,000)

You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.

$62.50

You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you wish to limit your loss to $2,500, you should place a stop-buy order at ____.

$62.50 50 + (2500/200)

The offer price of an open-end fund is $18.00 and the fund is sold with a front-end load of 5%? What is the fund's NAV?

$17.10 (18)(1-.05)

An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price?

$17.55 16.5/1-.06

Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note the firm is reporting $225 million in assets, $30 million in liabilities, and 10 million shares outstanding. What is the Net Asset Value (NAV) of these shares?

$19.50 225-30/10

The holding period return on a stock was 25%. Its ending price was $18 and its beginning price was $16. Its cash dividend must have been _________.

$2.00 16(.25)-(18-16)

The dollar values of your positions in X, Y, and treasury bills would be _________, __________ and __________ respectively if you decide to hold a complete portfolio that has an expected return of 8%.

$243, $162, $595

Consider the following two investment alternatives. First, a risky portfolio that pays 20% rate of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. If you invest $50,000 in the risky portfolio, your expected profit would be _________.

$7000 50k[.6(.2)+.4(.05)]

Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.

$8,000

Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.

$8,000 500($40)(.40)=8,000

Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.

$8,000 500($40)(.40)

Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the net asset value (NAV) of these shares? A. $12 B. $9 C. $10 D. $1

$9 500-50/50

A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____.

$9,878.50

A T-bill quote sheet has 90 day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value an investor could buy this bill for

$9,878.50 = 10,000 x [1 - (.0486 x 90)/360]

What would be the profit or loss per share of stock to an investor who bought an October expiration Apple call option with an exercise price of $130 if Apple closed on the expiration date at $120? Assume the option premium was $3.00.

$3.00 loss

Consider a mutual fund with $300 million in assets at the start of the year and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year-end value, what is the rate of return on the fund? A. 15.64% B. 16% C. 17.25% D. 17.5%

$300M(1+.18) = $354M $354M(.02) = $7.08M ($354M - $7.08M - $300M)/$300M = .1564 = 15.64%

June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the _____ exercise price and the put option with the _____ exercise price will have the greatest value. A. $40; $30 B. $30; $40 C. $35; $35 D. $40; $40

$30; $40

June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value.

$30; $40

June call and put options on King Books Inc are available with exercise prices of $30, $35 and $40. Among the different exercise prices, the call option with the _____ exercise price and the put option with the _____ exercise price will have the greatest value.

$30;$40

The holding period return on a stock was 32%. Its beginning price was $25 and its cash dividend was $1.50. Its ending price must have been _________.

$31.50 P1+1.5-25/25=.32

You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends and ignore interest on the margin loan.)

$35.71

$35.71 Equity = 200P - 5,000 Margin = (200P - 5,000)/200P = .30 200P - 5,000 = 60P 140P = 5,000 P = 35.71429

You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.

$4,500

You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.

$4,500 300(30)(.50)

You find that the bid and ask prices for a stock are $10.25 and $10.30 respectively. If you purchase or sell the stock you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

$55

You find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. If you purchase or sell the stock, you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

$55

A mutual fund has $50 million in assets at the beginning of the year and 1 million shares outstanding throughout the year. Throughout the year assets grow at 12%. The fund imposes a 12b-1 fee on all shares equal to 1%. The fee is imposed on year end asset values. If there are no distributions what is the end of year NAV for the fund?

$55.44 (50mil)(1.12)(1-.01)/1mil

Annual percentage rates can be converted to effective annual rates by means of the following formula:

(1 + (APR/n))n - 1

You sell short 600 shares of Microsoft that are currently selling at $25 per share. You post the 40% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft is selling at $24? (Ignore any dividends.) A. 17.50% B. 10.00% C. 5.00% D. 7.50%

(25 - 24)/.4(25) = .1 = 10%

You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.

(32-25)/(25*0.65) = .43 43%

22. ________ is not a money market instrument. A) A certificate of deposit B) A Treasury bill C) A Treasury bond D) Commercial paper

a Treasury Bond

When a bank guarantees a future payment to a firm, the financial instrument used is called: A) a repurchase agreement. B) a negotiable CD. C) a banker's acceptance. D) commercial paper.

a banker's acceptance.

21. Which one of the following is a true statement regarding corporate bonds? A) A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares. B) A corporate debenture is a secured bond. C) A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares. D) Holders of corporate bonds have voting rights in the company.

a corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

If Equity / Market Value is less than or equal to, margin call occurs

(market value - borrowed) / market value <= MMR market value <= borrowed / (1 - MMR)

The price of a stock is $55 at the beginning of the year and $50 at the end of the year. If the stock paid a $3 dividend and inflation was 3%, what is the real holding period return for the year?

-6.44%

The price of a stock is $55 at the beginning of the year and $50 at the end of the year. If the stock paid a $3 dividend and inflation was 3%, what is the real holding-period return for the year?

-6.44%

The Manhawkin Fund has an expected return of 16% and a standard deviation of 20%. The risk free rate is 4%. What is the reward-to-volatility ratio for the Manhawkin Fund?

.06 16-4/20

Management fees for open-end and closed-end funds, typically range between _____ and _____.

.2%; 1.5%

A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe measure of ____.

.42 15-4.5/25

The slope of the capital allocation line formed with the risky asset and the risk-free asset is _________.

.50 16-6/20

The Manhawkin Fund has an expected return of 16% and a standard deviation of 20%. The risk-free rate is 4%. What is the reward-to-volatility ratio for the Manhawkin Fund?

35. Treasury notes have initial maturities between ________ years. A) 2 and 4 B) 5 and 10 C) 10 and 30 D) 1 and 10

1 and 10

Treasury notes have initial maturities between ________ years.

1 and 10

2. T-bills are issued with initial maturities of I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks A) I and II only B) I and III only C) I, II, and III only D) I, II, III, and IV

1 and 111 Only

18. Which of the following are true statements about T-bills? I. T-bills typically sell in denominations of $10,000. II. Income earned on T-bills is exempt from all federal taxes. III. Income earned on T-bills is exempt from state and local taxes. A) I only B) I and II only C) I and III only D) I, II, and III

1 and 111 only

Real assets represent about ____ of total assets for financial institutions.

From 1971 to 2007 the average return on the Wilshire 5000 index was _________ the return of the average mutual fund.

1% higher than

Types of Markets (4)

1. Direct Search 2. Brokered 3. Dealer 4. Auction

27. The Dow Jones Industrial Average is ________. A) a price-weighted average B) a value weight and average C) an equally weighted average D) an unweighted average

a price weighted average

The Dow Jones Industrial Average is ________.

a price-weighted average

You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ______.

a price-weighted index

You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You've just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _____.

a seasoned equity offering

Minimum tick size of treasury notes and bonds

1/128

7. The minimum tick size, or spread between prices in the Treasury bond market, is A) 1/8 of a point. B) 1/16 of a point. C) 1/32 of a point. D) 1/128 of a point

1/128 of a point

The minimum tick size, or spread between prices in the Treasury bond market, is

1/128 of a point.

Circuit breakers will be imposed if the Dow Jones Industrial Average drops by a minimum of ______ by 2.30 pm

10%

The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend, what is the dividend yield?

10% (25mil-4mil)/700k=30 per share 3/30=.1

A newly issued T‑bill with a $10,000 par value sells for $9,750, and has a 90‑day maturity. What is the DISCOUNT? A) 10.26 percent B) 0.26 percent C) $2,500 D) 10.00 percent E) 11.00 percent

10.00 percent (10,000-9,750)/10,000 X (360/90)= 10.00

A loan for a new car costs the borrower .8% per month. What is the EAR?

10.03%

A loan for a new car costs the borrower 0.8% per month. What is the EAR?

10.03%

A 5.5% 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

10.75%

32. The Standard & Poor's 500 is ________ weighted index. A) an equally B) a price- C) a value- D) a share-

a value-

The minimum denomination of commercial paper is $_______. A) 25,000 B) 100,000 C) 150,000 D) 200,000

100,000

The Standard & Poor's 500 is ________ weighted index.

a value-

You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ____.

11.00% .04 + 3.5/50

If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with?

11.24% (1.08)(1.03)-1

An investment earns 10% the first year, 15% the second year and loses 12% the third year. Your total compound return over the three years was ______.

11.32% (1.10)(1.15)(1 - .12)

During the 1926 to 2008 period the geometric mean return on small firm stocks was ______.

11.43%

The Standard & Poor's 500 is __________ weighted index.

a value-

The historical average rate of return on the large company stocks since 1926 has been?

12%

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively.

12%; 15.7%

Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15 million shares at the start of the year; and $500 million in assets, 40 million in debt, and 18 million shares at the end of the year. During the year investors have received income distributions of $0.50 per share, and capital gains distributions of $0.30 per share. Assuming that the fund carries no debt, and that the total expense ratio is 0.75%, what is the rate of return on the fund?

12.09%

A firm plans to issue 30‑day COMMERCIAL PAPER for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing? A) 12.12 percent B) 11.11 percent C) 13.00 percent D) 14.08 percent E) 15.25 percent

12.12 percent (10,000,000-9,900,000)/9,900,000 X (360/30)= 12.12 %

Suppose you pay $9,800 for a $10,000 par Treasury bill maturing in two months. What is the annual percentage rate of return for this investment?

12.24%

Treasury bills are paying a 4% rate of return. A risk averse investor with a risk aversion of A = 3 should invest in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ______.

12.64%

Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in six months. What is the effective annual rate of return for this investment?

13.17%

As of 2008, approximately _____ of mutual fund assets were invested in bond funds.

14%

The price of a stock is $38 at the beginning of the year and $41 at the end of the year. If the stock paid a $2.50 dividend what is the holding period return for the year?

14.47%

The price of a stock is $38 at the beginning of the year and $41 at the end of the year. If the stock paid a $2.50 dividend, what is the holding-period return for the year?

14.47%

Robbins Corp. frequently invests excess funds in the Mexican money market. One year ago, Robbins invested in a one-year Mexican money market security that provided a yield of 25 percent. At the end of the year, when Robbins converted the Mexican pesos to dollars, the peso had depreciated from $.12 to $.11. What is the effective yield earned by Robbins? 25.00 percent 35.41 percent 14.59 percent none of these

14.59 percent y= (1+.25) X (1+ ((.11-.12)/.12))-1 y= 1.25 X .91667= 1.14583-1= 14.59%

In 2008 mortgages represented approximately __________ percent of total liabilities and net worth of American households.

15%

The annualized average return on this investment is

15.60%

You have the following rates of return for a risky portfolio for several recent years: 2011 35.23% 2012 18.67% 2013 −9.87% 2014 23.45% The annualized (geometric) average return on this investment is _____.

15.60%

Consider a mutual fund with $300 million in assets at the start of the year, and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year end value, what is the rate of return on the fund?

15.64%

The return on the risky portfolio is 15%. The risk-free rate as well as the investor's borrowing rate is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is _________.

16.25%

An investor puts up $5,000 but borrows an equal amount of money from their broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share and in one year the investor sells the stock for $28. The investor's rate of return was ____.

17%

To form a complete portfolio with an expected rate of return of 11%, you should invest __________ of your complete portfolio in treasury bills.

19%

Privately held firms may have only _______ shareholders.

2,000

Most studies indicate that investors' risk aversion is in the range _____

2-4

Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's EX-PECTED annualized yield from this transaction? 13.43 percent 2.78 percent 10.55 percent 2.80 percent none of these

2.80 percent (9,719-9,645)/9,645 X (365/100)= 0.00767X3.65= 2.80%

You find that the bid and ask prices for a stock are $11.75 and $12.50, respectively. If you purchase or sell the stock, you must pay a flat commission of $15. If you buy 200 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars? A. $30 B. $15 C. $165 D. $180

200(12.50 - 11.75) + 2(15) = $180

The combined liabilities of American households represent approximately __________ percent of combined assets.

21%

Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start of the year, and $250 million in assets and 11 million shares at the end of the year. During the year investors have received income distributions of $2 per share, and capital gains distributions of $0.25 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?

24.90%

Approximately __________ of trades involving shares issued by firms listed on the New York Stock Exchange actually take place on the New York Stock Exchange.

25%

Measured by assets, about _____ of funds are money market funds.

25%

Commercial paper with a maturity exceeding _______ must be registered with the SEC. A) 45 days B) 270 days C) 1 year D) none of these

270 days

Low load mutual funds have front-end loads of no more than _____.

Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 40% or 5% with a probability of 60%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is _________.

3% [.4(.15)+.6(.05)]-.06

Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months. What is the holding period return for this investment?

3.09% 10k-9.7k/9.7k

??? An investor initially purchased securities at a price of $9,923,418, with an agreement to sell them back at a price of $10,000,000 at the end of a 90-day period. The repo rate is _______ percent. A) 3.10 B) 0.77 C) 1.00 D) none of these

3.10 (10,000,000-9,923,418)/9,923418 X(360/90)=0.00772X4.00= 3.088%

A tax free municipal bond provides a yield of 2.34%. What is the equivalent taxable yield on the bond given a 28% tax bracket?

3.25% .0234/1-.28

The average rate of return on U.S. Treasury bills since 1926 was _________.

3.8%

If the nominal rate of return on investment is 6% and inflation is 2% over a holding period, what is the real rate of return on this investment?

3.92%

If nominal rate of return on investment is 6% and inflation is 2% over a holding period, what is the real rate of return on this investment?

3.92% 6-2/1.02

A ______ drop in the Dow Jones Industrial Average would stop trading for the day.

30%

You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.

300(30)(.5) = 4,500

3. When computing the bank discount yield, you would use ________ days in the year. A) 260 B) 360 C) 365 D) 366

360

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

360

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

360

T-bills use ___ days instead of ___ days.

360; 365

In 2008 real assets represented approximately __________ percent of the total asset holdings of American households.

37%

Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million and $150 million respectively. If you were to construct a price-weighted index of the three stocks what would be the index value?

39 [(12+75+30)/3] = 39

Brokered Market

3rd party (the broker) helps buyers and sellers seek each other out Real estate Investment Banker

You pay $21,600 to the Laramie Fund which has a NAV of $18.00 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.3% and is deducted from year end asset values. What is your rate of return on the fund if you sell your shares at the end of the year?

4.23%

You purchased a share of stock for $29. One year later you received $2.25 as dividend and sold the share for $28. Your holding-period return was _________.

4.31% 28+2.25-29/29

The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index?

4.50 10+20+80+50+20/X = 40 X=4.50

What is the geometric average return of the following quarterly returns: 3%, 5%, 4%, and 7%, respectively?

4.74%

A tax free municipal bond provides a yield of 3.2%. What is the equivalent taxable yield on the bond given a 35% tax bracket?

4.92% .032/1-.35

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The investor's bond equivalent yield on this investment is _____.

4.97%

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The investor's actual annual rate of return on this investment was _____.

4.97% 1) 10k x [1 - (.048 x 150)/360] = 9800 2) [(10k/9800) - 1] x 365/150 = 4.97%

To form a complete portfolio with an expected rate of return of 8%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y respectively.

40%, 24%, 16%

The Chompers Index is a price weighted stock index based on the 3 largest fast food chains. The stock prices for the three stocks are $54, $23, and $44. What is the price weighted index value of the Chompers Index?

40.33 (54+23+44)/3

43%

You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.

43% 32-25/25(.65)

Liabilities equal approximately ____ of total assets for nonfinancial US businesses.

44%

__________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%.

45%

The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

48%

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____.

5% and 5.44%

An investor purchases one municipal and one corporate bond that pay rates of return of 5.00% and 6.40% respectively. If the investor is in the 15% tax bracket, his after tax rates of return on the municipal and corporate bonds would be respectively

5% and 5.44% After-tax return on municipal bond = .05 After-tax return on corporate bond = .064(1 - .15) = 0.0544 = 5.44%

5.00% and 5.44%

An investor purchased an NCD a year ago in the secondary market for $980,000. He redeems it today and receives $1,000,000. He also receives INTEREST of $30,000. The investor's annualized yield on this investment is _______ percent. A) 2.0 B) 5.10 C) 5.00 D) 2.04

5.10 (1,000,000-980,000+30,000)/980,000= 5.10

Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 10% chance of losing 3%. What is the standard deviation of this investment?

5.14%

During the 1926 to 2008 period the geometric mean return on Treasury bills was _________.

5.31%

A corporation in a 34% tax bracket invests in the preferred stock of another company and earns a 6% pre-tax rate of return. An individual investor in a 15% tax bracket invests in the same preferred stock and earns the same pre-tax return. The after tax return to the corporation is _______ and the after tax return to the individual investor is _______.

5.39%; 5.1%

Suppose your tax bracket is 28% (both federal and local). Would you prefer to earn a 6% taxable return or a 4% tax-free yield? What is the equivalent taxable yield of the 4% tax-free yield?

5.56% =4%/(1-28%) 6% taxable return is better

Bill Yates, a private investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. The Treasury bill DISCOUNT is _______ percent. 5.93 6.12 6.20 6.02 none of these

5.93 (10,000-9,700)/ 10,000 X (360/182) = 5.93

More than ______ of all trading is believed to be initiated by computer algorithms

50%

You invest in a mutual fund that charges a 3% front end load, 1% total annual fees, and a 0% back end load on Class A shares. The same fund charges 0% front end load, 1% total annual fees, and a 2% back end load on Class B shares. What are the total fees in year one on a Class B investment of $20,000 if you redeem shares with no growth in value?

596 20k - (20k x .98 x .99)

The buyer of a new home is quoted a mortgage rate of .5% per month. What is the APR on the loan?

The buyer of a new home is quoted a mortgage rate of 0.5% per month. What is the APR on the loan?

6.0% .5% x 12

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the one day rate of return on the index?

6.164%

Bill Yates, a private investor, purchases a six-month (182-day) T-BILL with a $10,000 par value for $9,700. 41. If Bill Yates holds the Treasury bill to maturity, his annualized yield is _______ percent. 6.02 1.54 1.50 6.20 none of these

6.20 (10,000-9,700)/9,700 X (365/182)= 6.20%

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?

6.48% .09(1-.28) = .0648

Bullock Corp. purchases certain securities for $4,921,349, with an agreement to sell them back at a price of $4,950,000 at the end of a 30-day period. The REPO RATE is _______ percent. 7.08 6.95 6.99 7.04 none of these

6.99 (4,950,000-4,921,349,349)/ 4,921,349 X (360/30)= 6.99

You invest in a mutual fund that charges a 3% front end load, 1% total annual fees, and a 2% back end load, which decreases 0.5% per year. How much will you pay in fees on a $10,000 investment that does not grow, if you cash out after three years of no gain?

635 10k - (10k x .97) x (.99) x (.99) x (.99) x(.995)

About _________ of mutual fund assets are invested in no-load funds.

65%

In the 1970 study, Malkiel found that mutual funds that do well in one period, have an approximately ________ chance of doing well in the subsequent year period.

65%

Explicit costs of an IPO tend to be around ______ of the funds raised.

An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively. If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ________, respectively.

7.5% and 7.73%

You have an APR of 7.5% with continuous compounding. The EAR is _____.

7.79%

You are considering investing in a no load mutual fund with an annual expense ratio of 0.6% and an annual 12b-1 fee of 0.75%. You could also invest in a bank CD paying 6.5% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD?

7.85% 6.5 + .06 +.075

Most real estate investment trusts (REITs) have a debt ratio of around _________

70%

Approximately __________ of trades involving shares issued by firms listed on the New York Stock Exchange actually take place on the New York Stock Exchange.

75%

What percentage of NYSE transactions is executed by specialists?

75%

794 20k - (20k x .97 x .99)

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively. If the investor is in the 20% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ________, respectively.

8% and 8%

The arithmetic average of -11%, 15% and 20% is ________.

8.00%

What is the geometric average return over 1 year if the quarterly returns are 8%, 9%, 5%, and 12%?

8.47%

What is the geometric average return over one year if the quarterly returns are 8%, 9%, 5%, and 12%, respectively?

8.47%

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV?

8.47% NAV= (300-5)/9=$32.78 Discount=$32.78-$30=$2.78 2.78/32.78=.0847

The commission, or front-end load, paid when you purchase shares in mutual funds, may not exceed __________.

8.5%

You have an EAR of 9%. The equivalent APR with continuous compounding is _____.

8.62%

A bond issued by the state of Alabama is priced to yield 6.25%. If you are in the 28% tax bracket, this bond would provide you with an equivalent taxable yield of _________.

8.68%

A bond issued by the State of Alabama is priced to yield 6.25%. If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of _______ .

8.68% [6.25/(1 - .28)]

If you are promised a nominal return of 12% on a one year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn?

8.74% (1.12/1.03) -1

In the U.S. there are approximately _______ mutual funds offered by less than _______ fund families.

8000; 500

??? Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $_______. A) 10,000 B) 9,524 C) 9,756 D) none of these

9,756

An investor buys COMMERCIAL paper with a 60‑day maturity for $985,000. Par value is $1,000,000, and the investor holds it to maturity. What is the annualized yield? A) 8.62 percent B) 8.78 percent C) 8.90 percent D) 9.14 percent E) 9.00 percent

9.14 percent (1,000,000-985,000)/985,000 X(360/60) = 0.01523X6.000= 9.14%

A REPURCHASE agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield? A) 9.43 percent B) 9.28 percent C) 9.14 percent D) 9.00 percent

9.14 percent (5,000,000-4,925,000)/4,925,000 X (360/60) = 9.14%

Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return and a 30% chance of losing 6%. What is your expected return on this investment?

9.2% (0.2)(30%) + (0.5)(10%) + (0.3)(-6%)

The geometric average of -12%, 20% and 25% is _________.

9.70%

Mutual funds account for roughly ______ percent of investment company assets.

A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between -28% and 64% in any one year is

95.44%

A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between -28% and 64% in any one year is _____.

95.44%

A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58, what is the new index value?

975

If a treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be _________.

99:20

1) In what ways is preferred stock like long term debt?

>Preferred stock is like long-term debt in that it typically promises a fixed payment each year. In this way, it is a perpetuity. Preferred stock is also like long-term debt in that it does not give the holder voting rights in the firm.

Which of the following statements is true regarding a corporate bond?

A corporate convertible bond gives the holder the right to exchange the bond for a specified number of the company's common shares.

A derivative/contingent claim is...

A financial instrument whose value depends upon the value of other, more basic, underlying variables.

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.

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 the federal government.

Which security should sell at a greater price? A put option on a stock selling at $50 or a put option on another stock selling at $60. (All other relevant features of the stocks and options are assumed to be identical.)

A put option on a stock selling at $50.

A money market is...

A short-term, highly liquid and relatively low-risk debt instrument

Which security should sell at a greater price? A three-month expiration call option with an exercise price of $40 or a three-month call on the same stock with an exercise price of $35.

A three-month call on the same stock with an exercise price of $35.

The maximum maturity on commercial paper is _____. A. 270 days B. 180 days C. 90 days D. 30 days

A. 270 days

10. A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. A. call option B. futures contract C. put option D. interest rate swap

A. call option

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. A. call option B. futures contract C. put option D. interest rate swap

A. call option

Ownership of a call option entitles the owner to the __________ to __________ a specific stock, on or before a specific date, at a specific price. A. right; buy B. right; sell C. obligation; buy D. obligation; sell

A. right; buy

5. Money market securities are sometimes referred to as cash equivalents because _____. A. they are safe and marketable B. they are not liquid C. they are high-risk D. they are low-denomination

A. they are safe and marketable

7. In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal. A. value-weighted index B. equally weighted index C. price-weighted index D. bond price index

A. value-weighted index

70. In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal. A. value-weighted index B. equally weighted index C. price-weighted index D. bond price index

A. value-weighted index

Find the after-tax return to a corporation that buys a share of preferred stock at $41, sells it at year-end at $41, and receives a $5 year-end dividend. The firm is in the 30% tax bracket.

After-tax rate of return 11.09%

Which of the following is an example of an agency problem?

All of the options are examples of agency problems.

ADRs

American Depository Receipts certificates that are traded in the US markets but represent ownership in foreign companies allows US investors to invest in a foreign traded company without having to trade on a foreign exchange still comes with exchange risk

Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value? A. 300 B. 39 C. 43 D. 30

B. 39

30. An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The investor's bond equivalent yield on this investment is _____. A. 4.8% B. 4.97% C. 5.47% D. 5.74%

B. 4.97%

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The investor's bond equivalent yield on this investment is _____. A. 4.8% B. 4.97% C. 5.47% D. 5.74%

B. 4.97%

38. An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____. A. 5% and 6.4% B. 5% and 5.44% C. 4.25% and 6.4% D. 5.75% and 5.44%

B. 5% and 5.44%

71. A corporation in a 34% tax bracket invests in the preferred stock of another company and earns a 6% pretax rate of return. An individual investor in a 15% tax bracket invests in the same preferred stock and earns the same pretax return. The after-tax return to the corporation is _______, and the after-tax return to the individual investor is _______. A. 3.96%; 5.1% B. 5.39%; 5.1% C. 6%; 6% D. 3.96%; 6%

B. 5.39%; 5.1%

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

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

9. ______ would not be included in the EAFE index. A. Australia B. Canada C. France D. Japan

B. Canada

Which one of the following is a true statement? A. Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors. B. Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock. C. Preferred stockholders have voting power. D. Investors can sue managers for nonpayment of preferred dividends.

B. Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock

The U.K. stock index is the _________. A. DAX B. FTSE C. GSE D. TSE

B. FTSE

T-bills are issued with initial maturities of: I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks A. I and II only B. I and III only C. I, II, and III only D. I, II, III, and IV

B. I and III only

Which one of the following is a true statement regarding the Dow Jones Industrial Average? A. It is a value-weighted average of 30 large industrial stocks. B. It is a price-weighted average of 30 large industrial stocks. C. It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. D. It is a value-weighted average of all stocks traded on the New York Stock Exchange.

B. It is a price-weighted average of 30 large industrial stocks.

Several large banks manipulated the reported rates on which key money market rate? A. federal funds rate B. LIBOR C. bankers' acceptances D. brokers' calls rate

B. LIBOR

Which of the following is used to back international sales of goods and services? A. certificate of deposit B. bankers' acceptance C. eurodollar deposits D. commercial paper

B. bankers' acceptance

2. In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs _________. A. automatically B. by adjusting the divisor C. by adjusting the numerator D. by adjusting the market value weights

B. by adjusting the divisor

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs _________. A. automatically B. by adjusting the divisor C. by adjusting the numerator D. by adjusting the market value weights

B. by adjusting the divisor

A bond that has no collateral is called a _________. A. callable bond B. debenture C. junk bond D. mortgage

B. debenture

Deposits of commercial banks at the Federal Reserve are called _____. A. bankers' acceptances B. federal funds C. repurchase agreements D. time deposits

B. federal funds

64. What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001? A. no change, as both yields will remain the same B. increase, as the spread usually increases in response to a crisis C. decrease, as the spread usually decreases in response to a crisis D. no change, as both yields will move in the same direction

B. increase, as the spread usually increases in response to a crisis

Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if _______________. A. inflation is lower than anticipated over the investment period B. inflation is higher than anticipated over the investment period C. the U.S. dollar increases in value against the euro D. the spread between commercial paper and Treasury securities remains low

B. inflation is higher than anticipated over the investment period

Preferred stock is like long-term debt in that ___________. A. it gives the holder voting power regarding the firm's management B. it promises to pay to its holder a fixed stream of income each year C. the preferred dividend is a tax-deductible expense for the firm D. in the event of bankruptcy preferred stock has equal status with debt

B. it promises to pay to its holder a fixed stream of income each year

Which of the following is most like a short-term collateralized loan? A. certificate of deposit B. repurchase agreement C. bankers' acceptance D. commercial paper

B. repurchase agreement

11. Ownership of a put option entitles the owner to the __________ to ___________ a specific stock, on or before a specific date, at a specific price. A. right; buy B. right; sell C. obligation; buy D. obligation; sell

B. right; sell

49. Ownership of a put option entitles the owner to the __________ to ___________ a specific stock, on or before a specific date, at a specific price. A. right; buy B. right; sell C. obligation; buy D. obligation; sell

B. right; sell

Treasury bills are financial instruments issued by __________ to raise funds. A. commercial banks B. the federal government C. large corporations D. state and city governments

B. the federal government

The bid price of a Treasury bill is _________. A. the price at which the dealer in Treasury bills is willing to sell the bill B. the price at which the dealer in Treasury bills is willing to buy the bill C. greater than the ask price of the Treasury bill expressed in dollar terms D. the price at which the investor can buy the Treasury bill

B. the price at which the dealer in Treasury bills is willing to buy the bill

The brokers' call rate represents A. the rate the broker charges an investor on a margin account. B. the rate the broker pays its bank on borrowed funds. C. the return earned by the broker on a margin account. D. the return earned by the investor on a margin account .

B. the rate the broker pays its bank on borrowed funds.

Which of the following is not a characteristic of common stock ownership? A. residual claimant B. unlimited liability C. voting rights D. right to any dividend paid by the corporation.

B. unlimited liability

A tax free municipal bond provides a yield of 2.34%. What is the equivalent taxable yield on the bond given a 28% tax bracket? A. 2.34% B. 2.68% C. 3.25% D. 4.92%

C. 3.25%

6. The Hydro Index is a price-weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price-weighted index? A. 5.00 B. 4.85 C. 4.50 D. 4.75

C. 4.50

77. The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index? A. 5.00 B. 4.85 C. 4.50 D. 4.75

C. 4.50

A tax free municipal bond provides a yield of 3.2%. What is the equivalent taxable yield on the bond given a 35% tax bracket? A. 3.2% B. 3.68% C. 4.92% D. 5%

C. 4.92%

5. The Chompers Index is a price-weighted stock index based on the 3 largest fast food chains. The stock prices for the three stocks are $54, $23, and $44. What is the price weighted index value of the Chompers Index? A. 23.43 B. 35.36 C. 40.33 D. 49.58

C. 40.33

79. A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the 1-day rate of return on the index? A. 5.78% B. 4.35% C. 6.16% D. 7.42%

C. 6.16%

A bond issued by the state of Alabama is priced to yield 6.25%. If you are in the 28% tax bracket, this bond would provide you with an equivalent taxable yield of _________. A. 4.5% B. 7.25% C. 8.68% D. none of these options

C. 8.68%

78. A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58 today, what is the new index value? A. 960 B. 970 C. 975 D. 985

C. 975

8. A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58, what is the new index value? A. 960 B. 970 C. 975 D. 985

C. 975

If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be _________. A. 99:5/8 B. 99:6/10 C. 99.6250 D. none of the options

C. 99.6250

__________ is not a money market instrument. A. A certificate of deposit B. A Treasury bill C. A Treasury bond D. Commercial paper

C. A Treasury bond

Which one of the following is a true statement regarding corporate bonds? A. A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares. B. A corporate debenture is a secured bond. C. A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares. D. Holders of corporate bonds have voting rights in the company.

C. A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

_____ is considered to be an emerging market country. A. France B. Norway C. Brazil D. Canada

C. Brazil

A _______________ represents an ownership share in a corporation. a. bond b. preferred stock c. common stock d. All of the above.

C. Common Stock

The German stock market is measured by which market index? A. FTSE B. Dow Jones 30 C. DAX D. Nikkei

C. DAX

Which of the following are true statements about T-bills? I. T-bills typically sell in denominations of $10,000. II. Income earned on T-bills is exempt from all federal taxes. III. Income earned on T-bills is exempt from state and local taxes. A. I only B. I and II only C. I and III only D. I, II, and III

C. I and III only

Which of the following is not a nickname for an agency associated with the mortgage markets? A. Fannie Mae B. Freddie Mac C. Sallie Mae D. Ginnie Mae

C. Sallie Mae

69. You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct A. a value-weighted index B. an equally weighted index C. a price-weighted index D. a bond price index

C. a price-weighted index

69. You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ______. A. a value-weighted index B. an equally weighted index C. a price-weighted index D. a bond price index

C. a price-weighted index

3. The Standard & Poor's 500 is __________ weighted index. A. an equally B. a price- C. a value- D. a share-

C. a value

The Standard & Poor's 500 is __________ weighted index. A. an equally B. a price- C. a value- D. a share-

C. a value-

The rate of interest on short-term loans among financial institutions is _____. A. bankers' acceptances B. brokers' calls C. federal funds D. LIBOR

C. federal funds

A ______ option gives you the right to buy a specific asset at a predetermined price (strike price) on or before a specific date.

Call

________ would not be included in the EAFE index.

Canada

The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B Shares with a 12b-1 fees of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses.

Class B

_______ are the most active participants in the federal funds market. A) Savings and loan associations B) Securities firms C) Credit unions D) Commercial banks

Commercial banks

_______ is a short-term debt instrument issued only be well-known, creditworthy firms and is normally issued to provide liquidity or finance a firm's investment in inventory and accounts receivable. A) A banker's acceptance B) A repurchase agreement C) Commercial paper D) A Treasury bill

Commercial paper

Which one of the following is a true statement?

Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock

Which one of the following is a true statement? Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock Preferred stockholders have voting power Investors can sue managers for nonpayment of preferred dividends

Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock

Which one of the following is a true statement?

Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock.

Which of the following indexes are market value-weighted? I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000 A. I and II only B. II and III only C. I and III only D. I, II, and III

D. I, II, and III

The interest rate charged by large banks in London to lend money among themselves is called _________. A. the prime rate B. the discount rate C. the federal funds rate D. LIBOR

D. LIBOR

TIPS are ______. A. Treasury bonds that pay no interest and are sold at a discount B. U.K. bonds that protect investors from default risk C. securities that trade on the Toronto stock index D. Treasury bonds that protect investors from inflation

D. Treasury bonds that protect investors from inflation

Which of the following is not considered a money market investment? A. bankers' acceptance B. eurodollar C. repurchase agreement D. Treasury note

D. Treasury note

Currently, the Dow Jones Industrial Average is computed by _________. A. adding the prices of 30 large "blue-chip" stocks and dividing by 30 B. calculating the total market value of the 30 firms in the index and dividing by 30 C. measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day D. adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

D. adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

8. An investor in a T-bill earns interest by _________. A. receiving interest payments every 90 days B. receiving dividend payments every 30 days C. converting the T-bill at maturity into a higher-valued T-note D. buying the bill at a discount from the face value to be received at maturity

D. buying the bill at a discount from the face value to be received at maturity

An investor in a T-bill earns interest by _________. A. receiving interest payments every 90 days B. receiving dividend payments every 30 days C. converting the T-bill at maturity into a higher-valued T-note D. buying the bill at a discount from the face value to be received at maturity

D. buying the bill at a discount from the face value to be received at maturity

56. Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called _________. A. certificates of deposit B. repurchase agreements C. bankers' acceptances D. commercial paper

D. commercial paper

A typical bond price quote includes all but which one of the following? A. coupon B. closing bond price C. yield to maturity D. dividend yield

D. dividend yield

The yield on tax-exempt bonds is ______. A. usually less than 50% of the yield on taxable bonds B. normally about 90% of the yield on taxable bonds C. greater than the yield on taxable bonds D. less than the yield on taxable bonds

D. less than the yield on taxable bonds

Which of the following is not a characteristic of a money market instrument? A. liquidity B. marketability C. low risk D. maturity greater than 1 year

D. maturity greater than 1 year

50. An investor in a 28% tax bracket is trying to decide whether to invest in a municipal bond or a corporate bond. She looks up municipal bond yields (rm) but wishes to calculate the taxable equivalent yield r. The formula she should use is given by ______. A. r = rm × (1 - 28%) B. r = rm / (1 - 72%) C. r = rm × (1 - 72%) D. r = rm / (1 - 28%)

D. r = rm / (1 - 28%)

36. A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following? A. reverse repurchase agreement B. bankers' acceptance C. commercial paper D. repurchase agreement

D. repurchase agreement

LIBOR is a key reference rate in the money markets. Many ______ of dollars of loans and derivative assets are tied to it. A. thousands B. millions C. billions D. trillions

D. trillions

NASDAQ

ECN dealer market typically smaller firms, and heavily weighted to technology firms largest average daily trading volume less strict listing requirements than NYSE

IPO Underpricing

Easier to market issue; costly to issuing firm "winner's curse"

37. An index computed from a simple average of returns is a/an ________. A) equal weighted index B) value weighted index C) price weighted index D) share weighted index

Equal Weighted Index

During the 1985 to 2008 period the Sharpe ratio was greatest for which of the following asset classes?

Equity world portfolio in US dollars

Equity= 200P-5000 Margin = (200P-5,000)/200P= .30 200P-5000=60P 140P = 5,000 P = 35.71429 $35.71

A municipal bond carries a coupon rate of 8.00% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 40% tax bracket?

Equivalent taxable yield 13.33%

A U.S. dollar-denominated bond that is sold in Singapore is a

Eurobond

Costs of an IPO

Explicit cost Implicit Cost

The U.K. stock index is the ________.

FTSE

The U.K. stock index is the _________.

FTSE

Initial Public Offerings (IPO)

First public sale of stock by formerly private company

The Hang Seng index reflects market performance on which of the following major stock markets?

Hong Kong

Both the NYSE and Nasdaq have lost market share to ECNs in recent years. Part of Nasdaq's response to the growth of ECNs has been to _______. I. Purchase Instinet, a major ECN II. Enable automatic trade execution through its new Market Center III. Switch from stock ownership to mutual ownership

I and II only

Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because I. intermediaries are better diversified than most individuals II. intermediaries can exploit economies of scale in investing that individual investors cannot III. intermediated investments usually offer higher rates of return than direct capital market claims

I and II only

Security A has a higher standard deviation of returns than Security B. We would expect that ______. I. Security A would have a higher risk premium than Security B II. the likely range of returns for Security A in any given year would be higher than the likely range of returns for Security B III. the Sharpe measure of A will be higher than the Sharpe measure of B

I and II only

Specialists try to maintain a narrow bid-ask spread because _______. I. If the spread is too large they will not participate in as many trades, losing commission income II. The exchange requires specialists to maintain price continuity III. Specialists are non-profit entities designed to facilitate market transactions rather than make a profit

I and II only

When calculating the variance of a portfolio's returns squaring the deviations from the mean results in ________. I. preventing the sum of the deviations from always equaling zero II. exaggerating the effects of large positive and negative deviations III. a number in units of percentage of returns

I and II only

Which of the following are correct arguments supporting passive investment strategies? I. Active trading strategies may not guarantee higher returns but guarantee higher costs II. Passive investors can free ride on the activity of knowledge investors whose trades force prices to reflect currently available information III. Passive investors are guaranteed to earn higher rates of return than active investors over sufficiently long time horizons

I and II only

Which of the following arguments supporting passive investment strategies is (are) correct? I. Active trading strategies may not guarantee higher returns but guarantee higher costs. II. Passive investors can free-ride on the activity of knowledge investors whose trades force prices to reflect currently available information. III. Passive investors are guaranteed to earn higher rates of return than active investors over sufficiently long time horizons.

I and II only

Which one of the following measure time weighted returns? I. Geometric average return II. Arithmetic average return III. Dollar weighted return

I and II only

T-bills are issued with initial maturities of: I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks

I and III only

Which of the following are true statements about T-bills? I. T-bills typically sell in denominations of $10,000 II. Income earned on T-bills is exempt from all Federal taxes III. Income earned on T-bills is exempt from state and local taxes

I and III only

You invest all of your money in one year T-bills. Which of the following statements is/are correct? I. Your nominal return on the T-bills is riskless. II. Your real return on the T-bills is riskless. III. Your nominal Sharpe measure is zero.

I and III only

Private placements can be advantageous rather than public issue because ______. I. private placements are cheaper to market than public issues II. private placements may still be sold to the general public under SEC Rule 144A III. privately placed securities trade on secondary markets

I only

Restrictions on trading involving insider information apply to: I. Corporate officers and directors II. Major stockholders III. Relatives of corporate directors and officers

I, II, III

The cost of buying and selling a stock includes: I. Broker's commissions II. Dealer's bid-asked spread III. Price concessions that investors may be forced to make

I, II, III

Restrictions on trading involving insider information apply to: I. Corporate officers and directors II. Major stockholders III. Relatives of corporate directors and officers

I, II, and III

The cost of buying and selling a stock includes: I. Broker's commissions II. Dealer's bid-asked spread III. Price concessions that investors may be forced to make

I, II, and III

Which of the following indexes are market value-weighted? I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000

I, II, and III

Which of the following indexes are market value-weighted? I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000

I, II, and III

Which of the following statement(s) is(are) true regarding municipal bonds? I) A municipal bond is a debt obligation issued by state or local governments. II) A municipal bond is a debt obligation issued by the federal government. III) The interest income from a municipal bond is exempt from federal income taxation. IV) The interest income from a municipal bond is exempt from state and local taxation in the issuing state

I, III, and IV only

Active trading in markets and competition among securities analysts helps ensure that:

I. Security prices approach informational efficiency. II. Riskier securities are priced to offer higher potential returns. III. Investors are unlikely to be able to consistently find under- or overvalued securities.

Which of the following indexes are market value-weighted?

I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000

Which of the following is (are) true about dark pools?

I. They allow anonymity in trading. II. They often involve large blocks of stocks. III. Trades made through them might not be reported.

Methods of encouraging managers to act in shareholders' best interest include:

I. Threat of takeover. II. Proxy fights for control of the board of directors. III. Tying managers' compensation to stock price performance.

Which one of the following statements about IPOs is true?

IPOs generally have been poor long-term investments. IPOs often provide very good initial returns to investors Shares in IPOs are often primarily allocated to institutional investors.

Which one of the following statements about IPOs is not true?

IPOs generally provide superior long-term performance as compared to other stocks.

Rank the following types of markets from least integrated and organized to most integrated and organized:

IV. Direct search markets I. Brokered markets III. Dealer markets II. Continuous auction markets

. Firms that specialize in helping companies raise capital by selling securities are called _______________.

Investment banks

IPO Process

Issuer & underwriter put on "road show" Purpose: bookbuilding & pricing

Underwriting Syndicate

Issuing Firm --> Lead Underwriter --> Investment Bankers --> Private Investers

16. Which one of the following is a true statement regarding the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial stocks. C) It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. D) It is a value-weighted average of all stocks traded on the New York Stock Exchange.

It is a price - weighted average of 30 large industrial stocks

Which one of the following is a true statement regarding the Dow Jones Industrial Average?

It is a price-weighted average of 30 large industrial stocks

Which one of the following is a true statement regarding the Dow Jones Industrial Average?

It is a price-weighted average of 30 large industrial stocks.

Which of the following statements is incorrect with respect to the federal funds rate? A) It is the rate charged by financial institutions on loans they extend to each other. B) It is not influenced by the supply and demand for funds in the federal funds market. C) The federal funds rate is closely monitored by all types of firms. D) Many market participants view changes in the federal funds rate to be an indicator of potential changes in other money market rates. E) The Federal Reserve adjusts the amount of funds in depository institutions in order to influence the federal funds rate.

It is not influenced by the supply and demand for funds in the federal funds market.

24. The interest rate charged by large banks in London to lend money among themselves is called ________. A) the prime rate B) the discount rate C) the federal funds rate D) LIBOR

LIBOR

38. Several large banks manipulated the reported rates on which key money market rate? A) federal funds rate B) LIBOR C) bankers' acceptances D) brokers' calls rate

LIBOR

Several large banks manipulated the reported rates on which key money market rate?

LIBOR

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

LIBOR

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

LIBOR

During the 1926 to 2008 period the Sharpe ratio was greatest for which of the following asset classes?

Large US stocks

In 2008 the largest corporate bankruptcy in U.S. history involved the investment banking firm of ______.

Lehman Brothers

In 2008 the largest corporate bankruptcy in the U.S. history involved the investment banking firm of

Lehman Brothers

Which of the following is *not* a characteristic of a money market instrument?

Long maturity and liquidity premium

During the 1926 to 2008 period which one of the following asset classes provided the lowest real return?

Long-term US treasury bonds

Bond Market

Longer-term borrowing or debt instruments than those traded in the money market

The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

Loss = (22-25)100 = $(300) Amount Invested = .25 x 25 x 100 = $625 Return = -300/625 = -48%

Secondary Market

Market for already-existing securities

Primary Markets

Market for new issues of securities *IPO, Public Firms

What was the result of high-frequency traders' leaving the market during the flash crash of 2010?

Market liquidity decreased

An order to buy or sell a security at the current price is a ______________.

Market order

(Buying on Margin) Maintenance Margin Requirement (MMR)

Minimum amount equity can be before additional funds must be put into account Exchanges mandate min. 25%

(Buying on Margin) Initial Margin Requirement (IMR)

Minimum set by Federal Reserve under Regulation T, currently 50% for stocks Minimum % initial investor equity 1 - IMR = Maximum % amount investor can borrow

Can we rely on markets to allocate capital to the best possible uses?

Mispricing- overpricing and underpricing

Money Market Instrument Characteristics

Money market instruments are short-term instruments (1 year or less maturity) with high liquidity and marketability; they do not have long maturities nor pay liquidity premiums

why are money market securities sometimes referred to as cash equivalents?

Money market securities are called "cash equivalents" because of their great liquidity. The prices of money market securities are very stable, and they can be converted to cash (i.e., sold) on very short notice and with very low transaction costs

why are the high tax brackets investors more incline to invest in municipal bonds than low bracket investors?

Municipal Bond interest is tax-exempt. When facing higher marginal tax rates, a high-income investor would be more inclined to pick tax-exempt securities.

Which one of the following is not an example of a brokered market?

NASDAQ

The ______________ is the most important dealer market in the United States, and the ______________ is the most important auction market.

NASDAQ; NYSE

NAV = ($300,000,000 - $5,000,000)/9,000,000 = $32.78 Discount = $32.78 - $30 = $2.78 Discount as % = $2.78/$32.78 = .0847 = 8.47%

NYSE arca

NYSE's on ECN

Secondary Markets

NYSE; AMEX: strict listing requirements regional : typically do not meet the listing requirements of national exchanges

(Buying of Margin) Margin Call

Notification from broker that you must put up additional funds or have position liquidated

A _______ is a contract that gives the owner the right, but not the obligation to do something.

Option

suppose investors can earn a return of 2% per 6 months on a treasury note with 6 months remaining until maturity. what price would you expect a 6 month maturity treasury bill to sell for?

P = $10,000/1.02 = $9,803.92

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

Passive

A portfolio that has an expected value in one year of $1,100 could be formed if you ______ .

Place 40% of your money in the risky portfolio and the rest in the risk free asset

1 cont.) In what ways is preferred stock like equity?

Preferred stock is like equity in that the firm is under no contractual obligation to make the preferred stock dividend payments. Failure to make payments does not set off corporate bankruptcy. With respect to the priority of claims to the assets of the firm in the event of corporate bankruptcy, preferred stock has a higher priority than common equity but a lower priority than bonds.

A market order has:

Price uncertainty but not execution uncertainty.

A _____ option is the right to sell a specific asset at a predetermined price (strike price) on or before a specific date.

Put

20. A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) interest rate swap

Put Option

23. A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) interest rate swap

Put Option

Which of the following funds is most likely to have a debt ratio of 70% or higher?

REIT

25. A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following? A) reverse repurchase agreement B) bankers' acceptance C) commercial paper D) repurchase agreement

Repurchase Agreement

The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but which one of the following?

Required that firms could no longer employ investment bankers to sell securities to the public.

The __________ system enables exchange members to send orders directly to a specialist over computer lines.

SUPERDOT

Which of the following is not a nickname for an agency associated with the mortgage markets?

Sallie Mae

Which of the following is not a nickname for an agency associated with the mortgage markets? Fannie Mae Freddie Mac Sallie Mae Ginnie Mae

Sallie Mae

Transactions that do not involve the original issue of securities take place in _________.

Secondary markets

Which Congressional action directed the SEC to implement a national competitive securities market?

Securities Act Amendments of 1975

The ____ requires full disclosure of relevant information relating to the issue of new securities.

Securities Act of 1933

DRK, Inc., has just sold 100,000 shares in an initial public offering. The underwriter's explicit fees were $60,000. The offering price for the shares was $40, but immediately upon issue, the share price jumped to $44. a. What is the total cost to DRK of the equity issue? b. Is the entire cost of the underwriting a source of profit to the underwriters?

a. $460,000 b. No a. In addition to the explicit fees of $60,000, we should also take into account the implicit cost incurred to DRK from the underpricing in the IPO. The underpricing is $4 per share, or a total of $400,000, implying total costs of $460,000. b. No. The underwriters do not capture the part of the costs corresponding to the underpricing. However, the underpricing may be a rational marketing strategy to attract and retain long-term relationships with their investors. Without it, the underwriters would need to spend more resources in order to place the issue with the public. The underwriters would then need to charge higher explicit fees to the issuing firm. The issuing firm may be just as well off paying the implicit issuance cost represented by the underpricing.

Treasury Bills are...

Short-term debt issued by the federal government with no default risk and with high liquidity

Which one of the following is a false statement regarding NYSE specialists?

Specialists cannot trade for their own accounts.

Examples of money market instruments are...

T-bills Eurodollars Federal funds CDs

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $40 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share. a. What is the remaining margin in the account? b-1. What is the margin on the short position? b-2. If the maintenance margin requirement is 30%, will Old Economy receive a margin call? c. What is the rate of return on the investment? (Negative value should be indicated by a minus sign.)

a. $8,000 b1. 16% b2. yes c. -60% a. Initial margin was: 40 x 1,000 x .5 = 20,000 As a result of the $10 increase, Old Economy Traders lose: $10 x 1,000 = 10,000 Old Economy Traders must pay the dividend of $2 per share to the lender of the shares: $2 x 1000 = 2,000. Remaining margin = 20,000-10,000-2,000 = 8,000 Margin on short position = equity in account/value of shares owed --> 8,000/50,000. Because percentage margin falls below maintenance level of 30%, will be a margin call. C. Rate of return = Ending equity - initial equity / initial equity. --> 8,000 - 20,000 / 20,000 = -.6

Bid-Ask Spread

The difference between the big and asked prices

Initial margin requirements on stocks are set by _________.

The federal reserve

An investor purchases on municipal bond and one corporate bond that pay rates of return of 5% and 6.4% respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively... a. 5% and 5.44% b. 4.25% and 6.4% c. 5% and 6.4% d. 5.75% and 5.44%

a. 5% and 5.44% After -tax return on municipal bond = 0.05 After-tax return on corporate bond = 0.64(1-0.15) = 0.0544 = 5.44%

Here is some price information on Fincorp stock. Suppose first that Fincorp trades in a dealer market. Bid Asked 55.25 55.50 a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? b. Suppose you have submitted an order to sell at market. At what price will your trade be executed? (Round your answer to 2 decimal places.) c. What will happen suppose you have submitted a limit order to sell at $55.62. d. What will happen suppose you have submitted a limit order to buy at $55.37.

a. 55.50 b. 55.25 c. trade won't be executed d. trade won't be executed

Which one the following is a true statement regarding corporate bonds? a. A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares b. A corporate debenture is a secured bond c. Holders of corporate bonds have voting rights in the company. d. A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares

a. A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

Which security should sell at a greater price? a. An 8-year Treasury bond with a 10.25% coupon rate or an 8-year T-bond with a 11.25% coupon. b. A four-month expiration call option with an exercise price of $45 or a four-month call on the same stock with an exercise price of $40. c. A put option on a stock selling at $55 or a put option on another stock selling at $65. (All other relevant features of the stocks and options are assumed to be identical.)

a. An 8-year T-bond with a 11.25% coupon correct b. A four-month call on the same stock with an exercise price of $40 c. A put option on a stock selling at $55

A dollar-denominated deposit at a London bank is called... a. Eurodollars b. LIBOR c. Bankers' acceptance d. Fed funds

a. Eurodollars

29. The purchase of a futures contract gives the buyer ________. A) the right to buy an item at a specified price B) the right to sell an item at a specified price C) the obligation to buy an item at a specified price D) the obligation to sell an item at a specified price

The obligation to buy an item at a specified price

Ask Price

The price at which a dealer or other trader will a security

b. An equally weighted index

The return on each stock is as follows: RA = V1 - 1 = ($92/$87) - 1 = 0.0575 or 5.75% V0 RB = V1 - 1 = ($42/$47) - 1 = -0.1064 or -10.64% V0 RC = V1 - 1 = ($104/$94) - 1 = 0.1064 or 10.64% V0 The equally-weighted average is: [5.75% + (-10.64%) + 10.64%]/3 = 1.92%

Total cost = 90,000 + (43 - 35)200,000 = $1,690,000

a. A market value-weighted index

Total market value at t = 0 is: ($87 × 100) + ($47 × 200) + ($94 × 200) = $36,900 Total market value at t = 1 is: ($92 × 100) + ($42 × 200) + ($104 × 200) = $38,400 Rate of return = V1 - 1 = ($40,500/$39,000) - 1 = 0.0385 or 3.85% Rate of return 4.07 ± 1%

Dealer Market

Traders specializing in particular assets buy and sell for their own account and hope to later sell from their inventory for a profit takes ownership of the car unlike a broker Car dealership

6. The most marketable money market security is ________. A) Treasury bills B) bankers' acceptances C) certificates of deposit D) common stock

Treasury Bills

_______ are sold at an auction at a discount from par value. A) Treasury bills B) Repurchase agreements C) Banker's acceptances D) Commercial paper

Treasury bills

Which one of the following is *not* a money market instrument?

Treasury bond

26. TIPS are ________. A) Treasury bonds that pay no interest and are sold at a discount B) U.K. bonds that protect investors from default risk C) securities that trade on the Toronto stock index D) Treasury bonds that protect investors from inflation

Treasury bonds that protect investors from inflation

TIPS are ______.

Treasury bonds that protect investors from inflation

TIPS are ________.

Treasury bonds that protect investors from inflation

Which of the following is not considered a money market investment?

Treasury note

Examples of money market instruments

Treasury notes and bonds Municipal debt Asset-backed debt

Which one of the following would be considered a risk-free asset in real terms as opposed to nominal?

U.S. T-bill whose return was indexed to inflation

Which one of the following would be considered a risk-free asset in real terms as opposed to nominal?

US T-bill whose return was indexed to inflation

Which one of the following invests in a portfolio that is fixed for the life of the fund?

Unit investment trust

Do market prices of financial assets reflect fair value estimates of a security's expected future risky cash flows?

Yes they do pretty well higher uncertainty= higher discount rate

An investor puts up $24,000 but borrows an equal amount of money from his broker to double the amount invested to $48,000. The broker charges 7% on the loan. The stock was originally purchased at $100 per share, and in 1 year the investor sells the stock for $110. The investors rate of return was ____. A. 13.00% B. 6.50% C. 3.00% D. 13.50%

[(110-100)480 - .07(24,000)]/24,000 = .13 or 13%

what are the key differences between common stock, preferred stock, and corporate bonds?

_______________________________Cbonds_Pstocks_Cstock Voting Rights (Typically) .................... Yes Contractual Obligation Yes Perpetual Payments Yes ...........Yes Accumulated Dividends Yes Fixed Payments (Typically) Yes .............Yes Payment Preference ....First.....Second Third

Which one of the following is a true statement regarding the Dow Jones Industrial Average? a. It is a price-weighted average of 30 large industrial stocks b. It is a value-weighted average of all stocks traded on the New York Stock Exchange c. It is a value-weighted average of 30 large industrial stocks d. It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange

a. It is a price-weighted average of 30 large industrial stocks

On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $21 per share. On March 1, a dividend of $3 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? b. What is the dividend payment? c. What is the total cost, including commission, if you have to cover the short sale by buying the stock at a price of $15 per share? d. What is the net gain from your transaction?

a. The proceeds from the short sale (net of commission) were: ($21 × 100) - $50 = $2,050. b. 100 shares x $3 a share = $300 c. A dividend payment of $300 was withdrawn from the account. Covering the short sale at $15 per share costs (including commission): $1,500 + $50 = $1,550 d. Therefore, the value of your account is equal to the net profit on the transaction: $2,050 - $300 - $1,550 = $200

Suppose you short-sell 100 shares of IBM, now selling at $200 per share: a) What is your maximum possible loss? b) What happens to the maximum loss if you simultaneously place a stop-buy order at $210?

a. unlimited b. $1,000 a. In principle, potential losses are unbounded, growing directly with increases in the price of IBX. b. If the price of IBX shares goes above $210, then the stop-buy order would be executed, limiting the losses from the short sale. If the stop-buy order can be filled at $200, the maximum possible loss per share is $10. The total loss is: $10 × 100 shares = $1,000.

Characteristics of well functioning financial markets sufficient liquidity to allow for quick transactions

ability to convert asset into cash quickly and at a fair value

Advantages of ECNs over traditional markets include all but which one of the following?

ability to handle very large orders

Net worth represents _____ of the liabilities and net worth of commercial banks.

about 10%

If an investor buys a T‑BILLl with a 90‑day maturity and $50,000 par value for $48,500 and holds it to maturity, what is the annualized yield? A) about 13.4 percent B) about 12.5 percent C) about 11.3 percent D) about 11.6 percent E) about 10.7 percent

about 12.5 percent (50,000-48,500)/48,500 X (365/90) = 12.5%

An investor buys a T‑BILL with 180 days to maturity and $250,000 par value for $242,000. He plans to sell it after 60 days, and forecasts a selling price of $247,000 at that time. What is the annualized yield based on this expectation? A) about 10.1 percent B) about 12.6 percent C) about 11.4 percent D) about 13.5 percent E) about 14.3 percent

about 12.6 percent (247,000-242,000)/242,000 X (365/60) = 12.60%

Which of the following is a characteristic of an efficient financial market?

absence of underpriced or overpriced securities

Brokerage Firm

acts as a broker to bring together buyers and sellers of financial assets in the secondary market; can also act as a dealer by trading from their own account

Currently, the Dow Jones Industrial Average is computed by ________.

adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

Currently, the Dow Jones Industrial Average is computed by _________.

adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

The Dow Jones Industrial Average (DJIA) is computed by:

adding the prices of the 30 stocks in the index and dividing by a divisor

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs by

adjusting the advisor

Accounting scandals can often be attributed to a particular concept in the study of finance known as the

agency problem

Level 3 NASDAQ subscribers ______. a. are registered market makers b. can post bid and ask prices c. have the fastest execution trades d. all of these options

all of these options

Auction Market

all traders (brokers and dealers) meet at one place to buy or sell an asset this is the most organized market when trading is continuious Ebay

Financial markets allow for all but which one of the following?

allow most participants to routinely earn high returns with low risk

Separation of ownership and control "going public"

allows greater access to financial markets to finance growing operations outside investors can own the company thousands firm hires a management team (agent) to oversee operations of the business

repurchase agreement?

an agreement whereby the seller of a security agrees to "repurchase" it from the buyer on an agreed upon date at an agreed upon price. Repos are typically used by securities dealers as a means for obtaining funds to purchase securities

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?

an equally weighted index

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?

an equally weighted index (an equally weighted index a price-weighted index a value-weighted index all of these options (Weights are not a factor in this situation.))

limit Sell

an order to sell at or above some limit price

Eurodollar deposits: A) are U.S. dollars deposited in the U.S. by European investors. B) are subject to interest rate ceilings. C) have a relatively large spread between deposit and loan rates (compared to the spread between deposits and loans in the United States). D) are not subject to reserve requirements.

are not subject to reserve requirements.

The ______ measure of returns ignores compounding.

arithmetic average

You have calculated the historical dollar weighted return, annual geometric average return and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ________.

arithmetic average return

You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. If you desire to forecast performance for next year, the best forecast will be given by the ________.

arithmetic average return

The _________ price is the price at which a dealer is willing to sell a security.

ask

After considering current market conditions, an investor decides to place 60% of her funds in equities and the rest in bonds. This is an example of ____

asset allocation

An investment advisor has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment process?

asset allocation

T‑bills and commercial paper are sold: A) with a stated coupon rate. B) at a discount from par value. C) at a premium about par value. D) none of these.

at a discount from par value.

NYSE Amex

auction exchange focuses on smaller firms, ETFs, and derivatives

Treasury bills are sold through _______ when initially issued. A) insurance companies B) commercial paper dealers C) auctions D) finance companies

auctions

One method to forecast the risk premium is to use the _______.

average historical excess returns for the asset under consideration

June call and put options in King Brooks Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the _______ exercise price and the put option with the ______ exercise price will have the greatest value. a. $35, $35 b. $30, $40 c. $40, $40 d. $40, $30

b. $30, $40

The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50, and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index? a. 4.75 b. 4.50 c. 5.00 d. 4.85

b. 4.50 Index0 = (10 + 20 + 80 + 50 + 40)/5 = 40 Index1 = (10 + 20 + 80 + 50 + 20)/X = 40 Solve for divisor = 4.5

34. Which of the following is used to back international sales of goods and services? A) certificate of deposit B) bankers' acceptance C) eurodollar deposits D) commercial paper

bankers acceptance

Discount Broker

basic account maintenance and cheap order execution

The _________ price is the price at which a dealer is willing to purchase a security.

bid

8. An investor in a T-bill earns interest by ________. A) receiving interest payments every 90 days B) receiving dividend payments every 30 days C) converting the T-bill at maturity into a higher-valued T-note D) buying the bill at a discount from the face value to be received at maturity

buying the bill at a discount from the face value to be recieved at maturity

A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for... a. $9,880.16 b. $9,877 c. $9,878.50 d. $10,000

c. $9,878.50 = $10,000 * [1 - (0.0486*90)/360]

c. 39 =(12+75+30)/3

If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be... a. 99:5/8 b. none of the options c. 99.6250 d. 99:6/10

c. 99.6250 996.25/1000 = 99.625

A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58 today. What is the new index value? a. 970 b. 985 c. 975 d. 960

c.975 =[23(350000) + 41(405000) + 58(553000)] / [23(350000) + 43(405000) + 56(553000)] * 970

A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

call option

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

call option

Financial assets

claims on the income generated by real assets money, stocks, bonds risk comes from these because most financial assets have uncertain payoffs

Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called ________.

commercial paper

Which of the following is sometimes issued in the primary market by nonfinancial firms to borrow funds? A) NCDs B) retail CDs C) commercial paper D) federal funds

commercial paper

Trading Costs for Brokers Explicit Costs

commission paid to the broker for executing the trade Discount brokers

13. An individual who goes short in a futures position ________. A) commits to delivering the underlying commodity at contract maturity B) commits to purchasing the underlying commodity at contract maturity C) has the right to deliver the underlying commodity at contract maturity D) has the right to purchase the underlying commodity at contract maturity

commits to delivering the underlying commodity at contract maturity

An individual who goes short in a futures position _____.

commits to delivering the underlying commodity at contract maturity

An individual who goes short in a futures position ________.

commits to delivering the underlying commodity at contract maturity

True

common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock

Real assets in the economy include all but which one of the following?

common stock

Which of the following is not a money market security? A) Treasury bill B) negotiable certificate of deposit C) common stock D) federal funds

common stock

Large corporations typically make _______ bids for T-bills so they can purchase larger amounts. A) competitive B) noncompetitive C) very small D) none of these

competitive

Market Value- Weighted

computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value highest market value= highest weights uses SHOUT and price

Which one of the following types of markets requires the greatest level of trading activity to be cost-effective?

continuous auction market

The inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support, is a breakdown in what process or mechanism?

corporate governance

Toyota takes out a bank loan to finance the construction of a new factory. Toyota ----- a ---- asset—the factory. The loan is a --- asset that is ---- in the transaction.

creates real asset financial created

Commercial banks are _______________. a. lending institutions b. borrowing institutions c. commercial intermediaries d. financial intermediaries

d. $3 loss

The price quotations of Treasury bonds in the Wall Street Journal show a big price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive... a. $1,045.48 b. $1,045.00 c. $1,000.00 d. $1,045.31

d. 1,045.31 P= 104.5313%*(1000/100) = 1,045.31

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The investor's bond equivalent yield on this investment is... a. 5.47% b. 5.74% c. 4.8% d. 4.97%

d. 4.97% 1. 10,000 * [1-(0.0480*150)/360] = 9800 [(10,000/9800)-1] * (365/150) = 4.97%

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the 1-day rate of return on the index? a. 4.35% b. 5.78% c. 7.42% d. 6.16%

d. 6.16% = [16(600000) + 18(500000) + 62(200000)]/[12(600000) + 20(500000) + 60(200000)] - 1

Which of the following are true statements about T-bills? I. T-bills typically sell in denominations of $10,000 II. Income earned on T-bills is exempt from all federal taxes III. Income earned on T-bills is exempt from state and local taxes. a. I and II only b. I, II, and III c. I only d. I and III only

d. I and III only

Which one of the following provides the best example of securitization? a. Call option b. Preferred stock c. Convertible bond d. Mortgage pass-through security

d. Mortgage pass-through security

The purchase of a futures contract gives the buyer... a. The right to sell an item at a specified price b. The right to buy an item at a specified price c. The obligation to buy an item at a specified price d. The obligation to sell an item at a specified price

d. The obligation to buy an item at a specified price

A bond that has no collateral is called a ________.

debenture

A bond that has no collateral is called a _________.

debenture

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions you should calculate the __________.

dollar weighted return

33. Eurodollars are ________. A) dollar-denominated deposits at any foreign bank or foreign branch of an American bank B) dollar-denominated bonds issued by firms outside their home market C) currency issued by Euro Disney and traded in France D) dollars that wind up in banks as a result of money-laundering activities

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

Eurodollars are ________.

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

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the __________.

dollar-weighted return

An aggregate purchase by investors of low-yield instruments in favor of high-yield instruments places _______ pressure on the yields of low-yield securities and _______ on the yields of high-yield securities. a.) upward; upward b.) downward; downward c.) upward; downward d.) downward; upward

downward; upward

All major stock markets today are effectively _______________.

electronically trading systems

An index computed from a simple average of returns is a/an ________.

equal weighted index

4. A dollar-denominated deposit at a London bank is called ________. A) eurodollars B) LIBOR C) fed funds D) bankers' acceptance

eurodollars

A dollar-denominated deposit at a London bank is called _____.

eurodollars

A dollar-denominated deposit at a London bank is called ________.

eurodollars

10. Deposits of commercial banks at the Federal Reserve are called ________. A) bankers' acceptances B) federal funds C) repurchase agreements D) time deposits

federal funds

Deposits of commercial banks at the Federal Reserve Bank are called __________.

federal funds

Deposits of commercial banks at the Federal Reserve are called

federal funds

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

federal funds

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

federal funds

The rate at which depository institutions effectively lend or borrow funds from each other is the _______ rate. A) federal funds B) discount C) prime D) repo

federal funds

Which money market transaction is most likely to represent a loan from one commercial bank to another? A) banker's acceptance B) negotiable CD C) federal funds D) commercial paper

federal funds

36. The rate of interest on short-term loans among financial institutions is ________. A) bankers' acceptances B) brokers' calls C) federal funds rate D) LIBOR

federal funds rate

The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet reserve requirements is called the_________

federal funds rate

The rate of interest on short-term loans among financial institutions is ________.

federal funds rate

Deposits of commercial banks at the Federal Reserve Bank are called

federal funds.

Toyota pays off its loan. When the loan is repaid, the---asset is----but the----asset continues to exist.

financial destroyed real

Toyota uses $10 million of cash on hand to purchase additional inventory of spare auto parts. The cash is a----asset that is traded in exchange for a----asset, inventory.

financial real

Lanni sells the shares of stock for $50 per share and uses part of the proceeds to pay off the bank loan. In selling 2,500 shares of stock for $125,000, Lanni is exchanging one----for another. In paying off the IOU with $50,000, Lanni is exchanging----. The loan is---- in the transaction, since it is retired when paid.

financial asset financial asset destroyed

Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software The cash paid by Lanni is the transfer of a----to the software developer. In return, Lanni gets a---- the completed software.

financial asset real asset

Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni's owners. Choose the correct answer in the following statements about financial and real assets. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over three years. The bank loan is a ---- for Lanni. Lanni's IOU is the bank's----The cash Lanni receives is a-----.A new financial asset---- is Lanni's promissory note held by the bank.

financial liability financial asset financial asset created

In a capitalist system capital resources are primarily allocated by

financial markets

You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a __________ rather than a __________, everything else equal. A. 12b-1 fee; front-end load B. front-end load; 12b-1 fee C. back-end load; front-end load D. 12b-1 fee; back-end load

front-end load; 12b-1 fee

Published data on past returns earned by mutual funds are required to be ______.

geometric returns

Ownership of equity securities or stocks

gives you the right to the income germinated by the real assets of a business

According to multiple studies by Ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the long term.

good;bad

The yield on NCDs is _______ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a _______ period. A) greater than; recessionary B) greater than; boom economy C) less than; boom economy D) less than; recessionary

greater than; recessionary

The yield on commercial paper is _______ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a _______ period. A) greater than; recessionary B) greater than; boom economy C) less than; boom economy D) less than; recessionary

greater than; recessionary

Treasury bills: A) have a maturity of up to five years. B) have an active secondary market. C) are commonly sold at par value. D) commonly offer coupon payments.

have an active secondary market.

put option

he right to sell a stock at a specified time in the future (Expiration date) at a specified price (Exercise Price or Strike Price) • Analogy: Buying insurance on your car

Historical returns have generally been __________ for stocks of small firms as/than for stocks of large firms.

higher

The ________ the ratio of municipal bond yields to corporate bond yields, the ________ the cutoff tax bracket at which more individuals will prefer to hold municipal debt.

higher; lower

. Portfolio manager with a passive investment strategy will manage a portfolio by ______________.

holding a diversified portfolio

In recent years the greatest dollar amount of securitization occurred for which type of loan?

home mortgages

NYSE

hybrid network of electronic trading and specialists who still exists for more complex orders auction exchange primarily larger firms

Issues with dark pools

if trades are never reported then their impact is not being represented in the stock prices affects market efficiency

Purchases of new issues of stock take place _________.

in the primary market

What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001?

increase, as the spread usually increases in response to a crisis

The effective yield of a foreign money market security is _______ when the foreign currency strengthens against the dollar. A) increased B) reduced C) always negative D) unaffected

increased

The so-called "flight to quality" causes the risk differential between risky and risk-free securities to be: A) eliminated. B) reduced. C) increased. D) unchanged (there is no effect).

increased.

Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if ________.

inflation is higher than anticipated over the investment period

Over the Counter

informal network of brokers and dealers- brokers search through dealers for the best prices no formal listing requirements of the OTC market NASDAQ originally a simple price quotations from brokers and dealers now primarily an electronic trading market less strict listing requirements

The bulk of most initial public offerings (IPOs) of equity securities goes to ___________.

institutional investors

WEBS allow investors to

invest in a portfolio of foreign stocks

Underwriting is one of the services provided by _____.

investment bankers

Essential nature of Investment

investment of cashflow today in exchange for more CF in the future

Characteristics of well functioning financial markets allocation effeciency

investor's dollars flow to firms based on which firms have the most profitable uses for those dollars

The underwriting syndicate

issuing firm lead underwriter investment banker A- banker B- Banker C- Banker D Private investors

28. Preferred stock is like long-term debt in that ________. A) it gives the holder voting power regarding the firm's management B) it promises to pay to its holder a fixed stream of income each year C) the preferred dividend is a tax-deductible expense for the firm D) in the event of bankruptcy preferred stock has equal status with debt

it promises to pay to its holder a fixed stream of income each year

Preferred stock is like long-term debt in that ________.

it promises to pay to its holder a fixed stream of income each year

Preferred stock is like long-term debt in that ___________.

it promises to pay to its holder a fixed stream of income each year

Future payoff may be

known or risk-less: money market, CDs, Government Bonds, etc unknown, or risky : stocks, corporate bonds, etc

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

large well-known companie

14. Commercial paper is a short-term security issued by ________ to raise funds. A) the Federal Reserve B) the New York Stock Exchange C) large well-known companies D) all of these options

large well-known companies

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

large well-known companies

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

large well-known companies

Direct Search

least organized as buyers and sellers must seek each other out craigs- list

The yield on tax-exempt bonds is ______.

less than the yield on taxable bonds

The yield on tax-exempt bonds is ________.

less than the yield on taxable bonds

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

libor

Advantages of ECNs

lower transaction costs anonymity of the participants small amount of time needed to execute and order

From 1926 to 2008 the world stock portfolio offered _____ return and _____ volatility than the portfolio of large U.S. stocks.

lower; lower

From 1926 to 2013 the world stock portfolio offered _____ return and _____ volatility than the portfolio of large U.S. stocks.

lower; lower

An order to buy or sell a security at the current price is a ______________.

market order

12. Which of the following is not a characteristic of a money market instrument? A) liquidity B) marketability C) low risk D) maturity greater than 1 year

maturity greater than 1 year

Which of the following is not a characteristic of a money market instrument?

maturity greater than 1 year

Indices

measures the performance of a market or a group of securities tracking average returns of large market segments benchmarks for the performance of money managers

Securities with maturities of one year or less are classified as: A) capital market instruments. B) money market instruments. C) preferred stock. D) none of these.

money market instruments.

Primary Market

new issues of securities issuers selling to investors directly impacts SHOUT Initial Public Offerings (IPOs) Seasoned Equity Offerings (SEOs)

Preferred Stock Equity

no voting rights (some have limited voting rights) promises to pay a fixed stream of income each year which is the cumulative dividends rights Higher priority for claims on assets than common stock but less than bonds Payments on preferred stock are not tax deductible for the issuing firm preferred stock is generally owned by corporations rather than individuals- "Dividends Received Deduction"

If economic conditions cause investors to sell stocks because they want to invest in safer securities with much liquidity, this should cause a _______ demand for money market securities, which placed _______ pressure on the yields of money market securities. A) weak; downward B) weak; upward C) strong; upward D) none of these

none of these

When firms sell commercial paper at a _______ price than they projected, their cost of raising funds is _______ than projected. A) higher; higher B) lower; lower C) both of these D) none of these

none of these

At a given point in time, the yield on a T-bill is slightly higher than the yield on commercial paper with the same maturity, because commercial paper has higher: a.) interest rate risk. b.) maturity risk. c.) default risk. d.) none of these.

none of these.

Equally Weighted

not commonly used index calculated from a simple average of returns

How to fix the agency problem

offer performance based compensation- part in stocks of the company BOD provide oversight, but in some situations the CEO might have too much influence over this group Threat of Takeover

stop buy order

order to buy if the price rises above a certain level often associated with short sales

Stop loss order

order to sell if the price drops to a certain level

Financial assets represents _____ of total assets of US households.

over 60%

Dark pools

participants identities are hidden to provide anonymity trades may not even be reported, and those that are reported are usually lumped together to provide anonymity again

The efficient market hypothesis suggests that _______.

passive portfolio management strategies are the most appropriate investment strategies

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to _____ .

pay less for the security that has higher risk.

According to the Flow of Funds Accounts of the United States, the largest financial asset of U.S. households is ____.

pension reserves

Commercial paper is: A) always directly placed with investors. B) always placed with the help of commercial paper dealers. C) placed either directly or with the help of commercial paper dealers. D) always placed by bank holding companies.

placed either directly or with the help of commercial paper dealers.

Which of the following is not a money market instrument?

preferred stock

Which of the following is not a money market instrument?

preferred stock (Treasury bill commercial paper preferred stock bankers' acceptance)

Which of the following is not a money market instrument?

preffered stock

Which of the following approximates the performance of a buy-and-hold portfolio strategy?

price-weighted and value-weighted indices

Characteristics of well functioning financial markets Informational Efficiency

prices speedily reflect relevant public information- no free lunch

Purchases of new issues of stock take place _________.

primary market

The material wealth of society is determined by the economy's _________, which is a function of the economy's _________.

productive capacity; real assets

Full Service

provide investment advice as well, wealth management and financial planning, dedicated advisor working with actual financial advisors

If you thought prices of stock would be rising over the next few months, you might want to __________________ on the stock. A. purchase a call option B. purchase a put option C. sell a futures contract D. place a short-sale order

purchase a call option

If you thought prices of stock would be rising over the next few months, you might want to ________ on the stock.

purchase a call option

Underwriters

purchase securities from the issuing company and resell them to the public

A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

put option

A __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

put option

An investor in a 28% tax bracket is trying to decide whether to invest in a municipal bond or a corporate bond. She looks up municipal bond yields (rm) but wishes to calculate the taxable equivalent yield r. The formula she should use is given by ________.

r = rm / (1 - 28%)

r = rm/(1 - 28%)

Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 2,500 shares of Microsoft stock. Lanni sells the software, which is a-----to Microsoft. In exchange Lanni receives a-----2,500 shares of Microsoft stock. A new financial asset is----if Microsoft issues new shares.

real asset financial asset created

According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ___.

real estate

The effective yield of a foreign money market security is _______ when the foreign currency weakens against the dollar. A) increased B) reduced C) always negative D) unaffected

reduced

The Dodd-Frank Reform Act does all of the following except:

reduces capital requirements for banks.

Common Stock Equity

represents ownership in the firm rights: prorated share of dividends voting rights at shareholder meeting- proxy rights Residual claim: stockholders are last in line in the event of liquidation Limited liability: the most you can lose is your initial investment

A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?

repurchase agreement

Which of the following is most like a short-term collateralized loan?

repurchase agreement

Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor _______.

requires a risk premium to take on the risk

Which one of the following are examples of a brokered market?

residential real estate market market for large block security transactions primary market for securities

Which of the following is a characteristic of common stock ownership?

residual claimant, voting rights, right to any dividend paid by the corporation

30. Ownership of a put option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price. A) right; buy B) right; sell C) obligation; buy D) obligation; sell

right, sell

31. Ownership of a call option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price. A) right; buy B) right; sell C) obligation; buy D) obligation; sell

right; buy

Ownership of a call option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price.

right; buy

Ownership of a put option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price.

right; sell

Transactions that do not involve the original issue of securities take place in _________.

secondary markets

A major cause of mortgage market meltdown in 2007 and 2008 was linked to

securitization

A major cause of the mortgage market meltdown in 2007 and 2008 was linked to ________.

securitization

After much investigation, an investor finds that Intel stock is currently underpriced. This is an example of ______.

security analysis

short selling

sell borrowed shares gains are limited losses are unlimited

A [Prof Cursio adds: "American-style"] put option allows the holder to

sell the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration.

The federal funds market allows depository institutions to borrow: A) short‑term funds from each other. B) short‑term funds from the Treasury. C) long‑term funds from each other. D) long‑term funds from the Federal Reserve. E) short-term funds for the Treasury and long-term funds from the Federal Reserve.

short‑term funds from each other.

At any given time, the yield on commercial paper is _______ the yield on a T‑bill with the same maturity. A) slightly less than B) slightly higher than C) equal to D) either slightly less than or slightly higher than

slightly higher than

Historically small firm stocks have earned higher returns than large firm stocks. When viewed in the context of an efficient market, this suggests that ___________.

small firms are riskier than large firms

Investment Bank (IB)

specializes in arranging financing for companies in the primary market- acts as a broker by finding investors to buy a company's new use of financial assets Often acts as the underwriter essentially acting as a broker and a dealer

With options, you make money is the difference between the _____ price and the _____ price is greater than the option price.

stock; strike

Historically the best asset for the long term investor wanting to fend off the threats of inflation and taxes while making his money grow has been ____.

stocks

If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level.

stop loss stop buy

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

stop loss order

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

stop-loss order

stop-loss; stop-buy

Electronic Trading (ECNs)

streamline the trading process to result in cheaper, faster execution has allowed for the rise of Algorithmic and High-Frequency Trading co-location: get as close as possible

underwriter

takes on the risk of buying newly issued securities from the company and reselling them to the public es

Securitization refers to the creation of new securities by

taking an illiquid asset and converting it into a marketable security selling financial services overseas as well as in the U.S.

limit orders

tend to have higher transactions costs relative to marketed orders- but changing due to increasing competition

The term latency refers to _____.

the amount of time it takes to accept, process, and deliver a trading order.

17. Treasury bills are financial instruments issued by ________ to raise funds. A) commercial banks B) the federal government C) large corporations D) state and city governments

the federal government

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

the federal government

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

the federal government

The term "underwriting syndicate" describes _______.

the investment banks that participate in the underwriting

In the event of the firm's bankruptcy

the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.

The bid-ask spread exists because of _______________.

the need for dealers to cover expenses and make a profit

The purchase of a futures contract gives the buyer ________.

the obligation to buy an item at a specified price

The purchase of a futures contract gives the buyer _________. A. the right to buy an item at a specified price B. the right to sell an item at a specified price C. the obligation to buy an item at a specified price D. the obligation to sell an item at a specified price

the obligation to buy an item at a specified price

implicit cost

the offer price tends to be lower than the closing price of the new issue on the first day of trading- known as the IPO underpricing compensation to large institutional investors for being truthful during bookbinding effort too much money left on the table can be hard to justify economically

A red herring becomes a prospectus when ____.

the preliminary registration statement is approved by the SEC

Bid Price

the price at which a dealer or other trader is willing to purchase a security

9. The bid price of a Treasury bill is ________. A) the price at which the dealer in Treasury bills is willing to sell the bill B) the price at which the dealer in Treasury bills is willing to buy the bill C) greater than the ask price of the Treasury bill expressed in dollar terms D) the price at which the investor can buy the Treasury bill

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

The bid price of a Treasury bill is ________.

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

The bid price of a Treasury bill is _________.

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

Ask

the price at which the dealer will sell the stock

The brokers' call rate represents

the rate the broker pays its bank on borrowed funds.

Call option

the right to buy a stock at a specified time in the future (Expiration date) at a specified price (Exercise Price or Strike Price) • Analogy: putting down a non-refundable deposit on an apartment

The complete portfolio refers to the investment in _________.

the risk-free asset and the risky portfolio combined

The reward/variability ratio is given by _________.

the slope of the capital allocation line

Asset Pricing

the study of relationship between risk and return

With regard to a futures contract, the short position is held by

the trader who commits to delivering the commodity on the delivery date.

With regard to a futures contract, the long position is held by

the trader who commits to purchasing the commodity on the delivery date.

Money market securities are sometimes referred to as "cash equivalent" because

they are safe and marketable

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

they are safe and marketable

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

they are safe and marketable

Market Order

to be executed immediately at the current market prices

purpose of financial markets

to efficiently bring together buyers and seller of financial assets efficient - quick order execution at as low of a cost as possible

Secondary Market

trading already existing securities- ownership is transferred from one investor to another no impact not he amount of a company's shares outstanding already issued shares are being traded

__________ is not a money market instrument.

treasury bond

LIBOR is a key reference rate in the money markets. Many ________ of dollars of loans and derivative assets are tied to it.

trillions

An international interbank market facilitates the transfer of funds from banks with excess funds to those with deficient funds. A) true B) false

true

In general, the money markets are widely perceived to be efficient in the sense that the prices reflect all available public information. A) true B) false

true

Money market securities are issued in the primary market through a telecommunications network by the Treasury, corporations, and financial intermediaries that wish to obtain short-term financing. A) true B) false

true

U.S. Treasury bonds pay interest every six months and repay the principal at maturity. The U.S. Treasury routinely sells individual interest payments on these bonds to investors. This is an example of

unbundling

You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?

unlimited

real assets

used to produce goods and services, determine the material wealth of the economy

The Standard & Poor's 500 is __________ weighted index.

value

he Standard & Poor's 500 is __________ weighted index.

value

In a ________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal.

value-weighted index

In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal.

value-weighted index

How do we think about risk in Finance

volatility drives risk higher returns come from taking on more risk likelihood of an actual return that is far from what was expected no free lunch

Characteristics of well functioning financial markets Sufficient competition to ensure low transaction costs

want more people but at low costs need a lot of people to participate

Principal Agent Conflict with Brokers

working for commissions discretionary accounts

Federally sponsored agency debt

would probably be backed by the U.S. Treasury in the event of a near-default and has a small positive yield spread relative to U.S. Treasuries.

On a given day a stock dealer maintains a bid price of $1000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades which totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security?

$1,375 (1003.15 - 1000.5)500

On a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades that totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security?

$1,375

A mutual fund has total assets outstanding of $69 million. During the year the fund bought and sold assets equal to $17.25 million. This fund's turnover rate was _____.

25.00% 17.25/69

As of 2008, approximately _____ of mutual fund assets were invested in money market funds.

26%

15. The maximum maturity on commercial paper is ________. A) 270 days B) 180 days C) 90 days D) 30 days

270 Days

The maximum maturity on commercial paper is ________.

270 days

In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

28%

If you believe you have a 60% chance of doubling your money, a 30% chance of gaining 15%, and a 10% chance of losing your entire investment, what is your expected return?

54.5%

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%? A. 6.48% B. 7.25% C. 8.02% D. 9%

A. 6.48%

6. The most marketable money market security is _____. A. Treasury bills B. bankers' acceptances C. certificates of deposit D. common stock

A. Treasury bills

The most marketable money market security is _____. A. Treasury bills B. bankers' acceptances C. certificates of deposit D. common stock

A. Treasury bills

1. The Dow Jones Industrial Average is _________. A. a price-weighted average B. a value weight and average C. an equally weighted average D. an unweighted average

A. a price-weighted average

The Dow Jones Industrial Average is _________. A. a price-weighted average B. a value weight and average C. an equally weighted average D. an unweighted average

A. a price-weighted average

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy? A. an equally weighted index B. a price-weighted index C. a value-weighted index D. all of these options (Weights are not a factor in this situation.)

A. an equally weighted index

Investment Advice

Power of diversification Risk that can be eliminated has no compensation Hedge against diverse impact in the investment opp. set Inflation or deflation Minimize costs Make smart decisions when deciding how much to save

1. Which of the following is not a money market instrument? A) Treasury bill B) commercial paper C) preferred stock D) bankers' acceptance

Preferred Stock

Which of the following is not a money market instrument?

Preferred Stock

what would you expect to happen to the spread between yields on commercial paper and Treasury bills if the economy were to enter steep recession?

The spread will widen. Deterioration of the economy increases credit risk, that is, the likelihood of default. Investors will demand a greater premium on debt securities subject to default risk.

Latency

The time it take to accept, process, and deliver a trading order.

find the after tax return to a corporation that buys a share of preferred stock at $40, sells it at year end at $4o and receives a $4 year end dividend. firm was in 30% tax bracket

The total before-tax income is $4. After the 70% exclusion for preferred stock dividends, the taxable income is: 0.30 $4 = $1.20 Therefore, taxes are: 0.30 $1.20 = $0.36 After-tax income is: $4.00 - $0.36 = $3.64 Rate of return is: $3.64/$40.00 = 9.10%

Which of the following is true of money market instruments? A) Their yields are highly correlated over time. B) They typically sell for par value when they are initially issued (especially T‑bills and commercial paper). C) Treasury bills have the highest yield. D) They all make periodic coupon (interest) payments.

Their yields are highly correlated over time.

5. Money market securities are sometimes referred to as cash equivalents because ________. A) they are safe and marketable B) they are not liquid C) they are high-risk D) they are low-denomination

They are safe and marketable

Barnegat Light sold 210,000 shares in an initial public offering. The underwriter's explicit fees were $72,000. The offering price for the shares was $42, but immediately upon issue, the share price jumped to $52. What is the best estimate of the total cost to Barnegat Light of the equity issue? A. $2,100,000 B. $72,000 C. $2,028,000 D. $2,172,000

Total cost = 72,000 + (52 - 42)210,000 = $2,172,000

A typical bond price quote includes all but which one of the following? a. Yield to maturity b. Dividend yield c. Closing bond price d. Coupon

b. Dividend yield

Deposits of commercial banks at the Federal Reserve are called... a. Time deposits b. Federal funds c. Bankers' acceptance d. Repurchase agreements

b. Federal funds

Which of the following is not a money market instrument? a. Bankers' acceptance b. Preferred stock c. Treasury Bill d. Commercial paper

b. Preferred Stock

Which of the following instruments has a highly active secondary market? A) banker's acceptances B) commercial paper C) federal funds D) repurchase agreements

banker's acceptances

Which of the following is used to back international sales of goods and services?

bankers' acceptance

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

bid-ask spread

The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ________.

book building

You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should _________.

borrow $375,000 (.22-.08)/(.16-.08)=1.75 500k(1.75-1)

The NYSE Hybrid Market allows _____.

brokers to send orders either to an electronic system or to a specialist

A [Prof Cursio adds: "American-style"] call option allows the buyer to

buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

An investor in a T-bill earns interest by ________.

buying the bill at a discount from the face value to be received at maturity

An investor in a T-bill earns interest by _________.

buying the bill at a discount from the face value to be received at maturity

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs ________.

by adjusting the divisor

(Buying on Margin) Margin:

describes securities purchased with money borrowed in part from a broker The margin is the net worth of the investor's account

Financial intermediaries exist because small investors cannot efficiently _________.

diversify their portfolios gather information assess and monitor the credit risk of borrowers

A typical bond price quote includes all but which one of the following?

dividend yield

Money market securities must have a maturity of three months or less. A) true B) false

false

The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London interbank offer rate (LIBOR). A) true B) false

false

Primary Market IPOs

first sale of stock by a formerly private company are underpriced good for short term- bad for long term Investment Banks pay a key role in the IPO process

Which of the following mortgage scenarios will benefit the homeowner the most?

fixed rate mortgage when interest rate rises.

American Depository Receipts are claims to _______________.

foreign stocks

You have calculated the historical dollar-weighted return, annual geometric average return, and annual arithmetic average return. You always reinvest your dividends and interest earned on the portfolio. Which method provides the best measure of the actual average historical performance of the investments you have chosen?

geometric average return

If an investor uses the full amount of margin available, the equity in a margin account used for a stock purchase can be found as ________.

market value of the stock - amount owed on the margin loan

market depth

market's ability to sustain large market orders without impacting the price of the financial asset

SEC rule 12b-1 allows managers of certain funds to deduct __________ expenses from fund assets, however, these expenses may not exceed __________ of the fund's average net assets per year.

marketing; 1%

The normal distribution is completely described by its _______.

mean and standard deviation

. At a given point in time, the actual price paid for a three-month Treasury bill is: A) usually equal to the par value. B) more than the price paid for a six-month Treasury bill. C) equal to the price paid for a six-month Treasury bill. D) none of these

more than the price paid for a six-month Treasury bill.

Which one of the following provides the best example of securitization?

mortgage pass-through security

According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is

mortgages

According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.

mortgages

Initial margin requirements on stocks are set by _________.

the Federal Reserve

The rate on Eurodollar floating rate CDs is based on: A) a weighted average of European prime rates. B) the London Interbank Offer Rate. C) the U.S. prime rate. D) a weighted average of European discount rates

the London Interbank Offer Rate.

T-Bills are sold by

the U.S. gov

what is the agency problem- principal agent conflict

the agent is expected to act in the best interest of the shareholders but they don't always the agent may have his or her own interest that would conflict with the interests or principals of the company

Asset allocation refers to _________.

the allocation of the investment portfolio across broad asset classes

In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called _________.

the capital allocation line

The holding period return on a stock is equal to _________.

the capital gain yield over the period plus the dividend yield

Explicit Cost

the company pays an explicit cost to the lead firm which is 7%

Risk Premium

the compensation of riskiness has to be greater than 0 ri-rf = risk premium >0 if it is negative then we wouldn't invest because the risk free asset gives you a greater return so makes no sense to invest

Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market.

underpriced

Under firm-commitment underwriting, the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering pric

underwriter

Under firm-commitment underwriting, the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price.

underwriter

A stand-alone investment bank specializes in

underwriting new securities

Which of the following is not a characteristic of common stock ownership?

unlimited liability

Agency problems within a corporation are

conflicts between managers and stockholders

As of 2008, approximately _____ of mutual fund assets were invested in equity funds.

54%

A level _____ subscriber to the NASDAQ system may enter bid and ask prices.

Which security should sell at a greater price? A 10-year Treasury bond with a 9% coupon rate or a 10-year T-bond with a 10% coupon.

A 10-year T-bond with a 10% coupon.

________ is not a money market instrument.

A Treasury bond

Which one of the following is a true statement regarding corporate bonds?

A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

Prospectus

A description of the firm and the security it is issuing

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

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

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%? A. 6.48% B. 7.25% C. 8.02% D. 9%

A. 6.48%

Eurodollars are _________. A. dollar-denominated deposits at any foreign bank or foreign branch of an American bank B. dollar-denominated bonds issued by firms outside their home market C. currency issued by Euro Disney and traded in France D. dollars that wind up in banks as a result of money-laundering activities

An individual who goes short in a futures position _____. A. commits to delivering the underlying commodity at contract maturity B. commits to purchasing the underlying commodity at contract maturity C. has the right to deliver the underlying commodity at contract maturity D. has the right to purchase the underlying commodity at contract maturity

A. commits to delivering the underlying commodity at contract maturity

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

An index computed from a simple average of returns is a/an _____. A. equal weighted index B. value weighted index C. price weighted index D. share weighted index

A. equal weighted index

4. A dollar-denominated deposit at a London bank is called _____. A. eurodollars B. LIBOR C. fed funds D. bankers' acceptance

A. eurodollars

53. The ________ the ratio of municipal bond yields to corporate bond yields, the _________ the cutoff tax bracket at which more individuals will prefer to hold municipal debt. A. higher; lower B. lower; lower C. higher; higher D. The answer cannot be determined without more information.

A. higher; lower

A. purchase a call option

12. Ownership of a call option entitles the owner to the __________ to __________ a specific stock, on or before a specific date, at a specific price. A. right; buy B. right; sell C. obligation; buy D. obligation; sell

A. right; buy

Which of the following reforms were not included in 2014 regulations regarding money market funds?

All of the options were included. (Institutional funds will "float" the prices of their shares; Funds can limit redemptions or impose a 2% fee if assets fall by more than 30%; increased disclosure of assets' values and liquidity)

Which of the following is not a money market instrument? A) banker's acceptance B) commercial paper C) negotiable CDs D) repurchase agreements E) All of these are money market instruments

All of these are money market instruments

51. June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the _____ exercise price and the put option with the _____ exercise price will have the greatest value. A. $40; $30 B. $30; $40 C. $35; $35 D. $40; $40

B. $30; $40

26. A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____. A. $10,000 B. $9,878.50 C. $9,877 D. $9,880.16

B. $9,878.50

A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____. A. $10,000 B. $9,878.50 C. $9,877 D. $9,880.16

B. $9,878.50

3. When computing the bank discount yield, you would use ____ days in the year. A. 260 B. 360 C. 365 D. 366

B. 360

4. Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value? A. 300 B. 39 C. 43 D. 30

B. 39

66. Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value? A. 300 B. 39 C. 43 D. 30

B. 39

B. Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock.

Trading Costs for Brokers Implicit Costs

Bid-Ask Spread Ask>Bid so the dealer collects the difference as profit/compensation some brokers also act as dealers and may not ask for commission, collecting only the bid-ask spread

__________ portfolio construction starts with selecting attractively priced securities.

Bottom-up

________ is considered to be an emerging market country.

Brazil

41. The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive _________. A. $ 1,000.00 B. $ 1,045.00 C. $ 1,045.31 D. $ 1,045.48

C. $ 1,045.31

The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive _________. A. $ 1,000.00 B. $ 1,045.00 C. $ 1,045.31 D. $ 1,045.48

C. $ 1,045.31

65. A stock quote indicates a stock price of $60 and a dividend yield of 3% (note: here is annualized dividend yield). The latest quarterly dividend received by stock investors must have been ______ per share. A. $0.55 B. $1.80 C. $0.45 D. $1.25

C. $0.45

65. A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ______ per share. A. $0.55 B. $1.80 C. $0.45 D. $1.25

C. $0.45

85. What would be the profit or loss per share of stock to an investor who bought an October expiration Apple call option with an exercise price of $130 if Apple closed on the expiration date at $120? Assume the option premium was $3.00. A. $0 B. $3.00 gain C. $3.00 loss D. $7.00 gain

C. $3.00 loss

Which of the following mortgage scenarios will benefit the homeowner the most? A. adjustable rate mortgage when interest rate increases. B. fixed rate mortgage when interest rates falls. C. fixed rate mortgage when interest rate rises. D. None of these options, as the banker's interest will always be protected.

C. fixed rate mortgage when interest rate rises.

Commercial paper is a short-term security issued by __________ to raise funds. A. the Federal Reserve B. the New York Stock Exchange C. large well-known companies D. all of these options

C. large well-known companies

Which one of the following provides the best example of securitization? A. convertible bond B. call option C. mortgage pass-through security D. preferred stock

C. mortgage pass-through security

1. Which of the following is not a money market instrument? A. Treasury bill B. commercial paper C. preferred stock D. bankers' acceptance

C. preferred stock

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

C. preferred stock

9. A __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. A. call option B. futures contract C. put option D. interest rate swap

C. put option

A __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. A. call option B. futures contract C. put option D. interest rate swap

C. put option

C. the obligation to buy an item at a specified price

CAPM equation that defines risk

CAPM= E(ri)= Rf + Bi[E(rm)-rf)] required return = risk free return + beta[market premium]

The CAL provided by combinations of 1-month T-bills and a broad index of common stocks is called the ______.

CML

Which of the following is *not* a component of the money market?

Real estate investment trusts

Treasury notes have initial maturities between ________ years. A. 2 and 4 B. 5 and 10 C. 10 and 30 D. 1 and 10

D. 1 and 10

The minimum tick size, or spread between prices in the Treasury bond market, is A. 1/8 of a point. B. 1/16 of a point. C. 1/32 of a point. D. 1/128 of a point.

D. 1/128 of a point.

Which of the following reforms were not included in 2014 regulations regarding money market funds? A. Institutional funds will "float" the prices of their shares. B. Funds can limit redemptions or impose a 2% fee if assets fall by more than 30%. C. increased disclosure of assets' values and liquidity D. All of the options were included.

D. All of the options were included.

All but which one of the following indices is value weighted? A. NASDAQ Composite B. S&P 500 C. Wilshire 5000 D. DJIA

D. DJIA

The Hang Seng index reflects market performance on which of the following major stock markets? A. Japan B. Singapore C. Taiwan D. Hong Kong

D. Hong Kong

The German stock market is measured by which market index?

DAX

All but which one of the following indices is value weighted?

DJIA (value weighted -> NASDAQ Composite; S&P 500; Wilshire 5000)

Major US Indices

DJIA, S&P 500, WIlshire 5000

19. A bond that has no collateral is called a ________. A) callable bond B) debenture C) junk bond D) mortgage

Debenture

Market types

Direct search Brokered Market Dealer Market Auction Market

Two types of brokers

Discount Brokers Full Service Brokers

Your timing was good last year. You invested more in your portfolio right before prices went up and you sold right before prices went down. In calculating historical performance measures which one of the following will be the largest?

Dollar weighted return

Price Weighted Index

Dow Jones Industrial Average Measures the performance of the portfolio had you invested in one share of each firm in the portfolio based on average price

A _______ is the obligation to buy or sell a particular asset at the predetermined price at a future date.

Investment Management Chapter 3, Chapter 3, Homework 2, Investments Test 1, Chapter 6 FI, Investments Exam 1, FIN 427 Exam 4, Quiz 2, Chapter 2 Mult, Ch. 2 chapter questions, exame 4200

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