Quiz 1: Chapter 1-6

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? A. $1,375 B. $500 C. $275 D. $1,450

A. $1,375

Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: r(A)=10.8%, STD(A)=20%, r(B)=15%, STD(B)=27% which asset is more attractive if you are a risk adverse person? A. Asset A B. Asset B C. A and B are equally attractive

A. Asset A

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

Which 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 not paid. C. Preferred stockholders always have voting power. D. Investors can sue managers for nonpayment of preferred dividends.

B. Common dividends cannot be paid if preferred dividends are not paid.

Transactions that do not involve the original issue of securities take place in (bank). A. Primary Markets B. Secondary Markets C. Over the counter markets D. Institutional markets

B. Secondary Markets

The bid price of a treasury bill is A. The price at which the dealer in Treasury bill 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 express in dollar terms D. The price at which the investor can buy the Treasury bill

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

A tax exempt 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%

(blank) is not a money market instrument? A. A certicificate of deposit B. A Treasury bill C. A Treasury bond D. Commercial Paper

C. Treasury Bond

A stock quote indicates a stock price of $50 and a dividend yield of 2% Per Year. The latest Quarterly dividend received by stock investors must have been (what?) per share? A. $.55 B. $1.00 C. $.45 D. $.25

D. $.25

Consider the following investment: A portfolio that pays a 30% rate of return with a probability of 60% or a 15% rate of return with a probability of 40%. If you invest $50,000 in this portfolio, your expected profit would be (blank). A. $3,000 B. $7,000 C. $7,500 D. 12,000

D. $12,000