6310

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04. As a seller of the bond what is the dollar price you expect to pay?

$1041.25 You receive the bid price of the dealer, 104 4/32, or 104.125% of $1,000, or $1,041.25

You purchased 1000 shares of CSCO common stock on margin at $19 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

$13.571,000 shares × $19 × .5 = $19,000 × 0.5 = $9,500 (loan amount); 0.30 = (1,000P - $9,500)/1,000P; 300P = 1,000P - $9,500; -700P = -$9,500; P = $13.57.

Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000 shares in the fund at year-end. What was Multiple Mutual's net asset value?

$18.11 ($457,000,000 - 17,000,000)/24,300,000 = $18.11.

A mutual fund had year-end assets of $560,000,000 and liabilities of $26,000,000. There were 23,850,000 shares in the fund at year-end. What was the mutual fund's net asset value?

$22.39 ($560,000,000 - 26,000,000)/23,850,000 = $22.389.

You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. Your initial investment was

$2250 100 x 45 x .5 = 2250$$$$$

Certificates of deposit are insured for up to _____________ in the event of bank insolvency

$250,000

Growth Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254 shares in the fund at year-end. What was Growth Fund's net asset value?

$26.01 ($862,000,000 - 12,000,000)/32,675,254 = $26.01.

Patty O Furniture purchased 100 shares of Green Isle mutual fund at a net asset value of $42 per share. During the year Patty received dividend income distributions of $2.00 per share and capital gains distributions of $4.30 per share. At the end of the year the shares had a net asset value of $40 per share. What was Patty s rate of return on this investment?

10.24% R = ($40 - 42 + 2 + 4.3)/$42 = 10.238%.

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% 0.072 = r(1 - t); 0.072 = r(0.67); r = 0.072/0.67; r = 0.1075 = 10.75%.

You want to purchase XON stock at $60 from your broker using as little of your own money as possible. If initial margin is 50% and you have $3,000 to invest, how many shares can you buy?

100 shares .5 = [(Q × $60) - $3,000]/(Q × $60); $30Q = $60Q - $3,000; $30Q = $3,000; Q = 100.

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 5.75%. If the securities in which the fund invested increased in value by 11% during the year, and the fund's expense ratio was 1.25%, your return if you sold the fund at the end of the year would be

3.44% {[$20 × .9425 × (1.11 - .0125)] -$20}/$20 = 3.44%.

How many firms does DJIA contain?

30 of some of the largest firms in the US

In 2012 the proportion of mutual funds (based on total assets) specializing in common stocks was

44.8%

Diversified Portfolios had year-end assets of $279,000,000 and liabilities of $43,000,000. If Diversified's NAV was $42.13, how many shares must have been held in the fund?

5,601,709 ($279,000,000 - 43,000,000)/$42.13 = 5,601,708.996.

Assume you sell short 1,000 shares of common stock at $35 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $25 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.

57.14% Profit on stock = ($35 - $25)(1,000) = $10,000; initial investment = ($35)(1,000)(.5) = $17,500; return = $10,000/$17,500 = 57.14%.

For a taxpayer in the 15% marginal tax bracket, a 15-year municipal bond currently yielding 6.2% would offer an equivalent taxable yield of

7.29% 0.062 = r(1 - t); r = 0.062/(0.85); r = 0.0729 = 7.29%.

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% rc = 0.103(1 - 0.25) = 0.07725, or 7.73%; rm = 0.075(1 - 0) = 7.5%.

A mutual fund had NAV per share of $19.00 on January 1, 2012. On December 31 of the same year the fund's NAV was $19.14. Income distributions were $0.57 and the fund had capital gain distributions of $1.12. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last year?

9.63% R = ($19.14 - 19.00 + .57 + 1.12)/$19.00 = 9.63%.

If a Treasury note has a bid price of $995, the quoted bid price in the WSJ would be

99:16

Although derivatives can be used as speculative instruments, businesses most often use them to... attract customers. appease stockholders. offset debt. hedge risks. enhance their balance sheets.

Hedge Risks

__________ specialize in helping companies raise capital by selling securities

Investment bankers (an important role of investment banjking is to act as middlemen in helping firms place new issues in the market)

Only US government sells ___________ in the primary market

T-bills

Asset allocation refers to... choosing which securities to hold based on their valuation. investing only in "safe" securities. the allocation of assets into broad asset classes. bottom-up analysis.

The allocation of assets into broad asset classes

Which of the following are mechanisms that have evolved to mitigate potential agency problems?

Using the firm's stock options for compensation Boards of directors forcing out underperforming management Security analysts monitoring the firm closely Takeover threats

A municipal bond is ????

a debt obligation issued by state or local governments

A fixed-income security pays

a fixed stream of income that is determined according to a specified formula for the life of the security

Investment bankers

act as intermediaries between issuers of stocks and investors and act as advisors to companies in helping them analyze their financial needs and find buyers for newly issued securities.

The _________ refers to the potential conflict between management and shareholders.

agency problem

The material wealth of a society is a function of

all real assets

Originally Eurodollars were used to describe dollar-denominated deposits in European banks today the term has been extended to

apply to any dollar-denominated deposit outside the US

Money market securities

are generally very low risk are short term are highly marketable

Security selection refers to

choosing which securities to hold based on their valuation

Security selection refers to choosing which securities to hold based on their valuation. investing only in "safe" securities. the allocation of assets into broad asset classes. top-down analysis.

choosing which securities to hold based on their valuation

The ______________________ are required for the bank to meet reserve requirements which is a way of influencing the money supply

federal funds

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 interest income from a municipal bond is exempt from

federal income taxation and state and local taxation in the issuing state

The means by which individuals hold their claims on real assets in a well-developed economy are

financial assets

When are stop-loss orders to be executed?

if the market price decreases to the specific limit price

The BOG of the Federal Reserve System determines ????

initial margin requirements

The smallest component of domestic net worth in 2012 was

inventories

In 2012, __________ was the least significant real asset of US nonfinancial businesses in terms of total value

inventory

The YTM reported in the financial pages for Treasury securities

is calculated by doubling the semiannual yield & is also called the bond equivalent yield

Which of the following functions do investment companies perform for their investors?

lower transaction costs diversification and divisibility record keeping and administration professional management

Which order instructs the broker to buy at the current price?

market order

In 2012, __________ was the most significant liability of US households in terms of total value.

mortgages

A call option may be exercised before when?

on or before expiration (option contract may be sold prior to expiration as well)

NASDAQ subscriber levels

permit those with the highest level, 3, to "make a market" in the security; permit those with a level 2 subscription to receive all bid and ask quotes, but not to enter their own quotes; permit level 1 subscribers to receive general information about prices.

New issues of securities are sold in the __________ market.

primary

In 2012, __________ was the most significant real asset of US nonfinancial businesses in terms of total value

real estate

A form of short-term borrowing by dealers in government securities is

repurchase agreements

The largest component of the money market is

saving deposits

What order instructs the broker to buy at or above a specified price?

stop-buy order

You sold JCP stock short at $80 per share. Your losses could be minimized by placing a

stop-buy order

Which order instructs the broker to sell at or below a specified price?

stop-loss

Initial margin requirements are determined by

the Federal Reserve System

T-bills are financial instruments initially sold by ___________ to raise funds

the US government

Asset allocation refers to

the allocation of assets into broad asset classes

When stocks are held in street name

the investor does not receive a stock certificate and the broker holds the stock in the brokerage firm's name on behalf of the client

The bid price of a T-bill in the secondary market is

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

Corporate shareholders are best protected from incompetent management decisions by

the threat of takeover by other firms

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04. As a buyer of the bond, what is the dollar price you expect to pay? $1,048.00 $1,042.50 $1,044.00 $1,041.25 $1,040.40

$1,042.50

The FDIC insures saving deposits for up to

$100,000

You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

$50 100 shares × $70 × .5 = $7,000 × 0.5 = $3,500 (loan amount); 0.30 = (100P - $3,500)/100P; 30P = 100P - $3,500; -70P = -$3,500; P = $50.

You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. At what stock price would you receive a margin call if the maintenance margin is 35%?

$50 Equity = 100($45) × 1.5 = $6,750; 0.35 = ($6,750 - 100P)/100P; 35P = $6,750 - 100P; 135P = $6,750; P = $50.00

You sold short 200 shares of common stock at $60 per share. The initial margin is 60%. Your initial investment was

$7200 200 shares × $60/share × 0.60 = $12,000 × 0.60 = $7,200.

The Sarbanes-Oxley Act

- requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements - prohibits auditing firms from providing other services to clients - requires corporations to have more independent directors - requires the firm's CFO to personally vouch for the firm's accounting statements

Assume you sell short 100 shares of common stock at $30 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $35 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.

-33.33$ Profit on stock = ($30 - $35)(100) = -500; initial investment = ($30)(100)(.5) = $1,500; return = $500/$1,500 = -33.33%.

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 and II only I and III only I, II, and III only I, III, and IV only I and IV only

1, 111, and IV

A mutual fund had average daily assets of $3.0 billion in 2012. The fund sold $600 million worth of stock and purchased $700 million worth of stock during the year. The fund's turnover ratio is

20% 600,000,000/3,000,000,000 = 20%.

You want to purchase GM stock at $40 from your broker using as little of your own money as possible. If initial margin is 50% and you have $4,000 to invest, how many shares can you buy?

200 shares You can buy ($4,000/$40) = 100 shares outright and you can borrow $4,000 to buy another 100 shares.

The Profitability Fund had NAV per share of $17.50 on January 1, 2012. On December 31 of the same year, the fund's NAV was $19.47. Income distributions were $0.75, and the fund had capital gain distributions of $1.00. Without considering taxes and transactions costs, what rate of return did an investor receive on the Profitability Fund last year?

21.26% R = ($19.47 - 17.50 + .75 + 1.00)/$17.50 = 21.26%.

Assume you sold short 100 shares of common at $70 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $85?

23.5% $7,000 × 1.5 = $10,500; [$10,500 - 100($85)]/100($85) = 23.5%.

Pinnacle Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Pinnacle's NAV was $32.18, how many shares must have been held in the fund?

24,860,161.59 ($825,000,000 - 25,000,000)/$32.18 = 24,860,161.59

The maximum maturity of commercial paper that can be used without SEC registration is

270 days

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

Specialists on stock exchanges perform which of the following functions? Act as dealers in their own accounts. Analyze the securities in which they specialize. Provide liquidity to the market. Act as dealers in their own accounts and analyze the securities in which they specialize. Act as dealers in their own accounts and provide liquidity to the market.

Act as dealers in their own accounts and provide liquidity to the market.

The Dow Jones Industrial Average (DJIA) is computed by adding the prices of 30 large "blue-chip" stocks and dividing by 30. calculating the total market value of the 30 firms in the index and dividing by 30. adding the prices of the 30 stocks in the index and dividing by a divisor. adding the prices of the 500 stocks in the index and dividing by a divisor. adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base date period.

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

Money market securities... are short term. are highly marketable. are generally very low risk. are highly marketable and are generally very low risk. All of the options

All of the Above

The Sarbanes-Oxley Act requires corporations to have more independent directors. requires the firm's CFO to personally vouch for the firm's accounting statements. prohibits auditing firms from providing other services to clients. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements. All of the options

All of the Options

Financial intermediaries exist because small investors cannot efficiently diversify their portfolios. assess credit risk of borrowers. advertise for needed investments. diversify their portfolios and assess credit risk of borrowers. All of the options

All of the options

Which of the following would increase the net asset value of a mutual fund share, assuming all other things remain unchanged? An increase in the number of fund shares outstanding An increase in the fund's accounts payable A change in the fund's management An increase in the value of one of the fund's stocks

An increase in the value of one of the fund's stocks.

Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner?

Bankers' acceptances

___________ are in essence an insurance contract against the default of one or more borrowers.

Credit default swipe

The _____________ is an example of a US index of large firms

DJIA

Investment bankers perform which of the following roles?

Design securities with desirable properties Market new stock and bond issues for firms Provide advice to the firms as to market conditions, price, etc.

Which one of the following terms BEST describes Eurodollars?

Dollar-denominated deposits at foreign banks and branches of American banks outside the US

Certificates of deposit are insured by the

FDIC

The means by which individuals hold their claims on real assets in a well-developed economy are investment assets. depository assets. derivative assets. financial assets. exchange-driven assets.

Financial Assets

________________ are backed by the taxing power of the municipality

General obligation bonds

Until 1999, the ____________ Act prohibited banks in the United States from both accepting deposits and underwriting securities

Glass-Steagall

Which of the following statements are true regarding municipal bonds?

I) A municipal bond is a debt obligation issued by state or local governments. 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.

Which of the following characteristics apply to unit investment trusts? I) Most are invested in fixed-income portfolios. II) They are actively managed portfolios. III) The sponsor pools securities, then sells public shares in the trust. IV) The portfolio is fixed for the life of the fund. I and IV I and II I, III, and IV I, II, and III I, II, III, and IV

I, III and IV

_________________ are used to support private enterprises

Industrial development bonds

_________ are examples of financial intermediaries.

Insurance companies Investment companies Credit unions Commercial banks (All of the options bc all are institutions that bring borrowers and lenders together)

Commercial paper is a short-term security issued by ________ to raise funds. the Federal Reserve Bank commercial banks large, well-known companies the New York Stock Exchange state and local governments

Large, Well-known companies

During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to

Manipulation of financial data to misrepresent the actual condition of the firm Misleading and overly optimistic research reports produced by analysts Allocating IPOs to executives as a quid pro quo for personal favors

Which of the following orders instructs the broker to buy at the current market price? Limit order Discretionary order Limit-loss order Stop-buy order Market order

Market Order

You want to buy 100 shares of Hotstock Inc. at the best possible price as quickly as possible. You would most likely place a stop-loss order. stop-buy order. market order. limit-sell order. limit-buy order.

Market order

Which of the following financial assets made up the greatest proportion of the financial assets held by U.S. households? Pension reserves Life insurance reserves Mutual fund shares Debt securities Personal trusts

Pension Reserves

_______________ are a form of short-term borrowing, where a dealer sells government securities to an investor with an agreement to buy back those same securities at a slightly higher price

Repurchase agreements

OF the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the S&P should choose

SPY

Which of the following orders is most useful to short sellers who want to limit their potential losses?

Stop-buy order

Which of the following orders is most useful to short sellers who want to limit their potential losses? Limit order Discretionary order Limit-loss order Stop-buy order

Stop-buy order

The spread between the LIBOR and Treasury bill rate is called the

TED spread

_____________ provides a constant stream of income in real (inflation-adjusted) dollars and have their principal adjusted in proportion to the COnsumer Price Index

TIPS

What does the term negotiable mean with regard to negotiable certificates of deposit? The CD can be sold to another investor if the owner needs to cash it in before its maturity date. The rate of interest on the CD is subject to negotiation. The CD is automatically reinvested at its maturity date. The CD has staggered maturity dates built in. The interest rate paid on the CD will vary with a designated market rate.

The CD can be sold to another investor if the owner needs to cash it in before its maturity date.

Initial margin requirements are determined by the Securities and Exchange Commission. the Federal Reserve System. the New York Stock Exchange. the Federal Reserve System and the New York Stock Exchange.

The federal reserve system

Which of the following statements regarding closed-end mutual funds is false?

The funds always trade at a discount from NAV and redeem shares at their net asset value

Which one of the following statements regarding open-end mutual funds is false?

The funds offer investors a guaranteed rate of return

Which of the following statement regarding closed-end mutual funds is true?

The funds offer investors professional management and are sold at the prevailing market price

What is true of open-end mutual funds?

The funds redeem shares at net asset value and offer investors professional management. The funds offer investors professional management. The funds redeem shares at net asset value.

Which of the following statements about money market mutual funds is true? They invest in commercial paper, CDs, and repurchase agreements. They usually offer check-writing privileges. They are highly leveraged and risky. They invest in commercial paper, CDs, and repurchase agreements, and they usually offer check-writing privileges. All of the options are true.

They invest in commercial paper, CDs, and repurchase agreements, and they usually offer check-writing privileges.

Which of the following portfolio construction methods starts with asset allocation? Top-down Bottom-up Middle-out Buy and hold Asset allocation

Top-down

The largest component of the bond market is _______ debt. Treasury asset-backed corporate tax-exempt mortgage-backed

Treasury

The largest component of the bond market is ___________ debt.

Treasury

What does TIPS stand for?

Treasury Inflation-Protected Securities

A ____________________ facilitates foreign trade by substituting a bank's credit for that of the trading partner

bankers' acceptance

Which of the following portfolio construction methods starts with security analysis?

bottom-up (refers to using security analysis to find securities that are attractively priced)

A 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

In a "firm commitment," the investment banker buys the stock from the company and resells the issue to the public. agrees to help the firm sell the stock at a favorable price. finds the best marketing arrangement for the investment banking firm. agrees to help the firm sell the stock at a favorable price and finds the best marketing arrangement for the investment banking firm.

buys the stock from the company and resells it to the public

In a "firm commitment", the investment banker

buys the stock from the company and resells the issue to the public

A bond that can be retired prior to maturity by the issuer is a _____________ bond.

callable

The value of a derivative security

depends on the value of the related security

In 2012, _______________ was the most significant liability of US commercial banks in terms of total value

deposits

NASDAQ links dealers in a loosely organized network with

different levels of access to meet different needs

Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000,

do not outperform the market

Unsecured bonds are called

either debentures or subordinated debuntures

Financial assets permit all of the following except

elimination of risk (so financial assets permit: separation of ownership and control, allocation of risk, consumption timing)

Deposits of commercial banks at the Fed are called

federal funds

Management fees and other expenses of mutual funds may include

front-end loads, back-end loads and 12b-1 charges

Limit -order buys are to be executed when???

if the market price decreases to the specified limit price

When are limit-sell orders to be executed?

if the market price increases to the specific limit price

When are stop-buy orders executed?

if the market price increases to the specified limit price

When are market orders to be executed?

immediately at the best prevailing price

Theoretically, takeovers should result in

improved management and increased stock price (bc managers come in and increase the price of the stock, existing management must either leave the firm, be demoted or suffer a loss of existing benefits)

A purchase of a new issue of stock takes place

in the primary market & usually with the assistance of an investment banker

Shelf registration is a way of placing issues in the primary market. allows firms to register securities for sale over a two-year period. increases transaction costs to the issuing firm. is a way of placing issues in the primary market and allows firms to register securities for sale over a two-year period. is a way of placing issues in the primary market and increases transaction costs to the issuing firm.

is a way of placing issues in the primary market and allows firms to register securities for sale over a two-year period.

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

large, well-known companies

What order instructs the broker to buy at or below a specified price?

limit-order buy

What order instructs the broker to sell at or above a specified price?

limit-sell order

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

limit-sell order

A municipal bond issued to finance an airport, hospital, turnpike or port authority is typically a

revenue bond

Investors trade previously issued securities in the ________ market.

secondary

A 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.

Which of the following portfolio construction methods starts with asset allocation?

top-down (bottom-up refers to using security analysis to find securities that are attractively priced)

Pools of money invested in a portfolio that is fixed for the life of the fund are called

unit investment trusts (often fixed-income securities)