Bond Valuation and Stock Valuation Quiz

Consider the following three bond quotes; a Treasury note quoted at 102.30, and a corporate bond quoted at 99.45, and a municipal bond quoted at 102.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?

$1,023.00, $994.50, $5,122.50, respectively

A 4.15 percent TIPS has an original reference CPI of 182.1. If the current CPI is 188.3, what is the par value of the TIPS?

$1,034.05

A 5.5 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond? (Assume annual interest payments.)

$1,055

A 3.75 percent TIPS has an original reference CPI of 175.8. If the current CPI is 207.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

$1,181.46, $22.15, respectively

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

$1,207.16, $15.09, respectively

International Business Machines (IBM) has earnings per share of $6.85 and a P/E ratio of 15.19. What is the stock price?

$104.05

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

$12.50, $15.75, $0, respectively

At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

$16,906.00

If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?

$161.30, $175.96 respectively

A 3.25 percent TIPS has an original reference CPI of 194.1. If the current CPI is 210.3, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

$17.61

JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?

$176.25

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent. (Assume annual compounding and a par value of $1,000.)

$195.62

At your full-service brokerage firm, it costs $110 per stock trade. How much money do you receive after selling 100 shares of Time Warner, Inc. (TMX), which trades at $22.62?

$2,152.00

At your discount brokerage firm, it costs $10.50 per stock trade. How much money do you need to buy 100 shares of Apple (AAPL), which trades at $202.64?

$20,274.50

You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $103.25 and $103.30, respectively. You place a market buy-order for 200 shares that executes at these quoted prices. How much money did it cost to buy these shares?

$20,660.00

Determine the interest payment for the following three bonds: 4 percent coupon corporate bond (paid semi-annually), 4.75 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15 years. (Assume a $1,000 par value.)

$20.00, $23.75, $0, respectively

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

$21.89

Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?

$23.03

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually), 6.45 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

$27.50, $32.25, $0, respectively

A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the preferred stock is 9.3 percent, what is the value of the stock?

$32.26

At your discount brokerage firm, it costs $8.50 per stock trade. How much money do you need to buy 200 shares of Apple (AAPL), which trades at $171.54?

$34,316.50

You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer?

$38,480.00

A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred stock is 12.1 percent, what is the value of the stock?

$42.15

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

$5,062.50

At your full-service brokerage firm, it costs $125 per stock trade. How much money do you receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?

$5,783.00

Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semi-annual compounding and $1,000 par value.)

$553.68

GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?

$892,500,000

A 5.125 percent TIPS has an original reference CPI of 191.8. If the current CPI is 188.3, what is the par value of the TIPS?

$981.75

If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?

+1.69 percent

A bond issued by a corporation on May 1, 1999, is scheduled to mature on May 1, 2019. If today is May 2, 2009, what is this bond's time to maturity? (Assume annual interest payments.)

10 years

JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?

12.22 percent; 4 percent

The Dow Jones Industrial Average (DJIA) includes:

30 of the largest (market capitalization) and most active companies in the U.S. economy.

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4 percent for an investor in the 28 percent tax bracket?

5.56 percent

The Standard & Poor's 500 Index includes:

500 firms that are the largest in their respective economic sectors.

A bond issued by a corporation on June 15, 2007, is scheduled to mature on June 15, 2017. If today is December 16, 2008, what is this bond's time to maturity? (Assume annual interest payments.)

8 years, 6 months

Which of the following will only be executed if the order's price conditions are met?

A limit order

Bonds are issued by which of the following?

All of the options

Which of the following are main issuers of bonds?

All of the options

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

All of the options are factors that determine the coupon rate of a company's bonds.

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Asset-backed securities

At your full-service brokerage firm, it costs $125 per stock trade. How much money do you receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?

At your full-service brokerage firm, it costs $125 per stock trade. How much money do you receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?

Which of these statements is false?

Bonds are always less risky than stocks.

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Call premium

Many bonds are not callable, but for those that are, which of following is a common feature?

Called any time after 10 years of issuance.

Which of the following determines the dollar amount of interest paid to bondholders?

Coupon rate

Which of the following is used to compute bond cash interest payments?

Coupon rate.

Which of the following was the catalyst for the recent financial crisis?

Defaults on subprime mortgages.

Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

Indenture

Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?

Interest rate risk

Which of these statements answers why bonds are known as fixed income securities?

Investors know how much they will receive in interest payments.

Why is the ask price higher than the bid price?

It represents the gain a market maker achieves.

All of the following are stock market indices EXCEPT:

Mercantile 1000.

Which of the following is an electronic stock market without a physical trading floor?

Nasdaq Stock Market

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

Par or face value

Which of these are valued as a special zero-growth case of the constant growth rate model?

Preferred stock

Which of these investors earn returns from receiving dividends and from stock price appreciation?

Stockholders

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

Term structure of interest rates

Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?

They are tax exempt — at least at the federal level.

Which of the following would NOT be an example of an agency bond?

Treasury bills

Rank from lowest credit risk to highest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a yield of 6.12 percent.

Treasury, Banc Ono, IBM, Trump Casino

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

U.S. Treasury

The NASDAQ Composite includes:

all of the stocks listed on the NASDAQ Stock Exchange.

Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place:

at dealers' computers.

Investors sell stock at the:

bid price.

Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $54. Sally would be best served to:

buy using a limit order.

As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?

common stockholders

The bond's annual coupon rate divided by its market price is referred to as the:

current yield.

We can estimate a stock's value by:

discounting the future dividends and future stock price appreciation.

Stock valuation model dynamics make clear that lower discount rates lead to:

higher valuations.

Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called:

market makers.

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued:

mortgage-backed securities.

Investors buy stock at the:

quoted ask price.

A bond's current yield is defined as:

the bond's annual coupon rate divided by the bond's current market price.

All of the following items would need to be included in the bond's indenture agreement EXCEPT:

the credit rating.

Many companies grow very fast at first, but slower future growth can be expected. Such companies are called:

variable growth rate firms.

If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?

−1.83 percent