Fin chapters 14-19 problems

E

7. Gerald Wilkins owns a home worth $250,000, a car worth $15,000, various investments worth $600,000 and other personal assets worth $25,000. He has a life insurance policy of $100,000. He still owes $125,000 on his mortgage and $5,000 on a car loan. What is his net taxable estate? A. $865,000 B. $890,000 C. $735,000 D. $760,000 E. $860,000

C

A UCF Graduate is thinking about buying preferred stock of Ceylon Holdings. He/she wants to be protected if the company needs to omit a dividend payment. He/she wants any unpaid dividends to accumulate and be paid before any common stock dividends are paid. What feature of preferred stock would protect the Graduate? A. Convertible B. Callable C. Cumulative D. Credible E. None of the choices

A

A UCF Graduate just purchased 100 shares in the All-American Fidelity Fund. The purchase cost for each share was $20. If this fund charges a 5 percent load, what is the total amount of commission he/she will pay the investment company? A. $100 B. $1000 C. $2,000 D. $2,100 E. It is impossible to calculate the total investment with this information

B

A UCF student owns one $1,000 corporate bond issued by Chevron. The bond pays 8.5 percent. If interest is paid semiannually, what is the amount of the check that he/she will receive at the end of each six-month period? A. $4.25 B. $42.50 C. $85 D. $850 E. $1,000

E

A bond has the following partial listing on Yahoo! Finance. OVERVIEW 1. Price: 90.50 2. Coupon (%): 6.125 3. Maturity Date: Jan 3, 2012 4. Yield to Maturity (%): 7.3 What is the interest payment per year for this bond? A) $90.50 B) $61.25 C) $730 D) $34 E) None of the above

E

A bond has the following partial listing on Yahoo! Finance: OVERVIEW 1. Price: 106.375 2. Coupon (%): 7.25 3. Maturity Date: Dec 14, 2024 4. Yield to Maturity (%): 6.75 What is the interest payment per year on this bond according to this listing? A) $67.50 B) $140.00 C) $72.50 D) $106.375 E) $7.71

D

A bond is selling the market for $905 dollars and has an interest rate of 6.125%. This bond has a face value of $1000 and has 12 years to maturity. Using the formula given in the book, what is the yield to maturity on this bond? A) 6.8% B) 12.0% C) 6.1% D) 7.3% E) None of the above

C

A call feature: A. allows bondholders to convert their bond to a specified number of shares of common stock. B. is not available on corporate bonds. C. allows the corporation to buy outstanding bonds from current bondholders before the maturity date. D. is only available with government securities. E. is guaranteed by the corporation.

A

A company earned $115 million during the year. This company has 20 million shares of stock outstanding in the market. What is this firm's earnings per share? A) $5.75 per share B) $.17 per share C) $33.82 per share D) $.58 per share E) None of the above

B

A company has $100,000,000 in assets and $40,000,000 in liabilities. It has 1,000,000 shares in the market. What is this company's book value per share? A) $60,000,000 B) $60 per share C) $40 per share D) $100 per share E) None of the above

D

A company has earnings per share of $3.00 and has a price of $27. What is the PE ratio of this company? A) 81 B) .11 C) 1.1 D) 9 E) None of the above

C

A legal document authorizing someone to act on your behalf is called a: A. codicil. B. rider. C. power of attorney. D. trustor. E. proxy.

A

A mutual fund in which shares are issued only when the fund is organized is called a(n) ____________ fund. A. closed-end B. open-end C. load D. no-load E. convertible

B

A stock that has a large number of shares outstanding and a large market value compared to other companies is considered to be: A) Defensive stock. B) Large-cap stock. C) Small-cap stock. D) Penny stock. E) None of the above.

D

A stock that pays higher than average dividends is called a(n) ____________ stock. A. defensive B. cyclical C. growth D. income E. blue-chip

C

A(n) _______________ is a bond that is unsecured and which has a claim that is secondary to the claim of other designated bondholders. A) Debenture bond B) Mortgage bond C) Subordinated debenture bond D) Callable bond E) None of the above

B

A(n) _______________ is a firm that pools the money of investors to invest in real estate or make construction or mortgage loans. It is similar to a mutual fund. A) Real estate syndicate B) Real estate investment trust (REIT) C) Investment in second mortgages D) Participation certificate E) None of the above

C

A(n) _______________ is a mutual fund where the investor pays a fee as high as 8 ½ percent every time they purchase shares. This fee is sometimes called a sales fee. A) Closed-ended mutual fund B) Open-ended mutual fund C) Load mutual fund D) No-load mutual fund E) None of the above

C

A(n) _______________ is one in which the investor does not materially participate in the management of the property. A) Direct investment B) Indirect investment C) Passive activity D) Inactive investment E) None of the above

B

A(n) _______________ is when a company issues stock to the public for the very first time. A) Proxy B) Initial public offering C) Margin D) Cumulate preferred stock E) None of the above

D

Acme Widget, Inc. has 1,000 shareholders who own a total of one million shares of its common stock currently selling at $5 per share. The company earned $10,000,000 after taxes. The annual dividend is $0.50 per share. The firm has assets of $125,000,000 and liabilities of $25,000,000. What is the dividend yield for Acme Widget's common stock? A. $10,000 B. $5.00 C. 5% D. 10% E. Depends on the stockholders purchase price of the stock.

C

An example of an indirect real estate investment is: A. a single-family home. B. a duplex. C. a real estate investment trust (REIT). D. land. E. an apartment building.

D

An individual buys an apartment building for $2,000,000. Which of the following exhibits the highest degree of financial leverage? A. He/she puts $500,000 down and borrows $1,500,000. B. He/she puts $250,000 down and borrows $1,750,000. C. He/she puts $100,000 down and borrows $900,000. D. He/she borrows all $2,000,000. E. It is impossible to tell.

C

An investor has just purchased a bond with a face value of $1,000 that pays 6 percent annually. The purchase price of the bond was 900, and the bond will mature in 5 years. What is the yield to maturity for this bond? A. 5 percent B. 6 percent C. 8.54 percent D. 9 percent E. It is impossible to calculate yield to maturity with the above information.

D

An investor just bought the stock of a company. The investor knows that they will receive a cash payment from the company once a quarter, although the company is not obligated to make this payment. What will the investor receive? A. Equity B. Proxy C. Voting Rights D. Dividends E. None of the choices

D

An investor owns 220 shares of General Mills Corporation. For the last calendar quarter, General Mills Corporation paid a dividend of $0.47 a share. What is the total amount he/she received in the dividend check for this quarter? A. $0.47 B. $47 C. $94 D. $103.40 E. It is impossible to calculate the total dividend amount with this information.

C

Assume that you are a taxpayer in the 28 percent tax bracket. Also, assume that you purchase a tax-exempt bond that pays 5 percent. What is your pretax equivalent yield? A. 5 percent B. 6.0 percent C. 6.94 percent D. 7.2 percent E. 14.4 percent

C

Assume you own a 2005 Lexus worth $25,000. Your home is worth $225,000. You have a checking account with $500 in it and a savings account with $1,500 in it. You also have a mutual fund worth $85,000. Additional personal assets are worth $90,000. However, you still owe $10,000 on your car, $100,000 on your home and have a balance on your credit card of $1,000. What is your net worth? A. $538,000 B. $427,000 C. $316,000 D. $111,000 E. None of the choices

A

Brad Duvall is thinking about buying gold bullion. What might be one of the problems with investing in this type of investment? A) It may be hard to store this investment safely. B) It may be difficult to determine whether you are getting good quality. C) You often have to purchase it at the retail price and sell it at the wholesale price. D) Forgeries have been a significant problem in this market. E) None of the above are problems with this investment

B

Cindy Brown wants to invest in real estate because she thinks it's a good investment. She is thinking about investing in a REIT because she does not have a lot of money to invest and wants to be able to easily sell her investment when she needs to. What advantage of real estate investing is she thinking about with this investment? A) A hedge against inflation B) Easy entry and exit C) Limited financial liability D) No management concerns E) Financial leverage

A

During 2015, an investor received income dividends of $850 and capital gain distributions of $540 from a mutual fund held in a taxable account. Based on this information: A. both amounts must be included as taxable income. B. only the dividends are taxable. C. only the capital gains are taxable. D. both amounts are tax exempt. E. It is impossible to determine the tax consequences for dividend income and capital gain distributions unless the shares of the mutual fund are sold to another investor.

C

Elizabeth Gleason has found a small apartment complex near the local community college that is for sale. She is thinking about purchasing this property for the rental income it will generate. What type of direct investment in real estate is this likely to be? A) Investing her own home B) Investing in a vacation home C) Investing in commercial real estate D) Investing in undeveloped land E) None of the above

A

Elizabeth Gleason is 75 years old. She is thinking about buying a small apartment complex that is located close to the local community college. She knows that real estate values have been increasing in the area and she will still have many other investments (including other property) after she purchases the apartments. What might be one of the problems she has to be most concerned with in this investment? A) It may be difficult for her to manage this property herself. B) It can be a poor hedge against inflation. C) She will not be very diversified. D) It is a poor tax shelter. E) All of the above are problems she needs to be concerned with.

C

Greg Webber believes that stock prices follow a random walk. He thinks that it is impossible to find stocks that consistently outperform the market as a whole. What theory about investing does Greg believe? A) Fundamental theory B) Technical theory C) Efficient market theory D) Absolute theory

A

Greg Webber looks at a firm's expected earnings, its financial strength, the industry it is in and other basic factors about that company to decide if it is a good investment. What theory about investing does Greg believe? A) Fundamental analysis B) Technical analysis C) Efficient market theory D) Absolute theory E) None of the above

D

If the board of directors approves a two for one stock split, an investor who owns 150 shares before the split owns ____________ shares after the split. A. 75 B. 150 C. 225 D. 300 E. 450

B

If you die without a valid will, you die: A. as an executor / executrix. B. intestate. C. in trust. D. pre-nuptially

C

Investors buy precious metals as a hedge against the risk of: A. recession. B. depression. C. inflation. D. deflation

C

Jeff Jones has found a duplex located near a college campus that is for sale. The duplex is in good shape and he thinks that it would be a good investment since there are a lot of students that need housing near campus. What type of real estate investing is Jeff thinking about? A) Investing in his own home B) Investing in a vacation home C) Investing in commercial real estate D) Investing in undeveloped land E) None of the above

C

Last year, High-Tech Electronics earned $1.50 per share. If the current market value for a share of stock is $45, what is the firm's PE ratio? A. 0.033 B. 3.3 C. 30 D. 33 E. It is impossible to calculate a PE ratio with this information.

A

Laura Dern knows that real estate can be a good investment. However she is concerned about buying a house. She is worried that it might take her as long as a year to sell her house when she wants to move. What disadvantage or investing in real estate is she worried about? A) Illiquidity B) Declining property values C) Lack of diversification D) Lack of a tax shelter E) Long depreciation period

C

Mellon Manufacturing has after-tax income of $3 million. It also has 2 million shares of stock outstanding. What is the firm's earnings per share? A. $3 a share B. $2 a share C. $1.50 a share D. $0.67 a share E. None of these answers is correct.

C

Melody Brown is rather well off and wants to invest in some real estate. She has a friend who needs a mortgage to purchase her home but cannot qualify for a mortgage through a regular lender. If Melody holds the mortgage on this property, what type of real estate lending is she doing? A) Real estate syndicate B) Real estate investment trust C) Investing is first and second mortgages D) Participation certificate E) None of the above

B

One of the ways you can earn a return on a mutual fund is _______________. These are the payments made to shareholders as a result of the sale of securities held in the fund. A) Income dividends B) Capital gain distributions C) Capital gains D) Capital losses E) None of the above

C

One rule of thumb to determine what percentage of long term stock to invest in is to: A. Subtract your age from 100 and add 10% B. Add 50 to your age C. Subtract your age from 110 D. Divide your age by 2 and add 100 E. Add 110 to your age

A

Over time, the prices of single-family houses: A. tend to rise, therefore a possible hedge against inflation. B. rise less than the Consumer Price Index. C. remain stable in the northern parts of the United States. D. rise in New England states, but decline in the South. E. remain unchanged in the United States.

E

Possible sources of income for many retirees include: A. Social Security. B. other public pension plans. C. employer pension plans. D. personal retirement plans and annuities. E. All are possible sources of income.

D

Stacey Mays has found this wonderful antique china cabinet on Ebay that she wants to purchase. What is the most likely problem she might have with this investment? A) She may have to buy at a retail price and sell at a wholesale price. B) There has been an increasing incident of frauds in the collectibles market. C) She may have difficulty finding a place to store her investment. D) If she buys it online it may be difficult for her to see any flaws that exist. E) All of the above are potential problems with antiques.

D

The Federal Housing Administration (FHA) is issuing bonds so that they can make mortgages to lower income homeowners. What type of bonds are these? A) Treasury Bonds B) General Obligation Municipal Bonds C) Revenue Municipal Bonds D) Government Agency Bonds E) None of the above

E

The New American Enterprise Mutual Fund's portfolio is valued at $120,000,000. The fund has liabilities of $4,000,000, and the investment company sponsoring the fund has issued 5,800,000 shares. What is the fund's net asset value? A. $120 B. $58 C. $40 D. $30 E. $20

D

The _______________ is a financially independent firm that acts as the bondholders' representative. A) Indenture B) Debenture C) Sinking fund D) Trustee E) None of the above

C

The _______________ is the date on which the corporation is to repay the borrowed money. A) The end of the year B) The current date C) The maturity date D) The bondholder's date E) None of the above

D

The lowest bond rating issued by Standard & Poor's is: A. A. B. B. C. C. D. D. E. Default.

A

The management fee for most mutual funds ranges between ____________ percent. A. 0.25 to 1.5 B. 1.5 to 3 C. 3 to 4 D. 5 to 6 1/2 E. 7 to 8 ½

D

The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is called the: A. book value. B. outstanding balance. C. per share value. D. net asset value. E. accounting value.

True

True or False? One of the misconceptions about retirement is that your expenses will drop when you retire.

TRUE

True or False? A bond is generally sold in increments of $1,000 (including $10,000 and $100,000).

TRUE

True or False? A convertible bond is a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock.

False

True or False? A simple will creates lower overall taxation.

True

True or False? An exchange-traded fund, commonly referred to as an EFT, is a fund that invests in the stocks contained in a specific stock or securities index.

False

True or False? Earnings per share is a corporation's after-tax earnings divided by the number of stockholders.

E

True or False? Estate planning involves: A. handling your property while you are alive. B. dealing with what happens to that property after your death. C. your family's financial security in the event of your death. D. your family's financial security in the event of your spouse's death. E. All of the choices are correct.

True

True or False? Gold prices tend to go up during periods of political uncertainty, wars and high inflation.

True

True or False? High-yield bond funds are sometimes referred to as junk bond funds.

FALSE

True or False? If overall interest rates in the economy fall, then a corporate bond with a fixed interest rate will decrease in value.

True

True or False? Real Estate Investment Trusts (REITs) must distribute at least 90 percent of their net annual earnings to shareholders.

True

True or False? The fundamental theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company.

False

True or False? The net asset value for a mutual fund share is calculated by dividing the value of the fund's portfolio by the fund's liabilities.

True

True or False? Under a 401(k) plan, your employer's matching contributions to the plan will have a vesting period requirement and will not be taxed until you withdraw the funds at retirement.

True

True or False? Under the current law, if you rent out a second home for 14 days or less, the income is tax-free.

True

True or False? Your executor can be a family member, a friend, an attorney, an accountant, or the trust department of a bank.

True

True or False? Your mortgage, car loans, credit card balances, and taxes due are all examples of your liabilities.

C

What is the current yield for a $1,000 corporate bond that pays 7 percent and has a current market value of $800? A. 7 percent B. 8 percent C. 8.75 percent D. 10 percent E. 11.4 percent

B

What is the maximum amount that an individual can give as a gift without incurring gift tax liability or having to report the gift to the IRS? A. $15,000 per year B. $14,000 per year C. $12,000 per year D. $20,000 per year E. $25,000 per year

D

What type of mutual fund invests in high-yield, high-risk bonds? A) Municipal bond fund B) Long-term corporate bond fund C) Short-term government bond fund D) High-yield (junk) bond fund E) None of the above

D

What type of mutual fund invests in short-term, highly liquid securities such as certificates of deposit and government securities? A) A world bond fund B) A balanced mutual fund C) A short-term bond fund D) A money market mutual fund E) All of the above

D

What type of mutual fund invests in the same companies included in an index like the S&P 500 in order to get the same return as the index? A) A global stock mutual fund B) An aggressive growth stock mutual fund C) A small-cap mutual fund D) An index mutual fund E) All of the above

D

What type of mutual fund share are you purchasing if there is no commission to buy or sell the shares but a higher ongoing 12b-1 fee? A) No-load shares B) Class A shares C) Class B shares D) Class C shares E) None of the above

B

Which employer pension plan has an individual account for each employee? A. undefined-contribution plan B. defined-contribution plan C. defined-benefit plan D. undefined-benefit plan

E

Which of the following is a potential disadvantage of investing in a mutual fund? A) Purchase and withdrawal costs B) Ongoing management and 12b-1 fees C) Poor performance D) Inability to control when capital gains distributions occur E) All of the above are potential disadvantages.

E

Which of the following is a requirement of a REIT? A. They must distribute at least 90 percent of their taxable annual earnings to shareholders B. They must hire independent real estate professionals to carry out certain management activities C. They must have at least 100 shareholders and no more than one half of the shares can be owned by 5 or fewer people D. They must invest at least 70 percent of the total assets in real estate E. All of the choices are requirements of REITs

D

Which of the following is true about a short sale? A) There is an extra brokerage fee for executing a short sale. B) To make money on the transaction the price of the stock must rise significantly. C) You get to keep any dividends earned on the stock while you have the short sale in place. D) To make money on the transaction the price of the stock must decline. E) All of the above are true.

B

Which of the following is true about a zero coupon bond? A) It is sold at face value. B) You pay taxes on the interest earned each year even though you don't receive it until maturity. C) Zero coupon bonds are less volatile than other types of bonds. D) The interest on a zero coupon bond is paid semi-annually. E) All of the above are characteristics of zero coupon bonds.

C

Which of the following statements is correct? A. Stock is a form of debt capital. B. Stock must be repaid at maturity. C. Bonds are a form of debt capital. D. Bonds do not have to be repaid at maturity. E. Interest payments to bondholders are at the discretion of the corporation.

D

Which of the following statements is false? A. Many investors have found a wealth of information about mutual funds investments on the Internet. B. It is possible to obtain market values for a mutual fund by using the Internet. C. Most investment companies that sponsor mutual funds have a Web page. D. It is impossible to obtain online information about a mutual fund by accessing the Web page for one of the professional advisory services. E. A mutual fund's Web site will provide information about how to open an account, current market quotes, and other information about a specific fund.

E

Which of the following would not be found in a prospectus of a mutual fund? A) A description of the fund's past performance B) A statement describing the types of investments contained in the fund's portfolio C) Information about the fund's management D) Information about how to open an account with the investment company E) All of the above would be found in a prospectus.

A

Which one of the following expenditures for retirees is likely to increase? A. health insurance and health related costs B. federal income taxes C. clothing expenses D. work-related expenses E. state income taxes

D

Which retirement plan is specifically designed for self-employed individuals and their employees? A. Roth IRA B. Traditional IRA C. Defined-contribution plan D. Keogh plan E. Defined-benefit plan

A

Which type of REIT pools money to finance construction loans? A. mortgage REIT B. compound REIT C. hybrid REIT D. simple REIT E. equity REIT

E

Which will should be written, dated, and signed entirely in your own handwriting? A. informal will B. letter of last instruction C. formal will D. statutory will E. holographic will

D

You buy 250 shares of a mutual fund for $40 per share. During the year you earn $.63 per share in income dividends and also earn $.88 per share in capital gains distributions. You sell the shares of the mutual fund at the end of the year for $45 per share. What is the percentage total return you earned during the year? A) 12.50% B) 6.25% C) 3.78% D) 16.28% E) None of the above

A

You buy stock that pays a cash dividend before other stock holders are paid dividends. What type of stock have you purchased? A) Preferred stock B) Convertible stock C) Common stock D) Tiered stock E) None of the above

D

You can determine your net worth by: A. subtracting your assets from your liabilities. B. subtracting the value of your home from the mortgage balance. C. adding your liabilities and assets. D. subtracting your liabilities from your assets.

D

You have a baseball card collection passed down from your grandfather. You are particularly proud of the signed Hank Aaron baseball card that. What type of investment do you hold? A. Direct investment in real estate B. Indirect investment in real estate C. Investment in precious metals D. Investment in collectibles E. Investment in gems

C

You have a bond that has 8 years to maturity and has a coupon rate of 6.5%. It has a face value of $1000 and is selling in the market for $925. Interest is paid annually on this bond. What is the current yield on this bond? A) 6.5% B) 8.0% C) 7.0% D) 7.7% E) None of the above

D

You have a debenture bond that is rated BBB? Which of the following would cause this bond to have a lower interest rate? A) If the bond were rated CCC instead of BBB B) If it was also a callable bond C) If it was a subordinated debenture bond D) If it was also a convertible bond E) None of the above would make it have a lower interest rate.

B

You own 1000 shares of a mutual fund and you originally paid $10,000 for those shares. During the year you earn income dividends of $.26 per share and had capital gains distributions of $1.12 per share. At the end of the year you sold the shares of the mutual fund for $12.50 per share. What is your dollar amount of total return on this mutual fund for the year? A) $2500 B) $3880 C) $1380 D) $1630 E) None of the above

B

You should review your will if: A. you move to a different state. B. you have sold property mentioned in the will. C. the size and composition of your estate has changed. D. you have married, divorced, or remarried. E. All are good reasons to review your will.

D

Your parent has created a will that leaves exactly $2,000,000 to you. What type of will has your parent created? A. A simple will B. A traditional marital share will C. An exemption trust will D. A stated dollar amount will E. None of the choices

D

_______________ is an investment strategy where the investor buys and sells the stock in a very short period of time, generally a few hours. A) Churning B) Buy and hold C) Dollar cost averaging D) Day trading E) None of the above