Chapter 2 - Copy

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? - 2.68% - 2.34% - 3.25% - 4.92%

(0.0234)/(1-0.28) = 0.0325 = 3.25%

The minimum tick size, or spread between prices in the Treasury bond market, is - 1/8 of a point. - 1/16 of a point. - 1/128 of a point. - 1/32 of a point.

1/128 of a point.

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

996.25 * (100/1000) = 99.625

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

A Treasury bond

The U.K. stock index is the _________. - TSE - FTSE - GSE - DAX

FTSE

The Hang Seng index reflects market performance on which of the following major stock markets? - Taiwan - Hong Kong - Singapore - Japan

Hong Kong

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

I and III only

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? - 43 - 39 - 30 - 300

Index = (12 + 75 + 30)/3 = 39

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? - 985 - 975 - 970 - 960

Index = (((23*350,000) + (41*405,000) + (58*553,000))/((23*350,000) + (43*405,000) + (56*553,000))) * (970) = 975.087 = 975

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? - 6.16% - 5.78% - 4.35% - 7.42%

Index Return = [((16*600,000) + (18*500,000) + (62*200,000))/((12*600,000) + (20*500,000) + (60*200,000))] - 1 = 0.06164 = 6.164%

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? - 5.00 - 4.85 - 4.75 - 4.50

Index0 = (10 + 20 + 80 + 50 + 40)/5 = 40 Index1 40 = (10 + 20 + 80 + 50 + 40)/X 4.5 = X

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

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

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

Sallie Mae

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 ______. - an equally weighted index - a bond price index - a price-weighted index - a value-weighted index

a price-weighted index

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 - 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 - measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day

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

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

an equally weighted index

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

call option

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

federal funds

Which one of the following provides the best example of securitization? - convertible bond - preferred stock - mortgage pass-through security - call option

mortgage pass-through security

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

purchase a call option

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

put option

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? - commercial paper - reverse repurchase agreement - repurchase agreement - bankers' acceptance

repurchase agreement

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 - right; sell - obligation; buy - obligation; sell

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; buy - right; sell - obligation; sell - obligation; buy

right; sell

The bid price of a Treasury bill is _________. - greater than the ask price of the Treasury bill expressed in dollar terms - the price at which the dealer in Treasury bills is willing to sell the bill - the price at which the dealer in Treasury bills is willing to buy the bill - 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