Fin 385 Chapter 2 HW

The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive _________. Multiple Choice $ 1,045.31 $ 1,045.48 $ 1,000.00

$1,045.31

A municipal bond carries a coupon rate of 6.25% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 40% tax bracket? (Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.) Equivalent taxable yield %

10.42%

When computing the bank discount yield, you would use ____ days in the year. Multiple Choice 360 260 365 366

360

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____. Multiple Choice 4.25% and 6.40% 5.75% and 5.44% 5.00% and 6.40% 5.00% and 5.44%

5.00% and 5.44%

An investor is in a 35% combined federal plus state tax bracket. If corporate bonds offer 8.25% yields, what must municipals offer for the investor to prefer them to corporate bonds? (Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.) Minimum municipals offer %

5.36%

Which of the following is not a true statement regarding municipal bonds? Multiple Choice A municipal bond is a debt obligation issued by the federal government. The interest income from a municipal bond is exempt from federal income taxation. A municipal bond is a debt obligation issued by state or local governments. The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

A municipal bond is debt obligation issued by the federal government.

A T-bill with face value $10,000 and 78 days to maturity is selling at a bank discount ask yield of 2.5%. a. What is the price of the bill? (Use 360 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.) Price of the bill $ b. What is its bond equivalent yield? (Use 365 days a year. Do not round intermediate calculations. Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.) Bond equivalent yield %

A. $9,946.13 B. 2.53%

Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. P0Q0P1Q1P2Q2A831008810088100B432003820038200C862009620048400 Calculate the first-period rates of return on the following indexes of the three stocks: (Do not round intermediate calculations. Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.) a. A market value-weighted index Rate of return % b. An equally-weighted index Rate of return %

A. 4.40% B. 2.78%

Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period. P0Q0P1Q1P2Q2A831008810088100B432003820038200C862009620048400 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). (Do not round intermediate calculations. Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.) Rate of return % b. What will be the divisor for the price-weighted index in year 2? (Do not round intermediate calculations. Round your answer to 2 decimal places and put it in the following format XX.XX. Do NOT record starting 0's.)

A. 4.71% B. 2.35%

Preferred stock is like long-term debt in that ___________. Multiple Choice the preferred dividend is a tax-deductible expense for the firm it promises to pay to its holder a fixed stream of income each year it gives the holder voting power regarding the firm's management in the event of bankruptcy preferred stock has equal status with debt

it promises to pay its holder a fixed stream of income each year