FINANCE 301 FINAL

If GE's stock is trading at $25 per share, what is the intrinsic value of a put option with a strike price of $30 if the option is trading at $8? A) $3 B) $5 C) $13 D) $18 E) $22

B) $5

Calculate the alpha of an investment that returned 10% if the market return is 10%, the risk free rate is 2%, and the investment's Beta is 1.1? A) 0.0% B) 0.8% C) 8.8% D) -0.8% E) -1.2%

B) 0.8%

. Calculate the taxable equivalent yield of a Muni Bond that yields 6% if the tax rate is 30%. A) 20% B) 8.6% C) 10.2% D) 4.2% E) 7.8%

B) 8.6%

You have the right to buy 100 shares of Apple Stock at $90 / share. What is this hedge instrument called? A) Put option B) Call option C) Forward contract D) Future Contract E) Swap

B) Call option

True or False: Fixed rate bonds typically have a lower yield than floating rate bonds because the the investor in the bond has no interest rate risk. A) True B) False

B) False

True or False: Income Gap Analysis and Duration Gap Analysis are tools used by financial institutions to manage credit risk. A) True B) False

B) False

True or False: With all fundamentals the same, a tech company will have a higher valuation than a non-tech company.

B) False

Which of the following types of risk is most difficult to evaluate? A) Reinvestment risk B) Interest rate risk C) Prepayment risk D) Coupon risk E) Default risk

B) Interest rate risk

Under which scenario is an issuer MOST likely to call their bonds? A) Bond prices go down B) Interest rates go down C) Interest rates go up D) Interest rates remain the same E) The company faces a liquidity crisis

B) Interest rates go down

In the CAPM equation, what does a beta measure? A) Risk that you are not paid to take B) Risk that you are paid to take C) Firm specific risk D) Riskless rate of return E) Market risk premium

B) Risk that you are paid to take

Which of the following forms of efficient markets is characterized by stock prices reflecting all publically available information? A) Weak Form B) Semi-strong Form C) Strong Form D) Random Form E) Independent Form

B) Semi-strong Form

________ believe that stock prices are influenced more by investor psychology and emotions of the crowd than by changes in the fundamentals of the company. A) Fundamental analysts B) Technical analysts C) Modern Portfolio Theory analysts D) Risk analysts E) Trend analysts

B) Technical analysts

Which of the following dictates that the futures price of an asset and the spot price of the asset must be the same on the day future contracts expire? A) Arbitrage law B) The law of one price C) The efficient frontier D) The Security market line E) The random walk hypothesis

B) The law of one price

Which of the following is true about bonds? A) Interest is typically paid annually B) Yields on Treasury Bonds are the basis for all other yields C) The longer the maturity on a bond, the lower the yield D) A bond with a yield below its coupon rate is called a discount bond E) Bond investors are typically risk takers seeking large returns.

B) Yields on Treasury Bonds are the basis for all other yields

Calculate the value of a perpetuity that has $2million in annual cash flows with a discount rate of 8%. A) $15 million B) $20 million C) $25 million D) $30 million E) $35 million

C) $25 million

Which of the following is best describes interest rate risk? A) Interest payments received on a floating rate bond fall as rates fall B) Interest received may need to be reinvested at lower yields if rates fall C) As rates rise, the value of a fixed rate bond falls D) As rates fall, the value of a fixed rate bond falls E) A bond that is callable can be refinanced with a lower rate bond

C) As rates rise, the value of a fixed rate bond falls

Which of the following positions has the right to sell a stock at the strike price? A) Buyer of a call option B) Seller of a call option C) Buyer of a put option D) Seller of a put option E) Owner of a forward contract

C) Buyer of a put option

Which of the following is not an input to the valuation of a derivative? A) The spot price of the underlying asset B) The risk free rate C) The market risk premium D) Time until expiration E) Volatility of the underlying asset

C) The market risk premium

Which of the following types of risk can be diversified away? A) Market risk B) Systematic risk C) Unsystematic risk D) Market premium risk E) Systemic risk

C) Unsystematic risk

Which of the following would NOT increase the intrinsic value of a Stock with all else constant? A) Higher working capital as a % of sales B) Higher Revenue Growth Rate C) Lower Beta D) Lower risk free interest rate E) Lower Tax Rate

A) Higher working capital as a % of sales

A company's residual value generally represents the majority of its stock value. A) True B) False

A) True

True or False: Derivative markets are less liquid and less efficient that spot markets. A) True B) False

A) True

Given the following, calculate the intrinsic value per share of Company XYZ's stock: Corp. Value - $20 million Bonds Outstanding - $7 million ST Liabilities - $250 thousand LT Growth Rate - 2.5% Beta - 0.8 Shares Outstanding - 1 million A) $13.07 B) $10.20 C) $8.75 D) $12.75 E) $20.00

D) $12.75

Which of the following is NOT one of the types of risk associated with fixed-rate debt obligations? A) Reinvestment risk B) Default risk C) Prepayment risk D) Coupon risk E) Interest risk

D) Coupon risk

Which of the following is an example of Herding? A) You buy a stock that a fundamental analysis shows is undervalued B) You believe that because the market has done well, it will continue to do well C) You save money at a low rate for vacation rather than paying off a high interest credit card D) Fund managers are buying a company's stock that has no revenue so you buy it too E) A company's risk profile changes so you sell the stock

D) Fund managers are buying a company's stock that has no revenue so you buy it too

Which of the following analysts do not agree with weak form market efficiency? A) Fundamental analysts B) Investment bankers C) Mutual fund managers D) Technical analysts E) Hedge fund analysts

D) Technical analysts

Loss aversion means that: A) People will evaluate gains and losses the same B) The utility gained from a win will be greater than the utility lost from a loss of the same magnitude C) The utility function will flatten out faster for losses than gains D) The value function will be steeper for losses than for gains E) Most people will accept a $1,000 coin flip bet

D) The value function will be steeper for losses than for gains

Prepayment risk on bonds is usually associated with? A) Interest Rates Rising B) Interest Rates Falling C) The firm defaulting and not being able to prepay D) The maturity date E) Call Options

E) Call Options

Which of the following type of bond has a coupon rate on the bond that is higher than the market yield? A) Fixed-rate par bond with call option B) Fixed-rate par bond C) Fixed-rate discount bond D) Zero coupon bond E) Fixed-rate premium bond

E) Fixed-rate premium bond

If the yield on a bond is above its coupon rate, it is called a: A) Subordinated Note B) Par Bond C) Call Premium D) Discount Bond E) Premium Bond

E) Premium Bond

If a company purchases a futures contract to buy 100 barrels of oil at $80 / barrel, which of the following is true? A) The company will not exercise unless the market price is greater than $80 / barrel B) The company will not exercise unless the market price is less than $80 / barrel C) The strike price on the contract depends on oil market volatility D) The contract was negotiated between two parties and cannot be traded on an exchange E) The company is obligated to pay $80 / barrel regardless of the spot price of oil

E) The company is obligated to pay $80 / barrel regardless of the spot price of oil