Please, I need help with the calculations for the following 25 problems in the "final" tab of the workbook before 9pm CST.

FINC 340 Quizzes 1 2 Derivatives can be strictly defined as Financial intermediaries are extremely important part of financial word because small 3 investors cannot efficiently _________. Financial institutions that specialize in assisting corporations in the process of issuing new 4 securities are called _______. 5 An intermediary that holds and invests funds for many investors is called a/an ______. 6 Security selection refers to the ________. 7 The ______________ is the most important auction market 8 Underwriting is one of the most important services provided by _____. You would like to open a brokerage account in which purchases can be made using credit. 9 This type of account is called? Tim Dolan decided to open a margin account with a local broker to purchase shares of 10 stock. The house maintenance margin requirement for his account is set by: 11 The absolute minimum initial margin requirement is set by the: When your equity position in a margin account is less than the required level, your broker 12 will issue a: You placed the order to buy or sell a security at the current market price. This is a 13 ______________. The difference between the price at which a dealer is willing to buy, and the price at which 14 a dealer is willing to sell, is called the _________. As a result of long position on a stock in a cash account the maximum loss you can incur 15 is____________________? 16 The Dow Jones Industrial Average is calculated as _________. Quiz 2 Although you have made no deposits or withdrawals from your emergency fund savings account at the bank, the account balance has risen during the past 10 years from $13,426 to $24,971. What has been the compound annual 1 interest rate that the bank has been crediting to your account? fv=pv(1+r)^nt =rate(n,pmt,pv,fv,0) You deposit $9,244 in a 12 year CD that offers a 4.49% rate of return 2 compounded daily. What will the CD be worth at maturity? 3 Which one of the following is an example money market instrument? 4 Which of the following statements are correct? 5 The price that investor pays to buy an option contract is called the: The amount of money per share that investor will receive when a put option on stock is 6 exercised is called. 7 Calculate the discount yield for the following T-bill: $100-price paid/$100 x 360/days to maturity 8 Calculate the investment yield for the following T-bill: $100-price paid/price paid x 365/days to maturity 9 A fixed-income security is defined as: Suppose the investment yield on 91-day T-bill is 3.33%. What is its 10 discount-basis yield? investment rate price discount basis yield What is the monthly payment on 27-year, $229,540 mortgage at 10.03% 11 annual interest, compounding monthly? A saving account offers a nominal rate of 13.56%. If you open that account with an initial deposit of $3,745 and each month for now on you will save 12 $444. What is the balance of the account after 11 years? Which would you prefer to have: $10,000 today in a lump-sum or $1,000 per 13 year for 13 years beginning one year from now, if the interest rates are: What is the maximum purchase price of an asset that gives a monthly net cash flow of $608 at the end of the month? The expected holding period is 8 years, the estimated selling price at that time is $1,146, and you want at least a 14 10.40% return per year. How many years should be a $25,755 loan with an interest rate for 5.27% per 15 year, compounded monthly, if you can paid only $586 per month? What annual interest rate must be obtained to accumulate $34,356 in 8 years 16 on an investment of $14,051 with quarterly compounding? Quiz 3 1 What does beta represent? 2 Preferred stock: 3 Which of the following factors affect an investor's required rate of return? Which securities can be valued by dividing the constant annual dividend by 4 the required rate of return? Assume D1 = $3.00, Ke = 10%, and g = 12 % using the Constant Growth 5 Dividend Valuation Model, compute P0 Po=D1/Ke-G The March Madness Company just paid an annual dividend of $9.76. If you expect a constant growth rate of 2.48 percent, and have a required rate of return of 11.68 percent, what is the current stock price according to the 6 constant growth dividend model? Po=D1/Ke-G 9.76/(11.68-2.48) 7 Calculate the expected rate of return (ER) for the following: Po= purchase price = $50 P1= expected selling price = $71 I = Income = $7 What is the percentage of Expected Return? Assume D1 = $16.42, Ke = 10.39% using the Preferred Stock Dividend 8 Valuation Model (the No Growth Model), compute P0 Po=D1/Ke At the end of the year 2016 Brown Bear Corporation paid dividends $4.97 per 9 share. The company projects the following annual growth rates in dividends: Year Growth Rate 2017 13% 2018 13% 2019 13% 2020 9% 2021 8% 2022 4% From year 2023 onward growth in dividends is expected to remain constant at 2% per year. The required rate of return for this stock is 8.66%. Calculate the economic value of the stock now (end of the Year 2016). Green Company's common stock is currently selling for $52.74 per share. Last year, the company paid dividends of $3.07 per share. The projected growth at a rate of dividends for this stock is 7.29 percent. Which rate of return does the 10 investor expect to receive on this stock if it is purchased today? Quiz 4 Rose wants to buy a second home that will eventually become her retirement home and does not want a mortgage to finance this second home. She plans to spend approximately $114,970 in 15 years on this purchase. She has two zerocoupon bonds that mature in 15 years each with cash values of $1,506.19 and face values of $2,500. In 15 years, she will use them as part of her $114,970. What is Rose's required monthly deposit at the beginning of each month in order to accumulate the $114,970 she needs to buy her home at an assumed 1 interest rate of 12.47% on her investment? 2 Interest payments and bond prices are stated as percentages of par 1% or 1 point for a bond = $10.00 An 1/8 of a point for a bond = $1.25 Mrs. Smith owns a 5% bond; this means that she receives $50 per year in interest. She paid a price of 112 for the bond. How much is this in dollars? Fresh Food, Inc. sold an issue of 26-year $1,000 par value bonds to the public. The bonds have a 9.31 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Food, Inc. bonds is 8.59 percent. 3 What is the current market price of the bonds? Swim Factory has a $1,000 par value, 28-year to maturity bond outstanding with an annual coupon rate of 11.66 percent per year, paid semiannually. Market interest rates on similar bonds are 12.30 percent. Calculate the bond's 4 price today. What is the yield to maturity of a 15-year bond that pays a coupon rate of 11.91 percent per year, has a $1,000 par value, and is currently priced at 5 $941.22? Assume annual coupon payments. **valuation of bonds spreadsheet What is the yield to call of a 10-year to maturity bond that pays a coupon rate of 11.85 percent per year, has a $1,000 par value, and is currently priced at $952.18? The bond can be called back in 5 years at a call price $1,048. 6 Assume annual coupon payments. **valuation bonds spreadsheet Your clientof purchased Main municipal bond that has 9.52% municipal bond yield. Federal tax bracket is 33%. Calculate Taxable Equivalent Yield for your 7 client. taxable equivalent = municapl bond/1-marginal taxthe ratesettlement date on September You have purchased a corporate bond with 15 with the face value of $1000 and the coupon rate 9.61%, that has a listed price of 111.627 and that pays interest semiannually on February 15 and August 15. Accrued interest is determined using 30/360 convention. How 8 much must you pay for the bond? 9 How can you describe bond issuers? Government Corporate (public and private) Household Foreign Bond issuers include: 10 Term structure interest rates are also known as: Which of the following risk factors are the most important for purchasers of 11 long-term high-grade bonds? 12 The original maturity of Treasury notes are _________________. Mary purchased a corporate bond with the settlement date on September 15 with the face value of $1000 and the coupon rate 5.14%, that has a listed price of 103.052 and that pays interest semiannually on February 15 and August 15. Accrued interest is determined using actual/actual convention. 13 How much must Mary pay for the bond? Quiz 5 1 A call option is an agreement that: 2 A Call is an Option to Buy: Your client purchased 300 shares of Speedy Airlines common stock at $22.54 a share in July of 2015. In June of 2016 the client writes 2 October 35 calls at 4 against the stock position. If the market of Speedy Airlines is trading at 3 $41.33 at expiration, what is the client's realized gain? 1 call=100 gain = (selling price-purchase price) + gain from premium or #calls*4 4 List the advantages of the forward markets: Flexibility with regard to delivery dates Flexibility with regard to size of contract Quality of the asset Transaction costs are locked 5 Options expire on the _____ of the expiration month. 6 John, Whichaof the following statements is correct futures contract? short seller is trying to determine his about break-even point. With no other securities, John plans to short sell 100 shares of XYZ at $69.03. Next John plans to sell an XYZ October Put for $800. John will break-even when the price 7 of the stock is at: 8 An investor, having just purchased put contracts, may be Sarah instructs his broker to buy a 5March 40 call option on anticipating Super Brand at 3. If the stock of Super Brand is trading at $55.40 at expiration, what is Sarah's 9 realized gain? =stock price-strike price - premium You would like to have the contract that gives you the right, but not the 10 obligation, to buy a stock of General Motors at a specified price. You should: Paul instructs his broker to buy an uncovered October 35 call option on Best Eastern at 4. If the stock of Best Eastern is trading at $21.97 at expiration, what is Paul's realized gain or loss? Gain should be entered as a positive 11 value. Loss should be entered as a negative value. 12 An option is called a European put option if it gives the holder the right to: John purchased 300 shares of Big Trouble common stock at $25.56 a share in July of 2015. In June of 2016 John buys 3 October 45 puts at 3. If the market 13 of Big Trouble is trading at $30.98 at expiration, what is John's realized gain? Quiz 6 1 Stock X produced the following returns in recent years: Year 1 2 3 4 5 Calculate the standard deviations of the returns on the stock. 2 Calculate the expected return on stock of Time Saver Inc.: State of the economy Economic recession Steady economic growth Boom Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" bo King Farm Manufacturing Company's common stock has a beta of 2.46. If the risk-free rate is 3.70 percent, and the market return is 9.14 percent, calculate 3 the required return on King Farm Manufacturing's common stock. Try to determine the required rate of return on Tilden Woods Corporation's common stock. The firm's beta is 0.88. The rate on a 10-year Treasury bond is 4 2.45 percent, and the market risk premium is 8.44 percent. 5 Which of the following statements is false? A. A stock is considered overvalued if its required rate of return is below its estimated rate of return. 6 Items that circumvent Fisher's Perfect World include: No barriers to trade Free flow of information The firm's independent decision making Satisfying stockholder wealth maximization criteria Investor's receiving regular dividends 7 Which of the following statement(s) concerning beta coefficients is (are) correc Investors who tend to be risk averse should have a portfolio made up mostly of high-beta-c Beta coefficients of particular securities change over time Beta coefficients are constructed based on past data 8 Unsystematic risk is diversifiable: 1 9 Which of the following risks confronting ABC Worldwide, Inc. is an example of an unsystem B. A possible decline in its earnings due to a strike by its employees 10 Which of the following concerning the standard deviation of a stock's rate of return is (are The standard deviation of a stock's rate of return reflects both the systematic and unsyste Approximately 68% of the rates of return on the stock will fall within plus or minus one sta C. Both 1 and 2 11 Investment risk can best be defined as the _________ in the expected return of an investme C. Variability Quiz 8 1 You hold a portfolio with the following securities: Security Stock A Stock B Stock C Stock D 2 Jack holds a portfolio with the following securities: Security Stock A Stock B Stock C Calculate the expected return of portfolio. Round the answers to two decimal places in percentage form 3 Overall asset allocation for a portfolio is performed using the expected returns, ___________ B. Standard deviation 4 Which of the following portfolios would be most appropriate for a moderately aggressive i B. 30% domestic equity securities; 30% fixed-income domestic securities; 20% real estate; 20% foreign securities 5 When a company changes its capital structure, what happens? The Weighted Average Cost of Capitial (WACC) changes The discount rate does not change Investors buy or sell shares Investors perceive the firm as having more risk B. I, III, IV 6 Which of the following facts explains why the standard deviation of the portfolio is less tha B The fact that Stocks X and Y have a negative correlation coefficient 7 A risk-free investment as a beta of zero because its covariance with the market is zero. 1 8 Proponents of CAPM have concluded that all of the following are correct EXCEPT one: A. capm can be used for multiple-period plans 9 Which of the following definitions of investor returns is false? B are not based on capital appreciation B. Contracts that may lead to profits and losses E. create diversified portfolios, collect and use information, and manage their portfolios C. Investment bankers D. investment company a. choice of specific securities within each asset class A. NYSE A. investment bankers A. Margin Account E. His broker D. Federal Reserve B. Margin call A. Market order A. bid-ask spread D. The value of your intial investment D. The sum of th eprices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large st fv pv n $ $ 13,426.00 24,971.00 10 -6.02% fv ? pv 9244 n 12 4380 r 4.49% 0.0123% Compounded $15,843.22 A. Debt issued by the go Which of the following D. Preferred issued by IBMof money market instrument? is stock not an example D. The bid price is the priAn investor inA buying the bill at a discount from the face value and receiving face value B. option premium D put option A contract that gives its buyer the right, but not the obligation, to sell the stoc E. strike price call gives optionthe owner the right, but not the obligation, to buy a s An agreementA.that security T bill Maturity Security T bill Maturity Price per $100 91 discount yield 99.0714 3.674% Price per $100 14 discount yield 99.8696 3.404% a. a long-term debt obligWhich of the fB. A corporation buys commercial paper issued by another corporation ($100-p/p)*(365/days)=stated rate (100-p/p)*(365/91)=3.3 4.010989011 (100-p/p)*(3.33%/4.010989011) 100=1+(3.33%/4.010989011)*price 0.0083021918 100=1+.008302192p $ 99.18 3.26% nper fv r compounding 27 $ 229,540.00 10.03% monthly 324 0.84% ($2,057.27) r pv pmt nper 13.56% $3,745 $444 11 fv 1.13% 132 ($150,380.00) Which of the followinD. both. Most common stocks are traded over-the- pmt nper r $1,000 13 6% 4% ($8,852.68) B. give me the lump sum today nper rate pmt fv $ $ 8 10.40% 608.00 1,146.00 ($9,985.65) versus 10000 96 0.87% ($40,015.30) rate fv pmt 5.27% $ 25,755.00 $ 586.00 48.938593777 fv nper pv $ $ 34,356.00 8 14,051.00 2.83% 0.44% 4.08 32 11.33% D. individual company risk against market risk A. is treated like equity for both tax and accounting purposes. D all of the above - real risk free rate, expected rate of inflation, and risk premium C. Preferred stocks D. The constant growth formula can't be used (Ke has to be larger than g) $ 106.09 Wrong $ $ $ 50.00 71.00 7.00 56.00% $ $ 158.04 74.62 Wrong 52.74 52.74=3.07/Ke-7.29% 3.07 k-.0729=3.07/52.74 7.29% 13.11% Ke rate nper PV FV PMT 112.5% of par value 50 1125.00 1.04% 180 0 $ 109,970.00 ($208.32) Rate Nper pmt fv PV 8.59% 26 93.1 1000 ($1,073.98) rate nper pmt fv PV 6.15% 56 58.3 1000 ($949.81) pmt fv pv nper ytm 119.1 1000 941.22 15 12.75% 13.90% 14.21% ? D. 1,2,4 C. yield curve B. purchasing power risk D. between 1 and 10 years 1124.28 111.3 ? 1034.85 D. gives the buyer the right to purchase a stock at Tiffany, Inc. at some point in the future at a predetermined price 1 $ 3,292.00 The question is asking for the client's realized gain. The investor is long 300 sh D. 1 and 2 B. Saturday following the 3rd Friday of the month B it is a contract to exchange goods on a specified date in the future at a price that is agreed upon t 77.03 An individual who sells short risks loss if the price of the stock rises. If the pric D. its underlying assets to decline in value 15.4 1240 C buy a call option on stock of General Motors. -400 A. sell the underlying stock at the strike price only on the expiration date. 4932 Stock X 6% 1.925930E-034 0.0001 7% 0.0016 10% 0.0036 0% 0.0001 7% 6.00% 0.00135 3.67% Probability of the s Percentage returns 23% 5.80% 49% 3.00% 28% -4.40% 1.33400% 1.47000% -1.23200% 1.57% age sign in the "units" box) beta risk free market required rate of return 3.02% 9.02% 7.76% beta risk free market required rate of return 2.26 2.86% 8.99% 23.18% 0.79 Which of the following is generally used to measure the market p C. sp500 C. I-IV Which of the following is not an example of factors that affect sys B. firm got a lawsuit B. 2 and 3 According to Markowitz risk can be: C Minimized by selecting an optimum combination of investments mostly of high-beta-coefficient securities. The beta of a securityC none of these xample of an unsystematic risk? rate of return is (are) correct: Is not the same as its systematic risk level Can be measured by standard deviation Is the slop of the capital market line stematic and unsystematic risks associated wiA measure of the degree to which two variables move predictabl plus or minus one stand deviation of the averc. covariance eturn of an investment. Which of the following concerning systematic and/or unsystemat C A coefficient of determination of .75 in a portfolio means that 7 Portfolio risks can be calculated. Which of the following statistica B standard deviation of the variance of returns Percent of portfolioReturn WARR 34% 11% 11% 15% 12% -2% 43% 8% Investment 3.7400% 1.6500% -0.2400% 3.4400% 8.5900% Return Weight 320,891 14.40% 773,114 3.20% 594,636 4.80% WARR 19% 46% 35% places in percentage form. (Write the percentage sign in the "units" box) ed returns, ________________, and correlations between asset classes. derately aggressive investor with an intermediate-term time horizon? 2.74% 1.47% 1.69% 5.89% he portfolio is less than the standard deviation of either of the two stocks that make up the portfolio? he market is zero. rect EXCEPT one: djusted for stock splits and large stock dividends face value and receiving face value at maturity issued by another corporation ommon stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stoc e future at a predetermined price ain. The investor is long 300 shares, but is only writing 2 covered calls. Since the current market price of Spee t a price that is agreed upon today. ce of the stock rises. If the price rises and the stock is bought in the open market to cover, the loss would be co used to measure the market portfolio when calculating betas? ample of factors that affect systematic risk? ombination of investments two variables move predictably is known as systematic and/or unsystematic risk is not correct? .75 in a portfolio means that 75% of the portfolio risk is unsystematic Which of the following statistical formulas calculate portfolio risk? ce of returns ake up the portfolio? shares traded at organized stock exchanges, such as the New York stock Exchange Because of their short terms to maturity, the urrent market price of Speedy Airlines is above the strike price at expiration, the call options would be exercis o cover, the loss would be compensated by the put premium. If the market price rises to break-even, the loss of heir short terms to maturity, the prices of money market instruments tend not to fluctuate wildly all options would be exercised against the writer. The client would be obligated to deliver or sell 200 shares at es to break-even, the loss of the rising price is exactly matched by the put premium. deliver or sell 200 shares at the strike price. The realized gain on the stock is 200 shares* (option strike price shares* (option strike price - stock purchased price in July 2015). The client received money from writing two c ed money from writing two covered call options (2 calls @ price of call *100 shares); therefore the total realize ); therefore the total realized gain is the sum of realized gains from stock plus the cost of the option . The clien cost of the option . The client would still own 100 shares at a cost basis. Final 1 Which of the following is a FALSE statement about the point-of-view of the call option ho D Out-of-the money is when underlying price is greater than the stock price 2 List three advantages of asset allocation Smooths out the ups and downs of the market Shows that is pays to have your eggs in one basket Allows for diversification Helps to mitigate downside risk A. 1, 3, 4 3 Which of the following statements concerning the Markowitz efficient frontier is correct D A portfolio that offers the highest rate of return for a given degree of risk is on the effi 4 Calculate the investment yield for the following T-bill: Security T-bill Maturity Price per $100 91 99.2465 3.045% 5 The Dow Jones Industrial Average is calculated as _________. B the sum of the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted 6 Green Company's common stock is currently selling for $89.00 per share. Last year, the share price $ 89.00 89=1.32/ke - 3.29% 1.32 k-.0329=1.32/89 dividends $ growth rate 3.29% 4.77% 7 The purpose of stock valuation is to: B To determine whether the value of a common stock is fairly represented by its market 8 What annual interest rate must be obtained to accumulate $38,567 in 20 years on an inv fv $ 38,567.00 nper 20 pv $ 12,883.00 1.38% 9 Suppose the investment yield on 14-day T-bill is 3.29%. What is its discount-basis yield? ($100-p/p)*(365/days)=stated rate (100-p/p)*(3 26.0714286 (100-p/p)*(3.29%/26.0714286) 100=1+(3.29%/26.0714286)*price 0.00126192 100=1+.00126192p $ 99.87 0.50% 10 Assume the following information concerning a two-stock portfolio: Stock X Stock Y Percent of P 15% Average ann 3% Standard dev 5.44 85% -2% 8.82 ??????? 24.87 Covariance of returns Calculate the correlation coefficient of Stocks X and Stock Y . Round the answers to four decimal places. 518332% 11 Mary purchased a corporate bond with the settlement date on September 15 with the fa par value 1000 coupon rate 9.31% price 106.43% $ 1,079.77 12 Which of the IPS's factors would change if the client went to another financial profession C investment strategies 13 The most important component of an IPS is: A investment objectives and constraints 14 What is the yield to maturity of a 22-year bond that pays a coupon rate of 10.04 percent Round the answers to two decimal places in percentage form. (Write the percentage sign You should use approximate formula for YTM provided in the Learning materials pmt 100.4 fv 1000 pv 868.04 nper 22 ytm 12.75% calculator states 11.55% 15 Your client purchased North Carolina municipal bond that has 5.78% municipal bond yie 9.63% 16 Fresh Food, Inc. sold an issue of 7-year $1,000 par value bonds to the public. The bonds Rate Nper pmt fv PV 9.05% 7 92.4 1000 ($1,009.55) 17 Which one of the following describes a short position? D Selling a security that you do not own 18 At the end of the year 2016 Brown Bear Corporation paid dividends $2.92 per share. The Year Growth Rate 2017 13% 2018 13% 2019 13% 2020 10% 2021 6% 2022 6% From year 2023 onward growth in dividends is expected to remain constant at 3% per ye Calculate the economic value of the stock now (end of the Year 2016). ?????? 19 Your client purchased 300 shares of Speedy Airlines common stock at $26.18 a share in 200 27 26.18 $ 164.00 20 Calculate the expected return on stock of Time Saver Inc.: State of t ProbabilityPercentage returns Economic re 16% 5.70% Steady economic growth 41% 3.70% Boom 43.00% -3.50% 0.91200% 1.51700% -1.50500% 0.92% 21 Assume the following information concerning a two-stock portfolio: Stock X Stock Y Percent of P 43% 57.00% Average ann 4.69% 9.74% Standard dev 9 13.9 31 Covariance of returns Calculate the standard deviation of the portfolio using Markowitz formula. 1978.79545 $ 44.48 0.1849 0.0081 0.3249 0.019321 19.0104462 19.0182213 30.03% 0.00149769 0.0062773929 22 Calculate the discount yield for the following T-bill: security T bill Maturity Price per $100 28 discount yield 99.684 4.063% 23 Mary just purchased $10,000 worth of stock. She paid $8,000 in cash and borrowed $2,0 E the percentage of the purchase that Mary paid in cash. 24 Stock X produced the following returns in recent years: Year Stock X 1 2 3 4 5 average 8% 11% 10% -9% 8% 6% 2% 5% 4% -15% 2% 4 25 16 225 4 274 68.5 Calculate the standard deviations of the returns on the stock. 25 ssume a four-stock portfolio of stocks with following characteristics: Stock A B C D Percentage Beta o 30% 12% 6% 52.00% Rate of Retuweight 0.6 2 5% 0.126 1.05 5% 0.0756 1.26 5% 0.65 1.25 7% 1.4516 Calculate the weighted average beta for the portfolio. -of-view of the call option holder: z efficient frontier is correct? n degree of risk is on the efficient frontier viding by a divisor adjusted for stock splits and large stock dividends 00 per share. Last year, the company paid dividends of $1.32 per share. The projected growth at a rate of divi y represented by its market price 38,567 in 20 years on an investment of $12,883 with quarterly compounding? count-basis yield? 80 5.52% on September 15 with the face value of $1000 and the coupon rate 9.31%, that has a listed price of 106.425 an o another financial professional? oupon rate of 10.04 percent per year, has a $1,000 par value, and is currently priced at $868.04? Assume annu m. (Write the percentage sign in the "units" box). in the Learning materials in week 4. as 5.78% municipal bond yield. Federal tax bracket is 40%. Calculate Taxable Equivalent Yield for your client. nds to the public. The bonds have a 9.24 percent coupon rate and pay interest annually. The current market ra vidends $2.92 per share. The company projects the following annual growth rates in dividends: remain constant at 3% per year. The required rate of return for this stock is 8.26%. ear 2016). n stock at $26.18 a share in July of 2015. In June of 2016 the client writes 2 October 35 calls at 7 against the s Markowitz formula. 00 in cash and borrowed $2,000. In this example, the term margin refers to: 8.27647268 ected growth at a rate of dividends for this stock is 3.29 percent. Which rate of return does the investor expect s a listed price of 106.425 and that pays interest semiannually on February 15 and August 15. Accrued interes ced at $868.04? Assume annual coupon payments. uivalent Yield for your client. nually. The current market rate of interest on the Fresh Food, Inc. bonds is 9.05 percent. What is the current m in dividends: ber 35 calls at 7 against the stock position. If the market of Speedy Airlines is trading at $41.38 at expiration, w turn does the investor expect to receive on this stock if it is purchased today? d August 15. Accrued interest is determined using actual/actual convention. How much must Mary pay for the ercent. What is the current market price of the bonds? ing at $41.38 at expiration, what is the client's realized gain? much must Mary pay for the bond? FINC 340 Quizzes 1 2 Derivatives can be strictly defined as Financial intermediaries are extremely important part of financial word because small 3 investors cannot efficiently _________. Financial institutions that specialize in assisting corporations in the process of issuing new 4 securities are called _______. 5 An intermediary that holds and invests funds for many investors is called a/an ______. 6 Security selection refers to the ________. 7 The ______________ is the most important auction market 8 Underwriting is one of the most important services provided by _____. You would like to open a brokerage account in which purchases can be made using credit. 9 This type of account is called? Tim Dolan decided to open a margin account with a local broker to purchase shares of 10 stock. The house maintenance margin requirement for his account is set by: 11 The absolute minimum initial margin requirement is set by the: When your equity position in a margin account is less than the required level, your broker 12 will issue a: You placed the order to buy or sell a security at the current market price. This is a 13 ______________. The difference between the price at which a dealer is willing to buy, and the price at which 14 a dealer is willing to sell, is called the _________. As a result of long position on a stock in a cash account the maximum loss you can incur 15 is____________________? 16 The Dow Jones Industrial Average is calculated as _________. Quiz 2 Although you have made no deposits or withdrawals from your emergency fund savings account at the bank, the account balance has risen during the past 10 years from $13,426 to $24,971. What has been the compound annual 1 interest rate that the bank has been crediting to your account? fv=pv(1+r)^nt =rate(n,pmt,pv,fv,0) You deposit $9,244 in a 12 year CD that offers a 4.49% rate of return 2 compounded daily. What will the CD be worth at maturity? 3 Which one of the following is an example money market instrument? 4 Which of the following statements are correct? 5 The price that investor pays to buy an option contract is called the: The amount of money per share that investor will receive when a put option on stock is 6 exercised is called. 7 Calculate the discount yield for the following T-bill: $100-price paid/$100 x 360/days to maturity 8 Calculate the investment yield for the following T-bill: $100-price paid/price paid x 365/days to maturity 9 A fixed-income security is defined as: Suppose the investment yield on 91-day T-bill is 3.33%. What is its 10 discount-basis yield? investment rate price discount basis yield What is the monthly payment on 27-year, $229,540 mortgage at 10.03% 11 annual interest, compounding monthly? A saving account offers a nominal rate of 13.56%. If you open that account with an initial deposit of $3,745 and each month for now on you will save 12 $444. What is the balance of the account after 11 years? Which would you prefer to have: $10,000 today in a lump-sum or $1,000 per 13 year for 13 years beginning one year from now, if the interest rates are: What is the maximum purchase price of an asset that gives a monthly net cash flow of $608 at the end of the month? The expected holding period is 8 years, the estimated selling price at that time is $1,146, and you want at least a 14 10.40% return per year. How many years should be a $25,755 loan with an interest rate for 5.27% per 15 year, compounded monthly, if you can paid only $586 per month? What annual interest rate must be obtained to accumulate $34,356 in 8 years 16 on an investment of $14,051 with quarterly compounding? Quiz 3 1 What does beta represent? 2 Preferred stock: 3 Which of the following factors affect an investor's required rate of return? Which securities can be valued by dividing the constant annual dividend by 4 the required rate of return? Assume D1 = $3.00, Ke = 10%, and g = 12 % using the Constant Growth 5 Dividend Valuation Model, compute P0 Po=D1/Ke-G The March Madness Company just paid an annual dividend of $9.76. If you expect a constant growth rate of 2.48 percent, and have a required rate of return of 11.68 percent, what is the current stock price according to the 6 constant growth dividend model? Po=D1/Ke-G 9.76/(11.68-2.48) 7 Calculate the expected rate of return (ER) for the following: Po= purchase price = $50 P1= expected selling price = $71 I = Income = $7 What is the percentage of Expected Return? Assume D1 = $16.42, Ke = 10.39% using the Preferred Stock Dividend 8 Valuation Model (the No Growth Model), compute P0 Po=D1/Ke At the end of the year 2016 Brown Bear Corporation paid dividends $4.97 per 9 share. The company projects the following annual growth rates in dividends: Year Growth Rate 2017 13% 2018 13% 2019 13% 2020 9% 2021 8% 2022 4% From year 2023 onward growth in dividends is expected to remain constant at 2% per year. The required rate of return for this stock is 8.66%. Calculate the economic value of the stock now (end of the Year 2016). Green Company's common stock is currently selling for $52.74 per share. Last year, the company paid dividends of $3.07 per share. The projected growth at a rate of dividends for this stock is 7.29 percent. Which rate of return does the 10 investor expect to receive on this stock if it is purchased today? Quiz 4 Rose wants to buy a second home that will eventually become her retirement home and does not want a mortgage to finance this second home. She plans to spend approximately $114,970 in 15 years on this purchase. She has two zerocoupon bonds that mature in 15 years each with cash values of $1,506.19 and face values of $2,500. In 15 years, she will use them as part of her $114,970. What is Rose's required monthly deposit at the beginning of each month in order to accumulate the $114,970 she needs to buy her home at an assumed 1 interest rate of 12.47% on her investment? 2 Interest payments and bond prices are stated as percentages of par 1% or 1 point for a bond = $10.00 An 1/8 of a point for a bond = $1.25 Mrs. Smith owns a 5% bond; this means that she receives $50 per year in interest. She paid a price of 112 for the bond. How much is this in dollars? Fresh Food, Inc. sold an issue of 26-year $1,000 par value bonds to the public. The bonds have a 9.31 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Food, Inc. bonds is 8.59 percent. 3 What is the current market price of the bonds? Swim Factory has a $1,000 par value, 28-year to maturity bond outstanding with an annual coupon rate of 11.66 percent per year, paid semiannually. Market interest rates on similar bonds are 12.30 percent. Calculate the bond's 4 price today. What is the yield to maturity of a 15-year bond that pays a coupon rate of 11.91 percent per year, has a $1,000 par value, and is currently priced at 5 $941.22? Assume annual coupon payments. **valuation of bonds spreadsheet What is the yield to call of a 10-year to maturity bond that pays a coupon rate of 11.85 percent per year, has a $1,000 par value, and is currently priced at $952.18? The bond can be called back in 5 years at a call price $1,048. 6 Assume annual coupon payments. **valuation bonds spreadsheet Your clientof purchased Main municipal bond that has 9.52% municipal bond yield. Federal tax bracket is 33%. Calculate Taxable Equivalent Yield for your 7 client. taxable equivalent = municapl bond/1-marginal tax rate You have purchased a corporate bond with the settlement date on September 15 with the face value of $1000 and the coupon rate 9.61%, that has a listed price of 111.627 and that pays interest semiannually on February 15 and August 15. Accrued interest is determined using 30/360 convention. How 8 much must you pay for the bond? 9 How can you describe bond issuers? Government Corporate (public and private) Household Foreign Bond issuers include: 10 Term structure interest rates are also known as: Which of the following risk factors are the most important for purchasers of 11 long-term high-grade bonds? 12 The original maturity of Treasury notes are _________________. Mary purchased a corporate bond with the settlement date on September 15 with the face value of $1000 and the coupon rate 5.14%, that has a listed price of 103.052 and that pays interest semiannually on February 15 and August 15. Accrued interest is determined using actual/actual convention. 13 How much must Mary pay for the bond? Quiz 5 1 A call option is an agreement that: 2 A Call is an Option to Buy: Your client purchased 300 shares of Speedy Airlines common stock at $22.54 a share in July of 2015. In June of 2016 the client writes 2 October 35 calls at 4 against the stock position. If the market of Speedy Airlines is trading at 3 $41.33 at expiration, what is the client's realized gain? 1 call=100 gain = (selling price-purchase price) + gain from premium or #calls*4 4 List the advantages of the forward markets: Flexibility with regard to delivery dates Flexibility with regard to size of contract Quality of the asset Transaction costs are locked 5 Options expire on the _____ of the expiration month. 6 Which of the following statements is correct about futures contract? John, a short seller is trying to determine his break-even point. With no other securities, John plans to short sell 100 shares of XYZ at $69.03. Next John plans to sell an XYZ October Put for $800. John will break-even when the price 7 of the stock is at: 8 An investor, having just purchased 5 put contracts, may be anticipating Sarah instructs his broker to buy a March 40 call option on Super Brand at 3. If the stock of Super Brand is trading at $55.40 at expiration, what is Sarah's 9 realized gain? =stock price-strike price - premium You would like to have the contract that gives you the right, but not the 10 obligation, to buy a stock of General Motors at a specified price. You should: Paul instructs his broker to buy an uncovered October 35 call option on Best Eastern at 4. If the stock of Best Eastern is trading at $21.97 at expiration, what is Paul's realized gain or loss? Gain should be entered as a positive 11 value. Loss should be entered as a negative value. 12 An option is called a European put option if it gives the holder the right to: John purchased 300 shares of Big Trouble common stock at $25.56 a share in July of 2015. In June of 2016 John buys 3 October 45 puts at 3. If the market 13 of Big Trouble is trading at $30.98 at expiration, what is John's realized gain? Quiz 6 1 Stock X produced the following returns in recent years: Year 1 2 3 4 5 Calculate the standard deviations of the returns on the stock. 2 Calculate the expected return on stock of Time Saver Inc.: State of the economy Economic recession Steady economic growth Boom Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" bo King Farm Manufacturing Company's common stock has a beta of 2.46. If the risk-free rate is 3.70 percent, and the market return is 9.14 percent, calculate 3 the required return on King Farm Manufacturing's common stock. Try to determine the required rate of return on Tilden Woods Corporation's common stock. The firm's beta is 0.88. The rate on a 10-year Treasury bond is 4 2.45 percent, and the market risk premium is 8.44 percent. 5 Which of the following statements is false? A. A stock is considered overvalued if its required rate of return is below its estimated rate of return. 6 Items that circumvent Fisher's Perfect World include: No barriers to trade Free flow of information The firm's independent decision making Satisfying stockholder wealth maximization criteria Investor's receiving regular dividends 7 Which of the following statement(s) concerning beta coefficients is (are) correc Investors who tend to be risk averse should have a portfolio made up mostly of high-beta-c Beta coefficients of particular securities change over time Beta coefficients are constructed based on past data 8 Unsystematic risk is diversifiable: 1 9 Which of the following risks confronting ABC Worldwide, Inc. is an example of an unsystem B. A possible decline in its earnings due to a strike by its employees 10 Which of the following concerning the standard deviation of a stock's rate of return is (are The standard deviation of a stock's rate of return reflects both the systematic and unsyste Approximately 68% of the rates of return on the stock will fall within plus or minus one sta C. Both 1 and 2 11 Investment risk can best be defined as the _________ in the expected return of an investme C. Variability Quiz 8 1 You hold a portfolio with the following securities: Security Stock A Stock B Stock C Stock D 2 Jack holds a portfolio with the following securities: Security Stock A Stock B Stock C Calculate the expected return of portfolio. Round the answers to two decimal places in percentage form 3 Overall asset allocation for a portfolio is performed using the expected returns, ___________ B. Standard deviation 4 Which of the following portfolios would be most appropriate for a moderately aggressive i B. 30% domestic equity securities; 30% fixed-income domestic securities; 20% real estate; 20% foreign securities 5 When a company changes its capital structure, what happens? The Weighted Average Cost of Capitial (WACC) changes The discount rate does not change Investors buy or sell shares Investors perceive the firm as having more risk B. I, III, IV 6 Which of the following facts explains why the standard deviation of the portfolio is less tha B The fact that Stocks X and Y have a negative correlation coefficient 7 A risk-free investment as a beta of zero because its covariance with the market is zero. 1 8 Proponents of CAPM have concluded that all of the following are correct EXCEPT one: A. capm can be used for multiple-period plans 9 Which of the following definitions of investor returns is false? B are not based on capital appreciation B. Contracts that may lead to profits and losses E. create diversified portfolios, collect and use information, and manage their portfolios C. Investment bankers D. investment company a. choice of specific securities within each asset class A. NYSE A. investment bankers A. Margin Account E. His broker D. Federal Reserve B. Margin call A. Market order A. bid-ask spread D. The value of your intial investment D. The sum of th eprices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large st fv pv n fv pv n $ $ 13,426.00 24,971.00 10 -6.02% ? 9244 12 4380 r 4.49% 0.0123% Compounded $15,843.22 A. Debt issued by the go Which of the following D. Preferred issued by IBMof money market instrument? isstock not an example D. The bid price is the priAn investor inA buying the bill at a discount from the face value and receiving face value B. option premium D put option A contract that gives its buyer the right, but not the obligation, to sell the stock E. strike price call gives optionthe owner the right, but not the obligation, to buy a s An agreementA.that security T bill Maturity Security T bill Maturity Price per $100 91 discount yield 99.0714 3.674% Price per $100 14 99.8696 discount yield 3.404% a. a long-term debt obligWhich of the fB. A corporation buys commercial paper issued by another corporation ($100-p/p)*(365/days)=stated rate (100-p/p)*(365/91)=3.3 4.010989011 (100-p/p)*(3.33%/4.010989011) 100=1+(3.33%/4.010989011)*price 0.0083021918 100=1+.008302192p $ 99.18 3.26% nper fv r compounding 27 $ 229,540.00 10.03% monthly 324 0.84% ($2,057.27) r pv pmt nper 13.56% $3,745 $444 11 1.13% 132 fv ($150,380.00) Which of the followinD. both. Most common stocks are traded over-the- pmt nper r $1,000 13 6% 4% ($8,852.68) B. give me the lump sum today nper rate pmt fv $ $ 8 10.40% 608.00 1,146.00 ($9,985.65) versus 10000 96 0.87% ($40,015.30) rate fv pmt fv nper pv 5.27% $ 25,755.00 $ 586.00 48.938593777 $ $ 34,356.00 8 14,051.00 2.83% 0.44% 4.08 32 11.33% D. individual company risk against market risk A. is treated like equity for both tax and accounting purposes. D all of the above - real risk free rate, expected rate of inflation, and risk premium C. Preferred stocks D. The constant growth formula can't be used (Ke has to be larger than g) $ 106.09 Wrong $ $ $ 50.00 71.00 7.00 56.00% $ 158.04 $ 74.62 Wrong 52.74 52.74=3.07/Ke-7.29% 3.07 k-.0729=3.07/52.74 7.29% 13.11% Ke rate nper PV FV PMT 112.5% of par value 1.04% 180 0 $ 109,970.00 ($208.32) 50 1125.00 Rate Nper pmt fv PV 8.59% 26 93.1 1000 ($1,073.98) rate nper pmt fv PV 6.15% 56 58.3 1000 ($949.81) pmt fv pv nper ytm 119.1 1000 941.22 15 12.75% 111.3 13.90% 14.21% ? D. 1,2,4 1124.28 C. yield curve B. purchasing power risk D. between 1 and 10 years ? 1034.85 D. gives the buyer the right to purchase a stock at Tiffany, Inc. at some point in the future at a predetermined price 1 $ D. 1 and 2 3,292.00 The question is asking for the client's realized gain. The investor is long 300 sh B. Saturday following the 3rd Friday of the month B it is a contract to exchange goods on a specified date in the future at a price that is agreed upon t 77.03 An individual who sells short risks loss if the price of the stock rises. If the pric D. its underlying assets to decline in value 15.4 1240 C buy a call option on stock of General Motors. -400 A. sell the underlying stock at the strike price only on the expiration date. 4932 Stock X 6% 1.925930E-034 0.0001 7% 0.0016 10% 0.0036 0% 0.0001 7% 6.00% 0.00135 3.67% Probability of the s Percentage returns 23% 5.80% 49% 3.00% 28% -4.40% 1.33400% 1.47000% -1.23200% 1.57% age sign in the "units" box) beta risk free market required rate of return 3.02% 9.02% 7.76% beta risk free market required rate of return 2.26 2.86% 8.99% 23.18% 0.79 Which of the following is generally used to measure the market p C. sp500 C. I-IV Which of the following is not an example of factors that affect sys B. firm got a lawsuit B. 2 and 3 According to Markowitz risk can be: C Minimized by selecting an optimum combination of investments mostly of high-beta-coefficient securities. The beta of a securityC none of these xample of an unsystematic risk? rate of return is (are) correct: Is not the same as its systematic risk level Can be measured by standard deviation Is the slop of the capital market line stematic and unsystematic risks associated wiA measure of the degree to which two variables move predictably plus or minus one stand deviation of the averc. covariance eturn of an investment. Which of the following concerning systematic and/or unsystemat C A coefficient of determination of .75 in a portfolio means that 7 Portfolio risks can be calculated. Which of the following statistica B standard deviation of the variance of returns Percent of portfolioReturn WARR 34% 11% 11% 15% 12% -2% 43% 8% Investment 3.7400% 1.6500% -0.2400% 3.4400% 8.5900% Return Weight 320,891 14.40% 773,114 3.20% 594,636 4.80% WARR 19% 46% 35% 2.74% 1.47% 1.69% 5.89% places in percentage form. (Write the percentage sign in the "units" box) ed returns, ________________, and correlations between asset classes. derately aggressive investor with an intermediate-term time horizon? he portfolio is less than the standard deviation of either of the two stocks that make up the portfolio? he market is zero. rect EXCEPT one: djusted for stock splits and large stock dividends ace value and receiving face value at maturity issued by another corporation ommon stocks are traded over-the-counter, although the largest corporations usually have their shares traded at organized stoc e future at a predetermined price ain. The investor is long 300 shares, but is only writing 2 covered calls. Since the current market price of Spee t a price that is agreed upon today. ce of the stock rises. If the price rises and the stock is bought in the open market to cover, the loss would be co used to measure the market portfolio when calculating betas? ample of factors that affect systematic risk? ombination of investments two variables move predictably is known as systematic and/or unsystematic risk is not correct? .75 in a portfolio means that 75% of the portfolio risk is unsystematic Which of the following statistical formulas calculate portfolio risk? ce of returns ake up the portfolio? shares traded at organized stock exchanges, such as the New York stock Exchange Because of their short terms to maturity, the urrent market price of Speedy Airlines is above the strike price at expiration, the call options would be exercis cover, the loss would be compensated by the put premium. If the market price rises to break-even, the loss of heir short terms to maturity, the prices of money market instruments tend not to fluctuate wildly all options would be exercised against the writer. The client would be obligated to deliver or sell 200 shares at s to break-even, the loss of the rising price is exactly matched by the put premium. eliver or sell 200 shares at the strike price. The realized gain on the stock is 200 shares* (option strike price - hares* (option strike price - stock purchased price in July 2015). The client received money from writing two co money from writing two covered call options (2 calls @ price of call *100 shares); therefore the total realized therefore the total realized gain is the sum of realized gains from stock plus the cost of the option . The client st of the option . The client would still own 100 shares at a cost basis. Final 1 Which of the following is a FALSE statement about the point-of-view of the call option ho D Out-of-the money is when underlying price is greater than the stock price 2 List three advantages of asset allocation Smooths out the ups and downs of the market Allows for diversification Helps to mitigate downside risk A. 1, 3, 4 3 Which of the following statements concerning the Markowitz efficient frontier is correct D A portfolio that offers the highest rate of return for a given degree of risk is on the effi 4 Calculate the investment yield for the following T-bill: Security T-bill Maturity Price per $100 91 99.2465 3.022% working ,={(100-99.2465)/100}*365/91 ,=0.03022 5 The Dow Jones Industrial Average is calculated as _________. B the sum of the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted 6 Green Company's common stock is currently selling for $89.00 per share. Last year, the share price $ 89.00 89=1.32/ke - 3.29% $ 1.32 k-.0329=1.32/89 dividends growth rate 3.29% 4.77% 7 The purpose of stock valuation is to: B To determine whether the value of a common stock is fairly represented by its market 8 What annual interest rate must be obtained to accumulate $38,567 in 20 years on an inv fv $ 38,567.00 nper 20 pv $ 12,883.00 1.38% 9 Suppose the investment yield on 14-day T-bill is 3.29%. What is its discount-basis yield? ($100-p/p)*(365/days)=stated rate (100-p/p)*(3 26.07142857 (100-p/p)*(3.29%/26.0714286) 100=1+(3.29%/26.0714286)*price 0.001261918 100=1+.00126192p $ 99.87 0.50% 10 Assume the following information concerning a two-stock portfolio: Stock X Stock Y Percent of Po 15% Average ann 3% Standard dev 5.44 85% -2% 8.82 ??????? 24.87 Covariance of returns Calculate the correlation coefficient of Stocks X and Stock Y . Round the answers to four decimal places. 52% ,=0.52 ,=24.87/(5.44*8.82=0.52 answer is given as cov(x,y)/sdx*sdy 11 Mary purchased a corporate bond with the settlement date on September 15 with the fa par value 1000 coupon rate 9.31% price 106.43% $ 1,079.77 12 Which of the IPS's factors would change if the client went to another financial professio C investment strategies 13 The most important component of an IPS is: A investment objectives and constraints 14 What is the yield to maturity of a 22-year bond that pays a coupon rate of 10.04 percent Round the answers to two decimal places in percentage form. (Write the percentage sig You should use approximate formula for YTM provided in the Learning material pmt 100.4 fv 1000 pv 868.04 nper 22 ytm 12.75% calculator states 11.55% 15 Your client purchased North Carolina municipal bond that has 5.78% municipal bond yie 9.63% 16 Fresh Food, Inc. sold an issue of 7-year $1,000 par value bonds to the public. The bonds Rate 9.05% Nper 7 pmt 92.4 fv 1000 PV ($1,009.55) 17 Which one of the following describes a short position? D Selling a security that you do not own 18 At the end of the year 2016 Brown Bear Corporation paid dividends $2.92 per share. Th Year Growth Rate 2017 13% 2.92(1+0.13)=3.2996 2018 13% 3.2996(1+0.13)=3.7285 2019 13% 3.7285(1+0.13)=4.2133 2020 10% 4.2133(1+0.13)=4.76098 2021 6% 4.76098(1+0.13)=5.3799 6.0793(1+0.03)/(0.06-0.03) ,=208.7226 5.3799(1+0.13)=6.0793 2022 6% From year 2023 onward growth in dividends is expected to remain constant at 3% per y Calculate the economic value of the stock now (end of the Year 2016). ?????? 19 Your client purchased 300 shares of Speedy Airlines common stock at $26.18 a share in 200 27 26.18 $ 164.00 20 Calculate the expected return on stock of Time Saver Inc.: State of th ProbabilityPercentage returns Economic re 16% Steady economic growth 41% Boom 43.00% 5.70% 3.70% -3.50% 0.91200% 1.51700% -1.50500% 0.92% 21 Assume the following information concerning a two-stock portfolio: Stock X Stock Y Percent of Po 43% 57.00% Average ann 4.69% 9.74% Standard dev 9 13.9 31 Covariance of returns Calculate the standard deviation of the portfolio using Markowitz formula. 1978.795449 $ 44.48 0.1849 0.0081 0.3249 0.019321 19.0104462 19.01822128 30.03% 0.00149769 0.0062773929 22 Calculate the discount yield for the following T-bill: security T bill Maturity Price per $100 28 discount yield 99.684 4.063% 23 Mary just purchased $10,000 worth of stock. She paid $8,000 in cash and borrowed $2, E the percentage of the purchase that Mary paid in cash. 24 Stock X produced the following returns in recent years: Year Stock X 1 2 3 4 5 average 8% 11% 10% -9% 8% 6% 2% 5% 4% -15% 2% 4 25 16 225 4 274 Calculate the standard deviations of the returns on the stock. 68.5 25 ssume a four-stock portfolio of stocks with following characteristics: Stock A B C D Percentage o Beta 30% 12% 6% 52.00% Rate of Retuweight 0.6 2 5% 0.126 1.05 5% 0.0756 1.26 5% 0.65 1.25 7% 1.4516 Calculate the weighted average beta for the portfolio. of-view of the call option holder: efficient frontier is correct? degree of risk is on the efficient frontier (100-99.2465)/100}*365/91 iding by a divisor adjusted for stock splits and large stock dividends 00 per share. Last year, the company paid dividends of $1.32 per share. The projected growth at a rate of divid y represented by its market price 38,567 in 20 years on an investment of $12,883 with quarterly compounding? ount-basis yield? 80 5.52% Percent of Portfolio n September 15 with the face value of $1000 and the coupon rate 9.31%, that has a listed price of 106.425 and another financial professional? upon rate of 10.04 percent per year, has a $1,000 par value, and is currently priced at $868.04? Assume annu . (Write the percentage sign in the "units" box). in the Learning materials in week 4. s 5.78% municipal bond yield. Federal tax bracket is 40%. Calculate Taxable Equivalent Yield for your client. ds to the public. The bonds have a 9.24 percent coupon rate and pay interest annually. The current market rat idends $2.92 per share. The company projects the following annual growth rates in dividends: 0793(1+0.03)/(0.06-0.03) emain constant at 3% per year. The required rate of return for this stock is 8.26%. stock at $26.18 a share in July of 2015. In June of 2016 the client writes 2 October 35 calls at 7 against the st Markowitz formula. 0 in cash and borrowed $2,000. In this example, the term margin refers to: 8.276472679 d growth at a rate of dividends for this stock is 3.29 percent. Which rate of return does the investor expect to listed price of 106.425 and that pays interest semiannually on February 15 and August 15. Accrued interest is at $868.04? Assume annual coupon payments. lent Yield for your client. ly. The current market rate of interest on the Fresh Food, Inc. bonds is 9.05 percent. What is the current mark dividends: 35 calls at 7 against the stock position. If the market of Speedy Airlines is trading at $41.38 at expiration, wha oes the investor expect to receive on this stock if it is purchased today? ust 15. Accrued interest is determined using actual/actual convention. How much must Mary pay for the bond . What is the current market price of the bonds? $41.38 at expiration, what is the client's realized gain? ust Mary pay for the bond? FINC 340 Quizzes 1 2 Derivatives can be strictly defined as Financial intermediaries are extremely important part of financial word because small 3 investors cannot efficiently _________. Financial institutions that specialize in assisting corporations in the process of issuing new 4 securities are called _______. 5 An intermediary that holds and invests funds for many investors is called a/an ______. 6 Security selection refers to the ________. 7 The ______________ is the most important auction market 8 Underwriting is one of the most important services provided by _____. You would like to open a brokerage account in which purchases can be made using credit. 9 This type of account is called? Tim Dolan decided to open a margin account with a local broker to purchase shares of 10 stock. The house maintenance margin requirement for his account is set by: 11 The absolute minimum initial margin requirement is set by the: When your equity position in a margin account is less than the required level, your broker 12 will issue a: You placed the order to buy or sell a security at the current market price. This is a 13 ______________. The difference between the price at which a dealer is willing to buy, and the price at which 14 a dealer is willing to sell, is called the _________. As a result of long position on a stock in a cash account the maximum loss you can incur 15 is____________________? 16 The Dow Jones Industrial Average is calculated as _________. Quiz 2 Although you have made no deposits or withdrawals from your emergency fund savings account at the bank, the account balance has risen during the past 10 years from $13,426 to $24,971. What has been the compound annual 1 interest rate that the bank has been crediting to your account? fv=pv(1+r)^nt =rate(n,pmt,pv,fv,0) You deposit $9,244 in a 12 year CD that offers a 4.49% rate of return 2 compounded daily. What will the CD be worth at maturity? 3 Which one of the following is an example money market instrument? 4 Which of the following statements are correct? 5 The price that investor pays to buy an option contract is called the: The amount of money per share that investor will receive when a put option on stock is 6 exercised is called. 7 Calculate the discount yield for the following T-bill: $100-price paid/$100 x 360/days to maturity 8 Calculate the investment yield for the following T-bill: $100-price paid/price paid x 365/days to maturity 9 A fixed-income security is defined as: Suppose the investment yield on 91-day T-bill is 3.33%. What is its 10 discount-basis yield? investment rate price discount basis yield What is the monthly payment on 27-year, $229,540 mortgage at 10.03% 11 annual interest, compounding monthly? A saving account offers a nominal rate of 13.56%. If you open that account with an initial deposit of $3,745 and each month for now on you will save 12 $444. What is the balance of the account after 11 years? Which would you prefer to have: $10,000 today in a lump-sum or $1,000 per 13 year for 13 years beginning one year from now, if the interest rates are: What is the maximum purchase price of an asset that gives a monthly net cash flow of $608 at the end of the month? The expected holding period is 8 years, the estimated selling price at that time is $1,146, and you want at least a 14 10.40% return per year. How many years should be a $25,755 loan with an interest rate for 5.27% per 15 year, compounded monthly, if you can paid only $586 per month? What annual interest rate must be obtained to accumulate $34,356 in 8 years 16 on an investment of $14,051 with quarterly compounding? Quiz 3 1 What does beta represent? 2 Preferred stock: 3 Which of the following factors affect an investor's required rate of return? Which securities can be valued by dividing the constant annual dividend by 4 the required rate of return? Assume D1 = $3.00, Ke = 10%, and g = 12 % using the Constant Growth 5 Dividend Valuation Model, compute P0 Po=D1/Ke-G The March Madness Company just paid an annual dividend of $9.76. If you expect a constant growth rate of 2.48 percent, and have a required rate of return of 11.68 percent, what is the current stock price according to the 6 constant growth dividend model? Po=D1/Ke-G 9.76/(11.68-2.48) 7 Calculate the expected rate of return (ER) for the following: Po= purchase price = $50 P1= expected selling price = $71 I = Income = $7 What is the percentage of Expected Return? Assume D1 = $16.42, Ke = 10.39% using the Preferred Stock Dividend 8 Valuation Model (the No Growth Model), compute P0 Po=D1/Ke At the end of the year 2016 Brown Bear Corporation paid dividends $4.97 per 9 share. The company projects the following annual growth rates in dividends: Year Growth Rate 2017 13% 2018 13% 2019 13% 2020 9% 2021 8% 2022 4% From year 2023 onward growth in dividends is expected to remain constant at 2% per year. The required rate of return for this stock is 8.66%. Calculate the economic value of the stock now (end of the Year 2016). Green Company's common stock is currently selling for $52.74 per share. Last year, the company paid dividends of $3.07 per share. The projected growth at a rate of dividends for this stock is 7.29 percent. Which rate of return does the 10 investor expect to receive on this stock if it is purchased today? Quiz 4 Rose wants to buy a second home that will eventually become her retirement home and does not want a mortgage to finance this second home. She plans to spend approximately $114,970 in 15 years on this purchase. She has two zerocoupon bonds that mature in 15 years each with cash values of $1,506.19 and face values of $2,500. In 15 years, she will use them as part of her $114,970. What is Rose's required monthly deposit at the beginning of each month in order to accumulate the $114,970 she needs to buy her home at an assumed 1 interest rate of 12.47% on her investment? 2 Interest payments and bond prices are stated as percentages of par 1% or 1 point for a bond = $10.00 An 1/8 of a point for a bond = $1.25 Mrs. Smith owns a 5% bond; this means that she receives $50 per year in interest. She paid a price of 112 for the bond. How much is this in dollars? Fresh Food, Inc. sold an issue of 26-year $1,000 par value bonds to the public. The bonds have a 9.31 percent coupon rate and pay interest annually. The current market rate of interest on the Fresh Food, Inc. bonds is 8.59 percent. 3 What is the current market price of the bonds? Swim Factory has a $1,000 par value, 28-year to maturity bond outstanding with an annual coupon rate of 11.66 percent per year, paid semiannually. Market interest rates on similar bonds are 12.30 percent. Calculate the bond's 4 price today. What is the yield to maturity of a 15-year bond that pays a coupon rate of 11.91 percent per year, has a $1,000 par value, and is currently priced at 5 $941.22? Assume annual coupon payments. **valuation of bonds spreadsheet What is the yield to call of a 10-year to maturity bond that pays a coupon rate of 11.85 percent per year, has a $1,000 par value, and is currently priced at $952.18? The bond can be called back in 5 years at a call price $1,048. 6 Assume annual coupon payments. **valuation bonds spreadsheet Your clientof purchased Main municipal bond that has 9.52% municipal bond yield. Federal tax bracket is 33%. Calculate Taxable Equivalent Yield for your 7 client. taxable equivalent = municapl bond/1-marginal tax rate You have purchased a corporate bond with the settlement date on September 15 with the face value of $1000 and the coupon rate 9.61%, that has a listed price of 111.627 and that pays interest semiannually on February 15 and August 15. Accrued interest is determined using 30/360 convention. How 8 much must you pay for the bond? 9 How can you describe bond issuers? Government Corporate (public and private) Household Foreign Bond issuers include: 10 Term structure interest rates are also known as: Which of the following risk factors are the most important for purchasers of 11 long-term high-grade bonds? 12 The original maturity of Treasury notes are _________________. Mary purchased a corporate bond with the settlement date on September 15 with the face value of $1000 and the coupon rate 5.14%, that has a listed price of 103.052 and that pays interest semiannually on February 15