Exam 1 Sample Questions


 Pauline Hancock
 1 years ago
 Views:
Transcription
1 Exam 1 Sample Questions 1. Asset allocation refers to. A. the allocation of the investment portfolio across broad asset classes B. the analysis of the value of securities C. the choice of specific assets within each asset class D. none of these options 2. Security selection refers to the. A. allocation of the investment portfolio across broad asset classes B. analysis of the value of securities C. choice of specific securities within each asset class D. topdown method of investing 3. The value of a derivative security. A. depends on the value of another related security B. affects the value of a related security C. is unrelated to the value of a related security D. can be integrated only by calculus professors 4. portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis. A. Active B. Momentum C. Passive D. Markettiming 5. Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to. A. earn no more than the Treasurybill rate on either security. B. pay less for the security that has higher risk. C. pay less for the security that has lower risk. D. earn more if interest rates are lower. 6. Accounting scandals can often be attributed to a particular concept in the study of finance known as the. A. agency problem B. riskreturn tradeoff C. allocation of risk D. securitization 7. You are thinking of investing in one of two assets. Asset A has higher systematic risk than asset B. You can be sure that asset A's return will be higher than asset B's, but you can't be sure if asset A's return will be higher than asset B's. A. realized; expected B. real; nominal C. expected; realized D. nominal; expected 8. The two most important factors in describing an individual's or organization's investment objectives are. A. income level and age B. income level and risk tolerance
2 C. age and risk tolerance D. return requirement and risk tolerance 9. In a defined contribution pension plan, the bears all of the fund's investment performance risk. A. employer B. employee C. fund manager D. government 10. My pension plan will pay me a yearly retirement amount equal to 2% of my highest annual salary for each year of service. I must have. A. a defined benefit plan B. a defined contribution plan C. an endowment fund D. a variable annuity 11. Suppose that the pretax holdingperiod returns on two stocks are the same. Stock A has a high dividend payout policy and stock B has a low dividend payout policy. If you are a hightax rate individual and do not intend to sell the stocks during the holding period,. A. stock A will have a higher aftertax holdingperiod return than stock B B. the aftertax holding period returns on stocks A and B will be the same C. stock B will have a higher aftertax holdingperiod return than stock A D. The answer cannot be determined from the information given. 12. The bid price of a Treasury bill is. A. the price at which the dealer in Treasury bills is willing to sell the bill B. the price at which the dealer in Treasury bills is willing to buy the bill C. greater than the ask price of the Treasury bill expressed in dollar terms D. the price at which the investor can buy the Treasury bill 13. Which one of the following is a true statement regarding the Dow Jones Industrial Average? A. It is a valueweighted average of 30 large industrial stocks. B. It is a priceweighted average of 30 large industrial stocks. C. It is a priceweighted average of 100 large stocks traded on the New York Stock Exchange. D. It is a valueweighted average of all stocks traded on the New York Stock Exchange. 14. If a Treasury note has a bid price of $ and the tick size is 1/32, the quoted bid price in the Wall Street Journal would be. A. 99:25 B. 99:63 C. 99:20 D. 99:08 Quoted price = 15. 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 priceweighted index of the three stocks, what would be the index value? A. 300 B. 39 C. 43 D. 30 Index = ( )/3 = 39
3 16. In a index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal. A. valueweighted index B. equally weighted index C. priceweighted index D. bond price index 17. 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, what is the new index value? A. 960 B. 970 C. 975 D Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. If a market buy order for 100 shares comes in, at what price will it be filled? A. $39.75 B. $40.25 C. $ D. $40.25 or less 19. often accompany short sales and are used to limit potential losses from the short position. A. Limit orders B. Restricted orders C. Limit loss orders D. Stopbuy orders 20. An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $28. The investor's rate of return was. A. 17% B. 12% C. 14% D. 19% 21. Rank the following fund categories from most risky to least risky: I. Equity growth fund II. Balanced fund III. Sector fund IV. Money market fund
4 A. IV, I, III, II B. III, II, IV, I C. I, II, III, IV D. III, I, II, IV 22. An increase in the value of the yen against the U.S. dollar can cause the Japanese automaker Toyota to either on its U.S. sales. A. lose market share or reduce its profit margin B. gain market share or reduce its profit margin C. lose market share or increase its profit margin D. gain market share or increase its profit margin 23. Which one of the following stocks represents industries with belowaverage sensitivity to the state of the economy? A. Financials B. Technology C. Food and beverage D. Cyclicals 24. The yield curve spread between the 10year Tbond yield and the federal funds rate is a economic indicator. A. leading B. lagging C. coincident D. mixed 25. To obtain an approximate estimate of the real interest rate, one must the the nominal riskfree rate. A. add; default premium to B. subtract; default premium from C. add; expected inflation to D. subtract; expected inflation from 26. If you believe the economy is about to go into a recession, you might change your asset allocation by selling and buying. A. growth stocks; longterm bonds B. longterm bonds; growth stocks C. defensive stocks; growth stocks D. defensive stocks; longterm bonds 27. If you are holding a premium bond, you must expect a each year until maturity. (Assume that the yield to maturity remains stable over time.) A. capital gain B. capital loss C. either capital loss or capital gain D. neither capital loss, nor capital gain 28. Everything else equal, the the maturity of a bond and the the coupon, the greater the sensitivity of the bond's price to interest rate changes. A. longer; higher B. longer; lower C. shorter; higher D. shorter; lower
5 29. A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $ The yield to call on this bond is. A. 6% B. 6.58% C. 7.2% D. 8% 30. $1,000 par value zerocoupon bonds (ignore liquidity premiums): A. 6% B. 7.5 % C. 9.02% D % The expected 1year interest rate 1 year from now should be about = 1.06(1 + f2) = 1.06(1 + f2) 1 + f2 = /1.06 = f2 = 9.02% 31. A 6% coupon U.S. Treasury note pays interest on May 31 and November 30 and is traded for settlement on August 10. The accrued interest on the $100,000 face amount of this note is. A. $ B. $1, C. $2, D. $3,000 Accrued interest = 100,000(.06/2)(71/183) = On May 1, 2007, Joe Hill is considering one of the following newly issued 10year AAA corporate bonds. Suppose market interest rates decline by 100 basis points (i.e., 1%). The effect of this decline would be. A. The price of the Wildwood bond would decline by more than the price of the Asbury bond. B. The price of the Wildwood bond would decline by less than the price of the Asbury bond. C. The price of the Wildwood bond would increase by more than the price of the Asbury bond. D. The price of the Wildwood bond would increase by less than the price of the Asbury bond. 33. A corporate bond has a 10year maturity and pays interest semiannually. The quoted coupon rate is 6%, and the bond is priced at par. The bond is callable in 3 years at 110% of par. What is the bond's yield to call? A. 6.72% B. 9.17% C. 4.49% D. 8.98%
6 1,000 = r/2 = 4.489% r = YTC = 8.98% Calculator entries are N = 6, PV = 1,000, PMT = 30, FV = 1,100, CPT I/Y (semiannual) Annual YTC = = Generally speaking, the higher a firm's ROA, the the dividend payout ratio and the the firm's growth rate of earnings. A. higher; lower B. higher; higher C. lower; lower D. lower; higher 35. Assuming all other factors remain unchanged, would increase a firm's priceearnings ratio. A. an increase in the dividend payout ratio B. a reduction in investor risk aversion C. an expected increase in the level of inflation D. an increase in the yield on Treasury bills Mini Case A. Prepare the nominal pretax return objectives of an investment policy statement (IPS) for the Ingrams. Show your calculations. B. Characterize the Ingrams as belowaverage, average or aboveaverage in their ability to take risk. Justify your response with three reasons based on the Ingrams specific circumstances. C. Prepare the constraints section of an IPS for the Ingrams.
7
8
Review for Exam 1. Instructions: Please read carefully
Review for Exam 1 Instructions: Please read carefully The exam will have 20 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation
More informationReview for Exam 1. Instructions: Please read carefully
Review for Exam 1 Instructions: Please read carefully The exam will have 21 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation
More informationInvestment Analysis (FIN 670) Fall Homework 3
Investment Analysis (FIN 670) Fall 2009 Homework 3 Instructions: please read carefully You should show your work how to get the answer for each calculation question to get full credit You should make 2
More informationBUSINESS FINANCE (FIN 312) Spring 2008
BUSINESS FINANCE (FIN 312) Spring 2008 Assignment 3 Instructions: please read carefully You can either do the assignment by yourself or work in a group of no more than two. You should show your work how
More informationExam 1 Morning Session
91. A high yield bond fund states that through active management, the fund s return has outperformed an index of Treasury securities by 4% on average over the past five years. As a performance benchmark
More informationReview for Exam 1. Instructions: Please read carefully
Review for Exam 1 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems covering chapter 1, 2, 3, 4, 14, 16. Questions in the multiple choice section will
More informationCHAPTER 8 INTEREST RATES AND BOND VALUATION
CHAPTER 8 INTEREST RATES AND BOND VALUATION Solutions to Questions and Problems 1. The price of a pure discount (zero coupon) bond is the present value of the par value. Remember, even though there are
More informationTopics in Chapter. Key features of bonds Bond valuation Measuring yield Assessing risk
Bond Valuation 1 Topics in Chapter Key features of bonds Bond valuation Measuring yield Assessing risk 2 Determinants of Intrinsic Value: The Cost of Debt Net operating profit after taxes Free cash flow
More informationFixed Income: Practice Problems with Solutions
Fixed Income: Practice Problems with Solutions Directions: Unless otherwise stated, assume semiannual payment on bonds.. A 6.0 percent bond matures in exactly 8 years and has a par value of 000 dollars.
More informationFIN 432 Investment Analysis and Management Review Notes for Midterm Exam
FIN 432 Investment Analysis and Management Review Notes for Midterm Exam Chapter 1 1. Investment vs. investments 2. Real assets vs. financial assets 3. Investment process Investment policy, asset allocation,
More informationIntroduction to Bonds
Bonds are a debt instrument, where the bond holder pays the issuer an initial sum of money known as the purchase price. In turn, the issuer pays the holder coupon payments (annuity), and a final sum (face
More informationAdditional Practice Questions for Midterm I
1 Finance 333 Investments Additional Practice Questions for Midterm I Winter 2004 Professor Yan 1. Financial assets. A) directly contribute to the country's productive capacity *B) indirectly contribute
More informationAFM 271 Practice Problem Set #1 Spring 2005
AFM 271 Practice Problem Set #1 Spring 2005 1. Text problems: Chapter 1 1, 3, 4 Chapter 2 5 Chapter 3 2, 6, 7 Chapter 4 2, 6, 12, 14, 16, 18, 20, 22, 24, 26, 30, 32, 34, 38, 40, 46, 48 Chapter 5 2, 4,
More informationFinancial Markets And Financial Instruments  Part I
Financial Markets And Financial Instruments  Part I Financial Assets Real assets are things such as land, buildings, machinery, and knowledge that are used to produce goods and services. Financial assets
More informationChapter 8 Interest Rates and Bond Valuation
University of Science and Technology Beijing Dongling School of Economics and management Chapter 8 Interest Rates and Bond Valuation Oct. 2012 Dr. Xiao Ming USTB 1 Key Concepts and Skills Know the important
More information2. Determine the appropriate discount rate based on the risk of the security
Fixed Income Instruments III Intro to the Valuation of Debt Securities LOS 64.a Explain the steps in the bond valuation process 1. Estimate the cash flows coupons and return of principal 2. Determine the
More informationReview for Exam 2. Instructions: Please read carefully
Review for Exam 2 Instructions: Please read carefully The exam will have 20 multiple choice questions and 4 work problems. Questions in the multiple choice section will be either concept or calculation
More informationCHAPTER 14: BOND PRICES AND YIELDS
CHAPTER 14: BOND PRICES AND YIELDS PROBLEM SETS 1. The bond callable at 105 should sell at a lower price because the call provision is more valuable to the firm. Therefore, its yield to maturity should
More informationFinal Exam Practice Set and Solutions
FIN469 Investments Analysis Professor Michel A. Robe Final Exam Practice Set and Solutions What to do with this practice set? To help students prepare for the final exam, three practice sets with solutions
More informationBond Valuation. What is a bond?
Lecture: III 1 What is a bond? Bond Valuation When a corporation wishes to borrow money from the public on a longterm basis, it usually does so by issuing or selling debt securities called bonds. A bond
More informationCHAPTER 8 INTEREST RATES AND BOND VALUATION
CHAPTER 8 INTEREST RATES AND BOND VALUATION Answers to Concept Questions 1. No. As interest rates fluctuate, the value of a Treasury security will fluctuate. Longterm Treasury securities have substantial
More informationCHAPTER 14: BOND PRICES AND YIELDS
CHAPTER 14: BOND PRICES AND YIELDS 1. a. Effective annual rate on 3month Tbill: ( 100,000 97,645 )4 1 = 1.02412 4 1 =.10 or 10% b. Effective annual interest rate on coupon bond paying 5% semiannually:
More informationLOS 56.a: Explain steps in the bond valuation process.
The following is a review of the Analysis of Fixed Income Investments principles designed to address the learning outcome statements set forth by CFA Institute. This topic is also covered in: Introduction
More informationFNCE 301, Financial Management H Guy Williams, 2006
REVIEW We ve used the DCF method to find present value. We also know shortcut methods to solve these problems such as perpetuity present value = C/r. These tools allow us to value any cash flow including
More informationPractice Set #2 and Solutions.
FIN672 Securities Analysis & Portfolio Management Professor Michel A. Robe Practice Set #2 and Solutions. What to do with this practice set? To help MBA students prepare for the assignment and the exams,
More informationSAMPLE MIDTERM QUESTIONS
SAMPLE MIDTERM QUESTIONS William L. Silber HOW TO PREPARE FOR THE MID TERM: 1. Study in a group 2. Review the concept questions in the Before and After book 3. When you review the questions listed below,
More informationChapter 07 Interest Rates and Present Value
Chapter 07 Interest Rates and Present Value Multiple Choice Questions 1. The percentage of a balance that a borrower must pay a lender is called the a. Inflation rate b. Usury rate C. Interest rate d.
More informationYield Measures, Spot Rates & Forward Rates
Fixed Income Yield Measures, Spot Rates & Forward Rates Reading  57 www.proschoolonline.com/ 1 Sources of Return Coupon interest payment: Periodic coupon interest is paid on the par value of the bond
More informationCIS September 2012 Exam Diet. Examination Paper 2.2: Corporate Finance Equity Valuation and Analysis Fixed Income Valuation and Analysis
CIS September 2012 Exam Diet Examination Paper 2.2: Corporate Finance Equity Valuation and Analysis Fixed Income Valuation and Analysis Corporate Finance (1 13) 1. Assume a firm issues N1 billion in debt
More informationFinance Homework Julian Vu May 28, 2008
Finance Homework Julian Vu May 28, 2008 Assignment: p. 2829 Problems 11 and 12 p. 145147 Questions 42, 43, and 44, and Problems 41, 42, 43, and 413 P11 A Treasury Bond that matures in 10 years
More informationCHAPTER 5. Interest Rates. Chapter Synopsis
CHAPTER 5 Interest Rates Chapter Synopsis 5.1 Interest Rate Quotes and Adjustments Interest rates can compound more than once per year, such as monthly or semiannually. An annual percentage rate (APR)
More informationCHAPTER 20. Hybrid Financing: Preferred Stock, Warrants, and Convertibles
CHAPTER 20 Hybrid Financing: Preferred Stock, Warrants, and Convertibles 1 Topics in Chapter Types of hybrid securities Preferred stock Warrants Convertibles Features and risk Cost of capital to issuers
More informationCHAPTER 2. Asset Classes. the Money Market. Money market instruments. Capital market instruments. Asset Classes and Financial Instruments
22 Asset Classes Money market instruments CHAPTER 2 Capital market instruments Asset Classes and Financial Instruments Bonds Equity Securities Derivative Securities The Money Market 23 Table 2.1 Major
More informationFinancial Instruments. Chapter 2
Financial Instruments Chapter 2 Major Types of Securities debt money market instruments bonds common stock preferred stock derivative securities 12 Markets and Instruments Money Market debt instruments
More informationRISKS IN MUTUAL FUND INVESTMENTS
RISKS IN MUTUAL FUND INVESTMENTS Classification of Investors Investors can be classified based on their Risk Tolerance Levels : Low Risk Tolerance Moderate Risk Tolerance High Risk Tolerance Fund Classification
More informationClick Here to Buy the Tutorial
FIN 534 Week 4 Quiz 3 (Str) Click Here to Buy the Tutorial http://www.tutorialoutlet.com/fin534/fin534week4quiz3 str/ For more course tutorials visit www.tutorialoutlet.com Which of the following
More informationA) 1.8% B) 1.9% C) 2.0% D) 2.1% E) 2.2%
1 Exam FM Questions Practice Exam 1 1. Consider the following yield curve: Year Spot Rate 1 5.5% 2 5.0% 3 5.0% 4 4.5% 5 4.0% Find the four year forward rate. A) 1.8% B) 1.9% C) 2.0% D) 2.1% E) 2.2% 2.
More informationPractice Questions for Midterm II
Finance 333 Investments Practice Questions for Midterm II Winter 2004 Professor Yan 1. The market portfolio has a beta of a. 0. *b. 1. c. 1. d. 0.5. By definition, the beta of the market portfolio is
More informationCHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS
1 CHAPTER 11 INTRODUCTION TO SECURITY VALUATION TRUE/FALSE QUESTIONS (f) 1 The three step valuation process consists of 1) analysis of alternative economies and markets, 2) analysis of alternative industries
More informationChapter 11. Bond Pricing  1. Bond Valuation: Part I. Several Assumptions: To simplify the analysis, we make the following assumptions.
Bond Pricing  1 Chapter 11 Several Assumptions: To simplify the analysis, we make the following assumptions. 1. The coupon payments are made every six months. 2. The next coupon payment for the bond is
More informationChapter 4 Valuing Bonds
Chapter 4 Valuing Bonds MULTIPLE CHOICE 1. A 15 year, 8%, $1000 face value bond is currently trading at $958. The yield to maturity of this bond must be a. less than 8%. b. equal to 8%. c. greater than
More informationIntroduction to Money & Banking Lecture notes 2010 Matti Estola
Introduction to Money & Banking Lecture notes 2010 Matti Estola Literature Henderson & Poole: Principles of Economics, Mishkin: The Economics of Money, Banking, and Financial Markets, Extra material given
More informationANALYSIS OF FIXED INCOME SECURITIES
ANALYSIS OF FIXED INCOME SECURITIES Valuation of Fixed Income Securities Page 1 VALUATION Valuation is the process of determining the fair value of a financial asset. The fair value of an asset is its
More informationChapter 6 Interest Rates and Bond Valuation
Chapter 6 Interest Rates and Bond Valuation Solutions to Problems P61. P62. LG 1: Interest Rate Fundamentals: The Real Rate of Return Basic Real rate of return = 5.5% 2.0% = 3.5% LG 1: Real Rate of Interest
More informationChapter 6 The Tradeoff Between Risk and Return
Chapter 6 The Tradeoff Between Risk and Return MULTIPLE CHOICE 1. Which of the following is an example of systematic risk? a. IBM posts lower than expected earnings. b. Intel announces record earnings.
More informationBUSINESS FINANCE (FIN 312) Spring 2009
BUSINESS FINANCE (FIN 31) Spring 009 Assignment Instructions: please read carefully You can either do the assignment by yourself or work in a group of no more than two. You should show your work how to
More informationMBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the
MBA Financial Management and Markets Spring 2011 Dr. A. Frank Thompson Due: February 28, 2011 Competency Exam 1 Directions: Please answer the following 33 questions designed to test your knowledge of the
More informationBond Pricing Fundamentals
Bond Pricing Fundamentals Valuation What determines the price of a bond? Contract features: coupon, face value (FV), maturity Riskfree interest rates in the economy (US treasury yield curve) Credit risk
More informationFinance 3130 Corporate Finiance Sample Final Exam Spring 2012
Finance 3130 Corporate Finiance Sample Final Exam Spring 2012 True/False Indicate whether the statement is true or falsewith A for true and B for false. 1. Interest paid by a corporation is a tax deduction
More informationIntroduction to Investments FINAN 3050
Introduction to Investments FINAN 3050 : Introduction (Syllabus) Investments Background and Issues (Chapter 1) Financial Securities (Chapter 2) Syllabus General Information The course is going to be organized
More informationVALUATION OF DEBT CONTRACTS AND THEIR PRICE VOLATILITY CHARACTERISTICS QUESTIONS See answers below
VALUATION OF DEBT CONTRACTS AND THEIR PRICE VOLATILITY CHARACTERISTICS QUESTIONS See answers below 1. Determine the value of the following riskfree debt instrument, which promises to make the respective
More informationEcon 330 Exam 1 Name ID Section Number
Econ 330 Exam 1 Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If during the past decade the average rate of monetary growth
More informationChapter 9 Bonds and Their Valuation ANSWERS TO SELECTED ENDOFCHAPTER QUESTIONS
Chapter 9 Bonds and Their Valuation ANSWERS TO SELECTED ENDOFCHAPTER QUESTIONS 91 a. A bond is a promissory note issued by a business or a governmental unit. Treasury bonds, sometimes referred to as
More informationMidTerm Exam Practice Set and Solutions.
FIN469 Investments Analysis Professor Michel A. Robe MidTerm Exam Practice Set and Solutions. What to do with this practice set? To help students prepare for the midterm exam, two practice sets with
More informationFinQuiz Notes 2 0 1 5
Reading 5 The Time Value of Money Money has a time value because a unit of money received today is worth more than a unit of money to be received tomorrow. Interest rates can be interpreted in three ways.
More informationChapter 6. Interest Rates And Bond Valuation. Learning Goals. Learning Goals (cont.)
Chapter 6 Interest Rates And Bond Valuation Learning Goals 1. Describe interest rate fundamentals, the term structure of interest rates, and risk premiums. 2. Review the legal aspects of bond financing
More informationNPH Fixed Income Research Update. Bob Downing, CFA. NPH Senior Investment & Due Diligence Analyst
White Paper: NPH Fixed Income Research Update Authored By: Bob Downing, CFA NPH Senior Investment & Due Diligence Analyst National Planning Holdings, Inc. Due Diligence Department National Planning Holdings,
More informationInterest Rates and Bond Valuation
and Bond Valuation 1 Bonds Debt Instrument Bondholders are lending the corporation money for some stated period of time. Liquid Asset Corporate Bonds can be traded in the secondary market. Price at which
More informationAnswers to Review Questions
Answers to Review Questions 1. The real rate of interest is the rate that creates an equilibrium between the supply of savings and demand for investment funds. The nominal rate of interest is the actual
More informationExercise 6 Find the annual interest rate if the amount after 6 years is 3 times bigger than the initial investment (3 cases).
Exercise 1 At what rate of simple interest will $500 accumulate to $615 in 2.5 years? In how many years will $500 accumulate to $630 at 7.8% simple interest? (9,2%,3 1 3 years) Exercise 2 It is known that
More informationFinance for Cultural Organisations Lecture 5. Interest Rates and Bond Valuation
Finance for Cultural Organisations Lecture 5. Interest Rates and Bond Valuation Lecture 5: Interest Rates and Bond Valuation Know the important bond features and bond types Understand bond values and why
More informationChapter 8. Step 2: Find prices of the bonds today: n i PV FV PMT Result Coupon = 4% 29.5 5? 100 4 84.74 Zero coupon 29.5 5? 100 0 23.
Chapter 8 Bond Valuation with a Flat Term Structure 1. Suppose you want to know the price of a 10year 7% coupon Treasury bond that pays interest annually. a. You have been told that the yield to maturity
More informationPractice Set and Solutions #2
723G26/20121010 Practice Set and Solutions #2 What to do with this practice set? Practice sets are handed out to help students master the material of the course and prepare for the final exam. These
More informationAnswers to EndofChapter Questions
Answers to EndofChapter Questions 1. The bond with a C rating should have a higher risk premium because it has a higher default risk, which reduces its demand and raises its interest rate relative to
More informationReview for Exam 2. Instructions: Please read carefully
Review for Exam Instructions: Please read carefully The exam will have 1 multiple choice questions and 5 work problems. Questions in the multiple choice section will be either concept or calculation questions.
More information3. You have been given this probability distribution for the holding period return for XYZ stock:
Fin 85 Sample Final Solution Name: Date: Part I ultiple Choice 1. Which of the following is true of the Dow Jones Industrial Average? A) It is a valueweighted average of 30 large industrial stocks. )
More informationCORPORATE FINANCE REVIEW FOR THIRD QUIZ. Aswath Damodaran
CORPORATE FINANCE REVIEW FOR THIRD QUIZ Aswath Damodaran Basic Skills Needed What is the trade off involved in the capital structure choice? Can you estimate the optimal debt ratio for a firm using the
More informationIllinois Public Pension Fund Association 1. Fundamentals of Investing 101
Fundamentals of Investing 101 Tom S. Sawyer Managing Partner Sawyer Falduto Asset Management LLC 340 West Butterfield Road Suite 400 Elmhurst, Il 60126 (630) 9418560 tsawyer@sawyerfalduto.com SAWYER FALDUTO
More informationPRACTICE EXAM QUESTIONS ON WACC
Dr. Sudhakar Raju Financial Statements Analysis (FN 6450) PRACTICE EXAM QUESTIONS ON WACC 1. The return shareholders require on their investment in a firm is called the: a. dividend yield. B. cost of equity.
More informationTopics CHAPTER 9. What types of longterm capital do firms use? Capital Components. Beforetax vs. Aftertax Capital Costs
Topics CHAPTER 9 The Cost of Capital Cost of Capital Components Debt Preferred Common Equity WACC 1 2 What types of longterm capital do firms use? Longterm debt Preferred stock Common equity Capital
More informationInterest Rates and Bond Valuation
Interest Rates and Bond Valuation Chapter 6 Key Concepts and Skills Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean
More informationBusiness 2019 Finance I Lakehead University. Midterm Exam
Business 2019 Finance I Lakehead University Midterm Exam Philippe Grégoire Fall 2002 Time allowed: 2 hours. Instructions: Calculators are permitted. One 8.5 11 inches crib sheet is allowed. Verify that
More information380.760: Corporate Finance. Financial Decision Making
380.760: Corporate Finance Lecture 2: Time Value of Money and Net Present Value Gordon Bodnar, 2009 Professor Gordon Bodnar 2009 Financial Decision Making Finance decision making is about evaluating costs
More informationChapter Review Problems
Chapter Review Problems State all stock and bond prices in dollars and cents. Unit 14.1 Stocks 1. When a corporation earns a profit, the board of directors is obligated by law to immediately distribute
More informationCHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
Chapter  The Term Structure of Interest Rates CHAPTER : THE TERM STRUCTURE OF INTEREST RATES PROBLEM SETS.. In general, the forward rate can be viewed as the sum of the market s expectation of the future
More informationCHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
CHAPTER : THE TERM STRUCTURE OF INTEREST RATES CHAPTER : THE TERM STRUCTURE OF INTEREST RATES PROBLEM SETS.. In general, the forward rate can be viewed as the sum of the market s expectation of the future
More informationSuggested solutions to 3mark and 4mark problems contained in the Sample Paper  Exam 3  Investment Planning (IP)
Suggested solutions to 3mark and 4mark problems contained in the Sample Paper  Exam 3  Investment Planning (IP) Setion II Question 6 A buisnessman wants to achieve the goal of marriage of his daughter
More informationFigure 10.1 Listing of Treasury Issues
CHAPER 10 Bond Prices and Yields 10.1 BOND CHARACERISICS Bond Characteristics reasury Notes and Bonds Face or par value Coupon rate Zero coupon bond Compounding and payments Accrued Interest Indenture
More informationTHE STOCK MARKET GAME GLOSSARY
THE STOCK MARKET GAME GLOSSARY Accounting: A method of recording a company s financial activity and arranging the information in reports that make the information understandable. Accounts payable: The
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common
More informationChapter 10. Chapter 10 Topics. Recent Rates
Chapter 10 Introduction to Risk, Return, and the Opportunity Cost of Capital Chapter 10 Topics Rates of Return Risk Premiums Expected Return Portfolio Return and Risk Risk Diversification Unique & Market
More informationIntroduction to Bond Valuation. Types of Bonds
Introduction to Bond Valuation (Text reference: Chapter 5 (Sections 5.15.3, Appendix)) Topics types of bonds valuation of bonds yield to maturity term structure of interest rates more about forward rates
More information7. Bonds and Interest rates
7. Bonds and Interest rates 1 2 Yields and rates I m thinking of buying a bond that has a face value of $1000, pays semiannual coupons of $40 and has 7 years to maturity. The market price is $943. Fixed
More informationCHAPTER 7: FIXEDINCOME SECURITIES: PRICING AND TRADING
CHAPTER 7: FIXEDINCOME SECURITIES: PRICING AND TRADING Topic One: Bond Pricing Principles 1. Present Value. A. The presentvalue calculation is used to estimate how much an investor should pay for a bond;
More informationInvestments. Introduction. Learning Objectives
Investments Introduction Investments Learning Objectives Lesson 1 Investment Alternatives: Making it on the Street Wall Street! Compare and contrast investment alternatives, such as stocks, bonds, mutual
More informationUnderstanding Fixed Income
Understanding Fixed Income 2014 AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497 Understanding Fixed Income About fixed income at AMP Capital Our global presence helps us deliver outstanding
More informationFinance 2 for IBA (30J201) F.Feriozzi Regular exam December 15 th, 2010. Part One: MultipleChoice Questions (45 points)
Finance 2 for IBA (30J201) F.Feriozzi Regular exam December 15 th, 2010 Question 1 Part One: Multiplehoice Questions (45 points) Which of the following statements regarding the capital structure decision
More informationReview for Exam 2. Instructions: Please read carefully
Review for Exam 2 Instructions: Please read carefully The exam will have 25 multiple choice questions and 5 work problems You are not responsible for any topics that are not covered in the lecture note
More informationFixed Income Securities
3st lecture IES, UK October 7, 2015 Outline Bond Characteristics 1 Bond Characteristics 2 Bond Characteristics Government bond listing Rate Maturity mo/yr Bid Asked Chg Ask yld 3.000 July 12 108:22 108:2320
More informationInvesting Practice Questions
Investing Practice Questions 1) When interest is calculated only on the principal amount of the investment, it is known as: a) straight interest b) simple interest c) compound interest d) calculated interest
More informationBond Y is a 5% annualpay bond with 15 years to maturity, priced at to yield 7%.
The following is a review of the Analysis of Fixed Income Investments principles designed to address the learning outcome statements set forth by CFA Institute. This topic is also covered in: Introduction
More informationCHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES
CHAPTER 15: THE TERM STRUCTURE OF INTEREST RATES 1. Expectations hypothesis. The yields on longterm bonds are geometric averages of present and expected future short rates. An upward sloping curve is
More informationVALUE 11.125%. $100,000 2003 (=MATURITY
NOTES H IX. How to Read Financial Bond Pages Understanding of the previously discussed interest rate measures will permit you to make sense out of the tables found in the financial sections of newspapers
More informationExam 2 Study Guide. o o
1. LS7a An account was established 7 years ago with an initial deposit. Today the account is credited with annual interest of $860. The interest rate is 7.7% compounded annually. No other deposits or withdrawals
More information3. If an individual investor buys or sells a currently owned stock through a broker, this is a primary market transaction.
Spring 2012 Finance 3130 Sample Exam 1A Questions for Review 1. The form of organization for a business is an important issue, as this decision has very significant effect on the income and wealth of the
More informationSaving and Investing Standard 5 Assessment
1 Name: Class Period: Saving and Investing Directions: Circle the letter of the choice that BEST completes each statement. 1. Which of the following statement is TRUE? a. Savings and investing is only
More informationInvestments 320 Dr. Ahmed Y. Dashti Chapter 3 Interactive Qustions
Investments 320 Dr. Ahmed Y. Dashti Chapter 3 Interactive Qustions 31. A primary asset is an initial offering sold by a business, or government, to raise funds. A) True B) False 32. Money market instruments
More informationSampleFinal Finance 320 Finance Department
SampleFinal Finance 320 Finance Department Name Chapters: 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, and 13 1) A C corporation earns $4.50 per share before taxes. The corporate tax rate is 35%, the personal tax
More informationChapter 5: Valuing Bonds
FIN 302 Class Notes Chapter 5: Valuing Bonds What is a bond? A longterm debt instrument A contract where a borrower agrees to make interest and principal payments on specific dates Corporate Bond Quotations
More informationMBA 8230 Corporation Finance (Part II) Practice Final Exam #2
MBA 8230 Corporation Finance (Part II) Practice Final Exam #2 1. Which of the following input factors, if increased, would result in a decrease in the value of a call option? a. the volatility of the company's
More information