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1. A 20 year $1,000 bond has a coupon of 8 percent. What would be the price if the coupon is paid semiannually and comparable bonds yield 10 percent? A. $1,000. B. $895.00. C. $828.00. D. $624.00.

Please see the attached excel sheet

Answer: C

2. Which of the following bonds is supported by collateral? A. Convertible bonds. B. Income bonds. C. Equipment trust certificates. D. Debentures.

Answer: C

3. What is the value of a $100.00 par preferred stock that must be retired after ten years if it pays a dividend of $5.00 annually and the investor requires a six percent rate of return? A. $92.00. B. $100.00. C. $110.00. D. $122.00.

Please see the attached excel sheet

Answer: A

4. If investors require a rate of return of 8 percent, what is the value of a perpetual preferred stock that pays a fixed dividend of $2.00. A. $16.00. B. $25.00. C. $32.00. D. $50.00.

P = $2 / 0.08

= $25

Answer: B

5. Dividends come at the expense of, A. interest. B. retained earnings. C. liabilities. D. stock.

Answer: B

6. Preferred stock and bonds are similar because, A. they both have voting power. B. interest and dividend payments are legal obligations. C. neither interest nor dividends are tax deductible. D. both are a source of financial leverage.

Answer: B

7. A $1,000 bond has an annual coupon of 5 percent and a price of $692.00. Find the number of years to maturity if comparable bonds yield 10 percent. A. 5 years. B. 10 years. C. 20 years. D. 30 years.

Please see the attached excel sheet

8. A 10 year $1,000 bond has a coupon of 9 percent. What would be the price if the coupon is paid annually and comparable bonds yield 10 percent? A. 1,900. B. $1,159. C. $1,000. D. $938.00.

Please see the attached excel sheet

Answer: D

9. A common stock cost $40.50, the current dividend is $1.50, and the growth in the value of the shares and the dividend is 8 percent. What is the annual rate of return on an investment in this stock? A. 4.5 percent. B. 8 percent. C. 10 percent. D. 12 percent.

D0 = $1.5

D1 = $1.5 × 1.08 = $1.62

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= 0.12

Answer: D

10. An increase in investors required return will cause the value of a common stock to, A. rise. B. fall. C. remain unchanged. D. remain stable or rise slightly.

11. Since commercial banks have a large amount of debt outstanding, they, A. are highly financially leveraged. B. earn very little for their stockholders. C. pay high interest rates on deposits. D. pay dividends to their stockholders

12. If an individual buys stock on margin and its price rises, the investor, A. must put up additional collateral. B. must pay tax on the unrealized gain. C. must pay interest on the borrowed funds. D. may take delivery of the stock.

If the price of stock bought on margin rises, these investors can take delivery of the stock and sell the stock, and repay their brokers the borrowed amount plus interest and commissions, and still make a profit.

13. Which of the following statements about specialists is correct? A. A specialist stresses one type of investment. B. A specialist only buys stock. C. A specialist analyzes corporate securities. D. A specialist makes a market in securities.

A specialist

* Tracks and processes buy and sell orders.

* Maintains an inventory of assigned stock.

* Maintains bid and ask prices of their assigned stock.

Answer: D

14. A financial intermediary transfers, A. savings to households. B. savings to borrowers. C. stock to brokers. D. new stock issues to buyers.

15. A person buys 100 shares of BBB stock on margin at $20.00 per share. If the margin requirement is 45 percent, the interest rate is 10 percent, and that person holds the security for one year, how much interest must that person pay? A. $2,000. B. $200.00. C. $110.00. D. $90.00.

Amount borrowed = 100 shares x $20 per share x (100% - 45%) = $1100

Interest = 10% x $1100 = $110

The portion of the purchase price an investor must deposit into the account is known as margin.

Answer: C

16. If an investor sells short, then they, A. buys an odd lot of a security. B. sells securities from their portfolio. C. anticipates a price increase. D. anticipates a price decrease.

17. A stock is currently selling for $10.00 a share. What is your gain/loss if you take a long position and the stock price rises to $14.00 a share? A. you would lose $4.00 per share. B. you would gain $4.00 per share. C. you would gain $24.00 per share. D. you would lose $6.00 per share.

Long position means ownership of share. If stock price rises to $14 a share, gain per share = $ 14 - $10 (cost price) = $4

Answer: B

18. The reserves of commercial banks must be held against, A. the bank as equity. B. losses. C. savings deposits. D. commercial loans.

19. Which of the following assets is the most liquid? A. money and antiques. B. bonds and real estate. C. savings accounts and checking accounts. D. stocks and bonds.

20. The minimum margin requirement is established by, A. brokerage firms. B. Congress. C. the SEC. D. the Federal Reserve.

21. Which of the following is a federally insured investment? A. a savings account in a national commercial bank. B. a certificate of deposit in excess of $100,000. C. a life insurance policy. D. commercial bank assets.

22. Which of the following statements about organized security markets is correct? A. organized security markets are examples of financial intermediaries. B. organized security markets transfer resources from savers to borrowers. C. organized security markets are secondary markets. D. organized security markets aren't subject to regulation.

23. When investing in securities, an investor may place a limit order that, A. limits the amount of commissions. B. specifies when the stock will be purchased. C. establishes the exchange on which the security is to be bought or sold. D. states a price at which the investor seeks to buy or sell the stock.

A Limit order is an order to sell or buy a specific number of shares at a certain price or better.

Answer: D

24. Money market mutual funds invest in, A. corporate bonds. B. corporate stock. C. federal government treasury bills. D. federal government bonds.

25. Entering an order to sell stock at $17.00 when the bid is $18.00-$19.00 is an example of a, A. market order. B. short sale. C. margin payment. D. limit order.

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