UopCourses



Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

Multiple Choice

窗体顶端

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Indenture

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Enforcement codes

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Debenture

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Prospectus

窗体底端

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually), 6.45 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Multiple Choice

窗体顶端

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$27.50, $32.25, $0, respectively

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$55.00, $64.50, $0, respectively

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$5.50, $6.45, $0, respectively

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$27.50, $32.25, $100, respectively

窗体底端

Explanation

5.5 percent coupon corporate bond (paid semi-annually): 0.5 × 5.5% × $1,000 = $27.50

6.45 percent coupon Treasury note: 0.5 × 6.45% × $1,000 = $32.25

corporate zero coupon bond maturing in 10 years: 0% × $1,000 = $0

Many bonds are not callable, but for those that are, which of following is a common feature?

Multiple Choice

窗体顶端

• [pic]

Called any time after 2 years of issuance.

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Called any time after 10 years of issuance.

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Called any time after 2 years from the time an investor buys the bond.

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Called any time after 10 years from the time an investor buys the bond.

A 3.75 percent TIPS has an original reference CPI of 175.8. If the current CPI is 207.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Multiple Choice

窗体顶端

• [pic]

$1,181.46, $22.15, respectively

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$1,000, $37.50, respectively

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$1,181.46, $37.50, respectively

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$1,000, $18.75, respectively

窗体底端

Explanation

par value = 207.7/175.8 × $1,000 = $1,181.4562

interest payment = 0.5 × 3.75% × $1,181.46 = $22.15

Which of the following determines the dollar amount of interest paid to bondholders?

Multiple Choice

窗体顶端

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Call premium

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Market rate

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Coupon rate

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Original issue discount

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Multiple Choice

窗体顶端

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$37.50

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$18.75

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$43.78

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$21.89

窗体底端

Explanation

3.75% × (214.7/183.9) × 1,000/2 = 21.89

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

Multiple Choice

窗体顶端

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Par or face value

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Call premium

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Time to maturity value

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Maturity date

Which of the following was the catalyst for the recent financial crisis?

Multiple Choice

窗体顶端

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Widespread layoffs due to illegal alien hiring.

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Corruption in the investment banking industry.

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All of the options were catalysts.

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Defaults on subprime mortgages.

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

Multiple Choice

窗体顶端

• [pic]

The level of interest rates in the overall economy at the time.

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The term of the loan.

• [pic]

All of the options are factors that determine the coupon rate of a company's bonds.

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The amount of uncertainty about whether the company will be able to make all the payments.

Consider the following three bond quotes; a Treasury note quoted at 102.30, and a corporate bond quoted at 99.45, and a municipal bond quoted at 102.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?

Multiple Choice

窗体顶端

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$1,002.30, $1,000, $1,000, respectively

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$1,002.30, $994.50, $5,012.25 respectively

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$1,000, $1,000, $5,000, respectively

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$1,023.00, $994.50, $5,122.50, respectively

窗体底端

Explanation

Treasury note at 102.30: 102.30% × $1,000 = $1023.00

Corporate bond at 99.45: 99.45% × $1,000 = $994.50

Municipal bond at 102.45: 102.45% × $5,000 = $5,122.50

Bond prices are quoted in terms of which of the following?

Multiple Choice

窗体顶端

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Original issue discount

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Coupon rate in dollars

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Percent of par value

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Market rate in dollars

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

Multiple Choice

窗体顶端

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Asset-backed securities

• [pic]

Junk bonds

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Credit quality securities

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Debentures

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

Multiple Choice

窗体顶端

• [pic]

Original issue premium

• [pic]

Call premium

• [pic]

Call feature

• [pic]

Coupon rate

A 2.5 percent TIPS has an original reference CPI of 170.4. If the current CPI is 205.7, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Multiple Choice

窗体顶端

• [pic]

$1,000, $15.09, respectively

• [pic]

$1,207.16, $7.16, respectively

• [pic]

$1,000, $7.16, respectively

• [pic]

$1,207.16, $15.09, respectively

窗体底端

Explanation

par value = 205.7/170.4 × $1,000 = $1,207.16

interest payment = 0.5 × 2.5% × $1,207.16 = $15.09

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Multiple Choice

窗体顶端

• [pic]

$12.50, $15.75, $100, respectively

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$25.00, $31.50, $0, respectively

• [pic]

$2.50, $3.15, $0, respectively

• [pic]

$12.50, $15.75, $0, respectively

窗体底端

Explanation

2.5 percent coupon corporate bond (paid semi-annually): 0.5 × 2.5% × $1,000 = $12.50

3.15 percent coupon Treasury note: 0.5 × 3.15% × $1,000 = $15.75 corporate zero coupon bond maturing in 10 years: 0% × $1,000 = $0

A 2.95 percent TIPS has an original reference CPI of 180.2. If the current CPI is 205.1, what is the current interest payment and par value of the TIPS? (Assume semi-annual interest payments and $1,000 par value.)

Multiple Choice

窗体顶端

• [pic]

$878.60, $16.79, respectively

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$1,138.18, $16.79, respectively

• [pic]

$1,000.00, $29.50, respectively

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$1,138.18, $29.50, respectively

窗体底端

Explanation

par value = 205.1/180.2 × $1,000 = $1,138.1798

interest payment = 0.5 × 2.95% × $1,138.18 = $16.79

Determine the interest payment for the following three bonds: 4 percent coupon corporate bond (paid semi-annually), 4.75 percent coupon Treasury note, and a corporate zero coupon bond maturing in 15 years. (Assume a $1,000 par value.)

Multiple Choice

窗体顶端

• [pic]

$20.00, $23.75, $150, respectively

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$20.00, $23.75, $0, respectively

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$4.00, $4.75, $0, respectively

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$40.00, $47.50, $0, respectively

窗体底端

Explanation

4 percent coupon corporate bond (paid semi-annually): 0.5 × 4% × $1,000 = $20.00

4.75 percent coupon Treasury note: 0.5 × 4.75% × $1,000 = $23.75 corporate zero coupon bond maturing in 10 years: 0% × $1,000 = $0

Which of the following are main issuers of bonds?

Multiple Choice

窗体顶端

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U.S. Treasury bonds

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Municipal bonds

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All of the options

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Corporate bonds

A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Multiple Choice

窗体顶端

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$45

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$225

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$1,045

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$1,000

窗体底端

Explanation

principal + call premium = $1,000 + 4.5% × $1,000 = $1,045

Calculate the price of a zero coupon bond that matures in 20 years if the market interest rate is 8.5 percent. (Assume annual compounding and a par value of $1,000.)

Multiple Choice

窗体顶端

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$995.62

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$1,195.62

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$195.62

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$90.29

窗体底端

Explanation

PMT = 0; FV = 1000; N = 20; I = 8.5; => PV = 195.62

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

Multiple Choice

窗体顶端

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Liquidity of interest rate risk

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Term structure of interest rates

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Interest rate risk

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Credit quality risk

Which of the following is used to compute bond cash interest payments?

Multiple Choice

窗体顶端

• [pic]

Current yield.

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Coupon rate.

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Yield to maturity.

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None of the options.

What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?

Multiple Choice

窗体顶端

• [pic]

4.50 percent

• [pic]

7.38 percent

• [pic]

11.54 percent

 

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1.76 percent

窗体底端

Explanation

Use equation 6.4:

Equivalent taxable yield = Muni yield1 - tax rate = 4.5%1 - 0.39 = 7.38%

Which of the following bonds carry significant risk that the issuer will not make current or future payments?

Multiple Choice

窗体顶端

• [pic]

Credit quality risk bonds

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Junk bonds

• [pic]

Interest rate risk bonds

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Liquidity rate risk bonds

If Zeus Energy bonds are upgraded from BBB- to BBB+, which of the following statements is true?

Multiple Choice

窗体顶端

• [pic]

The current bond price will decrease.

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The current bond price will decrease and interest rates on new bonds issue will increase.

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The current bond price will increase and interest rates on new bonds issue will decrease.

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Interest rates required on new bond issue will increase.

Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is trading in the market for $54. Sally would be best served to:

Multiple Choice

窗体顶端

• [pic]

buy using a limit order.

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buy using a market order.

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use the bid-ask spread to her advantage.

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None of the options.

As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?

rev: 07_10_2017_QC_CS-93259

Multiple Choice

窗体顶端

• [pic]

bondholders

• [pic]

common stockholders

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creditors

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preferred stockholders

GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN's market capitalization?

Multiple Choice

窗体顶端

• [pic]

$892,500,000

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$89,250,000

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$892,500

• [pic]

$89,250,000,000

窗体底端

Explanation

10,000,000 × 89.25 = $892,500,000

The NASDAQ Composite includes:

Multiple Choice

窗体顶端

• [pic]

30 of the largest (market capitalization) and most active companies in the U.S. economy.

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500 firms that are the largest in their respective economic sectors.

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500 firms that are the largest as ranked by Fortune Magazine.

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all of the stocks listed on the NASDAQ Stock Exchange.

Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place:

Multiple Choice

窗体顶端

• [pic]

at market markers.

• [pic]

at brokers' trading posts.

• [pic]

at dealers' trading posts.

• [pic]

at dealers' computers.

All of the following are stock market indices EXCEPT:

Multiple Choice

窗体顶端

• [pic]

Nasdaq Composite Index.

• [pic]

Dow Jones Industrial Average.

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Standard & Poor's 500 Index.

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Mercantile 1000.

If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was down 237.44 that day. What was the return (in percent) of the stock market that day?

Multiple Choice

窗体顶端

• [pic]

+1.83 percent

• [pic]

−0.02 percent

• [pic]

−1.83 percent

• [pic]

+0.02 percent

窗体底端

Explanation

−237.44/[12,743.40 − (−237.44)]

If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?

Multiple Choice

窗体顶端

• [pic]

+0.017 percent

• [pic]

−1.69 percent

• [pic]

+1.69 percent

• [pic]

−0.017 percent

窗体底端

Explanation

215.04/(12,958.44 − 215.04)

Which of these investors earn returns from receiving dividends and from stock price appreciation?

Multiple Choice

窗体顶端

• [pic]

Stockholders

• [pic]

Managers

• [pic]

Investment bankers

• [pic]

Bondholders

Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called:

Multiple Choice

窗体顶端

• [pic]

brokers.

• [pic]

investors.

• [pic]

market makers.

• [pic]

none of the options.

Which of the following is an electronic stock market without a physical trading floor?

Multiple Choice

窗体顶端

• [pic]

Mercantile Exchange

• [pic]

American Stock Exchange

• [pic]

Nasdaq Stock Market

• [pic]

New York Stock Exchange

JUJU's dividend next year is expected to be $1.50. It is trading at $45 and is expected to grow at 9 percent per year. What is JUJU's dividend yield and capital gain?

Multiple Choice

窗体顶端

• [pic]

9 percent; 3.33 percent

• [pic]

1.5 percent; 6 percent

• [pic]

3.33 percent; 9 percent

• [pic]

6 percent; 1.5 percent

窗体底端

Explanation

Step 1: Dividend yield = 1.5/45 = 3.33%; Step 2: Capital gain = g = 9%

If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth continues, what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?

Multiple Choice

窗体顶端

• [pic]

$161.30, $175.96 respectively

• [pic]

$259.78, $283.39 respectively

• [pic]

$100.16, $109.26 respectively

• [pic]

$261.30, $275.96 respectively

窗体底端

Explanation

$6.07 = PV, 10 = I, 0 = PMT, 5 = N, CPT FV = $9.7758

$9.7758 × 16.5 = $161.3006

$9.7758 × 18 = $175.9644

If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 7 percent, what's the value of the stock?

Multiple Choice

窗体顶端

• [pic]

$21.00

• [pic]

$0.21

• [pic]

$0.43

• [pic]

$42.86

窗体底端

Explanation

$3.00/7% = $42.86

At your full-service brokerage firm, it costs $120 per stock trade. How much money do you receive after selling 200 shares of Ralph Lauren (RL), which trades at $85.13?

Multiple Choice

窗体顶端

• [pic]

$16,906.00

• [pic]

$17,146.00

• [pic]

$17,026.00

• [pic]

$16,546.00

窗体底端

Explanation

($85.13 per share times 200 shares) − $120 = $16,906.00

At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you receive after selling 250 shares of General Electric (GE), which trades at $55.19?

Multiple Choice

窗体顶端

• [pic]

$13,789.55

• [pic]

$12,174.95

• [pic]

$11,958.55

• [pic]

$14,037.95

窗体底端

Explanation

250 × 55.19 − 7.95 = 13,789.55

JUJU's dividend next year is expected to be $5.50. It is trading at $45 and is expected to grow at 4 percent per year. What is JUJU's dividend yield and capital gain?

Multiple Choice

窗体顶端

• [pic]

12.22 percent; 4 percent

• [pic]

2.5 percent; 6 percent

• [pic]

4 percent; 12.22 percent

• [pic]

6 percent; 2.5 percent

窗体底端

Explanation

Step 1: Dividend yield = 5.5/45 = 12.22%; Step 2: Capital gain = g = 4%

You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?

Multiple Choice

窗体顶端

• [pic]

$19,241.00

• [pic]

$9,624.00

• [pic]

$9,617.00

• [pic]

$7.00

窗体底端

Explanation

$96.24 per share times 100 shares = $9,624.00

The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's:

Multiple Choice

窗体顶端

• [pic]

book value.

• [pic]

market capitalization.

• [pic]

market makers.

• [pic]

constant growth model.

Investors sell stock at the:

Multiple Choice

窗体顶端

• [pic]

broker price.

• [pic]

dealer price.

• [pic]

bid price.

• [pic]

quoted ask price.

Stock valuation model dynamics make clear that lower discount rates lead to:

Multiple Choice

窗体顶端

• [pic]

lower growth rates.

• [pic]

higher growth rates.

• [pic]

lower valuations.

• [pic]

higher valuations.

You would like to sell 400 shares of International Business Machines (IBM). The current bid and ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade executes, how much money do you receive from the buyer?

Multiple Choice

窗体顶端

• [pic]

$38,496.00

• [pic]

$38,468.00

• [pic]

$38,480.00

• [pic]

$38,464.00

窗体底端

Explanation

$96.20 per share times 400 shares = $38,480.00

A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred stock is 12.1 percent, what is the value of the stock?

Multiple Choice

窗体顶端

• [pic]

$240.97

• [pic]

$6.31

• [pic]

$42.15

• [pic]

$47.25

窗体底端

Explanation

5.10/0.121 = $42.1488

Ralph Lauren (RL) has earnings per share of $3.85 and a P/E ratio of 17.37. What is the stock price?

Multiple Choice

窗体顶端

• [pic]

$0.22

• [pic]

$66.87

• [pic]

$22.16

• [pic]

$4.51

窗体底端

Explanation

$3.85 × 17.37 = $66.87

Many companies grow very fast at first, but slower future growth can be expected. Such companies are called:

Multiple Choice

窗体顶端

• [pic]

constant growth rate firms.

• [pic]

variable growth rate firms.

• [pic]

Fortune 500 companies.

• [pic]

blue chip companies.

窗体底端

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