Question # 00120075
Posted By: neil2103
Updated on: 10/19/2015 08:44 PM Due on: 10/27/2015
Page 1
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Question 1.1.(TCO
1) Which of the following investments would theoretically always carry
the highest risk premium? (Points : 4)
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A U.S.
treasury bill
Common stock
Preferred stock
Corporate bond
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Question 2.2.(TCO
1) From the investment banker's point of view, the major reason
syndicates are formed in the distribution of large issues is for the
purpose of (Points : 4)
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improving the
liquidity of the issue.
improving
geographic distribution.
reducing the
underwriter's risk.
improving brand
recognition.
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Question 3.3.(TCO
1) A _____ requires full payment for the purchase of securities, whereas
a _____ allows the investor to borrow a portion of the purchase price
from the brokerage firm. (Points : 4)
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money market
account; cash account
cash account;
charge account
cash account;
margin account
type 5 account;
type 2 account
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Question 4.4.(TCO
2) The composite index of leading indicators, made up of 10 leading
indicators, has historically (Points : 4)
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not always
preceded changes in the business cycle.
given roughly the
same notice at peaks as at troughs.
varied widely in
its timing of notice at peaks and troughs.
More than one of
the above
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Question 5.5.(TCO
2) Why would an investor want to use the rotational investing method? (Points
: 4)
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It allows the
investor to rotate out of losing stocks.
The investor is
attempting to profit from movements in the economic cycle.
It is an easy
method of employing dollar-cost averaging.
It assures the
investor of owning the proper mix of stocks and bonds.
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Question 6.6.(TCO
2) If the equity risk premium (ERP) expands, Kewill(Points
: 4)
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increase by beta
times the equity risk premium.
not be affected.
go down.
decrease by beta
times the equity risk premium.
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Question 7.7.(TCO
2) _____ analysis is the process of studying a series of ratios for a
company and/or industry over time. (Points :
4)
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DuPont
Trend
Common size
Critical
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Question 8.8.(TCO
3) What is market capitalization? (Points :
4)
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The total owners'
equity in a firm
The total
marketable assets of a firm
Shares
outstanding multiplied by the market value of the stock
None of the above
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Question 9.9.(TCO
3) A ratio of the total short sales positions on an exchange to average
daily exchange volume for the month is normally(Points : 4)
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between 0 and .5.
between 1.0 and
2.0.
between 2.0 and
3.0.
over 3.0.
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Question 10.10.(TCO
4) A bond with a put provision allows the investor to (Points
: 4)
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convert the bond
to a specified number of shares of common stock.
sell the bond
back to the corporation at a small premium over par at a specified time
period.
sell the bond
back to the corporation at par at a specified time period.
receive
additional interest payments if inflation goes above a specified level.
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Page 2
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Question 1.1.(TCO 4) Yield
to maturity takes into account everything except(Points : 4)
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annual interest
received.
the difference
between the current bond price and its maturity value.
the number of
years to maturity.
the number of
years since the bond's purchase.
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Question 2.2.(TCO 4)
Duration is used primarily as a measure of(Points
: 4)
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the relationship
between coupon rate and bond rating.
bond
price-sensitivity to interest rate changes.
the present value
of investment inflows.
None of the above
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Question 3.3.(TCO 5) What
factor(s) would cause the pure bond value to go up?(Points
: 4)
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A decrease in the
market interest rate
An increase in
stock price
A change in the
conversion ratio
More than one of
the above
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Question 4.4.(TCO 5) At the
time of expiration, the premium (price) on a call option(Points : 4)
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reflects risk in
addition to intrinsic value.
will be equal to
the intrinsic value.
may be above or
below the intrinsic value.
None of the above
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Question 5.5.(TCO 5) The
settle price is the same as the(Points
: 4)
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opening price.
closing price.
intraday high
price.
None of the above
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Question 6.6.(TCO 5) The
value of a stock index futures contract is the product of ____ and the
appropriate multiplier.(Points
: 4)
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the settle price
the change in the
settle price
the difference
between the settle price and the change
None of the above
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Question 7.7.(TCO 6) The
difference between a load fund and a no-load fund is that(Points
: 4)
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no-load funds do
not charge commissions and are sold directly by the investment company.
load funds do not
charge commissions and are sold directly by the investment company.
no-load funds
charge higher commissions than load funds.
no-load funds
charge lower commissions than load funds.
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Question 8.8.(TCO 6)
Investing directly in the international equities markets refers to buying
shares(Points
: 4)
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of multinational
corporations.
of foreign
companies.
of
internationally invested mutual funds.
More than one of
the above
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Question 9.9.(TCO 6) Real
assets may be effective for portfolio diversification because(Points
: 4)
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they provide an
effective hedge against deflation.
they are
perceived as a safe haven for investments.
real and
financial assets are less positively correlated than financial assets
alone.
None of the above
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Question 10.10.(TCO 7) The
investor wants to achieve the _____ risk-return indifference curve.(Points
: 4)
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lowest
highest
median
mean
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Page 3
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Question 1.1.(TCO 1) The stock
of Trudeau Corporation went from $27 to $40 last year. The firm also paid
$1 in dividends during the same year. Thereafter, in the following year,
the dividend was raised to $1.40. However, a declining market toward the
end of the year caused the stock to fall to $24 per share from $40. Compute
the rate of return (gain or loss) to the stockholder in the following year.(Points : 15)
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Question 2.2.(TCO 2) Given the
following financial data, compute the return on assets and return on
equity: net income/sales = 7%, sales/total assets = 2.5X, and debt/total
assets = 20%.(Points
: 15)
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Question 3.3.(TCO 4) What is
the approximate yield to maturity of an 8% coupon bond with a par value of
$1,000? The bond is currently selling for $920 and has 5 years to maturity.(Points
: 15)
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Question 4.4.(TCO 5) A
convertible bond has a face value of $1,000 and the conversion price is $50
per share. The stock is selling at $30 per share. The bond pays $65 per
year in interest and is selling in the market for $950. It matures in 7
years. Market rates are 10% annually.
(I) What is the conversion ratio?
(II) What is the conversion value?(Points
: 15)
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Question 5.5.(TCO 5) If a
$100,000 Treasury bond futures contract changes by 9/32, what is the dollar
change?(Points
: 15)
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Question 6.6.(TCO 6) A mutual
fund is set up to charge a load. Its net asset value is $17.70 and its
offer price is $18.60. What is the dollar value of the load (commission)?(Points
: 15)
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Question 7.7.(TCO 6) A
shopping center has an annual net operating income of $1,050,000 and a
capitalization rate of 8%. What is its value?(Points : 15)
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Question 8.8.(TCO 7) An
investment has the following range of outcomes and probabilities.
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Outcomes (Percent)
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Probabilities of Outcomes
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5%
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.30
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7%
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.25
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12%
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.45
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Calculate the expected value and the standard deviation (round to two
places after the decimal point where necessary).(Points
: 15)
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Page
4
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Question 1.1.(TCO 1) Explain
the characteristics of primary markets versus secondary markets.(Points
: 10)
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Question 2.2.(TCO 2) From the
standpoint of fundamental analysis, what types of indicators are most
valuable to investors?(Points
: 10)
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Question 3.3.(TCO 3) What is a
major emphasis of the Dow theory?(Points
: 10)
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Question 4.4.(TCO 6) Discuss
the main advantage of international investing and being involved in foreign
markets.(Points
: 10)
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Question 5.5.(TCO 7) Which
type of risk is associated with a risk premium?(Points
: 10)
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Solution: Devry FIn351 final exam