BUSI 420 Exam 4 solutions complete answers

BUSI 420 Exam 4 solutions complete answers 

 

Assume that Kendal Corp. has an outstanding bond issue with a par value of $1,000 and a current market price of $1,037.70 per bond. The bond has seven years remaining and a coupon rate of 6 percent. (Use Excel to answer this question. Enter your answer as a percent rounded to 2 decimal places.)

 

a. Find the current yield to maturity for the Kendal Corp. bond. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

b. If the bond trades at a yield spread of 2.10 percent above comparable U.S. Treasury notes, what must the current yield on Treasury notes be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

c. If the Kendal bond has a make-whole call premium of 130 basis points above the U.S. Treasury rate, what is the make-whole call premium? (Do not round intermediate calculations. Enter the make-whole yield answer as a percent rounded to 2 decimal places. Enter the make-whole price answer in dollars rounded to 2 decimal places.)

 

You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. Which of the following best describes how much the principal balance will be after the 90th payment has been made?

 

You are currently borrowing $175,000 to buy a house. The mortgage is for 15 years at 6%. How much would you save each month if you could finance this amount at 5% for the same time period?

 

What is the monthly mortgage payment on a $350,000, 20-year fixed rate loan if the interest rate is 3.125%?

 

A firm has net income of $22,500 and a book value per share of $3.10. The firm has 30,000 shares of stock outstanding and a price-earnings ratio of 15.9. What is the price-book ratio?

 

Eagle Tactical, Inc., has taxable income of $1,500,000. The company paid out $240,000 in interest expense. The tax rate is 21% and the dividend payout ratio is 35%. What is the amount that was paid out in dividends?

 

A bond has a conversion ratio of 22, a $1,000 par value, and a market price of $1,038. The stock is selling for $46.14. What is the conversion value?

 

A bond has a par value of $1,000 and a market price of $1,087.20. The conversion price is $40 and the stock price is $41.75. What is the conversion value?

 

A Treasury bond has a 3.4% coupon, a current price of $1,011.88, and 9 years to maturity. What is the yield to maturity?

 

A portfolio has a Sharpe ratio of .75, a standard deviation of 17.0%, and an expected return of 15.9%. What is the risk-free rate?

 

A portfolio has a standard deviation of 15.1%, a beta of 1.12, and a Treynor ratio of .085. The risk-free rate is 2.2%. What is the portfolio's expected rate of return?

 

Assume that Kendal Corp. has an outstanding bond issue with a par value of $1,000 and a current market price of $1,037.70 per bond. The bond has seven years remaining and a coupon rate of 6 percent. (Use Excel to answer this question. Enter your answer as a percent rounded to 2 decimal places.)


a. Find the current yield to maturity for the Kendal Corp. bond. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

b. If the bond trades at a yield spread of 2.10 percent above comparable U.S. Treasury notes, what must the current yield on Treasury notes be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

c. If the Kendal bond has a make-whole call premium of 130 basis points above the U.S. Treasury rate, what is the make-whole call premium? (Do not round intermediate calculations. Enter the make-whole yield answer as a percent rounded to 2 decimal places. Enter the make-whole price answer in dollars rounded to 2 decimal places.)

 

You have decided to buy a house. You can get a mortgage rate of 5.45 percent, and you want your payments to be $1,200 or less. How much can you borrow on a 20-year fixed-rate mortgage? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Consider a 30-year, $165,000 mortgage with an interest rate of 5.95 percent. After eight years, the borrower (the mortgage issuer) pays it off. How much will the lender receive? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

A homeowner takes a 15-year fixed-rate mortgage for $135,000 at 7.55 percent. After eight years, the homeowner sells the house and pays off the remaining principal. How much is the principal payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $955 was paid, and Martin wishes to maintain a constant payout ratio. Next year’s sales are projected to be $29,951. What is the external financing needed? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Lemon Co. has net income of $820,000 and 90,000 shares of stock. If the company pays a dividend of $1.90 per share, what are the additions to retained earnings? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

 

Thorpe Mfg., Inc., is currently operating at only 75 percent of fixed asset capacity. Current sales are $330,000. How fast can sales grow before any new fixed assets are needed? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Alphonse, Inc., has a return on equity of 23 percent, 52,000 shares of stock outstanding, and a net income of $126,000. What are earnings per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Assume a municipal bond has 15 years until maturity and sells for $5,590. It has a coupon rate of 5.50 percent and it can be called in 5 years. What is the yield to call if the call price is 110 percent of par? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

A convertible bond has a coupon of 6 percent, paid semiannually, and will mature in 15 years. If the bond were not convertible, it would be priced to yield 5 percent. The conversion ratio on the bond is 25 and the stock is currently selling for $61 per share. What is the minimum value of this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

A company just sold a convertible bond at a par value of $1,000. If the conversion price is $39, what is the conversion ratio? (Round your answer to 2 decimal places.)

 

A STRIPS traded on November 1, 2019 matures in 12 years on November 1, 2031. The quoted STRIPS price is 90.40. What is its yield to maturity? (Use Excel to answer this question. Enter your answer as a percent rounded to 2 decimal places.)

 

A municipal bond with a coupon rate of 4.60 percent sells for $4,840 and has six years until maturity. What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

A taxable issue yields 6.9 percent, and a similar municipal issue yields 5.3 percent. What is the critical marginal tax rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

A STRIPS traded on February 28, 2021, matures in 18 years on March 1, 2039. Assuming a yield to maturity of 5.1 percent, what is the STRIPS price? (Use Excel to answer this question. Enter your answer as a percentage of par value. Round your answer to 4 decimal places.)

 

A STRIPS with 10 years until maturity and a face value of $10,000 is trading for $7,915. What is the yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

What is the price of a STRIPS with a maturity of 11 years, a face value of $10,000, and a yield to maturity of 5.3 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

A convertible bond has a $1,000 face value and a conversion ratio of 33. What is the conversion price? (Round your answer to 2 decimal places.)

 

Assume that the correlation of returns on Portfolio Y to returns on the market is .70. What percentage of Portfolio Y’s return is driven by the market? (Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.)

 

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:

 

The Layton Growth Fund has an alpha of 1.7 percent. You have determined that Layton’s information ratio is .20. What must Layton’s tracking error be relative to its benchmark? (Enter your answer as a percent rounded to 2 decimal places.)

 

You find the monthly standard deviation of a stock is 3.70 percent. What is the annual standard deviation of the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

The yield to maturity for an ordinary bond corresponds to which of the following, as related to a mortgage-backed security?

 

The risk premium of a portfolio divided by the portfolio's standard deviation defines which one of the following performance measures?

 

Which of the following measures are dependent upon the accuracy of a security's beta?

Sharpe ratio
Treynor ratio
Jensen's alpha
 

Which one of the following values would be the most preferable as a Sharpe ratio?

 

Which one of the following measures a portfolio's raw return against the expected return based on the Capital Asset Pricing Model?

 

Which one of the following is the definition of investment cash flow?

 

The summation of the operating, investment, and financing cash flows for a stated period of time must equal which one of the following for the same time period?

 

Which one of the following is an intangible fixed asset?

 

Which one of the following is the definition of operating cash flow?

 

A decrease in which one of the following will increase the return on assets?

 

After the call protection period, which one of the following basically serves as the upper price limit on a callable bond?

 

Which one of these statements regarding corporate bond credit ratings is correct?

 

A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund. What is this investment strategy called?

 

Which one of the following terms is given to the value of a convertible bond that would equate to the value of a comparable nonconvertible bond?

 

U.S. government agency bonds pay interest which is subject to which of the following taxes?

 

Which one of the following is the Treasury program allowing interest and principal payments from Treasury notes or bonds to be sold separately?

 

Which two of the following are the principle means by which a municipality can avoid a lump-sum principal repayment on a single maturity date?

I. issue only zero-coupon bonds
II. issue serial bonds
III. issue term bonds with a sinking fund provision
IV. issue only variable-rate notes

 

Which one of the following is a municipal bond that is secured by the income collected from a specific project?

 

Which one of the following is the risk associated with receiving a mortgage bond's principal payments sooner than anticipated?

 

Seasoned mortgages are defined as mortgages that are, or have been, which of the following?

 

What are the securities that are created when a mortgage pool is divided into a number of tranches called?

 

A mortgage-backed security that has only a subordinate claim to principal payments is referred to as which type of bond?

 

 

1. Which one of the following assesses the ability of a money manager to balance high returns with an acceptable level of risk? 
A. probability analysis
B. raw return ratio
C. risk assessment
D. performance evaluation
E. market analysis

 

2. The unadjusted total percentage return on a security that has not been compared to any benchmark is referred to as which one of the following? 
A. raw return
B. indexed return
C. real return
D. marginal return
E. absolute return

 

 

4. Which one of the following is computed by dividing a portfolio's risk premium by the portfolio beta? 
A. raw return
B. Value at Risk
C. Jensen's alpha
D. Sharpe ratio
E. Treynor ratio

 

6. Which one of the following concerns a money manager's control over investment risks, particularly potential short-run losses? 
A. Alpha management
B. Normal distribution management
C. Investment risk management
D. Raw return distributions
E. Volatility performance measures

 

7. Which one of the following assesses risk by stating the probability of a loss a portfolio might incur within a stated time period given a specific probability? 
A. Sharpe ratio
B. Jensen's alpha
C. Treynor ratio
D. raw return measurement
E. Value-at-Risk

 

8. Which one of the following is a statistical model, defined by its mean and standard deviation, that is used to assess probabilities? 
A. variance
B. normal distribution
C. efficient frontier
D. Value at Risk
E. Jensen's alpha

 


9. Which one of the following measures a security's return in relation to the total risk associated with that security? 
A. beta
B. Jensen's alpha
C. Sharpe ratio
D. Treynor ratio
E. Value at Risk

 

10. The Sharpe ratio measures a security's return relative to which one of the following? 
A. total risk
B. diversifiable risk
C. market rate of return
D. risk-free rate
E. systematic risk

 

11. The Sharpe ratio is best used to evaluate which one of the following? 
A. corporate bonds
B. government bonds
C. Treasury bills
D. individual stocks
E. diversified portfolios

 

12. Which one of the following measures returns in relation to total risk? 
A. Treynor ratio
B. Sharpe ratio
C. Jensen's alpha
D. Value at Risk
E. beta

 


14. Which one of the following measures risk premium in relation to systematic risk? 
A. Value at Risk
B. Jensen's alpha
C. beta
D. Sharpe ratio
E. Treynor ratio

 

15. You are comparing three securities and discover they all have identical Treynor ratios. Given this information, which one of the following must be true regarding these three securities? 
A. They have identical betas.
B. They have the same rates of return.
C. They earn identical rewards per unit of total risk.
D. They earn identical rewards per unit of systematic risk.
E. They have identical Sharpe ratios also.

 

16. You are comparing three assets which have differing Treynor ratios. Given this, which one of the following must be true? 
A. The assets may all be correctly priced if they have differing betas.
B. The assets have differing rates of return.
C. The assets have differing levels of market risk but equal amounts of total risk.
D. The assets are all mispriced according to CAPM.
E. The preferred investment is the asset with the highest Treynor ratio.

 


17. You are considering the purchase of a mutual fund. You have found three funds that meet your basic criteria. Each fund has a different alpha. Which alpha indicates the preferred investment? 
A. the most negative alpha
B. the least negative alpha
C. the zero alpha
D. the lowest positive alpha
E. the highest positive alpha

 

18. Which one of the following statements is correct in relation to a security that has a negative Jensen's alpha? 
A. The security is overpriced and will plot below the security market line.
B. The security is overpriced and will plot above the security market line.
C. The security is underpriced and will plot below the security market line.
D. The security is underpriced and will plot above the security market line.
E. The security is incorrectly priced but you cannot tell if it is underpriced or overpriced based on the information provided.

 

19. Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model? 
A. beta of zero
B. beta of 1.0
C. alpha of zero
D. alpha of 1.0
E. alpha of -1.0

 

20. Tony brags that his portfolio's rate of return is "beating the market". Which one of the following would best substantiate his claim? 
A. positive Sharpe ratio
B. negative Treynor ratio
C. positive Jensen's alpha
D. zero Value at Risk
E. beta greater than 1.0

 


21. Which of the following should generally only be used to evaluate relatively diversified portfolios rather than individual securities?
I. Sharpe ratio
II. Treynor ratio
III. Jensen's alpha 
A. I only
B. II only
C. III only
D. I and II only
E. I, II, and III

 

 

23. Which one of the following is probably the best measure of the performance of a well-diversified portfolio? 
A. Jensen's alpha
B. Value at Risk
C. Jensen-Treynor alpha
D. Sharpe ratio
E. Treynor ratio

 


24. Which of the following measures should be used to determine if a security should be included in a master portfolio?
I. Sharpe ratio
II. Treynor ratio
III. Jensen's alpha 
A. I only
B. II only
C. III only
D. I and II only
E. II and III only

 

25. The Jensen-Treynor alpha is equal to: 
A. the Treynor ratio divided by Jensen's alpha.
B. the Treynor ratio multiplied by Jensen's alpha.
C. Jensen's alpha divided by beta.
D. Jensen's alpha divided by the standard deviation.
E. Jensen's alpha divided by the Treynor ratio.

 

26. Which one of the following is measured by the Jensen-Treynor alpha? 
A. total return relative to systematic risk
B. risk premium relative to systematic
C. risk premium relative to total risk
D. excess return relative to systematic risk
E. excess return relative to total risk

 

27. The Sharpe-optimal portfolio will be the investment opportunity set which lies on a straight line that has which of the following characteristics? 
A. the flattest slope when the line intersects the vertical axis at the risk-free rate
B. the steepest slope when the line intersects the vertical axis at the risk-free rate
C. the steepest slope when the line intersects the vertical axis at the origin
D. the flattest slope when the line intersects the vertical axis at the market rate
E. the steepest slope when the line intersects the vertical axis at the market rate

 


28. A Sharpe-optimal portfolio provides which one of the following for a given set of securities? 
A. Jensen's Alpha
B. highest possible level of risk
C. highest level of return for a market-equivalent level of risk
D. highest excess return per unit of systematic risk
E. highest risk premium per unit of total risk

 

29. You want to create the best portfolio that can be derived from two assets. Which one of the following will help you identify that portfolio? 
A. highest portfolio beta
B. market equivalent level of risk
C. highest possible rate of return
D. Treynor-minimal portfolio
E. Sharpe-optimal portfolio

 

30. Which measure would you use to know whether alpha is truly significant or just the result of random chance? 
A. Jensen's alpha
B. Information ratio
C. Jensen-Treynor alpha
D. Sharpe ratio
E. Treynor ratio

 

31. Which metric measures how volatile a fund's returns are relative to its benchmark? 
A. Jensen's alpha
B. Information ratio
C. Tracking error
D. Sharpe ratio
E. Treynor ratio

 


32. Which metric describes the percentage of a fund's movement which can be explained by movements in the market? 
A. Jensen's alpha
B. Information ratio
C. Tracking error
D. R Squared
E. Treynor ratio

 

33. Which one of the following is the primary purpose of the Value-at-Risk computation? 
A. determine the 99 percent probability range given an abnormal distribution
B. evaluate the risk-return tradeoff for a given mix of securities
C. evaluate the probability of a significant loss
D. determine the portfolio that maximizes the risk premium per unit of total risk
E. determine the portfolio that maximizes the excess return per unit of systematic risk

 

34. Which one of the following is the best interpretation of this VaR statistic: Prob (Rp £ - .15) = 37%? 
A. If your portfolio declines by 15 percent or more, that decline is expected to be followed by a 37 percent increase in value.
B. Your portfolio is expected to lose at least 15 percent, but not more than 37 percent in any given year.
C. There is a 37 percent chance that your portfolio will decline in value by at least 15 percent over the next year.
D. Sometime in the future, your portfolio is expected to lose 15 percent or more in a single year, but have an overall average rate of return of 37 percent.
E. There is a 37 percent chance that your portfolio will lose at least 15 percent of its value over the next 10 years.

 

35. The Value-at-Risk measure assumes which one of the following? 
A. returns are normally distributed
B. portfolios lie on the efficient frontier
C. all portfolios are fully diversified
D. returns tend to follow repetitive patterns
E. the risk premium is constant over time

 


36. Which one of the following Value-at-Risk measures would be most appropriate for a portfolio designed for a very risk-adverse investor? 
A. Prob (Rp £ - .20) = 100%
B. Prob (Rp £ - .15) = 50%
C. Prob (Rp £ - .10) = 25%
D. Prob (Rp £ - .10) = 10%
E. Prob (Rp £ - .05) = 1%

 

37. Which one of the following statements is true concerning VaR? 
A. VaR ignores time.
B. VaR only applies to time periods of one year.
C. VaR applies only to time periods equal to or greater than one year.
D. VaR values can be computed for monthly time periods.
E. VaR is accurate only for time periods less than one year.

 

38. Which of the following are related to VaR analysis?
I. beta
II. standard deviation
III. expected return
IV. time 
A. I and III only
B. II and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV

 

39. You have computed the expected return using VaR with a 2.5 percent probability for a one-year period of time. How would this expected return be expressed on a normal distribution curve? 
A. lower tail starting at the point that is 2.5 standard deviations below the mean
B. lower tail of a 95 percent probability range
C. the point that corresponds to 2.5 standard deviations below the mean
D. the point that represents the lower end of the 90 percent probability range
E. the negative range that lies within 2.5 standard deviations of the mean

 


40. Which one of the following correctly states the VaR for a 3-year period with a 2.5 percent probability? 
A. Prob[Rp,T £ E(Rp) ´ 3 - 1.645 ´ sp Ö3]
B. Prob[Rp,T £ E(Rp) ´ Ö3 - 1.645 ´ sp 3]
C. Prob[Rp,T £ E(Rp) ´ Ö3 - 1.645 ´ sp Ö3]
D. Prob[Rp,T £ E(Rp) ´ 3 - 1.960 ´ sp Ö3]
E. Prob[Rp,T £ E(Rp) ´ Ö3 - 1.960 ´ sp 3]

 

41. A portfolio has a 2.5 percent chance of losing 16 percent or more according to the VaR when T = 1. This can be interpreted to mean that the portfolio is expected to have an annual loss of 16 percent or more once in every how many years? 
A. 1.0
B. 2.5
C. 25
D. 40
E. 100

 

42. A portfolio has an average return of 13.3 percent, a standard deviation of 14.7 percent, and a beta of 1.35. The risk-free rate is 2.8 percent. What is the Sharpe ratio? 
A. .49
B. .52
C. .63
D. .71
E. .75

 

43. A portfolio has a beta of 1.26, a standard deviation of 15.9 percent, and an average return of 15.07 percent. The market rate is 12.7 percent and the risk-free rate is 3.6 percent. What is the Sharpe ratio? 
A. .61
B. .68
C. .72
D. .84
E. .88

 


44. The U.S. Treasury bill is yielding 3.0 percent and the market has an expected return of 10.7 percent. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance of .027556? 
A. .55
B. .61
C. .69
D. .74
E. .82

 

45. A portfolio has a beta of 1.23 and a standard deviation of 11.6 percent. What is the Sharpe ratio if the market return is 12.4 percent and the market risk premium is 7.9 percent? 
A. .07
B. .11
C. .65
D. .84
E. .90

 

46. A portfolio has a variance of .017424, a beta of 1.06, and an expected return of 13.15 percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent? 
A. .66
B. .70
C. .74
D. .82
E. .86

 

47. A portfolio has a Sharpe ratio of .80, a standard deviation of 17.4 percent, and an expected return of 15.9 percent. What is the risk-free rate? 
A. 1.98 percent
B. 2.36 percent
C. 2.48 percent
D. 3.09 percent
E. 3.15 percent

 


48. Your portfolio has an expected return of 15.6 percent, a beta of 1.31, and a standard deviation of 15.3 percent. The U.S. Treasury bill rate is 3.8 percent. What is the Sharpe ratio of your portfolio? 
A. .67
B. .69
C. .74
D. .77
E. .83

 

49. A portfolio has a beta of 1.16, a standard deviation of 12.2 percent, and an expected return of 11.55 percent. The market return is 10.4 percent and the risk-free rate is 3.2 percent. What is the portfolio's Sharpe ratio? 
A. .57
B. .68
C. .73
D. .77
E. .85

 

50. Your portfolio has a beta of 1.24, a standard deviation of 14.3 percent, and an expected return of 12.5 percent. The market return is 11.3 percent and the risk-free rate is 3.1 percent. What is the Treynor ratio? 
A. .015
B. .076
C. .109
D. .482
E. .510

 

51. A portfolio has an expected return of 13.8 percent, a beta of 1.14, and a standard deviation of 12.7 percent. The U.S. Treasury bill rate is 3.2 percent. What is the Treynor ratio? 
A. .093
B. .138
C. .146
D. .835
E. .951

 


52. A portfolio has a Treynor ratio of .068, a standard deviation of 16.40 percent, a beta of 1.16, and an expected return of 14.3 percent. What is the risk-free rate? 
A. 1.32 percent
B. 5.21 percent
C. 5.39 percent
D. 6.18 percent
E. 6.41 percent

 

53. A portfolio has a variance of .027556, a beta of 1.54, and an expected return of 11.2 percent. What is the Treynor ratio if the expected risk-free rate is 2.7 percent? 
A. .055
B. .063
C. .367
D. .498
E. .512

 

54. The U.S. Treasury bill is yielding 2.8 percent and the market has an expected return of 11.6 percent. What is the Treynor ratio of a correctly-valued portfolio that has a beta of .92, and a standard deviation of 12.2 percent? 
A. .074
B. .088
C. .102
D. .619
E. .628

 

55. A portfolio has an average return of 9.7 percent, a standard deviation of 8.6 percent, and a beta of .72. The risk-free rate is 2.1 percent. What is the Treynor ratio? 
A. .098
B. .106
C. .121
D. .636
E. .884

 


56. A portfolio has a standard deviation of 14.1 percent, a beta of 1.45 and a Treynor ratio of .094. The risk-free rate is 3.2 percent. What is the portfolio's expected rate of return? 
A. 16.83 percent
B. 17.25 percent
C. 17.77 percent
D. 18.41 percent
E. 18.56 percent

 

57. The U.S. Treasury bill is yielding 1.85 percent and the market has an expected return of 7.48 percent. What is the Treynor ratio of a correctly-valued portfolio that has a beta of 1.33 and a variance of .0045? 
A. .056
B. .064
C. .069
D. .082
E. .087

 

58. Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6 percent based on the CAPM formula. What is Jensen's alpha if the portfolio standard deviation is 11.2 percent and the beta is .87? 
A. -3.91 percent
B. -3.40 percent
C. -2.96 percent
D. -2.40 percent
E. -1.87 percent

 

59. A portfolio has a beta of 1.52 and an actual return of 13.7 percent. The risk-free rate is 2.7 percent and the market risk premium is 7.8 percent. What is the value of Jensen's alpha? 
A. -0.86 percent
B. 1.01 percent
C. 1.14 percent
D. 1.23 percent
E. 1.37 percent

 


60. The U.S. Treasury bill has a return of 3.27 percent while the S&P 500 is returning 10.84 percent. Your portfolio has an actual return of 14.76 percent and a beta of 1.31. What is the portfolio's Jensen's alpha? 
A. -0.47 percent
B. -0.92 percent
C. 1.37 percent
D. 1.41 percent
E. 1.57 percent

 

61. A diversified portfolio has a beta of 1.47 and a raw return of 14.28 percent. The market return is 11.74 percent and the market risk premium is 7.85 percent. What is Jensen's alpha of the portfolio? 
A. -1.15 percent
B. -0.86 percent
C. -0.29 percent
D. 0.48 percent
E. 0.62 percent

 

62. A portfolio has an actual return of 15.17 percent, a beta of .93, and a standard deviation of 7.2 percent. The market return is 13.4 percent and the risk-free rate is 2.8 percent. What is the portfolio's Jensen's alpha? 
A. 2.25 percent
B. 2.51 percent
C. 2.67 percent
D. 3.96 percent
E. 4.04 percent

 

63. A portfolio has a Jensen's alpha of 0.82 percent, a beta of 1.40, and a CAPM expected return of 13.7 percent. The risk-free rate is 2.5 percent. What is the actual return of the portfolio? 
A. 15.5 percent
B. 16.1 percent
C. 16.8 percent
D. 19.6 percent
E. 21.9 percent

 


64. What is the Treynor ratio of a portfolio comprised of 50 percent portfolio A and 50 percent portfolio B?
   
The risk-free rate is 3.12 percent and the market risk premium is 8.5 percent. 
A. .041
B. .058
C. .070
D. .114
E. .136

 

65. What is the Treynor ratio of a portfolio comprised of 25 percent portfolio A, 35 percent portfolio B, and 40 percent portfolio C?
   
The risk-free rate is 3.6 percent and the market risk premium is 8.2 percent. 
A. .054
B. .062
C. .070
D. .081
E. .102

 

66. What is Jensen's alpha of a portfolio comprised of 30 percent portfolio A and 70 percent of portfolio B?
   
The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent. 
A. -1.25 percent
B. 0.47 percent
C. 1.08 percent
D. 1.46 percent
E. 1.85 percent

 


67. A stock has a return of 16.18 percent and a beta of 1.47. The market return is 10.65 percent and the risk-free rate is 3.20 percent. What is the Jensen-Treynor alpha of this stock? 
A. -1.12 percent
B. -0.17 percent
C. 0.66 percent
D. 1.38 percent
E. 1.59 percent

 

68. A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.57. The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen-Treynor alpha of this stock? 
A. -1.37 percent
B. -1.09 percent
C. -0.48 percent
D. 0.29 percent
E. 0.63 percent

 

69. A portfolio consists of the following two funds.
   
What is the Sharpe ratio of the portfolio? 
A. .39
B. .45
C. .52
D. .60
E. .64

 


70. A portfolio consists of the following two funds.
   
What is the Sharpe ratio of the portfolio? 
A. 0.42
B. 0.54
C. 0.60
D. 0.72
E. 0.79

 

71. A portfolio consists of the following two funds.
   
What is the expected return on fund A? 
A. 12.0 percent
B. 13.3 percent
C. 13.7 percent
D. 14.5 percent
E. 15.7 percent

 

72. A fund has an alpha of 0.73 percent and a tracking error of 5.4 percent. What is the fund's information ratio? 
A. 0.112
B. 0.135
C. 0.166
D. 0.208
E. 0.229

 


73. The Miller Fund's correlation with the market is .648. What percentage of the fund's movement can be explained by movements in the overall market? 
A. 35 percent
B. 42 percent
C. 51 percent
D. 65 percent
E. 71 percent

 

74. A portfolio has an average return of 15.3 percent and a standard deviation of 14.5 percent. Given this, you should expect to lose at least _____ percent on an annual basis once every century.
    
A. 18.43
B. 16.24
C. 14.68
D. 1.710
E. 1.550

 

75. A portfolio has a standard deviation of 15.8 percent and an average return of 14.2 percent. What loss is associated with a 2.5 percent probability?
    
A. -12.03 percent
B. -14.87 percent
C. -16.77 percent
D. -17.38 percent
E. -19.36 percent

 


76. Your portfolio has a standard deviation of 12.3 percent and an average return of 10.6 percent. You have a 5 percent probability of losing _____ percent or more in any given year.
    
A. 33.79
B. 31.54
C. 12.59
D. 9.63
E. 3.34

 

77. Lester has a portfolio with an average return of 12.8 percent and a standard deviation of 9.1 percent. He has a one percent probability of losing _____ percent or more in any given year.
    
A. 33.97
B. 38.87
C. 20.67
D. 5.04
E. 8.37

 


78. You have a portfolio which has an average return of 12.6 percent. In any given year, you have a 2.5 percent probability of earning either a zero or a negative annual return. What is the approximate standard deviation of your portfolio?
    
A. 5.44 percent
B. 6.43 percent
C. 6.94 percent
D. 7.60 percent
E. 8.14 percent

 

79. Your portfolio has an expected annual return of 11.6 percent. What is the two-year expected return? 
A. 11.60 percent
B. 14.65 percent
C. 16.40 percent
D. 21.60 percent
E. 23.20 percent

 

80. Angie owns a portfolio which has an expected annual return of 14.55 percent. What is the two-year expected return on her portfolio? 
A. 13.80 percent
B. 19.52 percent
C. 23.40 percent
D. 27.60 percent
E. 29.10 percent

 


81. Mike's portfolio has a two-year expected return of 21.70 percent. What is the expected return for one year? 
A. 10.85 percent
B. 12.50 percent
C. 13.33 percent
D. 14.22 percent
E. 15.34 percent

 

82. The one-year standard deviation of your portfolio is 16.4 percent. What is the two-year standard deviation? 
A. 17.47 percent
B. 19.23 percent
C. 23.19 percent
D. 25.41 percent
E. 27.20 percent

 

83. Your portfolio has a standard deviation of 11.7 percent. What is the two-year standard deviation? 
A. 14.87 percent
B. 15.80 percent
C. 16.55 percent
D. 23.40 percent
E. 24.15 percent

 

84. A portfolio has a 3-year standard deviation of 20.20 percent. What is the one-year standard deviation? 
A. 7.39 percent
B. 9.69 percent
C. 11.66 percent
D. 12.80 percent
E. 13.33 percent

 


85. A stock has an annual standard deviation of 14.1 percent and an expected annual return of 11.5 percent. What is the smallest expected loss for the next 6 months given a probability of 2.5 percent? 
A. -8.90 percent
B. -13.79 percent
C. -14.57 percent
D. -15.38 percent
E. -16.67 percent

 

86. Trailer Co. stock has an expected return of 11.8 percent and a standard deviation of 11.8 percent. What is the smallest expected loss over the next month given a probability of 5 percent? 
A. -4.62 percent
B. -6.09 percent
C. -7.27 percent
D. -11.49 percent
E. -13.77 percent

 

87. A portfolio has an expected annual return of 15.7 percent and a standard deviation of 19.6 percent. What is the smallest expected loss over the next calendar quarter given a probability of 1 percent? 
A. -15.11 percent
B. -16.23 percent
C. -16.49 percent
D. -18.08 percent
E. -18.87 percent

 

88. High Mountain Homes has an expected annual return of 16.1 percent and a standard deviation of 22.3 percent. What is the smallest expected loss over the next month given a probability of 2.5 percent? 
A. -6.64 percent
B. -8.67 percent
C. -11.28 percent
D. -12.12 percent
E. -15.13 percent

 

 

1. You are interested in reviewing the information corporations file with the SEC. Which one of the following is the archive of these filings? 
A. SAMSON
B. REG FD
C. EDGAR
D. Nonpublic information files
E. ROA filings

 

2. How frequently do corporations file 10K reports with the SEC? 
A. monthly
B. quarterly
C. semi-annually
D. annually
E. only when the firm engages in a merger or an acquisition

 

3. Better Products just filed its quarterly report with the SEC. This report is referred to as which one of the following? 
A. 10F
B. 10K
C. 10Q
D. EDGAR 10
E. 10FD

 

4. Regulation FD requires companies to do which one of the following when disclosing material non-public information? 
A. advise the SEC 7 working days prior to such disclosure
B. disclose the information without preference to any party or parties
C. only disclose the information to professional analysts
D. only disclose the information after a 7-day advance notice of an announcement
E. disclose the information only after a 24-hour delay

 


5. Material nonpublic information is defined as any information that could reasonably be expected to do which one of the following? 
A. affect the price of the firm's securities
B. cause great embarrassment to the firm
C. cause one or more of the senior executives of the firm to resign
D. cause the SEC to halt the trading of the firm's securities should that information become public
E. affect the manner in which the firm presents its financial information

 

6. Which one of the following provides information on a firm's assets and liabilities as of a particular date? 
A. cash flow statement
B. pro-forma income statement
C. income statement
D. tax return
E. balance sheet

 

7. Which one of the following is an accounting statement that provides information on a firm's revenues and expenses? 
A. balance sheet
B. cash budget
C. pro-forma balance sheet
D. income statement
E. cash flow statement

 

8. Which one of the following is an analysis of a firm's sources and uses of cash over a period of time? 
A. income statement
B. pro-forma income statement
C. cash flow statement
D. tax return
E. balance sheet

 


9. Which one of the following is defined as anything a firm owns that has value? 
A. equity
B. asset
C. liability
D. cash inflow
E. cash outflow

 

10. Which one of the following represents the amounts owed by a firm to other parties? 
A. assets
B. cash inflows
C. equities
D. liabilities
E. expenses

 

11. Which one of the following is an ownership interest in a firm? 
A. asset
B. expense
C. net income
D. liability
E. equity

 

12. Which one of the following is used to pay dividends or kept as retained earnings by a firm? 
A. equity
B. net cash flow
C. revenue
D. net income
E. expense

 


13. Which one of the following is income realized in cash form? 
A. net income
B. revenue
C. cash flow
D. retained earnings
E. dividends

 

14. Income and expense items NOT realized in cash form are called which one of the following? 
A. deductible expenses
B. noncash items
C. intangible assets
D. operating income
E. financing activities

 

16. Which one of the following is the definition of investment cash flow? 
A. revenue minus expenses
B. cash flow from the purchases and sales of fixed assets and investments
C. cash flow originating from the issuance of securities
D. cash generated by a firm's normal business activities
E. pre-tax income

 


17. Which one of the following is the cash flow resulting from the payment of dividends and the issuance or repurchase of equity securities? 
A. balance sheet cash flow
B. operating cash flow
C. financing cash flow
D. business cash flow
E. investment cash flow

 

18. Which one of the following is equal to net income expressed as a percentage of total assets? 
A. return on equity
B. return on the balance sheet
C. operating yield
D. net yield
E. return on assets

 

19. Return on equity is equal to which one of the following? 
A. dividend yield divided by total equity
B. retained earnings divided by total equity
C. revenue divided by total equity
D. net income divided by total equity
E. operating cash flow divided by total equity

 

20. Pro forma financial statements are statements based on which one of the following? 
A. projected future income, cash flows, and other non-cash items
B. historical revenue and expenses
C. historical asset and liability values
D. current period cash flows
E. current period revenues and expenses

 


21. Which one of the following is a financial planning method wherein some account values vary in relation to expected sales? 
A. common size approach
B. linear method
C. percentage of net income method
D. adjusted sales method
E. percentage of sales approach

 

22. Which one of the following ratios tells you the amount of assets a firm needs to generate $1 in sales? 
A. capital intensity ratio
B. return on assets
C. asset turnover rate
D. profit margin
E. earnings ratio

 

23. Which of the following reports are always included in a 10K filing with the SEC?
I. statement of cash flows
II. balance sheet
III. pro-forma statement
IV. income statement 
A. I only
B. IV only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV

 

24. Which one of the following means of communication do most firms use for announcements in order to comply with Regulation FD? 
A. TV spots
B. e-mail alerts
C. public newspapers
D. radio
E. analyst networks

 


25. Which of the following are current assets?
I. inventory
II. goodwill
III. fixed assets
IV. cash 
A. III only
B. IV only
C. II and III only
D. I and IV only
E. I, II, and IV only

 

26. Which one of the following is an intangible fixed asset? 
A. accounts receivable
B. patent
C. inventory
D. equipment
E. building

 

27. Which one of the following is a tangible fixed asset? 
A. cash
B. equipment
C. accounts receivable
D. right
E. inventory

 

28. Stephen's Auto recently purchased Auto Express for $9.8 million. Auto Express had a market value of $9.5 million at the time of acquisition. The additional $0.3 million that Stephen's Auto paid for Auto Express will be treated on Stephen's Auto's balance sheet as which type of account? 
A. patent
B. depreciation
C. licenses
D. goodwill
E. acquisition expense

 


29. Winter's Clothing has a loan payable to a bank which is due 18 months from now. How is this loan classified on the firm's financial statements? 
A. fixed asset
B. current liability
C. long-term debt
D. equity
E. expense

 

30. Sugar Tree Cookies has current net income of $268,000 of which $110,000 was paid out in dividends. The remaining $158,000 will be shown in which account on the firm's financial statements for next year? 
A. long-term debt
B. common stock
C. net income
D. retained earnings
E. paid in surplus

 

31. Which of the following are classified as equity accounts on a balance sheet?
I. goodwill
II. paid in capital
III. net income
IV. retained earnings 
A. IV only
B. I and III only
C. II and IV only
D. I, II, and IV only
E. II, III, and IV only

 

32. Sales minus cost of goods sold are equal to which one of the following? 
A. net sales
B. operating income
C. gross profit
D. pretax income
E. net income

 


33. The costs of materials used in the production of a product are recorded in which one of the following accounts? 
A. net sales
B. fixed costs
C. operating income
D. depreciation
E. cost of goods sold

 

34. Which one of the following is NOT included in operating income? 
A. sales
B. depreciation
C. interest expense
D. cost of goods sold
E. other operating expenses

 

35. Net income is equal to which one of the following? 
A. operating income plus interest expense minus taxes
B. gross profit minus depreciation and interest expense
C. pretax income plus income taxes
D. dividends plus the change in retained earnings
E. pretax income minus taxes and dividends

 

36. Which one of the following statements is correct? 
A. Pretax income is equal to gross profit minus interest expense.
B. Gross profit is equal to sales minus costs of goods sold and depreciation.
C. Operating expenses are indirect costs.
D. Costs that vary directly with production are classified as operating expenses.
E. The change in retained earnings is equal to net income plus dividends paid.

 


37. Which one of the following is the primary difference between operating cash flow and net income? 
A. interest expense
B. indirect costs
C. taxes
D. fixed costs
E. depreciation

 

38. Which one of the following will increase the investment cash flow? 
A. purchase of an investment
B. issuing new shares of stock
C. repaying a bond issue
D. sale of a building
E. payment of interest on a bond issue

 

39. Which one of the following is NOT a financing cash flow according to standard accounting practice? 
A. new issue of stock
B. repurchase of stock
C. new issue of debt
D. interest payments
E. dividend payments

 

40. The summation of the operating, investment, and financing cash flows for a stated period of time must equal which one of the following for the same time period? 
A. net income
B. total assets
C. ending cash balance
D. change in the cash balance
E. taxable income

 


41. A decrease in which one of the following will increase the gross margin? 
A. taxes
B. sales
C. depreciation
D. variable costs
E. fixed costs

 

42. Which one of the following is generally used as the basis for computing the cash flow per share? 
A. operating cash flow
B. investment cash flow
C. financing cash flow
D. net cash increase
E. retained cash earnings

 

44. Which one of the following will increase the return on equity? 
A. increase in the corporate tax rate
B. decrease in fixed costs
C. issuance of debt to purchase equipment
D. increase in variable costs per unit
E. decrease in net sales

 


45. Which of the following affect the earnings per share?
I. decrease in interest expense
II. share repurchase
III. increase in tax rates
IV. preferred stock dividend 
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV

 

46. Which one of the following statements related to book value per share (BVPS) is correct? 
A. BVPS is equal to total assets divided by the number of shares outstanding.
B. An increase in the market value of a firm's fixed assets will increase the firm's BVPS.
C. The payment of a dividend increases BVPS.
D. BVPS is equal to the market price of a share of stock.
E. The issuance of new shares at market value may increase the BVPS.

 

47. Which one of the following accounts is least likely to vary directly with the level of sales? 
A. accounts payable
B. inventory
C. cost of goods sold
D. interest expense
E. accounts receivable

 

48. Which one of the following is most apt to be constant given the percentage of sales approach to creating pro forma statements? 
A. book value per share
B. gross margin
C. earnings per share
D. return on equity
E. cash flow per share

 


49. A firm maintains a constant dividend payout ratio of .40. What must the plowback ratio be? 
A. 1 + .40
B. 1 - .40
C. 1 ´ .40
D. 1/.40
E. .40

 

50. Which one of the following is most apt to vary directly with sales? 
A. current assets
B. long-term debt
C. shareholders' equity
D. paid-in capital
E. retained earnings

 

51. Which two of the following are generally used to fund the external financing need?
I. sale of fixed assets
II. increase in accounts payable
III. issuance of long-term debt
IV. sale of equity securities 
A. I and II
B. I and III
C. II and III
D. II and IV
E. III and IV

 

52. The management of the Uptown Bikes recently voted to limit any future borrowing or sales of company stock. By taking this action, management has effectively done which one of the following? 
A. increased the profit margin
B. lowered income taxes
C. maximized future dividends
D. maximized future retained earnings
E. limited future growth

 


53. A firm has $1,500 of cash, equipment worth $43,000, inventory of $15,200, $14,000 worth of patents, and $13,200 of accounts receivable. What is the value of the total current assets? 
A. $1,500
B. $14,700
C. $16,700
D. $29,900
E. $72,900

 

54. A firm has $3,800 of cash, equipment worth $46,300, inventory of $36,300, a building worth $130,500, and $19,600 of accounts receivable. What is the value of the total fixed assets? 
A. $176,800
B. $203,500
C. $196,400
D. $223,100
E. $226,900

 

55. Young Industries has a 3-year bank loan of $85,000, a 6-month note payable of $6,000, a $67,300 mortgage, and accounts payable of $22,500. What is the amount of the total current liabilities? (Ignore the current portion of any long-term debt.) 
A. $5,000
B. $16,200
C. $28,500
D. $64,200
E. $117,000

 

56. ABC Construction, Inc. has buildings and equipment of $315,600, long-term debt of $154,700, accounts payable of $52,000, cash of $9,800, accounts receivable of $18,300, inventory of $62,000, and retained earnings of $147,000. What is the total equity of the firm? 
A. $5,200
B. $97,000
C. $147,000
D. $199,000
E. $346,000

 


57. GH Enterprises has annual sales of $5.2 million, depreciation of $350,000, operating expenses of $390,000, and cost of goods sold of $3.1 million. What is the gross profit? 
A. $460,000
B. $850,000
C. $2,100,000
D. $2,650,000
E. $3,710,000

 

58. Behrend Corporation has annual sales of $5.5 million, depreciation of $475,000, operating expenses of $689,000, cost of goods sold of $2.3 million, and interest expense of $230,000. What is the operating income? 
A. $1,911,000
B. $2,036,000
C. $3,525,000
D. $4,000,000
E. $4,811,000

 

59. Gold Jewelry, Inc. has annual sales of $4.5 million and a gross profit margin of 55 percent. The operating expenses are $540,750 and depreciation is $170,300. Interest expense is $95,000 and the tax rate is 35 percent. What is the net income? 
A. $1,002,980
B. $1,084,818
C. $1,356,220
D. $1,589,200
E. $2,385,000

 

60. The Cruise Ship Co. has taxable income of $4,000,000. The company paid out $550,000 in interest expense. The tax rate is 35 percent and the dividend payout ratio is 30 percent. What is the amount that was paid out in dividends? 
A. $420,000
B. $550,000
C. $672,750
D. $780,000
E. $980,000

 


61. Handy Man Services, Inc. has net income of $525,000. What is the addition to retained earnings if the dividend payout ratio is 40 percent? 
A. $123,253
B. $157,250
C. $183,750
D. $221,813
E. $315,000

 

62. HNW Manufacturing, Inc. has 270,000 shares of stock outstanding. The firm paid out $270,000 in dividends, $195,000 in interest, and added $175,000 to retained earnings for the year. What is the amount of the earnings per share? 
A. $0.70
B. $0.78
C. $1.37
D. $1.43
E. $1.65

 

63. O'Hara's Market has net income of $1.6 million and 525,000 shares of stock outstanding. What is the amount of the dividends per share if the plowback ratio is 60 percent? 
A. $0.94
B. $1.07
C. $1.22
D. $1.67
E. $1.98

 

64. Glassmakers, Inc. purchased $125,500 of new equipment this year and also increased the inventory by $36,800. Twenty-seven thousand dollars worth of old equipment was sold. What is the investment cash flow for the year? 
A. -$49,300
B. -$98,000
C. -$98,500
D. -$125,500
E. -$133,300

 


65. For the year, Widgets Manufacturing, Inc. increased its current accounts by $52,000, decreased its current liabilities by $38,000, and decreased its fixed assets by $31,000. What is the investment cash flow for the year? 
A. -$31,000
B. -$12,000
C. $19,000
D. $31,000
E. $48,000

 

66. Healthy Supplements, Inc. paid $6,300 in interest and $4,300 in dividends for the year. The firm also issued $12,000 worth of new equity securities. What is the amount of the financing cash flow? 
A. $2,500
B. $5,200
C. $6,800
D. $7,700
E. $14,300

 

67. Whole Wheat Farms, Inc. has a net income of $20,000 and a dividend payout ratio of 30 percent. The firm issued $12,000 worth of common stock during the period. The firm has no long-term debt. What is the financing cash flow for the period? 
A. $2,500
B. $3,000
C. $6,000
D. $9,000
E. $25,000

 

68. Marley Enterprises has financing cash flow of -$38,600 and investment cash flow of $29,700 for the year. The beginning cash balance was $64,300 and the ending cash balance was $45,800. What was the operating cash flow for the period? 
A. -$15,500
B. -$9600
C. $6,600
D. $8,900
E. $15,500

 


69. A firm has net sales of $35,000, operating expenses of $6,100, depreciation of $1,700, and cost of goods sold of $18,300. What is the gross margin? 
A. 31.1 percent
B. 35.4 percent
C. 47.7 percent
D. 52.9 percent
E. 59.2 percent

 

70. A firm has net sales of $65,000, operating expenses of $21,300, depreciation of $5,000, cost of goods sold of $37,000, and interest expense of $3,500. What is the operating margin? 
A. -2.8 percent
B. 2.6 percent
C. 4.9 percent
D. 9.2 percent
E. 10.3 percent

 

71. Smith's Corner Market had annual sales of $425,300 and total assets of $366,000. What is the return on assets if the profit margin is 11 percent? 
A. 8.2 percent
B. 9.8 percent
C. 10.6 percent
D. 11.0 percent
E. 12.8 percent

 

72. Wholesale Grocer's has total assets of $580,000 and total liabilities of $375,000. Net sales for the year are $547,000 and the profit margin is 14 percent. What is the return on equity? 
A. 10.6 percent
B. 23.3 percent
C. 31.2 percent
D. 37.4 percent
E. 44.6 percent

 


73. A firm has a price-cash flow ratio of 12.5 and a price-book value ratio of 7.6. If the cash flow per share is $4.67, what is the book value per share? 
A. $2.84
B. $3.55
C. $4.44
D. $6.45
E. $7.68

 

74. A company has a price-earnings ratio of 22 and a price-cash flow ratio of 12.6. If the earnings per share are $1.75, what is the cash flow per share? 
A. $2.16
B. $2.51
C. $3.06
D. $3.14
E. $3.64

 

75. Green Recycling, Inc. has 150,000 shares of stock outstanding. The firm has total assets of $568,000 and total liabilities of $415,000. The firm's stock is selling for $31 a share. What is the price-book ratio? 
A. 22.3
B. 26.5
C. 27.5
D. 30.4
E. 37.8

 

76. A firm has net income of $18,000 and a book value per share of $2.10. The firm has 30,000 shares of stock outstanding and a price-earnings ratio of 15.9. What is the price-book ratio? 
A. 1.7
B. 2.4
C. 2.7
D. 4.5
E. 5.1

 


77. Children's Books, Inc. has net income of $48,000 and a plowback ratio of 85 percent. There are 25,000 shares of stock outstanding at a market price of $18.64 a share. What is the price-earnings ratio? 
A. 6.9
B. 7.1
C. 9.7
D. 11.1
E. 11.6

 

78. Bay Marina, Inc. has net income of $50,500 and has 25,000 shares of stock outstanding. Similar firms have a price-earnings ratio of 20. Given this, what should the market price of Bay Marina, Inc. stock be per share? 
A. $38.91
B. $39.29
C. $40.40
D. $43.91
E. $45.54

 

79. A firm has earnings per share of $3.50 and cash flow per share of $3.84. The price-earnings ratio is 24.1. What is the price-cash flow ratio? 
A. 19.8
B. 20.1
C. 22.0
D. 26.0
E. 27.1

 

80. A company has net income of $59,850, a price-earnings ratio of 22.6, and 25,500 shares of stock outstanding. If the price-cash flow ratio is 20.4, what is the cash flow per share? 
A. $2.05
B. $2.34
C. $2.60
D. $2.69
E. $3.14

 


81. A firm has total equity of $61,600 and total liabilities of $18,900. Current assets are $44,700 and current liabilities are $15,200. What is the value of the net fixed assets? 
A. $8,300
B. $10,600
C. $29,500
D. $35,800
E. $42,700

 

82. A company has the following account balances. How much cash does the firm have assuming there are no other accounts?
    
A. $27,300
B. $27,700
C. $30,700
D. $47,300
E. $50,300

 

83. The Erie Bay Liner Company has sales of $2.6 million and operating expenses of $175,000. The firm uses the percentage of sales approach and estimates next year's sales at $2.8 million. What are the operating expenses expected to be next year? 
A. $171,231
B. $175,123
C. $179,400
D. $182,549
E. $188,462

 


84. A firm has sales of $750,000 and cost of goods sold of $415,000. The firm expects sales to increase by 6 percent next year. What is the gross profit amount expected to be next year if the firm uses the percentage of sales approach when compiling pro forma statements? 
A. $235,100
B. $255,000
C. $335,000
D. $355,100
E. $536,100

 

85. Your company has pretax income of $52,000 on sales of $506,000. Sales are expected to increase by 6 percent next year and the tax rate is 40 percent. What is the expected net income for next year if your firm uses the percentage of sales approach when compiling pro forma statements? 
A. $28,938
B. $31,835
C. $33,072
D. $35,582
E. $44,520

 

86. A firm has net income of $20,000 on sales of $208,000. Sales are expected to increase by 10 percent next year and the dividend payout ratio is 35 percent. The firm uses the percentage of sales approach when compiling pro forma statements. What amount is expected to be added to retained earnings next year? 
A. $14,300
B. $15,400
C. $15,686
D. $22,000
E. $26,600

 


87. Last year, a firm had net income of $62,000 on sales of $595,000. The projected sales for next year are $654,500. Assume the firm uses the percentage of sales method for pro forma statements. What is the projected net income? 
A. $59,500
B. $65,500
C. $68,200
D. $71,500
E. $71,900

 

88. Zonvier, Inc. has sales of $51,000, a profit margin of 8.5 percent, and a plowback ratio of 40 percent. The company has 20,000 shares of stock outstanding. The firm uses the percentage of sales method for pro forma statements and estimates next year's sales will increase by 15 percent. 
What is the dividend per share expected to be next year? 
A. $0.149
B. $0.150
C. $0.161
D. $0.168
E. $0.174

 

89. A firm has current sales of $32,000. Projected sales for next year are $35,520. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The expected increase in retained earnings is $2,200. What is the projected external financing need given the following current account values?
    
A. -$3,532
B. -$1,969
C. -$1,390
D. $231
E. $1,341

 


90. A firm has the following account balances for this year. Sales for the year are $600,000. Projected sales for next year are $642,000. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The firm plans to decrease the long-term debt balance by $5,000 next year. Retained earnings is expected to increase by $3,500 next year. What is the projected external financing need?
    
A. $10,520
B. $13,120
C. $18,520
D. $20,720
E. $25,620

 

91. A firm has the following account balances for this year. Sales for the year are $420,000. Projected sales for next year are $441,000. The percentage of sales approach is used for pro forma purposes. All balance sheet accounts, except long-term debt and common stock, change according to that approach. The firm plans to decrease the long-term debt balance by $23,500 next year. Retained earnings is expected to increase by $5,400 next year. What is the projected external financing need?
    
A. -$14,150
B. -$6,850
C. $32,850
D. $36,000
E. $56,350

 


92. What is the operating cash flow, given the following information?
    
A. $400
B. $470
C. $530
D. $540
E. $670

 

93. What is the investment cash flow, given the following information?
    
A. -$20
B. -$10
C. $10
D. $20
E. $100

 


94. What is the financing cash flow, given the following information?
    
A. -$180
B. -$150
C. -$110
D. -$60
E. -$10

 

95. What is the operating cash flow, given the following information?
    
A. $680
B. $650
C. $780
D. $890
E. $930

 


96. What is the investment cash flow?
    
A. -$220
B. -$140
C. -$120
D. -$20
E. -$10

 

97. What is the financing cash flow, given the following information?
    
A. -$210
B. -$160
C. -$110
D. -$60
E. -$50

 

 

1. Which one of the following best defines a plain vanilla bond? 
A. bond secured by agricultural or food inventory
B. bond with relatively standard features
C. unsecured debt
D. bond secured with financial collateral
E. bond that has no coupon payments

 

2. Which one of the following terms is defined as debt issued without specific collateral pledged as security? 
A. unsecured debt
B. indenture
C. vanilla bond
D. naked bond
E. risk-free bond

 

3. Which one of the following is an unsecured bond issued by a corporation? 
A. indenture
B. general obligation bond
C. plain vanilla bond
D. debenture
E. trust bond

 

4. Debt that is secured by a property lien is referred to as which one of the following? 
A. realty bond
B. land trust bond
C. mortgage bond
D. debenture
E. collateral trust bond

 


5. A collateral trust bond is debt secured by which one of the following? 
A. property lien
B. financial assets
C. fixed assets
D. inventory
E. real estate

 

6. Debt issued by a trustee to purchase airplanes that will be leased to an airline would be classified as which of the following? 
A. collateral trust bond
B. equipment trust certificate
C. transportation bond
D. mortgage bond
E. rolling stock certificate

 

7. Which one of the following is the portion of a prospectus that outlines the contractual terms of a new bond issue? 
A. indenture summary
B. financial disclosure
C. covenant agreement
D. security agreement
E. trust agreement

 

8. What is the document called that is distributed to potential bondholders and provides detailed information on the financial position and operations of the bond issuer? 
A. indenture summary
B. prospectus
C. trust statement
D. 10K
E. 10Q

 


9. Which one of the following is an unsecured bond that has a higher claim on a firm's assets than other unsecured bonds? 
A. plain vanilla bond
B. subordinated debenture
C. refunded bond
D. senior debenture
E. collateral trust bond

 

10. During a bankruptcy proceeding, Bond A will be paid only if funds remain after the bonds that have a higher claim on the issuer's assets have been paid. What type of bond is Bond A? 
A. plain vanilla bond
B. senior trust bond
C. junior trust bond
D. subordinated debenture
E. senior debenture

 

11. Which one of the following is the clause which prevents a bond issuer from issuing new debt that has seniority over current debt? 
A. first-in-line
B. sinking fund
C. call provision
D. affirmation
E. negative pledge

 

12. Which one of the following accurately describes bond refunding? 
A. replacing maturing bonds with a new bond issue
B. calling existing bonds and refinancing those bonds with new debt
C. paying off bonds early with excess cash generated by the firm
D. replacing maturing bonds with an equity issue
E. paying bonds off early to satisfy disgruntled bondholders

 


13. Which one of the following provisions grants the bondholder the option of selling the bond back to the issuer at a prespecified price on prespecified dates? 
A. convertible
B. call
C. put
D. exchange
E. sinking fund

 

14. Which one of the following provisions grants the bondholder the option of exchanging a bond for a prespecified number of shares of stock of the same issuer? 
A. put
B. call
C. equity
D. conversion
E. sinking

 

15. Which one of the following defines an in-the-money bond? 
A. secured bond with collateral value that exceeds the bond's price
B. callable bond with a call price that exceeds the current market price
C. put bond with a put price that exceeds the current market price
D. convertible bond with a call price that exceeds its conversion value
E. convertible bond with a conversion value that exceeds its call price

 

17. What is a bond called if it can be converted into shares of stock of a firm other than the bond issuer? 
A. swap bond
B. alternate bond
C. exchangeable bond
D. convertible bond
E. callable bond

 

18. Term bonds are defined as all bonds in a bond issue having which one of the following characteristics? 
A. sequential maturity dates
B. serial maturity dates
C. multiple maturity dates
D. an identical maturity date
E. renewable maturity dates

 

19. Bonds issued with a regular sequence of maturity dates are called which one of the following? 
A. callable bonds
B. sequential bonds
C. serial bonds
D. sinking bonds
E. put bonds

 

20. Which one of the following is an account used to provide for scheduled redemptions of outstanding bonds? 
A. redemption fund
B. sinking fund
C. liquidation account
D. serial account
E. callable account

 


21. What are the various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer called? 
A. restrictive actions
B. prohibitions
C. negative conditions
D. protective covenants
E. restrictive amendments

 

22. Event risk is the possibility that a bond will experience which one of the following? 
A. sudden increase in market value
B. unexpected call by the issuer
C. decrease in conversion value due to a sudden decline in the price of the issuer's stock
D. decrease in credit quality due to a financial or structural change in the bond issuer
E. decrease in intrinsic value due to an unexpected increase in market interest rates

 

23. Which one of the following identifies a new bond issue as being a private placement? 
A. The proceeds of the issue are used for a single project.
B. The issue is marketed through a sole brokerage house.
C. The issue is sold only to individuals rather than to institutional investors.
D. The issue is not made available to the public.
E. The issue names a private individual as the bond trustee.

 

24. Which one of the following has a claim to dividends and also a superior claim over common stock? 
A. preferred stock
B. callable bond
C. convertible bond
D. put bond
E. equipment trust certificate

 


25. Adjustable-rate bonds are identified by which one of the following characteristics? 
A. The coupon rate will increase should the credit rating of the bond decline.
B. Different bonds within the same issue have different coupon rates.
C. Bondholders can defer coupon payments at their discretion.
D. The amount of each coupon payment will depend on the free cash flow of the issuer.
E. The coupon rate changes in response to changes in current market rates.

 

26. Which one of the following is an assessment of the credit quality of a bond based on the financial condition of the bond issuer? 
A. protective covenant
B. risk analysis
C. credit rating
D. serial report
E. in-the-money status

 

27. What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called? 
A. protective covenants
B. negative restrictions
C. prudent investment guidelines
D. safety monitors
E. risk ranges

 

28. Bonds with relatively high coupons due to their speculative credit ratings are called which one of the following? 
A. investment-grade bonds
B. high-yield bonds
C. prudent risk bonds
D. floating-rate bonds
E. covenant bonds

 


29. Which of the following are common characteristics associated with corporate bonds?
I. specified cash flows
II. equity ownership
III. call feature
IV. set maturity date 
A. I and II only
B. I and IV only
C. II and III only
D. I, II, and IV only
E. I, III, and IV only

 

30. Which one of the following parties is the largest holder of U.S. corporate bonds? 
A. pension funds
B. life insurance companies
C. banks
D. foreign investors
E. individual investors

 

31. Which one of the following features of corporate bonds has the greatest appeal to pension fund investors? 
A. call provision
B. convertible provision
C. zero repayment risk
D. prospectus availability
E. predictable cash flows

 

33. Which of the following features would you expect a plain vanilla bond to have?
I. semi-annual coupon payments
II. $1,000 face value
III. stated maturity date
IV. multiple bonds within one issue 
A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV

 

34. The holder of a debenture has a claim on which one of the following assets of the issuer in the case of a default? 
A. current assets only
B. only the remaining fixed assets after the secured creditors are paid
C. any and all net working capital
D. only income earned prior to the default
E. any and all corporate assets remaining after higher legal claims have been satisfied

 

35. The holder of which one of following will have the lowest priority claim in a bankruptcy proceeding? 
A. mortgage bond
B. securitized bond
C. subordinated debenture
D. senior debenture
E. collateral trust bond

 


36. Which one of the following statements is correct regarding equipment trust certificates (ETCs)? 
A. The trust fund issuing the ETCs leases equipment from manufacturers and then re-leases the equipment to transportation firms.
B. ETCs are used principally to finance the daily operations of large equipment manufacturers.
C. ETC holders receive dividend payments derived from lease payments received by the trust fund.
D. ETCs are all issued as senior notes.
E. ETCs generally have an unlimited life.

 

37. The entire formal contract between a bond issuer and the bondholders is found in which one of the following documents? 
A. prospectus
B. prospectus summary
C. indenture agreement
D. indenture summary
E. trust certificate

 

38. Which one of the following statements related to callable bonds is correct? 
A. Callable bonds are issued at the call price.
B. Callable bonds can be called at any time.
C. Callable bonds are generally called at the market price at the time of the call.
D. Callable bonds are more apt to be called if market interest rates decline.
E. Callable bonds are generally priced higher than comparable noncallable bonds.

 

39. How much will you be paid if you own a bond that is called under a make-whole call provision? 
A. the face value
B. an amount equal to the par value plus the total amount of the remaining interest payments
C. the present value of all future bond payments that will not be paid because of the call
D. the current market value plus a prespecified call premium
E. an amount equal to the normal maturity value of the bond

 


40. Which one of the following provisions prevents a bond issuer from calling a bond simply because market interest rates have declined and the firm can now borrow at lower rates? 
A. negative pledge provision
B. call provision
C. convertible provision
D. refunding provision
E. refinancing provision

 

42. Which one of the following statements related to a put bond is correct? 
A. Put bonds are generally redeemed at a premium over par value.
B. Put bonds can be redeemed at any time once the put protection period has elapsed.
C. The put feature effectively sets the ceiling price for the bond.
D. The put feature helps protect bondholders from the risk associated with rising interest rates.
E. A putable bond is generally priced lower than a comparable nonputable bond.

 

43. Which one of the following statements related to convertible bonds is correct? 
A. Bondholders forego higher coupon rates in exchange for the conversion option.
B. Convertible bonds are generally issued such that the conversion value is equal to the par value.
C. The conversion price is equal to the bond's market value divided by the conversion ratio.
D. The conversion value is equal to the bond's market price multiplied by the conversion ratio.
E. Bonds should be converted as soon as the conversion value exceeds the face value.

 


44. Which one of the following statements related to convertible bonds is correct? 
A. Convertible bonds have a maximum value equal to the bond's intrinsic value.
B. Convertible bonds have limited downside risk with unlimited upside potential.
C. A convertible bond is in-the-money when its call price is greater than its conversion value.
D. Convertible bonds must be converted prior to or on the maturity date.
E. Convertible bonds must be converted once they are called.

 

45. Which one of the following statements correctly applies to serial bonds? 
A. Serial bonds are generally callable.
B. Serial bonds within one issue will have the same maturity date.
C. Serial bonds are redeemed only if and when they are called.
D. Serial bonds are subissues that have sequential maturities.
E. Serial bonds are automatically convertible.

 

46. Which one of the following is a positive protective covenant that might be found in a bond indenture? 
A. The firm must not issue bonds that are senior to those currently outstanding.
B. The firm must avoid purchasing bonds issued by other corporations.
C. The firm must maintain the good condition of all pledged assets.
D. The firm must avoid issuing new bonds with a lower coupon to refund outstanding bonds.
E. The firm must not pay dividends in excess of that allowed by the specified formula.

 

47. Which one of the following is a common feature of preferred stock? 
A. steady stream of interest payments
B. specified maturity date
C. automatic bankruptcy filing when normal payments to shareholders are suspended
D. preferential treatment over bonds and common stock in the event of a bankruptcy
E. call provision

 


48. Which one of the following statements regarding preferred stock is true? 
A. Preferred stock pays tax-free income.
B. Preferred stock generally provides voting rights to its holders.
C. Preferred stock generally pays a lower rate to investors than do corporate bonds.
D. Preferred stock provides totally tax-free income to corporate shareholders.
E. Preferred stock can frequently be converted into bonds.

 

49. Which one of the following correctly applies to adjustable-rate bonds? 
A. callable but not putable
B. coupon rate equal to the U.S. Treasury bill rate
C. greater interest rate risk than a fixed rate bond
D. greater fluctuation in its market price than a fixed-rate bond
E. frequently putable at par value

 

51. Which one of the following is another name for a junk bond? 
A. high-yield
B. convertible
C. private placement
D. subordinated
E. called

 


52. The majority of corporate bond trading occurs on which one of the following? 
A. NYSE
B. American Stock Exchange
C. OTC market
D. regional exchanges
E. TRACE

 

53. A bond that is currently selling for $933.38 has a conversion price of $62.50. If the par value is $1,000, what is the conversion ratio? 
A. 13
B. 14
C. 15
D. 16
E. 17

 

54. A bond has a par value of $1,000 and a market value of $833.40. The conversion price is $71.43. What is the conversion ratio? 
A. 14
B. 15
C. 16
D. 17
E. 18

 

55. A bond has a conversion price of $47.62, a par value of $1,000, and a market price of $833.40. What is the conversion ratio? 
A. 20
B. 21
C. 22
D. 23
E. 24

 


56. What is the conversion ratio of a $1,000 par value bond that is selling for $888.96 and has a conversion price of $58.82? 
A. 15
B. 16
C. 17
D. 18
E. 19

 

57. A convertible bond has a par value of $1,000 and a market price of $1,116.76. If the conversion ratio is 18, what is the conversion price? 
A. $43.48
B. $45.45
C. $47.62
D. $52.63
E. $55.56

 

58. A convertible bond has a par value of $1,000, a market value of $875, and a conversion ratio of 16. What is the conversion price? 
A. $55.56
B. $58.82
C. $62.50
D. $66.67
E. $71.43

 

59. A bond is currently priced at $1,076.88 and has a par value of $1,000. If the conversion ratio is 25, what is the conversion price? 
A. $35.71
B. $36.92
C. $38.46
D. $40.00
E. $41.67

 


60. A bond has a conversion ratio of 20 and a market price of $1,080. If the par value is $1,000, what is the conversion price? 
A. $50.00
B. $51.80
C. $52.60
D. $53.20
E. $53.80

 

61. A bond has a conversion ratio of 22, a $1,000 par value, and a market price of $1,038. The stock is selling for $46.14. What is the conversion value? 
A. $1,009.16
B. $1,015.08
C. $1,038.60
D. $1,049.35
E. $1,053.50

 

62. A $1,000 par value bond has a market price of $986 and a conversion ratio of 16. The stock is selling for $60.74. What is the conversion value? 
A. $963.17
B. $971.84
C. $985.60
D. $990.57
E. $1,006.49

 

63. A bond has a par value of $1,000 and a market price of $1,087.20. The conversion price is $40 and the stock price is $41.75. What is the conversion value? 
A. $1,043.75
B. $1,250.00
C. $1,481.10
D. $1,500.00
E. $1,652.00

 


64. A convertible bond has a $1,000 par value, a 6 percent, semi-annual coupon, and a time to maturity of 12 years. The bond has a conversion ratio of 20. Comparable, non-convertible bonds have a yield to maturity of 6.8 percent. What is the intrinsic value of this bond? 
A. $935.09
B. $939.63
C. $968.65
D. $989.38
E. $998.36

 

65. A firm has outstanding common stock valued at $67 a share. The firm also has convertible bonds which have a $1,000 par value, a 7.5 percent, semi-annual coupon, and a time to maturity of 11 years. The bonds have a conversion ratio of 15. Comparable, non-convertible bonds have a yield to maturity of 8.2 percent. What is the intrinsic value of this bond? 
A. $949.90
B. $957.37
C. $975.83
D. $1,005.00
E. $1,360.76

 

66. A 6 percent, semi-annual coupon bond has a face value of $1,000 and a time to maturity of 4 years. The bonds are convertible into shares of common stock at a conversion price of $40. The stock price currently is $40.70. Similar, non-convertible bonds have a yield to maturity of 5.6 percent. The intrinsic value of this bond is _____ and the conversion value is _____. 
A. $832.62; $982.80
B. $832.62; $1,017.50
C. $1,014.16; $1,017.50
D. $1,014.16; $982.80
E. $1,006.96; $1,017.50

 


67. The Bronze Star has 8 percent, semi-annual coupon bonds outstanding that have a face value of $1,000 and a conversion ratio of 24. The bonds mature in 14 years. Comparable, non-convertible bonds are yielding 7.8 percent. The firm also has shares of common stock outstanding at a price of $51 a share. The intrinsic value of the bonds is _____ and the conversion value is _____. 
A. $1,005.23; $1,000.08
B. $1,016.86; $1,224.00
C. $1,033.76; $1,000.08
D. $1,034.11; $1,000.08
E. $1,034.11; $1,224.00

 

68. A semi-annual coupon bond has a 6.5 percent coupon rate, a $1,000 face value, a current value of $1,054.54, and 4 years until the first call date. What is the call price if the yield to call is 6.7 percent? 
A. $1,000
B. $1,020
C. $1,040
D. $1,060
E. $1,080

 

69. A bond has 5 years until it can be called, a 7 percent coupon, and a $1,000 face value. The bond has a market value of $1,030.40 and a yield to call of 7.28 percent. What is the call premium? 
A. $40
B. $50
C. $60
D. $70
E. $80

 


70. A bond is callable in 2 years and currently has a yield to call of 4.8 percent. The bond has a coupon rate of 5 percent and pays interest semi-annually. The call premium is $50 and the face value is $1,000. What is the current price? 
A. $904.16
B. $989.14
C. $998.12
D. $1,003.77
E. $1,049.25

 

71. A bond has a face value of $1,000 and a call price of $1,030. The bond is callable in 3.5 years and pays a 5 percent, semi-annual coupon. What is the current price if the yield to call is 6 percent? 
A. $912.36
B. $927.19
C. $966.25
D. $993.24
E. $1,009.01

 

72. You own a bond that has a face value of $1,000 and a conversion ratio of 25. You have just received notification that the bond is being called at a premium of $40. The stock price is $41.20 a share. You should _____ your bond because the conversion value is _____. 
A. convert; less than the call price by $40.00
B. convert; greater than the call price by $40.00
C. convert; greater than the call price by $4.75
D. not convert; less than the call price by $10.00
E. not convert; greater than the call price by $40.00

 

73. Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have a conversion price of $33.33 and a par value of $1,000. The stock price is currently $33.10. In response to this call, the bondholders should _____ because _____. 
A. accept the call; the call price exceeds the conversion value
B. accept the call; they have no other choice
C. convert their bonds; the conversion price exceeds the par value by $37.90
D. convert their bonds; the conversion price exceeds the call price by $12.90
E. elect to continue holding their bonds; they want to continue receiving the interest payments

 


74. A convertible bond has a 5 percent, semi-annual coupon and a conversion ratio of 25. The bond has a face value of $1,000 and matures in 12.5 years. The current yield to maturity is 5.8 percent. Assume that you buy this bond today and sell it one year from now when the yield to maturity is 5.6 percent and the stock price is $43.90. What will your holding period return be? 
A. 1.29 percent
B. 7.04 percent
C. 10.30 percent
D. 16.56 percent
E. 18.07 percent

 

75. A convertible bond has an 8 percent, semi-annual coupon and a conversion ratio of 15. The bond has a face value of $1,000 and matures in 9.5 years. The current yield to maturity is 8.1 percent. Assume that you buy this bond today and sell it one year from now when the yield to maturity is 7.6 percent and the stock price is $66.30. What will your holding period return be? 
A. -2.92 percent
B. .0147 percent
C. 1.79 percent
D. 3.22 percent
E. 3.15 percent

 

76. A convertible bond has a 5 percent, semi-annual coupon and a conversion ratio of 35. The bond has a face value of $1,000 and matures in 18 years. The current yield to maturity is 4.9 percent. Assume that you buy this bond today and sell it one year from now when the yield to maturity is 5.05 percent and the stock price is $28.10. What will your holding period return be? 
A. -1.73 percent
B. -0.65 percent
C. 0.20 percent
D. 2.34 percent
E. 7.75 percent

 


77. A convertible bond has a 7 percent, semi-annual coupon and a conversion ratio of 20. The bond has a face value of $1,000 and matures in 13.5 years. The current yield to maturity is 7.1 percent. Assume that you buy this bond today and sell it one year from now when the yield to maturity is 7.25 percent and the stock price is $52. What will your holding period return be? 
A. -5.19 percent
B. -4.67 percent
C. -2.39 percent
D. 0.30 percent
E. 4.90 percent

 

78. A cumulative preferred stock pays a quarterly dividend of $1.25. The issuing firm is experiencing some cash shortfalls and has not paid the dividend for the last two quarters. The current situation is expected to be corrected within the month. Next month, the firm wants to pay dividends to both its preferred and common shareholders. How much will it have to pay to the preferred shareholders per share to do this? 
A. $0.00
B. $1.33
C. $3.75
D. $3.99
E. $4.40

 

79. A noncumulative preferred stock pays a quarterly dividend of $1.30. The firm did not pay this dividend last quarter. How much will the company have to pay to the preferred shareholders per share this quarter if it wishes to also pay a common stock dividend? 
A. $0.00
B. $1.30
C. $2.60
D. $2.88
E. $4.80

 


80. A firm had a major fire which hampered operations for the past year. As a result, the firm discontinued all dividends for one year. Next month, the firm will resume paying dividends. The normal quarterly payments are $1.50 for the cumulative preferred shares and $0.95 for the common shares. How much will the firm need to pay the preferred shareholders per share if the firm also pays a common dividend? 
A. $0.00
B. $4.75
C. $6.00
D. $7.50
E. $8.00

 

81. A preferred stock has a par value of $100 and is convertible into 3 shares of common stock. The preferred stock is valued at $92 a share and the common stock is selling at $31 a share. What is the conversion value? 
A. $29
B. $87
C. $93
D. $182
E. $276

 

82. The Toy Store owns 1,500 shares of preferred stock in Conner's Mfg. Conner's Mfg. that pays a quarterly dividend of $1.05 a share. The Toy Store receives annual dividend income from Conner's Mfg. in the amount of _____, of which at least _____ is exempt from income taxation. 
A. $6,300; $0
B. $6,300; $1,512
C. $6,300; $4,410
D. $1,260; $0
E. $1,260; $882

 

 

1. Which one of the following is the principal value of a bond at its maturity? 
A. discount value
B. face value
C. STRIP value
D. imputed value
E. premium value

 

2. What is the method of selling Treasury bills at less than face value called? 
A. imputed basis
B. par value method
C. discount basis
D. STRIP basis
E. face value method

 

3. What is the interest on a Treasury bill called when it is determined by the size of the bill's discount from face value? 
A. assumed interest
B. imputed interest
C. imaginary interest
D. convergent interest
E. original-issue interest

 

5. Which one of the following descriptors is used to identify a bond that pays one single payment at maturity? 
A. zero coupon
B. imputed value
C. solo
D. STRIP
E. term

 

6. The yield to call is the interest rate on a bond assuming the bond is: 
A. never called.
B. called on the latest possible date.
C. called on the middle day of the call period.
D. called at the earliest possible date.
E. called today.

 

7. Which one of the following is the difference between the price a bond dealer is willing to pay to buy and the price at which he or she is willing to sell? 
A. commission
B. imputed cost
C. imputed interest
D. bid-ask spread
E. ask price

 

8. What is the lowest accepted competitive bid in a U.S. Treasury auction called? 
A. selected price
B. base price
C. stop-out bid
D. imputed bid
E. set bid

 


9. Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled? 
A. interest rate risk
B. default risk
C. market risk
D. conversion risk
E. earnings risk

 

10. Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following? 
A. general obligation bonds
B. local taxation bonds
C. fully funded bonds
D. revenue bonds
E. private activity bonds

 

11. Which one of the following is the feature of a municipal bond that specifies when the bond may be called and the call price? 
A. put provision
B. conversion provision
C. close-out clause
D. payment clause
E. call provision

 

12. What are bonds called when they are issued such that a portion of the bonds mature each year over a multi-year period? 
A. sinking bonds
B. serial bonds
C. sectioned bonds
D. discount bonds
E. term bonds

 


13. What are bonds called when the entire bond issue matures on the same date? 
A. term bonds
B. uniform bonds
C. serial bonds
D. vanilla bonds
E. sinking fund bonds

 

14. What are bonds called when the bondholder can tender the bonds on regularly scheduled dates? 
A. term bonds
B. callable bonds
C. dated bonds
D. put bonds
E. serial bonds

 

15. What is a note that pays an interest rate based on current market rates called? 
A. discount note
B. market note
C. serial note
D. flexible note
E. variable-rate note

 

17. Which one of the following is a municipal bond that is secured by both the revenues from a project and also by the taxing authority of the municipality? 
A. mixed bond
B. general obligation bond
C. hybrid bond
D. dual bond
E. multiple bond

 

18. Bonds issued by a city which is using a commercial insurance company to guarantee the principal and interest payments are called which one of the following? 
A. general revenue bonds
B. general obligation bonds
C. insured dual bonds
D. insured municipal bonds
E. commercial agency bonds

 

19. Which one of the following is a taxable municipal bond used to finance a facility used by a private business? 
A. private activity bond
B. private revenue bond
C. private corporate bond
D. private agency bond
E. private income bond

 

20. Which of the following are securities issued by the U. S. Treasury?
I. Government Account Series
II. T-bills
III. U.S. Savings Bonds
IV. T-notes 
A. I and III only
B. II and IV only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV

 


21. Which of the following features apply to T-bills?
I. zero-coupon security
II. original maturities of 1 to 12 months
III. sold at face value
IV. minimum face value of $1,000 
A. I and II only
B. I and IV only
C. II and III only
D. I, II, and IV only
E. I, II, III, and IV

 

22. Which of the following features apply to T-bills?
I. original maturities of 4, 13, or 26 weeks
II. minimum face value of $10,000
III. sold at a discount
IV. semiannual interest payments 
A. IV only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only

 

23. Which one of the following statements applies to U.S. Treasury notes? 
A. They are zero coupon securities.
B. They have a minimum face value of $10,000.
C. They have original maturities of 2 to 10 years.
D. They are variable-rate securities.
E. They are sold on a non-marketable basis only.

 

24. Which one of the following statements applies to U.S. Treasury bonds? 
A. They have original maturities of 1 to 10 years.
B. They have a minimum face value of $100,000.
C. They are zero-coupon securities.
D. They pay a fixed coupon payment semiannually.
E. They are adjusted semiannually for inflation.

 


25. Which one of the following statements correctly applies to STRIPS? 
A. STRIPS securities pay a fixed-rate, semiannual interest payment.
B. A 10-year T-bond is broken into 20 STRIPS securities.
C. Treasury securities are broken into STRIPS securities by brokers.
D. STRIPS securities pay a variable-rate, semiannual interest payment.
E. All STRIPS securities taken from the same Treasury security must be registered to the same owner.

 

26. You just purchased a 5-year STRIPS security that was created from a 30-year T-bond. How many payments will you receive? 
A. 1
B. 10
C. 11
D. 60
E. 61

 

27. When a callable T-bond is selling at a premium, the reported yield is which one of the following? 
A. current yield
B. yield-to-maturity
C. yield-to-discount
D. yield-to-call
E. premium yield

 

28. Which one of the following features applies to all Treasury bonds currently being offered? 
A. noncallable
B. sold at a deep discount
C. zero-coupon
D. mature in 10 years or less
E. callable within 5 years of issue

 


29. Which one of the following statements related to TIPS is correct assuming an inflationary environment? 
A. TIPS have a maturity value of $1,000.
B. TIPS pay an interest payment based on the latest T-bill rate.
C. TIPS pay a fixed coupon rate.
D. The principal amount of a TIPS is adjusted annually for inflation.
E. The interest rate is adjusted semiannually for inflation.

 

30. A TIPS is quoted at 101:17. How should this quote be interpreted in relation to a $1,000 face value bond? 
A. The current yield on this security is 1.17 percent.
B. The bond is currently selling at the discounted price of $101.17.
C. The bond will mature at a price equal to 101.17 percent of $1,000.
D. A $1,000 bond is currently selling for 101 and 17/32nds percent of $1,000.
E. A $1,000 bond will mature at a price equal to 101 and 17/32nds percent of $1,000.

 

31. Which of the following statements correctly apply to TIPS?
I. They are quoted as a percentage of the current accrued principal.
II. They pay a variable interest rate that responds to movements in the inflation rate.
III. They are backed by the full faith and credit of the U.S. government.
IV. They adjust for inflation on an annual basis. 
A. I and III only
B. II and IV only
C. III and IV only
D. I, II, and III only
E. II, III, and IV only

 

32. Which one of the following applies to U.S. Treasury auctions? 
A. Every bidder has a choice of submitting either a competitive or a noncompetitive bid.
B. The purchase price paid by all bidders is the highest bid price.
C. Each bidder with an accepted bid will pay the individual price he or she bid.
D. All noncompetitive bids are accepted automatically.
E. Noncompetitive bids are ignored unless there are not enough competitive bids to buy the entire issue.

 


33. What price will a noncompetitive bidder pay for a security being purchased through a U. S. Treasury auction? 
A. highest competitive bid price
B. highest noncompetitive bid price
C. stop-out bid price
D. average of all bid prices
E. lowest competitive bid price

 

34. Which one of the following statements is correct regarding Series EE savings bonds? 
A. The face value amounts range from $100 to $10,000.
B. The bonds sell at face value and pay interest semiannually.
C. The bonds accrue interest monthly.
D. The bonds pay an adjustable-rate of interest.
E. The bonds sell at par value.

 

35. Which of the following statements are correct regarding Series EE savings bonds?
I. Interest is accrued monthly and compounded semiannually.
II. The minimum holding period is 3 months.
III. A penalty of 3-months interest is applied to all bonds redeemed prior to maturity.
IV. Bonds held to maturity are guaranteed to double in value regardless of the interest rate. 
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. II, III, and IV only

 

36. Which one of the following do Series I savings bonds offer? 
A. monthly interest payments
B. guaranteed real rate of return
C. interest for an unlimited period of time
D. monthly interest compounding
E. immediate redemption with no penalty

 


37. Which one of the following applies to Series I savings bonds? 
A. redemption any time after 6 months
B. fixed portion of the interest rate is adjusted each May and November over the bond's life
C. semiannual inflation rate adjustment
D. minimum face value of $100
E. maximum 20-year life

 

38. You purchased a Series I saving bonds 4 years ago. Which one of the following applies if you redeem that bond today? 
A. You have to wait one more year to receive your cash.
B. You will only be able to redeem 50 percent of your holdings.
C. You will incur a 3-month earnings penalty.
D. You will be paid the fixed interest rate but will forfeit any inflation adjustment.
E. You will forfeit 6 months of interest.

 

39. U.S. government agency debt does which one of the following? 
A. has a larger bid-ask spread than U.S. Treasury debt
B. provides more liquidity than U.S. Treasury debt
C. provides security in the form of the full faith and credit of the U.S. government
D. provides triple tax-free income
E. pays a lower yield than comparable U.S. Treasury debt

 

41. Which one of the following has the highest level of default risk? 
A. U.S. Treasury bond
B. municipal bond
C. Series I bond
D. T-bill
E. Series EE bond

 

42. Kathy lives in State A and owns a municipal bond issued by State B. The interest earned on this bond is most apt to be exempt from taxation at which of the following levels? 
A. local only
B. state only
C. federal only
D. local and state only
E. federal, state, and local

 

43. Which one of the following generally applies to municipal bonds? 
A. noncallable
B. risk-free
C. high credit rating
D. zero coupon
E. par value of $1,000

 

44. Which one of the following generally applies to municipal bonds? 
A. issued as term bonds without a sinking fund
B. $5,000 par value
C. trading based on price quotes
D. highly liquid market
E. callable at any time at par value

 


 

46. Variable-rate demand obligations frequently carry a provision which allows the issuer to do which one of the following? 
A. limit the amount of upward adjustment to a maximum increase of 2 percent
B. convert the issue from GO bonds to revenue bonds
C. void the put provision if the coupon rate increases
D. eliminate the call premium if the entire issue is called
E. convert the entire issue into a fixed-rate issue

 

47. Which one of the following statements is correct concerning municipal bonds? 
A. Municipal put bonds are less valuable than comparable nonputable bonds.
B. Highway bonds are generally issued as GO bonds.
C. College dormitories are frequently financed by revenue bonds.
D. Revenue bonds are risk-free.
E. A hybrid bond is joint debt of a state and the federal government.

 

48. A moral obligation bond is which type of a bond? 
A. municipal revenue
B. municipal GO
C. municipal hybrid
D. U.S. Treasury
E. U.S. agency

 


49. Which one of the following statements is true in regards to municipal bond insurance? 
A. The insurance premium is paid by the bondholders.
B. The insurance can be cancelled with 30 days notice to the bond issuer.
C. The financial strength of the bond issuer can affect the bond's credit rating.
D. Insured bonds tend to sell at lower prices than uninsured bonds.
E. To date, bond insurers have not had to pay any payments for bond defaults.

 

50. You wish to purchase a bond for your tax-exempt retirement account. Which one of the following should you prefer if you only consider the tax aspects of your selection? 
A. corporate bond
B. Treasury bond
C. qualified private activity bond
D. municipal insured bond
E. municipal GO bond

 

51. Leslie has a marginal tax rate of 33 percent and Bill has a marginal tax rate of 37 percent. The critical marginal tax rate for a municipal bond is 35.2 percent. For their taxable investment accounts, Leslie will prefer _____ and Bill will prefer ____. Ignore any risk considerations. 
A. corporate bonds; corporate bonds
B. municipal bonds; corporate bonds
C. corporate bonds; municipal bonds
D. municipal bonds; municipal bonds
E. Neither Leslie nor Bill will have a preference for either corporate or municipal bonds.

 

52. Which of the following uses of proceeds from private activity bonds will most likely qualify those bonds as federally tax-exempt?
I. public airport runway
II. baseball stadium
III. multifamily housing project
IV. mass rail transit 
A. I and II only
B. I and III only
C. II and III only
D. II and IV only
E. I, III, and IV only

 


53. A Treasury bond has a face value of $30,000 and a quoted price of 102:20. What is the bond's dollar price? 
A. $30,002.80
B. $30,102.18
C. $30,654.00
D. $30,787.50
E. $47,475.00

 

54. A Treasury bond has a quoted bid price of 100:10 and a quoted ask price of 100:11. What is the amount you will receive if you sell your bond that has a par value of $20,000? 
A. $20,016.00
B. $20,050.00
C. $20,062.60
D. $20,100.08
E. $21,600.00

 

55. A Treasury bond has a yield to maturity of 6.2 percent, a time to maturity of 9 years, and a coupon rate of 7 percent. What is the bond price? 
A. $940.65
B. $946.95
C. $1,054.55
D. $1,061.63
E. $1,069.56

 

56. A Treasury bond has a dollar price of $1,015.63. What would you expect the bond quote to be? 
A. 101:05
B. 101:15
C. 101:16
D. 101:18
E. 101:22

 


57. A Treasury note has 2.5 years left to maturity, a yield to maturity of 3.6 percent, and a coupon rate of 4.40 percent. What is the price of the bond? 
A. $1,015.41
B. $1,015.53
C. $1,016.56
D. $1,017.58
E. $1,018.96

 

58. A Treasury bond matures in 13 years, has a 5.25 percent coupon, and a quoted price of 98:01. What is the yield to maturity? 
A. 5.25 percent
B. 5.34 percent
C. 5.46 percent
D. 5.55 percent
E. 5.68 percent

 

59. A Treasury bond has a 4.2 percent coupon, a quoted price of 101:06, and 8 years to maturity. What is the yield to maturity? 
A. 3.78 percent
B. 3.93 percent
C. 4.03 percent
D. 4.90 percent
E. 5.92 percent

 

60. A STRIPS matures in 6 years, has a face value of $17,000, and has a yield to maturity of 4.8 percent. What is the price? 
A. $10,854.59
B. $11,010.43
C. $11,284.75
D. $11,322.01
E. $12,789.38

 


61. A STRIPS has a yield to maturity of 7.2 percent, a par value of $25,000, and a time to maturity of 12 years. What is the price? 
A. $4,100.87
B. $5,792.80
C. $9,967.50
D. $10,698.08
E. $15,785.68

 

62. A STRIPS has a $9,000 par value and a market value of $7,050. The time to maturity is 5 years. What is the yield to maturity? 
A. 2.07 percent
B. 3.00 percent
C. 4.94 percent
D. 5.00 percent
E. 5.07 percent

 

63. A STRIPS that matures in 6 years is selling for $11,369. The par value is $15,000. What is the yield to maturity? 
A. 3.17 percent
B. 4.67 percent
C. 5.25 percent
D. 6.54 percent
E. 6.75 percent

 

64. You own a principal STRIPS which is based on a 4.5 percent coupon Treasury bond that matures in 20 years. The STRIPS is priced at $22,868 and has a par value of $50,000. What is the yield to maturity on the STRIPS? 
A. 3.79 percent
B. 3.90 percent
C. 3.93 percent
D. 3.95 percent
E. 3.99 percent

 


65. The Federal Reserve is offering Treasury bills with a par value of $18 billion for sale. They have received $7 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
   
What price will Bidder A pay per bond, assuming that bid is accepted? 
A. $9,600
B. $9,650
C. $9,675
D. $9,700
E. $9,750

 

66. The Federal Reserve is offering Treasury bills with a par value of $30 billion for sale. They have received $11 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
   
How much money will the Federal Reserve raise from this offering? 
A. $29.55 billion
B. $29.40 billion
C. $29.10 billion
D. $29.33 billion
E. $29.25 billion

 


67. The Federal Reserve is offering Treasury bills with a par value of $8 billion for sale. They have received $2 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
   
How much money will the Federal Reserve raise from this offering? 
A. $7.92 billion
B. $7.88 billion
C. $7.86 billion
D. $7.84 billion
E. $7.80 billion

 

68. A municipal bond is yielding 4.8 percent. Jeremy has a marginal tax rate of 24 percent. What is his equivalent taxable yield? 
A. 2.18 percent
B. 4.58 percent
C. 6.15 percent
D. 6.32 percent
E. 7.18 percent

 

69. You have a marginal tax rate of 31 percent and an average tax rate of 28 percent. Municipal bonds in your area are yielding 3.6 percent. What is your equivalent taxable yield? 
A. 4.16 percent
B. 4.93 percent
C. 5.13 percent
D. 5.22 percent
E. 5.27 percent

 


70. Municipal bonds are yielding 4.8 percent currently. Alicia has a marginal tax rate of 35 percent and Yvonne has a marginal tax rate of 22 percent. Alicia's equivalent taxable yield is _____ percent and Yvonne's is _____ percent. 
A. 7.50; 5.86
B. 7.39; 6.15
C. 6.53; 5.86
D. 6.53; 6.15
E. 8.29; 5.07

 

71. Municipal bonds are yielding 4.6 percent if they are insured and 4.9 percent if they are uninsured. Your marginal tax rate is 31 percent. Your equivalent taxable yield on the insured bonds is _____ percent and on the uninsured bonds is _____ percent. 
A. 5.89; 6.27
B. 6.39; 6.76
C. 6.39; 6.81
D. 6.67; 7.10
E. 6.76; 7.10

 

72. You own a corporate bond which is yielding 8.2 percent. What is your after-tax yield if your marginal tax rate is 28 percent? 
A. 5.90 percent
B. 7.52 percent
C. 8.20 percent
D. 10.58 percent
E. 11.55 percent

 

73. Laura has an average tax rate of 21 percent and a marginal tax rate of 28 percent. What is her after-tax yield on a corporate bond which has a 7.6 percent yield? 
A. 2.51 percent
B. 5.09 percent
C. 5.47 percent
D. 6.00 percent
E. 11.34 percent

 


74. Jeff owns a taxable bond portfolio which is yielding 8.76 percent. His after-tax yield is 6.57 percent. What is his marginal tax rate? 
A. 25 percent
B. 28 percent
C. 31 percent
D. 32 percent
E. 34 percent

 

75. A corporate bond is yielding 6.9 percent and a municipal bond is yielding 4.8 percent. What is the critical marginal tax rate? 
A. 28 percent
B. 30 percent
C. 33 percent
D. 35 percent
E. 38 percent

 

76. Sonya has a marginal tax rate of 36 percent. A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent. Sonya should invest in the _____ bond because the critical marginal tax rate is _____ percent. 
A. corporate; 17
B. corporate; 34
C. corporate; 51
D. municipal; 43
E. municipal; 51

 

77. Lester is considering a municipal bond yielding 4.4 percent and a corporate bond yielding 7.2 percent. His marginal tax rate is 36 percent. He should invest in the _____ bond because the critical marginal tax rate is _____ percent. 
A. corporate; 35
B. corporate; 37
C. corporate; 39
D. municipal; 37
E. municipal; 39

 


78. An investor has a critical marginal tax rate of 28.5 percent when municipal bonds are yielding 5.1 percent. What is the corporate bond yield? 
A. 4.38 percent
B. 5.81 percent
C. 6.51 percent
D. 7.13 percent
E. 10.26 percent

 

79. A $5,000 face value municipal bond matures in 14 years and is priced at $4,862. The coupon rate is 4.5 percent with interest paid semiannually. What is the yield to maturity on the bond? 
A. 4.77 percent
B. 5.14 percent
C. 5.40 percent
D. 5.61 percent
E. 5.97 percent

 

80. A $5,000 face value municipal bond with a coupon rate of 3.5 percent has 13 years to maturity and a current price of $4,812. Interest is paid semiannually. What is the bond's yield to maturity? 
A. 2.10 percent
B. 3.61 percent
C. 3.87 percent
D. 3.95 percent
E. 4.23 percent

 

81. A $5,000 face value municipal bond matures in 8 years and has a market value of $5,120. The coupon rate is 3.5 percent with interest paid semiannually. What is the yield to maturity? 
A. 2.92 percent
B. 3.16 percent
C. 3.73 percent
D. 5.13 percent
E. 6.38 percent

 

 

1. Which one of the following is defined as bonds which represent a claim on the cash flows of an underlying pool of mortgages which flow through to bondholders? 
A. mortgage bonds
B. mortgage certificates
C. mortgage passthroughs
D. collateralized securities
E. mortgage collaterals

 

2. Mortgage-backed securities are defined as securities whose investment returns are based on which one of the following? 
A. lease payments from the tenants of financed property
B. interest only on mortgage loans
C. loan refinancings
D. condominium fees
E. pool of mortgages

 

3. Which one of the following terms is applied to the process of creating mortgage-backed securities from a pool of mortgages? 
A. mortgage aggregation
B. mortgage securitization
C. mortgage bundling
D. mortgage pooling
E. mortgage financing

 

4. When a borrower pays a fixed monthly amount on his or her home mortgage based on a fixed rate of interest, he or she has which type of mortgage? 
A. prepayment-based
B. open-end
C. fixed-rate
D. variable-rate
E. floating-rate

 


5. Which one of the following is the amount of a mortgage loan outstanding? 
A. mortgage remainder
B. mortgage face value
C. mortgage par value
D. mortgage principal
E. mortgage accrual

 

6. Which one of the following terms applies to the process of reducing the mortgage principal over the life of the mortgage according to a schedule? 
A. mortgage amortization
B. mortgage prepayment
C. mortgage elimination
D. mortgage securitization
E. mortgage passthrough

 

7. Mortgage prepayments are best defined by which one of the following? 
A. reducing the mortgage according to a schedule over the life of the mortgage
B. paying a monthly mortgage payment before the regular due date
C. paying off the principal faster than required by the amortization schedule
D. paying a cash deposit when purchasing a property
E. paying each mortgage payment as scheduled

 

8. Which one of the following is the government agency assigned the responsibility of promoting liquidity in the home mortgage market? 
A. FNMA
B. GNMA
C. FHLMC
D. SPIC
E. FDIC

 


9. Which one of the following is the type of mortgage pool that guarantees timely payment of interest and principal? 
A. prepaid
B. refinanced
C. secured
D. fully amortized
E. fully modified

 

11. FHLMC and FNMA are government-sponsored enterprises charged with which one of the following duties? 
A. providing home mortgages directly to homeowners
B. purchasing only defaulted mortgages from banking institutions
C. guaranteeing mortgages with the full faith and credit of the U.S. government
D. providing guarantees equal to GNMA's to the home mortgage market
E. promoting liquidity in the home mortgage market

 

12. What is the probability that a mortgage will be prepaid during a given year called? 
A. mortgage reduction rate
B. amortization rate
C. filtration rate
D. prepayment rate
E. postponement rate

 14. Which one of the following statements correctly applies to an unseasoned mortgage? 
A. The mortgage is less than 30 months old.
B. The mortgage is still held by the original mortgage company.
C. The mortgage has at least one term or provision that is uncommon to most mortgages.
D. The mortgage has an adjustable interest rate that has not been adjusted to date.
E. The mortgage was obtained by a first-time home owner.

 

15. Which one of the following is the prepayment rate for a mortgage pool which is dependent upon the age of the mortgages comprising the pool? 
A. unseasoned rate
B. average life rate
C. aged payment rate
D. conditional prepayment rate
E. amortized rate

 

16. The average time it takes for a mortgage in a pool to be paid off is referred to as which one of the following? 
A. average amortized period
B. seasoned period
C. maturity life
D. average life
E. normal pool life

 


17. Which one of the following is the measure of interest rate risk for fixed-income securities? 
A. standard deviation
B. Macaulay duration
C. variance
D. Jensen's alpha
E. beta

 

18. The _____ duration for mortgage-backed securities is the duration measure that accounts for how mortgage prepayments are affected by changes in interest rates. 
A. mean
B. modified
C. average
D. effective
E. adjusted

 

19. What are the securities which are created by splitting the cash flows from mortgage pools according to specific allocation rules called? 
A. collateralized mortgage obligations
B. collateralized housing bonds
C. mortgage amortized strips
D. pooled mortgage obligations
E. secured mortgage strips

 

20. Interest-only strips are securities that do which one of the following? 
A. pay interest only at maturity
B. pay only the interest cash flows to investors
C. pay interest over the life of the security and the entire principal at maturity
D. pay interest only when requested by the holder with all remaining amounts paid at maturity
E. pay interest monthly and principal quarterly

 


21. Which one of the following is a security that only pays the principal cash flows to investors? 
A. split strip
B. interest-only strip
C. amortized strip
D. principal-only strip
E. final strip

 

23. Which one of the following is a mortgage-backed security that has first priority to scheduled principal payments? 
A. priority strip bond
B. principal strip
C. amortized principal strip
D. protected amortization class bond
E. principal priority tranche

 

25. Which one of the following is the range defined by the upper and lower prepayment schedules of a 
PAC bond? 
A. PAC collar
B. PAC range
C. PAC space
D. PAC cup
E. PAC field

 

26. Which one of the following is defined as the yield to maturity for a mortgage-backed security computed on an assumed prepayment pattern? 
A. payment yield
B. assumed yield
C. current yield
D. cash flow yield
E. amortized yield

 

27. Which one of the following correctly applies to a mortgage passthrough bond? 
A. The primary collateral for the bond is the underlying pool of mortgages.
B. All interest received is immediately passed through while principal payments are held until the bond matures.
C. Each bond represents one home mortgage.
D. These bonds are created via a process known as mortgage collaring.
E. All of these bonds are guaranteed by the full faith and credit of the U.S. government.

 

28. You own a mortgage passthrough. Which one of the following statements correctly describes the payments you will receive on that security? 
A. The payments will decrease at a constant rate over the life of the security.
B. The payments will increase at a decreasing rate over the life of the security.
C. The payments will be fixed for the life of the security.
D. The payments will vary depending upon the amount paid on the underlying mortgages each period.
E. The payments will decrease based on the interest shown on the amortization schedule.

 


29. Which one of the following financing terms will provide the lowest monthly payment for a fixed-rate $175,000 mortgage? (No calculations are required.) 
A. 10-year, 5.5 percent
B. 10-year, 6.0 percent
C. 15-year, 5.5 percent
D. 15-year, 6.0 percent
E. 30-year, 5.5 percent

 

30. Which one of the following set of mortgage terms will cause the borrower to pay the most interest, assuming the mortgage is paid according to the amortization schedule? 
A. 10-year, 6.5 percent
B. 10-year, 7.0 percent
C. 15-year, 7.0 percent
D. 30-year, 6.5 percent
E. 30-year, 7.0 percent

 

31. You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of interest you pay each month will _____ and the amount of principal you pay each month will ____. 
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
E. remain constant; remain constant

 

32. You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is constant and the mortgage is amortized on a monthly basis. How much will the principal balance be after the 90th payment has been paid? 
A. zero
B. < $75,000
C. $75,000
D. > $75,000
E. cannot be determined from the information provided

 


33. When can a homeowner prepay on his or her home mortgage? 
A. only on prespecified dates
B. only during the last five years of the loan period
C. only if the prepayment pays the mortgage balance in full
D. at any time
E. only if the property securing the mortgage is being sold

 

34. Borrowers must pay which one of the following if they are to pay off their home mortgage? 
A. remaining principal balance plus any accrued interest
B. present value of all future payments discounted at the current market rate
C. all remaining payments in full
D. remaining principal balance plus one year's interest
E. present value of the remaining principal balance

 

35. A mortgage prepayment is similar to which one of the following features of a corporate bond? 
A. collateral provision
B. put provision
C. call provision
D. conversion provision
E. protective covenants provision

 

36. Which one of the following is NOT a reason why mortgage prepayments occur? 
A. house securing the mortgage is sold
B. increase in interest rates
C. homeowner's spouse dies
D. homeowner faces job transfer
E. home is refinanced

 


37. Mortgage prepayments are generally a(n) ______ to the mortgage borrower and a(n) ____ to the mortgage investor. 
A. advantage; advantage
B. advantage; disadvantage
C. disadvantage; advantage
D. disadvantage; disadvantage
E. advantage; neutral event

 

38. Which one of the following is most apt to create an environment that increases mortgage prepayments? 
A. home mortgage rates remain relatively steady
B. home mortgage rates decline significantly
C. number of homeowner's defaulting on their mortgages rises
D. homeowner's have steady, secure employment at their current jobs
E. number of employees being transferred for employment purposes declines

 

39. Which one of the following statements correctly relates to reverse mortgages? 
A. The loans allow homeowners to build equity in their property.
B. The total costs associated with the loans are relatively low.
C. Borrowers only qualify if they are 65 years of age or older.
D. Homeowner's make monthly payments of principal and interest.
E. No payments are required from the borrower as long as the borrower lives in the mortgaged property.

 

40. Which of the following affect the amount of funds available to a homeowner from a reverse mortgage?
I. current mortgage balance on the home
II. age of homeowner
III. location of the home
IV. appraised value of the home 
A. I and IV only
B. II and III only
C. I, II, and IV only
D. I, III, and IV only
E. I, II, III, and IV

 


41. Which one of the following is the key function of GNMA? 
A. providing direct financing for first-time home buyers only
B. directly refinancing existing home mortgages
C. providing mortgage funds to military personnel only
D. providing direct financing to first-time home buyers, military personnel, and farmers
E. sponsoring the repackaging of mortgages into mortgage-backed securities pools

 

42. Which one of the following statements correctly relates to GNMA securities? 
A. The primary risk associated with GNMAs is default risk.
B. The minimal denomination of a GNMA when issued is $10,000.
C. GNMA mortgages are guaranteed solely by the FHA.
D. GNMAs were originally established as an agency within the Department of Veteran's Affairs.
E. If you buy a GNMA you are accepting the risk of prepayment.

 

43. GNMA mortgage pools are based on mortgages issued by which of the following?
I. FHLMC
II. FNMA
III. FHA
IV. FmHA 
A. I and II only
B. II and III only
C. III and IV only
D. I, II, and IV only
E. I, II, III, and IV

 

44. Which one of the following is a government agency? 
A. FHLMC
B. Fannie Mae
C. Freddie Mac
D. GNMA
E. FNMA

 


45. The greater the prepayment rate for a mortgage pool, the: 
A. slower the payments to the holders of the bonds supported by the pool.
B. greater the decline in the bond principal for bonds supported by the pool.
C. longer the age of the mortgages held in the underlying pool.
D. lower the PSA benchmark rate.
E. greater the default risk.

 

46. After 30 months, what is the 100 PSA benchmark conditional prepayment rate per year? 
A. 3 percent
B. 5 percent
C. 6 percent
D. 8 percent
E. 12 percent

 

47. You acquired a 30-year mortgage two years ago to purchase your current residence. Your mortgage is classified as which one of the following? 
A. seasoned
B. unseasoned
C. conditional
D. complex
E. deferred

 

48. How much faster will a mortgage pool with a PSA of 150 be prepaid as compared to the benchmark? 
A. 150 times faster
B. 15 times faster
C. 1.5 times faster
D. 1.5 times slower
E. 15 times slower

 


49. Generally, the average life of a mortgage is _____ the mortgage's stated maturity. 
A. much less than
B. marginally less than
C. equal to
D. marginally greater than
E. significantly greater than

 

50. How long is the expected average mortgage life of a mortgage held in a 30-year mortgage pool with a 100 PSA? 
A. 14.68 years
B. 18.29 years
C. 21.33 years
D. 23.90 years
E. 25.25 years

 

51. A mortgage pool was created six years ago. Which one of the following PSA values is most apt to apply to that pool if market mortgage rates have been declining quite rapidly over the past five years? 
A. 0
B. 50
C. 100
D. 150
E. 200

 

52. Monthly payments to investors in GNMA mortgage-backed bonds include which of the following cash flows?
I. mortgage interest
II. fixed principal payment
III. scheduled amortization of mortgage principal
IV. mortgage prepayments 
A. II only
B. I and II only
C. I, III, and IV only
D. I, II, and III only
E. I, II, III, and IV

 


53. You just purchased a GNMA mortgage-backed security. Which one of the following should you expect to receive? 
A. fixed monthly payments
B. fixed quarterly payments
C. variable monthly payments
D. variable quarterly payments
E. quarterly payments that decrease at a constant rate

 

54. Which one of the following statements regarding an original issue $25,000 GNMA bond is correct? 
A. The investor will receive $25,000 as a principal payment at maturity.
B. The investor will receive fixed quarterly interest payments.
C. The investor will receive the future value of $25,000 at maturity.
D. The investor will receive payments totaling $25,000 over the life of the bond.
E. The investor should receive more than $25,000 but the amount of each payment is unknown in advance.

 

55. Which one of the following is the reason that Macaulay duration is NOT a good measure of interest rate risk for mortgage bonds? 
A. Mortgage bonds are long-term securities while Macaulay duration is a short-term measure.
B. Macaulay duration assumes the debt has a variable rate and most mortgages have a fixed rate.
C. Macaulay duration requires bond payments to be made semi-annually.
D. Macaulay duration assumes payments are fixed and mortgage bond payments vary.
E. Macaulay duration only applies to zero-coupon bonds.

 

56. Historically, what has been the relationship between bond prepayment rates and the market rate of interest? 
A. perfectly related
B. directly related
C. inversely related
D. minimally related
E. unrelated

 


57. Which one of the following is the preferred method of evaluating interest rate risk on mortgage bonds? 
A. PSA rating
B. modified duration
C. Macaulay duration
D. effective duration
E. postponed duration

 

58. If the prepayment schedule for a mortgage pool increases to 100 PSA from 50 PSA, the related interest-only strips will _____ in value and the related principal-only strips will _____ in value. 
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
E. remain constant; remain constant

 

59. Which of the following affect the value of a PO strip based on a GNMA bond?
I. changes in the PSA schedule
II. prepayment rates
III. time value of money
IV. changes in the default rates for the underlying mortgages 
A. I and II only
B. II and III only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV

 

60. Which one of the following is correct concerning the total payment amount on a PO strip? 
A. The total payment amount equals the bond's par value.
B. The total payment amount will either equal or exceed the bond's par value.
C. The total payment will vary based on the PSA schedule.
D. The total payment amount will increase if interest rates decline.
E. The total payment amount will vary if the prepayment rate varies.

 


61. The total payment amount on an IO strip is: 
A. fixed.
B. equal to the interest rate multiplied by the par value multiplied by the PSA rate schedule.
C. equal to the par value multiplied by the interest rate.
D. unknown until all payments have been made.
E. equal to the total interest computed on the bond's amortization schedule.

 

62. The value of an IO strip will most likely increase when: 
A. the PSA schedule rate decreases from 200 to 100.
B. market interest rates remain constant.
C. prepayments increase.
D. mortgage refinancings increase.
E. market interest rates decrease significantly.

 

63. Which one of the following will maximize the value of an IO strip? 
A. prepaying all mortgages in the underlying mortgage pool
B. minimizing the duration of the underlying mortgage pool
C. maximizing the value of the PO strip
D. amortizing the bonds in the underlying pool faster than anticipated
E. creating conditions where no prepayments occur in the underlying mortgage pool

 

64. A mortgage pool is divided into A, B, C, and Z-tranches based on the textbook example. The mortgage principal will initially be paid to which one of the tranches? 
A. A-tranche
B. B-tranche
C. C-tranche
D. Z-tranche
E. all tranches on a pro-rata basis

 


65. A mortgage pool is divided into A, B, C, and Z-tranches based on the textbook example. Which tranche will have the longest life? 
A. A-tranche
B. B-tranche
C. C-tranche
D. Z-tranche
E. All tranches will have equal lives.

 

66. A mortgage pool is divided into A, B, C, and Z-tranches as discussed in the textbook. What happens to the initial interest payment for the Z tranche? 
A. It is immediately passed through to holders of Z tranche securities.
B. It is accumulated and held until the Z tranche securities mature.
C. It is exchanged for principal from the A tranche.
D. It is exchanged for principal from the B tranche.
E. It is exchanged for principal from the C tranche.

 

67. Which one of the following statements regarding PAC bonds is correct? 
A. The cash flows from a PAC bond are less certain than those from a Z-tranche bond from a sequential CMO.
B. PAC bondholders receive the residual cash flows from the underlying mortgage pool.
C. PAC bonds are defined by the specific rules which created them.
D. PAC bonds have bounds based on market interest rates.
E. PAC bond cash flows are unaffected by mortgage prepayments.

 

68. Which one of the following is required for the cash flows on a PAC bond to be predictable? 
A. market interest rates must remain constant
B. market interest rates must steadily decline
C. mortgage prepayments must remain within the PAC collar
D. PAC support bonds must be prepaid in a timely manner
E. mortgage prepayments must exceed the specified PSA schedule

 


69. A PAC support bond is most similar to which tranche in a sequential CMO? 
A. A
B. B
C. C
D. Z
E. A PAC bond cannot be compared to a sequential CMO.

 

70. PAC bondholders receive payments of principal based on which one of the following? 
A. an amortization schedule
B. PAC collar's lower PSA prepayment schedule
C. PAC collar's upper PSA prepayment schedule
D. receipt of all principal collected on the underlying pool of mortgages until the bond is paid in full
E. zero principal from the underlying pool of mortgages until after the PAC companion bonds have been paid in full

 

71. After month 30, assuming that prepayments remain within the PAC collar, the holders of a PAC bond will receive which one of the following payments? 
A. a fixed principal payment only
B. a fixed interest payment only
C. a fixed principal payment plus a declining interest payment
D. a declining principal payment only
E. a declining principal payment and a declining interest payment

 

72. How are the cash flows allocated when actual prepayments fall below a PAC collar's lower bound? 
A. The entire cash flow is paid to the non-PAC support bonds until those bonds are paid in full.
B. The cash flows are divided between PAC and non-PAC bonds on a pro-rata basis.
C. PAC payments are recomputed to a reduced fixed amount.
D. The entire cash flow is paid to the PAC bondholders.
E. The interest income is paid to the non-PAC bondholders with all principal amounts paid to the PAC bondholders.

 


73. Assume that a mortgage pool follows a specified PSA prepayment schedule. Given this, the cash flow yield on the mortgage pool will do which one of the following? 
A. equal the average interest rate of the mortgages contained in the pool
B. equal the anticipated cash flow for the next year divided by the current value of the pool
C. equate the present value of the future cash flows from the pool to the current value of the pool
D. equate the average interest rate on the mortgages to the current market rate of interest
E. equal the current market rate of interest

 

74. What is the monthly mortgage payment on a $235,000, 20-year loan if the interest rate is 7.50 percent? 
A. $1,034.07
B. $1,468.75
C. $1,576.06
D. $1,893.14
E. $2,622.47

 

75. You want to borrow $180,000 at 6.25 percent interest. If you assume a 10-year loan, the monthly payment will be _____ as compared to _____ if you assume a 20-year loan. 
A. $1,237.50; $1,103.88
B. $2,207.75; $1,237.50
C. $2,021.04; $1315.67
D. $2,498.18; $1,103.88
E. $2,498.16; $1,533.50

 

76. You took out a 15-year, $75,000, 7.35 percent loan 8 years ago. What is your current principal balance, assuming payments are made monthly? 
A. $38,588
B. $45,130
C. $54,988
D. $67,351
E. $68,889

 


77. Ten years ago, you borrowed $165,000 for 25 years at 7.5 percent interest. What is the current principal balance, assuming payments are made monthly? 
A. $112,200
B. $131,534
C. $138,314
D. $140,362
E. $147,414

 

78. You are borrowing $240,000 for 30 years at 7.5 percent. Payments will be made monthly. What is the total amount of interest you will pay if you pay the loan as agreed over the 30 years? 
A. $314,640
B. $324,340
C. $346,360
D. $364,120
E. $396,342

 

79. Four years ago, you borrowed $250,000 for 20 years at 8 percent. Payments are made monthly. How much interest have you paid thus far? 
A. $74,222
B. $75,756
C. $75,909
D. $76,456
E. $77,121

 

80. You just assumed a 30-year mortgage for $270,000 at 8 percent interest. How much of the first monthly payment will be applied to the principal balance? 
A. $153.14
B. $167.35
C. $172.17
D. $181.16
E. $193.28

 


81. You recently assumed a 15-year mortgage for $150,000 at 6.5 percent interest. How much of the second monthly payment will be applied to the principal balance? 
A. $453.02
B. $482.02
C. $685.00
D. $809.82
E. $938.18

 

82. You have a 20-year mortgage at 7 percent interest. The initial loan amount was $200,000. By how much did the principal decrease over the first 10 years of the loan? Payments are made monthly. 
A. $61,345
B. $64,580
C. $65,355
D. $66,453
E. $68,618

 

83. You have a 30-year, $180,000 mortgage. The interest rate is 7.5 percent. What is the amount of the mortgage prepayment if you pay $1,400 as your first payment? 
A. $128.50
B. $130.46
C. $132.65
D. $135.89
E. $141.41

 

84. You have a 30-year, $175,000 mortgage at 7.5 percent interest. What is the amount of your mortgage prepayment if you pay $1,500 as your second mortgage payment? Assume your first payment was the agreed upon amount. 
A. $241.93
B. $248.25
C. $265.44
D. $276.37
E. $289.65

 


85. You have decided to pay $1,800 a month on your 30-year, $225,000 mortgage. The interest rate is 7.75 percent. What is your total prepayment amount for year two? 
A. $2,208
B. $2,257
C. $3,387
D. $3,979
E. $4,002

 

86. You are currently borrowing $120,000 to buy a house. The mortgage is for 15 years at 8 percent. How much would you save each month if you could finance this amount at 7.5 percent for the same time period? 
A. $34.37
B. $36.27
C. $38.95
D. $40.24
E. $41.34

 

87. You are assuming a 30-year mortgage for $230,000 at 7.75 percent interest. How much would you save in interest if you financed this loan at 7.25 percent for 20 years? 
A. $159,603
B. $158,504
C. $156,902
D. $154,116
E. $152,686

 

88. The CPR for a seasoned 200 PSA mortgage is 11.5 percent. What is the single monthly mortality? 
A. 0.9258 percent
B. 0.9664 percent
C. 0.9949 percent
D. 1.0013 percent
E. 1.0129 percent

 


89. The CPR for an unseasoned 100 PSA mortgage is 4.5 percent. What is the single monthly mortality? 
A. 0.3557 percent
B. 0.3635 percent
C. 0.3752 percent
D. 0.3830 percent
E. 0.3986 percent

 

Question

 

The Layton Growth Fund has an alpha of 1.8 percent. You have determined that Layton’s information ratio is 0.25. What must Layton’s tracking error be relative to its benchmark? (Enter your answer as a percent rounded to 2 decimal places.)

 

Question

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:

 

Assume that the tracking error of Portfolio X is 8.60 percent. What is the information ratio for Portfolio X? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.)

 

Question

 

a. A stock has an annual return of 12 percent and a standard deviation of 60 percent. What is the smallest expected loss over the next year with a probability of 2.5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.)

 

b. Does this number make sense?

 

Question

 

You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.97.

 

What are the Sharpe and Treynor ratios for the fund? (Do not round intermediate calculations. Round your answers to 4 decimal places.)

 

Question

 

Amounts are in thousands of dollars (except number of shares and price per share):  

 

Calculate the price-book, price-earnings, and price-cash flow ratios for Kiwi Fruit. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Question

 

Amounts are in thousands of dollars (except number of shares and price per share): 

 

Calculate ROA and ROE for Kiwi Fruit. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

Question

 

Weston Corporation had earnings per share of $1.61, depreciation expense of $673,400, and 260,000 shares outstanding. What was the operating cash flow per share? If the share price was $59, what was the price-cash flow ratio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)   

 

Question

 

Alphonse Inc. has a return on equity of 17 percent, 73,000 shares of stock outstanding, and a net income of $140,000. What are earnings per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

Lemon Co. has net income of $600,000 and 65,000 shares of stock. If the company pays a dividend of $1.42 per share, what are the additions to retained earnings? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

 

Question

 

You are given the following information for Smashville, Inc.

 

Calculate the gross margin, the operating margin, return on assets, and return on equity. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

 

During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $11,000. At the end of the year, Smashville stock sold for $45 per share. Calculate the price-book ratio, price-earnings ratio, and the price-cash flow ratio. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Given the above information for Hetrich, Inc., calculate the operating cash flow, investment cash flow, financing cash flow, and net cash flow. (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest whole number.)

 

Question

 

Given the following information for Smashville, Inc., construct a balance sheet:

 

Question

 

Consider a convertible bond with a conversion value of $880. The stock is currently priced at $52. What is the conversion ratio of the bond? (Round your answer to 2 decimal places.)

 

Question

 

A convertible bond has a conversion ratio of 37 and a par value of $1,000. What is the conversion price? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

 

Question

 

A convertible bond has a conversion ratio of 23 and a par value of $1,000. If the stock is currently priced at $29, what is the conversion value? (Omit the "$" sign in your response.)

 

Question

 

A convertible bond has a $1,000 face value and a conversion ratio of 32. What is the conversion price? (Round your answer to 2 decimal places.)

 

Question

 

Steven Long, a bond analyst, is analyzing a convertible bond. The characteristics of the bond are given below.

 

Compute the bond’s conversion value and conversion price. (Round your conversion price to 2 decimal places.)

 

Question

 

A STRIPS traded on May 1, 2017, matures in 12 years on May 1, 2029. Assuming a yield to maturity of 4.4 percent, what is the STRIPS price? (Use Excel to answer this question. Enter your answer as a percentage of par value. Round your answer to 4 decimal places.)

 

Question

 

A municipal bond has a yield to maturity of 4.6 percent. What corporate bond yield would make an investor in the 34 percent tax bracket indifferent between the two bonds, all else the same? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

 

Question

 

What is the price of a STRIPS with a maturity of 10 years, a face value of $10,000, and a yield to maturity of 5.4 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

A noncallable Treasury bond has a quoted yield of 5.13 percent. It has a 6.1 percent coupon and 12 years to maturity.

 

a. What is its dollar price assuming a $1,000 par value? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

 

b. What is its quoted price?

 

Question

 

You have decided to buy a house. You can get a mortgage rate of 5.85 percent, and you want your payments to be $1,000 or less. How much can you borrow on a 15-year fixed-rate mortgage? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

A homeowner takes a 30-year fixed-rate mortgage for $165,000 at 7.45 percent. After eight years, the homeowner sells the house and pays off the remaining principal. How much is the principal payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

Consider a 15-year, $125,000 mortgage with a rate of 5.65 percent. Two years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

You find the monthly standard deviation of a stock is 6.90 percent. What is the annual standard deviation of the stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

A convertible bond has a $1,000 face value and a conversion ratio of 27. If the stock price is $31, what is the conversion value?

 

Question

 

Amounts are in thousands of dollars (except number of shares and price per share):

 

Calculate the gross and operating margins for Kiwi Fruit. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 

 

Question

 

A homeowner takes out a $387,000, 30-year fixed-rate mortgage at a rate of 5.35 percent. What are the monthly mortgage payments? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:

 

Assume that the correlation of returns on Portfolio Y to returns on the market is 0.84. What is the percentage of Portfolio Y’s return that is driven by the market? (Round your answer to 4 decimal places.)

 

Question

 

You own a bond with a coupon rate of 6.1 percent and a yield to call of 7 percent. The bond currently sells for $1,103. If the bond is callable in five years, what is the call premium of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

The most recent financial statements for Bradley, Inc., are shown here (assuming no income taxes): 

 

Assets and costs are proportional to sales. Debt and equity are not. No dividends are paid. Next year’s sales are projected to be $9,408. What is the external financing needed? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest whole number.) 

 

Question

 

A Treasury bill has a bid yield of 3.54 and an ask yield of 3.48. The bill matures in 178 days. Assume a face value of $1,000.

 

What is the least you could pay to acquire a bill? (Note: You may need to review material from an earlier chapter for the relevant formula.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)

 

Question

 

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:

 

What are the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Leave your ratio answers as a decimal rounded to 5 places (e.g., 0.23546). Enter your alpha answers as a percent rounded to 2 decimal places (e.g., 0.22%).)

 

Question

 

A company just sold a convertible bond at a par value of $1,000. If the conversion price is $46, what is the conversion ratio? (Round your answer to 2 decimal places.)

 

Question

 

A Treasury bond with the longest maturity (30 years) has an ask price quoted at 106.9375. The coupon rate is 3.10 percent, paid semiannually. What is the yield to maturity of this bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

A bond matures in 25 years but is callable in 12 years at 125. The call premium decreases by 3 percent of par per year. If the bond is called in 17 years, how much will you receive?

 

Question

 

Given the following information for Smashville, Inc., construct an income statement for the year:

 

What are retained earnings for the year? (Input all amounts as positive values.)

 

Question

 

A 20-year, $205,000 mortgage has a rate of 4.95 percent.

 

a. What are the interest and principal portions in the first payment? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

b. What are the interest and principal portions in the second payment? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Question

 

A STRIPS with 9 years until maturity and a face value of $10,000 is trading for $7,589. What is the yield to maturity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

The most recent financial statements for Martin, Inc., are shown here: 

 

Assets and costs are proportional to sales. Debt and equity are not. A dividend of $1,120 was paid, and Martin wishes to maintain a constant payout ratio. Next year’s sales are projected to be $34,515. What is the external financing needed? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

Consider a 30-year, $155,000 mortgage with an interest rate of 6.25 percent. After ten years, the borrower (the mortgage issuer) pays it off. How much will the lender receive? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

A municipal bond with a coupon rate of 5.80 percent sells for $4,900 and has six years until maturity. What is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

You find a particular stock has an annual standard deviation of 27 percent. What is the standard deviation for a five-month period? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

A STRIPS traded on October 1, 2017 matures in 14 years on October 1, 2031. The quoted STRIPS price is 87.40. What is its yield to maturity? (Use Excel to answer this question. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

Thorpe Mfg., Inc., is currently operating at only 86 percent of fixed asset capacity. Current sales are $320,000. How fast can sales grow before any new fixed assets are needed? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

A municipal bond has 12 years until maturity and sells for $4,900. If the coupon rate on the bond is 5.28 percent, what is the yield to maturity? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

 

Question

 

a. A stock has an annual return of 12 percent and a standard deviation of 55 percent. What is the smallest expected gain over the next year with a probability of 2.5 percent? (Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places.)

 

b. Does this number make sense?

 

Question

 

A Treasury bill has a bid yield of 3.58 and an ask yield of 3.52. The bill matures in 100 days. Assume a face value of $1,000. (Note: You may need to review material from an earlier chapter for the relevant formula.)

 

a. At what price could you sell the Treasury bill? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

 

b. What is the dollar spread for this bill? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

 

Question

 

A Treasury issue is quoted at 103.51525 bid and 103.575 ask. Assume a face value of $1,000. What is the least you could pay to acquire a bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

 

Question

 

A municipal bond with a coupon rate of 3.5 percent has a yield to maturity of 4.5 percent. Assume a face value of $5,000. If the bond has 18 years to maturity, what is the price of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

A taxable issue yields 6.2 percent, and a similar municipal issue yields 4.7 percent. What is the critical marginal tax rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

A convertible bond has a coupon of 7.5 percent, paid semiannually, and will mature in 15 years. If the bond were not convertible, it would be priced to yield 6.5 percent. The conversion ratio on the bond is 20 and the stock is currently selling for $63 per share. What is the minimum value of this bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

 

Question

 

Assume a municipal bond has 18 years until maturity and sells for $5,440. It has a coupon rate of 4.90 percent and it can be called in 8 years. What is the yield to call if the call price is 110 percent of par? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

Question

 

You have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.95.

 

Calculate Jensen’s alpha for the fund, as well as its information ratio. (Do not round intermediate calculations. Enter the alpha as a percent rounded to 2 decimal places. Round the ratio to 4 decimal places.)

 

Question

 

A taxable corporate issue yields 6 percent. For an investor in a tax bracket of 35 percent, what is the equivalent after tax yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)