FIN 370T Wk 3 – Apply: Homework

A 6 percent corporate coupon bond is callable in 10 years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond?

Multiple Choice

• $600

• $1,000

• $60

• $1,060

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

Multiple Choice

• Par or face value

• Call premium

• Maturity date

• Time to maturity value

A 5.5 percent corporate coupon bond is callable in four years for a call premium of one year of coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the issuer calls the bond? (Assume annual interest payments.)

Multiple Choice

• $220

• $1,000

• $55

• $1,055

A 3.25 percent TIPS has an original reference CPI of 194.1. If the current CPI is 210.3, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Multiple Choice

• $31.54

• $16.25

• $15.00

• $17.61

To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased home mortgages from banks and other lenders. They combined the mortgages into diversified portfolios of loans and issued:

Multiple Choice

• current yield securities.

• trust securities.

• Treasury Inflation Protected Securities.

• mortgage-backed securities.

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

Multiple Choice

• $12.50, $15.75, $100, respectively

• $12.50, $15.75, $0, respectively

• $2.50, $3.15, $0, respectively

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

Multiple Choice

• The term of the loan.

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

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

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

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

Multiple Choice

• $45

• $1,000

• $1,045

• $225

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

Multiple Choice

• $37.50

• $21.89

• $43.78

• $18.75

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

Multiple Choice

• Defaults on subprime mortgages.

• Corruption in the investment banking industry.

• Widespread layoffs due to illegal alien hiring.

• All of the options were catalysts.

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

Multiple Choice

• $20.00, $23.75, $0, respectively

• $4.00, $4.75, $0, respectively

• $20.00, $23.75, $150, respectively

• $40.00, $47.50, $0, respectively

Calculate the price of a zero coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semi-annual compounding and $1,000 par value.)

Multiple Choice

• $1,000.00

• $696.57

• $962.50

• $692.02

Which of the following is a true statement?

Multiple Choice

• If interest rates fall, no bonds will enjoy rising values.

• If interest rates fall, corporate bonds will have decreasing values.

• If interest rates fall, all bonds will enjoy rising values.

• If interest rates fall, U.S. Treasury bonds will have decreasing values.

Rank from lowest credit risk to highest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a yield of 6.12 percent.

Multiple Choice

• Treasury, Banc Ono, IBM, Trump Casino

• Trump Casino, Banc Ono, IBM, Treasury

• Treasury, Trump Casino, Banc Ono, IBM

• Trump Casino, IBM, Banc Ono, Treasury

Which of the following is a reason municipal bonds offer lower rates of interest income for their investors?

Multiple Choice

• They are tax exempt — at least at the federal level.

• They are able to offer reduced credit risk as they are backed by the federal government.

• They are able to avoid interest rate risk.

• They are able to avoid reinvestment rate risk.

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

Multiple Choice

• buy using a limit order.

• buy using a market order.

• use the bid-ask spread to her advantage.

• None of the options.

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

Multiple Choice

• Managers

• Bondholders

• Investment bankers

• Stockholders

Trading at physical exchanges like the New York Stock Exchange and the American Stock Exchange takes place at all of the following except:

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Multiple Choice

• at brokers' trading posts.

• at online marketplaces.

• at market markers.

• at dealers' trading posts.

All of the following are stock market indices EXCEPT:

Multiple Choice

• Standard & Poor's 500 Index.

• Dow Jones Industrial Average.

• Mercantile 1000.

• Nasdaq Composite Index.

The Standard & Poor's 500 Index includes:

Multiple Choice

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

• all of the stock listed on the New York Stock Exchange.

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

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

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

Multiple Choice

• +0.02 percent

• −1.83 percent

• +1.83 percent

• −0.02 percent

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

Multiple Choice

• Nasdaq Stock Market

• Mercantile Exchange

• New York Stock Exchange

• American Stock Exchange

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

Multiple Choice

• $259.78, $283.39 respectively

• $261.30, $275.96 respectively

• $161.30, $175.96 respectively

• $100.16, $109.26 respectively

Dividend yield is defined as:

Multiple Choice

• the last four quarters of dividend income expressed as a percentage of the current stock price.

• the last four quarters of dividend income expressed as a percentage of the par value of the stock.

• the last dividend paid expressed as a percentage of the current stock price.

• the next dividend to be paid expressed as a percentage of the current stock price.

At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 200 shares of General Electric (GE), which trades at $45.19?

Multiple Choice

• $9,038.00

• $9,047.95

• $4,528.95

• $4,595.95

At your full-service brokerage firm, it costs $125 per stock trade. How much money do you receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?

Multiple Choice

• $5,908.00

• $5,783.00

• $6,033.00

• $19,092.00

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

Multiple Choice

• $38,480.00

• $38,496.00

• $38,464.00

• $38,468.00

Which of these are valued as a special zero-growth case of the constant growth rate model?

Multiple Choice

• Future dividends

• Future stock prices

• Common stock

• Preferred stock

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

Multiple Choice

• Fortune 500 companies.

• variable growth rate firms.

• blue chip companies.

• constant growth rate firms.

A firm does not pay any dividends at this point in time. Which valuation method should be used on this stock?

Multiple Choice

• Capital Gain Model

• Variable Growth Model

• P/E Ratio Model

• Residual Claimant Model