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Exam 2: Asset Classes and Financial Instruments

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Question 31

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An investor in a 28% tax bracket is trying to decide whether to invest in a municipal bond or a corporate bond. She looks up municipal bond yields (rm) but wishes to calculate the taxable equivalent yield r. The formula she should use is given by ________.

A) r = rm × (1 - 28%)
B) r = rm / (1 - 72%)
C) r = rm × (1 - 72%)
D) r = rm / (1 - 28%)

E) A) and B)
F) C) and D)

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Question 32

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________ is not a money market instrument.

A) A certificate of deposit
B) A Treasury bill
C) A Treasury bond
D) Commercial paper

E) A) and B)
F) B) and D)

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Question 33

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The ________ the ratio of municipal bond yields to corporate bond yields, the ________ the cutoff tax bracket at which more individuals will prefer to hold municipal debt.

Which of the following is not a true statement regarding municipal bonds?

The U.K. stock index is the ________.

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?

Commercial paper is a short-term security issued by ________ to raise funds.

Currently, the Dow Jones Industrial Average is computed by ________.

An index computed from a simple average of returns is a/an ________.

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the 1-day rate of return on the index?

A corporation in a 34% tax bracket invests in the preferred stock of another company and earns a 6% pretax rate of return. An individual investor in a 15% tax bracket invests in the same preferred stock and earns the same pretax return. The after-tax return to the corporation is ________, and the after-tax return to the individual investor is ________.

Which of the following is not a characteristic of a money market instrument?

If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be ________.

Several large banks manipulated the reported rates on which key money market rate?

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity for $9800. The bill has a face value of $10,000. The investor's bond equivalent yield on this investment is ________.

What would be the profit or loss per share of stock to an investor who bought an October expiration Apple call option with an exercise price of $130 if Apple closed on the expiration date at $120? Assume the option premium was $3.00.

Which of the following is not a characteristic of common stock ownership?

Ownership of a put option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price.

The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive ________.

T-bills are issued with initial maturities of: I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks