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1. Which of the following will only be executed if the order’s price conditions are met?
An unlimited order
A trade
A limit order
A spread
2. 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.)
$220
$1,055
$1,000
$55
3. Which of the following terms is the chance that the bond issuer will not be able to make timely payments?
Interest rate risk
Liquidity of interest rate risk
Term structure of interest rates
Credit quality risk
4. Which of the following is a true statement?
If interest rates fall, corporate bonds will have decreasing values.
If interest rates fall, U.S. Treasury bonds will have decreasing values.
If interest rates fall, no bonds will enjoy rising values.
If interest rates fall, all bonds will enjoy rising values.
5. At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to buy 100 shares of Ralph Lauren (RL), which trades at $85.13?
$8,522.95
$8,503.00
$9,508.00
$8,503.05
6. As residual claimants, which of these investors claim any cash flows to the firm that remain after the firm pays all other claims?
Common stockholders
Preferred stockholders
Creditors
Bondholders
7. You would like to sell 100 shares of Pfizer, Inc. (PFE). The current bid and ask quotes are $27.22 and $27.25, respectively. You place a limit sell-order at $27.24. If the trade executes, how much money do you receive from the buyer?
$5,446.00
$2,724.00
$2,725.00
$2,722.00
8. A fast growing firm recently paid a dividend of $0.50 per share. The dividend is expected to increase at a 25 percent rate for the next 3 years. Afterwards, a more stable 12 percent growth rate can be assumed. If a 15 percent discount rate is appropriate for this stock, what is its value?
$22.62
$5.00
$36.46
$25.75
9. Consider the following three bond quotes; a Treasury note quoted at 87:25, and a corporate bond quoted at 102.42, and a municipal bond quoted at 101.45. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value of $5,000, what is the price of these three bonds in dollars?
$877.81, $1,024.20, $5,072.50, respectively
$872.50, $1,000, $1,000, respectively
$1000, $1,000, $1,000, respectively
$1,000, $1,024.20, $1,001.45, respectively
10. Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?
Credit quality risk
Liquidity of interest rate risk
Term structure of interest rates
Interest rate risk
11. Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?
Debenture
Enforcement codes
Prospectus
Indenture
12. Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?
Credit quality securities
Junk bonds
Asset-backed securities
Debentures
13.The Dow Jones Industrial Average (DJIA) includes:
500 firms that are the largest in their respective economic sectors.
all of the stock listed on the New York Stock Exchange.
30 of the largest (market capitalization) and most active companies in the U.S. economy.
500 firms that are the largest as ranked by Fortune Magazine.
14. On November 26, 2007, 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?
+1.83 percent
-0.02 percent
+0.02 percent
-1.83 percent
15. Which of these investors earn returns from receiving dividends and from stock price appreciation?
Stockholders
Investment bankers
Bondholders
Managers
16. Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?
$18.97
$5.27
$0.19
$23.03
17. We can estimate a stock’s value by:
using the book value of the total stockholder equity section.
discounting the future dividends and future stock price appreciation.
compounding the past dividends and past stock price appreciation.
using the book value of the total assets divided by the number of shares outstanding.
18. Which of these statements is false?
The bond market is larger than the stock market.
Bonds are always less risky than stocks.
Some bonds offer high potential for rewards and, consequently, higher risk.
Bonds are more important capital sources than stocks for companies and governments.
19. Which of the following determines the dollar amount of interest paid to bondholders?
Market rate
Call premium
Original issue discount
Coupon rate
20. Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually), 6.45 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)
$55.00, $64.50, $0, respectively
$5.50, $6.45, $0, respectively
$27.50, $32.25, $100, respectively
$27.50, $32.25, $0, respectively
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