HW1
Due FINAN520, Date and time: 2/14/2012 in class
Name: _________________________
When you turn in your homework, please write down all your answers in order on a
separate sheet and attach your work showing how you get the answer for calculation
questions.
1. __________ are examples of financial intermediaries.
A. Commercial banks
B. Insurance companies
C. Investment companies
D. All of the above are financial intermediaries
2. Security selection refers to the ________.
A. allocation of the investment portfolio across broad asset classes
B. analysis of the value of securities
C. choice of specific securities within each asset class
D. top down method of investing
3. The price quotations of treasury bonds in the Wall Street Journal show a bid price of 102:12
and an ask price of 102:14. If you sell the bond you expect to receive _________.
A. $1,024.75
B. $1,024.38
C. $1,023.75
D. $1,022.50
4. A bond issued by the State of Alabama is priced to yield 6.25%. If you are in the 28% tax
bracket this bond would provide you with an equivalent taxable yield of _________.
A. 4.50%
B. 7.25%
C. 8.68%
D. none of the above
5. Which of the following is not a true statement regarding municipal bonds?
A. A municipal bond is a debt obligation issued by state or local governments.
B. A municipal bond is a debt obligation issued by the Federal Government.
C. The interest income from a municipal bond is exempt from federal income taxation.
D. The interest income from a municipal bond is exempt from state and local taxation in the
issuing state.
6. bulk The of most initial public offerings (IPOs) of equity securities go to ___________.
A. institutional investors
B. individual investors
C. the firm's current shareholders
D. day traders
7. A T-bill quote sheet has 90 day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a
$10,000 face value an investor could sell this bill for
A. $10,000.00
B. $9,878.50
C. $9,877.00
D. $9,880.16
8. An investor buys 200 shares of a stock priced at $40 per share using 50% initial margin. The
broker charges 6% on the margin loan and requires a 30% maintenance margin. After one year
the investor gets a margin call. At the time of the margin call the stock's price must have been
____.
A. $20.00
B. $29.77
C. $30.29
D. $32.45
9. You purchased 250 shares of common stock on margin for $20 per share. The initial margin is
65% and the stock pays no dividend. Your rate of return would be __________ if you sell the
stock at $25 per share. Ignore interest on margin.
A. 25%
B. 38%
C. 54%
D. 71%
10. An order to buy or sell a security at the current price is a ______________.
A. limit order
B. market order
C. stop loss order
D. stop buy order
11. Assume you purchased 300 shares of XYZ common stock on margin at $40 per share from
your broker. If the initial margin is 60%, the amount you borrowed from the broker is
_________.
A. $4,800
B. $7,200
C. $10,000
D. $12,000
12. You submit a limited-buy order of $82 for stock A. Suppose the bid price of stock A is $81.95
and the ask price of stock A is $82.05. Will the order be executed?
A. Yes
B. No