Midterm - Name: _ Midterm Exam FIN 4504 Equity and Capital...

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Name: _____________________ Midterm Exam FIN 4504 Equity and Capital Markets -- Fall 2004 October 14, 2004 Instructor: Cem Demiroglu I. Multiple Choice Questions Each multiple choice question is worth 2 points. There is no partial credit for multiple choice questions. Please circle the correct answer. If you choose more than one answer, you will get zero credit for the question. 1) Suppose the share of DEC had an initial price of $62 per share. The firm paid a $1.25 dividend during the year, did a 2-for-1 stock split and had an ending share price of $35. What is the holding period return for DEC? a) 14.9% b) 18.7% c) -23.8% d) -45.5% 2) If the market prices of the 30 stocks in the Dow Jones Industrial Average all change by the same dollar amount on a given day (ignoring the stock splits), which stock will have the greatest impact on the average? a) The one with the highest price b) The one with the lowest price c) All 30 stocks will have the same impact d) The answer cannot be determined by the information given 3) Why do put options with exercise prices lower than the price of the underlying stock sell for positive prices? a) The holder can exercise the option immediately, sell the stock, and make a profit. b) The holder can buy the stock, exercise the option immediately, and make a profit. c) At some point in the future, the holder may be able to buy the stock, exercise the option, and make a profit. d) None of the above. 4) Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit fees were $70,000. The offering price for the shares was $25, but immediately upon issue, the share price jumped to $41. What is the best estimate of the total cost (direct plus indirect) to Barnegat Light of the equity issue? a) $ 70,000 b) $3,200,000 c) $3,270,000 d) $8,200,000 1
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5) The value of a firm is equal to _______________________ . a) The value of its equity b) The value of its debt c) The total value of its equity and debt d) Its market capitalization 6) Managers may consider a stock repurchase when their firm’s stock is _______________, or an equity issue when the stock is ________________ . a) Undervalued; undervalued b) Overvalued; undervalued c) Undervalued; overvalued d) Overvalued; overvalued 7) Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. L i m i t B u y O r d e r s L i m i t S e l l O r d e r s P r i c e S h a r e s P r i c e S h a r e s $ 3 9 . 7 5 1 0 0 $ 4 0 . 2 5 1 0 0 $ 3 9 . 5 0 1 0 0 $ 4 0 . 5 0 1 0 0 If a market buy order for 100 shares comes in, at what price will it be filled? a) $39.75 or less b) $40.25 or less c) $40.375 or less d) $40.50 or less 8) You purchased 100 shares of Dell common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below the stock price of __________ you would get a margin call. Assume the stock pays no dividend and ignore interest on margin. a) $35.71
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Midterm - Name: _ Midterm Exam FIN 4504 Equity and Capital...

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