Midterm Exam Attempt 1 - 1 Marks: 1 _ institutions are...

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1 Marks: 1 ________ institutions are financial intermediaries that acquire funds at periodic intervals on a contractual basis. Choose one answer. a. Investment b. Thrift c. Depository d. Contractual savings Correct Marks for this submission: 1/1. Question 2 Marks: 1 Which of the following are true for a coupon bond? Choose one answer. a. The yield to maturity is greater than the coupon price is above the par value. b. The price of a coupon bond and the yield to ma related. c. When the coupon bond is priced at its face valu maturity equals the coupon rate. d. The yield is less than the coupon rate when the the par value. Incorrect Marks for this submission: 0/1. Question 3 Marks: 1 Which of the following statements about the characteristics of debt and equity is false?
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Choose one answer. a. They both enable a corporation to raise funds. b. They both involve a claim on the issuer's income. c. They can both be long-term financial instruments. d. They can both be short-term financial instruments. Correct Marks for this submission: 1/1. Question 4 Marks: 1 The currency component includes paper money and coins held in ________. Choose one answer. a. the central bank b. the hands of the nonbank public c. bank vaults d. ATMs Incorrect Marks for this submission: 0/1. Question 5 Marks: 5 Debt issued by Southeastern Corporation currently yields 12%. A municipal bond of equal risk currently yields 8%. At what marginal tax rate would an investor be indifferent between these two bonds? Answer: Corporate Bonds (1 − Tax Rate) = Municipal Bonds 12% * (1 – Tax Rate) = 8% 1 – Tax Rate = 0.67, or Tax Rate = 0.33
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Question 6 Marks: 5 One year T-bill rates are 2% currently. If interest rates are expected to go up, after 3 years, by 2% every year, what should be the required interest rate on a 10-year bond issued today? Answer: Question 7 Marks: 5 You have paid $980.30 for an 8% coupon bond with a face value of $1,000 that mature in five years. You plan on holding the bond for one year. If you want to earn a 9% rate of return on this investment, what price must you sell the bond for? Is this realistic? Answer: 80 + Pt +1 − 980.30 ------------------- 980.30 = 0.09 for 980.30 Pt +1 . Pt +1 = 988.53. find the price, solve Although this appears possible, the yield to maturity when you purchased the bond w you only expect the price to be $983.62 next year. In fact, the yield would have to dro to be $988.53. You want 9% return on $980.30 investment. That is $980.30 times .09 (9%) = $88.23 interest in the one year ($1000 face value times 8% coupon rate), so you need to get going up. If you bought it at $980.30 you would need to sell it for $988.53. It sounds r bond would go up $8.23 in a year.
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Question 8 Marks: 1 There is a ________ association between inflation and the growth rate of money ________. Choose one answer.
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This note was uploaded on 08/11/2010 for the course FINANCE FINA 500 taught by Professor Minchulkim during the Summer '10 term at Virginia College.

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Midterm Exam Attempt 1 - 1 Marks: 1 _ institutions are...

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