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FL09 MidTerm2 Vers B

FL09 MidTerm2 Vers B - Version B Name(please print E l...

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Version B Business 171a FaIl2009 Name (please print) E l' Professor Reza San Jose State lJniversity I II. IV. V. Midterm Exarn2 Instructions and notes: I. Please put your name on BOTH the scantron and this exam and return both. lf your name is missing from either, you will receive ZERO on the exam - no exception and no changes aftervvards. IL Please put yo ur test VERSION on the scantron. If the version is missing, your exam will be assigned a version at random and corrected; the result will not be changed. This is a closed-book, closed-notes exam, Do not consult others. You mav use onll' a calculator. There is one correct answer to each problem. Multiple answers receive zero point, Unless specified otherwise, approximations should be rounded to 2 places after the decimal. Unless specified otherwise, a debt securitv has a face (par) r'alue of $1,000 | \/I. Unless specified otherwise, assume that a. investors maximize their net rvorth (i.e., they are "rational") and firms maximize their common shareholders' net worth. b.- all markets are efficient. c. firms are t1'pical of the industrf in n,hich thel' operate. d. both firms and individuals are residents of the United States. and are interested in profits, u,ealth and consumption in terms gf the US S. g e. Earnings on municipal bonds are exempt from income-lax; earnings on all other bonds are taxable f. Return includes both interest/dividend und capital gain (or loss) P, - P" i, -io Duration r- Po l+io , Pe :initial price; P1 :final price; i6:initial interest rate; i I :fina1 interest rate I 10.,v = Z, + ft10., + Iiz + Ii., +...+I,i,-,,r)lllr,t/:number of periods; 1o.r: N-period spot rate; .f0.' : one-period spot rate; Ii.t : one-period forward (expected) rate effective one year from now; and so on; ,f;_r.N : one-period forward rate effective between period N-1 and period N. I, : liquidity premium for an N-period bond. The Expectations Theory is when L, :0 A bond with a par value of $ 1,000 with an annual coupon has one year to maturity. Its3lrn-ent yield is 1.0o/o and its YTM :9%. What is the current market price of this bond? [email protected] - I b. 968.176 n- t c. 1,000 d. 1,070 6pm VersionB Exam2 -Fall 2009 t-t PV:' ,{fVi't' 1\ it tv '#)
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2. Comparing various types of debentures issued by the same company with the identical maturities and coupon rates. In general, +. Ordirtary callable deb e debentures b\ Ordinary callable deb le debentures 'Y' Ordinarya6.lllubl. llable sinking fund oeDentures d. Both (a) and (c) O notn iui una i.i If the Fed buys $100 in securities from the banking system, the following happens, assuming a l0o% reserve ratio: Banks' total reserves rise by $100;,banks can lend out $l10, but must hold I The Fed can control either the money supply or interest rates, not both.
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FL09 MidTerm2 Vers B - Version B Name(please print E l...

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