Summer_2010_FIN_353_Final_Answers[1]

Summer_2010_FIN_353_Final_Answers[1] - FIN 353 Final...

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FIN 353 Final Student: ___________________________________________________________________________ 1. In which situation would you prefer to be a borrower? A. The interest rate is 20% and expected inflation is 10%. B. The interest rate is 5% and expected inflation is 1%. C. The interest rate is 50% and expected inflation is 47%. D. The interest rate is 10% and expected inflation is 2%. 2. The yield to maturity of a one-year, simple loan of $400 that requires an interest payment of $20 A. 8% B. 5% C. 12% D. 12.5% 3. If the US interest rate is expected to increase, demand for the dollar _______ and the exchange rate? A. decreases, depreciates. B. increases, depreciates. C. decreases, appreciates, D. increases, appreciates. 4. You purchase a STRIP. What is the investment risk that you face? A. Interest risk. B. Reinvestment risk. C. Purchasing power risk. D. A and C. E. A and B. 5. You purchase a Treasury Inflation Protected Securities, TIPS, where the coupon rate is 10% at the beginning of 2009. The CPI increased 15% over the course of 2009. What will be your coupon payment at the end of 2009? A. $50. B. $55. C. $115. D. $150. 6. Which treasury security would you recommend as a financial advisor to your client if you believed interest rates were going to increase in the near future? A. 1 year Treasury bill. B. 2 year Treasury note. C. 10 year Treasury bond. D. 30 year Treasury bond. 7. If the dollar depreciates relative to the Euro? A. Ipods become more expensive in Europe. B. French wine becomes more expensive in the US. C. Nothing.
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8. What happens to interest rates when the volatility of stock prices increase relative to bonds? A. Increase. B. Decrease. C. Nothing. 9. The board of directors authorizes 1000 shares. The float is 700 and the restricted shares equal 100. How many shares outstanding and unissued shares exist? A. 800; 200. B. 700; 300. C. 600; 400. D. 500; 500. 10. In a recession, the demand curve shifts to the _________ and the supply curve shifts to the ______ with the demand curve shifting ___________ than the supply curve. A. right; left; less. B. left; left; less. C. right; left; more. D. left; left; more. 11. An investment bank buys a 2 year Treasury bond for $1,000. They strip out the coupon payments and principal and sell it to investors. Assuming a coupon rate of 10% and a discount rate of 7%, what is the market value of the strips? A. $1,026. B. $1,036. C. $1,054. D. $1,100. 12. The demand for bonds increases if _________ rise(s). A. bond liquidity B. expected inflation C. expected return for stocks D. All of the above 13. Consider the decision to purchase either a five-year corporate bond or a five-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 10%. The municipal bond has a 9% annual coupon and a par value of $1,000. It is currently yielding 6.0%. At what tax rate are you indifferent (don’t care) between the corporate and the municipal bond?
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This note was uploaded on 09/07/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

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Summer_2010_FIN_353_Final_Answers[1] - FIN 353 Final...

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