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Quiz 2 Version B FALL 2010 Student: ___________________________________________________________________________ 1. You, Obama, and Tiger Woods believe the current dividend and growth rate is \$2 and 5%. However you believe the discount rate is 12%, Obama believes it is 8%, and Tiger believes it is 7%. What will be the prevailing price if only you three are the market participants? A. \$50.00 B. \$52.50 C. \$66.67 D. \$70.00 2. If prices of goods in Japan increase relative to the US, what happens to the exchange rate in the US against the Japanese currency? A. Depreciates B. Appreciates C. Unknown Table 1 Stock Shares Price_t Price_t+1 A 1,000,000 60 75 B 10,000,000 20 30 C 30,000,000 18 25 3. Based on Table 2 the three securities comprise an index. Calculate the market value weighted index for time period t+1? A. 100 B. 120 C. 140 D. 160 4. Based on Table 2, three securities comprise an index. Calculated the return for a price weighted index. A. 25.00% B. 30.25% C. 33.33% D. 35.00% 5. A mutual fund holds stocks that are worth 15 million, bonds that are worth 5 million, and cash of 2 million. The liabilities are 3 million. They have 2.5 million shares outstanding. Calculate the NAV? A. \$5.7 B. \$6.0 C. \$6.8 D. \$7.6

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Table 2 6. Use Table 3. Assume you are an investment advisor and your client has a 15 year investment horizon. Based on the mutual fund you assume a 10% annual return year after year. Which class of mutual fund would you advise for your client? A. Class A B. Class B C. Class C 7. Treasury bonds are subject to _________ risk but are free of _________ risk. A. default; underwriting B. interest-rate; default C. default; interest-rate D. interest-rate; underwriting 8. If the foreign interest rate increases what happens to the US currency? A. Depreciates. B. Appreciates. C. Nothing. 9. If the Indian government unexpectedly announces that it will be imposing higher tariffs on foreign goods one year from now, what will happen to the value of the Indian rupee today? Is this a short-term or long-term factor? A. Depreciate, short-term. B. Depreciate, long-term. C. Appreciate, short-term. D. Appreciate, long-term. Table 3 Bidder Bid Amount Price 1 \$500 million \$0.9940 2 \$750 million \$0.9960 3 \$1.5 billion \$0.9925 4 \$1 billion \$0.9939 5 \$600 million \$0.9950 10. Use Table 4. The Treasury auctions off 2.5 billion dollars worth of Treasury bills. The Treasury receives 500 million non-competitive bids. What is the prevailing price in the auction? A. \$0.9940 B. \$0.9960 C. \$0.9925 D. \$0.9939 E. \$0.9950
11. What is the purpose of the money markets? A. To borrow in order to invest in long-term projects. B. To borrow in order to meet short-term expenses. C. To warehouse extra cash. D. All of the above.

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