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Unformatted text preview: BUS 415: Investment and Portfolio Management AUBG: Spring 2011 MIDTERM EXAM 1 NAME____________________________________ Solution Guide (2) INSTRUCTIONS: 1. You have 75 minutes to complete the exam. 2. The exam is worth a total of 100 points. 3. You may use a calculator and scratch paper sheets. You must hand in the sheets with your exam (put your name on it). 4. Allocate your time wisely. Use the number of points assigned to each problem as your guide. 5. In order to get full credit on the problems, you must show ALL your work! 6. You can get partial credits if you show your calculations or provide arguments to support your answer. 7. No credits will be warded if you fail to state your assumptions or conclusions explicitly. 1 A. Multiple choice questions (2 points each, total 16 points): 1. The bid price of a T-bill in the secondary market is A. the price at which the dealer in T-bills is willing to sell the bill. B. the price at which the dealer in T-bills is willing to buy the bill. C. greater than the asked price of the T-bill. D. the price at which the investor can buy the T-bill. E. never quoted in the financial press. Answer: B. T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press is the price at which the dealer is willing to buy the bill. 2. If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA? A. The stock trading at the highest dollar price per share. B. The stock with total equity has the higher market value. C. The stock having the greatest amount of equity in its capital structure. D. The stock having the lowest volatility. E. None of the above. Answer: A. Higher priced stocks affect the DJIA more than lower priced stocks; other choices are not relevant. 3. You purchased JNJ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a __________. A. stop-buy order B. limit-buy order C. market order D. limit-sell order E. none of the above. Answer: D. With a limit-sell order, your stock will be sold only at a specified price, or better. Thus, such an order would protect your gains. None of the other orders are applicable to this situation. 4. Which one of the following statements regarding orders is false ? A. A market order is simply an order to buy or sell a stock immediately at the prevailing market price. B. A limit sell order is where investors specify prices at which they are willing to sell a security. C. If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45....
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- Spring '11