are171a-2011-fall-midterm-key-a - I ARE 171A FALL 2011...

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I ARE 171A FALL 2011 MIDTERM NAME: ______________ _ This exam has two sections. Section A consists of 15 multiple choice questions worth 10 points each for a total of 150 possible points (about 43% of exam). Section 8 is made up of 5 short problems, worth 40 points each., for a total of 200 possible points ( .... 57% of exam). Show your work in section 8; partial credit can be earned for correct approach even if final answer is wrong. Total pOints possible = 350.
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Section A. (10 pts. each) 1. An investor lives in Sacramento, CA. She is in the 28% Federal income tax bracket, and the 9.5% state income tax bracket. She is considering investing in one of the bonds below: i U.S. Treasury bonds yielding 4.2% ii. Boston, MA municipal bonds yielding 3.1 % iii City of Dixon, CA municipal bonds yielding 3.0% iv. Corporate bonds yielding 5.2% Rank these, from highest to lowest, in terms of their after-tax yield for this investor. a. i, iv, iii, ii b. iii, i, ii, iv c. iv, i, ii, iii @)iv,i,iii,ii e. None of the above. 2. Glenn just received a letter from Halo Corporation, informing him that his current holdings of Halo bonds will be called soon for a call price of $1050. He originally purchased the bonds for their par value of $1000 each. How will he likely react to this letter? a. He'll be pleased, since the call price is above what he originally paid for the bonds. @He'li be upset, since the bonds' present value if they were not called is likely more than $1050. c. He'll be indifferent, since the bond call price is equal to their present value today. 3. Connemara Products has assets that originally cost $20 million. These assets have been depreciated by $8 million during the firm's existence, and they could be liquidated today for $9 million. The firm has $5 million in liabilities, has 1,000,000 shares of common stock outstanding, and the current stock price is $4. What do you conclude? The firm's book value is $12 million. The firm's liquidation value is $5 million. Connemara Products appears to be a going concern. d. All of the above. @) None of the above. 4. Which of the following bonds would have the shortest duration, for a given discount rate r? 15 year bond with 4% coupon rate, semiannual payments and par = $1000 ® 15 year bond with 6% coupon rate, semiannual payments and par = $1000 15 year zero-coupon bond with par = $1000 all the above bonds would have the same duration.
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This note was uploaded on 03/18/2012 for the course ARE 171A taught by Professor Whitney during the Fall '08 term at UC Davis.

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are171a-2011-fall-midterm-key-a - I ARE 171A FALL 2011...

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