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Unformatted text preview: short run, but it is a
pretty good place to put your money in the long
run.” What does this statement mean? 16 (428-459) EMC Chap 16 12/28/05 2:50 PM Page 457 10. The PE ratio of a stock is 33. What does this
11. List and define the three major components of
12. Name two of the best known bond ratings
13. What determines whether a bond will have a
good rating or a poor rating?
14. What is the yield of a bond?
15. Would you buy or sell bonds if you expected the
interest rate to rise? Explain your answer.
16. If your city needed to raise money, what kind of
bond would it issue?
17. What is a Treasury bill?
18. Suppose you are the type of person who likes to
take chances, and you are not afraid of risk. Are
you likely to receive higher or lower returns on
your investments? Explain.
19. What is a futures contract? Give an example of
a situation in which someone might buy such
a contract. Why would this person buy the
20. What is a call option? Why might someone buy
a call option rather than stock shares? Doing the Math
Do the calculations necessary to solve the following
1. Assume that you own 1,250 shares of stock X.
You just read in the newspaper that the dividend for the stock is $3.88 per share. What did
you earn in dividends?
2. The closing price of a stock is $90.25. The stock
is paying a dividend of $3.50. What is the yield
of the stock?
3. The closing price of the stock is $66.40, and the
net earnings per share is $2.50. What is the
stock’s PE ratio?
4. The face value of a bond is $10,000 and the
annual coupon payment is $850. What is the
5. Let’s say that a person buys a bond that matures
in 10 years and pays a coupon rate of 10 percent. The face value of the bond is $10,000. How
much money will the bondholder receive in the
tenth year? Solving Economic Problems
Use your thinking skills and the information you
learned in this chapter to find solutions to the following problems.
1. Application. In Chapter 10 you learned how
the Fed decides t...
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- Winter '14