Question 1

Assume you buy a share of stock for $20 and hold it for one year. During the year you receive $1.20 in dividends. At the end of the year you sell the stock for $19. What is your holding period return pre-tax)?

Accepted Answer

A) 6.32% 
B) 1% 
C) 6.0% 
D) 5.0%

Question 2

Most stock trading occurs on the secondary market.

Accepted Answer

A) True 
 B)False

Question 3

More shares are traded on the Nasdaq on a daily basis than the NYSE.

Accepted Answer

A) True 
 B)False

Question 4

The return on commercial paper is guaranteed by the federal government.

Accepted Answer

A) True 
 B)False

Question 5

The annual returns of the Dow Jones Industrial Average and the S&P 500 index are highly positively correlated.

Accepted Answer

A) True 
 B)False

Question 6

Interest expense is tax deductible but dividends are not.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is considered to have the lowest risk?

Accepted Answer

A) an Aa bond from Hilton Hotels 
B) a Ba bond from Cendant Corporation 
C) commercial paper from McDonald's 
D) a treasury bill from the U.S. government

Question 8

Bond prices are indexed relative to 100.

Accepted Answer

A) True 
 B)False

Question 9

You own the following portfolio of stocks that have achieved the following returns.

The weighted average return is

Accepted Answer

A) approximately 4.33 percent. 
B) approximately 4.10 percent. 
C) approximately 2.33 percent. 
D) approximately 33 percent.

Question 10

The bid price is the price a broker will give you for the stock you want to sell.

Accepted Answer

A) True 
 B)False

Question 11

A bond with a rating of AA is better than a bond rated AAA.

Accepted Answer

A) True 
 B)False

Question 12

The current yield of a bond is the rate of return on a bond if you hold it until maturity.

Accepted Answer

A) True 
 B)False

Question 13

How can we get out of a futures contract?

Accepted Answer

A) Take an equal and opposite position in another contract. 
B) Just let the contract expire. 
C) Sell the contract. 
D) Both a and c.

Question 14

If a $1,000 bond is selling for 97, what is the selling price in dollars?

Accepted Answer

A) $970 
B) $97 
C) $1,030 
D) $1,070

Question 15

Stock prices are based upon the future value of cash flows.

Accepted Answer

A) True 
 B)False

Question 16

You manage a McDonald's in Germany. At the beginning of the year, the exchange rate was $1 = 1Euro. At the end of the year, the exchange rate is $1 = .90Euro. You report profits of 450,000 Euros. How much have your profits increased in terms of dollars from the exchange rate change during the year?

Accepted Answer

A) 10% 
B) 90% 
C) 11.11% 
D) unkown from information given

Exam 2: Financial Markets and Financial Instruments

Assume you buy a share of stock for $20 and hold it for one year. During the year you receive $1.20 in dividends. At the end of the year you sell the stock for $19. What is your holding period return pre-tax) ?

Most stock trading occurs on the secondary market.

More shares are traded on the Nasdaq on a daily basis than the NYSE.

The return on commercial paper is guaranteed by the federal government.

The annual returns of the Dow Jones Industrial Average and the S&P 500 index are highly positively correlated.

Interest expense is tax deductible but dividends are not.

Which of the following is considered to have the lowest risk?

Bond prices are indexed relative to 100.

You own the following portfolio of stocks that have achieved the following returns. The weighted average return is

The bid price is the price a broker will give you for the stock you want to sell.

A bond with a rating of AA is better than a bond rated AAA.

The current yield of a bond is the rate of return on a bond if you hold it until maturity.

How can we get out of a futures contract?

If a $1,000 bond is selling for 97, what is the selling price in dollars?

Stock prices are based upon the future value of cash flows.

You manage a McDonald's in Germany. At the beginning of the year, the exchange rate was $1 = 1Euro. At the end of the year, the exchange rate is $1 = .90Euro. You report profits of 450,000 Euros. How much have your profits increased in terms of dollars from the exchange rate change during the year?