FIN 370T Wk 3 – Practice: Ch. 7 and 8 Knowledge Check

Bond prices are quoted in terms of which of the following?

Multiple Choice

• Original issue discount
• Percent of par value
• Coupon rate in dollars
• Market rate in dollars

Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has a par value of $5,000, what is the price of the bond in dollars?

Multiple Choice

• $5,089.06
• $5,050.19
• $5,062.50
• $5,109.75

A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Multiple Choice

• $43.78
• $37.50
• $21.89
• $18.75

Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond (paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Multiple Choice

• $2.50, $3.15, $0, respectively
• $12.50, $15.75, $0, respectively
• $12.50, $15.75, $100, respectively
• $25.00, $31.50, $0, respectively

A 3.25 percent TIPS has an original reference CPI of 194.1. If the current CPI is 210.3, what is the current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)

Multiple Choice

• $15.00
• $16.25
• $17.61
• $31.54

Bonds are issued by which of the following?

Multiple Choice

• Corporations
• Federal government or its agencies
• State and local governments
• All of the options

Regarding a bond’s characteristics, which of the following is the principal loan amount that the borrower must repay?

Multiple Choice

• Call premium
• Maturity date
• Par or face value
• Time to maturity value

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

Multiple Choice

• Credit quality risk
• Interest rate risk
• Liquidity rate risk
• Reinvestment rate risk

What’s the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?

Multiple Choice

• 4.30 percent
• 8.01 percent
• 8.15 percent
• 8.64 percent

Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.

Multiple Choice

• JM bond, TC bond, B&O bond, IB bond
• IB bond, B&O bond, TC bond, JM bond
• TC bond, B&O bond, IB bond, JM bond
• JM bond, IB bond, B&O bond, TC bond

A bond’s current yield is defined as:

Multiple Choice

• the bond’s annual coupon rate divided by the bond’s par value.
• the bond’s annual coupon rate divided by the market interest rate.
• the bond’s annual coupon rate divided by the bond’s current market price.
• the bond’s annual coupon rate divided by the bond’s original issue price.

The NASDAQ Composite includes:

Multiple Choice

• all of the stocks listed on the NASDAQ Stock Exchange.
• 30 of the largest (market capitalization) and most active companies in the U.S. economy.
• 500 firms that are the largest in their respective economic sectors.
• 500 firms that are the largest as ranked by Fortune Magazine.

The Dow Jones Industrial Average (DJIA) includes:

Multiple Choice

• all of the stock listed on the New York Stock Exchange.
• 30 of the largest (market capitalization) and most active companies in the U.S. economy.
• 500 firms that are the largest in their respective economic sectors.
• 500 firms that are the largest as ranked by Fortune Magazine.

If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?

Multiple Choice

• −0.017 percent
• +0.017 percent
• −1.69 percent
• +1.69 percent

You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that executes at these quoted prices. How much money did it cost to buy these shares?

Multiple Choice

• $7.00
• $9,617.00
• $9,624.00
• $19,241.00

You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and $25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted prices. How much money did it cost to buy these shares?

Multiple Choice

• $1,908.75
• $3,815.50
• $3,817.50
• None of the options

Stock valuation model dynamics make clear that higher growth rates lead to:

Multiple Choice

• lower valuations.
• higher valuations.
• lower growth rates continuing.
• higher growth rates continuing.

At your full-service brokerage firm, it costs $110 per stock trade. How much money do you receive after selling 100 shares of Time Warner, Inc. (TMX), which trades at $22.62?

Multiple Choice

• $2,152.00
• $2,262.00
• $2,372.00
• $2,388.20

A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred stock is 12.1 percent, what is the value of the stock?

Multiple Choice

• $6.31
• $42.15
• $47.25
• $240.97

Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?

Multiple Choice

• $0.19
• $5.27
• $18.97
• $23.03