Question

# 1-You recently sold 50 shares of Microsoft stock to your brother at a family reunion. At...

1-You recently sold 50 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction? *

A. This is an example of a direct transfer of capital.

B. This is an example of a primary market transaction.

C. This is an example of a money market transaction.

D. This is an example of a derivative market transaction.

2. What is the duration of a \$1,000, 8% coupon bond with 4 years to maturity. Assume that all the market interest rates are 10%. *

A. 4 years

B. 3.56 years

C. 3 years

D. 3.75 years

3. If you expect the inflation rate to be 17 percent next year and a one-year bond has a yield to maturity of 8 percent, then the real interest rate on this bond is:

A. 10%

B. 25%

C. 9%

D. 8%

8. You won a lottery of \$15 million, payable over 30 years at \$500,000 per year with the first payment to be made one year from now. What is the lottery worth if the interest rate is 11%. *

A. \$5.0021 million

B. \$15 million

C. \$150 million

D. \$5.48 million

You borrow \$10,000 from a loan shark. If you will owe \$20,000 in 5 years, what is the yield to maturity on this loan? *

A. 10%

B. 14.87%

C. 20%

D. 15%

15. What is the present value of \$25,000 due in 50 years if the discount rate is 7.5%? *

A. \$627.22

B. \$67.23

C. \$672.23

D. \$500

16. Based on annual compounding, what would be the YTM be on a 15-year,12% coupon rate, \$1,000 par value bond that’s currently trading at \$800? *

A. 15.5%

B. 12%

C. 14%

D. 10%

A tax-free municipal bond has an interest rate of 4.3%. What is the equivalent taxable yield on a regular coupon bond given a 40% tax bracket? *

3.68%

7.16%

8.34%

9.00%

Other:

You short sell 100 shares of Microsoft, whose price is currently \$50 per share, and give your broker \$10,000 to establish a margin account. Assume at the end of the year Microsoft pays a dividend of \$3 per share. If the maintenance margin is 30%, how high can the price of Microsoft go before you receive a margin call? *

\$35.4

\$36.75

\$37.48

\$38.13

Other:

Arno Traders opened an account to short sell 4,000 shares of American express at \$60 per share. The initial margin requirement was 50%. (The margin account pays no interest.), and the stock has paid a dividend of \$2.00 per share. How much in cash or securities must Amo put into his brokerage account? *

\$24,000

\$120,000

\$12,000

\$240,000

Other:

Sami is an investor and he wants to buy 400 shares of HP stock that is valued at \$100 per share. He invested 30,000 of his equity and the borrowed the other \$10,000 from his broker. Assuming an interest rate on the margin loan on 10% per year, what would the investor’s rate of return be if HP stock goes up 10% by year end? *

5%

10%

12%

Other:

Suppose that you are bullish on HP Stock. You buy 100 shares at the current stock price of \$99/share. To afford your purchase, your initial margin requirement is 70%.You will borrow the remaining amount from your broker at 9% interest rate. Calculate your net worth when you first purchased the stocks. *

\$2,970

\$9,900

\$6,930

Other:

The correct option is:

A. This is an example of a direct transfer of capital.

A is the correct option as this is a direct transfer of capital that you did with your brother.

The other options are wrong in this context as:

Primary market is a market in which new issues are traded and the fund is directly transferred to the company. The instrument traded here is called as IPO.

Money Market is a market where short duration instruments (duration less than 1 year) are traded like T bills.

In Derivative Market, we trade in derivative instruments like forwards, futures and options, and not shares.

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