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:
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? *
15. What is the present value of $25,000 due in 50 years if the discount rate is 7.5%? *
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 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? *
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? *
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? *
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? *
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. *
A is the correct option. This is an example of a direct transfer of capital because the capital investment is directly transferred between two parties without an intermediary
B is incorrect. In a primary market transaction, the company issues shares to investors
C is incorrect. Money market securities are short-term debt securities, not stocks
D is incorrect. Derivatives are instruments whose prices are based on the price of another underlying asset. Stocks are not derivatives.
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