Review Questions - Midterm Exam 2 with Solution - Financial Markets | FINA 4400, Exams of Financial Market

Download Review Questions - Midterm Exam 2 with Solution - Financial Markets | FINA 4400 and more Exams Financial Market in PDF only on Docsity! FINA 4400 Review Questions: Midterm Exam 2 Note: Review meant to be used in conjunction with assigned homework problems and additional examples. Chapter 6 1. A T-Bond with a $1000 par is quoted at a bid of 105:7 and an ask of 105:9. If you sell the bond you will receive A. $1,052.81 B. $1,052.19 C. $1,057.22 D. $1,059.22 E. None of the above 2. You purchase a $1000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert? A. $4.50 B. $5.26 C. $6.50 D. $7.10 E. $7.25 (975 / 150) = 6.50 3. You find the following quote for a corporate bond ($1,000 par, pays interest semiannually): a) What was the range of the price for the given day? b) How many dollars would you receive from each coupon payment? c) Approximately what risk level is implied by the bond rating? d) What would have been the Last Price on the day before? a) The high price was 98.281% x 1000 = $982.81, the low price for the day was 97.362% x 1000 = $973.62 for a range of $9.19 b) $ Coupon = (4.625% / 2) x 1000 = $23.125 received every six months c) The bond rating implies this is a medium grade bond that lacks outstanding protection characteristics, in other words the bond issuer may have difficulty making the promised payments in full and on time, particularly if the economy does not perform well. d) The Last Price in the quote is 97.726 and the change was +0.286 so the prior Last quote was 97.726 - 0.286 = 97.44 or 97.44% x 1000 = $974.40 Chapter 8 1. You buy a stock for $34 per share and sell it for $36 after you collect a $1.00 per share dividend. Your pre-tax capital gain yield is _____ and your pre-tax dividend yield is _____. A. 2.94%; 2.78% B. 8.82%; 0.00% C. 5.88%; 2.94% D. 5.56%; 2.78% E. 4.65%; 3.17% 2. You buy a stock for $30 per share and sell it for $33 after holding it for slightly over a year and collecting a $0.75 per share dividend. Your ordinary income tax rate is 28% and your capital gains tax rate is 20%. Your after-tax rate of return is _______. A. 8.00% B. 10.25% C. 12.50% D. 9.80% E. 8.75% [((33-30)(1-0.20)) + (0.75(1-0.28))] / 30 = 2.94 / 30 = 9.8% 3. The preemptive right is designed to A. Allow management to diffuse stock ownership any voting power B. Allow managers to preempt a stock offering if they do not like the terms of the deal C. Allow existing shareholders the right to sell their existing shares before the new offer D. Allow existing shareholders to buy shares of the new offering if they desire E. None of the above 4. You own 500 share of common stock in a firm that has 2 million shares outstanding. The firm announces a plan to sell an additional 500,000 shares through a rights offering. a) How many rights to purchase new shares will you receive? b) Suppose that the market price per share is $30, but each right allows you to purchase a share of stock for $27. What should be the value of one right? c) If you sold your rights how much money should you make? a) (500,000 / 2,000,000) * 500 = 125 rights b) [(500 x 30) + (125 x 27)] / (500+125) = 18,375 / 625 = 29.40; 29.40 - 27 = $2.40 c) $2.40 x 125 = $300