Solved Final Exam - Financial Markets and Institutions | FINA 4400, Exams of Financial Market

Download Solved Final Exam - Financial Markets and Institutions | FINA 4400 and more Exams Financial Market in PDF only on Docsity! Name ____________________________________ FINANCIAL MARKETS AND INSTITUTIONS FINA 4400 Final Exam INSTRUCTIONS: Put your name on both your test and the scantron. Only the answers on the scantron will be graded for Section I. When you have completed your test, turn in both the test and scantron and sign out on the sheet provided in the front of the classroom. Multiple choice. Answer all 37 questions on the provided scantron. Each question is worth 2.7027027 points. (100 total points) 1. Which of the following are money market instruments? A. Negotiable CDs B. Common stock C. T-bonds D. 4 year maturity corporate bond E. A, B and C are money market instruments 2. The preliminary version of a security offer that is circulated to potential buyers before SEC approval (registration) is obtained is called a A. Final prospectus B. Shelf registration statement C. Due diligence draft D. Waiting period offer E. Red herring prospectus 3. Of the following, the most recent derivative security innovations are A. Foreign currency futures B. Interest rate futures C. Stock index futures D. Stock options E. Credit derivatives 4. Which of the following bond types pays interest that is exempt from Federal taxation? A. municipal bonds B. corporate bonds C. Treasury bonds D. convertible bonds E. both A and C 1 of 8 5. Which of the following statements about mortgage markets is/are true? I. Mortgage companies service more mortgages than they originate. II. Servicing fees typically range from 2% to 4%. III. Most mortgage sales are with recourse. IV. The government is involved in the residential mortgage markets. A. I, III and IV only B. II, III and IV only C. I, II and IV only D. II and III only E. I and IV only 6. A 10 year annual payment corporate bond has a market price of $1050. It pays annual interest of $100 and its required rate of return is 9%. By how much is the bond mispriced? A. $0.00 B. Overpriced by $14.18 C. Underpriced by $14.18 D. Overpriced by $9.32 E. Underpriced by $9.32 7. The relationship between maturity and yield to maturity is called the __________________. A. loan covenant B. term structure C. bond indenture D. Fisher effect E. DRP structure 8. You purchase a $255,000 house and you pay 20% down. You obtain a fixed rate mortgage where the annual interest rate is 5.85% and there are 360 monthly payments. What is the monthly payment? A. $1,215.27 B. $1,203.48 C. $1,194.45 D. $1,367.22 E. $1,504.35 9. You have agreed to deliver the underlying commodity on a futures contract in 90 days. Today the underlying commodity price rises and you get a margin call. You must have A. A long position in a futures contract B. A short position in a futures contract C. Sold a forward contract D. Purchased a forward contract E. Purchased a call option on a futures contract 2 of 8 20. An investor is committed to purchasing 100 shares of World Port Management stock in six months. She is worried the stock price will rise significantly over the next six months. The stock is at $45 and she buys a 6 month call with a strike of $50 for $250. At expiration the stock is at $54. What is the net economic gain or loss on the entire stock/option portfolio? A. -$500 B. -$750 C. -$900 D. $400 E. $500 21. A 15 payment annual annuity has its first payment in 9 years. If the payment amount is $1400 and the interest rate is 7%, what is the most you should be willing to pay today for this investment? A. $5,825.11 B. $12,751.08 C. $6,416.67 D. $7,421.24 E. $6,935.74 22. A U.S. bank borrowed dollars, converted them to euros and invested in euro denominated CDs to take advantage of interest rate differentials. To cover the currency risk the investor should A. Sell dollars forward B. Sell euros forward C. Buy euros forward D. Sell euros spot E. None of the above 23. You buy a principal STRIP maturing in 5 years. The price quote per hundred of par for the strip is 75.75%. Using semiannual compounding what is the promised yield to maturity on the STRIP? A. 5.632% B. 5.712% C. 2.816% D. 2.945% E. 4.566% 24. Rates on federal funds and repurchase agreements are stated A. On a bond equivalent basis with a 360 day year B. On a bond equivalent basis with a 365 day year C. As a discount yield with a 360 day year D. As an EAR E. As a discount yield with a 365 day year 5 of 8 25. A current account deficit implies that A. More goods and services are exported than are imported B. The country borrowed from abroad more than it loaned, and/or sold off some of its assets C. There is excessive consumption of foreign financial assets D. The value of the dollar will rise E. The country is going bankrupt 26. A 50 day maturity money market security has a bond equivalent yield of 3.60%. The security's EAR is A. 3.69% B. 3.61% C. 3.55% D. 3.87% E. 3.66% 27. Convertible bonds are I. Options attached to bonds that give the bondholder the right to purchase stock at a preset price without giving up the bond II. Bonds in which the issue matures (converts) a little each year III. Bonds collateralized with certain types of automobiles IV. Bonds that may be converted to a certain number of shares of stock determined by the conversion ratio A. I only B. I and II only C. I, II and III D. IV only E. I and III only 28. A decrease in reserve requirements could lead to a(n) A. Increase in bank lending B. Increase in the money supply C. An increase in the discount rate D. Both A and B E. Both A and C 29. A semiannual payment bond with a $1,000 par has a 7% quoted coupon rate, a 7% promised ytm and 10 years to maturity. What is the bond's duration? A. 10.00 years B. 8.39 years C. 6.45 years D. 5.20 years E. 7.35 years 6 of 8 30. An investor is in the 28% federal tax bracket, pays an 9% state tax rate and 4% in local income taxes. For this investor a municipal bond paying 6% interest is equivalent to a corporate bond paying _____ interest A. 11.79% B. 10.17% C. 9.08% D. 9.68% E. 8.47% 31. A Japanese investor can earn a 1% annual interest rate in Japan or about 3.5% per year in the U.S. If the spot exchange rate is 101 yen to the dollar at what one year forward rate would an investor be indifferent between the U.S. and Japanese investments? A. 100.58 B. 98.56 C. 101.68 D. 97.42 E. 103.50 32. On September 1, 2008 an investor purchases a $10,000 par T-Bond that matures in 12 years. The coupon rate is 6% and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7%. The dirty price of the bond is: A. $9,295.45 B. $9,300.55 C. $9,313.75 D. $9,321.82 E. $9,333.24 33. Suppose that $10 million face value commercial paper with a 270 day maturity is selling for $9.55 million. What is the BEY on the paper? A. 4.71% B. 6.42% C. 6.37% D. 6.28% E. 4.50% 34. An increase in which of the following would increase the price of a call option on common stock, ceteris paribus? I. Stock price II. Stock price volatility III. Interest rates IV. Exercise price A. II only B. II and IV only C. I, II and III only D. I, III and IV only E. I, II, III and IV 7 of 8