Deck 3: Overview of Security Types

Question 1

The annual interest payment divided by the current price of a bond is called the:

A) coupon rate.
B) current yield.
C) yield-to-maturity.
D) yield-to-market.
E) market yield.

Answer 1

B

Question 2

An agreement that grants the owner the right,but not the obligation,to buy or sell a specific asset at a specified price during a specified time period is called a(n)________ contract.

A) futures
B) obligatory
C) quoted
D) fixed
E) option

Answer 2

E

Question 3

Money market instruments:

A) tend to be illiquid.
B) are generally sold in small denominations.
C) cannot be resold.
D) may be sold on a discount basis.
E) are quoted in terms of a spread.

Answer 3

D

Question 4

A call option is an agreement that:

A) obligates both the buyer and seller to a future transaction.
B) grants the seller the right to buy a security at a predetermined price.
C) gives the buyer the right to purchase an asset at some point in the future.
D) grants the seller the right, but not the obligation, to sell an asset.
E) presets a price but not a time period.

Question 5

Which one of the following sentences is correct concerning fixed-income securities?

A) The coupon rate on a fixed-income security is equal to the current yield.
B) The price of a fixed-income security is inversely related to the current yield.
C) Fixed-income securities are default free.
D) Fixed-income securities tend to be more liquid than money market securities.
E) Fixed-income securities include all debt instruments issued by the U.S. government.

Question 6

The amount of money per share that will be received when a put option on stock is exercised is called the ________ price.

A) market
B) stock
C) strike
D) future
E) obligated

Question 7

Which one of the following is the best definition of a money market instrument?

A) corporate debt that matures in 90 days or less
B) bank savings account
C) investment issued by a financial institution that matures in 30 days or less
D) investment issued by a financial institution that matures in one year or less
E) debt issued by the government or a corporation that matures in one year or less

Question 8

A contract that grants its buyer the right,but not the obligation,to sell an asset at a specified price is called a:

A) futures contract.
B) call option.
C) preset contract.
D) put option.
E) primary contract.

Question 9

Assume a semi-annual coupon bond matures in 3 years,has a face value of $1,000,a current market price of $989,and a 5 percent coupon.Which one of the following statements is correct concerning this bond?

A) The current coupon rate is greater than 5 percent.
B) The bond is a money market instrument.
C) The bond will pay less annual interest now than when it was originally issued.
D) The current yield exceeds the coupon rate.
E) The bond will pay semi-annual payments of $50 each.

Question 10

A security originally sold by a business or government to raise money is called a(n):

A) derivative.
B) primary asset.
C) primary debt.
D) futures contract.
E) option contract.

Question 11

Use the following bond quotes to answer this question:

What was yesterday's closing price on the Beta Movers bond?

A) $1,020.13
B) $1,033.44
C) $1,044.07
D) $1,053.54
E) $1,054.07

Question 12

Use the following bond quotes to answer this question:

The Alpha Industrial bonds pay an annual interest payment equal to 5.875 percent of:

A) $999.90.
B) $1,000.00.
C) $1,000.13.
D) $1,033.54.
E) $1,034.07.

Question 13

The price paid to purchase an option contract is called the:

A) strike price.
B) option premium.
C) exercise price.
D) future premium.
E) current yield.

Question 14

A financial asset that represents a claim on another financial asset is classified as a ________ asset.

A) secondary
B) optioned
C) contracted
D) derivative
E) primary

Question 15

Which one of the following is classified as a fixed-income security?

A) U.S. Treasury bill
B) 6-month municipal bond
C) common stock that pays regular quarterly dividends
D) 2-year U.S. Treasury security
E) 9-month bank certificate of deposit

Question 16

A fixed-income security is defined as:

A) a debt obligation that pays a fixed rate of return for a one-year period of time.
B) common or preferred stock that pays a fixed annual dividend.
C) a long-term debt obligation that pays scheduled fixed payments.
D) long-term debt issued solely by a federal or state government.
E) any security originally issued as either debt or equity that pays a fixed, pre-set payment.

Question 17

Bond trades are reported:

A) on a weekly basis only.
B) only when originally sold.
C) on TRACE.
D) by the SEC.
E) only on government issues.

Question 18

Money market instruments issued by a corporation:

A) are default-free.
B) are less liquid than those issued by the government.
C) must be held by the original purchaser until maturity.
D) can only be resold to the original issuer.
E) are risk-free.

Question 19

Riverview Chemical recently issued some debt that had an original maturity of nine months.This debt is best classified as a(n):

A) option contract.
B) money market instrument.
C) fixed-income security.
D) derivative security.
E) futures contract.

Question 20

A futures contract is an agreement:

A) that obligates a corporation to issue additional securities at a specified date in the future.
B) to exchange financial assets on a specified date in the future with the price determined on that date.
C) to deliver goods today in exchange for an agreed upon payment to be paid on a specified date in the future.
D) to exchange a specified quantity of goods on a specified date in the future at the current market price.
E) to exchange goods on a specified date in the future at a price that is agreed upon today.

Question 21

Investing in a futures contract:

A) guarantees a sale but not a sale price.
B) can be profitable for both the buyer and the seller simultaneously.
C) guarantees the buyer a profit on the contract.
D) creates a gain for one party without causing a loss for the other party.
E) can be offset by taking an opposing position.

Question 22

Use the following stock quotes to answer this question:

How many whole shares of Ditch Digger stock traded today?

A) 11,298
B) 112,980
C) 11,298,006
D) 112,980,060
E) 1,129,800,600

Question 23

Use the following wheat futures quotes to answer this question.

What price would you have paid today per bushel for the Mar 08 wheat futures contract if you bought the contract at the final price of the day?

A) $10.8010
B) $10.8025
C) $10.9320
D) $10.9325
E) $11.0960

Question 24

Which of the following are generally included in a standardized futures contract?
I)delivery date
II)quantity to be delivered
III)specific item to be delivered
IV)delivery location

A) I and II only
B) I, II, and III only
C) II, III, and IV only
D) I, III, and IV only
E) I, II, III, and IV

Question 25

If you want the right,but not the obligation,to buy a stock at a specified price you should:

A) buy a call.
B) sell a call.
C) buy a put.
D) sell a put.
E) either sell a call or buy a put.

Question 26

Which one of the following is a derivative asset?

A) common stock
B) option contract
C) government bond
D) preferred stock
E) corporate bond

Question 27

Futures contracts:

A) require payment in full at the time the contract is written.
B) can be resold.
C) establish the quantity to be exchanged but not the date of the exchange.
D) establish both the quantity to be exchanged and the exchange date but not the price.
E) are primary financial assets.

Question 28

Cole's Jewelers purchased a futures contract on 200 ounces of gold to be exchanged 3-months from now.As the contract holder,Cole's Jewelers:

A) has the right, but not the obligation, to purchase 200 ounces of gold 3 months from now.
B) has the obligation to purchase 200 ounces of gold at the market price three months from now.
C) has an obligation to buy 200 ounces of gold but only if the price of gold increases within the next 3 months.
D) is expecting the price of gold to decrease and thus is locking in a selling price.
E) will profit if the price of gold is higher three months from now.

Question 29

Preferred stock:

A) is a type of corporate debt.
B) is treated like debt for tax purposes.
C) is listed in the liabilities section of a balance sheet.
D) has a stated dividend but no stated liquidation value.
E) is treated like equity for both tax and accounting purposes.

Question 30

Great Lakes Farm agreed this morning to sell General Mills 25,000 bushels of wheat six months from now at a price per bushel of $9.75.This is an example of a:

A) call option.
B) put option.
C) futures contract.
D) money market security.
E) fixed-income security.

Question 31

Use the following wheat futures quotes to answer this question.

By how much did today's settlement price per bushel for the Mar 08 wheat futures contract increase over the prior day's settlement price?

A) $0.3020
B) $0.3025
C) $30.20
D) $30.25
E) $30.50

Question 32

Preferred stock:

A) represents the residual ownership of a corporation.
B) is generally issued only by new firms that are small in size.
C) has a fixed maturity date similar to a bond.
D) dividends can be skipped at the discretion of the company president.
E) may or may not be cumulative.

Question 33

Which one of the following represents a residual ownership interest in the issuer?

A) U.S. Treasury bond
B) corporate bond
C) municipal bond
D) preferred stock
E) common stock

Question 34

Use the following stock quotes to answer this question:

What is today's closing price per share of Buy Rite stock?

A) $82.13
B) $101.13
C) $821.30
D) $1,011.30
E) $1,049.00

Question 35

If you want the right,but not the obligation,to sell a stock at a specified price you should:

A) buy a call.
B) sell a call.
C) buy a put.
D) sell a put.
E) either sell a call or buy a put.

Question 36

Harvest Fields sold ten September futures contracts on oats.Harvest Fields will:

A) pay for the oats in September.
B) take delivery of the oats in September.
C) pay for the oats now and take delivery in September.
D) receive payment now and deliver in September.
E) both receive payment and deliver in September.

Question 37

Which one of the following statements related to common stock is correct?

A) Corporations are required to pay annual dividends to its common stockholders.
B) Corporations have the right to discontinue paying dividends.
C) Corporations pay dividends at the discretion of the firm's president.
D) Common stock is a form of corporate debt.
E) Common stock has a pre-defined liquidation value.

Question 38

Use the following bond quotes to answer this question:

What is the current price of a $1,000 face value Alpha Industrial bond?

A) $986.67
B) $991.04
C) $994.02
D) $998.23
E) $1,000.00

Question 39

Use the following wheat futures quotes to answer this question.

What are the lowest and highest prices per bushel at which the March 08 wheat futures contract sold today?

A) $10.9320; $10.9340
B) $10.9325; $10.9350
C) $10.6300; $10.9320
D) $10.6300; $10.9340
E) $10.6300; $10.9350

Question 40

At the time a futures contract is written:

A) the underlying asset is specifically identified.
B) the buyer pays a good faith deposit to the seller.
C) the current market price of the underlying asset becomes the contract price.
D) the current market price of the underlying asset must be less than the agreed upon futures price.
E) the buyer is granted the right, but not the obligation, to exercise the contract.

Question 41

Use the following stock quotes to answer this question:

Aldridge,Inc.pays an annual dividend of $1.18.What is the dividend yield on this stock?

A) 2.09 percent
B) 3.42 percent
C) 4.60 percent
D) 7.20 percent
E) 8.04 percent

Question 42

The seller of a naked call is betting that the price of the underlying asset will:

A) decrease.
B) increase.
C) decrease and then increase prior to the expiration date.
D) will remain constant for a period of time and then increase prior to the expiration date.
E) have no effect on the value of the call.

Question 43

Options expire on the ________ of the expiration month.

A) last trading day
B) 3^rd Friday
C) last Friday
D) Saturday following the 3^rd Friday
E) Saturday following the last Friday

Question 44

A $1,000 face value bond has a 6.85 percent semi-annual coupon and sells for $980.00.What is the current yield?

A) 6.75 percent
B) 6.82 percent
C) 6.89 percent
D) 6.99 percent
E) 6.61 percent

Question 45

Use the following bond quotes to answer this question:

The Zeus Company bond pays interest semi-annually.You own six of these bonds.What is the amount you will receive as your next interest payment?

A) $76.00
B) $228.00
C) $190.00
D) $247.50
E) $304.00

Question 46

If you are willing to buy a stock and you wish to receive the option premium you should:

A) buy a call.
B) sell a call.
C) buy a put.
D) sell a put.
E) either sell a call or buy a put.

Question 47

When a put option is exercised,the:

A) seller of the option receives the strike price.
B) seller of the option receives the option premium.
C) buyer of the option sells the underlying asset and receives the option premium.
D) buyer of the option pays the option premium and receives the underlying asset.
E) seller of the option must buy the underlying asset and pay the strike price.

Question 48

Use the following bond quotes to answer this question:

If you purchase five Zeus bonds,the cost will be ________ and the annual interest income will be ________.

A) $5,000.00; $388.75
B) $5,000.00; $412.50
C) $5,000.00; $460.00
D) $5,101.50; $412.50
E) $5,101.50; $460.00

Question 49

Use the following stock quotes to answer this question:

What is the current yield on Buy Rite stock?

A) 1.38 percent
B) 2.60 percent
C) 3.55 percent
D) 4.25 percent
E) 5.20 percent

Question 50

A 7 percent coupon bond has a face value of $1,000 and pays interest annually.The current yield is 6.8 percent.What is the current price of this bond?

A) $971.43
B) $978.41
C) $1,068.00
D) $1,029.41
E) $1,104.00

Question 51

Use the following stock quotes to answer this question:

John owns 300 shares of Aldridge stock.What is the current value of his shares?

A) $6,605
B) $8,820
C) $9,640
D) $9,850
E) $10,350

Question 52

A European put option grants the holder the right to:

A) buy the underlying security at a stated price at any time up to and including the expiration date.
B) sell the underlying security at the strike price on or before the expiration date.
C) sell the underlying asset at the strike price only on the expiration date.
D) buy the underlying asset at or below the exercise price on or before the expiration date.
E) buy the underlying asset at the exercise price on the expiration date.

Question 53

You own twelve (12)6.25 percent coupon bonds with a total maturity value of $12,000.How much will you receive every six months as an interest payment?

A) $213.50
B) $375.00
C) $427.00
D) $540.00
E) $750.00

Question 54

Use these option quotes to answer this question:

The price you will pay (per underlying share)to buy the 50 call option on JL stock is:

A) $4.75.
B) $4.80.
C) $5.00.
D) $5.90.
E) $6.00.

Question 55

You will earn a profit as the owner of a call option if the price of the underlying asset:

A) decreases.
B) remains constant or decreases.
C) remains constant.
D) remains constant or increases.
E) increases.

Question 56

An American call option grants the holder the right to:

A) sell the underlying security at the strike price on or before the expiration date.
B) sell the underlying asset at the strike price only on the expiration date.
C) buy the underlying asset at or below the exercise price on or before the expiration date.
D) buy the underlying asset at the exercise price only on the expiration date.
E) buy the underlying security at a stated price on or before the expiration date.

Question 57

A 5.5 percent coupon bond is currently quoted at 88.3 and has a face value of $1,000.What is the amount of each semi-annual coupon payment if you own four (4)of these bonds?

A) $56.25
B) $75.00
C) $100.46
D) $110.00
E) $200.93

Question 58

Use these option quotes to answer this question:

What was the prior day's closing price on the 50 call option on JL stock?

A) $4.45
B) $4.75
C) $5.05
D) $5.10
E) $5.30

Question 59

If you are willing to sell a stock and wish to receive the option premium you should:

A) buy a call.
B) sell a call.
C) buy a put.
D) sell a put.
E) either sell a call or buy a put.

Question 60

Use these option quotes to answer this question:

What price will you receive (per underlying share)if you sell the 47.50 call option on JL stock?

A) $4.80
B) $5.00
C) $5.90
D) $6.00
E) $6.10

Question 61

Use the following soybean futures quotes to answer this question:

Julie was lucky enough to purchase two September 08 futures contracts on soybeans when the contracts were at the lowest price of the day.What is Julie's total profit or loss as of the end of the day?

A) $25.00
B) $50.00
C) $60.00
D) $250.00
E) $260.00

Question 62

Use the following soybean futures quotes to answer this question:

What was the total price fluctuation on one September 08 soybeans contract today?

A) $1,337.50
B) $1,362.50
C) $1,412.50
D) $1,460.00
E) $1,482.50

Question 63

Use these option quotes to answer this question:

You would like to have the right to purchase 200 shares of ZZ Industries stock at a price of $32.50 a share.How much will it cost you to buy options to meet this objective?

A) $103.11
B) $12.90
C) $374.00
D) $430.00
E) $561.00

Question 64

Use the following stock quotes to answer this question:

Baker Company has 136,000 shares of stock outstanding and a PE ratio of 18.What was the net income for the most recent four quarters?

A) $590,089
B) $678,003
C) $727,972
D) $1,306,900
E) $1,405,800

Question 65

Use the following soybean futures quotes:

You would like to lock in the selling price on 60,000 bushels of wheat,which you plan to harvest and deliver to the market in September.The September futures price quote is currently 902΄6.If you write September futures contracts on your wheat,you will be guaranteed a total price of ________ for your crop.Each contract is quoted in cents and 1/8 ths of a cent per bushel with a contract size of 5,000 bushels.

A) $45,637.50
B) $541,650.00
C) $11,908.75
D) $297,700.50
E) $2,977,000.25

Question 66

You purchased three call option contracts with a strike price of $22.50 and an option premium of $0.45.You held the option until the expiration date.On the expiration date,the stock was selling for $21.70 a share.What is the total profit or loss on your option position?

A) -$45
B) $0
C) -$240
D) -$120
E) -$135

Question 67

You bought six call option contracts with a strike price of $25.00 and a premium of $0.45.At expiration,the stock was selling for $23.75 a share.What is the total profit or loss on your option position if you did not exercise it prior to the expiration date?

A) -$9.24
B) -$10.20
C) $0
D) -$270
E) -$450

Question 68

Use these option quotes to answer this question:

The 47.50 put on a stock is trading at 1.32 bid and 1.37 ask.To buy one option contract,you must pay ________ at the time the contract is purchased.

A) $1.32
B) $132.00
C) $137.00
D) $4,613.00
E) $4,882.00

Question 69

Use the following soybean futures quotes to answer this question.

Last week,you purchased four November 08 soybean futures contracts when the price quote was 1300΄6.What is your current profit or loss on this investment?

A) -$3,100.00
B) -$2,625.00
C) -$31.00
D) $987.50
E) $3,350.00

Question 70

Use the following stock quotes to answer this question:

What is the latest earnings per share for Baker Co.stock if the PE is 22?

A) $1.06
B) $1.10
C) $2.19
D) $3.55
E) $4.10

Question 71

Use these option quotes to answer this question:

You want the right,but not the obligation,to sell 400 shares of ZZ Industries stock at a price of $32.50 a share.How much will it cost you to establish this option position?

A) $3.50
B) $4.00
C) $3.60
D) $3.78
E) $3.82

Question 72

Use these option quotes to answer this question:

You own 700 shares of ZZ Industries stock which you purchased for $38.40 a share.You would like to have the right to sell your shares for $35.00 a share.What will be the cost to obtain this right?

A) $0.40
B) $0.90
C) $7.00
D) $476.00
E) $900.00

Question 73

Use the following soybean futures quotes:

You purchased four November 08 futures contracts on soybeans when they first became available this morning.Your investment has been worth as little as ________ and as much as ________.

A) $255,350; $265,500
B) $255,350; $265,020
C) $257,440; $265,500
D) $257,440; $265,020
E) $257,440; $265,520

Question 74

Use the following soybean futures quotes:

You purchased five August 13 futures contracts on soybeans at a price quote of 1056′6.Each contract is for 5,000 bushels with the price quoted in cents and 1/8 ths of a cent per bushel.Assume the contract price is 1061′4 when you close out your contract six weeks from now.What will be your total profit or loss on this investment?

A) $950.25
B) $1,187.50
C) $6,480.75
D) $16,200.50
E) $24,000.00

Question 75

Use these option quotes to answer this question:

You purchased four call option contracts with a strike price of $40 and an option premium of $1.25.You closed your contract on the expiration date when the stock was selling for $42.50 a share.What is your total profit or loss on your option position?

A) -$50
B) -$10
C) $135
D) $385
E) $500

Question 76

Use the following stock quotes to answer this question:

What was the previous day's closing price for Baker Co.stock?

A) $44.70
B) $54.10
C) $68.20
D) $78.10
E) $80.40

Question 77

Use the following stock quotes to answer this question:

A pension fund purchased 20 round lots of Chelsea Company stock at the closing price of the day yesterday.What was the cost of that purchase?

A) $4,410
B) $8,040
C) $88,200
D) $101,200
E) $156,800

Question 78

Use the following stock quotes to answer this question:

Vivian purchased 700 shares of Aldridge,Inc.stock at what turns out to be the lowest price during the past year.How much has the value of her shares changed since she made this investment?

A) -$4,970
B) $60
C) $1,950
D) $420
E) $5,390

Question 79

Use these option quotes to answer this question:

You want to sell four call option contracts on ZZ Industries stock at a strike price of $32.50 a share.How much will you receive in option premiums if you place this order today?

A) $300
B) $1,290
C) $1,320
D) $728
E) $546

Question 80

Use the following soybean futures quotes:

You own one futures contract on gold that you purchased at a quoted price of 1,448.5.The current price quote is 1608.8.The contract size is 100 ounces and the quotes are expressed in dollars and cents per ounce.What is your current profit or loss on this investment?

A) $160.30
B) $1,912.00
C) $8,040.00
D) $16,030.00
E) $19,120.00