Deck 4: Overview of Security Types

Question 1

The right, but not the obligation, to purchase an asset at a specified price is called a ____ option.

A) European
B) Put
C) Call
D) American
E) Bermudan

Answer 1

C

Question 2

Long-term debt issued by either the government or a corporation that pays fixed payments based on a preset schedule is referred to as:

A) derivative assets.
B) money market securities.
C) equities.
D) fixed-income securities.
E) prime loans.

Answer 2

D

Question 3

The unit of ownership in a corporation when purchasing common shares is called a ______.

A) coupon
B) put
C) share
D) option
E) contract

Answer 3

C

Question 4

A bond that can be exchanged for a fixed number of shares of the issuing firm's stock at the bondholder's discretion is a(n) ________ bond.

A) equity
B) exchange
C) convertible
D) stock
E) market

Question 5

Debt issued by large corporations or governments that matures in a year or less is known as a:

A) derivative asset.
B) money market security.
C) capital market security.
D) fixed-income security.
E) prime loan.

Question 6

An agreement made today regarding the terms of a trade that will take place at a later date is called a(n) ___________.

A) convertible
B) futures
C) stock
D) option
E) derivative

Question 7

What are the three basic types of financial assets?

A) interest-bearing, equities, and derivatives.
B) stocks, bonds and options.
C) short-term, medium term and long term.
D) income, dividend, capital gains.
E) money market, commercial paper, certified deposit.

Question 8

An option contract that can only be exercised on the expiration date is called a(n) ________ option.

A) European
B) put
C) call
D) American
E) Bermudan

Question 9

An option contract that can be exercised up to and including the expiration date is called a(n) _______ option.

A) European
B) Put
C) Call
D) American
E) Bermudan

Question 10

A primary asset is defined as

A) Any financial security that is backed by the full faith and credit of the government
B) A long-term tangible item owned by a corporation and used as collateral for a bond issue
C) Any financial security that is traded on one or more of the security exchanges within Canada and issued by a Canadian corporation
D) A security issued by an individual with a maturity of one year or less
E) A security originally sold by a business or government to raise money that represents a claim on the issuer's asset

Question 11

A bond's _______ sets the dollar amount of its annual interest payments.

A) yield to maturity
B) current yield
C) par value
D) coupon rate
E) market rate

Question 12

The _________ is a bond's annual interest payment divided by its current market price.

A) yield to maturity
B) current yield
C) par value
D) coupon rate
E) market rate

Question 13

The price specified in an options contract at which the underlying asset can be bought or sold is the _____, which is also known as ______ price.

A) call price; invoice
B) Premium; dirty
C) conversion value; tender
D) strike price; exercise
E) market price; clean

Question 14

The price received when an option contract is sold is called the _______.

A) premium
B) yield
C) coupon
D) strike
E) call price

Question 15

A traded futures contract is ________ as it specifies in detail the quantity and the quality of the underlying asset and where it is to be delivered.

A) Marketed
B) Normalized
C) Convertible
D) Redeemable
E) Standardized

Question 16

A ______ option gives the owner the right, but not the obligation, to sell an asset at a specified price.

A) European
B) Put
C) Call
D) American
E) Bermudan

Question 17

A(n) _______ contract is an agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specified price for a specified time period.

A) Convertible
B) Futures
C) Stock
D) Option
E) Derivative

Question 18

A financial asset which represents a claim on another financial asset is called a ______ asset.

A) secondary
B) convertible
C) derivative
D) market
E) primary

Question 19

Which of the following is NOT a characteristic of common stock?

A) potential for capital gains
B) voting rights
C) ownerships in a corporation
D) dividend payments
E) fixed cash flow

Question 20

Using an option contract to buy or sell the underlying asset is called ________ the option.

A) Writing
B) Exercising
C) Making
D) Converting
E) Maturing

Question 21

Which of the following is a derivative asset?
I) Put option
II) Preferred stock
III) Futures contract
IV) Convertible Bond

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

Question 22

ABC Jewels issues some unsecured debt with a 6-month maturity. This debt is classified as a

A) Call option
B) Futures contract
C) Money market instrument
D) Fixed-income securities
E) Derive security

Question 23

A security sold for less than its stated value is sold on a _____ basis.

A) premium
B) short
C) present value
D) discount
E) par

Question 24

On what basis are money market securities distinguished from fixed-income securities?

A) Issuer.
B) Maturity.
C) Interest rate.
D) Tax status.
E) Rate of return.

Question 25

Money market instruments issued by a corporation

A) Are debt obligations
B) Include both debt and equity securities
C) Cannot be traded once issued
D) Are risk-free
E) Can only be resold to the original issuer

Question 26

A spread of ____ basis points is equal to 0.75 percent.

A) 7,500
B) 750
C) 75
D) 7.5
E) 0.75

Question 27

Which of the following is true regarding fixed-income securities?

A) Treasury bonds are subject to default risk
B) Corporate bonds are always very liquid
C) Bond prices rise when interest rates increase
D) A premium bond sells for less than its face value
E) The default risk varies with the bond issuer

Question 28

Which of the following is always sold on a discount basis?

A) Stocks.
B) Treasury bills.
C) Futures.
D) Treasury bonds.
E) Options.

Question 29

Which of the following are money market instruments?
I) Treasury bill
II) Treasury bond issued for two years
III) Bank certificate of deposit issued for 9 months
IV) Provincial bond issued for 6 months

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

Question 30

Which of the following is a real asset?

A) Common stock.
B) Treasury bills.
C) Preferred stock.
D) Gold.
E) Futures.

Question 31

Which of the following are classified as fixed-income securities?
I) Eurobonds
II) Preferred stocks
III) Corporate bonds
IV) Treasury notes

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

Question 32

Many quotes for fixed-income securities include information on the spread that is the return on a bond less the ____ rate.

A) Inflation
B) Prime interest
C) Compatible Treasury security
D) Money market
E) Bank

Question 33

Preferred stock:

A) Represents ownership interest in the issuer
B) Is required by law to pay a fixed dividend
C) Generally has a predetermined maturity date
D) Dividends can be omitted at the discretion of the company president
E) Always have cumulative dividends.

Question 34

Preferred stock is

A) A type of corporate debt
B) Treated like debt for tax purpose
C) Treated like equity for both tax and accounting purposes
D) Valued based on the net worth of the issuer during the liquidation process
E) Listed in the liabilities section of a balance sheet

Question 35

A dividend payment on preferred stock:

A) can never be omitted if the company is earning a profit.
B) cannot be omitted even at the discretion of the board of directors.
C) is automatically omitted if the company realizes a loss.
D) can be omitted at the discretion of the board of directors.
E) increases when the company has a profit and decreases when the company has a loss.

Question 36

A spread of 75 basis points is equal to ____ percent.

A) 7.5
B) 0.00075
C) 0.0075
D) 0.075
E) 0.75

Question 37

A major difference between fixed income securities and money market securities is that the maturity of fixed income securities is greater than:

A) 90 days.
B) 180 days.
C) 1 year.
D) 2 years.
E) 5 years.

Question 38

Generally, the coupon rate on a bond is ____ and the current yield is ____.

A) Fixed; fixed
B) Fixed; fluctuating
C) Fluctuating; fixed
D) Fluctuating; fluctuating
E) Fixed; equal to the coupon rate

Question 39

Which of the following is NOT classified as a fixed income security?

A) 3-month bank certificate of deposit
B) Treasury bill
C) 2-year Canada bond
D) Common stock paying regular quarterly dividends
E) None of the above

Question 40

A cumulative dividend on preferred stock:

A) must be paid at a later date, usually with interest.
B) can be skipped even if dividend payments are made to common stockholders.
C) are paid to stockholders at the discretion of the board of directors.
D) must be paid at a later date, usually without interest.
E) are treated like interest payments on bonds.

Question 41

A _____ bond can be exchanged for shares of stock at the bond owner's discretion.

A) stock
B) convertible
C) high yield
D) cumulative
E) call option

Question 42

Which of the following is a primary asset?

A) Call option.
B) Common stock.
C) Futures.
D) Put option.
E) All of the above.

Question 43

Which of the following is not a characteristic of a money market security? Money market securities:

A) mature in less than one year.
B) are debt obligations.
C) usually have a semi-annual coupon payment.
D) are generally very liquid.
E) have a fixed potential gain.

Question 44

A(n) _____ option can only be exercised on the maturity date.

A) American
B) call
C) put
D) European
E) Asian

Question 45

Suppose you purchase one of each of the following. In which contract does money not change hands today between you and the seller?

A) Futures contract.
B) Option contract.
C) Stock.
D) Bond.
E) Treasury bill.

Question 46

A preferred stock in which omitted dividend payments must be paid in full prior to paying dividends to preferred stockholders is ____ preferred.

A) make-up
B) convertible
C) high yield
D) cumulative
E) call back

Question 47

Which of the following is a difference between an American and a European option?

A) A European option can be exercised any time until maturity.
B) A call option is a European option while a put option is an American option.
C) European options have a higher price than American options.
D) European options can only be exercised at maturity.
E) A put option is a European option while a call option is an American option.

Question 48

You believe a certain stock will increase in value. Which of the following option strategies will generate a profit for you?
I) Buy a put.
II) Buy a call.
III) Sell a put.
IV) Sell a call.

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

Question 49

Which of the following represents ownership of a corporation?

A) Common stock.
B) Call options.
C) Futures.
D) Futures contracts.
E) Corporate bonds.

Question 50

A standardized equity option contract traded on an exchange is for _______ share(s) of stock.

A) 1
B) 10
C) 50
D) 100
E) 1,000

Question 51

Assume that you purchase and will hold your investment to maturity or expiration. Which of the following instrument will have certainty future cash flows when you make your initial purchase?

A) Futures.
B) Put options.
C) Stocks.
D) Bonds.
E) Call options.

Question 52

Which of the following has the least potential for a high return?

A) Money market instruments.
B) Common stock.
C) Futures.
D) Call options.
E) Put options.

Question 53

Which of the following financial assets has the longest time to maturity?

A) Treasury bonds.
B) Fixed income securities.
C) Preferred stock.
D) Put options.
E) Futures.

Question 54

Which of the following is a hybrid security?

A) Preferred stock.
B) Futures.
C) Treasury bonds.
D) Call options.
E) Common stock.

Question 55

Which of the following are generally included in a standard futures contract?
I) Delivery date
II) Quantity to be delivered
III) Delivery location
IV) Specific item to be delivered

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

Question 56

Preferred stock:

A) has voting rights.
B) often has a cumulative dividend.
C) always has a fixed dividend.
D) is considered a debt obligation.
E) dividends are paid at the discretion of the board of directors.

Question 57

Which of the following option strategies has the greatest potential gain?

A) Buy a call.
B) Sell a call.
C) Buy a put.
D) Sell a put.
E) Insufficient information.

Question 58

Why is preferred stock often referred to as a "hybrid" security?

A) They are equity assets but have liquidation payout priority the equivalent of fixed income assets
B) They have voting rights like equity assets but payout coupons like fixed income assets.
C) They payout dividends like equity assets but have convertibility features like fixed income assets.
D) The dividends paid out are like equity assets but the dividends are taxed like fixed income assets.
E) They have fixed payments like fixed-income assets but are not a debt obligation.

Question 59

In Canada, coupon payments to bondholders are generally made:

A) monthly.
B) bi-monthly.
C) quarterly.
D) semi-annually.
E) annually.

Question 60

Futures on such things as cattle, wheat, or oil are called ______ futures.

A) financial
B) real
C) commodity
D) asset backed
E) limit

Question 61

A ______ futures contract is a futures contract on an intangible asset such as a stock index.

A) financial
B) real
C) commodity
D) asset backed
E) limit

Question 62

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-You own 9 Pipa bonds. How much would you receive on the next coupon payment date?

A) $762.77
B) $337.50
C) $438.61
D) $381.38
E) $675.00

Question 63

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-If you sold 5 Pipa bonds on this day. How much would you receive from this transaction?

A) $60.46
B) $604.60
C) $6,046
D) $60,460
E) $604,600

Question 64

$\begin{array}{|l|r|r|r|r|r|rr|r} \hline & & & & & & {\quad\quad\text { Lifetime }} && \text { Open } \\\hline & \text { Open } & \text { High } & \text { Low } & \text { Settle } & \text { Chg } & \text { High } & \text { Low } & \text { Int } \\\hline \text { Dee } & 107.97 & 108.97 & 107.88 & 108.72 & 0.72 & 121.56 & 102.44 & 432,512 \\\hline \text { Mar } & 106.91 & 107.50 & 106.47 & 107.31 & 0.81 & 116.72 & 101.16 & 19,531 \\\hline\end{array}$

-Suppose you purchased 8 December Treasury bond futures contracts at the low for this day. What is the value of your investment?

A) $800,000
B) $851,750
C) $863,000
D) $871,750
E) $834,000

Question 65

If you sell a futures contract, you will have a profit if the price of the underlying asset:

A) declines.
B) increases.
C) remains the same.
D) increases or decreases.
E) Insufficient information.

Question 66

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-Suppose you own 8 of the Willie bonds. If the net change in price is 1.24%, what will be the change in the value of your investment for the next day?

A) $99.20
B) $88.96
C) $73.14
D) $56.00
E) $8.19

Question 67

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-When does the Harolds bond mature?

A) 2012
B) 2013
C) 2025
D) 2029
E) 2016

Question 68

$\begin{array}{|l|r|r|r|r|r|rr|r} \hline & & & & & & {\quad\quad\text { Lifetime }} && \text { Open } \\\hline & \text { Open } & \text { High } & \text { Low } & \text { Settle } & \text { Chg } & \text { High } & \text { Low } & \text { Int } \\\hline \text { Dee } & 107.97 & 108.97 & 107.88 & 108.72 & 0.72 & 121.56 & 102.44 & 432,512 \\\hline \text { Mar } & 106.91 & 107.50 & 106.47 & 107.31 & 0.81 & 116.72 & 101.16 & 19,531 \\\hline\end{array}$

-Suppose you sold 8 of the March Treasury bond futures at the lifetime high and closed your position at the closing price this day. What was your profit on this transaction?

A) $67,140
B) $70,030
C) $72,320
D) $68,460
E) $75,280

Question 69

Futures contracts

A) Can only be placed on intangible assets
B) Are primary financial assets
C) Are more risky than forward contracts
D) Are tailor made
E) Can be resold

Question 70

Investing in futures contracts

A) Is the only means of investing in tangible assets
B) Can be very risky
C) Is a means of locking in a pre-determined amount of profit
D) Is a method used to avoid losses
E) All of the above

Question 71

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-You own 7 Willie bonds. How much will you receive on the next interest payment date?

A) $625.00
B) $196.18
C) $437.50
D) $392.35
E) $218.75

Question 72

At the time a futures contract is written,

A) The buyer locks in a guaranteed profit
B) A cash payment is made by the buyer
C) The market price of the underlying asset on the date must be less than the agreed upon futures price
D) The underlying asset is specifically identified
E) The seller of the futures contract believes the price of the underlying asset will rise above the agreed upon price

Question 73

$\begin{array}{|l|r|r|r|r|r|rr|r} \hline & & & & & & {\quad\quad\text { Lifetime }} && \text { Open } \\\hline & \text { Open } & \text { High } & \text { Low } & \text { Settle } & \text { Chg } & \text { High } & \text { Low } & \text { Int } \\\hline \text { Dee } & 107.97 & 108.97 & 107.88 & 108.72 & 0.72 & 121.56 & 102.44 & 432,512 \\\hline \text { Mar } & 106.91 & 107.50 & 106.47 & 107.31 & 0.81 & 116.72 & 101.16 & 19,531 \\\hline\end{array}$

-Suppose you purchased 5 of the December Treasury bond futures contracts at the lifetime low and sold them at the close on this day. What was your profit on this transaction?

A) $38,746.00
B) $29,187.50
C) $33,485.75
D) $31,400.00
E) $34,894.50

Question 74

Money market instruments are:

A) debt instruments.
B) equity.
C) options.
D) futures.
E) none of the above.

Question 75

You sold one August futures contract on corn. You will

A) Have to pay the corn when it is delivered in August
B) Most likely take delivery of the corn in August
C) Most likely buy an August futures contract to offset this contract
D) Receive payment for the corn now and will deliver the corn in August
E) Pay for the corn now and accept delivery in August

Question 76

$\begin{array}{|l|r|r|r|r|r|rr|r} \hline & & & & & & {\quad\quad\text { Lifetime }} && \text { Open } \\\hline & \text { Open } & \text { High } & \text { Low } & \text { Settle } & \text { Chg } & \text { High } & \text { Low } & \text { Int } \\\hline \text { Dee } & 107.97 & 108.97 & 107.88 & 108.72 & 0.72 & 121.56 & 102.44 & 432,512 \\\hline \text { Mar } & 106.91 & 107.50 & 106.47 & 107.31 & 0.81 & 116.72 & 101.16 & 19,531 \\\hline\end{array}$

-What was the highest dollar value of the March Treasury bond futures contract to this date?

A) $116.72
B) $1,167.19
C) $11,671.88
D) $116,720.00
E) $1,167,187.50

Question 77

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-What is the current yield for the Kat bond? Note: closing price here is the mid-point between final bid and ask quotation.

A) 7.5%
B) 6.7%
C) 7.9%
D) 3.8%
E) 8.3%

Question 78

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-What is the closing price of the Pipa Company bond using the average of the final bid and ask?

A) $584
B) $725
C) $1,125
D) $1,210
E) $1,183

Question 79

Assume that a face value of $1,000 for each type of bond. Yields are calculated to full maturity with semi-annual compounding. Yield change is the change in ask yield from the previous close.

$\begin{array}{|l|r|l|r|r|r|r|r|}\hline \text { Issuer } & \text { Coupon } & \begin{array}{l}\text { Maturity } \\\text { Date }\end{array} & \begin{array}{r}\text { Bid } \\\text { Price }\end{array} & \begin{array}{r}\text { Ask } \\\text { Price }\end{array} & \begin{array}{r}\text { Bid } \\\text { Yield }\end{array} & \begin{array}{r}\text { Ask } \\\text { Yield }\end{array} & \begin{array}{r}\text { Yield } \\\text { Change }\end{array} \\\hline \text { Pipa Co. } & 7.500 & 2012-\text { Aug-24 } & 120.92 & 121.02 & 5.41 & 5.37 & +0.011 \\\hline \text { Harolds Inc. } & 8.000 & 2025 \text {-Jan-10 } & 84.33 & 84.63 & 5.02 & 4.88 & +0.003 \\\hline \text { Willie Ltd. } & 6.250 & 2018-O c t-1 & 89.47 & 89.89 & 5.19 & 4.97 & -0.016 \\\hline \text { Kat Enterprise } & 8.250 & 2013-M a r-13 & 109.09 & 109.49 & 5.34 & 5.28 & -0.009 \\\hline\end{array}$


-Suppose you purchase 5 Harolds bonds on this day. How much would you pay?

A) $4,623.00
B) $4,232.00
C) $5,000.00
D) $3,864.00
E) $423.20

Question 80

The _____ is the price paid for an option.

A) obligated price
B) strike price
C) premium
D) intrinsic value
E) exercise price