Question 1

The stocks on the Dow Jones Industrial Average

Accepted Answer

The stocks on the Dow Jones Industrial Average are changed occasionally as circumstances dictate. This means that the index is adjusted periodically to reflect changes in the stock market and the economy. Therefore, choice C is the correct answer.

Question 2

A form of short-term borrowing by dealers in government securities is (are)

Accepted Answer

Repurchase agreements, also known as repos, are a form of short-term borrowing by dealers in government securities. In a repo, the dealer borrows funds by selling government securities to a lender with an agreement to repurchase them at a specified date and price. The difference between the sale price and repurchase price is the interest paid on the loan. Repurchase agreements are commonly used by dealers to fund their positions in government securities and manage their liquidity needs.

Question 3

If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street Journal would be

Accepted Answer

Treasury notes are quoted in 32nds of a point. A bid price of $995 on a $1,000 face value note is equivalent to 99.5% of face value, which is 99:16 in 32nds (since 0.5 * 32 = 16).

Question 4

In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs

Accepted Answer

The answer of In calculating the Standard and Poor's stock...

Question 5

Consider the following three stocks:  Assume at these prices that the value-weighted index constructed with the three stocks is 490.What would the index be if stock B is split 2 for 1 and stock C 4 for 1?

Accepted Answer

The answer of Consider the following three stocks:  Assume...

Question 6

An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

Municipal bond interest is typically tax-exempt, so the after-tax rate of return on the municipal bond will remain the same at 7.5%. However, for the corporate bond, the investor will have to pay taxes on the interest income. The after-tax rate of return on the corporate bond can be calculated as (1 – 0.25) x 10.3% = 7.73%. Therefore, the best choice would be to invest in both bonds, but the after-tax return on the municipal bond will be higher.

Question 7

If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?

Accepted Answer

The stock trading at the highest dollar price per share will have the greatest impact on the DJIA because the index is price-weighted, meaning that stocks with higher share prices have a greater influence on the index's movements. Therefore, a percentage change in the stock with the highest share price will have a greater effect on the index than the same percentage change in a lower-priced stock.

Question 8

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125.As a seller of the bond, what is the dollar price you expect to receive?

Accepted Answer

The bid price is the price at which a buyer is willing to purchase the bond and the ask price is the price at which a seller is willing to sell the bond. As a seller, you can expect to receive a price closer to the bid price than the ask price. Therefore, the dollar price you expect to receive is closer to the bid price of 104.125. Multiplying this by the bond's face value of $1000 gives us $1041.25. Thus, the correct answer is (C).

Question 9

Consider the following three stocks:  The price-weighted index constructed with the three stocks is

Accepted Answer

The price-weighted index is calculated by adding the prices of all the stocks together and dividing by the number of stocks. 
Price-weighted index = (11 + 25 + 4)/3 = 40 
Therefore, the correct answer is B.

Question 10

Consider the following three stocks:  The value-weighted index constructed with the three stocks using a divisor of 100 is

Accepted Answer

The answer of Consider the following three stocks:  The...

Question 11

Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false?

Accepted Answer

The DJIA is not affected equally by changes in low- and high-priced stocks. The index is price-weighted, meaning that stocks with higher prices contribute more to the index's movements than stocks with lower prices. Therefore, a 1% change in a high-priced stock will have a greater impact on the index than a 1% change in a low-priced stock.

Question 12

The yield to maturity reported in the financial pages for Treasury securities

Accepted Answer

The yield to maturity for Treasury securities, as reported in financial pages, is often calculated by doubling the semiannual yield, which is a simple way to annualize the yield. This method is also referred to as the bond equivalent yield, which makes it easier to compare with other annual interest rates.

Question 13

The index that includes the largest number of actively-traded stocks is

Accepted Answer

The Wilshire 5000 Index includes approximately 3,500 actively-traded stocks from a variety of exchanges, including the NYSE, NASDAQ, and AMEX. This makes it the broadest U.S. stock market index based on the number of companies included. The NASDAQ Composite Index primarily includes technology stocks, the NYSE Composite Index includes all the common stocks listed on the NYSE, and the Value Line Composite Index includes approximately 1,700 stocks selected by the Value Line Investment Survey.

Question 14

Brokers' calls

Accepted Answer

Brokers' calls refers to funds used by individuals who wish to buy stocks on margin and are also funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so.

Question 15

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively.If the investor is in the 20% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

The answer of An investor purchases one municipal and one...

Question 16

A 5.5%, 20-year municipal bond is currently priced to yield 7.2%.For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

Accepted Answer

To calculate the equivalent taxable yield, we need to divide the tax-exempt yield (7.2%) by the complement of the tax bracket (1-0.33=0.67). 
Equivalent taxable yield = 7.2% / 0.67 = 10.75%. Therefore, the best choice is B.

Question 17

Which of the following securities is a money market instrument?

Accepted Answer

Commercial paper is a short-term, unsecured debt instrument issued by corporations with high credit ratings. It is considered a money market instrument because it has a maturity of less than one year and is typically used to raise short-term funds. Treasury notes and bonds are longer-term government securities, and municipal bonds are bonds issued by local governments to fund public projects.

Question 18

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

Accepted Answer

Treasury note prices are quoted as a percentage of their face value, with each percentage point equal to $10 for a $1,000 bond. Therefore, a bid price of $975 would be 97.5% of face value. However, the price is typically quoted in 32nds of a point, so 0.5% would be 16/32, or 0.5 points. Therefore, the bid price would be quoted as 97:16 in the Wall Street Journal.

Question 19

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125.As a buyer of the bond, what is the dollar price you expect to pay?

Accepted Answer

The ask price is the price at which you can buy the bond, which is 104.25% of its face value. Since Treasury bonds have a face value of $1,000, the dollar price you expect to pay is 104.25% of $1,000, which equals $1,042.50.

Question 20

Federally-sponsored agency debt

Accepted Answer

Federally-sponsored agency debt is not legally insured by the U.S.Treasury but would probably be backed by the U.S.Treasury in the event of a near-default. It also usually has a small positive yield spread relative to U.S. Treasuries. Therefore, option D is the best answer as it includes both of these characteristics.

Quiz 2: Financial Markets, Asset Classes and Financial Instruments