Question 1

Rank (lowest to highest) the following securities in terms of the risk-expected return tradeoff from the investors' viewpoint: common stock, corporate bonds,
U.S. Treasury bonds, preferred stock.

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Question 2

The par value of Blaze, Inc. common stock is $0.50, the earnings per share is $4, the stock price is $60, and the dividend per share is $1. Calculate the dividend payout ratio and the firm's retention ratio (plowback ratio).

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Question 3

Does the options market help stabilize or destabilize the stock market? Explain.

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Question 4

Carl purchased a $10,000 T-bill that had 260 days to maturity and was quoted with a bank discount of 1.6%. After holding the T-bill for 200 days, Carl sold the T-bill when it had a quoted bank discount of 2.0%. Find Carl's bond equivalent yield (BEY) and his equivalent annual yield.

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Question 5

Who benefits from a futures contract, a call contract, and a put contract, if prices fall?

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Question 6

The par value of Blaze, Inc. common stock is $0.50, the earnings per share is $4, the stock price is $60, and the dividend per share is $1. Calculate the dividend yield and P/E ratio.

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Question 7

What are some advantages of asset-backed securities to investors?

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Question 8

The par value of Inferno, Inc. common stock is $0.50, the earnings per share is $6,
and it trades at a P/E of 15. What is Inferno, Inc.'s stock price?

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Question 9

Explain how writing option contracts (both puts and calls) can generate income for owners of the underlying stock.

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Question 10

A corporate investor in the 34% marginal income tax bracket can buy bonds issued by a petroleum exploration company yielding 10.606%. The investor should be willing to buy tax-exempt municipal bonds of similar quality yielding what percent or higher?

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Question 11

TR Bank is planning to purchase a T-bill with a face value of $100,000. The T-bill is quoted at a bank discount of 2.1% and has 320 days to maturity. Find the T-bill's price, bond equivalent yield (BEY) and equivalent annual yield (EAY).

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Question 12

How do asset-backed securities improve the flow of funds from savers to borrowers?

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Question 13

Bond's issued by McDonalds are yielding 6.75%, whereas comparable risk bonds issued by the city of Omaha are yield 4.45%. What Nebraska residents should purchase the Omaha bonds?

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Question 14

What rate would a taxable corporate bond have to pay to be comparable to a municipal bond with a coupon rate of 7 percent if the investor is in the 28 percent tax bracket?

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Quiz 2: Investment Alternatives

Rank (lowest to highest) the following securities in terms of the risk-expected return tradeoff from the investors' viewpoint: common stock, corporate bonds, U.S. Treasury bonds, preferred stock.