Question 1

If a treasury bond can be purchased for $9,450 today and the bond holder will receive $850 in interest and the $10,000 face value at maturity, what is the percentage holding period return?

Accepted Answer

($10,000 - $9,450 + $850)/$9,450 = 0.148 or 14.8%

Question 2

Two years ago you bought 100 shares of Big Bubba convertible preferred stock at $25 per share.The preferred stock had an annual dividend of $2.125 per share, and a total of $3.19 in dividends per share have been paid so far.Today the company announced that the stock is redeemable for $26.70 plus accrued and unpaid dividends, for a total of $27.76.Alternatively, holders may convert their shares of preferred stock at a conversion rate of 1.6393 shares of Big Bubba common stock for each share of preferred stock.If the closing price of Big Bubba common stock is $27.50, what is your holding period return?

Accepted Answer

Ending price = $27.50(1.6393) = $45.08
HPR = ($45.08 - $25 + $3.19)/$25 = 0.9308 or 93.08%

Question 3

Lear purchased 100 shares of Quitcha Twitchin Anti-inch Cream stock at $30 per share last year and sold them eleven months later for $24 per share.The shares split 2 for 1 shortly after Lear purchased the stock.If the stock paid $0.25 per share in dividends last year, what is Lear's holding period return?

Accepted Answer

HPR = [2400 ­ 1500 + .25(100)]/1500 × 100% = 61.67%

Question 4

In an efficient capital market, corporate diversification is .

Accepted Answer

In an efficient capital market, investors have access to all relevant information about a company, including its various business segments. Therefore, corporate diversification is unnecessary since investors can choose to diversify their own portfolios by investing in a variety of companies that specialize in different industries.

Question 5

In an efficient capital market, all security investments will have:

Accepted Answer

In an efficient capital market, all security investments will have a NPV close to zero because all publicly available information is already reflected in the security's price. Therefore, only investments with a NPV of zero will be attractive to investors in an efficient capital market.

Question 6

If the spot rate for the British pound is $1.5077 and the 180-day forward rate is $1.4934, what is the annualized premium (discount)?

Accepted Answer

[($1.4934 - $1.5077)/($1.5077)](12/6)(100%) = -1.897%

Question 7

If the spot rate (in U.S.dollars) for Japanese Yen is 0.00703 and the 180 day forward rate is 0.00717, then the Yen is trading at an annualized

Accepted Answer

Premium = [(0.00717 - 0.00703)/0.00703](12/6) = 0.0398

Question 8

You bought 100 shares of Risky Venture stock six months ago for $14 per share and sold it yesterday for $12.The company paid a total of $0.24 per share in dividends to you during the time you held the stock.What was your holding period return?

Accepted Answer

HPR = ($12 - $14 + $0.24)/$14 = -0.1257 or -12.57%

Question 9

In an efficient capital market

Accepted Answer

In an efficient capital market, required returns equal expected returns. This means that investors are being compensated for the level of risk they are taking on, and there would be no opportunity to earn excess profits or returns by buying undervalued assets. Therefore, choice A is the correct answer. Choices B, C, and D are incorrect as they do not accurately describe the characteristics of an efficient capital market.

Question 10

Maher purchased 100 shares of Chill Pill Pharmaceuticals at $30 per share last spring and sold them in six months for $36 per share.The stock paid no dividend.What was Maher's holding period return?

Accepted Answer

HPR = (3600 ­ 3000)/3000 × 100% = 20%

Question 11

What is the holding period return to an investor who bought 100 shares of Oil Slick stock nine months ago for $36 per share, received two $50 dividend checks, and sold the stock today at $38 a share.

Accepted Answer

($38 + $1 - $36)/$36 = 0.0833 or 8.33%

Question 12

If the spot rate for the Japanese yen is $0.009204 and the 90-day forward rate is $0.009227, what is the annualized premium (discount)?

Accepted Answer

[(.009227 - .009204)/(.009204)](12/3)(100%) = 0.9996%

Question 13

Changes in the tax code that slow down depreciation, the present value of investment cash flows and, therefore, make the investment desirable.

Accepted Answer

Slowing down depreciation means that the investment can't be written off as quickly, which decreases the tax benefits of the investment in the short term. As a result, the present value of investment cash flows decreases, making the investment less desirable. Therefore, the answer is B) decrease, less.

Question 14

The barriers to the free flow of capital among the major world capital markets include all of the following except:

Accepted Answer

Low transaction costs actually facilitate the free flow of capital among major world capital markets. The other options, taxation policies, foreign exchange risks, and legal restrictions, all represent commonly cited barriers to the free flow of capital among these markets.

Question 15

Christy purchased 100 shares of Good Idea stock for $48 last year.Yesterday she sold the stock for $45.If she received $4 in dividends during the time she held the security, what is her holding period return?

Accepted Answer

($45 - $48 + $4)/$48 = 0.0208 or 2.08%

Question 16

If an investor purchased 100 shares of Biggee stock for $30 per share, 6 months ago, and then sold the stock today for $33 per share, what was the investor's holding period return if a total of $1 per share in dividends was received over the 6 month period?

Accepted Answer

HPR = ($33 - $30 + $1)/$30 = 13.3%

Question 17

Which of the following reflect (reflects) the implications of income taxes for financial managers:

Accepted Answer

The answer of Which of the following reflect (reflects) the...

Question 18

For the financial manager, taxes have important implications for

Accepted Answer

Taxes have an impact on all aspects of the financial management including dividend policy, financial restructurings, and capital structure policy. For instance, taxes will influence how much dividends a firm can pay to shareholders, the cost of raising capital, and the design of financial restructurings to minimize tax liabilities. Therefore, tax considerations are critical in financial management decisions.

Question 19

Which of the following is correct regarding the forms of market efficiency?
I. In an efficient capital market stock prices provide an unbiased estimate of the true value of an enterprise.

Accepted Answer

The answer of Which of the following is correct regarding...

Question 20

Savings and loan associations are considered:

Accepted Answer

Savings and loan associations are commonly known as thrift institutions. These institutions specialize in accepting deposits from savers and investing these funds in mortgages and other types of loans to their members typically for home purchases. They do not perform the same types of banking activities as commercial banks, such as providing checking accounts and offering credit cards. Investment companies, on the other hand, specialize in managing investments on behalf of their clients. Finally, loan sharks refer to illegal lenders who typically charge extremely high interest rates and use aggressive means to recover their loans.

Quiz 2: The Domestic and International Financial Marketplace