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Exam 2: Asset Classes and Financial Instruments

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Question 1

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A tax free municipal bond provides a yield of 3.2%.What is the equivalent taxable yield on the bond given a 35% tax bracket?

A) 3.20%
B) 3.68%
C) 4.92%
D) 5.00%

E) B) and D)
F) A) and B)

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Question 2

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A corporation in a 34% tax bracket invests in the preferred stock of another company and earns a 6% pre-tax rate of return.An individual investor in a 15% tax bracket invests in the same preferred stock and earns the same pre-tax return.The after tax return to the corporation is _______ and the after tax return to the individual investor is _______.

A) 3.96%; 5.1%
B) 5.39%; 5.1%
C) 6.00%; 6.00%
D) 3.96%; 6.00%

E) A) and D)
F) A) and C)

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Question 3

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An investor in a T-bill earns interest by _________.

Which one of the following provides the best example of securitization?

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?

A benchmark market value index is comprised of three stocks.Yesterday the three stocks were priced at $12,$20,and $60.The number of outstanding shares for each is 600,000 shares,500,000 shares,and 200,000 shares,respectively.If the stock prices changed to $16,$18,and $62 today respectively,what is the one day rate of return on the index?

Treasury bills are financial instruments issued by __________ to raise funds.

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity.The investor's actual annual rate of return on this investment was _____.

If a treasury note has a bid price of $996.25,the quoted bid price in the Wall Street Journal would be _________.

Which of the following is not a nickname for an agency associated with the mortgage markets?

An investor in a 28% tax bracket is trying to decide whether to invest in a municipal bond or a corporate bond.She looks up municipal bond yields (r_m) but wishes to calculate the taxable equivalent yield r.The formula she should use is given by ______.

The ________ the ratio of municipal bond yields to corporate bond yields the _________ the cutoff tax bracket where more individuals will prefer to hold municipal debt.

Which of the following are not characteristic of common stock ownership?

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

Which one of the following is a true statement regarding corporate bonds?

An individual who goes short in a futures position

Which of the following indices are market-value weighted? I.The NYSE Composite II.The S&P 500 III.The Wilshire 5000

Which of the following are true statements about T-bills? I.T-bills typically sell in denominations of $10,000 II.Income earned on T-bills is exempt from all Federal taxes III.Income earned on T-bills is exempt from state and local taxes

Money market securities are sometimes referred to as "cash equivalent" because _____.

If the market prices of the 30 stocks in the Dow Jones Industrial Average all change by the same dollar amount on a given day,assuming there are no stock splits which stock will have the greatest impact on the average?