answer all 25 questions. Each question is worth equal
cash flows are relevant to the value of stock?
Q2. Why the
Fed was initially established?
Q3. Suppose a firms stock has
a beta of 1.2. What will probably happen to the value of the stock if the
market decreases by 20 percent?
Q4. Describe the likely consequences for GDP
growth when the FOMC directs the trading desk at the New York Fed to sell
how STRIPs can be used to immunize portfolios against interest rate risk.
Q6. Why must the balance of payments always
Q7. Why might consumer groups support
government policies that maintain a strong U.S. dollar?
Q8. What are the four types of
Q9. What are the tax advantages of qualified
private pension plans?
Q10. Why are life insurance and life annuities
often described as opposites?
Q11. What are the largest asset categories on a
life insurance company balance sheet?
Q12. If you had a 6 percent,
$100,000, 15-year mortgage and you paid it as scheduled, how much interest
would you pay in the first month of the sixth year on that mortgage? How much
principal would you pay?
Q13. Which of the following is not an example of capital market
Q14. In a board of directors election for five
directors and straight voting, a majority group of shareholders will elect
or five depending on how the cumulative voters vote.
same proportional share of directors as their ownership share.
exchanges provide a valuable function in that they
interest in stocks.
the marketability of securities.
a legal way to gamble.
money to deficit spending units.
a and d
of the following is not true about American Depository Receipts
are claims issued by U.S.
financial intermediaries (FIs) against shares in foreign companies, with the
shares held in custody by the FIs for investors.
are issued in the U.S.
and are denominated in U.S. dollars. All cash flows to the investor are in
ADR enhances a companys visibility, status and profile in the U.S. and
internationally among investors.
ADR decreases the foreign firms U.S. liquidity (and potentially
total global issuer liquidity).
Q17. The Wall Street Journal publishes
T-bill price (bid/ask) based on the ___________ rate; with the __________ rate
provided as the quoted (ask) yield on the T-bill.
equivalent; bank discount
annual; bank discount
discount; bond equivalent
equivalent; bank discount
Small investors are likely to invest in the money market through ____.
b. locally; their
money market mutual funds
Q19. What is the bank discount rate on a $100,000
face value T-bill priced at $97,500, maturing in 181 days?
large corporations, commercial paper is more expensive but is a more assured
alternative to bank borrowing.
investors most often have only indirect access to the money market through
Reserve open market operations, reserve requirement changes, and discount rate
policy first impact the economy in the money market.
Q23. Winters Hi-Hook Inc., a golf club manufacturer,
is currently paying dividends of $.50 per share. These dividends are expected to grow at a 20
percent rate for the next two years and at a three percent rate thereafter
(forever!). What is the value of the
stock if the appropriate discount rate is 14 percent?
Q24. You purchase 100 shares of Adams Trading
Company stock today for $22.50 per share.
At the end of one year, you collect a dividend of $2.75 and then sell
the stock at $24.50 per share. What is
your total return on the stock? What is
the dividend yield? What is the capital
Motors stock has a beta of 1.3. If the
market risk premium is 8.5 percent and the risk-free rate is 4 percent, what is
the expected return of the stock according to the security market line?