Finance 352 Practice Exam Solutions

1. The NYSE is an example of ________ and NASDAQ is an example of ______

1. a dealer market; an auction market

2. a brokered market; a dealer market

3. a specialist; a brokered market

4. an auction market; a dealer market

1. The money market is the market where:

1. Only equity securities are traded.

2. Debt securities with maturities of less than a year are traded.

3. Where treasury debt securities are traded.

4. Securities of maturities longer than one year are traded.

The quote in the WSJ for the Treasury bill with face value of $1,000 is as follows:

        Answer the following 4 questions using information in above table.

1. The ask price of a T-bill in the secondary market is

1. the price at which the investor can sell the bill.

2. the price at which the dealer in T-bills is willing to buy the bill.

3. less than the bid price of the T-bill.

4. the price at which the investor can buy the T-bill

1. What are the purchase prices of the 116-day and 172-day bills that you face respectively?

1. $995.07, $992.16

2. $994.78, $992.16

3. $995.07, $992.59

4. $994.78, $992.59

1. What would be the effective annual yields respectively for the 116- and 172-day bills if you hold them to maturity?

1. 1.57%, 1.59%

2. 1.54%, 1.57%

3. 1.59%, 1.57%

4. 1.57%, 1.54%

1. What would be the effective annual yield on your investment if you buy the 172-day T-bill today and sell it back to a dealer after 84 days, assuming yields do not change over time?

1. 1.45%

2. 1.48%

3. 1.53%

4. 1.56%

1. You purchased a share of stock for $50. Three year later you received $2 as dividend and sold the share for $49. What was your holding period return?

1. 2%

2. 2.5%

3. -2%
4. -2.5%

8.        Regarding the previous question, what is the effective annual rate of your investment?

        A. -6.7%

        B. 0.67%

        C.7.7%

        D. -0.67%

1. You purchased 100 shares of ABC common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

1. $27

2. $50

3. $60

4. $80

10. Which of the following is NOT a characteristic of preferred stock?

1. It is like perpetuity.

2. Gives voting rights to its owner.

3. The firm retains discretion to make the dividend payments.

4. Dividends are not tax-deductible for the firm as opposed to interest payments.

        11.        __________ is NOT a characteristic of a money market instrument.

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