Question 1 : A corporate bond shows a trading price of $124.65; a coupon rate of 6.245; a maturity date of February 15, 2034; and a par value of $1,000. What will you pay, and what will the yield be?
Options :
a. You will pay $1,246.50, and the yield will be 6.245 percent.
b. You will pay $124.65, and the zero-coupon rate will be 4.09 percent.
c. You will pay $1,000, and the yield will be 4.09 percent.
d. You will pay $1.246.50. and the yield will be 4.09 percent.
Answers : a. You will pay $1,246.50, and the yield will be 6.245 percent.
Question 2 : Which term describes the relationship between a bond’s price and yield?
Options :
a. Inverse
b. Direct
c. Unrelated
d. Proportional
Answers : a. The relationship between a bond's price and yield is inverse.
Question 3: How do Schwab and Morgan Stanley compare as brokerage accounts?
Options :
a. Schwab has a lower fee for trades, while Morgan Stanley’s higher price comes with handholding and research.
b. Both provide hand holding (they will help you along), but neither company will provide you with research.
c. Morgan Stanley has a lower fee for trades, while Schwab’s higher price comes with handholding and research.
d. Both are the same as far as providing handholding and research, with the difference in fees based on the number of stocks you trade.
Answers : a. "Schwab has a lower fee for trades, while Morgan Stanley's higher price comes with handholding and research."
Question 4: Short-term US Government debt securities with maturities of 13 weeks, 26 weeks, or 52 weeks are commonly called
Options :
a. Coupon Bonds.
b. T-Bonds.
c. T-Bills
d. Savings Bonds
Answers : c. T-Bills
Short-term US Government debt securities with maturities of 13 weeks, 26 weeks, or 52 weeks are commonly called T-Bills.
Question 5 : When you are bidding during a Treasury auction, what must you consider if you enter a higher price?
Options :
a. The yield will be higher.
b. The price will decrease.
c. The term will be longer.
d. The yield will be lower.
Answers : d. The yield will be lower.
When you bid at a higher price during a Treasury auction, the yield will be lower.
Question 6 : Why are municipal bonds more attractive to high-income investors than to other investors?
Options :
a. Municipal bond returns are exempt from federal income tax.
b. Municipal bonds are nearly as safe as US government bonds.
c. Municipal bond defaults are covered by the US government.
d. Municipal bonds generally have a higher yield than corporate bonds.
Answers : a. Municipal bond returns are exempt from federal income tax.
Municipal bonds are more attractive to high-income investors because municipal bond returns are exempt from federal income tax, making them potentially more advantageous for individuals in higher tax brackets.
Question 7 : You place an order for ABC Corp. stock, knowing the price will be somewhere between the bid price and the ask price. Which type of order are you placing?
Options :
a. a compromise order
b. a stop-on-quote order
c. a limit order
d. a market order
Answers : c. a limit order
You are placing a limit order when you specify a price range between the bid price and the ask price for ABC Corp. stock.
Question 8 : What is meant by “price” in the bond market?
Options :
a. the price investors are willing to pay for a bond
b. the face value of a bond
c. the price bonds are traded at in the market
d. a percentage of a bond’s par value
Answers : c. the price bonds are traded at in the market
In the bond market, "price" typically refers to the price bonds are traded at in the market, which can be either higher or lower than the bond's face value (par value).
Question 9 : Which term most accurately describes junk bonds?
Options :
a. no-return bonds
b. low-risk bonds
c. low-yield bonds
d. high-yield bonds
Answers : d. high-yield bonds
The term that most accurately describes junk bonds is high-yield bonds.
Question 10 : Which area of governmental regulation is within the authority of the Federal Trade Commission, rather than the Securities and Exchange Commission?
Options :
a. informing and protecting investors
b. providing data investors can use for evaluating companies
c. ensuring that companies are competing fairly across industries
d. turning laws into actionable rules
Answers : c. ensuring that companies are competing fairly across industries
The area of governmental regulation within the authority of the Federal Trade Commission, rather than the Securities and Exchange Commission, is ensuring that companies are competing fairly across industries.
Question 11 : What term refers to the amount of money an investor gets each year in interest from a bond?
Options :
a. Yield
b. Par value
c. Coupon
d. Price
Answers : c. Coupon
The term that refers to the amount of money an investor gets each year in interest from a bond is Coupon.
Question 12 : You calculate the value of a bond in Excel with a yield of 10 percent. Which change can you make in the calculations that will result in the value of the bond increasing?
Options :
a. increasing the par value
b. lowering the yield
c. increasing the yield
d. changing the maturity date
Answers : b. lowering the yield
If you want to increase the value of a bond in Excel with a yield of 10 percent, you should lower the yield. Bond prices and yields have an inverse relationship, so when the yield decreases, the bond's value increases.
Question 13: What Excel formula can you use to determine the value of a bond?
Options :
a. FV(0)
b. RATEO
c. PMTO
d. PVO
Answers : d. PVP
To determine the value of a bond in Excel, you can use the PV function.
Question 14 : What Excel formula can you use to determine the yield of a bond?
Options :
1. RATE()
2. FV0
3. PVO
4. PMTO
Answers : 1. RATE()
The Excel formula you can use to determine the yield of a bond is RATE().
Question 15: ABC Corp. stock has been holding at $22.50 for a few months. Stockholder Nguyen is willing to sell call options at $23. Investor Dudek buys the call options. Who is guaranteed to come out ahead?
Options :
a. Nguyen will come out ahead, because he will receive a premium for each share for which Dudek places a call option.
b. Nguyen will come out ahead, because he is protected by Dudek’s call option from ABC stock falling in price.
c. Dudek will come out ahead, because if the stock does not increase in price, he can simply let the call option expire.
d. Dudek will come out ahead, because stocks will always rise in price and after he buys the stock, he can sell for an even higher price
Answers : a. Nguyen will come out ahead, because he will receive a premium for each share for which Dudek places a call option.
Question 16 : In an average year, what is the typical pattern of stock market moves look like?
Options :
a. a large decrease at the beginning of the year, offset by steady daily increases the rest of the year
b. a large increase at the beginning of the year, offset by steady decreases the rest of the year
c. a steady daily move throughout the entire year
d. a small daily move most of the year, with periodic sharp increases up or down
Answers : d. a small daily move most of the year, with periodic sharp increases up or down
In an average year, the typical pattern of stock market moves looks like a small daily move most of the year, with periodic sharp increases up or down.
Question 17 : ABC Corp. stock is currently trading at $17.42. How does the strike price in a put option for ABC stock at $21.75 limit the risk for you as the buyer of the put option?
Options :
a. The strike price is a guaranteed price at which you can sell your stock, even if ABC stock falls below that price.
b. The strike price allows you to withdraw your put option, in the event ABC employees go on strike.
c. The strike price triggers the sale of the put option when the strike price is reached for your ABC stock.
d. The strike price is the average price for ABC stock at which you can feel confident you can sell.
Answers : a. The strike price is a guaranteed price at which you can sell your stock, even if ABC stock falls below that price.
The strike price in a put option for ABC stock at $21.75 limits the risk for you as the buyer of the put option because it is a guaranteed price at which you can sell your stock, even if ABC stock falls below that price.
Question 18 : What type of bonds are generally exempt from Federal Income tax?
Options :
a. Equity bonds
b. Corporate bonds
c. Muni bonds
d. Treasury bonds
Answers : c. Muni bonds
Municipal bonds are generally exempt from Federal Income tax.
Question 19 : You are deciding to buy either a municipal bond your city issues with a Baa rating, or a corporate bond with a Triple-A rating. If you are concerned about only risk, which bond should you buy?
Options :
a. You could buy either bond, because both bonds have a default rate at roughly the same level.
b. You should buy the municipal bond, because a Baa rating has a default rate well below a Triple-A corporate bond.
c. You should buy the corporate bond, because it has a much higher rating.
d. You could buy either bond, because the tax benefits of both types of bonds offset any risk.
Answers : c. You should buy the corporate bond, because it has a much higher rating.
Question 20 : An investor who thought a stock would fall in value would want to do what?
Options :
a. none of these answers
b. go long the stock
c. avoid the stock
d. short the stock
Answers : d. short the stock
An investor who thinks a stock will fall in value would want to short the stock.
Question 21 : What is the highest possible bond rating?
Options :
a. A
b. D
c. AAA
d. BBB
Answers : c. AAA
The highest possible bond rating is AAA.
Question 22 : You are on the EMMA website considering investing in a municipal bond. What does the information under CUSIP tell you that is most important?
Options :
a. the number of trades and the trading price of the bond
b. the disclosure statements associated with the bond
c. the bond issuer’s name and the yield of the bond
d. the date the bond was issued and the rating for the bond
Answers : c. the bond issuer's name and the yield of the bond
The information under CUSIP (Committee on Uniform Securities Identification Procedures) on the EMMA website provides the bond issuer's name and the yield of the bond, which are most important for investors to assess the bond's characteristics and potential returns.
Question 22 : You are a sophisticated corporate financial professional who fully understands arbitrage in foreign exchange markets. Given this knowledge, what two things are you able to do?
Options :
a. Determine the most favorable exchange rates, and do the math to turn the exchange rates to your favor.
b. Understand the economies, and do the math to identify arbitrage opportunities.
c. Forecast what is going to happen in the economies, and do the math to identify arbitrage opportunities.
d. Forecast what is going to happen in the economies, and be the first to jump on the opportunities
Answers : a. Determine the most favorable exchange rates, and do the math to turn the exchange rates to your favor.
Question 23 : When you are valuing a stock, what must you be most careful about when performing your calculations?
Options :
a. that you have done your research on the likelihood of continued future dividends
b. that you have done your research on the company’s historic growth rate
c. that you have done your research on the company’s anticipated future growth rate
d. that you have removed risk from the required rate of return you use to value the stock
Answers : c. that you have done your research on the company's anticipated future growth rate
Question 24 : Why are futures prices for commodities usually higher than spot prices?
Options :
a. There are more investors purchasing futures.
b. There is a cost in storing the commodities until they are ready to be delivered.
c. When the economy is strong. prices for commodities futures increase.
d. When the supply of a commodity increases, futures prices increase as well.
Answers : b. There is a cost in storing the commodities until they are ready to be delivered.
Question 25 : If there is no change in circumstances, what is the only factor that will increase commodity prices?
Options :
a. inflation
b. demand
c. exchange rates
d. supply
Answers : b. demand
If there is no change in circumstances, the only factor that will increase commodity prices is demand.
Question 26 : How often do firm’s report earnings to investors?
Options :
a. quarterly
b. annually
c. monthly
d. semi-annually
Answers : a. quarterly
Firms typically report earnings to investors quarterly.