Exam 1

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University of Texas, Permian Basin *

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4325

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Finance

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Jan 9, 2024

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docx

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12

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You purchased 1,000 shares of PINS common stock on margin at $19 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. $12.86 You Answered $15.75 $19.67 Correct Answer $13.57 1.000 shares $19 x 0.5 = $19,000 0.5 = $9,500 (loan amount); 0.30 = (1,000P - $9,500)/1,000P: 300P = 1,000P - $9.500; -700P = -$9.500; P = $13.57. Question 2 Which of the following orders is most useful to short sellers who want to limit their potential losses? Limit order Discretionary order Limit-loss order Stop-buy order By issuing a stop-buy order, the short seller can limit potential losses by assuring that the stock will be purchased (and the short position closed) if the price increases to a certain level. Question 3 0 / 1 pts Which of the following orders instructs the broker to sell at or above a specified price? You Answered Limit-buy order Discretionary orden Correct Answer
Limit-sell order Stop-buy onder Market onder Limit-sell orders are to be executed the market price increases to the specified limit price. 1/1 pts Question 4 You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is $4.500. -Correct! unlimited 59.000 Cannot be determined from the information given A short seller loses money when the stock price rises. Since there is no upper limit on the stock price, the maximum theoretical loss is unlimited Question 6 0 / 1 pts You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. At what stock price would you receive a margin call if the maintenance margin is 35%? Correct Answer $50 $65 You Answered $35 540 Equity = 100($45) * 1.5 = $6,750; 0135 = ($6,750 - 100P)/100P; 35P = $6,750 - 100P; 135P = $6,750; P = $50.00
Question 7 1 / 1 pts Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000. shares in the fund at year end. What was Multiple Mutual's net asset value? Correct! $18.11 $18.81 $69.96 $7.00 ($457.000.000 - 17.000.000)/24,300,000 = $18.11. Question 8 1/1 pts Pinnacle Fund had year-end assets of $825.000.000 and liabilities of $25,000,000. If Pinnacle's NAV was $32.1, how many shares must have been held in the fund? 21.619.346.92 22.930,546.28 Correct! 24,860,161.59 25.693,645.2 ($825,000,000 - 25,000,000)/$32.18 = 24.860,161.59. Question 9 1/1 pts Which of the following statements about real estate investment trusts is true? REITs may be equity trusts or mortgage trusts REITs are usually highly leveraged REITs are similar to closed-end funds REITs may be equity trusts or mortgage trusts and are usually leveraged Correct!
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All of the options are true. Real estate investment trusts invest in real estate or real-estate-secured loans. They may raise capital from banks and by issuing mortgages. They are similar to closed-end funds and shares are typically exchange traded Question 10 1/1 pts Compared to mutual funds, hedge funds may use the following strategy. Growth O Value Sector specialization Correct! Significant leverage Because hedge funds are only lightly regulated, their managers can pursue investment strategies involving, for example, heavy use of derivatives, short sales, and leverage; such strategies typically are not open to mutual fund managers. Question 11 1/1 pts are real assets Land Machines Stocks and bonds wledge Land, machines, and knowledge Land, machines and knowledge are real assets stocks and bonds are financial assets, Question 12 1/1 pts The value of a derivative security
Correct! depends on the value of the related security. is unable to be calculated. is unrelated to the value of the related security. has been enhanced due to the recent misuse and negative publicity regarding these instruments. is worthless today. Of the factors cited above, only the value of the related security affects the value of the derivative and/or is a true statement. Question 13 Which of the following portfolio construction methods starts with asset allocation? Correct Answer O Top-down Bottom-up Middle-out Buy and hold You Answered Asset allocation Bottom-up refers to using security analysis to find securities that are attractively priced. Question 14 0 / 1 pts Financial intermediaries exist because small investors cannot efficiently diversify their portfolios. assess credit risk of borrowers. advertise for needed investments. You Answered diversify their portfolios and ess credit risk of borrowers. Correct Answer All of the options.
The individual investor cannot efficiently and effectively perform any of the tasks above without more time and knowledge than that available to most individual investors. Question 15 0/1 pts The bid price of a T-bill in the secondary market is the price at which the dealer in T-bills is willing to sell the bill. Correct Answer the price at which the dealer in T-bills is willing to buy the bill. greater than the asked price of the T-bill. the price at which the investor can buy the T-bill. You Answered never quoted in the financial press. T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press is the price at which the dealer is willing to buy the bill. Question 16 1/1 pts Which one of the following is not a money market instrument? O Treasury bill Negotiable certificate of deposit Commercial paper Correct! Treasury bond Repurchase Agreements Money market instruments are instruments with maturities of one year or less, which applies to all of the options except Treasury bonds. Question 17 0 / 1 pts
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You purchased JNJ stock at $130 per share. The stock is currently selling at $145. Your gains may be protected by placing a stop-buy order. limit-buy order market order. Correct Answer stop-loss order. You Answered None of these options are correct. With a limit-sell order, your stock will be sold only at a specified price, or better. Thus, such an order would protect your gains. None of the other orders are applicable to this situation. Question 18 Which one of the following statements regarding orders is false? A market order is simply an order to buy or sell a stock immediately at the prevailing market price. You Answered A limit-sell order is where investors specify prices at which they are willing to sell a security. If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45. Correct Answer O A market order, when the market is open is an order can be setup to puchase/sell a stock in the future. All of the order descriptions above are correct except a market order is an order to buy or sell a stock on a specific exchange (market). → X + HELP CENTER Question 19
0/1 pts You purchased 100 shares of common stock on margin at $45 per share. Assume the initial margin is 50%, and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $30? Ignore interest on margin. 0.33 You Answered 0.55 0.43 0.23 Correct Answer 0.25 100 shares $45/share x 0.5 = $4,500 ~ 0.5 = $2,250 (loan amount); X = (100($30) - $2,250]/100($30); X = 0.25. Question 20 0 / 1 pts You are buying 65 shares of FVF Inc. at a 45% initial margin with a price of $70 per share. If the maintenance margin is 35%, at what price will you receive a margin call? (Please show your work). Your Answer: = 65 * = 4550 * 1.45 = 6597.5 - 70x/ 70x = 35% = 6597.5 - 70x = 24.5x = 6597.5 = 94.5x = $69.82 Borrowed = Original PQ * ( 1 - Initial Margin) borrowed = 65*70*(1-.45) = 4550*.55 = 2,502.50 ((PQ) - Borrowed)/(PQ) = Margin (65x - 2,502.50) / (65x) = .35 65x - 2,502.50 = 22.75x 42.25x = 2502.50 x=59.23 You will receive a margin call at $59.23 Question 21
0 / 1 pts You are buying 57 shares of TTT Inc. at 62% initial margin with a price of $50 per share. If the maintenance margin is 55%, at what price will you receive a margin call? Please show your work. Your Answer: = 57 50 = 2850 * 1.62 = 4617-57x / 57x = 55% = 4617 - 57x = 31.35x = 4617 = 88.35x = $52.26 Borrowed = Original PQ * ( 1 - Initial Margin) borrowed = 57*50*(1-62) = 2850*.38 = 1083 ((PQ) - Borrowed) / (PQ) = Margin (57x - 1083) / (57x) = -55 57x - 1083 = 31.35x 25.65x = 1083 x=42.22 You will receive a margin call at $42.22 Question 22 1/1 pts You are short-selling 250 shares of XXX Inc. at 35% initial margin at a price of $40 per share. If the maintenance margin is 25%, at what price do you get a margin call? Your Answer: 250 * 40 = 10,000 * 1.35 = = 13,500 - 250x / 250x = 25% = 13500 - 250x = 62.5x 312.5x = $43.20 Question 23 Original Score: 0 / 1 pts Regraded Score: 0 / 1 pts This question has been regraded.
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A T-Bill with a face value of $10,000 and a maturity of 90 days is quoted to have a 2% bid and 1.5% ask yield. What is the dealer's actual return (yield)? You Answered 2.0186% 1.8537% Correct Answer 2.0379% 1.5265% Question 24 A T-Bill with a $10,000 face value and 55 days to maturity is quoted to have a 3.9% Bid and 2.8% ask yield. What is the actual price the dealer would buy this T-Bill? (Show your work). Your Answer: = 3.9% - 2.8% = .3929 = .3929 / 360 = .0011 = .0011 x 55 = .0600 = .0600 - 10.000 = 600.1984 x 365 = 219,072.4206 (0.039 * 360)*555.005958333 (1-.005958333) * 10,000 = 0.994041667-10,000 = $9.940.42 The dealer would buy the T-Bill for $9.940.42 Question 25 0/1 pts A T-Bill with a $10,000 face value and 55 days to maturity is quoted to have a 3.9% Bid and 2.8% ask yield. What is the investor's actual return ? (Show your work). Your Answer: = 3.9% - 2.8% = 3929
= 3929 / 360 = .0011 = .0011 x 55 = .0600 = .060010,000 = 600.1984 x 365 = 219.072.4206 (0.028 /360)*55 = 0.004277778 10,000 " (1-0.004277778) = 9,957.22 (10,000 - 9,957.22)/9,957.22 = 42.777778 / 9.957.22 = .004296157 (0.004296157 /55)*365 = 0.02851 = 2.851% 1/1 pts Question 26 If you and I wanted to purchase shares of Exxon Mobil, we would go to primary market derivatives market Correct! secondary market CME market Question 27 0.8 / 1 pts According to our lectures: 1) What is the maturity of a money market instrument 2) Would T-Bills considered money market instruments 3) Why/Why not? Your Answer: 1. The maturity of a money market instrument is less than a year, but typically less than 120 day because of their extreme liquidity. 2/3. Yes, T-Bill are money market instruments because they can easily be converted to cash. As explained in the lecture and during the review: 1) Less than 1 year 2) Yes 3) T-Bills mature on a 360 day
year; money markets look at a 365 day year, thus T-Bills fall within the definition Question 28 1 / 1 pts According to our lectures, an index is Correct! A hypothetical portfolio A list of all stocks traded in a given market An asset which can be bought or sold A document that shows which assets are being traded for that day Question 29 0/1 pts According to our lectures, please list the following the types of mutual funds (according to their asset classifications) from most popular to least popular. A. Equity Funds B. Bond Funds C. Hybrid Funds D. Money Market Funds Your Answer: D, B, A, C 1. Equity Funds 2. Bond Funds 3. Money Market Funds 4. Hybrid Funds
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