Essay FIN 390 WEEK 8 FINAL EXAM DEVRY
FIN 390 WEEK 8 FINAL EXAM DEVRY
Question 110 pts
(TCO 1) Which of the following is true about fixed-income securities?
| They are usually found on the income statement. |
| They are always found on the left side of the balance sheet. |
| They are usually shown on the right side of the balance sheet. |
| None of the above |
Question 210 pts
(TCO 2) The concept of risk versus return refers to
| the consideration of an investor’s portfolio weights being equal between risk-free and risky assets. |
| the fact that the yield curve is flat. |
| the fact that all investors expect less return for increasing amounts of risk. |
| None of the above |
Question 310 pts
(TCO 5) Which of the following is not true?
| YTM is always higher than the coupon rate. |
| Coupon rate will always exceed the dividend yield. |
| YTM is primarily of interest to investment bankers. |
| All of the above |
Question 410 pts
(TCO 3) Which of the following are or could be part of the buying, selling, and trading of corporate bonds?
| IPO process and shelf registration |
| Auction markets and dealer markets |
| Investment bankers |
| All of the above |
Question 510 pts
(TCO 5) What is the normal yield curve shape?
| Humped in the middle |
| Downward sloping to the right |
| Upward sloping to the right |
| None of the above |
(TCO 6) Portfolio diversification is all about which of the following?
| Maximizing the investor’s return |
| Minimizing the risk to the investor |
| Maximizing the return per unit of risk to the investor |
| None of the above |
Question 710 pts
(TCOs 1 and 8) What kind of securities would investors seeking a steady income probably look to?
| Common stock, Treasury bills, and corporate bonds |
| Preferred stock, Treasury bonds, and corporate bonds |
| Corporate bonds rated “bbb” only |
| None of the above |
Question 810 pts
(TCO 8) Who would normally be required to create a portfolio investment policy?
| Pension fund managers |
| 401k plan administrators |
| Large insurance companies |
| All of the above |
(TCO 4) Where could you find trend information about the bond market?
| Dow Jones Average |
| NASDAQ |
| S&P 500 |
| None of the above |
Question 1010 pts
(TCO 6) The yield on a corporate bond is 10%, and it is currently selling at par. The marginal tax rate is 20%. A par value municipal bond with a coupon rate of 8.50% is available. Which security is a better buy?
| Municipal bond |
| Both are equal |
| Corporate bond |
| A municipal bond carries no par |
Question 1120 pts
(TCO 6) What is the coupon rate needed on a $1,000 face value, 6% coupon corporate bond to make it equivalent in terms of return to one whose interest rate is tax free? Assume the corporate tax rate is 40%.
Question 1220 pts
(TCO 7) What would be the expected change to a 30-year bond’s market price or value if its YTM increases to 9.4%? Its YTM is now 9%, it has an 8% annual coupon, $1,000 face value, it is currently priced at $897.26, and its duration is 8 years.
Question 1320 pts
(TCO 2) Given the data below, calculate the expected return, variance, and standard deviation of the following company. In a recessionary economy, which is expected to occur with a 30% probability, the expected returns would be -5%.
In an expanding economy with an expected probability of occurrence of 20%, the expected return would be 20%.
In a normal economy, expected to occur 50% of the time, the expected return would be 5%.
Question 1420 pts
(TCO 6) Calculate the five ratios for the following company info.
Income Statement Balance Sheet
Revenue 10,000 Assets Liab. + OE
EBIT $2,000 cash $1,000 a/p $2,000
Interest $500 A/R $10,000 Bonds payable $50,000
Earnings B4 Tax $1,500 Equip $25,000 equity $84,000
EAT (at 30%) $1,050 Bldg $100,000
Total $136,000 $136,000
– return on sales
– ROA
– ROE
– fixed asset turnover
– times interest earned
Question 1520 pts
(TCOs 1, 5, and 6) Calculate the appropriate selling price of a 30-year 5% coupon, $10,000 Treasury bond that was purchased 5 years ago. Marketplace interest rates are averaging 8%.
Question 1620 pts
(TCOs 1, 8, and 9) An investor is looking to buy a bond that currently pays $155 a year in interest (coupon rate). The current yield is 11%, and the face value is $1,000. How much will the investor have to pay for this bond?
Question 1730 pts
(TCO 5) Explain the difference between active portfolio management and passive management.
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