MBA 641 MOCK Midterm Examination KEY Spring 2012
16. 22. Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the Net Asset Value (NAV) of these shares? A. $12.00 B. $9.00 C. $10.00 D. $1.00
Difficulty: Easy
17. 48. A bond issued by the State of Alabama is priced to yield 6.25%. If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of _________. A. 4.50% B. 7.25% C. 8.68%
D. none of the above
Difficulty: Medium Feedback: 8.68% = 6.25%/(1 - 0.28)
18. 70. Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million and $150 million respectively. If you were to construct a price-weighted index of the three stocks what would be the index value? A. 300 B. 39 C. 43 D. 30
Index = (12 + 75 + 30)/3 = 39
Difficulty: Medium
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MBA 641 MOCK Midterm Examination KEY Spring 2012
19. 74. An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price? A. $14.57 B. $15.95 C. $17.55 D. $16.49
Difficulty: Medium
20. 38. If you are promised a nominal return of 12% on a one year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn? A. 5.48% B. 8.74% C. 9.00% D. 12.00%
Difficulty: Medium
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MBA 641 MOCK Midterm Examination KEY Spring 2012
Part B: Problems (total 60 points total) I.
Pricing T-Bill (10 points) 26. A T-bill quote sheet has 90 day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value an investor could buy this bill for A. $10,000.00 B. $9,878.50 C. $9,877.00 D. $9,880.16
Difficulty: Hard
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II.
Return Calculation: Margin Purchase and Short Sell (20 points) Please do two of the following problems 57. You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends and ignore interest on the margin loan.) A. $26.55 B. $35.71 C. $28.95 D. $30.77
Difficulty: Hard
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MBA 641 MOCK Midterm Examination KEY Spring 2012
79. An investor puts up $5,000 but borrows an equal amount of money from their broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share and in one year the investor sells the stock for $28. The investor's rate of return was ____. A. 17% B. 12% C. 14% D. 19%
Difficulty: Hard
86. You sell short 300 shares of Microsoft which are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account what will be your rate of return after one year if Microsoft is selling at $27? (Ignore any dividends) A. 10.00% B. 20.00% C. 6.67% D. 15%
Difficulty: Hard
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