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Quiz1 Investment

1. The document is a quiz for a finance class containing 5 multiple choice questions about financial concepts like yield calculations on bonds and bills, margin calculations for stock purchases, and tax implications of municipal versus corporate bonds. 2. The questions calculate bank discount yield, bond equivalent yield, effective annual yield, bid-ask spreads, costs of market orders, margin requirements, and profits/losses from short stock positions. 3. Financial formulas are provided for calculations including yield, tax rates, margin, and changes in account equity.

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alice123h21
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40 views

Quiz1 Investment

1. The document is a quiz for a finance class containing 5 multiple choice questions about financial concepts like yield calculations on bonds and bills, margin calculations for stock purchases, and tax implications of municipal versus corporate bonds. 2. The questions calculate bank discount yield, bond equivalent yield, effective annual yield, bid-ask spreads, costs of market orders, margin requirements, and profits/losses from short stock positions. 3. Financial formulas are provided for calculations including yield, tax rates, margin, and changes in account equity.

Uploaded by

alice123h21
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Quiz #1

Finance 333 Investments


Professor Yan

Name: ____________
ID: _______________

1. Consider a T-bill with a $10,000 face value, 180 days to maturity and a current price of $9,800. What is
the Bank Discount Yield? What is the Bond Equivalent Yield? What is the Effective Annual Yield?

2. The current market prices for IBM are $76.05 - $76.10. What is the bid-ask spread? How much does it
cost you to buy 100 shares of IBM if you place a market order (excluding commission)? If you place a
limit sell order at $76.08, will your order be executed immediately? Briefly explain (one sentence).

3. The yield of a municipal bond is 6%. The yield of an otherwise identical corporate bond is 8%. If you
are indifferent between these two bonds, what must be your marginal tax rate?

4. Margin is the percentage of the investment that is not borrowed. If you bought 400 shares of IBM stock
at $50 per share and borrowed $5,000, what is your initial margin? If the maintenance margin is 40%, at
what price you will receive a margin call?

5. You sell short 100 shares of XYZ at $50 per share. If the initial margin is 50%, how much money do
you need to put in your account? If the price goes down to $40, how much money do you make or lose? If
the price goes up to $55, what is your margin?

10,000 P 360

BDY =
10,000
n
margin =

10,000 P 365

BEY =
P
n

10,000 P
EAY = 1 +

365
n

RA = RP (1 )

Account Equity
Market Value of the Position Ammount You Borrowed
=
Market Value of the Position
Market Value of the Position

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