A $25,000 face value GNMA pass-through quote sheet lists a spread to average life of
103, PSA of 220, and a price of 101-09. This means that
I. the pass-through yield is 103 basis points above the comparable maturity Treasury
bond.
II. the pass-through is being prepaid more quickly than standard PSA.
III. the pass-through is priced at $25,272.50.
A.I, II, and III are correct
B.I and II only
C.I and III only
D.II and III only
E.III only
An insurance company is trying to sell you a retirement annuity. The annuity will give
you 20 payments with the first payment in 12 years when you retire. The insurance firm
is asking you to pay $50,000 today. If this is a fair deal, what must the payment amount
be (to the dollar) if the interest rate is 8 percent?
$50,000 1.0811 = Pmt PVIFA (8%, 20 yrs)
A.$9,472
B.$10,422
C.$12,824
D.$5,093
E.$11,874
Wendy Wilson, a successful college graduate, is currently employed in a position
paying $49,500 a year. Wendy’s annual living expenses are only $42,000 so she has
accumulated $7,200 in monetary assets and $27,000 in investment assets since her
graduation. Use the liquidity ratio to figure how long Wendy could pay expenses if she
were to lose her job.
a.Less than three weeks
b.About two months
c.Approximately seven months
d.Approximately eleventh months
Ethanol Lawn Mowers issued 500,000 shares to the public. The gross proceeds were
$31,250,000 and the net proceeds were $30 million. Merrel Bench was the lead
underwriter and deal negotiator, but 10 other investment bankers (one of which was
Golden Sax) were also used to put up capital and help sell the issue. Which of the
following statements is/are correct?
I. The public paid $62.50 a share.
II. Golden Sax was the originating house.
III. The spread per share was $3.50.
IV. Merrel Bench is the sole book running manager.
V. This offer was a syndicated deal.
A.I, II, and IV only
B.III and V only
C.I, IV, and V only
D.II and III only
E.I and V only
Jennifer and Chad have a homeowner’s policy with contents replacement-cost coverage
for personal property up to 50 percent of the insurance on their home. What will the
insurance company pay for their stolen property under the following situation?
a.$19,500
b.$34,500
c.$35,000
d.$44,500
Refer to Figure 10-2. How much will Todd’s auto insurance policy pay for the injuries
to him and his daughter?
a.$14,000
b.$10,000
c.$9,000
d.$5,000
Stanley was involved in an auto accident that was ruled his fault. He carried only
liability coverage on his car, and its limits were only 20/40/15. The following damages
were incurred in the accident:
How much of these damages will Stanley’s auto insurance policy pay?
a.$54,750
b.$39,000
c.$35,000
d.$33,250
High-risk investments include
a.collectibles.
b.options.
c.futures contracts.
d.All of these
Sandra Maxwell is a full-time student and her husband, Joel, is employed, so they take
their young son, Sam, to a child care center during the day. They qualify for a 25
percent dependent care tax credit, and they are in the 15 percent marginal tax bracket. If
the annual cost of the child care is $6,200, how much will it save Sandra and Joel on
their income taxes?
a.$6,200
b.$1,550
c.$930
d.$232.50
The type(s) of insurance you carry but which covers losses suffered by others is called
____ insurance.
a.liability
b.income
c.auto
d.homeowner’s
The NASDAQ automatic order execution system for individual traders placing buy or
sell orders of 1,000 or fewer shares is called the
A.ECN Network.
B.SOE System.
C.NASDAQ/AMEX Joint Program.
D.Instinet Network.
E.E*Trade Online Program.
The longer the number of remaining years you expect to live in a house, the more likely
you would benefit from refinancing.
a.True
b.False
Advantages of going global for U.S. banks include all but which one of the following?
A.Diversification of earnings
B.Greater opportunities to exploit economies of scale
C.Greater sources of funds
D.Conducting business in less regulated environments
E.Low fixed costs involved in international expansion
The contract between the person buying the insurance and the company providing the
insurance is the
a.Unilateral contract
b.Insuring agreements
c.Insurance policy
d.Insurance premium
The term structure of interest rates is upward sloping for all bond types. A certain AAA
rated non-callable 10-year corporate bond has been issued at a 6.15 percent promised
yield. Which one of the following bonds probably has a higher promised yield?
A.A similar quality municipal bond.
B.A non-callable AAA rated corporate bond with a five-year maturity.
C.A callable AAA rated corporate bond with a 15-year maturity.
D.A non-callable AAA rated convertible corporate bond with a 10-year maturity.
E.All of the options would have a higher promised yield.
If interest rate parity holds and the annual German nominal interest rate is 3 percent and
the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both
countries, then inflation in Germany is about _______________ than in the United
States.
A.1 percent higher
B.2 percent higher
C.1 percent lower
D.4 percent lower
E.2 percent lower
IBM creates and sells additional stock to the investment banker Morgan Stanley.
Morgan Stanley then resells the issue to the U.S. public.
This transaction is an example of a(n)
A.primary market transaction.
B.asset transformation by Morgan Stanley.
C.money market transaction.
D.foreign exchange transaction.
E.forward transaction.
The largest center for trading in foreign exchange is
A.New York.
B.London.
C.Tokyo.
D.Hong Kong.
E.Geneva.
A stop-payment order works only if the check has not yet cleared your financial
institution.
a.True
b.False