53) Solstice Corporation issued a 5% bond four years ago at par value. The marke

Question

53) Solstice Corporation issued a 5% bond four years ago at par value. The market interest rate on

comparable bonds today is 4%.

53) ______

A) This bond sells at a premium and the coupon rate is higher than the yield.

B) This bond sells at a premium and the coupon rate is lower than the yield.

C) This bond sells at a discount and the coupon rate is higher than the yield.

D) This bond sells at a discount and the coupon rate is lower than the yield.

54) Rank the following taxable bonds from lowest yielding to highest yielding.

I. U.S. Treasury bonds

II. corporate bonds

III. agency bonds

54) ______

A) I, III, II B) I, II, III C) II, I, III D) III, II, I

55) Marti is 31 years old and is saving for retirement. Which one of the following portfolio allocations

might best suit her situation if she is willing to accept a fair amount of risk in exchange for

long-term capital appreciation?

55) ______

A) 60% bonds, 15% money funds and 25% real estate

B) 50% mortgage bonds, 5% money market, 45% municipal bonds

C) 25% bank CDs, 40% corporate bonds, 15% money market, 20% value stocks

D) 5% money funds, 10% bonds and 85% growth stocks

56) An asset allocation plan should consider which of the following factors?

I. economic outlook

II. capital preservation

III. changing investment goals

IV. investor risk tolerance

56) ______

A) I, II, III and IV B) I, III and IV only

C) II, III and IV only D) II only

57) Fred and Martha are in their seventies and retired. Which one of the following sets of portfolio statistics might best suit their situation if their primary investment goal is current income with limited risk?

57) ______

A) beta of 1.6 and a dividend yield of 6.4% B) beta of 1.1 and a dividend yield of 5.4%

C) beta of 0.83 and a dividend yield of 6.3% D) beta of 0.86, and a dividend yield of 4.6%

58) An American call option gives the owner 58) ______

A) the right but not the obligation to sell the stock at the strike price on or before the expiration

date.

B) the right to buy or sell the stock at the strike price on or before the expiration date.

C) the right and the obligation to buy the stock at the strike price on or before the expiration

date.

D) the right but not the obligation to buy the stock at the strike price on or before the expiration

date.

59) Which of the following statements concerning options are correct?

I. Options are derivative securities.

II. The value of an option is dependent upon the value of the underlying security.

III. The seller of the option retains the option premium whether or not the option is exercised.

IV. Options can provide leverage benefits.

59) ______

A) II and III only B) I, II, III and IV C) I, II and III only D) I, II and IV only

60) The buyer of a listed American option has which of the following rights?

I. the right to change the expiration date

II. the right to change the strike price

III. the right to resell the option

IV. the right to let the option expire unexercised

60) ______

A) I, III and IV only B) III and IV only

C) II, III and IV only D) I and III only

Explanation / Answer

53. As coupon rate = 5% > Yield = 4%,

Answer: A) This bond sells at a premium and the coupon rate is higher than the yield.

54. A. I ,III, II

55. C) 25% bank CDs, 40% corporate bonds, 15% money market, 20% value stocks

56. A. I , II , III , IV

As all 4 factors ae important, keeping in mind returns and liquidity.

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