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Characteristics of common stock ownership: voting rights, double taxation, residual claimant.

Method used to adjust for a stock split in calculating the Standard and Poors 500 Index: nothing
A 10-Year annual coupon bond issued by the state of NY has a yield to maturity of 7%. If you are in a 25% tax bracket this bond would
provide you with an equivalent taxable yield of: 9.33% (x%(1-.25) =7%)
In the event of the companys bankruptcy: Common shareholders are the last in line to receive their clams on the firms assets.
Assume you purchased 500 shares of ABC Common stock on margin at $40 per share from your broker. If in initial margin is 70%, the
amount you borrowed from the broker is : $6000 (500*40=20000(.7)=1400) 20000-14000 = 6000.
The ______ price is the price at which an investor pays to a dealer to purchase a security: Ask
_____determines the initial margin requirements on stocks: The Federal Reserve
You purchased 400 shares of XYZ common stock on margin at $20 per share. Assume the initial margin is 60% and the maintenance
margin is 30%. You would get a margin call if the stock price is below_____. Assume the stock pays no dividend and ignore interest on
margin. P=L/[N(1-M)]: $11.43 (400*20=8000(.6) = 4800) 8000-4800 = 3200 P=3200\400(1-.3) = 11.43
You purchased 200 shares of AAA common stock on margin for $40 per share. The initial margin is 60% and the stock pays no dividend.
Your ROE would be __ if you sell the stock at $35 per share. Ignore interest cost: -21% (ROE = Income(loss)/equity) -5(200)/4800 = -21%
You purchased ABC stock at $50 per share. The stock is currently selling at $49. Your potential loss could be reduced by placing a
_____? Stop-Loss Order
Short Selling a stock is profitable when the stock price _____? Goes down
You short sold 200 shares of XYZ common stock at $40 per share.What is the minimum amount you must place with your
broker_$4000_? Call price_$46.15_? P=Total assets/N(1+M). (IM 50% more) Call Price = 8000+4000/200(1+.3) = 12000/260 = 46.15
If a company has earnings of $2 and a PE Ratio of 20, what must its stock price be? $40 (2/20)
If a company has a dividend of $1.50 and a dividend yield of 3%, what must its stock price be? $50
If a company has a 200% stock dividend, what does that mean? They issue 2 new shares for every share outstanding.
A bond rated AAA is considered: Investment Grade BBB: Investment Grade CCC: Junk (BB or below)
A treasury bond is quoted bid 110.04 and ask 110.06. If you sell the bond, how much will you get for it? $110.04
A semi-annual coupon bond has a coupon of 7.0. what does this mean? You get $35 twice a year (70/2 = 35)
If for some reason the FED lowered the initial margin to 20%, how much stock could you buy if you had $1000? $5000
A stock has an average daily trading volume of 10,000 shares with 20,000 shares sold short. Total shares outstanding is 100,000. What
is the short interest ratio? 2
Municipal bonds are tax free. If you are in the 30% tax bracket and Muni yields 5%, how much would a treasury have to yield to give
you the same after tax yield? 7.14% (5%/1-.3) = 7.14)
Ownership of a put option entitles the owner to the __ to ___ a specific stock, on or before a specific date, at a specific price: right, sell
Money market funds NAV is fixed at ____per share. $1
What is the rate of return on a mutual fund that had $500 million in assets at the start of the year, 20 million shares outstanding, a
gross return on assets of 12%, and a total expense ratio of 1% : 11% (12-1)
A mutual find reports $150 million in assets, $25 million in liabilities, and has 12.5 million shares outstanding. What is the Net Asset
Value (NAV) of these shares? $10 (150-25 = 125 mill/12.5 = 10)
Real estate investment trusts are exempt form _____ as long as they distribute 90% of their taxable income to shareholders: Taxes
Investors who wish to buy some shares of a closed-end fund may ____: Buy the shares at a premium
The most common benchmark for comparing the performance of equity mutual funds is the: S&P 500
Sector mutual funds (semi-conductor funds) concentrate their investments in: Securities issued by firms in a particular segment of the
Mutual funds perform the function of ____ for their shareholders? Record Keeping and administration
What is a protective put? Buy a put option on stock already owned.
What is a covered call? Own a stock, write a call
What is a straddle? Do not own stock, both buy put/call or write put/call
When you go short a futures contract: You have an obligation to sell
It takes 15 Mexican Pesos to buy a Euro, how many euros does it take to buy a peso? $0.06 (1/15)
If last year it took 0.7 pounds to buy a Euro and this year is takes 0.75 pounds to buy a Euro, what happened? The pound depreciated.
On average, why do mutual funds underperform their respected indexes? Expense ratios charged (pay for managers)
You always buy and sell this at the NAV: Standard open-ended mutual fund
You have to wait until the 4pm closing price? Standard open-ended mutual fund
You can buy or sell this anytime during the day but will sometimes get a substantial discount and at other times must pay a premium:
Closed end mutual fund
You can buy or sell this at any time of the day and most follow particular indexes: EFT

Bonds, stocks. = Financial Assets Underlying Real Assets= Derivatives
Hedge Fund = reduce risk b/c you dont lose money regardless of the market
Trading Stocks (2 types of orders: Market & Limit)
Market Order = broker buys or sells at best price available at the moment
Limit Order = Order to buy or sell at a specific price (buy limit, sell limit, stop-loss order)
Buy limit = at a price less than the current market price.
Sell limit = at a price greater than the current market price.
Stop-loss order = sell if stock price falls to a certain level (sold as market order).
Trading day = 9:30-4pm GTC = Good Til Cancelled
Stop loss limit order = $48 limit $45. Otherwise, stock sells for current bid. Wil limit, if stock doesnt hit a bid equal to loss, transaction is
Stop Buy: People who have sold a stock short if a stock price is up, buy $40 sold short, expected to go down $45
Margin = amount you must put up to buy stock. Fed Reserve sets initial margin, currently at 50%. Equity/Assets
Return: # of shares * Price per share
Interest Expense = int rate * loan
ROA = return/assets ROE= (return-interest exp)/equity
Margin Call = Maintenance margin is currently set at 30%. Margin Call Price = P=L(oan)/[N(1-M)] where M is maintenance margin.
That is the price to which your stock can fall before the broker will call you and either ask you to put up more money or force you to sell some
Shorting is borrowing shares, selling them into the market, then hoping to buy them back at a lower price and return them.
Short interest= # of shares sold short
Short INT ratio = # shares sold short/average volume over the preceding month. Basically tells you how long it would take to cover short
If you short sale stock, you are by definition using margin.
Preferred Stock = only if the firm goes bankrupt, shareholders are paid before common. No maturity, no voting rights, and the dividend is
fixed. (80% of preferred dividends are tax free for corporations)
Bonds = corporate, treasuries, municipals, convertible.
Municipals = government (state and local) not subject to fed. Tax and sometimes state and local tax
Convertibles: convert your bond into shares of stock. Pay a much lower rate of interest, but have great upside if the underlying stock
takes off (option value). Puts a floor on what you can lose assuming no bankruptcy.
Open-ended mutual funds = (reduced transaction costs) Load or No Load (sales fee). Popular = Vanguard, Fidelity, TRowelPrice, American
Closed-end mutual funds = not open to new investors (premiums and discounts) can only buy form other shareholders.
EFT = Exchange Traded funds = price close to NAV (traded throughout the day), Active or Passive management.
No load = buy and sell at the NAV Load = sales charges apply
Expense Ratio: [(1-low exp ratio)/(1-high exp ration)]^N-1
Leveraged EFT = magnify index ratios. Bull market goes up 1%, leveraged goes up 3%. Bear market goes down 1%, leveraged goes up
3%. Compounding problem.
FVF (future value of a fixed sum) = (1+R)^N
Fat Tails = kurtosis
Compounded returns not normally distributed. They are LOG normally dist.
Derivative asset = easy to value, can be used for good and evil speculation.
Buy a Call Option: Right to buy at a price before a specific date. (can exercise or choose not to)
Write a Call Option: Obligation to sell at a price before a specific date. (can exercise of choose not to)
Buy a Put Option: Right to sell
Write a Put Option: Obligation to buy
Buy Option = want stock price to go up sell option = want stock price to go down
Put = shorting. Writers want market to drop
The straddle: Makes money either way by a call and a put with the same expiration and strike price on the same underlying asset. Worst
thing = price does not move.
Mark to market = reprice each day (as if you got out of the market). Long buy take delivery.
Futures: BOTH parties must perform. Long = buy(take delivery) short = sell
Interest rate parity = no matter where you put your money, you should end up with the same return. Money moved to Switzerland
should appreciate to make up for 0% interest)
Purchasing Power Parity = Everything costs the same everywhere. (Big Mac)