Question

7)A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $26, $36, and $80. The number of outstanding shares for each is 800,000 shares, 700,000 shares, and 400,000 shares, respectively. If the stock prices changed to $30, $34, and $82 today respectively, what is the 1-day rate of return on the index?

• 2.31%

• 3.91%

• 5.22%

• 3.33%

8)What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 24%?

Multiple Choice

• 6.84%

• 7.26%

• 11.84%

• 9.00%

Answer 1

7. The return is computed as follows:

= [ (current price of stock 1 x Number of shares of stock 1 + current price of stock 2 x Number of shares of stock 2 + current price of stock 3 x Number of shares of stock 3) / (Yesterday price of stock 1 x Number of shares of stock 1 + Yesterday price of stock 2 x Number of shares of stock 2 + Yesterday price of stock 3 x Number of shares of stock 3) ] - 1

= [ ($ 30 x 800,000 + $ 34 x 700,000 + $ 82 x 400,000) / ($ 26 x 800,000 + $ 36 x 700,000 + $ 80 x 400,000) ] - 1   

= [ ($ 80,600,000 / $ 78,000,000) ] - 1

= 3.33% Approximately

8. The yield is computed as follows:

= Yield on bond x (1 - tax rate)

= 9% x (1 - 0.24)

= 6.84%