Question

1. Consider the following three stocks:

Stock A $40 200

Stock A $70 500

Stock A $10 600
Assume at these prices that the value-weighted index constructed with the three stocks is
490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?
A) 355 B) 430 C) 1000 D) 490 E) 265

2. In order for you to be indifferent between the after-tax returns on a corporate bond
paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax
bracket need to be?

A) 15%
B) 28%
C) 33%
D) 72%
E) Cannot tell from the information given

3. For a taxpayer in the 25% marginal tax bracket, a 20-year municipal bond currently
yielding 5.5% would offer an equivalent taxable yield of
A) 5.5%. B) 4.125%. C) 7.33%. D) 10.75%.

4. Assume you sell short 100 shares of common stock at $45 per share, with initial margin
at 50%. What would be your rate of return if you repurchase the stock at $40 per share?
The stock paid no dividends during the period, and you did not remove any money from
the account before making the offsetting transaction.
A) 25.67% B) 20.03% C) 22.22% D) 77.46%

5. You sold short 300 shares of common stock at $55 per share. The initial margin is 60%.
At what stock price would you receive a margin call if the maintenance margin is 35%?

A) $35.22 B) $40.36 C) $65.18 D) $51.00

Answer 1

1.
490

2.
=1-6.12%/8.5%
=28.0000%

3.
=5.5%/(1-25%)
=7.3333%

4.
=(100*45-100*40)/(100*45*50%)
=22.2222%

5.
(300*55+300*55*60%-300*P)/(300*P)<=35%
=>P>=(300*55+300*55*60%)/(300+300*35%)
=>P>=65.18519