Question

1a. As a deposit customer, I would prefer an account

a.with semiannual compounding

b.with annual compounding

c.with daily compounding

d.with monthly compounding

e. with quarterly compounding

1b.The market in which previously held shares are traded among investors is called the

a.broker market

b.primary market

c.secondary market

d.used market

e.over the counter market

1c. If the level of interest rates goes up and I have a bond with a fixed coupon rate, I would expect the value of my bond to

a.decrease

b.stay the same

c.double

d.increase

e.not enough information to tell

1d.If Sherman owns 300 shares in a company with cumulative voting and the most votes he can cast for himself in the next board election is 1200 votes, how many board positions are open?

a.One

b.Two

c.Three

d.Four

e.Not enough information to tell.

2a.A certain investment has an APR of 7% and an EAR of 7%. From this information we know that:

a.One of the rates must be incorrect.

b.The investment actually earns 7.2%

c.This is not a good investment for several reasons.

d.The investment compounds quarterly.

e.The investment compounds annually.

2b.The total value of a bond

a.Will be above $1,000 if the YTM is greater than the coupon rate.

b.Makes it a premium bond when the value is less than $1,000.

c.Equals the total of the present values of the coupon stream and the face value.

d.Will be above $1,000 whenever the bond is a good buy.

e.Will always have a coupon rate greater than the market rate.

Answer 1

PART-1a

Option (c) i.e daily compunding is the correct answer.

In case of daily compounding, the effective annual rate will be highest as the interest earned will be added to the principal amount daily and the next interest will be computed on (Principal+Interest) on daily basis.

PART-1b

Option (c) i.e Secondary Market is the correct answer.

There are two types of market, primary and secondary. Primary market is the market where securities are traded for the first time. The market where previously held securities are traded is known as secondary market.

PART-1c

Option (a) i.e decrease is the correct answer.

The Bond value is inversely related to the interest rate. Rise in interest rate would cause the bond price to go down.

PART-1d

Option (e) i.e not enough iformation to tell is the correct answer.

The number of open board position depends on the total number of board members which a company can appoint and total available members i.e "Total seats available= Limit as per company's bylaws - Members already appointed".

Thus, on the basis of above information , the available seats can not be computed.

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