Question

1. In a bankruptcy who is the last to get paid?
   1. Common stockholders
   2. Preferred stockholders
   3. Subordinated debt holders
   4. Unsecured debt holders
2. Common stockholders expect to earn a return by receiving __________.
   1. Preferred dividends
   2. Semi-annual coupon payments
   3. A 10-Q every quarter and 10-K every year
   4. Dividends and / or stock appreciation
3. Under a normal distribution, what % of the results will fall within 2 standard deviations?
   1. 50%
   2. 95%
   3. 99%
   4. 66.8%
4. If the beta for an asset is negative, how do the returns for that asset move relative to the overall market?
   1. They don’t correlate with the market at all
   2. They are less volatile than the market
   3. They move in the opposite direction of the market
   4. The beta for an asset with value can’t be negative

5. You buy a stock for $10. During the year, the stock paid a $1 cash dividend. At the end of the year, you sell the stock for a total of $11 total. What is the “total return” on your investment? (remember, total return is more than just capital gains.)

1. 10%
2. 20%
3. 110%
4. 120%

6. ______________ yield curve reflects higher expected future rates of interest.

1. An upward sloping (or “normal”)
2. A flat
3. A downward sloping
4. An inverted

12. When the market value of a bond exceeds the par value, the bond is selling at a ______ and interest rates have gone ______ since the bond was originally issued.
    1. premium, down
    2. premium, up
    3. discount, down
    4. discount, up

Answer 1

Ans 01 :

In a bankruptcy who is the last to get paid :

1. Common stockholders : Common Stockholders are the last option for paying in case of Bankruptcy. (Ans)
2. Preferred stockholders: Preferred stockholders get preference over Common stockholders in case of Bankruptcy.
3. Subordinated debt holders: Subordinated Debts are lesser important/preferred debt in case of as compare to normal debt holders. But they will get higher preferences over Common stockholders.
4. Unsecured debt holders: Unsecured Debt holders get preference after secured debt holder.

Ans In a bankruptcy who is the last to get paid: Common stockholders Option A

Ans 02 :

Common stockholders expect to earn a return by receiving

1. Preferred dividends: Preferred dividends for Preferred stockholders
2. Semi-annual coupon payments: coupon payments are for Bond Holders
3. A 10-Q every quarter and 10-K every year: No such guaranteed form of return available
4. Dividends and/or stock appreciation: Common stockholders earn a return by dividend and stock price appreciation. (Ans)

Ans: Common stockholders expect to earn a return by receiving: Dividends and/or stock appreciation option D

Ans 03 :

Under a normal distribution, what % of the results will fall within 2 standard deviations :

Value of   01 standard deviations ~ 68%

02 standard deviations ~ 95%

   03 standard deviations ~ 99.7%

Under a normal distribution, what % of the results will fall within 2 standard deviations: 95% (Ans b)

Ans 04 :

If the beta for an asset is negative, how do the returns for that asset move relative to the overall market :

1. They don’t correlate with the market at all; If They don’t correlate with the market at all Beta value will be around zero.
2. They are less volatile than the market: less volatile than the market Beta Value will be less than one
3. They move in the opposite direction of the market: Beta Value will be Negative
4. The beta for an asset with value can’t be negative: Beta for an asset can be negative when They move in the opposite direction of the market.

Ans:If the beta for an asset is negative, how do the returns for that asset move relative to the overall market :They move in the opposite direction of the market (Option C)

Ans 05 :

You buy a stock for $10. During the year, the stock paid a $1 cash dividend. At the end of the year, you sell the stock for a total of $11 total. What is the “total return” on your investment? (remember, total return is more than just capital gains.)

Total Return = (Change in Price + Dividend Paid) / Initial Investment

Change in Price = 11 - 10 = 01

Total Return = ( 1 + 1) / 10 = 2 / 10 = 20%

Ans: total return” on investment = 20% (Option B)

Ans 06:

6. ______________ yield curve reflects higher expected future rates of interest.

1. An upward sloping (or “normal”): Interest Rate in Upward trend
2. A flat:  Interest Rate outlook is flat/no change
3. A downward sloping: Interest Rate is downward sloping
4. An inverted : This happens when yield of Long term holdings falls below yield of short term holding

Ans: An upward sloping yield curve reflects higher expected future rates of interest. (Option A)

Ans 07:

When the market value of a bond exceeds the par value, the bond is selling at a ______ and interest rates have gone ______ since the bond was originally issued.

Premium =  market value > Par Value

A bond market Value goes high when interest rates decreased because it makes coupon payments of the Bond more attractive.

Discount = market value < Par Value

Ans : When the market value of a bond exceeds the par value, the bond is selling at a Premium and interest rates have gone down since the bond was originally issued. (Option A)