BUS422 Practice Test
BUS 422 Midterm Exam 1 Spring 2013
Dr. Jing Zhao
Instructions: You are allowed to use: 1. Calculator and 2. Formula Sheet
Answer all of the following multiple-choice questions. Only one possible answer is correct. When finished, please only return both the exam and answer sheet with your name and student ID on it.
1. __________ is NOT a characteristic of a money market instrument. A. liquidity B. marketability C. low risk D. long maturity
2. Which of the following is NOT a characteristic of preferred stock?
A. Does not give voting rights to its owner
B. It is like perpetuity
C. Investors can force the payment of the dividend.
D. Dividends are not tax-deductible for the firm as opposed to interest payment.
3. With regard to the S&P 500 index, choose the INCORRECT statement: A. It is more frequently used than the DJIA by institutional investors B. It is a price-weighted index of 500 large stocks C. It is a market capitalization-weighted index D. Stock splits and dividends are automatically accounted for in its calculation.
Answer the next 4 questions using the information in the following table.
You are considering the purchase of a $1,000 par value Treasury Bill and observe the following quotes for T-Bills in the market: Ignore transaction costs.
Time to Maturity
(days)
Bid
%
Asked
%
60
1.64
1.55
88
1.63
1.54
116
1.62
1.53
144
1.61
1.52
4. The ask price of a T-bill in the secondary market is
A. the price at which the dealer in T-bills is willing to sell the bill.
B. the price at which the dealer in T-bills is willing to buy the bill.
C. smaller than the bid price of the T-bill.
D. The price at which the investor can sell the T-bill.
5. What is the purchase price of the 144-day bill that you face?
A. $993.29
B. $993.56
C. $993.92
D. $994.05 6. What would be the effective annual rate of return on your investment if you held the bill until maturity?
A. 1.56%
B. 1.65%
C. 1.53%
Dr. Jing Zhao
Instructions: You are allowed to use: 1. Calculator and 2. Formula Sheet
Answer all of the following multiple-choice questions. Only one possible answer is correct. When finished, please only return both the exam and answer sheet with your name and student ID on it.
1. __________ is NOT a characteristic of a money market instrument. A. liquidity B. marketability C. low risk D. long maturity
2. Which of the following is NOT a characteristic of preferred stock?
A. Does not give voting rights to its owner
B. It is like perpetuity
C. Investors can force the payment of the dividend.
D. Dividends are not tax-deductible for the firm as opposed to interest payment.
3. With regard to the S&P 500 index, choose the INCORRECT statement: A. It is more frequently used than the DJIA by institutional investors B. It is a price-weighted index of 500 large stocks C. It is a market capitalization-weighted index D. Stock splits and dividends are automatically accounted for in its calculation.
Answer the next 4 questions using the information in the following table.
You are considering the purchase of a $1,000 par value Treasury Bill and observe the following quotes for T-Bills in the market: Ignore transaction costs.
Time to Maturity
(days)
Bid
%
Asked
%
60
1.64
1.55
88
1.63
1.54
116
1.62
1.53
144
1.61
1.52
4. The ask price of a T-bill in the secondary market is
A. the price at which the dealer in T-bills is willing to sell the bill.
B. the price at which the dealer in T-bills is willing to buy the bill.
C. smaller than the bid price of the T-bill.
D. The price at which the investor can sell the T-bill.
5. What is the purchase price of the 144-day bill that you face?
A. $993.29
B. $993.56
C. $993.92
D. $994.05 6. What would be the effective annual rate of return on your investment if you held the bill until maturity?
A. 1.56%
B. 1.65%
C. 1.53%