Question: Assume a municipal bond has 18 years

> Real vs. Nominal (LO2, CFA3) Using the information from Problem 10, calculate the inflation rates and approximate real GDP growth rates for 2014 and 2015. Data from Problem 10: Consider the following information on GDP and CPI for an economy over the l

> Consider the following information on GDP and CPI for an economy over the last three years: Calculate nominal GDP growth for 2014 and 2015. GDP ($ billions) CPI 2013 125.4 105.3 2014 136.1 106.1 2015 138.2 106.4

> A call option currently sells for $8. It has a strike price of $80 and five months to maturity. A put with the same strike and expiration date sells for $6. If the risk-free interest rate is 4 percent, what is the current stock price?

> A stock with an annual standard deviation of 30 percent currently sells for $67. The risk-free rate is 3 percent. What is the value of a put option with a strike price of $80 and 60 days to expiration?

> What is the value of a put option if the underlying stock price is $42, the strike price is $35, the underlying stock volatility is 47 percent, and the risk-free rate is 5 percent? Assume the option has 140 days to expiration.

> Suppose you buy 30 March 100 put option contracts. What is your maximum gain? On the expiration date, Hendreeks is selling for $84.60 per share. How much is your options investment worth? What is your net gain? Calls Puts Strike Price Close Expirati

> Mr. Franklin is interested in the sensitivity of the put option to changes in the volatility of the underlying equity’s returns. If the volatility of the underlying equity’s returns increases, the value of the put option a. Decreases. b. Increases. c. Do

> In Problem 4, suppose that Hendreeks stock is selling for $105.70 per share on the expiration date. How much is your options investment worth? What if the stock price is $101.60 on the expiration date? Data from Problem 4: Suppose you buy 50 April 100

> Suppose you buy 50 April 100 call option contracts. How much will you pay, ignoring commissions? Calls Puts Strike Price Close Expiration Vol. Last Vol. Last Hendreeks 103 100 Feb 72 5.20 50 2.40 103 100 Mar 41 8.40 29 4.90 103 100 Apr 16 10.68 10 6

> What is the value of a call option if the underlying stock price is $73, the strike price is $75, the underlying stock volatility is 37 percent, and the risk-free rate is 5 percent? Assume the option has 100 days to expiration.

> Alphonse Inc. has a return on equity of 12 percent, 28,000 shares of stock outstanding, and a net income of $98,000. What are earnings per share?

> Weston Corporation had earnings per share of $1.64, depreciation expense of $310,000, and 140,000 shares outstanding. What was the operating cash flow per share? If the share price was $43, what was the price-cash flow ratio?

> Given the following information for Smashville, Inc., construct a balance sheet: Current liabilities: ……………………………………………….$42,000 Cash: ………………………………………………………………….$21,000 Long-term debt: ………………………………………………..$102,000 Other assets: ………………………………………………………$36,

> Suppose you purchase five put contracts on Testaburger Co. The strike price is $45 and the premium is $3. If, at expiration, the stock is selling for $39 per share, what are your put options worth? What is your net profit?

> Given the following information for Hetrich, Inc., calculate the operating cash flow, investment cash flow, financing cash flow, and net cash flow: Net income: ………………………………………$175 Depreciation: ………………………………………$52 Issuance of new stock: ………………………….$7 Rep

> You are managing a pension fund with a value of $300 million and a beta of 1.07. You are concerned about a market decline and wish to hedge the portfolio. You have decided to use SPX calls. How many contracts do you need if the delta of the call option i

> A stock is currently priced at $74 and will move up by a factor of 1.20 or down by a factor of 0.80 over the next period. The risk-free rate of interest is 4.2 percent. What is the value of a call option with a strike price of $75?

> Mr. Franklin wants to compute the value of the put option that corresponds to the call value calculated in the previous question. Which of the following is the closest to his answer? a. $4.78 b. $5.55 c. $11.54

> A stock is currently selling for $45. In one period, the stock will move up by a factor of 1.15 or down by a factor of 0.87. A call option with a strike price of $50 is available. If the risk-free rate of interest is 2.5 percent for this period, what is

> A put option with a strike price of $50 sells for $3.20. The option expires in two months and the current stock price is $51. If the risk-free interest rate is 5 percent, what is the price of a call option with the same strike price?

> Suppose you purchase eight call contracts on Macron Technology stock. The strike price is $60 and the premium is $3. If, at expiration, the stock is selling for $64 per share, what are your call options worth? What is your net profit?

> A homeowner takes a 15-year fixed-rate mortgage for $140,000 at 7.6 percent. After seven years, the homeowner sells the house and pays off the remaining principal. How much is the principal payment?

> A $100,000 GNMA pass through bond issue has a value of $107,680. The value of the interest-only payments is $52,973. What is the value of the principal only payment?

> What is the conditional prepayment rate if the single monthly mortality is 0.426 percent?

> What is the single monthly mortality assuming the conditional prepayment rate is 7 percent?

> You have decided to buy a house. You can get a mortgage rate of 5.25 percent, and you want your payments to be $1,500 or less. How much can you borrow on a 30-year fixed-rate mortgage?

> A homeowner takes out a $417,000, 30-year fixed-rate mortgage at a rate of 5.2 percent. What are the monthly mortgage payments?

> If a mortgage has monthly payments of $1,240, a life of 30 years, and a rate of 4.5 percent per year, what is the mortgage amount?

> Mr. Franklin wants to compute the value of the call option using the information in Exhibit 1. Which of the following is closest to his answer? a. $4.78 b. $5.55 c. $11.54

> Consider a 30-year, $145,000 mortgage with a 6.1 percent interest rate. After eight years, the borrower (the mortgage issuer) pays it off. How much will the lender receive?

> What is the monthly payment on a 30-year fixed-rate mortgage if the original balance is $315,000 and the rate is 4.9 percent?

> Assume there are 300 million people in the United States, 155 million of whom make up the labor force. If 10 million people are unemployed, what is the unemployment rate?

> If nominal GDP was reported at $1,425.68 billion and inflation was 4.3 percent, what is the level of real GDP for the period?

> If nominal GDP was reported at $124.9 billion and real GDP was reported at $122.8 billion, what was the inflation rate for the period?

> If wages grew 3.2 percent, but inflation was 2.8 percent, what was the approximate real increase in wages?

> The CPI for this year was reported at 154.65. If inflation was 2.2 percent, what must the CPI have been last year?

> Assume the CPI increases from 123.9 to 125.6 over the period. What is the inflation rate implied by this CPI change over this period? What does this value indicate?

> Assume that the Federal Reserve injects $60 billion into the financial system. If the money supply increases by a maximum of $300 billion, what must the reserve requirement be?

> Assume that the Federal Reserve injects $2 billion into the financial system. If the reserve requirement is 18 percent, what is the maximum increase in money supply? Why might the maximum increase not be achieved?

> Mr. Franklin wants to know how the put option in Exhibit 1 behaves when all the parameters are held constant except delta. Which of the following is the best estimate of the change in the put option’s price when the underlying equity increases by $1? a.

> A STRIPS with nine years until maturity and a face value of $10,000 is trading for $7,693. What is the yield to maturity?

> What is the price of a STRIPS with a maturity of 12 years, a face value of $10,000, and a yield to maturity of 5.2 percent?

> You own a convertible bond with a conversion ratio of 20. The stock is currently selling for $72 per share. The issuer of the bond has announced a call; the call price is 108. What are your options here? What should you do?

> You own a bond with a 6 percent coupon rate and a yield to call of 6.90 percent. The bond currently sells for $1,070. If the bond is callable in five years, what is the call premium of the bond?

> A bond matures in 25 years but is callable in 10 years at 120. The call premium decreases by 2 percent of par per year. If the bond is called in 14 years, how much will you receive?

> A convertible bond has a $1,000 face value and a conversion ratio of 36. If the stock price is $42, what is the conversion value?

> A company just sold a convertible bond at a par value of $1,000. If the conversion price is $58, what is the conversion ratio?

> A taxable issue yields 6.4 percent, and a similar municipal issue yields 4.7 percent. What is the critical marginal tax rate?

> A taxable corporate issue yields 6.5 percent. For an investor in a 35 percent tax bracket, what is the equivalent after tax yield?

> She would like to compute the value of the corresponding put option for Option 2. Which of the following is closest to Ms. Barlow’s answer? a. $0.98 b. $1.41 c. $4.84

> A municipal bond with a coupon rate of 6.2 percent sells for $4,920 and has seven years until maturity. What is the yield to maturity of the bond?

> A municipal bond with a coupon rate of 2.7 percent has a yield to maturity of 3.9 percent. If the bond has 10 years to maturity, what is the price of the bond?

> A convertible bond has a $1,000 face value and a conversion ratio of 45. What is the conversion price?

> Lemon Co. has net income of $520,000 and 75,000 shares of stock. If the company pays a dividend of $1.28 per share, what are the additions to retained earnings?

> A STRIPS traded on November 1, 2016, matures in 12 years on November 1, 2028. The quoted STRIPS price is 62.75. What is its yield to maturity?

> A STRIPS traded on May 1, 2016, matures in 18 years on May 1, 2034. Assuming a 4.1 percent yield to maturity, what is the STRIPS price?

> At the end of the year, Smashville stock sold for $48 per share. Calculate the price-book ratio, price-earnings ratio, and price-cash flow ratio.

> During the year, Smashville, Inc., had 17,000 shares of stock outstanding and depreciation expense of $15,000. Calculate the book value per share, earnings per share, and cash flow per share.

> Given the information in Problems 1 and 2, calculate the gross margin, the operating margin, return on assets, and return on equity for Smashville, Inc. Data from Problems 1: Given the following information for Smashville, Inc., construct an income sta

> A 30-year mortgage has an annual interest rate of 6.1 percent and a loan amount of $270,000. What is the remaining balance at the 180th payment?

> Ms. Barlow notices that the stock in the table above does not pay dividends. If the stock begins to pay a dividend, how will the price of the call option be affected? a. It will decrease. b. It will increase. c. It will not change.

> A 20-year mortgage has an annual interest rate of 4.9 percent and a loan amount of $250,000. What are the interest and principal for the 120th payment?

> A 30-year mortgage has an annual interest rate of 5.6 percent and a loan amount of $210,000. What are the monthly mortgage payments?

> The stock of Lead Zeppelin, a metal manufacturer, currently sells for $68 and has an annual standard deviation of 41 percent. The risk-free rate is 6 percent. What is the value of a put option with a strike price of $70 and 45 days to expiration?

> The stock of Nugents Nougats currently sells for $44 and has an annual standard deviation of 45 percent. The stock has a dividend yield of 2.5 percent and the risk-free rate is 4.1 percent. What is the value of a call option on the stock with a strike pr

> A stock is currently priced at $63 and has an annual standard deviation of 43 percent. The dividend yield of the stock is 2 percent and the risk-free rate is 4 percent. What is the value of a call option on the stock with a strike price of $60 and 45 day

> What is the value of a call option if the underlying stock price is $81, the strike price is $90, the underlying stock volatility is 50 percent, and the risk-free rate is 3 percent? Assume the option has 60 days to expiration.

> What is the value of a call option if the underlying stock price is $84, the strike price is $80, the underlying stock volatility is 42 percent, and the risk-free rate is 4 percent? Assume the option has 135 days to expiration.

> Mr. Blanda tells Mr. Houston to recalculate the SMM for Pool 3 based on 200 PSA rather than the current 100 PSA. The revised SMM is closest to a. 0.36 percent b. 0.55 percent c. 0.97 percent

> Consider a 30-year, $230,000 mortgage with a rate of 6.90 percent. Five years into the mortgage, rates have fallen to 5.70 percent. Suppose the transaction cost of obtaining a new mortgage is $2,500. Should the homeowner refinance at the lower rate?

> Consider a 25-year, $350,000 mortgage with a rate of 7.25 percent. Ten years into the mortgage, rates have fallen to 5.4 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate?

> Consider a 30-year, $160,000 mortgage with a rate of 6 percent. Five years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate?

> You create a butterfly spread using calls by buying a call at K1, buying a call at K3, and selling two calls at K2. All of the calls are on the same stock and have the same expiration date. Additionally, butterfly spreads assume that K2 = ½(K1 + K3). Cal

> You can also create a bull spread using put options. To do so, you buy a put and simultaneously sell a put at a higher strike price on the same stock with the same expiration. A put with a strike price of $20 is available for $0.45 and a put with a strik

> You create a bull spread using calls by buying a call and simultaneously selling a call on the same stock with the same expiration at a higher strike price. A call option with a strike price of $20 sells for $4.55 and a call with a strike price of $25 se

> Mr. Houston made a mistake in his research about the nature of mortgage loans. Which of the following statements regarding mortgage loans as compared to straight bonds is least accurate? a. Servicing fees on mortgage pools decline as the loan matures. b.

> A strangle is created by buying a put and buying a call on the same stock with a higher strike price and the same expiration. A put with a strike price of $100 sells for $6.75 and a call with a strike price of $110 sells for $8.60. Draw a graph showing t

> Suppose you buy one each SPX call option with strikes of 2000 and 2200 and write two SPX call options with a strike of 2100. What are the payoffs at maturity to this position for S&P 500 Index levels of 1900, 1950, 2000, 2050, 2100, 2150, and 2200?

> Suppose you buy one SPX call option with a strike of 2100 and write one SPX put option with a strike of 2100. What are the payoffs at maturity to this position for S&P 500 Index levels of 2000, 2050, 2100, 2150, and 2200?

> Suppose you buy one SPX put option with a strike of 2100 and write one SPX put option with a strike of 2125. What are the payoffs at maturity to this position for S&P 500 Index levels of 2000, 2050, 2100, 2150, and 2200?

> Suppose you buy one SPX call option with a strike of 2125 and write one SPX call option with a strike of 2150. What are the payoffs at maturity to this position for S&P 500 Index levels of 2050, 2100, 2150, 2200, and 2250?

> You buy a straddle, which means you purchase a put and a call with the same strike price. The put price is $2.80 and the call price is $4.20. Assume the strike price is $75. What are the expiration date profits to this position for stock prices of $65, $

> You simultaneously write a put and buy a call, both with strike prices of $80, naked, i.e., without any position in the underlying stock. What are the expiration date payoffs to this position for stock prices of $70, $75, $80, $85, and $90?

> You simultaneously write a covered put and buy a protective call, both with strike prices of $80, on stock that you have shorted at $80. What are the expiration date payoffs to this position for stock prices of $70, $75, $80, $85, and $90?

> You buy a call with a strike price of $70 on stock that you have shorted at $70 (this is a “protective call”). What are the expiration date profits to this position for stock prices of $60, $65, $70, $75, and $80 if the call premium is $3.40?

> You write a put with a strike price of $60 on stock that you have shorted at $60 (this is a “covered put”). What are the expiration date profits to this position for stock prices of $50, $55, $60, $65, and $70 if the put premium is $1.80?

> Regarding conditional prepayment rates (CPRs) and single monthly mortality (SMM) rates, which of the following is most accurate? a. SMM is computed from the CPR to compute monthly prepayments. b. SMM is computed from the CPR to compute changes in loan ma

> She would like to compute the value of the corresponding put option for Option 1. Which of the following is closest to Ms. Barlow’s answer? a. $3.79 b. $3.94 c. $4.41

> Which one of the following propositions would be consistent with a supply-side view of fiscal policy? a. Higher marginal tax rates will help reduce the size of the budget deficit. b. A tax reduction will increase disposable income and spur economic growt

> Many health care companies depend on patents to sustain profits. In the context of Porter’s five forces, how would a patent expiration impact a health care firm?

> Why do you think that consumer sentiment is considered a leading economic indicator?

> Which sector would be more sensitive to the business cycle: industrials or health care?

> Briefly explain the process of top-down analysis.

> If you are a U.S. investor who believes the Australian dollar is going to appreciate, would that make you more or less likely to invest in Australian stocks?

> If the economy was in recession, what monetary policies might the Fed employ?

> What is the impact on a bond’s coupon rate from, a. A call feature? b. A put feature?

> What is a put bond? Is the put feature desirable from the investor’s perspective? The issuer’s?

> With regard to the call feature, what are call protection and the call premium? What typically happens to the call premium through time?

> You own stock in a company that has just initiated employee stock options. How do the employee stock options benefit you as a shareholder?

> What is the difference between a revenue bond and a general obligation bond?