You’ll examine how and where securities are traded as well as how distinct market types differ from one another in practise as you learn how financial markets function in the real world. Additionally, you will discover the fundamentals of algorithmic trading, dark pools, margin buying, and short selling.
Global Financial Markets and Instruments Coursera Quiz Answers
Week 1: Global Financial Markets and Instruments
Quiz 1: Review of Elementary Finance Tools Part 1
Q1. If you invest $5000 in a CD with an
interest rate of 8% per year, how much will you have at the end of 5 years? Round off your final answer to two digits after the decimal point. State your answer as “x.xx’”
7346.64
Q2. What is the present value of $100,000 paid at
the end of ten years, if your opportunity cost is 5 percent per year? Round off your final answer to three digits after the decimal point. State your answer as “x.xxx’
| 61391.325 |
Q3. If the annual interest rate is 4 percent, which one would you prefer?
- Receive $18,000 one year from now?
- Receive $23,000 two years from now?
- Receive $25,000 three years from now?
Q4. If your goal is to maximize your investment value at the end of five years, which option would you prefer?
- Investing $9,000 today at an interest rate of 3 percent per year
- Investing $8,000 today at an interest rate of 5 percent per year
- Investing $9000 today at an interest rate of 2 percent per year for two years and then at an interest rate of 4 percent per year for the last three years;
Quiz 2: Review of Elementary Finance Tools Part 2
Q1. Which one would you prefer?
a. Receive $10,000 now
b. Receive $1,000 every year for 13 years (the last payment occurs at the
end of 13 years), if the interest rate is 4 percent per year.
- Receive $10,000 now
- Receive $1,000 every year for 13
years (the last payment occurs at the end of 13 years), if the annual interest
rate is 4%
Q2. How much would you have saved in twenty years if you save $5000 every year
and can guarantee earning 6% per year? Round your final answer to three digits after the decimal. State your answer as ‘x.xxx’
| 183927.956 |
Q3. You are buying a new car. The car dealer gives you three financing options. If your objective is to minimize the present value of your car payments and your opportunity cost of capital is 0.5% per month, which one would you choose?
- $500 per month for 36 months
- $600 per month for 24 months
- $350 per month for 48 months
Q4. You are buying a new house for $450,000. Reviewing different financing options, you have determined that you would like to minimize your monthly payment. Which financing option would you choose? Assume monthly payments over the life of the mortgage.
- 30 year mortgage with annual interest rate of 3.5 percent
- 20 year mortgage with an annual interest rate of 3 percent
- 15 year mortgage with an annual interest rate of 2.8 percent;
Quiz 3: Review of Elementary Finance Tools Part 3
Q1. True or False:
An annual interest rate quoted at 6 percent compounded monthly means
interest is paid at a rate of 6% each month.
- True
- False
Q2. What is the effective annual rate on 1 –year CD with a stated annual rate of
8% compounded quarterly? Round off your final answer to three digits after the decimal point. State your answer as a percentage ‘x.xxx’ (i.e. 1.234)
8.243
Q3. What is the effective six-month rate if the stated annual rate is 8% compounded quarterly? Round off your final answer to two digits after the decimal point. State your answer as as percentage ‘x.xx’ (i.e. 1.23)
| 4.04 |
Q4. What is the effective six-month rate if the stated annual rate is 8% compounded monthly? Round off your final answer to three digits after the decimal point. State your answer as a percentage ‘x.xxx’ (i.e. 1.234);
4.067
Q5. What is the five-year effective rate if the stated annual rate is 6% compounded semi-annually? Round off your final answer to three digits after the decimal point. State your answer as a percentage rate ‘x.xxx’ (i.e. 1.234)
| 34.392 |
Q6. Which one would you prefer as an investment return?
- A stated annual rate of return of 6%, compounded monthly
- A stated annual rate of return of 7%, compounded quarterly
- A stated annual rate of return of 6.5%, compounded semi-annually
- A three-month rate of 2%, compounded quarterly
Q7. What is the effective 3-month return on a 1-year certificate of deposit with a stated annual rate of 8% compounded quarterly?
- 2%
- 2.67%
- 4.63%
- 4.04%
Quiz 4: Review of Elementary Finance Tools Part 4
Q1. How much would you
be willing to pay today for the opportunity to receive $10,000 every year
forever if the interest rate is 5% per year? (Assume you can bequest it to
someone else). Round your final answer to the nearest dollar.
200000
Q2. How much would you be willing to pay today for the opportunity to receive $1000 every month forever if the interest rate is 5% per year? (Assume you can bequest it to someone else). Round off your final answer to the nearest dollar.
| 240000 |
Q3. How much would you have to donate to your alma mater so that a scholarship of $2000 that grows at an annual rate of 2% can be created in your name one year from today if your endowment can be invested at an annual rate of 4%? Round off your answer to the nearest dollar.
| 100000 |
Q4. Which one would you prefer if your opportunity cost of capital is 6 percent per year?
- Receiving $150,000 today
- Receiving $100,000 today and a stream of cash flows every month for the next 36 months starting next month with $1250 every month and growing by 0.125% every month
- Receiving $750 every month forever starting today
- Receiving $25000 today and a stream of cash flows every month forever starting with $500 next month growing by 0.125%;
Quiz 5: Module 1: Review of Elementary Finance Tools
Q1. Bob and Jane Loveboat are saving to buy a boat at the end of 5 years. If the boat costs $25,000, and they can earn 8 percent a year on their savings, how much do they need to put aside at the end of every year 1 through 5? Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’
4261.411
Q2. You made your fortune in the dot-com boom (and got out in time!) As part of your legacy, you would like to endow an annual scholarship at your alma mater. You want it to be memorable, so you would like the scholarship to be $20,000 per year. If the university earns 8% on its investments, and if the first scholarship is to be given out in one year’s time, how much will you need to donate to create the scholarship fund? Round your final answer to the nearest dollar.
250000
Q3. Assuming that the annual interest rate is 7%, how much would you pay to receive $100 every year, growing at 5%, annually, forever? Round off your final answer to the nearest dollar.
5000
Q4. What is the future value three years from now of $1000 invested in an account with a stated annual interest rate of 8%, if compounded semi-annually? Round off your final answer to three digits after the decimal. State your answer as ‘x.xxx’
| 1265.319 |
Q5. What is the future value three years from now of $1000 invested in an account with a stated annual interest rate of 8%, if compounded monthly? Round off your final answer to three digits after the decimal point State your answer as ‘x.xxx’
| 1270.237 |
Q6. You want to lease a set of golf clubs from Holes, Ltd. The lease contract is in the form of 24 equal monthly payments at a 12 percent annual rate, compounded monthly. Since the clubs cost $4,000 retail, Holes wants the present value of the lease payments to equal $4,000. Suppose you first payment is due immediately. What will your monthly lease payment be? Round off your final answer to one digit after the decimal point. State your answer as ‘x.x’
186.4;
Q7. You want to retire a millionaire when you are 65. Currently, you have $20,000 in savings and are 30 years old. How much will you have to save each year for the next 35 years in order to have $1,000,000? Assume you earn 9% on your savings every year. Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’
2743.121
Q8. You decide to buy a home for $100,000. You approach two banks for financing. If you want to minimize your monthly payments, which one would you choose?
- Bank #1 requires a 10% down payment and requires monthly payments on a 20-year mortgage sufficient to earn it an effective annual return of 8%.
- Bank #2 also needs a 10% down payment and also has a 20-year mortgage, but quotes a 8% annual rate which is compounded monthly.
Q9. Leeds Autos has just announced its new promotional deal on the new $45,000 Z4 Roadster. You pay $5,000 down, and then $1000 for the next 40 months. Its next door competitor, Chatham Hill Autos will give you a $3000 off the list price straight away. If the interest rate is 6% a year, which company is giving a better deal?
- Leeds Autos
- Chatham Hill Autos
Q10. Your parents make you the following offer: They will give you $5000 at the end of every six months for the next five years if you agree to pay them back $5000 at the end of every six months for the following ten years. Should you accept this offer if your opportunity cost of funds is 18% per year, compounded semiannually?
- Yes
- No;
Week 2: Global Financial Markets and Instruments
Quiz 1: A primer on financial assets
Q1. Real assets such as buildings, machines, land and knowledge are:
- The means of production of goods and services of an economy.
- The means by which individuals in an economy can hold the income generated by the real assets in the process of production of good and services.
- None of the above.
Q2. TRUE OR FALSE.
Financial assets are securities in which
individuals can invest their wealth with the expectation to obtain a return in
the future.
- FALSE.
- TRUE
Quiz 2: Basics of Bond Valuation
Q1. You expect the Federal Reserve will begin to loosen credit and force yields down by 50 basis points across all maturities in the very near future. (A basis point is equal to 1/100th of 1 percent so 50 basis points are equal to ½ of 1%.) How do you expect the Fed’s policy effect will show up in the bond market?
- Bond prices will decrease.
- Bond prices will increase.
- Bond prices will remain the same.
- Not enough information.
Q2. The price of a US government issued five year
zero coupon bond, with a face value of $1000, is $744.09. What is the yield to
maturity of the bond if the interest is compounded yearly? Round off your final answer to two digits after the decimal point. State your answer as a percentage rate (i.e. x.xx)
6.09
Q3. What is the market
value of a 20-year bond with face value of $1000, which makes quarterly coupon
payments at a coupon rate of 10%, if the required rate of return is 8% per year, compounded quarterly? Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’;
1198.723
Q4. Consider
a bond, which pays $80 in annual coupon, and has a face value of $1,000. What is its yield to maturity if the bond has 20 years remaining until maturity and currently selling for $1,200?
- 8.32%
- 9.67%
- 6.22%
- 8.77%
Q5. You have just purchased a newly issued $1,000 five-year Vanguard Company bond at par. This five-year bond pays $60 in semi-annual coupon payments ($60 every six months). You are also considering the purchase of another Vanguard Company bond that pays $30 in semi-annual coupons and has six years remaining before maturity. This bond also has a face value of $1000. Both bonds make coupon payments semiannually.
What is the yield-to-maturity on the five-year bond? State your answer as a percentage rate.
| 12 |
;
Q6. Refer to back to Question 5. What is the effective annual yield on the five-year bond? Round off your final answer to two digits after the decimal point. State your answer as a percentage rate (i.e ‘x.xx’)
| 12.36 |
Q7. Refer back to Question 5. Assume that the five-year bond and the six-year bond have the same yield. What should you be willing to pay for the six-year bond? Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’
| 748.485 |
Q8. Suppose that you
purchased a 15-year bond that pays semi-annual coupon of $20 and is
currently selling at par. What would your realized annual return be if you
sold the bond five years later when the yield is 5.5%? State your answer as a percentage rate rounded to three digits after the decimal point, i.e. ‘x.xxx’
1.807
Quiz 3: Module 2: Financial assets – fixed income securities
Q1. Which of the following is correct about money market instruments?
- They are very short-term debt instruments that meet the needs of investors who want to invest in liquid assets.
- An important channel for the U.S. Federal Reserve to conduct its monetary policy
- They include long-term corporate debt issues.
- A and B.
Q2. What is the value of a 5-year 10% coupon bond with face value of $1000 if the yield is 4% per year? Assume that coupon payments are semi-annual. Round off to two digits after the decimal point. (i.e. “x.xx”)
Enter answer here
Q3. One of the most common money market instruments are U.S. Treasury bills. Find the price of a $10,000 face value Treasury bill with 81 days to maturity if it is quoted at a discount of 2.54 percent. Round off to two digits after the decimal point. (i.e. “x.xx”)
Enter answer here
Q4. Refer to Question 3. What would be your yield to maturity if you bought this Treasury at this price and kept it until maturity? Round off to two digits after the decimal. (i.e. “x.xx”) Ex 0.112 or 11.2% should be entered as 11.2
Enter answer here
Q5. Which of these securities is considered risk free?
- Apple stock
- Emerging market debt
- U.S. Treasury bills
- Commercial paper;
Q6. Which of the following is not a distinguishing feature of municipal bonds?
- Municipal bonds are issued by state and local governments.
- Municipal bonds have tax-exempt status.
- Munis are an example of money market instruments.
- Investors typically accept a lower yield on these securities.
Q7. Assume you have a 1-year investment horizon and trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. Which of the following bonds would you choose if you expect the yields to go down to 7 percent one year from now after the coupon payment and want to maximize your 1-year return?
- A 9% annual coupon bond currently priced to yield 8%
- A zero-coupon bond currently priced to yield 8%
- A 6% coupon bond currently priced to yield 8%
Q8. Which of the following is correct?
- When bonds are subject to potential default, the stated yield to maturity is the minimum possible yield that can be realized by the bondholder.
- In the event of default, bondholders always get their promised payments.
- To compensate bond investors for default risk, bonds must offer default premiums, that is, a yield higher than those offered by default-free government securities.
- Junk bonds or high-yield bonds have on average lower default risk than investment grade bonds.
Q9. A bond with a call feature
- Is attractive because there is less default risk.
- Is more likely to be called when interest rates are high because the interest savings will be greater.
- Will usually have a higher yield to maturity than a similar noncallable bond.
- None of the above.
Q10. Which security has a higher effective annual rate?
- A Treasury bill with 89 days left to maturity selling at $97,660 with par value $100,000
- A coupon bond selling at par and paying 10% coupon quarterly.
Week 3: Global Financial Markets and Instruments
Quiz 1: Equity Securities
Q1. You expect the price of FBG stock to be $69.77 per share a year from now. Its current market price is $60, and you expect it to pay a annual dividend of $1.75 per share a year from now. What is the stock’s expected dividend yield? State your answer as a percentage rate rounded off to two digits after the decimal point, i.e. ‘x.xx’
2.92
Q2. Refer back to Question 1. What is your expected total return on FBG stock? State your answer as a percentage rate rounded to one digit after the decimal point, i.e ‘x.x’
| 19.2 |
Q3. Which one of the following statements is true
about the differences between debt and common stock?
- Debt is ownership in a firm, but equity is not.
- Creditors have voting power, while stockholders do not.
- Periodic payments made to either class of security are tax deductible for the issuer.
- Interest payments are promised, while dividend payments are not.
Q4. Two of the main indexes that equity investors keep track of are the Dow Jones Averages (DJIA) and the Standard & Poor’s Composite 500 (S&P 500). The difference between these two indexes is:
- The DJIA is a price weighted average of the stocks of 30 companies and (S&P 500) is a market value weighted index of 500 companies.
- The DJIA is more volatile than the Standard & Poor’s Composite 500 (S&P 500).
- None of the above.
Q5.Scubaland,Inc. is experiencing a period of rapid growth. Earnings and dividends per
share are expected to grow at a rate of 18 percent during the next two years,
15 percent in the third year, and 6 percent thereafter. Yesterday,
Scubaland paid a dividend of $1.15. If the required rate of return on the
stock is 12 percent, what is the price of a share of the stock today? Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’
| 26.955 |
Q6. A firm’s preferred stock often has a dividend yield that is lower than its bonds because:
- Preferred stock generally carries a higher rating.
- Owners of preferred stock have a prior claim on the firm’s earnings.
- Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.
- Corporations owning stock may exclude from income taxes most of the dividend income they receive.
Q7. Gemini Industries has just paid its annual dividend of $3 per share. Analysts expect the dividend to grow at a constant growth rate of 4% indefinitely. If the stock is currently trading at $54, what is the market’s required rate of return on this stock? Express your answer as a percentage rate rounded off to two digits after the decimal point, i.e. ‘x.xx’
| 9.78 |
Q8. If GE stock is trading at $19.72 and the last quarterly dividend payment was $0.17 per share, what is GE’s annual dividend yield? Express your answer as a percentage rate rounded off to two digits after the decimal point, i.e. ‘x.xx’
3.45
Q9. What is the value of a preferred stock that pays a fixed dividend of $2 per share if the discount rate is 8%? Round off your final answer to the nearest dollar.
25
Q10. Suppose that the company XYZ has just won a major contract. This lucrative contract will enable it to increase the growth rate of its dividends from 5% to 6% without affecting the projected current dividend of $3.00 per share. If the current share price is $57.14, what will happen to the share price upon announcement of this good news?
- The price will jump by 6%.
- The price will jump by 1%.
- The price will increase to $62.28
- The price will increase to $70.59
Quiz 2: Derivative securities
Q1. A derivative security is:
- A type of financial asset that is traded frequently in
money markets. - A type of fixed income instrument similar to bonds and
commercial paper traded in capital markets. - A type of financial asset whose value depends on the
value of another underlying asset such as stock, commodity, index, reference
rates.
Q2. Select which of these securities are examples of derivatives securities.
- A. Options and futures
- B. Swaps and forwards contracts
- C. Stocks and bonds
- A and B
Q3. The difference between derivatives traded on exchanges and in the over the counter (OTC) market is:
- A. On an exchange, an investor can obtain a derivative contract that is tailored to his needs.
- B. Exchnage-traded contracts are standardized and defined by the exchange, but in over the counter derivatives (OTC) contracts are customized and transactions costs are higher.
- C. In exchange traded markets there is no counterparty risk since there exists a clearinghouse.
- B and C.
Q4. Which of the following positions do you think would be the most risky transaction to take in the stock index option markets if the stock market is expected to increase substantially after you complete the transaction?
- A short call option
- A short put option
- A long call option
- A long put option
Q5. Suppose RIO stock has both currently call and put options traded. What would your profit at the expiration date be if you buy the 3-month call option with an exercise price of $60 for $4 and at the same time buy the 3-month put option with the same exercise price for $6 today if the RIO stock trades for $48 in three months?
| 2 |
Q6. The main difference between a futures and a forward contract is:
- A. Forward contracts are traded over the counter and are customized, but futures are standardized contracts and are traded on organized exchanges.
- B. Future contracts can take only financial assets as the underlying asset.
- None of the above.
- A and B.
Q7. Which of these options on the same stock should sell at a greater price?
- A 6-month call option with an exercise price of $40
- A 6-month call option with an exercise price of $35
Q8. Suppose that a trader enters into a long corn futures position for 5000 bushels with a delivery date on December 2017 and a future price of $3.902 per bushel. What is the payoff to this position if on the delivery date, the spot price of corn is $4.0995 per bushel? Round off your final answer to the nearest dollar.
988
Q9. Assuming all other relevant features of the stocks and options are identical, which of these options should sell at a lower price?
- A put option on a stock with a market price of $50
- A put option on a stock with a market price of $60
Q10. You are a portfolio manager who uses options positions to custom the risk profile of your clients. Your portfolio’s performance to date is up 16%. Your client’s objective is to earn at least 15%. You expect that there is a good chance of large losses between now and the end of the year. What strategy is best given your client’s objective?
- Long put options
- Short call options
- Long call options
Q11. Suppose you will receive your bonus next month. You hope to invest it in long-term corporate bonds. You believe that bonds are currently selling at quite attractive yields How would you use financial futures to hedge your risk?
- Go long in bond futures
- Go short in bond futures
Q12. Suppose you have just received 10,000 shares of your company stock as part of your compensation package. The stock currently sells $30 a share. You would like to defer selling the stock until the next tax year. In January, however, you will have to liquidate your holdings in order to provide a down payment on your new house. You are therefore worried about the price risk associated with keeping your shares of stock. If the value of your stock holdings fall below $250,000, your ability to come up with the necessary down payment would be jeopardized. On the other hand, if the stock value rises to $350,000, then you might be able to maintain a small cash reserve even after making your down payment. Which of these investment strategies would you choose?
- Writing January call options on your company shares with an exercise price $35. These are currently selling for $3 each.
- Buying put options with an exercise price of $25. These options are also selling for $3 each.
- Establishing a zero-cost collar position by writing the January calls and buying the January puts.
Q13. You have a client who believes that the shares of MexCon, currently trading at $48 per share, could move significantly in either direction in response to an expected court ruling involving the company. Your client currently owns no MexCon shares but asks you for advice to implement a strangle strategy to profit from the possible price movement. A strangle is a portfolio of a put and a call with a higher exercise price but with the same expiration date. Currently, MexCon stock has a 3-month call option with an exercise price of $50 selling for $4, and a 3-month put option with an exercise price of $45 selling for $3. Which of the two strategies would you recommend your client?
- A long strangle strategy
- A short strangle strategy
Q14. Suppose you are an oil distributor planning to sell 100,00 barrels of oil eight months from now. You would like to hedge against a possible decline in oil prices. Which position would you take?
- A short hedge taking a short futures position
- A long hedge taking a long futures position
Q15. Why does a speculator who wants to bet on the direction of the price of an underlying asset buy a futures contract instead of buying the underlying asset itself?
- A. Futures contracts require only a fraction of the value to be deposited compared to the value of the asset underlying the contract.
- B. Speculators are attracted to futures because the futures market appears more sophisticated.
- C. Speculators are not allowed to trade in the underlying asset.
- D. Transaction costs in the futures markets are far smaller.
- A and D
Quiz 3: Financial assets – Equities and derivatives
Q1. Earnings and dividends per share at G3-Biz Inc. are expected to grow at a rate of 18 percent over the next two years, then at 15 percent in the third year, and then at 6 percent
thereafter. G3- Biz just paid a dividend of $1.15. If the required rate of
return on the stock is 12 percent, what is the price of a share of G3-Biz stock
today? Round off to two decimal points. (i.e. “x.xx”)
| 26.95 |
Q2. Suppose that the company XYZ is going to pay a dividend of $1.50 per share next year, and the dividend
is expected to grow by 10% forever. If investors require a 13%, what should the
value of XYZ’s stock be?
- 55
- 50
- 62
- 65
Q3. Suppose that the stock of the company CFAA is currently trading on April 15 at a price of $70. A call option with a strike price of $70 and an expiration date on October 15 is
trading at $4. What is your profit if the stock price at expiration date is $80? Remember that each option contract is for 100 shares.
600
Q4. Suppose that a trader enters into a long futures position for 1000 oil barrels
with a delivery date on December 2016 and a future price of $40 per barrel.
Suppose that on delivery date, the spot price of oil is $45 per barrel. What is the payoff to the long position?
5000
Q5. Suppose your research shows that technology stocks currently provide an expected rate of return 12%. BMI, a large computer company, is expected to pay a dividend of $2 per share at the end of the year. If the stock is currently selling at $48 per share, what is the market’s expectation of growth at BMI?
- 6.53%
- 7.83%
- 4.17%
- None of the above
Q6. An investor purchases a stock for $28 and a put on the stock for $0.40 with a strike price of $24. She also sells a call on the same underlying stock for $0.40 with a strike price of $30 and with the same expiration date. What is the value of her portfolio, net of the proceeds from the options, if the stock price ends up at $35 on the expiration date?
Enter answer here
Q7. Which of the following is correct about the over-the-counter markets?
- a.The counterparty risk is eliminated.
- b.There is no clearing house.
- c. Futures
are traded in OTC markets. - d. Both
b and c are correct.
Q8. A spread is a combination of two or more call options on the same stock with differing exercise prices or times to maturity. Some options are bought, and others are sold. Consider a bullish spread option strategy where you buy a call option with a $35 exercise price priced at $4 and sell a call option with a $50 exercise price priced at $2.50. If the price of the underlying stock increases to $60 at expiration and each option is exercised on the expiration date, what is your net profit?
- 8.50
- 13.50
- 16.50
- 23.50
Q9. Suppose you are a U.S. investor who is harmed when the dollar depreciates. Specifically, suppose that your profits decrease by $200,000 for every $0.05 rise in the dollar/pound exchange rate. If the pound futures contract on the Chicago Mercantile Exchange calls for delivery of 62,500 pounds, how many contacts will you need to enter to hedge? Will you take the long or the short side of the contracts?
- 64 contracts short
- 64 contracts long
- 32 contracts short
- 32 contracts long
Q10. You know that many corporate bonds are issued with call provisions that allow the issuer to buy bonds back from the bondholders at some time in the future at a specified call price. Which of the following is correct?
- This is similar to the bond issuer holding a call option with an exercise price equal to the price at which the bond can be repurchased.
- This is similar to the bondholder owning a call option with an exercise price equal to the price at which the bond can be repurchased.
- This is similar to the bond issuer holding a put option with an exercise price equal to the price at which the bond can be repurchased.
- This is similar to the bondholder owning a put option with an exercise price equal to the price at which the bond can be repurchased.;
Week 4: Global Financial Markets and Instruments
Quiz 1: Organization of financial markets
Q1. In this module we defined financial intermediaries
as institutions that facilitate between suppliers and borrowers of capital. Which of
the following is NOT a financial intermediary?
- Insurance company
- Investment company
- Pension fund
- Credit Unions
- None of the above.
Q2. Which of the following is true?
- Open-end funds will redeem shares for asset value at the request of the investor. Closed-end funds do not redeem shares and are traded like other securities.
- Share price of a closed end fund can often deviate from its net asset value.
- Hedge funds are subject to much less regulation than mutual funds.
- Unlike mutual funds which can be traded only at the end of the day when net asset value is calculated, exchange-traded funds can be traded throughout the day like any other share of stock.
- All of the above.
Q3. If you decide to sell your Facebook shares to another investor…
- A. This is a transaction that takes places in the primary market.
- B. This is a transaction that takes place in the secondary market.
- C. This transaction will have an impact on the total number of outstanding shares of Facebook.
- D. Both B and are C are correct.
Q4. Which of these statements are true?
- A private placement is easier and less costly to a private firm compared to an IPO.
- Private placements can be used by both private and public firms that wish to raise funds from a limited number of investors.
- Privately placed shares are traded on exchanges.
Private placements often lead to seasoned equity offerings.
Q5. Which of the following is true about the IPO process?
- A. The entire offering by the issuing company has to be purchased by the underwriter.
- B. The underwriter can either purchase the entire offering from the issuing company or only facilitate the sale of shares to the public.
- C. The return on an IPO is always guaranteed.
- Both B and C are correct.
Quiz 2: Trading mechanics
Q1. Which of the following statements is true about limit orders?
- A. A limit order controls
the price but does not guarantee that the order will be filled. - B. Limit orders are executed
at the best price available. - C. A limit order is recorded in the limit order book until it can be executed.
- Both A and C
Q2. You are concerned about the value of your holdings in company A shares. You
instruct your broker to sell your shares when the price falls down to $30 per
share. What type of order is this?
- A market order
- A stop-loss order
- A stop-buy order
Q3. You would like to liquidate your shares in company B, but you only want to sell them if the price is at least $25 per share. What kind of order would you place with your broker?;
- A market order
- A limit order
- A stop-loss order
- A stop buy order
Q4. Which of the following is true?
- A maintenance margin is the minimum amount the margin account can decline to without an investor having to take any action.
- A maintenance margin is the maximum amount the margin account can decline to without an investor having to take any action.
- A maintenance margin is the amount that the margin account must be kept at all times.
Q5. Which of the following statements is true?
- A margin call is a request to sell the securities that you have on your account
- A margin call is a request to buy more of the securities you already have.
- A margin call is a request to add more capital to your margin account indicating that the investor’s margin balance has fallen below the maintenance requirement.
- A margin call is prank call by marginal investors.
Q6. Suppose the initial margin requirement is 5% and you want to purchase 100 shares of Beta stock currently trading at $20 a share. How much would you have to deposit in the margin account to meet this requirement?
| 100 |
Q7. Consider your holdings in Beta stock in Question 6. Let’s suppose that the maintenance margin requirement is 4%. If you get a margin call stating that your margin has fallen down to 2.564%, what is the current price of Beta stock?
| 19.5 |
Q8. Suppose that you expect that Bubblenet stock price is going to decline. So you decide to ask your broker to short sell 1000 shares. The current market price is $50. The proceeds from the short sale $50,000 is credited into your account. A few days later the market price of the stock declines to $30 per share. What is your profit from this transaction?
20000
Q9. Suppose your broker has 50% margin requirements for short sales and you short 500 shares of GS-Biz Inc., currently trading at $50 per share. What is the amount that you need to deposit in the margin account to serve as margin on the short sale?
| 12500 |
Q10. Suppose you happened to be wrong on the direction of GS-Biz in Question 9. Instead of falling in value, GS-Biz price starts climbing. If the broker has 30% maintenance margin requirement, how much can the price of GS-BIz rise before you get a margin call?
Round off to one decimal points. (i.e. “x.x”)
| 57.7 |
Quiz 3: Module 4: Organization of financial markets and securities trading
Q1. The difference between mutual funds and Exchange traded funds (ETFs) is…
- ETFs shares are traded on exchanges all the time but mutual funds shares can be only traded at the end of the day when their net asset value is calculated.
- There is more variety of shares in mutual funds than on ETF’s
- None of the above.
Q2. Suppose that you expect SugarCane stock price to decline. So you decide to ask your broker to short sell 2000 shares. The current market price is $40. The proceeds from the short sale $80,000 is credited into your account. However, a few days later the market price of the stock jumps to $80 per share and your broker asks you close out your position immediately. What is your profit or loss from this transaction?
- -60000
- 60000
- -80000
- 80000
Q3. An investor has an initial margin requirement of 50% on his margin account and a maintenance margin requirement of 25%. The investor short sold 1,000 shares at $ 40 per share. What is the maximum price that the share can reach in the market before the investor receives a margin call?
| 48 |
Q4. True or False. An investment company is an institution that pools funds from investors with the
purpose of investing on their behalf. There can be registered investment
companies: mutual funds, unit investment trusts, and real estate investment
trust.
- True
- False
Q5. True or False.
Private equity is one example of investment companies that are not registered with the SEC and make equity investment in companies that are not publicly traded.
- True
- False
Q6. The difference between mutual funds and hedge funds is…
- There is no difference since there are both managed portfolios
- Hedge funds are not registered with the SEC since accepts only qualified investors such as high net worth individuals and institutional investors.
- None of the above.
Q7. A market order has
- Price uncertainty but no execution uncertainty
- Both price and execution uncertainty
- Execution uncertainty but no price uncertainty
Q8. You are bullish about Bulls Eye stock. The current price is $25 per share and you have $5000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest 10,000 in the stock. What will be your rate of return if the price of Bulls Eye stock goes up by 10% during the next year? Enter your answer as percentage. “Ex if the answer is 30% enter 30”
12
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