Question 1

The current stock price for 3N is $140.21 per share. According to your broker's trading platform, the current bid price is $140.19 and the current ask price is $140.22 per share. According to this information, what is the current spread on 3N?

Accepted Answer

The answer of The current stock price for 3N is...

Question 2

What is the downside and the upside, respectively, on a mutual fund with a mean return of 10% and a standard deviation of 10%?

Accepted Answer

The answer of What is the downside and the upside,...

Question 3

Which of the following houses would be considered "underwater"?

Accepted Answer

A house is considered "underwater" when the outstanding mortgage on the property exceeds its current fair market value. In option A, the outstanding mortgage ($90,000) is higher than the current fair market value ($80,000), making it "underwater."

Question 4

Which of the following correctly describes a Ponzi scheme?

Accepted Answer

A Ponzi scheme pays returns to earlier investors with the capital of newer investors, rather than from profit earned by the operation of a legitimate business.

Question 5

Ten years ago, Madison and Toby purchased a house for $200,000. Today the market value of the house is $400,000. They still owe a balance of $125,000 on the mortgage. What is their equity in the house?

Accepted Answer

Equity is calculated as the current market value of the house minus the remaining mortgage balance. Therefore, their equity is $400,000 - $125,000 = $275,000.

Question 6

Last year, Orange Inc. reported earnings per share of $20 and a $5 per share dividend. If that company's stock is currently trading at $160, what is its P/E ratio?

Accepted Answer

The P/E (Price to Earnings) ratio is calculated by dividing the current market price of the stock by its earnings per share (EPS). In this case, the stock is trading at $160 and the EPS is $20. Therefore, the P/E ratio is $160 / $20 = 8.0.

Question 7

Rita is choosing between two mutual funds. While both funds have the same risk level, Fund A has historical returns of 9.3% and Fund B has historical returns of 8.5%. Fund A also has an expense ratio of 1.1% while Fund B has an expense ratio of 0.4%. Based on this information, which fund should Rita choose and why?

Accepted Answer

Fund A's after-fee return is calculated by subtracting the expense ratio from the historical return, which gives 9.3% - 1.1% = 8.2%. Fund B's after-fee return is 8.5% - 0.4% = 8.1%. Therefore, Fund A has a slightly higher after-fee return, making it the better choice based on the given information.

Question 8

Which of the following best describes an accredited investor?

Accepted Answer

The answer of Which of the following best describes an...

Question 9

GetFit Clothing is currently trading at $5.90 per share with 25,000,000 shares outstanding. Also, a recent audit revealed that its total assets minus liabilities is $65,000,000. According to this information, what is GetFit's approximate market capitalization?

Accepted Answer

Market capitalization is calculated by multiplying the current share price by the total number of outstanding shares. For GetFit Clothing, this is $5.90 * 25,000,000 = $147,500,000, which is approximately $148,000,000.

Question 10

You are trying to decide whether it is worth investing in a municipal bond or a corporate bond. You have identified a corporate bond you like with an 8% yield. If you are in the 30% marginal tax bracket, what comparable interest rate on a municipal bond would you accept?

Accepted Answer

The after-tax yield of the corporate bond is 8% * (1 - 0.30) = 5.6%. Therefore, you would accept a municipal bond with a yield of 5.6% or higher, as municipal bonds are typically tax-exempt.

Question 11

Last quarter, Tech Inc. paid a dividend of $3 per share. Analysts suggest that the dividend will grow by 5% this year and every year hereafter. If you require a 10% rate of return, what price would you be willing to pay for a share of Tech Inc. stock?

Accepted Answer

The price of the stock can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetuity with growth): P = D1 / (r - g), where D1 is the dividend next year, r is the required rate of return, and g is the growth rate. D1 = $3 * (1 + 0.05) = $3.15. P = $3.15 / (0.10 - 0.05) = $63.00.

Question 12

Yang Bai is investing $10,000 and wants a portfolio that is 80% stocks and 20% bonds. She has decided to accomplish this using just two ETFs: a stock ETF trading for $50 a share and a bond ETF trading for $100 a share. What should she do to meet her asset allocation goal?

Accepted Answer

The total value of the portfolio should be $10,000. 80% of $10,000 is $8,000, which should be invested in stocks. 20% of $10,000 is $2,000, which should be invested in bonds. To invest $8,000 in stocks, Yang should purchase 160 shares of the stock ETF (8,000 / 50 = 160). To invest $2,000 in bonds, she should purchase 20 shares of the bond ETF (2,000 / 100 = 20).

Question 13

Investors who are interested in purchasing a real estate investment trust must work with a

Accepted Answer

Investors typically purchase shares of a real estate investment trust (REIT) through a broker, as REITs are often traded on major stock exchanges similar to other publicly traded companies.

Question 14

Eduardo is buying three ETFs in his brokerage account. ETF A trades at $80 per share, ETF B trades at $50 per share, and ETF C trades at $40 per share. If he is buying 50 shares of A, 50 shares of B, and 25 shares of C, and the brokerage charges an $8 commission per trade, how much will he need to make this purchase?

Accepted Answer

The total cost is calculated by adding the cost of shares and the commissions for each ETF. For ETF A: 50 shares * $80/share = $4,000. For ETF B: 50 shares * $50/share = $2,500. For ETF C: 25 shares * $40/share = $1,000. Total cost of shares = $4,000 + $2,500 + $1,000 = $7,500. With an $8 commission per trade for three trades, the total commissions = 3 * $8 = $24. Therefore, the total cost = $7,500 + $24 = $7,524.

Question 15

You've recently learned of a mutual fund offering a mean return of 12% and a standard deviation of 8%. In any given year, there is about a 95% chance that this fund's annual return falls within

Accepted Answer

The answer of You've recently learned of a mutual fund...

Question 16

PlexiCo has issued new bonds to fund the construction of a synthetic glass factory. The bonds currently trade for $800 with a face value at maturity of $1,000. If the bonds' coupon rate is 5% and the bonds mature in 10 years, how much money should investors expect when the bond issues a coupon payment every 6 months?

Accepted Answer

The answer of PlexiCo has issued new bonds to fund...

Quiz 8: Investments