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FIN Midterm-Classify the following financial instruments as money market securities or capital market securities

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Question;Midterm;Due: August;4, 2013;Rules: The;Excel questions need to be done in the accompanying Excel file. You will email;this exam copy and the Excel file by due date. If you are unable to write the;formulas in MS Word then you will write them by hand and scan the exam and;email the exam and excel file by due date.;1. Classify the following financial instruments as money market;securities or capital market securities in a table;a. Bankers Acceptance b. Commercial papers c. Common Stock d. Corporate Bonds;e. Mortgages f. Negotiable Certificate of Deposits g.;Repurchase Agreements;h. U.S. Treasury Bills i. U.S. Treasury Notes j. Federal Funds;2. Calculate the present value for the following: (Excel);a. $5,000 received at the end of 5 years if your investments pay 6%;compounded annually.;b. $5,000 received each year for 5 years on the last day of each year;if your investments pay 6% compounded annually.;c. $5,000 received each quarter for 5 years on the last day of each;quarter if your investments pay 6% compounded annually.;d. $5,000 received each year for 5 years on the first day of each year;if your investments pay 6% compounded annually.;3. Go to Wall Street Journal Market Data Center and find the most;active investment grade bonds. Choose one bond from the list. Also, find the;treasury yield of the 30 year bond on August 01, 2013 from U.S. Treasury. Then;calculate the Default Risk Premium for your bond. (Be clear in the name of the;company you have chosen.);4. If we observe a one-year Treasury security rate higher than the;two-year Treasury security rate, what can we infer about the one-year rate;expected one year from now?;5. Calculate the following values in Excel.;a. A 10-year, 12 percent semiannual coupon bond, with a par value of;$1,000 sells for $1,100. What is the bond?s yield to maturity?;b.A 8 percent semiannual coupon bond, with a par value of $1,000 sells;for $895. If the bond?s yield to maturity is 5% then what is maturity of the;bond in years?;c. A 10 year, 8 percent semiannual coupon bond, with a par value of;$1,000 and yield to maturity is 5%. What is price of the bond?;6. Calculate the fair present value of a bond that pay interest;semiannually, has a face value of $1,000, has 14 years remaining to maturity;has a required rate of return of 10 percent and 8 coupon rate. (Write;down the formula and solve it either by calculator or excel);7. A stock just paid an annual dividend of $2.50. Dividends are;expected to grow at 1.5 percent. If the required rate of return on the stock is;12 percent, what is the fair present value? How is your answer change if the;required rate of return is 15 percent?;(Write down the formula and solve it either by calculator or excel);8. Why Fed cannot choose both interest rate targeting and money supply;targeting? Explain using graphs.;9. What is the difference between a discount yield and bond equivalent;yield? Which yield is used for Treasury bill quotes?;10. Write the differences between the following in a tabular;form;a. T-Bills, T-Notes;and T-Bonds;b. General;Obligation Bonds and Revenue Bonds;c. Bearer bonds and;Registered bonds;d. Term bonds and;Serial bonds;11. What is the bid price of a $10,000 face value T-bill with a bid;rate of 2.35 percent if there are 50;100, and 250 days to maturity? (Write down the formula and solve it either;by calculator or excel);12. You plan to purchase a $ 100,000 house using a 30- year mortgage;obtained from your local credit union. The mortgage rate offered to you is 8.25;percent. You will make a down payment of 20 percent of the purchase price. (Excel);a. Calculate your monthly payments on this mortgage.;b. Calculate the amount of interest and principal paid;for all payments.;c. Calculate the;amount of share of interest and share of principal of the monthly payments for;all payments.;d. Calculate the amount of interest paid over the life;of this mortgage.;13. At the beginning of the year, you purchased a share of stock for;$40. Over the year the dividends paid on;the stock were $5.00 per share.;Calculate the return on a stock if the price of the stock at the end of;the year is $30 and $50. (Write down the formula and solve it either;by calculator or excel);14. Assume there are 5 stocks: A, B, C, D, E of 5 different firms. You;are to calculate an index using their prices and values. Say the prices of;these stocks today are 25, 30, 50, 20, and 60 respectively. The firms have;100m, 80m, 120m, 200m and 250m shares outstanding, respectively.;a. what is the price-weighted index for today?;b. what is value-weighted index for today?;Assume that the price changes to 20, 25, 55, 18, and 50 respectively;next day.;c. What is the new price-weighted index for next day?;Calculate the percentage change in the price-weighted index?;d. What is the new value-weighted index for next day?;Calculate the percentage change in the value-weighted index?;Assume that firm E divides the stock using a two-for-one split;formula. What will be the new divisor for the price-weighted index?;(Write down the formula and solve it either by calculator or excel);15. You have taken a long position in a call option on IBM common;stock. The option has an exercise price of $136 and IBM?s stock is currently;trading at $140. The option premium is $5 per contract.;a. What is your net profit on the option if IBM?s stock price;increases to $150 at expiration of the option and you exercise the option?;b. What is your net profit on the option if IBM?s stock price;decreases to $130 at expiration of the option?

 

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