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Finance Mid-term Exam Paper

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Question;Rules: The Excel questions need to be done in the accompanying Excel file. You willemail this exam copy and the Excel file by due date. If you are unable to write the formulasin MS Word then you will write them by hand and scan the exam and email the exam andexcel file by due date.1. Classify the following financial instruments as money market securities or capital marketsecurities in a table:a. Bankers Acceptanceb. Commercial papers c. Common Stockd. Corporate Bondse. Mortgagesf. Negotiable Certificate of Deposits g. Repurchase Agreementsh. U.S. Treasury Billsi. U.S. Treasury Notesj. Federal Funds2. 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 pay6% 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 gradebonds. Choose one bond from the list. Also, find the treasury yield of the 30 year bond onAugust 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 securityrate, 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 bonds yield to maturity?b. A 8 percent semiannual coupon bond, with a par value of $1,000 sells for $895. If the bondsyield 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 maturityis 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 8coupon 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 isyour 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? Explainusing graphs.9. What is the difference between a discount yield and bond equivalent yield? Which yield isused for Treasury bill quotes?10. Write the differences between the following in a tabular form:a. T-Bills, T-Notes and T-Bondsb. General Obligation Bonds and Revenue Bondsc. Bearer bonds and Registered bondsd. Term bonds and Serial bonds11. What is the bid price of a $10,000 face value T-bill with a bid rate of 2.35 percent if there are50, 100, and 250 days to maturity? (Write down the formula and solve it either by calculator orexcel)12. You plan to purchase a $ 100,000 house using a 30- year mortgage obtained from your localcredit union. The mortgage rate offered to you is 8.25 percent. You will make a down paymentof 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 monthlypayments 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 thedividends paid on the stock were $5.00 per share. Calculate the return on a stock if the price ofthe stock at the end of the year is $30 and $50. (Write down the formula and solve it either bycalculator or excel)14. Assume there are 5 stocks: A, B, C, D, E of 5 different firms. You are to calculate an indexusing their prices and values. Say the prices of these stocks today are 25, 30, 50, 20, and 60respectively. 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 inthe price-weighted index?d. What is the new value-weighted index for next day? Calculate the percentage changein the value-weighted index?Assume that firm E divides the stock using a two-for-one split formula. What will be the newdivisor 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 anexercise price of $136 and IBMs stock is currently trading at $140. The option premium is $5per contract.a. What is your net profit on the option if IBMs stock price increases to $150 at expiration of theoption and you exercise the option?b. What is your net profit on the option if IBMs stock price decreases to $130 at expiration ofthe option?

 

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