FIN 200 EXAM 2 QUESTIONS AND
ANSWERS (GRADED A+)
Which of the following is a correct statement about the different types of bonds? -
Answer- Corporate bonds are long-term debt securities issued by large firms
James just purchased a corporate bond, one year after he purchased the bond, coupon
rates for similar bonds increased in the marketplace. Given these circumstances, what
will be the new value of James' bond compared to the original purchase price? -
Answer- The new price will be less than the original purchase price
What is the federal tax rate for interest payments on a bond as well as the feral tax rate
for any gain/loss incurred if the bond is sold more than one year after it was issued? -
Answer- Interest payments are taxed at the ordinary income rate and the gain/loss is
taxed at the long-term capital gains rate
An investor is choosing a strategy for their bond portfolio. The investor wants a strategy
that does not require a lot of active management and that does not incur high costs from
frequent trading. On top of this, the investor wants a portfolio that provides steady
income over time. Which strategy should the investor choose? - Answer- Passive
Strategy
Which of the scenarios below best describes an investor who utilizes a maturity
matching strategy? - Answer- Rico is retiring soon and his bond portfolio is intended to
cover future expenses rather than beat the market
Determine the NAV of the following mutual fund: Assets of the fund include 100 shares
of Apple, 200 shares of Microsoft, and 150 shares of Facebook. Apple stock is currently
priced at $160/share, Microsoft stock is currently priced at $300/share and Facebook
stock is currently selling for $175/share. The fund also has liabilities of $50,000 to be
paid to the fund managers.. - Answer- $52,250
Which of the following mutual funds will have the greatest liabilities (fees/expenses)? -
Answer- A load carrying mutual fund with an expense ratio of 1.5%
What is an equity income mutual fund? - Answer- A fund that focuses on firms that pay
a high level of dividends
, In order for a company to list its shares on a stock exchange, which of the following is
required? - Answer- The company must be listed on the stock exchange (publicly
traded)
What is one major difference between the New York Stock Exchange (NYSE) and the
Nazdaq Stock Exchange? - Answer- The Nazdaq stock exchange has never had a
physical trading floor
T or F: Over-the-counter (OTC) markets operate through an electronic communications
network that allows investors to buy and sell securities and OTC markets are more
transparent and more heavily regulated than both the NYSE & the Nazdaq. - Answer-
False
All of the following are differences between a discount brokerage firm and a full-service
brokerage firm except? - Answer- A. A discount brokerage firm executes your desired
transactions
(correct)
B. A full-service brokerage firm offers you investment advice
C. A discount brokerage firms tend to charge lower fees
D. All of the above are differences between a discount brokerage firm and a full-service
brokerage firm
Allie wants to buy a round-lot of Gamestop stock. She places a limit order with her
brokerage firm to purchase the stock between $50 to $55/share. When markets open
the next day, Gamestop stock soars to $100/share. At what price did Allie transact to
purchase the round-lot of Gamestop stock? - Answer- Allie did not purchase any
Gamestop stock because the price never reached her specifed limits
Which of the following is a characteristic of short selling? - Answer- Short-selling
investors sell a stock that they do not own
In the short selling process, short sellers borrow the stock from another investor and will
have to return the stock from which the short seller borrowed it at a later date
Investors typically short a stock when they believe it is overvalued and will soon drop in
price
Why is the balance sheet important when analyzing a company's financial condition to
decide whether or not to invest in that company? - Answer- The company's balance
sheet indicates its sources and uses and how the company has invested its funds as of
a particular point in time
Which of the following is an example of an adverse affect from international economies
on the domestic country? - Answer- When domestic manufacturing companies
experienced a decreased demand for their products in their European markets because
of weak economic conditions in Europe
ANSWERS (GRADED A+)
Which of the following is a correct statement about the different types of bonds? -
Answer- Corporate bonds are long-term debt securities issued by large firms
James just purchased a corporate bond, one year after he purchased the bond, coupon
rates for similar bonds increased in the marketplace. Given these circumstances, what
will be the new value of James' bond compared to the original purchase price? -
Answer- The new price will be less than the original purchase price
What is the federal tax rate for interest payments on a bond as well as the feral tax rate
for any gain/loss incurred if the bond is sold more than one year after it was issued? -
Answer- Interest payments are taxed at the ordinary income rate and the gain/loss is
taxed at the long-term capital gains rate
An investor is choosing a strategy for their bond portfolio. The investor wants a strategy
that does not require a lot of active management and that does not incur high costs from
frequent trading. On top of this, the investor wants a portfolio that provides steady
income over time. Which strategy should the investor choose? - Answer- Passive
Strategy
Which of the scenarios below best describes an investor who utilizes a maturity
matching strategy? - Answer- Rico is retiring soon and his bond portfolio is intended to
cover future expenses rather than beat the market
Determine the NAV of the following mutual fund: Assets of the fund include 100 shares
of Apple, 200 shares of Microsoft, and 150 shares of Facebook. Apple stock is currently
priced at $160/share, Microsoft stock is currently priced at $300/share and Facebook
stock is currently selling for $175/share. The fund also has liabilities of $50,000 to be
paid to the fund managers.. - Answer- $52,250
Which of the following mutual funds will have the greatest liabilities (fees/expenses)? -
Answer- A load carrying mutual fund with an expense ratio of 1.5%
What is an equity income mutual fund? - Answer- A fund that focuses on firms that pay
a high level of dividends
, In order for a company to list its shares on a stock exchange, which of the following is
required? - Answer- The company must be listed on the stock exchange (publicly
traded)
What is one major difference between the New York Stock Exchange (NYSE) and the
Nazdaq Stock Exchange? - Answer- The Nazdaq stock exchange has never had a
physical trading floor
T or F: Over-the-counter (OTC) markets operate through an electronic communications
network that allows investors to buy and sell securities and OTC markets are more
transparent and more heavily regulated than both the NYSE & the Nazdaq. - Answer-
False
All of the following are differences between a discount brokerage firm and a full-service
brokerage firm except? - Answer- A. A discount brokerage firm executes your desired
transactions
(correct)
B. A full-service brokerage firm offers you investment advice
C. A discount brokerage firms tend to charge lower fees
D. All of the above are differences between a discount brokerage firm and a full-service
brokerage firm
Allie wants to buy a round-lot of Gamestop stock. She places a limit order with her
brokerage firm to purchase the stock between $50 to $55/share. When markets open
the next day, Gamestop stock soars to $100/share. At what price did Allie transact to
purchase the round-lot of Gamestop stock? - Answer- Allie did not purchase any
Gamestop stock because the price never reached her specifed limits
Which of the following is a characteristic of short selling? - Answer- Short-selling
investors sell a stock that they do not own
In the short selling process, short sellers borrow the stock from another investor and will
have to return the stock from which the short seller borrowed it at a later date
Investors typically short a stock when they believe it is overvalued and will soon drop in
price
Why is the balance sheet important when analyzing a company's financial condition to
decide whether or not to invest in that company? - Answer- The company's balance
sheet indicates its sources and uses and how the company has invested its funds as of
a particular point in time
Which of the following is an example of an adverse affect from international economies
on the domestic country? - Answer- When domestic manufacturing companies
experienced a decreased demand for their products in their European markets because
of weak economic conditions in Europe
