FNAN405 (DAS) Exam 1 (Ch1-4)
questions and answers
If you multiply the number of shares of outstanding stock for a firm by the price per share, you
are computing the firm's: - correct answer ✔✔Market Capitalization
One year ago, you purchased 400 shares of stock at a cost of $8,650. The stock paid an annual
dividend of $1.10 per share. Today, you sold those shares for $23.90 each. What is the capital
gains yield on this investment? - correct answer ✔✔10.52%
[($23.90 × 400) - $8,650)]/$8,650 = 10.52 percent
Capital Gains Yield = [(Current $ sales price x # shares)-Initial Investment]/initial investment
Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of
$1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total
dollar return? - correct answer ✔✔$2,712
600 × ($71.30 - $68.20 + $1.42) = $2,712
Total Dollar Return = # shares x (Sales Price per share - Purchase price per share + dividends
received per share)
The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the: - correct
answer ✔✔risk-free rate
You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the
stock after one year for $31.30 a share. What was your dividend yield on this investment? -
correct answer ✔✔2.45%
$0.72/$29.40 = 2.45 percent
Dividend Yield = Dividend received / purchase price per share
,Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before
reselling it. What is the value of "m" when computing the annualized return on this investment?
- correct answer ✔✔3.00
4 holding months / 12 months per year = 3 holding periods per year
(see section 1.1 - Returns)
Christine owns a stock that dropped in price from $38.70 to $34.10 over the past year. The
dividend yield on that stock is 1.4 percent. What is her total return on this investment for the
year? - correct answer ✔✔-10.49%
[($34.10 - $38.70)/$38.70] + .014 = -10.49 percent
Total ROI = [(New Stock Price - Old Stock price)/ Old Stock Price]+dividend yield
One year ago, you purchased 300 shares of Southern Cotton at $32.60 a share. During the past
year, you received a total of $280 in dividends. Today, you sold your shares for $35.80 a share.
What is your total return on this investment? - correct answer ✔✔12.68%
[$35.80 - $32.60 + ($280/300)]/$32.60 = 12.68 percent
Total ROI = [(New Stock Price - Old Stock price + (Total Dividend Received / # shares)] / old stock
price
Over the past four years, Jellystone Quarry stock produced returns of 12.5, 15.1, 8.7, and 2.6
percent, respectively. For the same time period, the risk-free rate 4.7, 5.3, 3.9, and 3.4 percent,
respectively. What is the arithmetic average risk premium on this stock during these four years?
- correct answer ✔✔5.40%
Average risk premium = [(.125 - .047) + (.151 - .053) + (.087 - .039) + (.026 - .034)]/4 = 5.40
percent
Avg Risk Premium = [sum (Return - risk-free rate)] / # periods
RedStone Mines stock returned 7.5, 15.3, -9.2, and 11.5 percent over the past four years,
respectively. What is the geometric average return? - correct answer ✔✔5.84%
Geometric average = [(1 + .075)(1 + .153)(1 - .092)(1 + .115)]^(1/4) - 1 = 5.84 percent
, Geometric Average = [(1+R1)x(1+R2)x ... x(1+Rn)]^(1/n) - 1, where n = # annual returns
Matt short sold 600 shares of stock at $10.50 a share. The initial margin is 80 percent and the
maintenance margin is 50 percent. The stock is currently selling for $6.80 a share. What is
Matt's account equity at this time? Ignore margin interest. - correct answer ✔✔$7,260
Account Equity = Proceeds + Initial Margin Deposit - Short Position
Proceeds = # shares x sales price
Initial Margin Deposit = Initial Margin x Proceeds
Short Position = # shares x current sales price
Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her
that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30
percent. The initial margin requirement is _____ percent and the maintenance margin is _____
percent. - correct answer ✔✔Initial Margin = 70%
Maintenance Margin = 30%
You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65
percent and the maintenance margin is 35 percent. What is the lowest the stock price can go
before you receive a margin call? - correct answer ✔✔Calculate Lowest Price per Share
P* = [amount borrowed / # shares]/ (1 - maintenance margin)
P* = $26.49
Kate just purchased $7,000 worth of stock. She paid $5,000 in cash and borrowed $2,000. In this
example, the term margin refers to: - correct answer ✔✔Margin - portion of value of an
investment that is not borrowed aka % paid in cash
The minimum equity that must be maintained at all times in a margin account is called the: -
correct answer ✔✔maintenance margin
questions and answers
If you multiply the number of shares of outstanding stock for a firm by the price per share, you
are computing the firm's: - correct answer ✔✔Market Capitalization
One year ago, you purchased 400 shares of stock at a cost of $8,650. The stock paid an annual
dividend of $1.10 per share. Today, you sold those shares for $23.90 each. What is the capital
gains yield on this investment? - correct answer ✔✔10.52%
[($23.90 × 400) - $8,650)]/$8,650 = 10.52 percent
Capital Gains Yield = [(Current $ sales price x # shares)-Initial Investment]/initial investment
Todd purchased 600 shares of stock at a price of $68.20 a share and received a dividend of
$1.42 per share. After six months, he resold the stock for $71.30 a share. What was his total
dollar return? - correct answer ✔✔$2,712
600 × ($71.30 - $68.20 + $1.42) = $2,712
Total Dollar Return = # shares x (Sales Price per share - Purchase price per share + dividends
received per share)
The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the: - correct
answer ✔✔risk-free rate
You purchased a stock for $29.40 a share, received a dividend of $0.72 per share, and sold the
stock after one year for $31.30 a share. What was your dividend yield on this investment? -
correct answer ✔✔2.45%
$0.72/$29.40 = 2.45 percent
Dividend Yield = Dividend received / purchase price per share
,Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before
reselling it. What is the value of "m" when computing the annualized return on this investment?
- correct answer ✔✔3.00
4 holding months / 12 months per year = 3 holding periods per year
(see section 1.1 - Returns)
Christine owns a stock that dropped in price from $38.70 to $34.10 over the past year. The
dividend yield on that stock is 1.4 percent. What is her total return on this investment for the
year? - correct answer ✔✔-10.49%
[($34.10 - $38.70)/$38.70] + .014 = -10.49 percent
Total ROI = [(New Stock Price - Old Stock price)/ Old Stock Price]+dividend yield
One year ago, you purchased 300 shares of Southern Cotton at $32.60 a share. During the past
year, you received a total of $280 in dividends. Today, you sold your shares for $35.80 a share.
What is your total return on this investment? - correct answer ✔✔12.68%
[$35.80 - $32.60 + ($280/300)]/$32.60 = 12.68 percent
Total ROI = [(New Stock Price - Old Stock price + (Total Dividend Received / # shares)] / old stock
price
Over the past four years, Jellystone Quarry stock produced returns of 12.5, 15.1, 8.7, and 2.6
percent, respectively. For the same time period, the risk-free rate 4.7, 5.3, 3.9, and 3.4 percent,
respectively. What is the arithmetic average risk premium on this stock during these four years?
- correct answer ✔✔5.40%
Average risk premium = [(.125 - .047) + (.151 - .053) + (.087 - .039) + (.026 - .034)]/4 = 5.40
percent
Avg Risk Premium = [sum (Return - risk-free rate)] / # periods
RedStone Mines stock returned 7.5, 15.3, -9.2, and 11.5 percent over the past four years,
respectively. What is the geometric average return? - correct answer ✔✔5.84%
Geometric average = [(1 + .075)(1 + .153)(1 - .092)(1 + .115)]^(1/4) - 1 = 5.84 percent
, Geometric Average = [(1+R1)x(1+R2)x ... x(1+Rn)]^(1/n) - 1, where n = # annual returns
Matt short sold 600 shares of stock at $10.50 a share. The initial margin is 80 percent and the
maintenance margin is 50 percent. The stock is currently selling for $6.80 a share. What is
Matt's account equity at this time? Ignore margin interest. - correct answer ✔✔$7,260
Account Equity = Proceeds + Initial Margin Deposit - Short Position
Proceeds = # shares x sales price
Initial Margin Deposit = Initial Margin x Proceeds
Short Position = # shares x current sales price
Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her
that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30
percent. The initial margin requirement is _____ percent and the maintenance margin is _____
percent. - correct answer ✔✔Initial Margin = 70%
Maintenance Margin = 30%
You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65
percent and the maintenance margin is 35 percent. What is the lowest the stock price can go
before you receive a margin call? - correct answer ✔✔Calculate Lowest Price per Share
P* = [amount borrowed / # shares]/ (1 - maintenance margin)
P* = $26.49
Kate just purchased $7,000 worth of stock. She paid $5,000 in cash and borrowed $2,000. In this
example, the term margin refers to: - correct answer ✔✔Margin - portion of value of an
investment that is not borrowed aka % paid in cash
The minimum equity that must be maintained at all times in a margin account is called the: -
correct answer ✔✔maintenance margin
