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FP13 Quiz Questions 2024
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FP13 Quiz Questions 2024
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FP13 Quiz QuestionsA 7% coupon bond pays interest semiannually and has a duration of 12 (computed
using semiannual compounding) and a maturity of 25 years. The bond sells for
$1,100 and has a YTM of 6.2%. If the YTM is expected to increase by 50 basis
✅✅
points, by what percentage can the price of the bond be expected to change? -
--12 (0.005/1.031)= -0.0582
You are considering purchase of a stock that is currently selling for $23 and pays a
dividend of $1.15 per share. The dividend is expected to grow at a rate of 15% per
year for the next three years. After that, the dividend is expected to grow at a
✅✅
constant rate of 8%. Your required return is 13%. The maximum price you should
pay for this stock is - -13
I/YR
0CF0
1.3225CF1
1.5209CF2
1.7490 + 37.7784CF3
29.7559 SHIFT, NPV
The 37.7784 is calculated from the constant growth DDM, starting at the end of the
third year: [1.7490(1.08)] ÷ (0.13 - 0.08) = 37.7784
Kevin owns a $1,000 par value corporate bond with three years remaining until
maturity. This bond is currently trading for $1,020.91. The bond has a coupon rate of
✅✅
4.5% (annual coupon payments) and a current YTM of 3.75%. What is the duration
of this bond? - -For year 1, FV = 45, I/YR = 3.75, N = 1, solve for PV(43.37) For
year 2, change N to 2 without clearing your calculator and solve for
PV(41.81xyears2). For year 3, FV = 1,045, I/YR = 3.75, N = 3, solve for
PV.(935.73xyears3)=2807.9 add all three together
Divide the sum in the last column ($2,934.18) by the total PV/market price of the
bond ($1,020.91) to derive the duration of 2.8741 years.
Assume a $1,000 par value bond with 3 years until maturity is currently trading for
$1,027.23. The bond has a coupon rate of 6% (annual coupon payments) and a
current YTM of 5%. The bond has a duration of 2.51 years. Calculate what the new
✅✅
market price for the bond would be if the YTM changed from 5% to 4.5%. -
-The new price of the bond should be $1,041.23.
FV = 1,000
PMT = 60
I/YR = 4.5
N=3
Solve for PV = -1,041.2345, or $1,041.23
, which of the following is considered to be both liquid and marketable? - ✅✅ -U.S.
Treasury bills are both liquid and marketable. Passbook savings accounts are liquid
but not marketable. Neither blue-chip stocks nor antique jewelry is assured of being
both liquid and marketable.
Identify which of the following statements pertaining to the various types of money
market investments is CORRECT.
-Commercial paper offers higher yields than T-bills.
-Eurodollars are U.S. dollar-denominated deposits at banks outside of the United
States.
-Banker's acceptances are short-term drafts drawn by a private company on a major
✅✅
bank to finance imports and exports.
-T-bills are subject to default risk and a lack of marketability. - -Only statement
IV is incorrect. T-bills are not subject to default risk and exhibit a high degree of
marketability. As a result, the 90-day T-bill is often used as a proxy for the risk-free
investment.
✅✅
Which of the following statements best describes banker's acceptances? -
-Banker's acceptances are typically traded at a discount from their face value in
the secondary market. Eurodollars are U.S. dollar-denominated deposits at banks
outside the United States.
✅✅
All of the following statements correctly describe certificates of deposit (CDs) except
- -CDs typically pay a fixed interest rate, with higher interest rates offered for
longer-term certificates.
Which of the following statements best describes Eurodollars? - ✅✅
-B)
U.S. dollar-denominated deposits at banks outside the United States
-in millions maturity less than six months
n investor holding a Treasury bill as of the date of maturity includes - ✅✅ -An
investor holding a Treasury bill as of the date of maturity includes the amount of the
discount as ordinary income. An investor who sells the bill before maturity includes
as ordinary income only a portion of the acquisition discount based on the total time
he held the bill. The remaining portion is capital gain income.
A money market mutual fund manager recently purchased negotiable, short-term,
unsecured promissory notes issued by a number of large corporations for the
✅✅
portfolio. Select the type of investment the money manager purchased. -
-Commercial paper is usually issued in denominations of $100,000 or more
and is a substitute for short-term bank financing. Commercial paper is normally sold
at a discount and is rated for quality by a rating service.
Limited partnerships are distinguished by which of the following?
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