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2008- WINTER Q.pdf

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University of Toronto Scarborough
Derek Chau

MGTD75 Investments Mid-Term Examination Winter 2008 Time Allowed: 1 hour 45 minutes Instructions 1. Write your First/Last Name and Identification # (student number) on the General Purpose Answer Sheet (Scantron) and fill the corresponding ovals. Use a No.2 pencil. 2. Write your name and student number on the cover page of the examination answer book. 3. You are allowed to bring a hand-written letter size crib sheet. 4. Financial calculator is allowed. 5. There are 5 pages in this question paper. Part A: Answer all 15 multiple choice questions on the General Purpose Answer Sheet by filling the ovals with a No. 2 pencil. Part B: Answer all 3 questions in the examination answer book with a Black/Blue pen. Show all your steps. 1 Part A: Answer all 15 questions by choosing the best answer, 3% each. 1. The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________. A) credit enhancement B) securitization C) unbundling D) derivatives E) None of the above. 2. If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA? A) The stock trading at the highest dollar price per share. B) The stock with total equity has the higher market value. C) The stock having the greatest amount of equity in its capital structure. D) The stock having the lowest volatility. E) All will have an equal impact. 3. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a __________. A) stop-loss order B) limit-buy order C) stop-buy order D) limit-sell order E) None of the above. 4. Which one of the following statements regarding orders is false? A) A market order is simply an order to buy or sell a stock immediately at the prevailing market price. B) A limit sell order is where investors specify prices at which they are willing to sell a security. C) If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45. D) A day order expires at the close of the trading day. E) None of the above. 5. The asked bank discount yield on a T-bill is 5 percent. What is the asked price of the bill if it matures in 60 days and has a face value of $10,000? A) $9,500.00 B) $9,916.67 C) $9,523.81 D) $8,753.14 E) $9,876.52 2 6. You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is A) $4,500. B) unlimited. C) zero. D) $9,000. E) Cannot tell from the information given. 7. The current yield on a bond is equal to ________ . A) the internal rate of return B) the yield to maturity C) annual interest divided by the par value D) annual interest divided by the current market price E) None of the above. 8. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%, A) both bonds will increase in value, but bond A will increase more than bond B. B) both bonds will increase in value, but bond B will increase more than bond A. C) both bonds will decrease in value, but bond A will decrease more than bond B. D) both bonds will decrease in value, but bond B will decrease more than bond A. E) None of the above. 9. You have just
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