Question 96 Using the following assumptions: - Market Price Per Share: $25
- Number of Shares Purchased: 1,000
- Holding Period: 1 year
- Ending Share Price: $22
- Initial Margin Requirement: 50%
- Maintenance margin: 25%
- Transaction and borrowing costs: $0
- The company pays no dividends
The rate of return on a margin transaction for an investor who purchases the stock, and the stock price at which the investor who shorts the stock will receive a margin call, are closest to:
Margin Transaction Return Margin Call A) -24.00% $16.67 B) -12.00% $16.67 C) -12.00% $30.00 D) -24.00% $30.00
The correct answer was D)
-24.00% $30.00
To obtain the result: Calculate Margin Return: Margin Return % | = [((Ending Value − Loan Payoff) / Beginning Equity Position) − 1] × 100 |
| = [(([$22 × 1,000] − [$25 × 1,000 × 0.50]) / ($25 × 0.50 × 1,000)) − 1] × 100 |
| = -24.00%. |
Alternative (Check): Calculate the all cash return and multiply by the margin leverage factor. = [(22,000 – 25,000) / 25,000] × [1 / 0.50] = -12.00% × 2.0 = -24.00% Calculate Margin Call Price: Since the investor is short (sold the stock), the formula for the margin call price is: Margin Call | = (original price) × (1 + initial margin) / (1 + maintenance margin) |
| = $25 × (1 + 0.50) / (1 + 0.25) = $30.00 |
This question tested from Session 13, Reading 52, LOS g, (Part 2)
Question 97
Simone Girau holds a callable bond and Chi Rigazio holds a putable bond. Which of the following statements about the two investors is most accurate?
A) As the yield volatility increases, the value of both Girau's bond and the underlying option increases. B) Both investors calculate the value of the bond held by adding the value of the option to the value of a similar straight bond. C) If yield volatility increases, the value of Rigazio's option will decrease. D) Girau's bond has less potential for price appreciation.
The correct answer was D) Girau's bond has less potential for price appreciation. When a bond has a call provision, the potential for price appreciation is reduced, because the call caps the price of the bond near the call price. Even if interest rates fall considerably, it is unlikely that investors would pay a price that exceeds the call price. The other statements are false. To calculate the value of a putable bond, it is correct to add the option value to the value of a similar straight bond. However, to calculate the callable bond value, subtract the option value from that of a similar straight bond. As a result, when yield volatility increases (thus increasing the option value), the value of a callable bond decreases and the value of a putable bond increases. A call option does benefit the issuer, but a put option benefits the holder. Embedded options (puts and calls) increase in value when volatility increases. This question tested from Session 15, Reading 63, LOS h
Question 98 Which theory of the term structure of interest rates concludes that the shape of the yield curve is determined by the supply and demand for securities in particular maturity ranges, and what shape of the yield curve is implied by this theory? Theory Yield curve A) liquidity preference no specific shape B) market segmentation no specific shape C) liquidity preference upward sloping D) market segmentation
upward sloping The correct answer was B) market segmentation no specific shape The shape of the yield curve under market segmentation is determined by the supply and demand for securities within a given maturity range. No specific shape of the yield curve is implied by this theory.
This question tested from Session 15, Reading 65, LOS c, (Part 1)
Question 99
Which of the following statements about the early retirement of debt is least accurate?
A) Noncallable bonds generally cannot be retired for any reason prior to maturity. B) Sinking fund provisions require the issuer to systematically retire the issue over its life rather than at maturity. C) When bonds are redeemed under sinking fund provisions, the call price is known as the "regular redemption price." D) Non-refundable bonds prohibit a company from calling an issue financed by the proceeds of a lower cost refunding bond issue.
The correct answer was C) When bonds are redeemed under sinking fund provisions, the call price is known as the "regular redemption price." When bonds are redeemed to comply with sinking fund provisions, the call price is known as the “special redemption price.” When bonds are redeemed according to the call provisions specified in the bond indenture, the call price is known as “regular redemption price.” This question tested from Session 15, Reading 62, LOS d
Question 100
What data would an analyst need to calculate the implied 1-year forward rate 3 years from now?
A) The current spot rate and the spot rate four years from now. B) Spot rates for six-month intervals for two years and the 4-year spot rate. C) The implied 4-year forward rate 3 years out and the current spot rate. D) The 3-year spot rate and the 4-year spot rate.
The correct answer was D) The 3-year spot rate and the 4-year spot rate. 3f1 = [(1 + R4)4 / (1 + R3)3] − 1 This calculation requires the 3-year and 4-year spot rates. This question tested from Session 16, Reading 68, LOS h, (Part 1) | 
发表于 2008-5-26 12:20
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