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[answered] 1. A municipal bond has a yield of 4% while the yield of a


8 Questions... not 20. please see attached. must show work.


1. A municipal bond has a yield of 4% while the yield of a comparable corporate

 

bond is 5%. For each marginal tax bracket below, which bond (muni or

 

corporate) provides the higher after tax yield if your tax bracket is: (show work)

 

a. zero;

 

b. 10%;

 

c. 20%;

 

d. 30%;

 

2. i) Which of the four options below is the riskiest investment in terms of exposing

 

the investor to the highest possible loss?

 

a. writing or short a call option

 

b. writing or short a put option

 

c. buying or long a call option

 

d. buying or long a put option

 

ii) Draw the payoff diagram of the option that corresponds to the correct answer

 

above.

 

3. You place a stop-loss order to sell 1000 shares of stock at $60 when the current

 

price is $72. How much will you receive for each share if the price drops to $50?

 

a) $50

 

b) $60

 

c) less than $59.95 but more than 50

 

d) can?t tell from information given

 

4. Would a portfolio manager of an actively managed stock mutual fund believe

 

that markets are efficient? Why or why not?

 

5. Competing banks offer the same 7% annual yield on a 5-year CD. Bank A?s CD

 

offers annual compounding; while Bank B?s CD offers monthly compounding. If

 

you?re looking to invest $10,000, which bank?s CD do you select and why?

 

6. You are bullish on FaceBook (FB). The current price is $50/share and you have

 

$5,000 of your own money to invest. You borrow an additional $5,000 from your

 

broker at an interest rate of 8% per year and invest a total of $10,000 in the

 

stock. The stock does not pay a dividend.

 

a. What is your rate of return if the price of FB stock RISES by 10% during

 

the next year?

 

b. What is your rate of return if the price of FB stock FALLS by 10% during

 

the next year?

 

c. Discuss the impact margining has on your return.

 

7. You are to receive $500 at the end of one year; $250 at the end of two years;

 

$300 at the end of three years. If the interest rate is 5%, what is the present

 

value of these cash flows?

 

8. Assuming the cash flows above, what is the future value of these flows at the

 

end of year 4?

 


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