# Global Financial Markets and Instruments Quiz

Enroll Now

## Week- 1

### Module 1: Review of Elementary Finance Tools

1.
Question 1
Bob and Jane Loveboat are saving to buy a boat at the end of 5 years. If the boat costs \$25,000, and they can earn 8 percent a year on their savings, how much do they need to put aside at the end of every year 1 through 5? Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’

1 point

 4261.41

2.
Question 2
You made your fortune in the dot-com boom (and got out in time!) As part of your legacy, you would like to endow an annual scholarship at your alma mater. You want it to be memorable, so you would like the scholarship to be \$20,000 per year. If the university earns 8% on its investments, and if the first scholarship is to be given out in one year’s time, how much will you need to donate to create the scholarship fund? Round your final answer to the nearest dollar.

1 point

 250000

3.
Question 3
Assuming that the annual interest rate is 7%, how much would you pay to receive \$100 every year, growing at 5%, annually, forever? Round off your final answer to the nearest dollar.

1 point

 5000

4.
Question 4
What is the future value three years from now of \$1000 invested in an account with a stated annual interest rate of 8%, if compounded semi-annually? Round off your final answer to three digits after the decimal. State your answer as ‘x.xxx’

1 point

 1265.32

5.
Question 5
What is the future value three years from now of \$1000 invested in an account with a stated annual interest rate of 8%, if compounded monthly? Round off your final answer to three digits after the decimal point State your answer as ‘x.xxx’

1 point

 1270.24

6.
Question 6
You want to lease a set of golf clubs from Holes, Ltd. The lease contract is in the form of 24 equal monthly payments at a 12 percent annual rate, compounded monthly. Since the clubs cost \$4,000 retail, Holes wants the present value of the lease payments to equal \$4,000. Suppose you first payment is due immediately. What will your monthly lease payment be? Round off your final answer to one digit after the decimal point. State your answer as ‘x.x’

2 points

 186.4

7.
Question 7
You want to retire a millionaire when you are 65. Currently, you have \$20,000 in savings and are 30 years old. How much will you have to save each year for the next 35 years in order to have \$1,000,000? Assume you earn 9% on your savings every year. Round off your final answer to three digits after the decimal point. State your answer as ‘x.xxx’

3 points

 2743.12

8.
Question 8
You decide to buy a home for \$100,000. You approach two banks for financing. If you want to minimize your monthly payments, which one would you choose?

5 points

Bank #1 requires a 10% down payment and requires monthly payments on a 20-year mortgage sufficient to earn it an effective annual return of 8%.

Bank #2 also needs a 10% down payment and also has a 20-year mortgage, but quotes a 8% annual rate which is compounded monthly.

9.
Question 9
Leeds Autos has just announced its new promotional deal on the new \$45,000 Z4 Roadster. You pay \$5,000 down, and then \$1000 for the next 40 months. Its next door competitor, Chatham Hill Autos will give you a \$3000 off the list price straight away. If the interest rate is 6% a year, which company is giving a better deal?

1 point

Leeds Autos

Chatham Hill Autos

10.
Question 10
Your parents make you the following offer: They will give you \$5000 at the end of every six months for the next five years if you agree to pay them back \$5000 at the end of every six months for the following ten years. Should you accept this offer if your opportunity cost of funds is 18% per year, compounded semiannually?

4 points

Yes

No

## Week- 2

### Module 2: Financial assets – fixed income securities

1.
Question 1
Which of the following is correct about money market instruments?

1 point

They are very short-term debt instruments that meet the needs of investors who want to invest in liquid assets.

An important channel for the U.S. Federal Reserve to conduct its monetary policy

They include long-term corporate debt issues.

A and B.

2.
Question 2
What is the
value of a 5-year 10% coupon bond with face value of \$1000 if the yield is 4%
per year? Assume that coupon payments are semi-annual. Round off to two digits after the decimal point. (i.e. “x.xx”)

1 point

 1269./48

3.
Question 3
One of the
most common money market instruments are U.S. Treasury bills. Find the price of a \$10,000 face value Treasury bill with 81 days to maturity if it is quoted at a discount of 2.54 percent. Round off to two digits after the decimal point. (i.e. “x.xx”)

1 point

 9942.85

4.
Question 4
Refer to Question 3. What would be your yield to maturity if you bought this Treasury at this price and kept it until maturity? Round off to two digits after the decimal. (i.e. “x.xx”) Ex 0.112 or 11.2% should be entered as 11.2

1 point

 2.55

5.
Question 5
Which of these securities is considered risk free?

1 point

Apple stock

Emerging market debt

U.S. Treasury bills

Commercial paper

6.
Question 6
Which of the following is not a distinguishing feature of municipal bonds?

1 point

Municipal bonds are issued by state and local governments.

Municipal bonds have tax-exempt status.

Munis are an example of money market instruments.

Investors typically accept a lower yield on these securities.

7.
Question 7
Assume you have a 1-year investment horizon and trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. Which of the following bonds would you choose if you expect the yields to go down to 7 percent one year from now after the coupon payment and want to maximize your 1-year return?

1 point

A 9% annual coupon bond currently priced to yield 8%

A zero-coupon bond currently priced to yield 8%

A 6% coupon bond currently priced to yield 8%

8.
Question 8
Which of the following is correct?

1 point

When bonds are subject to potential default, the stated yield to maturity is the minimum possible yield that can be realized by the bondholder.

In the event of default, bondholders always get their promised payments.

To compensate bond investors for default risk, bonds must offer default premiums, that is, a yield higher than those offered by default-free government securities.

Junk bonds or high-yield bonds have on average lower default risk than investment grade bonds.

9.
Question 9
A bond with a call feature

1 point

Is attractive because there is less default risk.

Is more likely to be called when interest rates are high because the interest savings will be greater.

Will usually have a higher yield to maturity than a similar noncallable bond.

None of the above.

10.
Question 10
Which security has a higher effective annual rate?

1 point

A Treasury bill with 89 days left to maturity selling at \$97,660 with par value \$100,000

A coupon bond selling at par and paying 10% coupon quarterly.

## Week- 3

### Module 3: Financial assets – Equities and derivatives

1.
Question 1
Earnings and
dividends per share at G3-Biz Inc. are expected to grow at a rate of 18 percent over the next two years, then at 15 percent in the third year, and then at 6 percent
thereafter. G3- Biz just paid a dividend of \$1.15. If the required rate of
return on the stock is 12 percent, what is the price of a share of G3-Biz stock
today? Round off to two decimal points. (i.e. “x.xx”)

1 point

 26.95

2.
Question 2
Suppose that
the company XYZ is going to pay a dividend of \$1.50 per share next year, and the dividend
is expected to grow by 10% forever. If investors require a 13%, what should the
value of XYZ’s stock be?

1 point

55

50

62

65

3.
Question 3
Suppose that
the stock of the company CFAA is currently trading on April 15 at a price of \$70. A call option with a strike price of \$70 and an expiration date on October 15 is
trading at \$4. What is your profit if the stock price at expiration date is \$80? Remember that each option contract is for 100 shares.

1 point

 600

4.
Question 4
Suppose that a
trader enters into a long futures position for 1000 oil barrels
with a delivery date on December 2016 and a future price of \$40 per barrel.
Suppose that on delivery date, the spot price of oil is \$45 per barrel. What is the payoff to the long position?

1 point

 5000

5.
Question 5
Suppose your research shows that technology stocks currently provide an expected rate of return 12%. BMI, a large computer company, is expected to pay a dividend of \$2 per share at the end of the year. If the stock is currently selling at \$48 per share, what is the market’s expectation of growth at BMI?

1 point

6.53%

7.83%

4.17%

None of the above

6.
Question 6
An investor purchases a stock for \$28 and a put on the stock for \$0.40 with a strike price of \$24. She also sells a call on the same underlying stock for \$0.40 with a strike price of \$30 and with the same expiration date. What is the value of her portfolio, net of the proceeds from the options, if the stock price ends up at \$35 on the expiration date?

1 point

 30

7.
Question 7

Which of the following is correct about the over-the-counter markets?

1 point

a. The
counterparty risk is eliminated.

b. There is no clearing house.

c. Futures

d. Both
b and c are correct.

8.
Question 8
A spread is a combination of two or more call options on the same stock with differing exercise prices or times to maturity. Some options are bought, and others are sold. Consider a bullish spread option strategy where you buy a call option with a \$35 exercise price priced at \$4 and sell a call option with a \$50 exercise price priced at \$2.50. If the price of the underlying stock increases to \$60 at expiration and each option is exercised on the expiration date, what is your net profit?

1 point

8.50

13.50

16.50

23.50

9.
Question 9
Suppose you are a U.S. investor who is harmed when the dollar depreciates. Specifically, suppose that your profits decrease by \$200,000 for every \$0.05 rise in the dollar/pound exchange rate. If the pound futures contract on the Chicago Mercantile Exchange calls for delivery of 62,500 pounds, how many contacts will you need to enter to hedge? Will you take the long or the short side of the contracts?

1 point

64 contracts short

64 contracts long

32 contracts short

32 contracts long

10.
Question 10
You know that many corporate bonds are issued with call provisions that allow the issuer to buy bonds back from the bondholders at some time in the future at a specified call price. Which of the following is correct?

1 point

This is similar to the bond issuer holding a call option with an exercise price equal to the price at which the bond can be repurchased.

This is similar to the bondholder owning a call option with an exercise price equal to the price at which the bond can be repurchased.

This is similar to the bond issuer holding a put option with an exercise price equal to the price at which the bond can be repurchased.

This is similar to the bondholder owning a put option with an exercise price equal to the price at which the bond can be repurchased.

## Week- 4

### Module 4: Organization of financial markets and securities trading

1.
Question 1
The difference
between mutual funds and Exchange traded funds (ETFs) is…

1 point

ETFs shares are traded on exchanges all the time but mutual funds shares
can be only traded at the end of the day when their net asset value is
calculated.

There is more
variety of shares in mutual funds than on ETF’s

None of the above.

2.
Question 2
Suppose that
you expect SugarCane stock price to decline. So you decide
to ask your broker to short sell 2000 shares. The current market price is \$40.
The proceeds from the short sale \$80,000 is credited into your account.
However, a few days later the market price of the stock jumps to \$80 per share and your broker asks you close out your position immediately. What is your profit or loss from this transaction?

1 point

-60000

60000

-80000

80000

3.
Question 3
An investor
has an initial margin requirement of 50% on his margin account and a
maintenance margin requirement of 25%. The investor short sold 1,000 shares at
\$ 40 per share. What is the maximum price that the share can reach in the
market before the investor receives a margin call?

1 point

 48

4.
Question 4
True or False.

An
investment company is an institution that pools funds from investors with the
purpose of investing on their behalf. There can be registered investment
companies: mutual funds, unit investment trusts, and real estate investment
trust.

1 point

True

False

5.
Question 5
True or False.

Private
equity is one example of investment companies that are not registered with the
SEC and make equity investment in companies that are not publicly traded.

1 point

True

False

6.
Question 6
The difference
between mutual funds and hedge funds is…

1 point

There is no
difference since there are both managed portfolios

Hedge
funds are not registered with the SEC since accepts only qualified investors
such as high net worth individuals and institutional investors.

None of the above.

7.
Question 7
A market order has

1 point

Price uncertainty but no execution uncertainty

Both price and execution uncertainty

Execution uncertainty but no price uncertainty

8.
Question 8
You are bullish about Bulls Eye stock. The current price is \$25 per share and you have \$5000 of your own to invest. You borrow an additional \$5,000 from your broker at an interest rate of 8% per year and invest 10,000 in the stock. What will be your rate of return if the price of Bulls Eye stock goes up by 10% during the next year? Enter your answer as percentage. “Ex if the answer is 30% enter 30”

1 point