Bonds A,B and C are all zero-coupon bonds. Bond A matures in 3 years, Bond B matures in 7 years, and Bond C matures in 10 years. Paul is uncertain as to the direction of interest rates over the next several years, so he wants to lock-in his return over his 7 year time horizon. which bond is best for Paul?
A. Bond A because it matures in 3 years, and Paul can then roll-over the funds to a 4 year bond.
B. Bond B because it matches Paul's time horizon
C. Bond C because it has a longer maturity, it will probably have a higher yield
D. Since these are zero-coupon bonds, it does not matter which bond Paul chooses.
E. Bonds are too risky for Paul to be investing
Last month when IBM was selling for $86, Dan purchased a call option on IBM with an exercise price of $90 for $2 per option or $200 total. Yesterday IBM closed at $95. Based on the minimum value of the contract, if Dan sells his call at yesterday's close, what would his return be?
A. 4%
B. 6%
C. 50%
D. 150%
E. 250%
Wendy's broker has recommended she purchase 500 shares of a mutual fund that is currently priced at $25 a share. The commission on the purchase price is 3%, and the fund charges a 1% annual management fee and a $10 annual administrative charge. What is the total cost over the first year to invest in this fund?
A. $12,500
B. $12,875
C. $13,000
D. $13,010
E. $13,014
XYZ Corporation has a cumulative preferred stock that pays $1 per share per quarter. The firm did not declare a dividend the last two quarters. To be able to pay dividends to common shareholders, the preferred stock dividend this coming quarter must be
A. XYZ does not need to pay preferred stock dividends to be able to pay common stock dividends
b. $1
C. $2
D. $3
E. $4
A company has a $5 million balloon payment that is coming due. Which of the following is the best alternative to meet this payment?
A. borrow the $5 million for 10 years from the local bank at 7% interest
B. issue 30 day commercial paper at 4% interest
C. withdraw funds from a nonparticipating GIC that earns 5% interest
D. issue equity
E. issue debt