1. Which of the following statements is CORRECT?
a. Capital markets deal only with common stocks and other equity securities.
b. The New York Stock Exchange is an auction market, and it has a physical location.
c. Home mortgage loans are traded in the money market.
d. If an investor sells shares of stock through a broker, then it would be a primary market transaction.
e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.
2. Calculate the price of firm ABC with a plowback ratio of 0.4 if its ROE is 20%. Current earnings, E1, will be $5 per share, and the cost of equity is 12%.
3. You purchased a bond at par with an accrued interest of 1%. The coupon is 5% semi-annual payment with 5 years remaining maturity. What’s the annualized yield of the bond?