Solomon Ch 1 Deck 2

Question 1

Asset backed securities are independent of

Answer 1

The financial strength of the issuer

Question 2

Underwriting spread

Answer 2

Managers fee + underwriting fee + selling concession

Question 3

Debt service

Answer 3

Total interest expense + current maturities

Question 4

Current maturities are

Answer 4

The portion of long-term debt payable within 12 months

Question 5

To test if a project investment is profitable

Answer 5

Calculate the NPV using the cost of borrowing as a discount rate

Good investment, NPV using the cost of borrowing is positive

Question 6

Covered call

Answer 6

Sell a call on a stock while continuing to hold it

Additional income on a stock that still has good prospects but not expected to change much in the short-term

Question 7

For a Long Straddle purchase

Answer 7

a long call and a long put with the same

1. underlying asset
2. expiration date
3. strike price

Question 8

Short straddle

Answer 8

Purchase short position in a call and a put with the same strike price and expiration date

It is a bet against volatility

Question 9

Tender offers must be reported to SEC if

Answer 9

They exceed 5% of the company

Question 10

Market capitalization

Answer 10

Market capitalization = market price per share X shares outstanding

Question 11

None of the shareholders in an S-Corp may be…

Answer 11

Partnerships, C-Corps, or non-resident Aliens

Question 12

S-Corps can have no more than ___ Investors

Answer 12

100

Question 13

A 2 and 20 fee structure represents

Answer 13

2% management fee and 20% performance fee on a fund

Question 14

provision whereby a hedge fund can only charge a performance fee on gains above their highest valuation

Answer 14

High water mark provision

Question 15

Pass through taxation plus ownership by nonresident aliens, corporations, or partnership requires a

Answer 15

Limited Liability COMPANY (not a corporation)

Question 16

Yankee bonds are denominated in

Answer 16

dollars

Question 17

Yankee Bonds pay interest

Answer 17

semiannually

Question 18

Risk Associated with Yankee Bonds

Answer 18

Currency Risk

Question 19

Yankee Bonds are most suitable for

Answer 19

Income investors (fixed stream of income) interested in international diversification

Question 20

Yankee bonds are issued by

Answer 20

a foreign issuer in the US

Question 21

EPS is per shares of

Answer 21

Common Stock

Question 22

Bonds with longer maturities have higher risk from

Answer 22

interest rate fluctuations

Question 23

For publicly offered securities, how many copies of the final prospectus filed with the SEC?

Answer 23

10

Question 24

For publicly offered securities, how many copies of the preliminary prospectus filed with the SEC?

Answer 24

5

Question 25

Equity value is often used as a synonym for

Answer 25

market capitalization

Question 26

Equity value takes into account

Answer 26

all equity interests not merely common shares

Question 27

Equity value equation

Answer 27

Equity value = market capitalization of common stock + market value of preferred stock + value minority interests

Question 28

A long straddle is a bet on

Answer 28

increased volatility. Profit is maximized if security goes significantly up or down