Sales and Tradingby pwsSeptember 18, 2019April 21, 2020 Welcome to your Sales and Trading assessment. The assessment consists of 40 questions testing the content covered in your classes with Pillars of Wall Street. You will have 150 minutes to complete and submit the assessment. You may use your laminated handouts, your notes, and a calculator. You may NOT use your neighbor, the internet or any other electronic device. Once you begin your assessment, you will not be able to pause your exam for any reason, therefore, please take care of any outside activities that require your time prior to beginning the assessment. Please input your name, your firm code (provided by the instructor), and your email address. These results will be provided to your firm following your training. If you have any questions, please contact your instructor. Good luck! Name Exam Code Email 1. Compared to forward contracts, futures contracts are least likely to be: Private Standardized Government regulated Exchange-traded 2. Which of the following statements regarding futures contracts is not accurate? Futures contracts are liquid, exchange-traded and can be closed out by an offsetting trade Futures contracts are standardized contracts as to asset quantity, quality, settlement dates and delivery requirements Futures contracts do not have counterparty risk as the exchange acts as counterparty to each side of the contract 3. Which of the following statements regarding exchange-traded derivatives is not true? They are standardized contracts They are traded in centralized locations They are regulated and backed by a clearinghouse They have significant default risk 4. A swap is all of the following except: A series of forward contracts Highly regulated Traded in the over-the-counter market Subject to default (counterparty) risk 5. A thirty-year zero-coupon bond with a par of 1,000 is selling for 265. What is the bond’s yield? 4.123% 4.526% 4.631% 6. What is the price of a fifteen-year, 8.25% semi-annual coupon bond when the yield is 8.45% (with semi-annual compounding)? 97.2453 98.1312 98.3171 7. Calculate the holding period yield for the bond below given the following data. 5-year, 9.00% annual coupon bond at a price of 96 and a reinvestment rate of 8.50% At the end of two years you sell the bond for a price of 101. 11.694% 12.694% 13.694% 8. Calculate the PVBP of a seven-year, 6.50% annual coupon bond selling at 103. (0.0350) (0.0420) (0.0570) 9. Calculate the Macaulay duration of a 6.00% annual coupon bond with a three year maturity selling at a yield of 8.75%. 2.37 2.53 2.83 10. Estimate the % price change in a bond with a modified duration of -8.49, convexity of 138, and an increase in yield of 100 basis points. (6.80%) (7.80%) (8.80%) 11. What is the value at maturity of a $500,000 270-day CD at 4.25%? 510,837.5 515,937.5 525,967.5 12. What is the price of a six-month FRN with one final payment at six-month LIBOR plus 50 bps? Assume that the FRN is valued at LIBOR plus 30 basis points. There are 182 days in the six-month period. Six-month spot LIBOR is 2.50%. 100.100 100.200 100.300 13. Use the following information to answer the next 4 questions An investor buys 200 shares of Tom Yum Corp. Market price is $80 on full margin Initial margin requirement is 50% Maintenance margin requirement is 25 How much equity must the investor initially put up? $4,000 $8,000 $16,000 14. At what price will the investor get a margin call? $53.33 $120.00 $133.33 15. If the stock price falls to $70, what is the equity balance in the margin account? $6,000 $8,000 $10,000 16. If the investor sells the stock one year later for $90, what is the investor’s rate of return? 20% 25% 30% 17. A market order is best described as: An order to buy or sell a security at a specific price or better An order to buy or sell a stock once the price of the stock reaches the specified price, known as the stop price An order to buy or sell a security immediately 18. Which of the following statements is not true regarding early termination of a forward contract? Early termination of a forward contract will fix the amount of gain or loss at the settlement date Early termination of a forward contract can be achieved by entering into a new forward contract with the opposite position, at the then-current expected forward price If the new forward contract is with a different party than the original forward contract, there will be no credit risk 19. A dealer in the forward contract market: Earns a spread for bearing default risk Is most often a corporation hedging an existing risk Will quote a buying price at which they will assume a long position and slightly lower price at which they will assume a short position 20. Which of the following statements regarding equity forward contracts is not accurate? Equity forward contracts are used to hedge the risk of equity prices at some future date Equity forward contracts may be written on a single stock, a portfolio of stocks or a stock index Equity forward contracts are only settled in cash 21. Consider a $5 million FRA with a contract rate of 4% on 60-day LIBOR. If 60-day LIBOR is 5% at settlement, the long will: Pay $8,333.33 Receive $8,264.46 Receive $8,333.33 22. ABC entered into a currency forward contract to purchase €20 million at an exchange rate of $0.96 per euro. At settlement, the exchange rate is $0.95 per euro. If the contract is settled in cash, ABC will: Make a payment of $200,000 Receive a payment of $200,000 Receive a payment of $206,180 23. Which of the following statements about put and call options is not true? The price of the option is less volatile than the price of the underlying stock Option prices are generally higher the longer the time until the option expires For put options, the lower the strike price relative to the stock’s underlying price, the less the put is worth 24. A forward rate agreement is equivalent to the following interest rate options: Long a call and a put Short a call and a put Long a call and short a put Short a call and long a put 25. Using your knowledge of the put-call parity relationship, which of the following is not accurate? C = S + P – X / (1 + RFR) ^ T P = C – S + X / (1 + RFR) ^ T C = S – P + X / (1 + RFR) ^ T X / (1 + RFR) ^ T = S + P – C 26. Which of the following decreases the value of a put? A decrease in volatility An increase in time to expiration An increase in the exercise price 27. A put with a strike price of $105 sells for $10. Which of the following statements is not true? The greatest: Profit the put writer can make is $10 Profit the put buyer can make is $95 Loss the put writer can have is $105 28. A call option sells for $4 on a $45 stock with a strike price of $50. Which of the following statement is false? At expiration, the writer of the call will only experience a net loss if the price of the stock exceeds $54 A covered call position at these prices has a maximum gain of $9 and a maximum loss of $41 At expiration, the buyer of the call will only generate a profit if the stock’s price exceeds $50 29. An investor writes a covered call on a $25 stock with an exercise price of $30 for a premium of $1. The investor’s maximum: Gain will be $6 Gain will be unlimited Loss will be $25 Loss will be unlimited 30. Which of the following combinations have similarly shaped profit/loss diagrams? Covered call, and a short stock combined with a long call Long call combined with a short put, and a long stock position Short put combined with a long call, and a protective put 31. Which of the following is an advantage of swaps? Are highly regulated Can be customized to meet each party’s specific needs Are exchange-listed 32. Which of the following statement about swaps is not correct? The notional principal is typically swapped in a currency swap The notional principal is not typically swapped in an interest rate swap Only the net interest is paid by the party who owes it in a currency swap 33. Indicate which of the following statements below are true: In the event of bankruptcy, preferred shareholders are paid before common shareholders but after debt holders Purchases of PP&E should be expensed immediately upon acquisition to ensure that revenue and expenses are properly matched for the period Accrual accounting requires a company to recognize revenue only when cash is received Outstanding shares is equal to the number of shares issued less shares repurchased 34. Finlandia Company made the following transactions during its first year in business. Using the information below, calculate Finlandia’s total equity at year end.• Investors gave Finlandia 100,000 in exchange for common shares in the company • Finlandia borrowed 50,000 from creditors during the year and paid interest expense of 5,000 • Finlandia spent 15,000 on PP&E• Finlandia purchased inventory for 20,000, 75.0% in cash and the remainder on credit • Finlandia made cash sales totaling 50,000 during the year costing 20,000• SG&A expenses totalled 5,000 during the year• Assume no depreciation and interest income• The tax rate is 30% of profits before tax • Finlandia paid dividends of 4,000 during the year 99,500 110,000 113,500 116,000 35. Using the following information, calculate EBITDA to be used for valuation purposes. 2,300 3,300 4,100 5,100 36. JC Capital recently acquired Bookworld. Calculate the IRR, given a five year holding period for its investment. LTM EBITDA at entry: $122Projected Year 5 EBITDA: $140EBITDA entry / exit multiple: 6.5xEBITDA leverage multiple at entry: 3.5xDebt balance upon exit: $227 13.3% 16.9% 20.0% 86.6% 37. Pegasus Capital recently acquired Zoran Automotive. Use the following information about Zoran to calculate the LTM EBITDA entry multiple for Pegasus’ acquisition of Zoran. Current share price: $100.00Acquisition premium: 30.0%Diluted shares outstanding: 124.0Existing net debt to refinance: $600.0LTM EBITDA: $1,045.0 11.9x 12.4x 15.4x 16.0x 38. Which one of the following statements is true? Trading comparables analysis typically produces a higher valuation than transaction comparables LBO analysis is a majority stake valuation methodology dependent upon the buyer’s return requirements and the availability of debt financing in the credit markets Private equity buyers always rely upon multiple expansion to achieve their required return on their investments WACC represents the required return of all equity stakeholders and is the discount rate used to derive the target company’s enterprise value 39. Calculate the implied share price of Ashland. Hint: Using the information below, calculate the EBITDA multiple at which Wood Block is currently trading and use this multiple to determine the implied share price of Ashland. $2.65 $9.56 $12.40 $12.96 40. Use the following information to calculate enterprise value. €10,050 €10,125 €10,175 €10,875 Time is Up!