2 Why do most professionals consider the Wilshire 5000 a better index of the performance of the broad stock market than the Dow Jones Industrial Average? ( LO 2- 2)

7. What is meant by the LIBOR rate? The Federal funds rate? ( LO 2- 1)

9. Why are corporations more apt to hold preferred stock than are other potential investors? (LO 2-1)

13. A municipal bond carries a coupon rate of 6 % and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 35% tax bracket? ( LO 2- 1) 14. Suppose that short- term municipal bonds currently offer yields of 4%, while comparable taxable bonds pay 5%. Which gives you the higher after- tax yield if your tax bracket is: ( LO 2- 1)

a. Zero

b. 10%

c. 20%

d. 30%

19. Consider the three stocks in the following table. P_t represents price at time t, and Q t represents shares outstanding at time t. Stock C splits two- for- one in the last period. ( LO 2- 2)

	P0	Q0	P1	Q1	P2	Q2
A	90	100	95	100	95	100
B	50	200	45	200	45	200
C	100	200	110	200	55	400

a. Calculate the rate of return on a price- weighted index of the three stocks for the first period ( t = 0 to t = 1).

b. What must happen to the divisor for the price- weighted index in year 2?

c. Calculate the rate of return of the price- weighted index for the second period ( t= 1 to t=2)

20. Using the data in the previous problem, calculate the first- period rates of return on the following indexes of the three stocks: ( LO 2- 2)

a. A market value weighted index

b. An equally weighted index

32. Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 30% tax bracket. (LO 2-1)

CFA Problems 1. Preferred stock yields often are lower than yields on bonds of the same quality because of: ( LO 2- 1)

a. Marketability

b. Risk

c. Taxation

d. Call protection