Section $1$ Multiple Choice $(2$ points each$)1.$ Financial assetsA.$$ directly contribute to the country's productive capacity.B$.$ indirectly contribute to the country's productive capacity.C$.$ contribute to the country's productive capacity, both directly and indirectly.D$.$ do not contribute to the country's productive capacity, either directly or indirectly.E$.$ are of no value to anyone$2.$ A fixed$-$income security paysA.$$ a fixed level of income for the life of the owner.B$.$ a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.C$.$ a variable level of income for owners on a fixed income.D$.$ a fixed or variable income stream at the option of the owner.$3.$ Money market securitiesA$.$ are short term.B$.$ are highly marketable.C$.$ are generally very low risk.D$.$ A and CE$.$ All of the options$4.$ A disadvantage of using stock options to compensate managers is thatA.$$ it encourages managers to undertake projects that will increase stock price.B$.$ it encourages managers to engage in empire building.C$.$ it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.D$.$ All of the above.$5.$are examples of financial intermediaries.A$.$ Commercial banksB. $$ Insurance companiesC. $$ Investment companiesD.$$ Credit unionsE. $$ All of the options$6.$were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk.A$.$ StocksB. $$ BondsC. $$ DerivativesD.$$ Collateralized debt obligationsE. $$ All of the options$7.$ An investor in a T$-$bill earns interest by $.$A$.$ receiving interest payments every $90$ daysB. $$ receiving dividend payments every $30$ daysC. $$ converting the T$-$bill at maturity into a higher$-$valued T$-$noteD.$$ buying the bill at a discount from the face value to be received at maturity$8.$ The bid price of a financial asset is$,$ generally, $.$A$.$ the price that you would need to pay to buy the assetB. $$ the price that you could sell the asset for $($if you already own it$)$C$.$ greater than the ask priceD.$$ set by the company whose stock it is$9.$ Deposits of commercial banks at the Federal Reserve are called $.$A$.$ bankers' acceptancesB. $$ federal fundsC. $$ repurchase agreementsD.$$ time deposits$10.$ Which of the following is not a characteristic of a money market instrument?A$.$ liquidityB. $$ marketabilityC. $$ low riskD.$$ maturity greater than $1$ year$11.$ Commercial paper is a short$-$term security issued by$$ to raise funds.A$.$ the Federal ReserveB. $$ the New York Stock ExchangeC. $$ large well$-$known companiesD.$$ all of these options$12.$ Treasury bills are financial instruments issued by$$ to raise funds.A$.$ commercial banksB. $$ the federal governmentC. $$ large corporationsD.$$ state and city governments$13.$ An investor purchases one municipal bond and one corporate bond that pay rates of return of $5\%$ and $6\mathrm{.}4\%,$ respectively. If the investor is in the $15\%$ tax bracket, his after$-$tax rates of return on the municipal and corporate bonds would be$,$ respectively,$.$A$.5\%$ and $6\mathrm{.}4\%$B$.5\%$ and $5\mathrm{.}44\%$C$.4\mathrm{.}25\%$ and $6\mathrm{.}4\%$D$.5\mathrm{.}75\%$ and $5\mathrm{.}44\%14.$ Which of the following is most like a short$-$term collateralized loan?A$.$ certificate of depositB. $$ repurchase agreementC. $$ Treasury billD.$$ commercial paper$15.$ Which of the following is not a characteristic of common stock ownership?A$.$ residual claimantB. $$ unlimited liabilityC. $$ voting rightsD.$$ right to any dividend paid by the corporation.$16.$ If you thought prices of stock would be rising over the next few months, you might want to$$on the stock.A$.$ purchase a call optionB. $$ purchase a put optionC. $$ sell a futures contractD.$$ place a short$-$sale order$17.$ What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after the onset of the COVID pandemic?A$.$ no change, as both yields will remain the sameB. $$ increase, as the spread usually increases in response to a crisisC. $$ decrease, as the spread usually decreases in response to a crisisD.$$ no change, as both yields will move in the same direction$18.$ A stock quote indicates a stock price of $$60$ and an annual dividend yield of $3\%.$ The latest quarterly dividend $($assume there are $4$ quarterly dividends per year$)$ received by stock investors must have been $\_\_\_\_\_\_\_$per share.A$.$ $$0\mathrm{.}55$B$.$ $$1\mathrm{.}80$C$.$ $$0\mathrm{.}45$D$.$ $$1\mathrm{.}2519.$ What would be the profit or loss per share of stock to an investor who bought an October expiration Apple call option with an exercise $($strike$)$ price of $$130$ if Apple closed on the expiration date at $$120?$ Assume the option ask price was $$3\mathrm{.}00$ per share.A$.$ $$0$B$.$ $$3\mathrm{.}00$ gainC. $$ $$3\mathrm{.}00$ lossD.$$ $$7\mathrm{.}00$ gain$20.$ June call and put options on King Books Inc. are available with exercise prices $($strike prices$)$ of $$30,$ $$35,$ and $$40.$ Among the different exercise prices, the call option with the $\_$exercise price and the put option with the $$ exercise price will have the greatest value.A$.$ $$40$; $$30$B$.$ $$30$; $$40$C$.$ $$35$; $$35$D$.$ $$40$; $$40$Section $2$ Short Answer$1.(20$ points$)$ Consider the following: Daniel is a recent college graduate who has been working in a full$-$time position for company ABC for two years now. Recently, Daniel has come up with a brilliant idea to start his own business, however he lacks the funding he needs to get started. His retired grandfather, Phil, offers to pitch in $$200,000$ to help Daniel get started, but requests a $30\%$ ownership in the company. Aunt Lisa also offers Daniel $$300,000$ in funding. Lisa, however, wants to be paid back in one payment at the end of the year and charge an interest rate of $4\%.$a$)$ Are financial assets being used efficiently in this economy? Explain why.b$)$ What type of financial asset is Phil investing in$?$ Explain why.c$)$ What type of financial asset is Lisa investing in$?$ Explain why.$$Consider the following for parts d$)$ and e$)$: After receiving the funding needed $(200$K from Phil and $300$K from Lisa$),$ Daniel has a successful year. Daniels business makes a profit of $$300,000$ in the first six months and $$800,000$ during the next six months. The business does not retain or invest any of the money $($in other words, it pays out all cash flows$).$d$)$ How much money does Lisa receive? What is her return?e$)$ How much money does Phil receive? What is his return?$$Consider the following for parts f$)$ and g$)$: After receiving the funding needed $(200$K from Phil and $300$K from Lisa$),$ Daniel has an unsuccessful year. Daniels business makes a profit of $$200,000$ in the first six months and $$50,000$ during the next six months. The business not retain or invest any of the money $($in other words, it pays out all cash flows$).$f$)$ How much money does Lisa receive? What is her return?g$)$ How much money does Phil receive? What is his return?h$)$ Which investment is riskier? Explain why.$2.(20$ points$)$ You are given the following information for three stocks:$$StockPrice on $8/5/2020$Price on $9/5/2020$Shares $($million$)$A$$20$$$2515$B$$35$$$1530$C$$90$$$1501$A$)$ Construct a price$-$weighted index value for the three stocks on $8/5$ and $9/5.$ What was the rate of return based on these numbers?$$B$)$ What is the return on a value$-$weighted portfolio from $8/5$ to $9/5?$C$)$ What is the return on an equal$-$weighted portfolio from $8/5$ to $9/5?3.$ You are optimistic about the prospects of a hot new IPO, Beyond Meat $($BYND$).$ You have $$20,000$ to invest and are considering two potential strategies:$1)$ Long stock$--$Buy $225$ shares at the current price of $$88\mathrm{.}88($Note: your initial investment is going to be $$19,998$ since you cant buy a fraction of a share$)2)$ Call options$--$Buy $2,000$ call options at a price of $$10/$option with a strike price of $$95$ and an expiration date of February $23,2023.$A$)(20$ points$)$ What will be your total profit and percentage rate of return on each strategy if the stock trades at $$120$ on February $23,2023?$ What about $$110?$ $$100?$ $$90?$Strategy $1-$Long stockStrategy $2-$Call optionsPriceProfit $($$$)$Return $(\%)$Profit $($$$)$Return $(\%)$$$120$$$110$$$100$$$90$

Solve All Questions above and for the Short Answer, Show Your Work.