1. Describe how tax changes and regulation changes can be a driving force to innovation in the investment process.

2. The possibility of agency problem are indicative of the relationship between the managers of a firm and those who invest in the firm. What is the mechanisms by which these problems are minimized?

3. A T-Bill with 124 days to maturity has a face value of $100,000, and a discount yield of 3.48%. Calculate the price , bond equivalent yield and the effective yield for the investor.

4. What are two major characteristics of common stock that make it an interesting investment?

5. Describe the difference between a put and call option. What is the key factor in the profitability of an option that makes them so appealing?

6. Describe a negotiated underwriting and give at least one reason it might be preferable to a competitive bid underwriting for the issuer of a security.

7. You have entered an order to sell short 500 shares of broadcast.com at $60 per share. The high of the day was 60. Are you assured of your order being executed? If the initial margin is 50% and the maintenance level is 35%, then at what price above which you will get a margin call?

8. What is the Fisher equation and why is it so important in finance?

9. What is the difference between a risk seeking individual and a risk adverse individual, in term of the approach portfolio management?

10. Why is the covariance of the return important in the formation of portfolios?

11. Calculate the value (price) of a bond that pay semiannual coupons, has a coupon rate of 8%, a maturity of three years, and a yield to maturity of 9%.

If the bond yield after one year is 10%, what is the capital gains yield and the current yield of the bond?