Essentials Of Investments 9th Edition

CHAPTER 01 INVESTMENTS: BACKGROUND AND ISSUES 1Equity is a lower-priority claim and represents an ownership share in a corporation, whereas fixed-income (debt) security is a higher-priority claim but does not have an ownership interest. Fixed-income (debt) security pays a specified cash flow at pre-contracted time intervals until the last payment on

Chapter 10 - Bond Prices and Yields CHAPTER 10 10-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 10 - Bond

Chapter 11 - Managing Bond Portfolios CHAPTER 11 11-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 11 - Managing Bond

Chapter 11 - Managing Bond Portfolios 27. You should buy the three-year bond because it will offer a 9% holding-period return over the next year, which is greater than the return on either of the other bonds, as shown below: 28. The maturity of the 30-year bond will fall to 25 years,

Chapter 12 - Macroeconomic and Industry Analysis CHAPTER 12 12-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 12 - Macroeconomic

Chapter 13 - Equity Valuation CHAPTER 13 13-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 13 - Equity Valuation EQUITY VALUATION 1.

Chapter 13 - Equity Valuation CFA 1 Answer: a. This director is confused. In the context of the constant growth model, it is true that price is higher when dividends are higher holding everything else (including dividend growth) constant. But everything else will not be constant. If the firm raises the dividend

Chapter 14 - Financial Statement Analysis CHAPTER 14 14-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 14 - Financial Statement

Chapter 15 - Options Markets CHAPTER 15 15-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 15 - Options Markets OPTIONS MARKETS 1.

Chapter 15 - Options Markets 19. The Excel spreadsheet for both parts (a) and (b) is shown on the next page, and the profit diagrams are on the following page. a. & b. 15-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in

Chapter 16 - Option Valuation CHAPTER 16 16-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 16 - Option Valuation OPTION VALUATION 1.

Chapter 16 - Option Valuation 1. a. Choice A: Calls have higher elasticity than shares. For equal dollar investments, the capital gain potential for calls is higher than for stocks. investments, the capital gain potential for calls is higher than for stocks. investments, the capital gain potential for calls is higher than for stocks. b.

Chapter 17 - Futures Markets and Risk Management CHAPTER 17 17-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 17 -

Chapter 18 - Portfolio Performance Evaluation CHAPTER 18 18-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 18 - Portfolio Performance

Chapter 19 - Globalization and International Investing CHAPTER 19 19-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 19 - Globalization

Chapter 02 - Asset Classes and Financial Instruments CHAPTER 02 ASSET CLASSES AND FINANCIAL INSTRUMENTS 1. Common stock is an ownership share in a publicly held corporation. Common shareholders have voting rights and may receive dividends. Preferred stock represents nonvoting shares in a corporation, usually paying a fixed stream of dividends. While corporate bonds

Chapter 20 - Hedge Funds CHAPTER 20 20-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 20 - Hedge Funds HEDGE FUNDS 1.

Chapter 21 - Taxes, Inflation, and Investment Strategy CHAPTER 21 21-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 21 -

Chapter 22 - Investors and The Investment Process 22-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 22 - Investors

Chapter 03 - Securities Markets 3-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 03 - Securities Markets CHAPTER 03 3-2 2013

Chapter 04 - Mutual Funds and Other Investment Companies CHAPTER 04 4-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 04

Chapter 05 - Risk and Return: Past and Prologue CHAPTER 05 RISK AND RETURN: PAST AND PROLOGUE 1. The 1% VaR will be less than 30%. As percentile or probability of a return declines so does the magnitude of that return. Thus, a 1 percentile probability will produce a smaller VaR

Chapter 06 - Efficient Diversification CHAPTER 06 6-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 06 - Efficient Diversification EFFICIENT DIVERSIFICATION 1.

Chapter 06 - Efficient Diversification The bond portfolio is less risky as represented by its lower standard deviation. Yet, as the portfolio table shows, mixing .87% of bonds with 13% stocks would have produced a portfolio less risky than bonds. In this sample of these 20 years, the average return on

Chapter 07 - Capital Asset Pricing and Arbitrage Pricing Theory CHAPTER 07 7-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter

Chapter 08 - The Efficient Market Hypothesis CHAPTER 08 8-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 08 - The

Chapter 09 - Behavioral Finance and Technical Analysis CHAPTER 09 9-1 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. Chapter 09 -

1) one hundred fund managers enter a contest to see how many times in 13 years they can earn a higher return than their competitors. the probability distribution of the number of successful years out of 13 for the best-performing money managers is out of this sample, chance alone would indicate

1) which one of the following exploits differences between actual future prices and their theoretically correct parity values? a.index arbitrage b.marking to market c.reversing trades d.settlement transactions Answer: a Answer: a Answer: a 2) the duration of a perpetuity varies _______ with interest rates. a.directly b.inversely c.convexly d.randomly Answer: b Answer: b Answer: b 3) assume you purchased 500 shares of xyz common stock on margin at

1) the vanguard 500 index fund tracks the performance of the s&p 500. to do so, the fund buys shares in each s&p 500 company __________. a.in proportion to the market value weight of the firm's equity in the s&p 500 b.in proportion to the price weight of the stock in the

1) the capital asset pricing model was developed by _________. a.kenneth french b.stephen ross c.william sharpe d.eugene fama Answer: c Answer: c Answer: c 2) why are high rates of unemployment of concern to economists? a.higher rates of unemployment are linked to higher crime rates and other social problems. b.a larger fraction of the nation's labor resource is going unutilized. c.there

1) the spot price for gold is $1,550 per ounce. the dividend yield on the s&p 500 is 2.5%. the risk-free interest rate is 3.5%. the futures price for gold for a 6-month contract on gold should be __________. a.$1,504.99 b.$1,569.08 c.$1,554.04 d.$1,557.73 Answer: d f0 = s0(1 + rf - d)t = $1,550(1 + .035

1) an investor can design a risky portfolio based on two stocks, a and b. the standard deviation of return on stock a is 20%, while the standard deviation on stock b is 15%. the correlation coefficient between the returns on a and b is 0%. the standard deviation of

1) the present exchange rate is c$1 = us$.77. the 1-year futures rate is c$1 = us$.73. the yield on a 1-year u.s. bill is 4%. a yield of __________ on a 1-year canadian bill will make investors indifferent between investing in the u.s. bill and the canadian bill. a.9.7% b.2.9% c.2.8% d.2% Answer: a

1) initial public offerings (ipos) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market. a.overpriced b.correctly priced c.underpriced d.mispriced, but without any particular bias Answer: c Answer: c Answer: c 2) debondt and thaler (1985) found that the poorest-performing stocks in one time period experienced __________ performance

1) firm a produces gadgets. the price of gadgets is $2 each. firm a has total fixed costs of $1,000,000 and variable costs of $1 per gadget. the corporate tax rate is 40%. if the economy is strong, the firm will sell 2,000,000 gadgets. if the economy enters a recession,

1) conservative investors are likely to want to invest in __________ mutual funds, while risk-tolerant investors are likely to want to invest in __________. a.income; high growth b.income; moderate growth c.moderate-growth; high growth d.high-growth; moderate growth Answer: a Answer: a Answer: a 2) which one of the following would be considered a risk-free asset in real terms as

1) in 1973, trading of standardized options on a national exchange started on the _________. a.amex b.cboe c.nyse d.cftc Answer: b Answer: b Answer: b 2) the value of a listed call option on a stock is lower when: i. the exercise price is higher. ii. the contract approaches maturity. iii. the stock decreases in value. iv. a stock split occurs. a.ii, iii,

1) you find a 5-year aa xerox bond priced to yield 6%. you find a similar-risk 5-year canon bond priced to yield 6.5%. if you expect interest rates to rise, which of the following should you do? a.short the canon bond, and buy the xerox bond. b.buy the canon bond, and short

1) the yield on tax-exempt bonds is ______. a.usually less than 50% of the yield on taxable bonds b.normally about 90% of the yield on taxable bonds c.greater than the yield on taxable bonds d.less than the yield on taxable bonds Answer: d Answer: d Answer: d 2) no taxes are paid on withdrawals made during retirement from

1) if you are going to earn abnormal returns based on your macroeconomic analysis, it will most likely have to be because __________. a.you have more information than others b.you are a better analyst than others c.you have the same information as others d.you are an equally good analyst as others Answer: b Answer: b Answer: b 2)

1) barnegat light sold 200,000 shares in an initial public offering. the underwriter's explicit fees were $90,000. the offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. what is the best estimate of the total cost to barnegat light of the equity

1) which of the following is not a type of bond swap used in active portfolio management? a.intermarket spread swap b.substitution swap c.rate anticipation swap d.asset-liability swap Answer: d Answer: d Answer: d 2) research indicates that exchange risk of the major currencies has been _________ so far in this century. a.relatively high b.relatively low c.declining slightly d.declining rapidly Answer: a Answer: a Answer: a 3)

1) advantages of cash flow matching and dedicated strategies include: i. once the cash flows are matched, there is no need for rebalancing. ii. cash flow matching typically earns a higher rate of return than active bond portfolio management. iii. financial institutions' liabilities often exceed the maturity of available bonds, making cash matching even

1) money market securities are sometimes referred to as cash equivalents because _____. a.they are safe and marketable b.they are not liquid c.they are high-risk d.they are low-denomination Answer: a Answer: a Answer: a 2) a firm's earnings per share increased from $10 to $12, its dividends increased from $4 to $4.40, and its share price increased from

1) the current stock price of alcoa is $70, and the stock does not pay dividends. the instantaneous risk-free rate of return is 6%. the instantaneous standard deviation of alcoa's stock is 40%. you want to purchase a put option on this stock with an exercise price of $75 and

1) a worker plans to retire in 30 years. he hopes to receive $65,000 per year in retirement income. if inflation is forecast at 2.5% per year, what annual income should he plan to receive in the first year of retirement in order to maintain the purchasing power on $65,000? a.$65,000 b.$76,159 c.$98,398 d.$136,342 Answer:

1) __________ are examples of synthetically created zero-coupon bonds. a.colts b.opossms c.strips d.arms Answer: c Answer: c Answer: c 2) if the beta of the market index is 1 and the standard deviation of the market index increases from 12% to 18%, what is the new beta of the market index? a..8 b.1 c.1.2 d.1.5 Answer: b market beta always equals 1 regardless

1) immunization of coupon-paying bonds does not imply that the portfolio manager is inactive because: i. the portfolio must be rebalanced every time interest rates change. ii. the portfolio must be rebalanced over time even if interest rates don't change. iii. convexity implies duration-based immunization strategies don't work. a.i only b.i and ii only c.ii only d.i,

1) the price-to-sales ratio is probably most useful for firms in which phase of the industry life cycle? a.start-up phase b.consolidation c.maturity d.relative decline Answer: a Answer: a Answer: a 2) the strong form of the emh states that ________ must be reflected in the current stock price. a.all security price and volume data b.all publicly available information c.all information, including

1) annual percentage rates can be converted to effective annual rates by means of the following formula: a.[1 + (apr/n)]n - 1 b.(apr)(n) c.(apr/n) d.(periodic rate)(n) Answer: a Answer: a Answer: a 2) a preferred share of coquihalla corporation will pay a dividend of $8 in the upcoming year and every year thereafter; that is, dividends are not expected

1) the conference board's consumer confidence index is released ______. a.daily b.weekly c.monthly d.quarterly Answer: c Answer: c Answer: c 2) a bond has a current price of $1,030. the yield on the bond is 8%. if the yield changes from 8% to 8.1%, the price of the bond will go down to $1,025.88. the modified duration of this

1) a bond portfolio and a stock portfolio both provided an unrealized pretax return of 8% to a taxable investor. if the stocks paid no dividends, we know that the ________. a.after-tax return of the stock portfolio was higher than the after-tax return of the bond portfolio b.after-tax return of the bond

1) an investor can earn a 6% nominal rate of return, but inflation is expected to be 3%. if the individual invests $2,000 per year for 20 years, the real future value of this investment is ________. (all investments occur at year-end). a.$73,571 b.$66,334 c.$53,251 d.$48,732 Answer: c calculator entries are n = 20, i/y

1) order the following stages in the industry life cycle from the earliest to latest to occur after the start-up phase: i. maturity ii. relative decline iii. consolidation a.iii, i, ii b.i, iii, ii c.iii, ii, i d.i, ii, iii Answer: a Answer: a Answer: a 2) which of the following provides the profit to a short position at contract maturity? a.original futures

1) among emerging countries the largest equity market in 2011 was located in _____________. a.china b.india c.brazil d.russia Answer: c Answer: c Answer: c 2) two assets have the following expected returns and standard deviations when the risk-free rate is 5%: an investor with a risk aversion of a = 3 would find that _________________ on a risk-return basis. a.only

1) ______________________ are often called mutual funds. a.unit investment trusts b.open-end investment companies c.closed-end investment companies d.reits Answer: b Answer: b Answer: b 2) which of the following typically strives to earn a return on their investments that exceeds the actuarially determined rate of return? a.banks b.thrifts c.mutual funds d.pension funds Answer: d Answer: d Answer: d 3) assume that you have invested $500,000 to purchase

1) earnings yields tend to _______ when treasury yields fall. a.fall b.rise c.remain unchanged d.fluctuate wildly Answer: a Answer: a Answer: a 2) you sold short 300 shares of common stock at $30 per share. the initial margin is 50%. you must put up _________. a.$4,500 b.$6,000 c.$9,000 d.$10,000 Answer: a investment = 300(30)(.50) = 4,500 Answer: a investment = 300(30)(.50) = 4,500 Answer: a

1) the ________ is equal to the square root of the systematic variance divided by the total variance. a.covariance b.correlation coefficient c.standard deviation d.reward-to-variability ratio Answer: b Answer: b Answer: b 2) deposits of commercial banks at the federal reserve are called _____. a.bankers' acceptances b.federal funds c.repurchase agreements d.time deposits Answer: b Answer: b Answer: b 3) the highest possible value for the interest-burden ratio

1) both investors and gamblers take on risk. the difference between an investor and a gambler is that an investor _______. a.is normally risk neutral b.requires a risk premium to take on the risk c.knows he or she will not lose money d.knows the outcomes at the beginning of the holding period Answer: b Answer: b Answer:

1) which of the following is considered a sentiment indicator? a.a 200-day moving average b.short interest c.credit balances in brokerage accounts d.relative strength Answer: b Answer: b Answer: b 2) a portfolio is composed of two stocks, a and b. stock a has a standard deviation of return of 35%, while stock b has a standard deviation of

1) a firm has pvgo of 0 and a market capitalization rate of 12%. what is the firm's p/e ratio? a.12 b.8.33 c.10.25 d.18.55 Answer: b p = e/k + 0; p/e = 1/.12 = 8.33 Answer: b p = e/k + 0; p/e = 1/.12 = 8.33 Answer: b p = e/k + 0; p/e =

1) in 1980 the dollar-yen exchange rate was about $.0045. in 2012 the yen-dollar exchange rate was about 80 yen per dollar. a japanese producer would have had to increase the dollar price of a good sold in the united states by approximately _____ to maintain the same yen price

1) the confidence index on day 1 is _____. a..82 b..89 c..92 d.1.09 Answer: c confidence index on day 1 = 6.8/7.4 = .92 Answer: c confidence index on day 1 = 6.8/7.4 = .92 Answer: c confidence index on day 1 = 6.8/7.4 = .92 2) the put/call ratio is a ______ indicator. a.sentiment b.flow of funds c.market structure d.fundamental Answer: a Answer:

1) shocks occur when actual events do not match expectations. Answer: true Answer: true Answer: true 2) in order to achieve modern economic growth, a nation's output must grow faster than its population. Answer: true Answer: true Answer: true 3) in the short run, firms are more likely to respond to demand shocks by altering inventory levels than by

1) two investment advisers are comparing performance. adviser a averaged a 20% return with a portfolio beta of 1.5, and adviser b averaged a 15% return with a portfolio beta of 1.2. if the t-bill rate was 5% and the market return during the period was 13%, which adviser was

1) common-size balance sheets are prepared by dividing all quantities by ____________. a.total assets b.total liabilities c.shareholders' equity d.fixed assets Answer: a Answer: a Answer: a 2) in the treynor-black model, the weight of each analyzed security in the portfolio should be proportional to its __________. a.alpha/beta b.alpha/residual variance c.beta/residual variance d.none of these options Answer: b Answer: b Answer: b 3) according to the put-call

1) tips offer investors inflation protection by ______________ by the inflation rate each year. a.increasing only the coupon rate b.increasing only the par value c.increasing both the par value and the coupon payment d.increasing the promised yield to maturity Answer: c Answer: c Answer: c 2) the table presents the actual return of each sector of the manager's portfolio

1) the maximum maturity on commercial paper is _____. a.270 days b.180 days c.90 days d.30 days Answer: a Answer: a Answer: a 2) suppose you have maxed out your allowable contributions to your tax-sheltered retirement plans and you still want to shelter income. the best choice of investment for you to minimize the tax bill is to

1) convexity implies that duration predictions: i. underestimate the percentage increase in bond price when the yield falls. ii. underestimate the percentage decrease in bond price when the yield rises. iii. overestimate the percentage increase in bond price when the yield falls. iv. overestimate the percentage decrease in bond price when the yield rises. a.i

1) you invest $600 in security a with a beta of 1.5 and $400 in security b with a beta of . 90. the beta of this portfolio is _________. a.1.14 b.1.2 c.1.26 d.1.5 Answer: c Answer: c Answer: c 2) a 1-year gold futures contract is selling for $1,645. spot gold prices are $1,592 and the 1-year

1) what economic variable is most closely associated with increasing corporate profits? a.exchange rates b.inflation c.gross domestic product d.budget deficits Answer: c Answer: c Answer: c 2) even if the markets are efficient, professional portfolio management is still important because it provides investors with: i. low-cost diversification ii. a portfolio with a specified risk level iii. better risk-adjusted returns than an

1) you have a $50,000 portfolio consisting of intel, ge, and con edison. you put $20,000 in intel, $12,000 in ge, and the rest in con edison. intel, ge, and con edison have betas of 1.3, 1, and .8, respectively. what is your portfolio beta? a.1.048 b.1.033 c.1 d.1.037 Answer: a Answer: a Answer: a 2)

1) when technical analysts say a stock has good "relative strength," they mean that in the recent past __________. a.it has performed well compared to its closest competitors b.it has exceeded its own historical high c.trading volume in the stock has exceeded the normal trading volume d.it has outperformed the market index Answer: d Answer: d Answer:

1) portfolio managers martin and krueger each manage $1 million funds. martin has perfect foresight, and the call option value of his perfect foresight is $150,000. krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. the value of krueger's imperfect

1) a tax free municipal bond provides a yield of 3.2%. what is the equivalent taxable yield on the bond given a 35% tax bracket? a.3.2% b.3.68% c.4.92% d.5% Answer: c Answer: c Answer: c 2) you are considering investing $1,000 in a complete portfolio. the complete portfolio is composed of treasury bills that pay

1) which fidelity magellan portfolio manager is often referenced as an exception to the general conclusion of efficient markets? a.jeff vinik b.peter lynch c.robert stansky d.william hayes Answer: b Answer: b Answer: b 2) which of the following is not considered a money market investment? a.bankers' acceptance b.eurodollar c.repurchase agreement d.treasury note Answer: d Answer: d Answer: d 3) if the black-scholes formula is solved to

1) for which of the following goods are services are prices least sticky? a.taxi fares b.haircuts c.microwave ovens d.airlines tickets Answer: d Answer: d Answer: d 2) an important characteristic of market equilibrium is _______________. a.the presence of many opportunities for creating zero-investment portfolios b.all investors exhibit the same degree of risk aversion c.the absence of arbitrage opportunities d.the lack of liquidity

1) market signals will help to allocate capital efficiently only if investors are acting _____. a.on the basis of their individual hunches. b.as directed by financial experts. c.as dominant forces in the economy. d.on accurate information. Answer: d Answer: d Answer: d 2) the value of a derivative security _________. a.depends on the value of another related security b.affects the

1) advantages of ecns over traditional markets include all but which one of the following? a.lower transactions costs b.anonymity of the participants c.small amount of time needed to execute and order d.ability to handle very large orders Answer: d Answer: d Answer: d 2) a worker plans to retire in 20 years. he needs $20,000 per year in

1) a put option with several months until expiration has a strike price of $55 when the stock price is $50. the option has _____ intrinsic value and _____ time value. a.negative; positive b.positive; positive c.zero; zero d.zero; positive Answer: b Answer: b Answer: b 2) yields on municipal bonds are typically ___________ yields on corporate bonds of

1) according to market technicians, it is time to sell stock in a head-and-shoulders formation when ___________. a.the price index pierces the left shoulder b.the price index pierces the right shoulder c.the price index pierces the head d.none of these options takes place Answer: b Answer: b Answer: b 2) real u.s. interest rates move above japanese interest

1) ______ are mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager's forecast of the performance of that market sector. a.asset allocation funds b.balanced funds c.index funds d.income funds Answer: a Answer: a Answer: a 2) which of the following is an example of a supply shock? a.a surge in

1) douglass, an imperfect forecaster, correctly predicts 57% of all bull markets and 68% of all bear markets. simmonds is a perfect forecaster. if douglass is able to charge a fee of $125,000, the fee that roy simmonds should charge is __________. assume that both forecasters manage similar-size funds. a.$31,250 b.$200,000 c.$500,000 d.$625,000 Answer: c Answer:

1) the stock price of ajax inc. is currently $105. the stock price a year from now will be either $130 or $90 with equal probabilities. the interest rate at which investors can borrow is 10%. using the binomial opm, the value of a call option with an exercise price of

1) a __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. a.call option b.futures contract c.put option d.interest rate swap Answer: c Answer: c Answer: c 2) which one of the following represents local consumption smoothing? i. saving during your working years for retirement ii. borrowing money

1) the risk premium for exposure to exchange rates is 5%, and the firm has a beta relative to exchange rates of .4. the risk premium for exposure to the consumer price index is -6%, and the firm has a beta relative to the cpi of .8. if the risk-free

1) investor a bought a call option, and investor b bought a put option. all else equal, if the interest rate increases, the value of investor a's position will ______ and the value of investor b's position will _______. a.increase; increase b.increase; decrease c.decrease; increase d.decrease; decrease Answer: b Answer: b Answer: b 2) you invest in various broadly

1) suppose that over the same time period two portfolios have the same average return and the same standard deviation of return, but portfolio a has a higher beta than portfolio b. according to the sharpe ratio, the performance of portfolio a __________. a.is better than the performance of portfolio b b.is

1) trading activity and average returns in brokerage accounts tend to be _________. a.uncorrelated b.negatively correlated c.positively correlated d.positively correlated for women and negatively correlated for men Answer: b Answer: b Answer: b 2) an investor's degree of risk aversion will determine his or her ______. a.optimal risky portfolio b.risk-free rate c.optimal mix of the risk-free asset and risky asset d.capital allocation

1) a demand shock occurs when large numbers of consumers unexpectedly reduce their purchases of goods and services. Answer: true Answer: true Answer: true 2) in 2007, unemployment rates in the united states exceeded the rates in germany, india, and poland. Answer: false Answer: false Answer: false 3) economists and policymakers are generally more concerned about nominal gdp

1) the advantage that standardization of futures contracts brings is that _____ is improved because ____________________. a.liquidity; all traders must trade a small set of identical contracts b.credit risk; all traders understand the risk of the contracts c.pricing; convergence is more likely to take place with fewer contracts d.trading cost; trading volume is reduced Answer:

1) in the treynor-black model, security analysts __________. a.analyze the entire universe of stocks b.assume that markets are inefficient c.treat market index as a baseline portfolio from which an active portfolio is constructed d.focus on selecting the best-performing bogey Answer: c Answer: c Answer: c 2) investors gravitate toward the latest hot stock even though it has never

1) nominal gdp measures a nation's output in current year prices. Answer: true Answer: true Answer: true 2) real gdp measures the change in the price level over time. Answer: false Answer: false Answer: false 3) demand shocks may be positive or negative. Answer: true Answer: true Answer: true 4) the 'sticky price" model is the only one used by macroeconomists. Answer: false Answer:

1) if you believe in the __________ form of the emh, you believe that stock prices reflect all relevant information, including information that is available only to insiders. a.semistrong b.strong c.weak d.perfect Answer: b Answer: b Answer: b 2) caribou gold mining corporation is expected to pay a dividend of $6 in the upcoming year. dividends are expected

1) increasing investment in the present means forgoing future consumption. Answer: false Answer: false Answer: false 2) 'supply shocks" occur any time there is a change in the supply of goods and services. Answer: false Answer: false Answer: false 3) inflation reduces the purchasing power of a person's income and savings. Answer: true Answer: true Answer: true 4) modern economic growth refers

1) the financial statements of burnaby mountain trading company are shown below. note: the common shares are trading in the stock market for $27 each. refer to the financial statements of burnaby mountain trading company. the firm's fixed-asset turnover ratio for 2012 is _________. (please keep in mind that when a ratio involves

1) liabilities equal approximately _____ of total assets for nonfinancial u.s. businesses. a.10% b.25% c.48% d.75% Answer: c Answer: c Answer: c 2) use the following cash flow data of haven hardware for the year ended december 31, 2012. what is the net cash provided by or used in investing activities of haven hardware? a.-$12,000 b.-$62,000 c.$12,000 d.$164,000 Answer: a Answer: a Answer: a

1) in an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager? a.accounting for results b.diversification c.identifying undervalued stocks d.no need for a portfolio manager Answer: b Answer: b Answer: b 2) preferred stock is like long-term debt in that ___________. a.it gives the holder

1) adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the ______. a.up; right b.up; left c.down; right d.down; left Answer: b Answer: b Answer: b 2) a firm has an roe equal to the industry average, but its price-to-book ratio is below the industry average. you know that

1) the nominal interest rate is 10%. the real interest rate is 4%. the inflation rate must be _________. a.-6% b.4% c.5.77% d.14.4% Answer: c Answer: c Answer: c 2) published data on past returns earned by mutual funds are required to be ______. a.dollar-weighted returns b.geometric returns c.excess returns d.index returns Answer: b Answer: b Answer: b 3) which of the following is

1) everything else equal, the __________ the maturity of a bond and the __________ the coupon, the greater the sensitivity of the bond's price to interest rate changes. a.longer; higher b.longer; lower c.shorter; higher d.shorter; lower Answer: b Answer: b Answer: b 2) which one of the following ratios is used to calculate the times-interest-earned ratio? a.net profit/interest expense b.pretax

1) a market-timing strategy is one in which asset allocation in the stock market __________ when one forecasts that the stock market will outperform treasury bills. a.decreases b.increases c.remains the same d.may increase or decrease Answer: b Answer: b Answer: b 2) proponents of the emh typically advocate __________. a.a conservative investment strategy b.a liberal investment strategy c.a passive investment strategy d.an

1) savings are generated whenever: a.prices are rising. b.current spending exceeds current income. c.current income exceeds current spending. d.real gdp exceeds nominal gdp Answer: c Answer: c Answer: c 2) during a period when prices have been rising, the _________ will be _______ the current price. a.relative strength index; declining with b.relative strength index; declining faster than c.moving average; above d.moving average;

1) a european call option gives the buyer the right to _________. a.buy the underlying asset at the exercise price on or before the expiration date b.buy the underlying asset at the exercise price only at the expiration date c.sell the underlying asset at the exercise price on or before the expiration date d.sell

1) which one of the following statements correctly describes the weights used in the macaulay duration calculation? the weight in year t is equal to ____________. a.the dollar amount of the investment received in year t b.the percentage of the future value of the investment received in year t c.the present value of

1) when the market breaks through the moving average line from below, a technical analyst would probably suggest that it is a good time to ___________. a.buy the stock b.hold the stock c.sell the stock d.short the stock Answer: a Answer: a Answer: a 2) the exchange of one bond for a bond that has similar attributes but

1) a coupon bond that pays semiannual interest is reported in the wall street journal as having an ask price of 117% of its $1,000 par value. if the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will

1) both a wife and her husband work in the airline industry. they are in their 40s, and they have a high tax bracket and are concerned about their after-tax rate of return. a meeting with their financial planner reveals that they are primarily focused on long-term capital gains and

1) harry markowitz is best known for his nobel prize-winning work on _____________. a.strategies for active securities trading b.techniques used to identify efficient portfolios of risky assets c.techniques used to measure the systematic risk of securities d.techniques used in valuing securities options Answer: b Answer: b Answer: b 2) a portfolio generates an annual return of 16%, a

1) the average depth of the limit order book is _____. a.lower for the large stocks in the s&p 500 index than for the smaller stocks in the russell 2000 index b.higher for the large stocks in the s&p 500 index than for the smaller stocks in the russell 2000 index c.about the

1) which of the following variables do fama and french claim do a better job explaining stock returns than beta? i. book-to-market ratio ii. unexpected change in industrial production iii. firm size a.i only b.i and ii only c.i and iii only d.i, ii, and iii Answer: c Answer: c Answer: c 2) an investor can design a risky portfolio based

1) which of the following typically employ significant amounts of leverage? i. hedge funds ii. reits iii. money market funds iv. equity mutual funds a.i and ii only b.ii and iii only c.iii and iv only d.i, ii, and iii only Answer: a Answer: a Answer: a 2) the __________ is among the world's largest derivatives exchanges and operates a fully electronic

1) sahali trading company has issued $100 million worth of long-term bonds at a fixed rate of 9%. sahali trading company then enters into an interest rate swap where it will pay libor and receive a fixed 8% on a notional principal of $100 million. after all these transactions are

1) from day 1 to day 4, the confidence index has _____. this is _____. a.increased; bullish b.decreased; bullish c.increased; bearish d.decreased; bearish Answer: d confidence index, day 1 = 6.8/7.4 = .92 confidence index, day 4 = 6.6/7.6 = .87 the ci is decreasing; this is bearish. Answer: d confidence index, day 1 = 6.8/7.4

1) if an economy wants to increase its current level of investment, it must: a.sacrifice future consumption. b.print more money. c.offer more stocks and bonds to financial investors. d.sacrifice current consumption. Answer: d Answer: d Answer: d 2) according to multiple studies by ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the

1) you put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. you put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. the

1) security selection refers to the ________. a.allocation of the investment portfolio across broad asset classes b.analysis of the value of securities c.choice of specific securities within each asset class d.top-down method of investing Answer: c Answer: c Answer: c 2) the yield curve spread between the 10-year t-bond yield and the federal funds rate is a _______

1) which one of the following would be considered a "cash equivalent" investment? a.treasury bills b.common stock c.corporate bonds d.real estate Answer: a Answer: a Answer: a 2) on january 1, you sold one april s&p 500 index futures contract at a futures price of 1,300. if the april futures price is 1,250 on february 1, your profit

1) an investor can design a risky portfolio based on two stocks, a and b. stock a has an expected return of 21% and a standard deviation of return of 39%. stock b has an expected return of 14% and a standard deviation of return of 20%. the correlation coefficient

1) __________ is the amount of money per common share that could be realized by breaking up the firm, selling its assets, repaying its debt, and distributing the remainder to shareholders. a.book value per share b.liquidation value per share c.market value per share d.tobin's q Answer: b Answer: b Answer: b 2) a point and figure chart: i. gives

1) an analyst starts by examining the broad economic environment and then considers the implications of the economy on the industry in which the firm operates. finally, the firm's position within the industry is examined. this is called __________ analysis. a.bottom-up b.outside-inside c.top-down d.upside-down Answer: c Answer: c Answer: c 2) the term investment horizon refers to __________. a.the

1) $1,000 par value zero-coupon bonds (ignore liquidity premiums) one year from now bond c should sell for ________ (to the nearest dollar). a.$857 b.$842 c.$835 d.$821 Answer: b 1.07993 = 1.06(1 + 1f3)2 1.2593621/1.06 = (1 + 1f3)2 1f3 = 11.81% price of bond c in 1 year = 1,000/1.1181 = 841.69 Answer: b 1.07993 =

1) assume that you have recently purchased 100 shares in an investment company. upon examining the balance sheet, you note that the firm is reporting $225 million in assets, $30 million in liabilities, and 10 million shares outstanding. what is the net asset value (nav) of these shares? a.$25.50 b.$22.50 c.$19.50 d.$1.95 Answer: c nav =

1) if the economy is going into a recession, a good industry to invest in would be the __________ industry. a.automobile b.banking c.construction d.medical services Answer: d Answer: d Answer: d 2) it is difficult to test the kondratieff wave theory because _________. a.it applies to only russian stocks b.its main proponent found contrary research results c.only two independent data points

1) everything else equal, an increase in the government budget deficit would: i. increase the government's demand for funds ii. shift the demand curve for funds to the left iii. increase the interest rate in the economy a.ii only b.i and ii only c.i and iii only d.i, ii, and iii Answer: c Answer: c Answer: c 2) basu found that

1) withdrawals from a traditional retirement plan prior to age ___ are taxable and must pay a ___ tax penalty. a.59; 10% b.62; 5% c.65; 7 % d.63; 5% Answer: a Answer: a Answer: a 2) a bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8% with interest

1) which of the following firms was not engaged in a major accounting scandal between 2000 and 2005? a.general electric b.parmalat c.enron d.worldcom Answer: a Answer: a Answer: a 2) the dollar-weighted return is the _________. a.difference between cash inflows and cash outflows b.arithmetic average return c.geometric average return d.internal rate of return Answer: d Answer: d Answer: d 3) which one of the following statements about

1) the u.s. income tax code is generally _____. a.regressive b.progressive c.flat d.peaked Answer: b Answer: b Answer: b 2) the fama and french evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that _________. a.high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a unique risk factor b.low book-to-market firms

1) which of the following funds are usually most tax-efficient? a.equity funds b.bond funds c.etfs d.specialized-sector funds Answer: c Answer: c Answer: c 2) all else the same, an american style option will be ______ valuable than a ______ style option. a.more; european- b.less; european- c.more; canadian- d.less; canadian- Answer: a Answer: a Answer: a 3) compute the duration of an 8%, 5-year corporate bond with

1) a corporation will be issuing bonds in 6 months, and the treasurer is concerned about unfavorable interest rate moves in the interim. the best way for her to hedge the risk is to _________________. a.buy t-bond futures b.sell t-bond futures c.buy stock-index futures d.sell stock-index futures Answer: b Answer: b Answer: b 2) the __________ of a

1) a mutual fund has $50 million in assets at the beginning of the year and 1 million shares outstanding throughout the year. throughout the year assets grow at 12%. the fund imposes a 12b-1 fee on all shares equal to 1%. the fee is imposed on year-end asset values. if

1) this stock has greater systematic risk than a stock with a beta of ___. a..50 b.1.5 c.2 d.3 Answer: a .50 < 1.32 Answer: a .50 < 1.32 Answer: a .50 < 1.32 2) you are considering investing $1,000 in a complete portfolio. the complete portfolio is composed of treasury bills that pay 5% and a risky

1) in the futures market the short position's loss is ___________ the long position's gain. a.greater than b.less than c.equal to d.sometimes less than and sometimes greater than Answer: c Answer: c Answer: c 2) on a particular day, there were 890 stocks that advanced on the nyse and 723 that declined. the volume in advancing issues was

1) all of the following ratios are related to efficiency except _______. a.total asset turnover b.fixed-asset turnover c.average collection period d.cash ratio Answer: d Answer: d Answer: d 2) everything else equal, which variable is negatively related to the intrinsic value of a company? a.d1 b.d0 c.g d.k Answer: d Answer: d Answer: d 3) of the following, the investment time horizon is typically the shortest

1) a stock's alpha measures the stock's ____________________. a.expected return b.abnormal return c.excess return d.residual return Answer: b Answer: b Answer: b 2) the new york stock exchange is a good example of _________. a.an auction market b.a brokered market c.a dealer market d.a direct search market Answer: a Answer: a Answer: a 3) a hedge ratio of .70 implies that a hedged portfolio should consist

1) a firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following? a.reverse repurchase agreement b.bankers' acceptance c.commercial paper d.repurchase agreement Answer: d Answer: d Answer: d 2) a firm purchases goods on credit worth $90. the same

1) you pay $216,000 to the capital hedge fund, which has a price of $18 per share at the beginning of the year. the fund deducted a front-end commission of 4%. the securities in the fund increased in value by 15% during the year. the fund's expense ratio is 2%

1) an underpriced stock provides an expected return that is ____________ the required return based on the capital asset pricing model (capm). a.less than b.equal to c.greater than d.greater than or equal to Answer: c Answer: c Answer: c 2) in their 2010 study, fama and french used a four-factor model to analyze excess returns on equity mutual

1) which of the following is (are) true about hedge funds? i. they are open to institutional investors. ii. they are open to wealthy individuals. iii. they are more likely than mutual funds to pursue simple strategies. a.i and ii only b.i and iii only c.ii and iii only d.i, ii, and iii Answer: a Answer: a Answer: a 2) t-bills

1) the purchase of a futures contract gives the buyer _________. a.the right to buy an item at a specified price b.the right to sell an item at a specified price c.the obligation to buy an item at a specified price d.the obligation to sell an item at a specified price Answer: c Answer: c Answer: c 2)

1) which of the following is the least likely to be included in the portfolio management process? a.monitoring market conditions and relative values b.monitoring investor circumstances c.identifying investor constraints and preferences d.organizing the investment management process itself Answer: d Answer: d Answer: d 2) which of the following arguments supporting passive investment strategies is (are) correct? i. active trading

1) __________ funds stand ready to redeem or issue shares at their net asset value. a.closed-end b.index c.open-end d.hedge Answer: c Answer: c Answer: c 2) a bond pays annual interest. its coupon rate is 9%. its value at maturity is $1,000. it matures in 4 years. its yield to maturity is currently 6%. the modified duration of this

1) a corporate bond has a 10-year maturity and pays interest semiannually. the quoted coupon rate is 6%, and the bond is priced at par. the bond is callable in 3 years at 110% of par. what is the bond's yield to call? a.6.72% b.9.17% c.4.49% d.8.98% Answer: d 1,000 = r/2 = 4.489% r

1) in the context of a bond portfolio, price risk and reinvestment rate risk exactly cancel out at a time horizon equal to the ____. a.average bond maturity in the portfolio b.duration of the portfolio c.difference between the shortest duration and longest duration of the individual bonds in the portfolio d.average of the shortest duration

1) of the following, the most flexible type of life insurance policy from the policyholder's perspective is probably a ___________ policy. a.term life b.whole life c.variable life d.universal life Answer: d Answer: d Answer: d 2) consider the following two investment alternatives: first, a risky portfolio that pays a 20% rate of return with a probability of 60%

1) you find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. if you purchase or sell the stock, you must pay a flat commission of $25. if you buy 100 shares of the stock and immediately sell them, what is your total implied and actual

1) one-, two-, and three-year maturity, default-free, zero-coupon bonds have yields to maturity of 7%, 8%, and 9%, respectively. what is the implied 1-year forward rate 1 year from today? a.2.07% b.8.03% c.9.01% d.11.12% Answer: c 1.07(1 + f2) = 1.082 = 1.1664 (1 + f2) = 1.1664/1.07 = 1.0900935 f2 = 9.01% Answer: c 1.07(1

1) the duration of a 5-year zero-coupon bond is ____ years. a.4.5 b.5 c.5.5 d.3.5 Answer: b Answer: b Answer: b 2) a japanese firm issued and sold a pound-denominated bond in the united kingdom. a u.s. firm issued bonds denominated in dollars but sold the bonds in japan. which one of the following statements is correct? a.both bonds

1) the commission, or front-end load, paid when you purchase shares in mutual funds may not exceed __________. a.3.5% b.6% c.8.5% d.10% Answer: c Answer: c Answer: c 2) today's futures markets are dominated by trading in _______ contracts. a.metals b.agriculture c.financial d.commodity Answer: c Answer: c Answer: c 3) which of the following is not a concept related to explaining abnormal excess stock returns? a.january effect b.neglected-firm