Which one of the following is the method used to quote interest rates on money market instruments?
A. short basis
B. floating-rate basis
C. call rate method
D. bank discount basis
E. prime rate method
A. short basis
B. floating-rate basis
C. call rate method
D. bank discount basis
E. prime rate method
Answer:
Which one of the following is income realized in cash form?
A. net income
B. revenue
C. cash flow
D. retained earnings
E. dividends
A. net income
B. revenue
C. cash flow
D. retained earnings
E. dividends
Answer:
The Federal Reserve is offering Treasury bills with a par value of $10 billion for sale. They have received $3 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are: (Qty in billions)
How much money will the Federal Reserve raise from this offering?
A. $9.92 billion
B. $9.88 billion
C. $9.85 billion
D. $9.84 billion
E. $9.80 billion
How much money will the Federal Reserve raise from this offering?
A. $9.92 billion
B. $9.88 billion
C. $9.85 billion
D. $9.84 billion
E. $9.80 billion
Answer:
Income and expense items NOT realized in cash form are called which one of the following?
A. deductible expenses
B. noncash items
C. intangible assets
D. operating income
E. financing activities
A. deductible expenses
B. noncash items
C. intangible assets
D. operating income
E. financing activities
Answer:
Repricing an employee stock option involves which one of the following?
A. stock-split
B. stock dividend
C. change in option strike price
D. change in option expiration date
E. change in option premium
A. stock-split
B. stock dividend
C. change in option strike price
D. change in option expiration date
E. change in option premium
Answer:
Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision. The bonds mature in 6 years, have a 10 percent coupon, pay interest semiannually, and have a par value of $1,000. What is today’s call price given that the applicable discount rate is 7.20 percent?
A. $879.12
B. $968.35
C. $1,015.55
D. $1,134.49
E. $1,172.71
A. $879.12
B. $968.35
C. $1,015.55
D. $1,134.49
E. $1,172.71
Answer:
A 4-month call has a strike price of $20. The current underlying stock price is $21.45. What is the intrinsic value of this call?
A. $0.00
B. $0.48
C. $1.45
D. $3.90
E. $4.35
A. $0.00
B. $0.48
C. $1.45
D. $3.90
E. $4.35
Answer:
Which of the following sources of information are used by informed traders?
I. financial statements
II. inside information
III. internet reports
IV. analysts reports
A. I and IV only
B. II and III only
C. III and IV only
D. I, III, and IV only
E. I, II, III, and IV
I. financial statements
II. inside information
III. internet reports
IV. analysts reports
A. I and IV only
B. II and III only
C. III and IV only
D. I, III, and IV only
E. I, II, III, and IV
Answer:
Katie purchased 6 call options on Atlas Co. stock with a strike price of $40.00. On the expiration date, the stock was priced at $38.95 a share. What is the total payoff on the option contracts?
A. -$220
B. -$55
C. $0
D. $2.20
E. $55
A. -$220
B. -$55
C. $0
D. $2.20
E. $55
Answer:
A bond has a face value of $30,000 and matures in 62 days. What is the bank discount yield if the bond is currently selling for $29,750?
A. 4.67 percent
B. 4.84 percent
C. 5.48 percent
D. 5.78 percent
E. 6.03 percent
A. 4.67 percent
B. 4.84 percent
C. 5.48 percent
D. 5.78 percent
E. 6.03 percent
Answer:
Lauren Mitchell has a margin account with a local brokerage firm, RL Brokers. She recently purchased 200 shares of Abbot Industries common stock that trades on the New York Stock Exchange (NYSE). These shares are held in street name and are registered under the name of:
A. Lauren Mitchell.
B. RL Brokers.
C. Abbot Industries.
D. the New York Stock Exchange.
E. the Securities and Exchange Commission.
A. Lauren Mitchell.
B. RL Brokers.
C. Abbot Industries.
D. the New York Stock Exchange.
E. the Securities and Exchange Commission.
Answer:
You own a principal STRIPS which is based on a 4.5 percent coupon Treasury bond that matures in 20 years. The STRIPS is priced at $22,868 and has a par value of $50,000. What is the yield to maturity on the STRIPS?
A. 3.79 percent
B. 3.90 percent
C. 3.93 percent
D. 3.95 percent
E. 3.99 percent
A. 3.79 percent
B. 3.90 percent
C. 3.93 percent
D. 3.95 percent
E. 3.99 percent
Answer:
Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio?
A. number of economic states
B. various expected returns caused by changing economic states
C. market risk
D. diversifiable risk
E. non-diversifiable risk
A. number of economic states
B. various expected returns caused by changing economic states
C. market risk
D. diversifiable risk
E. non-diversifiable risk
Answer:
Which one of the following correlation relationships has the potential to completely eliminate risk?
A. perfectly positive
B. positive
C. negative
D. perfectly negative
E. uncorrelated
A. perfectly positive
B. positive
C. negative
D. perfectly negative
E. uncorrelated
Answer:
Last year, a firm had net income of $62,000 on sales of $595,000. The projected sales for next year are $654,500. Assume the firm uses the percentage of sales method for pro forma statements. What is the projected net income?
A. $59,500
B. $65,500
C. $68,200
D. $71,500
E. $71,900
A. $59,500
B. $65,500
C. $68,200
D. $71,500
E. $71,900
Answer:
The Shirt Factory purchased 10 futures contracts on cotton at a quoted price of 71.14 as a hedge against its inventory needs. At the time it actually needed the cotton, the spot price was 71.56. Cotton futures are based on 50,000 pounds and quoted in cents per pound. How much did the Shirt Factory save by hedging cotton?
A. $90
B. $560
C. $1,280
D. $2,100
E. $3,000
A. $90
B. $560
C. $1,280
D. $2,100
E. $3,000
Answer:
Which one of the following types of bond funds tends to have the highest level of risk?
A. short-term government
B. intermediate-term corporate
C. treasury
D. high-yield
E. single-state municipal
A. short-term government
B. intermediate-term corporate
C. treasury
D. high-yield
E. single-state municipal
Answer:
Which two of the following have the greatest effect on stock option prices?
I. volatility of underlying stock price
II. time to option maturity
III. underlying stock price
IV. option strike price
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only
I. volatility of underlying stock price
II. time to option maturity
III. underlying stock price
IV. option strike price
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only
Answer:
You own 1,200 shares of Banner Co. stock that is currently priced at $42 a share. Given this price, the option delta for a $40 call option on this stock is .664. How many $40 call options do you need to hedge against a -$1 change in the price of the stock?
A. buy 1,613 options
B. buy 1,713 options
C. buy 1,8.7 options
D. write 1,713 options
E. write 1,807 options
A. buy 1,613 options
B. buy 1,713 options
C. buy 1,8.7 options
D. write 1,713 options
E. write 1,807 options
Answer:
Which one of the following inputs for the Black-Scholes model is NOT directly observable?
A. time to option maturity
B. risk-free interest rate
C. stock price
D. strike price
E. stock price volatility
A. time to option maturity
B. risk-free interest rate
C. stock price
D. strike price
E. stock price volatility
Answer:
Which one of the following is expressed as “E(RM) – Rf“?
A. market risk premium
B. individual security risk premium
C. real rate of return
D. total expected rate of return
E. market rate of return
A. market risk premium
B. individual security risk premium
C. real rate of return
D. total expected rate of return
E. market rate of return
Answer:
Which one of the following is the upper price bound for the intrinsic value of a European put option on a stock?
A. 0
B. strike price
C. stock price
D. Max (S – K, 0)
E. Max (K – S, 0)
A. 0
B. strike price
C. stock price
D. Max (S – K, 0)
E. Max (K – S, 0)
Answer:
Mutual funds are generally created to:
A. provide tax shelters for investors.
B. generate fees for an advisory firm.
C. eliminate investment risk.
D. avoid taxes.
E. avoid regulation.
A. provide tax shelters for investors.
B. generate fees for an advisory firm.
C. eliminate investment risk.
D. avoid taxes.
E. avoid regulation.
Answer:
What is the accounting relationship in which earnings per share minus dividends equal the change in book value per share called?
A. clean surplus relationship
B. economic value added relationship
C. accounting earnings identity
D. payout-retention identity
E. dividend valuation equation
A. clean surplus relationship
B. economic value added relationship
C. accounting earnings identity
D. payout-retention identity
E. dividend valuation equation
Answer:
An index consists of the following securities. What is the value-weighted index return?
A. 3.72 percent
B. 5.09 percent
C. 6.61 percent
D. 8.75 percent
E. 10.07 percent
A. 3.72 percent
B. 5.09 percent
C. 6.61 percent
D. 8.75 percent
E. 10.07 percent
Answer:
All else constant, which of the following will decrease the Macaulay duration of a straight bond?
I. reducing the coupon payment
II. shortening the time to maturity
III. lowering the yield to maturity
A. I only
B. II only
C. II and III only
D. I and II only
E. I and III only
I. reducing the coupon payment
II. shortening the time to maturity
III. lowering the yield to maturity
A. I only
B. II only
C. II and III only
D. I and II only
E. I and III only
Answer:
Use the following soybean futures quotes:
You purchased four November 08 futures contracts on soybeans when they first became available this morning. Your investment has been worth as little as _____ and as much as _____.
A. $255,350; $265,500
B. $255,350; $265,020
C. $257,440; $265,500
D. $257,440; $265,020
E. $257,440; $265,520
You purchased four November 08 futures contracts on soybeans when they first became available this morning. Your investment has been worth as little as _____ and as much as _____.
A. $255,350; $265,500
B. $255,350; $265,020
C. $257,440; $265,500
D. $257,440; $265,020
E. $257,440; $265,520
Answer:
A portfolio has a variance of .027556, a beta of 1.54, and an expected return of 11.2 percent. What is the Treynor ratio if the expected risk-free rate is 2.7 percent?
A. .055
B. .063
C. .367
D. .498
E. .512
A. .055
B. .063
C. .367
D. .498
E. .512
Answer:
Which one of the following will automatically occur if all investors are rational?
A. All stock prices will be equal.
B. Equivalent risk assets will have equal expected rates of return.
C. All investors will earn the market rate of return.
D. All investors will earn the same rate of return.
E. The riskier an asset, the higher its market price will be.
A. All stock prices will be equal.
B. Equivalent risk assets will have equal expected rates of return.
C. All investors will earn the market rate of return.
D. All investors will earn the same rate of return.
E. The riskier an asset, the higher its market price will be.
Answer:
A bond has a par value of $1,000, a market price of $1,012, and a coupon rate of 5.75 percent. What is the current yield?
A. 5.68 percent
B. 5.71 percent
C. 5.75 percent
D. 5.78 percent
E. 5.80 percent
A. 5.68 percent
B. 5.71 percent
C. 5.75 percent
D. 5.78 percent
E. 5.80 percent
Answer:
Which one of the following statements concerning beta is correct?
A. The beta assigned to the overall market is zero.
B. A stock with a beta of 1.2 earns a higher risk premium than a stock with a beta of 1.3.
C. A stock with a beta of .5 has 50 percent more risk than the overall market.
D. Beta is applied to the T-bill rate when computing the discount rate used for the dividend discount models.
E. The higher the beta, the higher the discount rate used for the dividend discount models.
A. The beta assigned to the overall market is zero.
B. A stock with a beta of 1.2 earns a higher risk premium than a stock with a beta of 1.3.
C. A stock with a beta of .5 has 50 percent more risk than the overall market.
D. Beta is applied to the T-bill rate when computing the discount rate used for the dividend discount models.
E. The higher the beta, the higher the discount rate used for the dividend discount models.
Answer:
A discretionary account:
A. authorizes a broker to trade securities on your behalf.
B. charges an annual fee to cover all trading and management services.
C. is the term applied to brokerage accounts with check-writing and credit card services.
D. is the same as a wrap account.
E. is the account used to pledge securities as collateral for a margin loan.
A. authorizes a broker to trade securities on your behalf.
B. charges an annual fee to cover all trading and management services.
C. is the term applied to brokerage accounts with check-writing and credit card services.
D. is the same as a wrap account.
E. is the account used to pledge securities as collateral for a margin loan.
Answer:
Jason owned a stock for four months and earned an annualized rate of return of 11 percent.
What was the holding period return?
A. 2.37 percent
B. 2.42 percent
C. 2.46 percent
D. 2.64 percent
E. 2.72 percent
What was the holding period return?
A. 2.37 percent
B. 2.42 percent
C. 2.46 percent
D. 2.64 percent
E. 2.72 percent
Answer:
You purchased four call option contracts with a strike price of $25.00 and a premium of $1.25. At expiration, the stock was selling for $26.80 a share. What is the total amount it cost you to acquire your shares?
A. $8,620
B. $9,060
C. $10,500
D. $11,860
E. $12,400
A. $8,620
B. $9,060
C. $10,500
D. $11,860
E. $12,400
Answer:
DT Industries stock is valued at $10.40 a share. The firm pays annual dividends at an increasing rate of 2.5 percent annually. Next year’s dividend will be $1.05 per share. What is the required return on this stock?
A. 10.00 percent
B. 11.50 percent
C. 12.60 percent
D. 13.50 percent
E. 14.80 percent
A. 10.00 percent
B. 11.50 percent
C. 12.60 percent
D. 13.50 percent
E. 14.80 percent
Answer: