43) Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard
bonds if ________.
A) inflation is lower than anticipated over the investment period
B) inflation is higher than anticipated over the investment period
C) the U.S. dollar increases in value against the euro
D) the spread between commercial paper and Treasury securities remains low
44) Preferred stock is like long-term debt in that ________.
A) it gives the holder voting power regarding the firm’s management
B) it promises to pay to its holder a fixed stream of income each year
C) the preferred dividend is a tax-deductible expense for the firm
D) in the event of bankruptcy preferred stock has equal status with debt
45) Which of the following does not approximate the performance of a buy-and-hold portfolio
strategy?
A) an equally weighted index
B) a price-weighted index
C) a value-weighted index
D) all of these options (Weights are not a factor in this situation.)
46) In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs
________.
A) automatically
B) by adjusting the divisor
C) by adjusting the numerator
D) by adjusting the market value weights
47) A bond issued by the state of Alabama is priced to yield 6.25%. If you are in the 28% tax
bracket, this bond would provide you with an equivalent taxable yield of ________.
A) 4.5%
B) 7.25%
C) 8.68%
D) none of these options
48) 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
49) Ownership of a put option entitles the owner to the ________ to ________ a specific stock,
on or before a specific date, at a specific price.
A) right; buy
B) right; sell
C) obligation; buy
D) obligation; sell
50) An investor in a 28% tax bracket is trying to decide whether to invest in a municipal bond or
a corporate bond. She looks up municipal bond yields (rm) but wishes to calculate the taxable
equivalent yield r. The formula she should use is given by ________.
A) r = rm × (1 – 28%)
B) r = rm / (1 – 72%)
C) r = rm × (1 – 72%)
D) r = rm / (1 – 28%)
51) June call and put options on King Books Inc. are available with exercise 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
52) Ownership of a call option entitles the owner to the ________ to ________ a specific stock,
on or before a specific date, at a specific price.
A) right; buy
B) right; sell
C) obligation; buy
D) obligation; sell
53) The ________ the ratio of municipal bond yields to corporate bond yields, the ________ the
cutoff tax bracket at which more individuals will prefer to hold municipal debt.
A) higher; lower
B) lower; lower
C) higher; higher
D) The answer cannot be determined without more information.
54) The Hang Seng index reflects market performance on which of the following major stock
markets?
A) Japan
B) Singapore
C) Taiwan
D) Hong Kong
55) The Standard & Poor’s 500 is ________ weighted index.
A) an equally
B) a price-
C) a value-
D) a share-
56) Large well-known companies often issue their own short-term unsecured debt notes directly
to the public, rather than borrowing from banks; their notes are called ________.
A) certificates of deposit
B) repurchase agreements
C) bankers’ acceptances
D) commercial paper
57) Which of the following is most like a short-term collateralized loan?
A) certificate of deposit
B) repurchase agreement
C) bankers’ acceptance
D) commercial paper
58) Eurodollars are ________.
A) dollar-denominated deposits at any foreign bank or foreign branch of an American bank
B) dollar-denominated bonds issued by firms outside their home market
C) currency issued by Euro Disney and traded in France
D) dollars that wind up in banks as a result of money-laundering activities
59) Which of the following is used to back international sales of goods and services?
A) certificate of deposit
B) bankers’ acceptance
C) eurodollar deposits
D) commercial paper
60) Treasury notes have initial maturities between ________ years.
A) 2 and 4
B) 5 and 10
C) 10 and 30
D) 1 and 10
61) Which of the following is not a characteristic of common stock ownership?
A) residual claimant
B) unlimited liability
C) voting rights
D) right to any dividend paid by the corporation.
62) 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 option
B) purchase a put option
C) sell a futures contract
D) place a short-sale order
63) A typical bond price quote includes all but which one of the following?
A) coupon
B) closing bond price
C) yield to maturity
D) dividend yield
64) What would you expect to have happened to the spread between yields on commercial paper
and Treasury bills immediately after September 11, 2001?
A) no change, as both yields will remain the same
B) increase, as the spread usually increases in response to a crisis
C) decrease, as the spread usually decreases in response to a crisis
D) no change, as both yields will move in the same direction
65) A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly
dividend received by stock investors must have been ________ per share.
A) $0.55
B) $1.80
C) $0.45
D) $1.25
66) Three stocks have share prices of $12, $75, and $30 with total market values of $400 million,
$350 million, and $150 million, respectively. If you were to construct a price-weighted index of
the three stocks, what would be the index value?
A) 300
B) 39
C) 43
D) 30
67) Which of the following is not considered a money market investment?
A) bankers’ acceptance
B) eurodollar
C) repurchase agreement
D) Treasury note
68) The rate of interest on short-term loans among financial institutions is ________.
A) bankers’ acceptances
B) brokers’ calls
C) federal funds rate
D) LIBOR
69) You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If
you wanted to construct an index to track your portfolio performance, your best match for your
portfolio would be to construct ________.
A) a value-weighted index
B) an equally weighted index
C) a price-weighted index
D) a bond price index
70) In a ________ index, changes in the value of the stock with the greatest market value will
move the index value the most, everything else equal.
A) value-weighted index
B) equally weighted index
C) price-weighted index
D) bond price index
71) A corporation in a 34% tax bracket invests in the preferred stock of another company and
earns a 6% pretax rate of return. An individual investor in a 15% tax bracket invests in the same
preferred stock and earns the same pretax return. The after-tax return to the corporation is
________, and the after-tax return to the individual investor is ________.
A) 3.96%; 5.1%
B) 5.39%; 5.1%
C) 6%; 6%
D) 3.96%; 6%
72) All but which one of the following indices is value weighted?
A) NASDAQ Composite
B) S&P 500
C) Wilshire 5000
D) DJIA
73) What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of
28%?
A) 6.48%
B) 7.25%
C) 8.02%
D) 9%
74) 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%
75) An index computed from a simple average of returns is a/an ________.
A) equal weighted index
B) value weighted index
C) price weighted index
D) share weighted index
76) A tax free municipal bond provides a yield of 2.34%. What is the equivalent taxable yield on
the bond given a 28% tax bracket?
A) 2.34%
B) 2.68%
C) 3.25%
D) 4.92%
77) The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in
the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the
last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new
divisor for a price weighted index?
A) 5.00
B) 4.85
C) 4.50
D) 4.75
78) A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding
shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market
value weighted index was 970 yesterday and the prices changed to $23, $41, and $58 today, what
is the new index value?
A) 960
B) 970
C) 975
D) 985
79) A benchmark market value index is comprised of three stocks. Yesterday the three stocks
were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares,
500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and
$62 today respectively, what is the 1-day rate of return on the index?
A) 5.78%
B) 4.35%
C) 6.16%
D) 7.42%
80) Which of the following mortgage scenarios will benefit the homeowner the most?
A) adjustable rate mortgage when interest rate increases.
B) fixed rate mortgage when interest rates falls.
C) fixed rate mortgage when interest rate rises.
D) None of these options, as the banker’s interest will always be protected.
81) The brokers’ call rate represents
A) the rate the broker charges an investor on a margin account.
B) the rate the broker pays its bank on borrowed funds.
C) the return earned by the broker on a margin account.
D) the return earned by the investor on a margin account.
82) LIBOR is a key reference rate in the money markets. Many ________ of dollars of loans and
derivative assets are tied to it.
A) thousands
B) millions
C) billions
D) trillions
83) Several large banks manipulated the reported rates on which key money market rate?
A) federal funds rate
B) LIBOR
C) bankers’ acceptances
D) brokers’ calls rate
84) Which of the following reforms were not included in 2014 regulations regarding money
market funds?
A) Institutional funds will “float” the prices of their shares.
B) Funds can limit redemptions or impose a 2% fee if assets fall by more than 30%.
C) increased disclosure of assets’ values and liquidity
D) All of the options were included.
85) 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 price of $130 if Apple closed on the expiration date
at $120? Assume the option premium was $3.00.
A) $0
B) $3.00 gain
C) $3.00 loss
D) $7.00 gain