If a firm’s borrowing rate exceeds its ROA, then ROE will ______.
A. increase by an amount that depends on the equity/debt ratio.
B. increase by an amount that depends on the debt/equity ratio.
C. decline by an amount that depends on the equity/debt ratio.
D. decline by an amount that depends on the debt/equity ratio.
WEBS differ from mutual funds in that:
I. WEBS can be shorted.
II. WEBS trade continuously on the AMEX.
III. WEBS are passively managed.
A. II only
B. II and III only
C. I and III only
D. I, II, and III
The duration of a portfolio of bonds can be calculated as _______________.
A. the coupon weighted average of the durations of the individual bonds in the portfolio
B. the yield weighted average of the durations of the individual bonds in the portfolio
C. the value weighted average of the durations of the individual bonds in the portfolio
D. averages of the durations of the longest- and shortest-duration bonds in the portfolio
The impact of using LIFO over FIFO is to __________.
A. bias ROE downward since investments are undervalued
B. bias ROE downward since investments are overvalued
C. bias ROE upward since investments are undervalued
D. bias ROE upward since investments are overvalued
Which of the following is not a financial intermediary?
A. a mutual fund
B. an insurance company
C. a real estate brokerage firm
D. a credit union
If an investor uses the full amount of margin available, the equity in a margin account
used for a stock purchase can be found as
________.
A. market value of the stock – amount owed on the margin loan
B. market value of the stock + amount owed on the margin loan
C. market value of the stock margin loan
D. margin loan market value of the stock
Which industry would you expect to find the highest dividend payout yields?
A. biotech
B. technology
C. electric utility
D. business software
A 1-year oil futures contract is selling for $74.50. Spot oil prices are $68, and the 1-year
risk-free rate is 3.25%.
The 1-year oil futures price should be equal to __________.
A. $68
B. $70.21
C. $71.25
D. $74.88
Treasury bills are financial instruments issued by __________ to raise funds.
A. commercial banks
B. the federal government
C. large corporations
D. state and city governments
Earnings on variable life and universal life insurance policies are ___________.
A. never taxed
B. taxed only at the capital gains tax rate
C. not taxed until the money is withdrawn
D. not taxed at the federal level but are taxed at the state level
If the maturity of a bank’s assets is much longer than the maturity of its liabilities and it
wants to limit its interest rate risk, the bank may
_________.
A. prefer to invest in long-term bonds in its asset portfolio
B. prefer to invest in equities in its asset portfolio
C. prefer to invest in variable-rate assets
D. decide to increase its fixed-rate mortgage holdings
Cumulative
breadth for
the 4 days is
___, which is
___.
A. -140; bullish
B. -140; bearish
C. -300; bullish
D. -300; bearish
You invest all of your money in 1-year T-bills. Which of the following statements is
(are) correct?
I. Your nominal return on the T-bills is riskless.
II. Your real return on the T-bills is riskless.
III. Your nominal Sharpe ratio is zero.
A. I only
B. I and III only
C. II only
D. I, II, and III
As of 2014, approximately _____ of mutual fund assets were invested in money market
funds.
A. 5%
B. 18%
C. 44%
D. 66%
An Asian put option gives its holder the right to ____________.
A. buy the underlying asset at the exercise price on or before the expiration date
B. buy the underlying asset at a price determined by the average stock price during
some specified portion of the option’s life
C. sell the underlying asset at the exercise price on or before the expiration date
D. sell the underlying asset at a price determined by the average stock price during
some specified portion of the option’s life
Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year.
The risk-free rate of return is 6%, and the expected return on the market portfolio is
14%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from
now. The beta of Westsyde Tool Company’s stock is 1.2. Using the CAPM, an
appropriate required return on Westsyde Tool Company’s stock is _________.
A. 8%
B. 10.8%
C. 15.6%
D. 16.8%
The prudent investor rule is an example of a regulation designed to ensure appropriate
_____________ by money managers.
A. fiduciary responsibility
B. fiscal responsibility
C. monetary responsibility
D. marketing procedures
You invest $1,000 in a complete portfolio. The complete portfolio is composed of a
risky asset with an expected rate of return of 16% and a standard deviation of 20% and
a Treasury bill with a rate of return of 6%. __________ of your complete portfolio
should be invested in the risky portfolio if you want your complete portfolio to have a
standard deviation of 9%.
A. 100%
B. 90%
C. 45%
D. 10%
A passive asset allocation strategy involves _________.
A. investing in the stock of companies that are price takers
B. maintaining approximately the same proportions of a portfolio in each asset class
over time
C. varying the proportions of a portfolio in each asset class in response to changing
market conditions
D. selecting individual securities in different sectors that are believed to be undervalued
In the Treynor-Black model, the active portfolio will contain stocks with __________.
A. alphas equal to zero
B. negative alphas
C. positive alphas
D. some negative and some positive alphas
The current stock price of Howard & Howard is $64, and the stock does not pay
dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard
deviation of H&H’s stock is 20%. You want to purchase a call option on this stock with
an exercise price of $55 and an expiration date 73 days from now.
Using the Black-Scholes OPM, the call option should be worth __________ today.
A. $.01
B. $.08
C. $9.26
D. $9.62
Which one of the following invests in a portfolio that is fixed for the life of the fund?
A. mutual fund
B.money market fund
C. managed investment company
D. unit investment trust
Which of the following are characteristics of a hedge fund?
I. Pooling of assets
II. Strict regulatory oversight by the SEC
III. Investing in equities, debt instruments, and derivative instruments
IV. Professional management of assets
A. I and II only
B. II and III only
C. III and IV only
D. I, III, and IV only
Which countries typically have higher information ratios?
A. developed
B. EAFE
C. emerging
D. North American
Which model is preferred by academics, and is gaining in popularity with practitioners,
when evaluating investment performance?
A. the Treynor-Black model
B. the single-index model
C. the Fama-French three-factor model
D. the Sharpe model
Which of the following arguments supporting passive investment strategies is (are)
correct?
I. Active trading strategies may not guarantee higher returns but guarantee higher costs.
II. Passive investors can free-ride on the activity of knowledge investors whose trades
force prices to reflect currently available information.
III. Passive investors are guaranteed to earn higher rates of return than active investors
over sufficiently long time horizons.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Which of the following strategies makes a profit if the stock price stays stable?
A. long call and short put
B. long call and long put
C. short call and short put
D. short call and long put
In planning for retirement, an investor decides she will save $11,000 every year for 40
years. At an 11% return on her investment, how much money will she have at the end of
40 years (to the nearest hundred thousand dollars)?
A. $1,400,000
B. $2,800,000
C. $4,900,000
D. $6,400,000
Decreasing the number of stocks in a portfolio from 50 to 10 would likely
________________.
A. increase the systematic risk of the portfolio
B. increase the unsystematic risk of the portfolio
C. increase the return of the portfolio
D. decrease the variation in returns the investor faces in any one year
Behaviorists point out that even if market prices are ____________, there may be
_______________.
A. distorted; limited arbitrage opportunities
B. distorted; fundamental efficiency
C. allocationally efficient; limitless arbitrage opportunities
D. distorted; allocational efficiency