An investor may deposit $2,000 into a traditional or Roth IRA. After 30 years, given a
9% annual return and a 20% tax rate, how much more or less money will the investor
have if all investments are liquidated after 30 years?
A. Roth value is $5,307 higher
B. Roth value is $4,907 higher
C. traditional value is $4,907 higher
D. traditional value is $5,307 higher
All but which one of the following indices is value weighted?
A. NASDAQ Composite
B. S&P 500
C. Wilshire 5000
D. DJIA
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
In an era of particularly low interest rates, which of the following bonds is most likely
to be called?
A. zero-coupon bonds
B. coupon bonds selling at a discount
C. coupon bonds selling at a premium
D. floating-rate bonds
A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is
$2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold
futures contracts on 10,000 bushels of corn.
Ignoring the transaction costs, how much did the farmer improve his cash flow by
hedging sales with the futures contracts?
A. $0
B. $2,000
C. $31,875
D. $33,875
Which of the following bonds would most likely sell at the lowest yield?
A. a callable debenture
B. a puttable mortgage bond
C. a callable mortgage bond
D. a puttable debenture
In a defined benefit pension plan, the _____ bears all of the fund’s investment
performance risk.
A. employer
B. employee
C. fund manager
D. government
The NYSE acquired the ECN _______, and NASDAQ recently acquired the ECN
________.
A. Archipelago; Instinet
B. Instinet; Archipelago
C. Island; Instinet
D. LSE; Euronext
An importer of televisions from Japan has a contract to purchase a shipment of
televisions for 2 million yen. The spot rate increases from 105 yen per dollar to 108 yen
per dollar. What is the importer’s gain or loss?
A. $529 gain
B. $529 loss
C. $619 gain
D. $619 loss
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and
a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 1%
total annual fees, and a 2% back-end load on Class B shares. What are the total fees in
year 1 on a Class B investment of $20,000 if you redeem shares with no growth in
value?
A. $596
B. $794
C. $885
D. $902
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
current ratio for 2015 is _________.
A. 1.3
B. 1.5
C. 1.69
D. 2.83
In 1937 the Eli Lilly family donated millions of dollars in stock to fund a not-for-profit
charitable organization. Such organizations are typically called _________________.
A. annuities
B. endowments
C. mutual funds
D. personal trusts
You want to minimize your current tax bill by maximizing your contributions to your
_____________.
A. taxable bond portfolio
B. Roth retirement plan
C. 401k or 403b plan
D. taxable savings account
In 2014 real assets represented approximately __________ of the total asset holdings of
American households.
A. 30%
B. 42%
C. 48%
D. 55%
The common stock of the Avalon Corporation has been trading in a narrow range
around $40 per share for months, and you believe it is going to stay in that range for the
next 3 months. The price of a 3-month put option with an exercise price of $40 is $3,
and a call with the same expiration date and exercise price sells for $4.
Suppose you write a strap and the stock price winds up to be $42 at contract expiration.
What was your net profit on the strap?
A. $200
B. $300
C. $700
D. $400
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an
expected return of 18% and a standard deviation of return of 20%. Stock B has an
expected return of 14% and a standard deviation of return of 5%. The correlation
coefficient between the returns of A and B is .50. The risk-free rate of return is 10%.
The standard deviation of return on the optimal risky portfolio is _________.
A. 0%
B. 5%
C. 7%
D. 20%
Consider a hedge fund with $250 million in assets at the start of the year. If the gross
return on assets is 18% and the total expense ratio is 2.5% of the year-end value, what is
the rate of return on the fund?
A. 15.05%
B. 15.5%
C. 17.25%
D. 18%
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
An intermediary that pools and manages funds for many investors is called ______.
A. an investment company
B. a credit union
C. an investment banker
D. a commercial bank
A bank has $50 million in assets, $47 million in liabilities, and $3 million in
shareholders’ equity. If the duration of its liabilities is 1.3 and the bank wants to
immunize its net worth against interest rate risk and thus set the duration of equity equal
to zero, it should select assets with an average duration of _________.
A. 1.22
B. 1.5
C. 1.6
D. 2
For an investor concerned with maximizing liquidity, which of the following
investments should be avoided?
A. real estate
B. bonds
C. domestic stocks
D. international stocks
The efficient market hypothesis suggests that _______.
A. active portfolio management strategies are the most appropriate investment
strategies
B. passive portfolio management strategies are the most appropriate investment
strategies
C. either active or passive strategies may be appropriate, depending on the expected
direction of the market
D. a bottom-up approach is the most appropriate investment strategy
Steel Pier Company has issued bonds that pay semiannually with the following
characteristics:
If the bond’s coupon was smaller than 10%, the modified duration would be _____
compared to the original modified duration.
A. larger
B. unchanged
C. smaller
D. The answer cannot be determined from the information given.
In macroeconomic terms, an increase in the price of imported oil or a decrease in the
availability of oil is an example of a _________.
A. demand shock
B. supply shock
C. monetary shock
D. refinery shock
As of 2014, approximately _____ of mutual fund assets were invested in bond funds.
A. 22%
B. 32%
C. 37%
D. 47%
If you want to measure the performance of your investment in a fund, including the
timing of your purchases and redemptions, you should calculate the __________.
A. geometric average return
B. arithmetic average return
C. dollar-weighted return
D. index return
In 2014 mortgages represented approximately __________ of total liabilities and net
worth of American households.
A. 10%
B. 14%
C. 28%
D. 42%
Investor A bought a call option, and investor B bought a put option. All else equal, if the
underlying stock price volatility 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
Rank the following types of markets from least integrated and organized to most
integrated and organized:
I. Brokered markets
II. Continuous auction markets
III. Dealer markets
IV. Direct search markets
A. IV, II, I, III
B. I, III, IV, II
C. II, III, IV, I
D. IV, I, III, II
You are recalculating the risk of ACE stock in relation to the market index, and you find
that the ratio of the systematic variance to the total variance has risen. You must also
find that the ____________.
A. covariance between ACE and the market has fallen
B. correlation coefficient between ACE and the market has fallen
C. correlation coefficient between ACE and the market has risen
D. unsystematic risk of ACE has risen