Convertible bonds tend to pay better interest rates than straight bonds, since
convertibles are of lower risk.
Minimum maintenance standards require that a margined investor always maintains the
initial margin position.
Companies in mature industries still have a dramatic need for internal cash flows to
finance future growth.
Conversion value represents the total value of the underlying shares of common stock
into which the security may be converted.
Cross-hedging refers to the practice of using one form of security to reduce risk on
another form of security.
Unsystematic risk earns a risk premium, because it cannot be offset through efficient
portfolio management.
The data show that several markets such as the United States and Britain continually
outperform the other developed markets such as Canada, Switzerland, and Japan.
Program trading simply means that trades are executed on computer programs written
by the SEC.
A put or call cannot be purchased for a life of more than the standardized periods of 3,
6, or 9 months.
Assets must be currently producing income in order to give a company value.
Only the Chicago regional exchange is still viable, with Philadelphia and Boston being
bought by NASDAQ.
Rotational investors study the business cycle, and invest in companies that are likely to
benefit from the predicted movements of the economy.
A lack of immediate liquidity cannot be justified even if there is an opportunity for
large gains.
The idea behind the portfolio effect is that risk can be reduced by combining securities,
but there will be a corresponding reduction in return.
Liquidity refers to how little the sales price of an asset has decreased from its cost.
The intrinsic value of a put option is equal to the strike price minus the market price of
the option.
The use of financial futures will most likely increase as financial managers gain a
greater understanding and appreciation of their uses.
A margin represents the amount of money an investor may borrow to purchase
securities.
A stock split has no effect on the retained earnings account.
An “emerging market” is defined as a market where the country has a small capital
market relative to the industrialized world.
Asset managers typically lose their jobs because of poorly allocated portfolios under a
given market condition.
Extraordinary gains and losses are usually included in ratio analysis, since they reflect
on the annual operating performance of a firm.
When an investment bank sells securities on a best efforts basis, it assumes all risk of
the offering.
Competitive strategies of individual firms do not have an impact on the outlook for the
industry as a whole.
You are said to be long in a security if you purchase the security.
An economic forecast will usually start with an analysis of the government’s economic
plan.
High interest rates in the United States relative to foreign interest rates have a tendency
to attract foreign investors to the U.S. money markets.
Investing in stock index futures is one way to reduce or eliminate unsystematic risk.
The growth rate of the companies that make up the S&P 500 is an excellent proxy for
the growth of mature companies.
Coincident indicators are of major importance to investors because they accurately
predict the timing of business cycle changes.
Most major foreign firms listed on the New York Stock Exchange, such as Canada
Pacific Railway, trade their stocks directly on the NYSE rather than using ADRs.
Analysis of various industries gives the investor insights into the comparative
performance of the entire economy.
Investment is the commitment of current funds in anticipation of receiving a larger flow
of funds in the future.
When short sellers are bearish, it is thought to be a bullish signal.
The more volatile the stock price as measured by beta or standard deviation of returns,
A.the higher the conversion premium.
B.the lower the conversion premium.
C.the higher the interest rate.
D.the lower the interest rate.
Research on the strong form shows that _______ are able to achieve superior returns.
A.members of the SEC
B.corporate insiders and public officials
C.market specialists and corporate insiders
D.the majority of professional mutual fund managers
Dividend models are best suited for those companies that are in the:
A. introduction phase of the life cycle.
B. expansion phase of the life cycle.
C. maturity phase of the life cycle.
D. Both B and C
One exit strategy for venture capitalists is:
A.to pull their money out when the company first makes a profit.
B.the company goes public.
C.to stop funding the venture.
D.None of the above
The process of selling a new issue of securities so that the price is guaranteed to the
selling firm is referred to as:
A.underwriting.
B.best efforts.
C.direct by issuer.
D.shelf registration.
E.All of the above involve a price guarantee
The point of tangency between the efficient frontier and the capital market line:
A.is the ideal portfolio of available investments.
B.can be calculated by using the Markowitz portfolio theory and CAPM.
C.represents the point at which the market is in equilibrium.
D.All of the above
Securities issued by the Federal Farm Credit Bank
A.are essentially risk-free.
B.carry a higher yield than U.S. Treasury securities.
C.are fully taxable by federal, state, and local governments.
D.All of the above
What is the value of a stock which has a current dividend (D0) of $1.50, and is growing
at the rate of 7%? The investor’s required rate of return is 12%.
A. $26.75
B. $30.00
C. $32.10
D. $21.42
E. $13.38
A stock is selling for $45.75 with a put option available at a $50 strike that has a
premium of $7.50. What is the speculative premium of the put?
A. $4.25
B. $1.25
C. $3.25
D. $5.25
E. $7.50
Which of the following characteristics is not usually found in industries that are
oligopolies?
A.Barriers to entry
B.Intense competition between competitors
C.Increasing foreign competition
D.No differentiation between products
In a(n) ____ arrangement, the borrower may end up making payments to cover not only
the loan amortization, but also interest on deferred interest from an earlier period.
A.Graduated payment mortgage
B.Shared appreciation mortgage
C.Adjustable-rate mortgage
D.More than one of the above
You, a farmer, anticipate taking 80,000 bushels of soybeans to the market in three
months. The current cash price for soybeans is $5.85. The size of the futures contract is
5,000 bushels per contract, and the current three-month futures price is $5.88. You
decide to hedge one-half of your exposure to a drop in the value of soybeans. Assume
that in three months, when you take the soybeans to market, you close out the futures
contracts and the price has fallen to $5.80. What is the total loss in value over the three
months on the actual soybeans you produced and took to market?
A.$2,400
B.$2,000
C.$6,400
D.$4,000
E.$3,200
Federal income tax on investment income and capital gains of a mutual fund:
A.must always be paid by both the fund and the shareholder.
B.must be paid only by the shareholder.
C.is not required of the fund if it distributes at least 90% of its net investment income
and capital gains.
D.is not required either of the fund or of its shareholders.
Why would an investor want to use the rotational investing method?
A.It allows the investor to rotate out of losing stocks
B.The investor is attempting to profit from movements in the economic cycle
C.It is an easy method of employing dollar-cost averaging
D.It assures the investor of owning the proper mix of stocks and bonds
E.It is easy to time the market for higher returns
Which of the following would most likely affect the P/E ratio of the market in general?
A. A significant change in government fiscal policy
B. Declining earnings of the S&P 500 companies
C. Investors’ expectations about inflation changes and becomes either more positive or
more negative
D. All of the above could have a significant impact.
Firms with low P/E ratios that are often neglected by major investors seem to provide:
A.an inferior risk-adjusted return.
B.a superior risk-adjusted return.
C.a superior return, not adjusted for risk, though.
D.No return
All of the following are smart money rules except:
A.investment advisory recommendations.
B.short sales by specialists.
C.Barron’s Confidence Index.
D.None of the above are exceptions
An investor bought a March S&P 500 Index futures contract in December for
$1,490.05. After six months the contract value went up to $1,539.95. The contract has a
multiplier of 250. With an initial margin of $20,000, what is the percent return on
margin?
A.62.38%
B.60.32%
C.7.70%
D.7.45%
E.6.32%
One primary reason for the long-term average performance of mutual funds in general
is:
A.inflation.
B.high transaction costs.
C.volatile stock market conditions.
D.None of the above
An arbitrage is trading in:
A.options and futures at the same time.
B.two different markets when the price of the same item is different.
C.two different markets when the price of two different items is the same.
D.two different markets when there is no correlation between the markets.
Short-term speculators would probably NOT use _________ to develop a stock value.
A. dividend growth rates
B. discount rates
C. a stream of earnings or dividends
D. the income-statement method
E. any of the above
The __________ is a futures market for common stock, while the ____________ is a
futures market for commodities and financial instruments.
A.Chicago Board Options Exchange; Chicago Mercantile Exchange
B.Chicago Mercantile Exchange; Chicago Board Options Exchange
C.Chicago Board of Trade; Chicago Board Options Exchange
D.New York Stock Exchange; American Stock Exchange
An investor who is in a 33% tax bracket for normal (ordinary) income buys a stock for
$5,000 and sells it for $9,000. How much will her tax obligation be if she holds the
stock for:
(a) 6 months?
(b) 14 months?
Which of the following is NOT an advantage of investing in stock index futures for the
speculator?
A.The elimination of unsystematic risk
B.Manipulation by insiders is less likely than with individual securities
C.Maximum leverage potential
D.All of the above are advantages
Least squares trend analysis involves fitting a straight line through a series of data,
which, by definition:
A. minimizes the distance of each data point from the line, and minimizes the squared
area above and below the trendline.
B. minimizes the distance between each data point.
C. must include at least one peak and at least one trough.
D. must include a minimum of 20 points to get a usable trendline.
Once management announces that it will buy back one million shares over a given time
period, as circumstances become appropriate,
A.it is legally obligated to buy all one million shares back.
B.it is not legally obligated to buy any or all one million shares back.
C.it must buy back the number of shares that are equal to income in a given year (up to
one million shares).
D.it must buy back the number of shares that are equal to income minus common stock
dividends in a given year (up to one million shares).
In the comparative international arena of real GDP growth rates, which country has had
the highest growth in real GDP over the years 1993 to 2005?
A.The United States
B.Japan
C.China
D.Germany
Which of the following is NOT a characteristic of the Wilshire 5000 Equity Index?
A.It is most frequently used by individual investors
B.It represents the total dollar value of 5,000 stocks on a value-weighted basis
C.It contains all NYSE and AMEX issues, and most active NASDAQ issues
D.It is used as a measure of the broadest market performance index
E.It is a value-weighted index
If the Treasury bill rate (RF) increases, then Ke will
A. decrease.
B. increase.
C. stay the same.
D. go up by beta times the Treasury bill rate.
Assume a portfolio has the possibility of returning 7%, 8%, 10%, or 12%, with
likelihood of 20%, 30%, 25%, and 25%, respectively. The expected value of the
portfolio is:
A.10.0%.
B.9.0%.
C.9.3%.
D.9.25%.
E.None of the above
Kohlberg Kravis and Roberts (KKR) is best known as a:
A.hedge fund.
B.buy-out fund.
C.no-load fund.
D.core-satellite fund.
What will happen to the market value of a bond if interest rates increase?
A.The market value will decrease
B.The market value will increase
C.The market value will increase or decrease, depending on the general economic
climate
D.The market value should remain level
A follow-on fund is:
A.a fund which follows new emerging ventures.
B.an existing fund that is raising another fund.
C.a very risky hedge fund.
D.a special type of CD.