The dollar-per-euro spot rate is 1.2 when an importer of French wines places an order.
Six months later, when she takes delivery, the spot rate is 1.3 dollars per euro. If her
original invoice was for 30,000 euro, what is her gain or loss due to exchange rate risk?
A. $3,000 gain
B. $3,000 loss
C. $6,000 loss
D.
Which one of the following would be considered a risk-free asset in real terms as
opposed to nominal?
A. money market fund
B. U.S. T-bill
C. short-term corporate bonds
D. U.S. T-bill whose return was indexed to inflation
If an asset price declines, the investor with a _______ is exposed to the largest potential
loss.
A. long call option
B. long put option
C. long futures contract
D. short futures contract
Which of the following is not a money market security?
A. U.S. Treasury bill
B. 6-month maturity certificate of deposit
C. common stock
D. All of the options.
The pioneer of the duration concept was _________.
A. Eugene Fama
B. John Herzog
C. Frederick Macaulay
D. Harry Markowitz
You find the option prices for three June call options on the same stock. The 95 call has
an implied volatility of 25%, the 100 call has an implied volatility of 25%, and the 105
call has an implied volatility of 30%. If you believe this represents a mispricing
situation. you may want to ____________________________.
A. buy the 105 call and write the 100 call
B. buy the 105 call and write the 95 call
C. buy either the 95 or the 100 call and write the 105 call
D. write the 105 call and write either the 95 or the 100 call
Passive investors with well-diversified international portfolios _________.
A. can safely ignore all political risk in emerging markets
B. can expect very large diversification gains from their international investing
C. do not need to be concerned with hedging exposure to foreign currencies
D. can expect returns to be better than the EAFE on a consistent basis
Firm A acquires firm B when firm B has a book value of assets of $155 million and a
book value of liabilities of $35 million. Firm A actually pays $175 million for firm B.
This purchase would result in goodwill for firm A equal to
_____.
A. $175 million
B. $155 million
C. $120 million
D. $55 million
Technical analysis focuses on _____________________.
A. finding opportunities for risk-free investing
B. finding repeating trends and patterns in prices
C. changing prospects for earnings growth of particular firms or industries
D. forecasting technical regulatory changes
In 1973, trading of standardized options on a national exchange started on the
_________.
A. AMEX
B. CBOE
C. NYSE
D. CFTC
On a standard expected return versus standard deviation graph, investors will prefer
portfolios that lie to the _____________ the current investment opportunity set.
A. left and above
B. left and below
C. right and above
D. right and below
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%
The financial statements of Flathead Lake Manufacturing Company are shown below.
Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm’s
return on equity ratio for 2015 is _________. (Please keep in mind that when a ratio
involves both income statement and balance sheet numbers, the balance sheet numbers
for the beginning and end of the year must be averaged.)
A. 6.5%
B. 26.5%
C. 33.4%
D. 38%
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
In a pure yield pickup swap, ________ bonds are exchanged for _________ bonds.
A. longer-duration; shorter-duration
B. shorter-duration; longer-duration
C. high-coupon; high-yield
D. low-yield; high-yield
The price of a stock put option is __________ correlated with the stock price and
__________ correlated with the exercise price.
A. negatively; negatively
B. negatively; positively
C. positively; negatively
D. positively; positively
In 2014, BATS advertised average latency times of approximately _______. A. 100
microseconds
A. 100 microseconds
B. 200 microseconds
C. 1 second
D. 5 seconds
Consider the following two investment alternatives: First, a risky portfolio that pays a
15% rate of return with a probability of 40% or a 5% rate of return with a probability of
60%. Second, a Treasury bill that pays 6%. The risk premium on the risky investment is
_________.
A. 1%
B. 3%
C. 6%
D. 9%
The correlation coefficient between the U.S. stock market index and stock market
indexes of major countries is __________.
A. between -1 and -.5
B. between -.50 and 0
C. between 0 and .5
D. between .5 and 1
What is the expected return on the
market?
A. 0%
B. 5%
C. 10%
D. 15%
Consider the one-factor APT. The standard deviation of return on a well-diversified
portfolio is 20%. The standard deviation on the factor portfolio is 12%. The beta of the
well-diversified portfolio is approximately _________.
A. .60
B. 1
C. 1.67
D. 3.20
Assume the risk-free interest rate is 10% and is equal to the fund’s benchmark, the
portfolio’s net asset value is $100, and the fund’s standard deviation is 20%. Also
assume a time horizon of 1 year. What is the Black-Scholes value of the call option on
the management incentive fee?
A. $6.67
B. $8.18
C. $9.74
D. $10.22
You invest in the stock of Rayleigh Corp. and write a call option on Rayleigh Corp.
This strategy is called a _________.
A. covered call
B. long straddle
C. naked call
D. money spread
The Sarbanes-Oxley Act tightened corporate governance rules by requiring all but
which one of the following?
A. Required that corporations have more independent directors.
B. Required that the CFO personally vouch for the corporation’s financial statements.
C. Required that firms could no longer employ investment bankers to sell securities to
the public.
D. Required the creation of a new board to oversee the auditing of public companies.
Consider an investment opportunity set formed with two securities that are perfectly
negatively correlated. The global minimum-variance portfolio has a standard deviation
that is always _________.
A. equal to the sum of the securities’ standard deviations
B. equal to -1
C. equal to 0
D. greater than 0
Withdrawals after retirement from a traditional retirement plan are __________, and
withdrawals after retirement from a Roth retirement plan are
____________.
A. taxable; not taxable
B. not taxable; taxable
C. tax deductible; not tax deductible
D. not tax deductible; tax deductible
Common-size balance sheets are prepared by dividing all quantities by ____________.
A. total assets
B. total liabilities
C. shareholders’ equity
D. fixed assets
An established value below which a trader’s margin may not fall is called the ________.
A. daily limit
B. daily margin
C. maintenance margin
D. convergence limit
Which stock market has the largest weight in the EAFE index?
A. Japan
B. Germany
C. United Kingdom
D. Australia
A discount bond that pays interest semiannually will:
I. Have a lower price than an equivalent annual payment bond
II. Have a higher EAR than an equivalent annual payment bond
III. Sell for less than its conversion value
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
Perfect dynamic hedging requires _______________.
A. a smaller capital outlay than static hedging
B. less commission expense than static hedging
C. daily rebalancing
D. continuous rebalancing
All other things equal, a bond’s duration is _________.
A. higher when the coupon rate is higher
B. lower when the coupon rate is higher
C. the same when the coupon rate is higher
D. indeterminable when the coupon rate is high
Next year’s earnings are estimated to be $6. The company plans to reinvest 33% of its
earnings at 12%. If the cost of equity is 8%, what is the present value of growth
opportunities?
A. $6
B. $24.50
C. $44.44
D. $75