1) initial public offerings (ipos) are usually ___________ relative to the levels at which
their prices stabilize after they begin trading in the secondary market.
a.overpriced
b.correctly priced
c.underpriced
d.mispriced, but without any particular bias
2) debondt and thaler (1985) found that the poorest-performing stocks in one time
period experienced __________ performance in the following period and that the
best-performing stocks in one time period experienced __________ performance in the
following time period.
a.good; good
b.good; poor
c.poor; good
d.poor; poor
3) a ______ insurance policy provides death benefits, with no buildup of cash value.
a.whole-life
b.universal life
c.variable life
d.term life
4) a firm is expected to produce earnings next year of $3 per share. it plans to reinvest
25% of its earnings at 20%. if the cost of equity is 11%, what should be the value of the
stock?
a.$27.27
b.$37.50
c.$66.67
d.$70
5) a day trade with an average stock holding period of under 8 minutes might be most
closely associated with which trading philosophy?
a.emh
b.fundamental analysis
c.strong-form market efficiency
d.technical analysis
6) you buy a bond with a $1,000 par value today for a price of $875. the bond has 6
years to maturity and makes annual coupon payments of $75 per year. you hold the
bond to maturity, but you do not reinvest any of your coupons. what was your effective
ear over the holding period?
a.10.4%
b.9.57%
c.7.45%
d.8.78%
7) a coupon bond that pays interest of $60 annually has a par value of $1,000, matures
in 5 years, and is selling today at a $75.25 discount from par value. the current yield on
this bond is _________.
a.6%
b.6.49%
c.6.73%
d.7%
8) the correlation coefficient between two assets equals _________.
a.their covariance divided by the product of their variances
b.the product of their variances divided by their covariance
c.the sum of their expected returns divided by their covariance
d.their covariance divided by the product of their standard deviations
9) part b of a mutual fund prospectus contains information about:
i. fund holdings by directors and officers
ii. front-end and back-end loads
iii. securities held by the fund at the end of the fiscal year
a.i only
b.i and ii only
c.i and iii only
d.i, ii, and iii
10) a futures contract __________.
a.is a contract to be signed in the future by the buyer and the seller of a commodity
b.is an agreement to buy or sell a specified amount of an asset at a predetermined price
on the expiration date of the contract
c.is an agreement to buy or sell a specified amount of an asset at whatever the spot price
happens to be on the expiration date of the contract
d.gives the buyer the right, but not the obligation, to buy an asset some time in the
future
11) “buy a stock if its price moves up by 2% more than the dow average” is an example
of a _________________.
a.trading rule
b.market anomaly
c.fundamental approach
d.passive trading strategy
12) you calculate the black-scholes value of a call option as $3.50 for a stock that does
not pay dividends, but the actual call price is $3.75. the most likely explanation for the
discrepancy is that either the option is _________ or the volatility you input into the
model is too _________.
a.overvalued and should be written; low
b.undervalued and should be written; low
c.overvalued and should be purchased; high
d.undervalued and should be purchased; high
13) the minimum tick size, or spread between prices in the treasury bond market, is
a.1/8 of a point.
b.1/16 of a point.
c.1/32 of a point.
d.1/64 of a point.
14) the four largest economies in the world in 2010 were ____________.
a.united states, india, china, and japan
b.united states, china, canada, and japan
c.united states, china, japan, and germany
d.china, united kingdom, canada, and united states
15) the holding-period return on a stock was 32%. its beginning price was $25, and its
cash dividend was $1.50. its ending price must have been _________.
a.$28.50
b.$33.20
c.$31.50
d.$29.75
16) you run a regression of a stock’s returns versus a market index and find the
following:
based on the data, you know that the stock _____.
a.earned a positive alpha that is statistically significantly different from zero
b.has a beta precisely equal to .890
c.has a beta that is likely to be anything between .6541 and 1.465 inclusive
d.has no systematic risk
17) you purchase one ibm march 120 put contract for a put premium of $10. the
maximum profit that you could gain from this strategy is _________.
a.$120
b.$1,000
c.$11,000
d.$12,000
18) when bonds sell above par, what is the relationship of price sensitivity to rising
interest rates?
a.price volatility increases at an increasing rate.
b.price volatility increases at a decreasing rate.
c.price volatility decreases at a decreasing rate.
d.price volatility decreases at an increasing rate.
19) 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