FC 30313 | Course Paper

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When choosing a benchmark, it is best to use _________.

A. numerous firms in the same industry

B. your number one competitor

C. the aspirational firm you wish to emulate

D. standards established by the FASB

Employers commonly match at least some portion of employee contributions to:

I. 401k plans

II.403b plans

III. Self-directed retirement plans

A. I only

B. I and II only

C. II only

D. I, II, and III

Real assets in the economy include all but which one of the following?

A. land

B. buildings

C. consumer durables

D. common stock

You buy a call option on Merritt Corp. with an exercise price of $50 and an expiration

date in July, and you write a call option on Merritt Corp. with an exercise price of $55

and an expiration date in July. This is called a ________.

A. time spread

B. long straddle

C. short straddle

D. money spread

Many current and retired Enron Corp. employees had their 401k retirement accounts

wiped out when Enron collapsed because ________.

A. they had to pay huge fines for obstruction of justice

B. their 401k accounts were held outside the company

C. their 401k accounts were not well diversified

D. none of these options

The commission structure on a stock purchase is $50 plus $.03 per share. If you

purchase 600 shares of a stock selling for $65, what is your commission?

A. $35

B. $45

C. $53

D. $68

Transactions that do not involve the original issue of securities take place in

_________.

A. primary markets

B. secondary markets

C. over-the-counter markets

D. institutional markets

According to technical analysts, a shift in market fundamentals will __________.

A. be reflected in stock prices immediately

B. lead to a gradual price change that can be recognized as a trend

C. lead to high volatility in stock market prices

D. leave prices unchanged

The bid price of a Treasury bill is _________.

A. the price at which the dealer in Treasury bills is willing to sell the bill

B. the price at which the dealer in Treasury bills is willing to buy the bill

C. greater than the ask price of the Treasury bill expressed in dollar terms

D. the price at which the investor can buy the Treasury bill

The market portfolio has a beta of _________.

A. -1

B. 0

C. .5

D. 1

Which one of the following describes the amount by which government spending

exceeds government revenues?

A. balance of trade

B. budget deficit

C. gross domestic product

D. output gap

Lear Corp. has an expected excessreturn of 8% next year. Assume Lear’s beta is 1.43. If

the economy booms and the stock market beats expectations by 5%, what was Lear’s

actual excess return?

A. 7.15%

B. 13%

C. 15.15%

D. 18.59 %

Measured by assets, about _____ of funds are money market funds.

A. 15%

B. 25%

C. 40%

D. 60%

You buy a 10-year $1,000 par value zero-coupon bond priced to yield 6%. You do not

sell the bond. If you are in a 28% tax bracket, you will owe taxes on this investment

after the first year equal to _______.

A. $0

B. $4.2

C. $9.38

D. $33.51

An individual is on the game show Squeal or No Squeal, and she has a choice between

receiving a certain gain of $100,000 and receiving a 50% chance of winning $200,000

or zero. If she takes the gamble instead of the certain $100,000, she is acting

____________________.

A. like a person who is risk-neutral

B. like a person who is risk averse

C. like a person who is a risk lover

D. irrationally

Which of the following is not a ratio used in the DuPont analysis?

A. Interest burden

B. Profit margin

C. Asset turnover

D. Earnings yield ratio

The time value of a call option is likely to decline most rapidly ________ days before

expiration?

A. 10

B. 30

C. 60

D. 90

Beta is a measure of security responsiveness to _________.

A. firm-specific risk

B. diversifiable risk

C. market risk

D. unique risk

Which of the following is the rate at which the general level of prices for goods and

services is rising?

A. the exchange rate

B. the gross domestic product growth rate

C. the inflation rate

D. the real interest rate

At the early stage of an individual’s working career, his or her retirement portfolio

should probably consist mostly of _______.

A. annuities

B. stocks

C. bonds

D. commodities

A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the

1-year risk-free rate is 3%. The arbitrage profit implied by these prices is

_____________.

A. $3.27

B. $4.39

C. $5.24

D. $6.72

During the 1926-2013 period the Sharpe ratio was greatest for which of the following

asset classes?

A. small U.S. stocks

B. large U.S. stocks

C. long-term U.S. Treasury bonds

D. bond world portfolio return in U.S. dollars

The process of polling potential investors regarding their interest in a forthcoming

initial public offering (IPO) is called ________.

A. interest building

B. book building

C. market analysis

D. customer identification

On Monday morning you sell one June T-bond futures contract at 97:27, that is, for

$97,843.75. The contract’s face value is $100,000. The initial margin requirement is

$2,700, and the maintenance margin requirement is $2,000 per contract. Use the

following price data to answer the following questions.

After Monday’s close the balance on your margin account will be ________.

A. $2,700

B. $2,000

C. $3,137.50

D. $2,262.50

A debenture is _________.

A. secured by other securities held by the firm

B. secured by equipment owned by the firm

C. secured by property owned by the firm

D. unsecured

The plot of a security’s excess return relative to the market’s excess return is called the

_______.

A. efficient frontier

B.security characteristic line

C. capital allocation line

D. capital market line

__________ is the most risky transaction to undertake in the stock-index option

markets if the stock market is expected to fall substantially after the transaction is

completed.

A. Writing an uncovered call option

B. Writing an uncovered put option

C. Buying a call option

D. Buying a put option

A firm has a lower inventory turnover, a longer ACP, and a lower fixed-asset turnover

than the industry averages. You should not be surprised to find that this firm has:

I. Lower ATO than the industry average

II. Lower ROA than the industry average

III. Lower ROE than the industry average

A. I only

B. I and II only

C. II and III only

D. I, II, and III

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

The standard deviation of return on investment A is .10, while the standard deviation of

return on investment B is .05. If the covariance of returns on A and B is .0030, the

correlation coefficient between the returns on A and B is _________.

A. .12

B. .36

C. .60

D. .77

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

asset turnover 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. 1.3

B. 1.5

C. 1.69

D. 2.83

A coupon bond that pays semiannual interest is reported in the Wall Street Journal as

having an ask price of 11% of its $1,000 par value. If the last interest payment was

made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be

_________.

A. $1,140

B. $1,10

C. $1,180

D. $1,200

A stock with a stock and exercise price of $20 can either increase to $26 or decrease to

$18 over the course of one year. In a one-period binomial option model, given an

interest rate of 5% and equal probabilities, what is the likely option price? (Use annual

compounding.)

A.$2.36

B.$2.50

C.$2.88

D.$3.00

Mutual funds account for roughly ______ of investment company assets.

A. 30%

B. 50%

C. 70%

D. 90%

An industry analysis for manufacturers of a small personal care gadget observed the

following characteristics:

1. Industry sales have grown at 15%-20% per year in recent years and are expected to

grow at 10%-15% per year over the next 3 years, still well above the economic growth

rate.

2. Some U.S. manufacturers are attempting to enter fast-growing non-U.S. markets,

which remain largely unexploited.

3. Some manufacturers have created a new niche in the industry by selling directly to

customers through mail order. Sales for this industry segment are growing at 40% per

year.

4. The current penetration rate in the United States is 60% of households and will be

difficult to increase.

5. Manufacturers compete fiercely on the basis of price, and price wars within the

industry are common.

6. Some manufacturers are able to develop new, unexploited niche markets in the

United States based on company reputation, quality, and service.

7. Several manufacturers have recently merged, and it is expected that consolidation in

the industry will increase.

8. New manufacturers continue to enter the market.

Which of the characteristics would be typical of an industry that is in the maturity

stage?

A. 1, 2, and 3

B. 4 and 5

C. 6, 7, and 8

D. all of these options

An industry analysis for manufacturers of a small personal care gadget observed the

following characteristics:

1. Industry sales have grown at 15%-20% per year in recent years and are expected

to grow at 10%-15% per year over the next 3 years, still well above the economic

growth rate.