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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.
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.
Characteristics ____ would be typical of an industry that is in the consolidation stage.
A. 6 and 7
B. 1 and 4
C. 5 and 6
D. 2 and 8
