Concerning index options, which of the following statements is FALSE?
a. Index options appeal to speculators due to the leverage they offer.
b. Investors can write index options.
c. If exercised the holder of an index option receives the strike price.
d. Index options are settled in cash.
A combination of one put and one call on the same stock with the same exercise price
and date is known as a:
a. strip
b. straddle
c. strap
d. spread
The passive investment strategy does not try to find undervalued stocks nor time the
market. Instead, it is concerned with:
a. achieving returns available in various market sectors at minimum risk.
b. achieving maximum returns available in various market sectors.
c. achieving minimum risk in various market sectors.
d. achieving returns available in various market sectors at minimum cost.
A well-known and widely used system that classified industries for more than 60 years
was the:
a. Commercial Industrial Classification system.
b. National Industrial Classification system.
c. Standard Industrial Classification system.
d. American Industrial Classification system.
Which of the following is a major objective of unit investment trusts?
a. capital preservation
b. capital gains
c. current income
d. tax deferment
Under the separation theorem, all investors should:
a. hold the same portfolio of risky assets and therefore have the same
risk/return combination.
b. have different optimal portfolios.
c. have the same portfolio of risky assets and achieve their own risk-return
combination through borrowing and lending.
d. hold the same portfolio of risky assets and the same expected return but at
different levels of risk
Which of the following statements is true regarding equity options contracts?
a. The majority of options contracts are standardized, including strike prices and time to
maturity.
b. Investors typically create options contracts to trade amongst themselves.
c. Options contracts are typically customized to suit the needs of each investor.
d. Options are available on all publicly traded U.S. stocks
The fastest growing region in the world is:
a. Western Europe.
b. Latin America.
c. Eastern Europe.
d. the Far East.
Book value is:
a. the same as market value.
b. a more accurate valuation technique than the dividend models.
c. the accounting value of the firm as reflected in the financial statements.
d. the same as liquidation value.
In general, the ex ante risk-return tradeoff
a. slopes upward.
b. slopes downward
c. is flat
d. is impossible to determine.
Which of the following types of mutual fund shares typically does not charge a
front-end sales charge but does impose a redemption fee that declines over time?
a. Class A shares
b. Class B shares
c. Class C shares
d. Class D shares
The __________ is NOT a determinant of the value of a call option in the
Black-Scholes model?
a. interest rate
b. exercise price of the stock
c. price of the underlying stock
d. expected beta of the underlying stock
An investor has just sold seven contracts of June corn on the CBOT. The price per
bushel is $1.64, and each contract is for 5000 bushels. The performance bond (initial
margin deposit) is $2000 per contract with the maintenance margin at $1250. (a) How
much does the investor have to deposit on the investment?
(b) If the prices of the futures on the three days following the short sales were: 1.60,
1.66, and 1.68 calculate the current equity on each of the next three days.
(c) If the investor closes out his position on the fourth day, what is his final gain or loss
over the four days in dollars and as a percentage of investment?
____________ funds are especially popular with momentum investors.
a. Sector
b. Managed
c. Global
d. Index
__________, the CML can be downward sloping.
a. Ex post
b. When investors are risk-lovers
c. When the SML is upward sloping
d. When the risk premium for the market is very high
Which of the following is true regarding earnings forecasts made by analysts versus
forecasts made by statistical models?
a. The evidence tends to support analysts’ forecasts in terms of accuracy over statistical
models.
b. The evidence tends to support statistical models’ forecasts in terms of accuracy over
statistical models.
c. The evidence tends to support both types of forecasts equally.
d. The evidence does not support either type of forecast in terms of accuracy.
A municipal bond issue that was sold to finance a toll bridge would most likely be a:
a. general obligation bond.
b. revenue bond.
c. special assessment bond.
d. zero-coupon bond.
The sale of a new issue of common stock of which there are already shares publicly
held is known as:
a. an IPO.
b. a secondary market issue.
c. an EPO.
d. a seasoned new issue.
One difference between a hedger and a speculator is that the hedger
a. may have either a profit or a loss.
b. may not close out his position by taking an opposite position.
c. does not have to put up margin.
d. faces a risk without the futures contract.
To protect the value of a bond portfolio against a rise in interest rates using futures, the
portfolio owner could execute a ____________ hedge.
a. long
b. duration
c. short
d. maturity
What is usually considered the biggest risk of market timing?
a. getting out of the market too soon
b. high transactions costs
c. failing to adjust for short-term corrections
d. not being in the market at critical times
Which of the following types of yield curves is typically considered to be stimulative to
the economy?
a. a steep, upward-sloping yield curve
b. a flat yield curve
c. an inverted yield curve
d. a skewed yield curve
The slope of the CML is the:
a. standard deviation for efficient portfolios.:::::
b. market price of risk for efficient portfolios.
c. risk-free rate.
d. risk premium for the market portfolio.
Which of the following markets is generally considered to be the most efficient:
a. China.
b. India.
c. Russia.
d. U.S.
When the Markowitz model assumes that most investors are considered to be ‘risk
averse’, this really means that they:
a. will not take a ‘fair gamble’
b. will take a ‘fair gamble’
c. will take a ‘fair gamble’ fifty percent of the time
d. will never assume investment risk
What common variable is used in the calculation of both the cumulative wealth index
and the geometric mean return? How is the common variable calculated? How is it used
in each?
Which of the following is not a contrary trading rule?
a. Relative strength ratio
b. Investment advisory opinions
c. Mutual fund liquidity positions
d. Put/call ratio
The APT is based on the law of one price, which states two identical assets cannot sell
at different prices.
Which of the following is true regarding the cumulative wealth index? It:
is measured by adding up the total returns over the holding period and dividing by the
investmentuses a beginning index value (often set to $1 but it can be set to any
amount)is the present value of the future cash flows expected from the investmentuses
the arithmetic mean as the rate of growth of one’s wealth
A client tells you that he strongly believes that interest rates in general will fall abruptly
over the next six months. He asks you to recommend bonds for a portfolio to provide
capital gains on the interest rate move. Generally, what would you suggest? What if he
expected rates to rise?
Which of the following statements is true regarding the writer of a call contract?
The call writer expects the stock to move upward.The call writer expects the stock to
remain the same or move down.The call writer expects the stock to split.The call writer
expects to sell the stock prior to expiration of the option.