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Lisa owns a stock that has an average geometric return of 11.34 percent and an average
arithmetic return of 11.51 percent over the past six years. What average annual rate of
return should Lisa expect to earn over the next four years?
A. 11.38 percent
B. 11.41 percent
C. 11.44 percent
D. 11.47 percent
E. 11.51 percent
Which of the following are offered as factors contributing to the Crash of October
1987?
I. bubble bursting
II. market volatility
III. negative economic signals
IV. activities in Congress
A. I and II only
B. I and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Use the following stock quotes to answer this question:
A pension fund purchased 25 round lots of Baker Company stock at the closing price of
the day yesterday. What was the cost of that purchase?
A. $7,810
B. $8,040
C. $201,000
D. $241,200
E. $256,800
Which one of the following returns is the average return you expect to earn in the future
on a risky asset?
A. realized return
B. expected return
C. market return
D. real return
E. adjusted return
The current book value per share of B.L. Black & Sons is $5.35 and the required return
on the stock is 15.5 percent. The firm expects earnings per share of $2.25 next year with
annual earnings growth of 4.5 percent. What is the current market value of this stock?
A. $9.16
B. $10.91
C. $13.88
D. $18.27
E. $20.30
Which one of the following Arms values is the most bearish?
A. .28
B. .45
C. .88
D. 1.03
E. 1.26
A portfolio has a beta of 1.23 and a standard deviation of 11.6 percent. What is the
Sharpe ratio if the market return is 12.4 percent and the market risk premium is 7.9
percent?
A. .07
B. .11
C. .65
D. .84
E. .90
A zero-coupon bond has a par value of $1,000 and matures in 4.5 years. The yield to
maturity is 6.4 percent. What is the Macaulay duration?
A. 3.67 years
B. 3.81 years
C. 3.92 years
D. 4.26 years
E. 4.50 years
Over the time period of 1929 to 1932, the stock market lost approximately _____
percent of its value.
A. 33
B. 40
C. 50
D. 75
E. 90
Dow theory is a method of predicting future market movements based on which of the
following Dow Jones averages?
I. industrial
II. transportation
III. utilities
IV. commodities
A. I and II only
B. II and III only
C. III and IV only
D. I and IV only
E. I, II, and III only
Material nonpublic information is defined as any information that could reasonably be
expected to do which one of the following?
A. affect the price of the firm's securities
B. cause great embarrassment to the firm
C. cause one or more of the senior executives of the firm to resign
D. cause the SEC to halt the trading of the firm's securities should that information
become public
E. affect the manner in which the firm presents its financial information
Theresa has a margin account with a 60 percent initial margin requirement and a 35
percent maintenance margin. What is the maximum dollar amount of stock she can
purchase if her cash balance in the account is $35,300?
A. $19,140.00
B. $31,900.00
C. $44,093.33
D. $58,833.33
E. $91,142.86
What is the variance of the expected returns on this stock?
A. 16.09
B. 35.49
C. 61.53
D. 78.97
E. 80.03
Stock A has a standard deviation of 15 percent per year and stock B has a standard
deviation of 21 percent per year. The correlation between stock A and stock B is .30.
You have a portfolio of these two stocks wherein stock B has a portfolio weight of 60
percent. What is your portfolio standard deviation?
A. 14.87 percent
B. 15.50 percent
C. 16.91 percent
D. 17.45 percent
E. 18.03 percent
What price will a noncompetitive bidder pay for a security being purchased through a
U.S. Treasury auction?
A. highest competitive bid price
B. highest noncompetitive bid price
C. stop-out bid price
D. average of all bid prices
E. lowest competitive bid price
Assume the 50-day moving average is currently intersecting the 200-day moving
average. Also assume the 50-day average is downward sloping and the 200-day average
is upward sloping. Which one of the following statements is accurate based on this
information?
A. The 50-day moving average is bullish.
B. The short-term forecast is bullish.
C. The long-term trend may be preparing to change.
D. The long-term outlook is bearish.
E. The short-term trend will change to match the long-term trend.
A farmer has a long position in barley and hedges it with a short position in wheat.
Which one of the following terms applies to this situation?
A. cross-arbitrage
B. parity play
C. market arbitrage
D. cross-hedge
E. program trade
Which one of the following is computed by dividing a portfolio's risk premium by the
portfolio beta?
A. raw return
B. Value at Risk
C. Jensen's alpha
D. Sharpe ratio
E. Treynor ratio
Which one of the following assesses risk by stating the probability of a loss a portfolio
might incur within a stated time period given a specific probability?
A. Sharpe ratio
B. Jensen's alpha
C. Treynor ratio
D. raw return measurement
E. Value-at-Risk
Stock X has a standard deviation of 21 percent per year and stock Y has a standard
deviation of 6 percent per year. The correlation between stock A and stock B is .38. You
have a portfolio of these two stocks wherein stock X has a portfolio weight of 42
percent. What is your portfolio standard deviation?
A. 8.89 percent
B. 9.85 percent
C. 10.64 percent
D. 11.84 percent
E. 12.92 percent
Which one of the following is required for a trader to earn excess profits?
A. excessive trading
B. excessive research
C. market inefficiency
D. highly volatile market state
E. relatively stable market state
Which one of the following is the risk that market interest rates may increase causing
the price of a bond to decline?
A. inflation risk
B. reinvestment risk
C. yield risk
D. interest rate risk
E. default risk
You purchased three call option contracts with a strike price of $22.50 and an option
premium of $0.45. You held the option until the expiration date. On the expiration date,
the stock was selling for $21.70 a share. What is the total profit or loss on your option
position?
A. -$45
B. $0
C. -$240
D. -$120
E. -$135
Which two of the following are generally used to fund the external financing need?
I. sale of fixed assets
II. increase in accounts payable
III. issuance of long-term debt
IV. sale of equity securities
A. I and II
B. I and III
C. II and III
D. II and IV
E. III and IV
Which one of the following best defines a plain vanilla bond?
A. bond secured by agricultural or food inventory
B. bond with relatively standard features
C. unsecured debt
D. bond secured with financial collateral
E. bond that has no coupon payments
Sonya has a marginal tax rate of 36 percent. A corporate bond is yielding 7.4 percent
and a municipal bond is yielding 3.6 percent. Sonya should invest in the _____ bond
because the critical marginal tax rate is _____ percent.
A. corporate; 17
B. corporate; 34
C. corporate; 51
D. municipal; 43
E. municipal; 51
The variable f1,1 as used in the expectations theory is interpreted as the forward rate for
one year:
A. based on the prior one-year rate.
B. at 1 percent.
C. based on a 1 percent increase from the current rate.
D. commencing in one year.
E. based on a 1 percent probability of occurrence.
Which one of the following types of funds invests in both stocks and bonds and actively
attempts to time the market?
A. income
B. convertible
C. flexible portfolio
D. balanced
E. insured
Today, you sold 800 shares of Sky High Inc., for $57.60 a share. You bought the shares
one year ago at a price of $61.20 a share. Over the year, you received a total of $500 in
dividends. What is your capital gains yield on this investment?
A. -6.03 percent
B. -5.88 percent
C. -4.86 percent
D. 6.25 percent
E. 7.34 percent
First Bank needs to borrow money overnight from the Federal Reserve in order to meet
its reserve requirements. Which one of the following interest rates will be charged on
this loan?
A. money market
B. Federal funds
C. discount
D. prime
E. Treasury
Which one of the following guarantees that the terms of an exchange-listed option
contract are fulfilled when an option is exercised?
A. Securities and Exchange Commission
B. Federal Reserve
C. New York Options Exchange
D. Options Clearing Corporation
E. Securities Investors Protection Corporation
