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1) in 1973, trading of standardized options on a national exchange started on the
_________.
a.amex
b.cboe
c.nyse
d.cftc
2) the value of a listed call option on a stock is lower when:
i. the exercise price is higher.
ii. the contract approaches maturity.
iii. the stock decreases in value.
iv. a stock split occurs.
a.ii, iii, and iv only
b.i, iii, and iv only
c.i, ii, and iii only
d.i, ii, iii, and iv
3) __________ assets generate net income to the economy, and __________ assets
define allocation of income among investors.
a.financial, financial
b.financial, real
c.real, financial
d.real, real
4) which of the following is most like a short-term collateralized loan?
a.certificate of deposit
b.repurchase agreement
c.bankers' acceptance
d.commercial paper
5) transportation stocks currently provide an expected rate of return of 15%. ttt, a large
transportation company, will pay a year-end dividend of $3 per share. if the stock is
selling at $60 per share, what must be the market's expectation of the constant-growth
rate of ttt dividends?
a.5%
b.10%
c.20%
d.none of these options
6) the major difference between ifrs and gaap is that u.s. standards are ___________
and ifrs standards are _________.
a.strictly enforced; weakly enforced
b.rules-based; principles-based
c.evolutionary; devolutionary
d.based on government standards; based on corporate practice
7) you invest $1,000 in a complete portfolio. the complete portfolio is composed of a
risky asset with an expected rate of return of 16% and a standard deviation of 20% and
a treasury bill with a rate of return of 6%. the slope of the capital allocation line formed
with the risky asset and the risk-free asset is approximately _________.
a.1.040
b..80
c..50
d..25
8) higher returns of equity hedge funds as compared to the s&p 500 index reflect
positive compensation for __________ risk.
a.market
b.liquidity
c.systematic
d.interest rate
9) the 2002 law designed to improve corporate governance is titled the _____.
a.pension reform act
b.erisa
c.financial services modernization act
d.sarbanes-oxley act
10) security a has an expected rate of return of 12% and a beta of 1.1. the market
expected rate of return is 8%, and the risk-free rate is 5%. the alpha of the stock is
_________.
a.-1.7%
b.3.7%
c.5.5%
d.8.7%
11) a market timer now believes that the economy will soften over the rest of the year as
the housing market slump continues, and she also believes that foreign investors will
stop buying u.s. fixed-income securities in the large quantities that they have in the past.
one way the timer could take advantage of this forecast is to ________________.
a.buy t-bond futures and sell stock-index futures
b.sell t-bond futures and buy stock-index futures
c.buy stock-index futures and buy t-bond futures
d.sell stock-index futures and sell t-bond futures
12) testing many different trading rules until you find one that would have worked in
the past is called _______.
a.data mining
b.perceived patterning
c.pattern searching
d.behavioral analysis
13) _______ bonds represent a novel way of obtaining insurance from capital markets
against specified disasters.
a.asset-backed bonds
b.tips
c.catastrophe
d.pay-in-kind
14) the difference between the price at which a dealer is willing to buy and the price at
which a dealer is willing to sell is called the _________.
a.market spread
b.bid-ask spread
c.bid-ask gap
d.market variation
15) the risk premium for exposure to aluminum commodity prices is 4%, and the firm
has a beta relative to aluminum commodity prices of .6. the risk premium for exposure
to gdp changes is 6%, and the firm has a beta relative to gdp of 1.2. if the risk-free rate
is 4%, what is the expected return on this stock?
a.10%
b.11.5%
c.13.6%
d.14%
16) you have an apr of 7.5% with continuous compounding. the ear is _____.
a.7.5%
b.7.65%
c.7.79 %
d.8.25%
17) the delta of a call option on a stock is always __________.
a.negative and less than -1
b.between -1 and 1
c.positive
d.positive but less than 1
18) which of the following statements about convertible bonds are true?
i. the conversion price does not change over time.
ii. the associated stocks may not pay dividends as long as the bonds are outstanding.
iii. most convertibles are also callable at the discretion of the firm.
iv. they may be thought of as straight bonds plus a call option.
a.i and iii only
b.i and iv only
c.i, ii, and iv only
d.iii and iv only
