Which one of the following is the risk associated with receiving a mortgage bond’s
principal payments sooner than anticipated?
A. prepayment risk
B. default risk
C. amortized risk
D. market risk
E. seasoned risk
You combine a set of assets using different weights such that you produce the following
results.
Which one of these portfolios CANNOT be a Markowitz efficient portfolio?
A. A
B. B
C. C
D. D
E. E
You want to borrow $180,000 at 6.25 percent interest. If you assume a 10-year loan, the
monthly payment will be _____ as compared to _____ if you assume a 20-year loan.
A. $1,237.50; $1,103.88
B. $2,207.75; $1,237.50
C. $2,021.04; $1,315.67
D. $2,498.18; $1,103.88
E. $2,498.16; $1,533.50
Mortgage prepayments are generally a(n) ______ to the mortgage borrower and a(n)
____ to the mortgage investor.
A. advantage; advantage
B. advantage; disadvantage
C. disadvantage; advantage
D. disadvantage; disadvantage
E. advantage; neutral event
A $1,000 par value 5 percent Treasury bond pays interest semiannually and matures in
7.5 years. What is the yield to maturity if the bond is currently quoted at a price of
112.34?
A. 3.14 percent
B. 3.18 percent
C. 3.23 percent
D. 6.28 percent
E. 6.36 percent
You just purchased a GNMA mortgage-backed security. Which one of the following
should you expect to receive?
A. fixed monthly payments
B. fixed quarterly payments
C. variable monthly payments
D. variable quarterly payments
E. quarterly payments that decrease at a constant rate
Wilkinson and Daughters has net income of $415,400, total assets of $2.2 million, and
total liabilities of $1.08 million. The company paid $270,000 in dividends. What is the
firm’s sustainable rate of growth?
A. 9.69 percent
B. 11.06 percent
C. 12.98 percent
D. 13.93 percent
E. 14.15 percent
The risk premium of a portfolio divided by the portfolio’s standard deviation defines
which one of the following performance measures?
A. raw return
B. Value at Risk
C. Jensen’s alpha
D. Sharpe ratio
E. Treynor ratio
The risk-free rate is 3.0 percent and the expected return on the market is 9 percent.
Stock A has a beta of 1.20. For a given year, Stock A returned 12.5 percent while the
market returned 9.75 percent. The systematic portion of Stock A’s unexpected return
was _____ percent and the unsystematic portion was _____ percent.
A. 0.80; 1.30
B. 0.90; 1.40
C. 1.11; 2.30
D. 1.40; 0.90
E. 4.62; 1.41
If the number of Euros required to buy $1 (USD) increases then the Euro has _______
versus the U.S. dollar.
A. depreciated
B. appreciated
C. declined
D. improved
E. increased
Where will a security plot in relation to the security market line (SML) if it has a beta
of 1.1 and is overvalued?
A. to the right of the overall market and above the SML
B. to the right of the overall market and below the SML
C. to the left of the overall market and above the SML
D. to the left of the overall market and below the SML
E. on the SML
You own three stocks which have betas of 1.16, 1.34, and 1.02. You would like to add a
fourth security such that your portfolio beta will match that of the market. Given this
situation, the new security:
A. must have a beta of 1.0.
B. must have a beta of zero.
C. could be a U.S. Treasury bill.
D. could have any beta greater than 1.0.
E. must have a portfolio weight of 50 percent or more.
The maximum:
A. profit from buying a put is the stock price.
B. loss from writing a put is the option premium.
C. profit from writing a call is the strike price.
D. loss from buying a call is $0.
E. profit from writing a put is the option premium.
What is the lowest accepted competitive bid in a U.S. Treasury auction called?
A. selected price
B. base price
C. stop-out bid
D. imputed bid
E. set bid
The profit a dealer makes on a purchase and resale of shares of stock is called the:
A. margin.
B. bid.
C. float.
D. offer.
E. spread.
Your credit card has an annual percentage rate of 18.9 percent and compounds interest
daily. What is the effective annual rate?
A. 19.47 percent
B. 19.58 percent
C. 19.82 percent
D. 19.94 percent
E. 20.80 percent
As the number of individual stocks in a portfolio increases, the portfolio standard
deviation:
A. increases at a constant rate.
B. remains unchanged.
C. decreases at a constant rate.
D. decreases at a diminishing rate.
E. decreases at an increasing rate.
Dynamic immunization is primarily aimed at reducing which one of the following
risks?
A. default
B. liquidity
C. reinvestment
D. inflation
E. taxation
Which one of the following is most apt to be considered insider trading?
A. Ann overhears Martha say she is being promoted to accounts payables manager and
then she purchases shares in Martha’s employer.
B. Jennifer compiles the financial statements and knows that net income for the latest
quarter is significantly below analyst’s forecasts but continues to hold shares of her
employer’s stock.
C. Kate is an outside auditor and has found what she believes are significant accounting
irregularities in a company’s financial reports but owns no shares in the firm.
D. Les buys stock in Winter’s Wear after he overhears a conversation between the firm’s
president and vice-president concerning a proposed acquisition.
E. Jeff buys shares of stock in his employer’s firm through the company retirement plan
on a regular monthly basis.
Which one of the following is the best definition of a money market instrument?
A. corporate debt that matures in 90 days or less
B. bank savings account
C. investment issued by a financial institution that matures in 30 days or less
D. investment issued by a financial institution that matures in one year or less
E. debt issued by the government or a corporation that matures in one year or less
You own one SPX call option with a strike of 1,400. What is the payoff at maturity for
this option contract if the S&P 500 index is 1,414?
A. $0
B. $14
C. $140
D. $1,400
E. $14,000
You acquired a 30-year mortgage two years ago to purchase your current residence.
Your mortgage is classified as which one of the following?
A. seasoned
B. unseasoned
C. conditional
D. complex
E. deferred
The modified duration:
A. is equal to the Macaulay duration divided by (1 + Yield to maturity).
B. multiplied by (-1 Change in the yield to maturity) equals the approximate percentage
change in a bond’s price.
C. will be the same for any bonds that have equal times to maturity.
D. only applies to pure discount securities.
E. must be converted to a Macaulay duration before computing the percentage change
in a bond’s price.
Helena is the chief executive officer of Beltway Holdings (BEH). She owns 1.2 million
shares of BEH stock and wishes to sell 10 percent of those shares to diversify her
holdings. She follows the SEC requirements, along with those of her firm, and proceeds
with the sale on Monday, June 9. On Tuesday, June 10, BEH stock declines by 25
percent. Helena’s stock trade is:
A. legal but any future trading in BEH will be prohibited as long as she remains
employed by the firm.
B. illegal and could subject her to both fines and jail time.
C. legal.
D. subject to reversal by the SEC.
E. subject to a forfeiture of her profits to the SEC.
What is the 3-day exponential moving average as of day 4 assuming that a weight of 70
percent is placed on the most recent price?
A. $50.81
B. $50.84
C. $50.87
D. $50.90
E. $50.94
Seven months ago, Freda purchased 400 shares of stock on margin at a price per share
of $36. The initial margin requirement on her account is 70 percent and the maintenance
margin is 40 percent. The call money rate is 4.4 percent and she pays 2 percent above
that rate. Today, she sold these shares for $37.50 each. What is her annualized rate of
return?
A. 7.50 percent
B. 7.61 percent
C. 14.37 percent
D. 16.90 percent
E. 17.42 percent
Today, you are selling shares of an open-end mutual fund and will be charged a CDSC
of 3 percent. The price you will receive per share is equal to:
A. 103 percent of the opening NAV.
B. 97 percent of the opening offering price.
C. 97 percent of the closing NAV.
D. 103 percent of the closing offering price.
E. the closing offering price.
What is the call option premium given the following information?
A. $7.16
B. $7.78
C. $8.58
D. $9.03
E. $9.49
Which one of the following is the government agency assigned the responsibility of
promoting liquidity in the home mortgage market?
A. FNMA
B. GNMA
C. FHLMC
D. SPIC
E. FDIC
Main Street Antiques is planning on paying an annual dividend of $2.20 per share next
year. The company is slowly downsizing and is decreasing its dividend by 3 percent
annually. What is the current value of this stock at a discount rate of 8 percent?
A. $18.86
B. $19.12
C. $19.78
D. $20.00
E. $20.57
What is the interest on a Treasury bill called when it is determined by the size of the
bill’s discount from face value?
A. assumed interest
B. imputed interest
C. imaginary interest
D. convergent interest
E. original-issue interest
Stock A has a standard deviation of 15 percent per year and stock B has a standard
deviation of 8 percent per year. The correlation between stock A and stock B is .40. You
have a portfolio of these two stocks wherein stock B has a portfolio weight of 40
percent. What is your portfolio variance?
A. .01143
B. .01214
C. .01329
D. .01437
E. .01470