Which one of the following country risks includes the possibility of expropriation of
assets, changes in tax policy, and restrictions on foreign exchange transactions?
A. default risk
B. foreign exchange risk
C. market risk
D. political risk
A ______ insurance policy provides death benefits, with no buildup of cash value.
A. whole-life
B. universal life
C. variable life
D. term life
In planning for retirement, an investor decides she will save $2,000 every year for 25
years. At a 7% return on her investment, how much money will she have at the end of
25 years?
A. $119,015
B. $125,316
C. $126,498
D. $128,420
The spot price of a futures contract is different than the price for which an investor can
buy the underlying commodity for immediate delivery. This represents an opportunity
for _____________.
A. arbitrage
B. hedging
C. speculation
D. loss leading
According to the CAPM, what is the market risk premium given an expected return on
a security of 13.6%, a stock beta of 1.2, and a risk-free interest rate of 4%?
A. 4%
B. 4.8%
C. 6.6%
D. 8%
Some diversification benefits can be achieved by combining securities in a portfolio as
long as the correlation between the securities is
_____________.
A. 1
B. less than 1
C. between 0 and 1
D. less than or equal to 0
The delta of an option is __________.
A. the change in the dollar value of an option for a dollar change in the price of the
underlying asset
B. the change in the dollar value of the underlying asset for a dollar change in the call
price
C. the percentage change in the value of an option for a 1% change in the value of the
underlying asset
D. the percentage change in the value of the underlying asset for a 1% change in the
value of the call
______ would not be included in the EAFE index.
A. Australia
B. Canada
C. France
D. Japan
__________ funds stand ready to redeem or issue shares at their net asset value.
A. Closed-end
B. Index
C. Open-end
D. Hedge
The measure of unsystematic risk can be found from an index model as _________.
A. residual standard deviation
B. R-square
C. degrees of freedom
D. sum of squares of the regression
Which of the following is (are) true about hedge funds?
I. They are open to institutional investors.
II. They are open to wealthy individuals.
III. They are more likely than mutual funds to pursue simple strategies.
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
The prudent investor rule requires __________.
A. executives of companies to avoid investing in options of companies they work for
B. executives of companies to disclose their transactions in stocks of companies they
work for
C. professional investors who manage money for others to avoid all risky investments
D. professional investors who manage money for others to constrain their investments
to those that would be approved by a prudent investor
A portfolio consists of three index funds: an equity index, a bond index, and an
international index. The portfolio manager changes the weights periodically according
to forecasts for each sector. This is an example of __________.
A. a passively managed core with an actively managed component
B. a totally passively managed fund
C. passive asset allocation with active security selection
D. active asset allocation with passive security selection
The Conference Board’s Consumer Confidence Index is released ______.
A. daily
B. weekly
C. monthly
D. quarterly
Consider the following two investment alternatives: First, a risky portfolio that pays a
20% rate of return with a probability of 60% or a 5% rate of return with a probability of
40%. Second, a Treasury bill that pays 6%. If you invest $50,000 in the risky portfolio,
your expected profit would be
_________.
A. $3,000
B. $7,000
C. $7,500
D. $10,000
For a market timer, the _____________ will be higher when RM is higher.
A. portfolio’s alpha and beta
B. portfolio’s unsystematic risk
C. portfolio’s beta and slope of the characteristic line
D. security selection component of the portfolio
__________ are examples of synthetically created zero-coupon bonds.
A. COLTS
B. OPOSSMS
C. STRIPS
D. ARMs
Which one of the following is a true statement regarding the Dow Jones Industrial
Average?
A. It is a value-weighted average of 30 large industrial stocks.
B. It is a price-weighted average of 30 large industrial stocks.
C. It is a price-weighted average of 100 large stocks traded on the New York Stock
Exchange.
D. It is a value-weighted average of all stocks traded on the New York Stock Exchange.
What is the beta for a portfolio with an
expected return of 12.5%?
A. 0
B. 1
C. 1.5
D. 2
An investor with low risk aversion will likely prefer which of the following risk and
return combinations?
A. expected return = 11%, historical standard deviation = 12%
B. expected return = 12%, historical standard deviation = 14%
C. expected return = 14%, historical standard deviation = 18%
D. expected return = 17%, historical standard deviation = 21%
An investor who expects declining interest rates would maximize her capital gain by
purchasing a bond that has a _________ coupon and a
_________ term to maturity.
A. low; long
B. high; short
C. high; long
D. zero; long
A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of
17%. The market index return is 14% and has a standard deviation of 21%. What is the
Sharpe measure of the portfolio if the risk-free rate is 5%?
A. .3978
B. .4158
C. .4563
D. .4706
Assume the risk-free interest rate is 10% and is equal to the fund’s benchmark, the
portfolio’s net asset value is $100, and the fund’s standard deviation is 20%. Also
assume a time horizon of 1 year. What is the exercise price on the incentive fee?
A. $100
B. $105
C. $110
D. $115
A firm has a net profit/pretax profit ratio of .6, a leverage ratio of 1.5, a pretax
profit/EBIT of .7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales
ratio of 6%. Its ROE is _________.
A. 7.56%
B. 15.12%
C. 20.16%
D. 30.24%
You own a bond that has a duration of 6 years. Interest rates are currently 7%, but you
believe the Fed is about to increase interest rates by 25 basis points. Your predicted
price change on this bond is ________.
A. +1.4%
B. -1.4%
C. -2.51%
D. +2.51%
The table below shows some data for Key Biscuit Company:
What must have
caused the
firm’s ROE to
drop?
A. The firm began using more debt as a percentage of financing.
B. The firm began using less debt as a percentage of financing.
C. The compound leverage ratio was less than 1.
D. The operating ROA was declining.
In the PRS financial risk ratings, the United States rates poorly because of the U.S.
________.
I. Large budget deficit
II. Large trade deficit
III. Large amount of total debt
A. I only
B. I and II only
C. I and III only
D. I, II, and III
In 1997 CSX successfully purchased a significant share of Conrail. Immediately after
the first offer was announced and the acquisition eventually consummated, the price of
CSX fell below preacquisition levels and took many years to recover. This may be an
example of
________________.
A. loss aversion
B. mental accounting
C. overreaction
D. managerial overconfidence
What is the standard deviation of a portfolio of two stocks given the following data:
Stock A has a standard deviation of 18%. Stock B has a standard deviation of 14%. The
portfolio contains 40% of stock A, and the correlation coefficient between the two
stocks is -.23.
A. 9.7%
B. 12.2%
C. 14%
D. 15.6%
It is difficult to test the Kondratieff wave theory because _________.
A. it applies to only Russian stocks
B. its main proponent found contrary research results
C. only two independent data points are generated each century
D. the stock market is too volatile to generate smooth waves
Assume you purchased a rental property for $100,000 and sold it 1 year later for
$115,000 (there was no mortgage on the property). At the time of the sale, you paid
$3,000 in commissions and $1,000 in taxes. If you received $10,000 in rental income
(all received at the end of the year), what annual rate of return did you earn?
A. 6%
B. 11%
C. 21%
D. 25%
A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of
8% with interest paid annually. If the current market price is $50, what is the capital
gain yield of this bond over the next year?
A. .2%
B. 1.85%
C. 2.58%
D. 3.42%