1) Ratios may be used in both timeseries and cross section types of analysis.
2) The term and duration of a bond are equal for zero coupon bonds.
3) Convertible preferred stock may be converted into debt.
4) Federal government debt is believed to have minimal default risk because the
government has the power to tax and to create money.
5) Speculators take the opposite positions of hedgers.
6) Cash dividends are subject to federal income taxes.
7) The syndicate’s role in an underwriting is to sell the new issue of securities.
8) A tax shelter is not synonymous with tax evasion.
9) The buyer of a call option wants the price of the stock to rise.
10) Aggregate securities prices may be measured by using valueweighted or geometric
averages.
11) A money market mutual fund is an illustration of a noload fund.
12) Holders of calls do not receive the cash dividends paid to the company’s
stockholders.
13) Collateralized mortgage obligations (CMOs) are sold in classes (“tranches”) that
increase the certainty of the timing of payments.
14) If interest rates fall, the investor will not exercise the option in a put bond.
15) The efficient market hypothesis suggests that the current prices of stocks reflect
what the investment community believes the stocks are worth.
16) Time value concepts may not be used to determine
a. the present value of an annuity
b. the margin required on a stock purchase
c. the future value of $100 deposited in a bank
d. the present value of a lump sum
17) Cumulative voting permits a stockholder to
a. collect extra dividends
b. vote all the shares for one individual
c. cast the total number of votes for one individual
d. vote by proxy
18) A split coupon bond
a. distributes interest in cash and additional debt
b. combines features of zero coupon bonds and secured bonds
c. has a period of no coupon and a period with a high coupon
d. conserves the investor’s cash
19) Which of the following is a reason for selecting a
mutual fund?
a. its historic return
b. high tax efficiency
c. charging 12b-1 fees instead of load fees
d. often realizing portfolio gains
20) Closedend investment companies
1> have a fixed capital structure
2> issue new stock whenever an individual buys shares
3> may sell for a premium over net asset value
4> must sell for their net asset value
a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
21) Possible investment objectives may include
1> capacity to meet financial emergencies
2> preservation of capital
3> desire to finance retirement
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
22) The procedure for the distribution of dividends
does not include
a. the exdividend date
b. the date of record
c. the settlement date
d. the date of announcement
23) Net short-term capital losses are used to offset
a. dividend income
b. unrealized long-term capital gains
c. 401(k) contributions
d. realized short-term capital gains
24) The efficient market hypothesis requires
1> financial markets to be competitive
2> prices to adjust rapidly
3> prices of undervalued securities to fall
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
25) The portfolios of international funds
a. stress European securities
b. exclude U. S. securities
c. are a diversified mix of securities from all
countries with security markets
d. specialize in the securities of one country
26) Which of the following is a fundamental principle of
behavior finance?
a. the use of P/E ratios
b. the tendency to avoid acknowledging investment errors
c. selling stocks at a loss for tax purposes
d. constructing a diversified portfolio
27) Higher required returns
a. decrease stock prices
b. are required by the efficient market hypothesis
c. increase dividends
d. are associated with higher dividends
28) Call options offer buyers
a. potential leverage
b. liquidity
c. income
d. safety of principal
29) A put is an option to
a. buy stock
b. receive stock
c. sell stock
d. receive dividends
30) The spread is the
a. difference between the bid and ask prices
b. commission charged by the broker
c. difference between the purchase and sale prices
d. difference between the commissions charged by full
service and discount brokers
31) Diversification reduces
a. systematic risk
b. unsystematic risk
c. market risk
d. purchasing power risk
32) Ginnie Maes are
a. long-term bonds issued by the federal government
b. short-term, mortgage-backed securities
c. mortgage backed securities issued by the
Government National Mortgage Association
d. long-term mortgage securities sold by banks
33) If an investor were to anticipate that interest rates were going to fall, that individual
should
a. take no action
b. buy bonds
c. sell bonds
d. acquire money market securities
34) Which of the following is excluded from an individuals
cash budget?
a. wages and salary
b. retirement account
c. social security tax payments
d. alimony
35) If a $1,000 bond costs $1,000 and pays $50 interest,
1> the current yield is 5 percent
2> the yield to maturity is 5 percent
3> the bond is selling for par
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
36) If the dispersion around a security’s return is larger
a. the expected return is smaller
b. the standard deviation is smaller
c. the stock’s price is higher
d. the security’s risk is higher
37) A writer of a call option closes the position by
a. purchasing the stock
b. selling the stock
c. purchasing the option
d. selling the option
38) Zero coupon bonds
a. are sold at a discount
b. are sold for a premium
c. accrue interest at maturity
d. cannot be called
39) The yield to call
a. is important if interest rates have fallen
b. is important if interest rates have risen
c. equals the yield to maturity
d. equals the current yield
40) The future value of a dollar
1> increases with higher interest rates
2> decreases with higher interest rates
3> increases as the time period increases
4> decreases as the time period increases
a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
41) Which of the following is the least broad-based measure of stock prices?
a. Nasdaq market index
b. Dow Jones industrial average
c. S&P 500 stock index
d. Russell 3000
42) The interest paid by a convertible bond tends
1>to exceed the firm’s common stock dividends
2>to be less than the firm’s common stock dividends
3>over time to offset the premium paid for the bond
4>to increase the premium paid for the bond
a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
43) Bonds may be retired by
1> being called
2> a sinking fund
3> being repurchased
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
44) Large increases in the money supply may be
associated with
a. increased inflation
b. decreased inflation
c. increased employment
d. increased unemployment
45) Portfolio risk encompasses
1> a firm’s financing decisions
2> interest rate risk
3> loss of purchasing power
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above
46) While bond prices fluctuate,
a. yields are constant
b. coupons are constant
c. the spread between yields is constant
d. shortterm bond prices fluctuate more
47) Preemptive rights permit stockholders to
a. collect dividends before they are reinvested
b. participate in dividend reinvestment plans
c. maintain the proportionate share of ownership
d. vote their shares
48) The intrinsic value of an option to buy stock is
a. its price
b. its strike price
c. the difference between the stock’s price and the option’s strike price
d. the difference between the option’s strike price and the option’s price
49) Which of the following types of securities is not issued
by the federal government?
a. money market securities
b. longterm bonds
c. stock
d. zero coupon bonds
50) Unsystematic risk is
a. the risk associated with movements in stock prices
b. reduced through diversification
c. higher when interest rates rise
d. the risk of loss of purchasing power
51) Options sell for a time premium over their intrinsic value because
a. they earn dividends
b. they are debt obligations
c. they offer potential leverage
d. they are long-term investments
52) Sources of risk to the investor include
1> loss of income when funds are reinvested
2> fluctuations in securities markets
3> the financing decisions of the firm
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. all of the above