Investing in two assets with a correlation coefficient of -.5 will reduce what kind of
risk?
A. market risk
B. nondiversifiable risk
C. systematic risk
D. unique risk
On day 1, the stock price of Ford was $12 and the automotive stock index was 127. On
day 2, the stock price of Ford was $15 and the automotive stock index was 139.
Consider the ratio of Ford to the automotive stock index at day 1 and day 2. Ford is
__________ the automotive industry, and technical analysts who follow relative
strength would advise __________ the stock.
A. outperforming; buying
B. outperforming; selling
C. underperforming; buying
D. underperforming; selling
Short interest is a ______ indicator.
A. sentiment
B. flow of funds
C. market structure
D. fundamental
The formula is used to calculate the _____________.
A. Sharpe ratio
B. Treynor measure
C. coefficient of variation
D. real rate of return
The ________ the ratio of municipal bond yields to corporate bond yields, the
_________ the cutoff tax bracket at which more individuals will prefer to hold
municipal debt.
A. higher; lower
B. lower; lower
C. higher; higher
D. The answer cannot be determined without more information.
Which of the following investment styles could be the best description of the Long
Term Capital Management market-neutral strategies?
A. convergence arbitrage
B. statistical arbitrage
C. pairs trading
D. convertible arbitrage
You purchase an interest rate futures contract that has an initial margin requirement of
15% and a futures price of $115,098. The contract has a $100,000 underlying par value
bond. If the futures price falls to $108,000, you will experience a ______ loss on your
money invested.
A. 31%
B. 41%
C. 52%
D. 64%
Sinking funds are commonly viewed as protecting the _______ of the bond.
A. issuer
B. underwriter
C. holder
D. dealer
The analysis of the determinants of firm value is called _____________.
A. fundamental analysis
B. technical analysis
C. momentum analysis
D. indexing
Which one of the following is a common term for the market consensus value of the
required return on a stock?
A. dividend payout ratio
B. intrinsic value
C. market capitalization rate
D. plowback ratio
An investor has a long time horizon and desires to earn the market rate of return.
However, the investor will need to withdraw funds each year from her investment
portfolio. The biggest constraint a planner would face with this client is a ___________
constraint.
A. tax
B. risk-tolerance
C. liquidity
D. social
The S&P 500 Index futures contract is an example of a(n) ______ delivery contract.
The pork bellies contract is an example of a(n) ______
delivery contract.
A. cash; cash
B. cash; actual
C. actual; cash
D. actual; actual
Revenue sharing with respect to mutual funds refers to _________.
A. fund companies paying brokers if the broker recommends the fund to investors
B. allowing certain classes of investors to engage in market timing
C. charging loads to new investors in a mutual fund
D. directly marketing funds over the Internet
Suppose an investor is considering one of two investments that are identical in all
respects except for risk. If the investor anticipates a fair return for the risk of the
security he invests in, he can expect to _____ .
A. earn no more than the Treasury-bill rate on either security.
B. pay less for the security that has higher risk.
C. pay less for the security that has lower risk.
D. earn more if interest rates are lower.
Many observers believe that firms “manage” their income statements to _______.
A. minimize taxes over time
B. maximize expenditures
C. smooth their earnings over time
D. generate level sales
Financial intermediaries exist because small investors cannot efficiently _________.
A. diversify their portfolios
B. gather information
C. assess and monitor the credit risk of borrowers
D. all of the options
Unlike market-neutral hedge funds, which have betas near ________, directional long
funds exhibit highly _______ betas.
A. zero; positive
B. positive; negative
C. positive; zero
D. negative; positive
After much investigation, an investor finds that Intel stock is currently underpriced.
This is an example of ______.
A. asset allocation
B. security analysis
C. top-down portfolio management
D. passive management
Conservative investors are likely to want to invest in __________ mutual funds, while
risk-tolerant investors are likely to want to invest in
__________.
A. income; high growth
B. income; moderate growth
C. moderate-growth; high growth
D. high-growth; moderate growth
Management fees for open-end and closed-end funds typically range between _____
and _____.
A. .2%; 1.5%
B. .5%; 5%
C. 2%; 5%
D. 3%; 8%
The common stock of the Avalon Corporation has been trading in a narrow range
around $40 per share for months, and you believe it is going to stay in that range for the
next 3 months. The price of a 3-month put option with an exercise price of $40 is $3,
and a call with the same expiration date and exercise price sells for $4.
Selling a straddle would generate total premium income of _____.
A. $300
B. $400
C. $500
D. $700
Rank the following from highest average historical standard deviation to lowest average
historical standard deviation from 1926 to 2013.
I. Small stocks
II. Long-term bonds III. Large stocks IV. T-bills
A. I, II, III, IV
B. III, IV, II, I
C. I, III, II, IV
D. III, I, II, IV
One of the major functions of the investment committee is to ________________.
A. determine security selection of each portfolio operated by the investment company
B. translate the objectives and constraints of the investment company into an asset
universe
C. determine the percentages of each security in the total investment company portfolio
D. calculate and report the overall rate of return to investment company constituents
There are two independent economic factors, M1 and M2. The risk-free rate is 5%, and
all stocks have independent firm-specific components with a standard deviation of 25%.
Portfolios A and B are well diversified. Given the data below, which equation provides
the correct pricing model?
A. E(rP) = 5 +
1.12βP1 +
11.86βP2
B. E(rP) = 5 + 4.96βP1 + 13.26βP2
C. E(rP) = 5 + 3.23βP1 + 8.46βP2
D. E(rP) = 5 + 8.71βP1 + 9.68βP2
A portfolio manager believes interest rates will drop and decides to sell short-duration
bonds and buy long-duration bonds. This is an example of
__________ swap.
A. a pure yield pickup
B. a rate anticipation
C. a substitution
D. an intermarket spread
A _________ is a value above which it is difficult for the market to rise.
A. book value
B. resistance level
C. support level
D. confidence level
The possibility of arbitrage arises when ____________.
A. there is no consensus among investors regarding the future direction of the market,
and thus trades are made arbitrarily
B. mispricing among securities creates opportunities for riskless profits
C. two identically risky securities carry the same expected returns
D. investors do not diversify
The comparison universe is __________.
A. the bogey portfolio
B. a set of mutual funds with similar risk characteristics to your mutual fund
C. the set of all mutual funds in the United States
D. the set of all mutual funds in the world
A firm has a compound leverage factor greater than 1; this indicates that ______.
A. the firm has no interest payments
B. the firm uses less debt as a percentage of financing
C. the firm’s interest payments are equal to the firm’s pretax profits
D. the firm’s debt has a positive contribution to the firm’s ROA
In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the
following investments in asset classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of security
selection within asset classes to the total excess return was __________.
A. 1.5%
B. 2%
C. 2.5%
D. 3.5%
The non-European country with the highest average first-day returns in 2014 was
_______.
A. Canada
B. United States
C. China
D. Jordan