You are considering investing $1,000 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two
risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%,
respectively. X has an expected rate of return of 14%, and Y has an expected rate of
return of 10%. The dollar values of your positions in X, Y, and Treasury bills would be
_________, __________, and __________, respectively, if you decide to hold a
complete portfolio that has an expected return of 8%.
A. $162; $595; $243
B. $243; $162; $595
C. $595; $162; $243
D. $595; $243; $162
The
confidence
index on
day 1 is
_____.
A. .82
B. .89
C. .92
D. 1.09
According to Tobin’s separation property, portfolio choice can be separated into two
independent tasks consisting of __________ and
__________.
A. identifying all investor imposed constraints; identifying the set of securities that
conform to the investor’s constraints and offer the best risk-return trade-offs
B. identifying the investor’s degree of risk aversion; choosing securities from industry
groups that are consistent with the investor’s risk profile
C. identifying the optimal risky portfolio; constructing a complete portfolio from T-bills
and the optimal risky portfolio based on the investor’s degree of risk aversion
D. choosing which risky assets an investor prefers according to the investor’s
risk-aversion level; minimizing the CAL by lending at the risk-free rate
Real assets represent about ____ of total assets for commercial banks.
A. 1%
B. 15%
C. 25%
D. 40%
The term inside quotes refers to _____.
A. the difference between the lowest bid price and the highest ask price in the limit
order book.
B. the difference between the highest bid price and the lowest ask price in the limit
order book.
C. the difference between the lowest bid price and the lowest ask price in the limit order
book.
D. the difference between the highest bid price and the highest ask price in the limit
order book.
Specialized-sector funds concentrate their investments in _________________.
A. bonds of a particular maturity
B. geographic segments of the real estate market
C. government securities
D. securities issued by firms in a particular industry
The normal distribution is completely described by its _______.
A. mean and standard deviation
B. mean and variance
C. mode and standard deviation
D. median and variance
Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.
After 1 year, the exchange rate is $1.60/₤ and the share price is ₤55. What is the
dollar-denominated return?
A. 25.7%
B. 16%
C. 14.3%
D. 9.3%
Advantages of ETFs over mutual funds include all but which one of the following?
A. ETFs trade continuously, so investors can trade throughout the day.
B. ETFs can be sold short or purchased on margin, unlike fund shares.
C. ETF providers do not have to sell holdings to fund redemptions.
D. ETF values can diverge from NAV.
Which risk can be partially or fully diversified away as additional securities are added
to a portfolio?
I. Total risk
II. Systematic risk
III. Firm-specific risk
A. I only
B. I and II only
C. I, II, and III
D. I and III
The greatest value to an analyst from calculating a stock’s intrinsic value is _______.
A. how easy it is to come up with accurate model inputs
B. the precision of the value estimate
C. how the process forces analysts to understand the critical variables that have the
greatest impact on value
D. how all the different models typically yield identical value results
A firm increases its dividend plowback ratio. All else equal, you know that
_____________.
A. earnings growth will increase and the stock’s P/E will increase
B. earnings growth will decrease and the stock’s P/E will increase
C. earnings growth will increase and the stock’s P/E will decrease
D. earnings growth will increase and the stock’s P/E may or may not increase
If the risk-free rate is greater than the dividend yield, then we know that
_______________.
A. the futures price will be higher as contract maturity increases
B. F0<S0
C. FT>ST
D. arbitrage profits are possible
The classification system used to classify firms into industries is now called the _____
code.
A. SIC
B. NAICS
C. ISO 57
D. ISM
You put up $50 at the beginning of the year for an investment. The value of the
investment grows 4% and you earn a dividend of $3.50. Your HPR was ____.
A. 4%
B. 3.5%
C. 7%
D. 11%
Before expiration, the time value of an out-of-the-money stock option is __________.
A. equal to the stock price minus the exercise price
B. equal to zero
C. negative
D. positive
An investor in the 34% tax bracket would be indifferent between a corporate bond with
a before-tax yield of 8% and a municipal bond with a yield of
_________.
A. 3.91%
B. 6.15%
C. 5.28%
D. 10.72%
Consider the following $1,000 par value zero-coupon bonds:
The expected 1-year interest rate 3 years from now should be _________.
A. %
B. 8%
C. 9%
D. 10%
You purchased 250 shares of common stock on margin for $25 per share. The initial
margin is 65%, and the stock pays no dividend. Your rate of return would be
__________ if you sell the stock at $32 per share. Ignore interest on margin.
A. 35%
B. 39%
C. 43%
D. 28%
A Japanese firm issued and sold a pound-denominated bond in the United Kingdom. A
U.S. firm issued bonds denominated in dollars but sold the bonds in Japan. Which one
of the following statements is correct?
A. Both bonds are examples of Eurobonds.
B. The Japanese bond is a Eurobond, and the U.S. bond is termed a foreign bond.
C. The U.S. bond is a Eurobond, and the Japanese bond is termed a foreign bond.
D. Neither bond is a Eurobond.
Which of the following is not a type of real estate investment trust?
I. Equity trust
II. Debt trust
III. Mortgage trust
IV. Unit trust
A. I and II only
B. II only
C. II and IV only
D. I, II, and III
You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your
gains could be protected by placing a _________.
A. limit buy order
B. limit sell order
C. market order
D. stop-loss order
An example of a derivative security is _________.
A. a common share of General Motors
B. a call option on Intel stock
C. a Ford bond
D. a U.S. Treasury bond
The stock price index and contracts and orders for nondefense capital goods are
_________.
A. leading economic indicators
B. coincidental economic indicators
C. lagging economic indicators
D. leading and coincidental indicators, respectively
If a perfect timer can earn $10.00, while another investor with the same investment
opportunities guesses the bull markets 75% of the time and the bear markets 65% of the
time, what is thatinvestor’s likely dollar return?
A. $ 2.00
B. $ 3.50
C. $ 6.50
D. $ 10.00
Margin requirements for futures contracts can be met by ______________.
A. cash only
B. cash or highly marketable securities such as Treasury bills
C. cash or any marketable securities
D. cash or warehouse receipts for an equivalent quantity of the underlying commodity
In the context of a point and figure chart, a horizontal band of Xs and Os is a
_____________.
A. buy signal
B. sell signal
C. congestion area
D. trend reversal
Pharmaceuticals, food, and other necessities would be good performers during the ____
stage of the business cycle.
A. peak
B. contraction
C. trough
D. expansion
A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest
quarterly dividend received by stock investors must have been ______ per share.
A. $0.55
B. $1.80
C. $0.45
D. $1.25