FC 63801 | Course Paper

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Which one of the following rates is used by brokerage firms as the basis for

determining margin loan rates?

A. discount

B. Fed funds

C. prime

D. brokerage

E. call money

You own shares of AZT stock. Which of the following strategies can you use to hedge

your risk associated with a price decrease in AZT stock?

I. buy call options

II. write call options

III. buy put options

IV. write put options

A. I only

B. I and III only

C. I and IV only

D. II and III only

E. II and IV only

Which one of the following terms is another name for systematic risk?

A. unique risk

B. firm risk

C. market risk

D. asset-specific risk

E. diversifiable risk

Which one of the following will occur if a bond’s discount rate is lowered?

A. market price will increase

B. coupon payment amount will decrease

C. current yield will increase

D. call premium will increase

E. coupon rate will decrease

You recently purchased 100 shares of stock at a cost per share of $24.80. The initial

margin requirement on this stock is 80 percent and the maintenance margin is 50

percent. The stock is currently valued at $19.80 a share. What is your current margin

position? Ignore margin interest.

A. 73.01 percent

B. 73.83 percent

C. 74.95 percent

D. 75.69 percent

E. 76.80 percent

The management of the Uptown Bikes recently voted to limit any future borrowing or

sales of company stock. By taking this action, management has effectively done which

one of the following?

A. increased the profit margin

B. lowered income taxes

C. maximized future dividends

D. maximized future retained earnings

E. limited future growth

You are graphing the portfolio expected return against the portfolio standard deviation

for a portfolio consisting of two securities. Which one of the following statements is

correct regarding this graph?

A. Risk-taking investors should select the minimum variance portfolio.

B. Risk-averse investors should select the portfolio with the lowest rate of return.

C. Some portfolios will be efficient while others will not.

D. The minimum variance portfolio will have the lowest portfolio expected return of

any of the possible portfolios.

E. All possible portfolios will graph as efficient portfolios.

A Treasury bill has a face value of $250,000, an asked yield of 2.02 percent, and

matures in 32 days. What is the price of this bill?

A. $249,397.19

B. $249,408.08

C. $249,511.11

D. $249,670.22

E. $249,717.08

Term bonds are defined as all bonds in a bond issue having which one of the following

characteristics?

A. sequential maturity dates

B. serial maturity dates

C. multiple maturity dates

D. an identical maturity date

E. renewable maturity dates

You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is

65 percent and the maintenance margin is 35 percent. What is the lowest the stock price

can go before you receive a margin call?

A. $9.27

B. $14.54

C. $17.22

D. $21.88

E. $26.49

Which one of the following statements is correct?

A. Both call and put option deltas are always positive.

B. Put option deltas are always positive.

C. Call option deltas are always positive.

D. Both call and put option deltas are always negative.

E. All deltas can be positive, negative, or equal to zero.

You purchased 3 DJIA index futures at a price of 13,200. The contract size is $10 times

the level of the index. The futures are maturing today when the price is 12,758. What is

the amount of your profit or loss?

A. -$1,326

B. -$1,408

C. -$13,260

D. -$14,080

E. -$15,260

A market centered on dealers buying and selling for their own inventories is called a(n):

A. exchange floor.

B. SuperDot.

C. OTC market.

D. subscriber market.

E. Big Board.

Which one of the following statements is correct?

A. Pretax income is equal to gross profit minus interest expense.

B. Gross profit is equal to sales minus costs of goods sold and depreciation.

C. Operating expenses are indirect costs.

D. Costs that vary directly with production are classified as operating expenses.

E. The change in retained earnings is equal to net income plus dividends paid.

Shares in closed-end funds:

A. can be resold to the fund at any time.

B. are more popular than shares in open-end funds.

C. may sell for more or less than the NAV.

D. are referred to as mutual fund shares.

E. cannot be resold.

A stock is currently selling for $38.50 a share and has a dividend yield of 1.75 percent.

The risk-free rate is 3.5 percent. What is the 2-month futures price on this stock?

A. $38.27

B. $38.41

C. $38.56

D. $38.61

E. $38.70

Based on the period 1926-2012, the risk premium for U.S. Treasury bills was:

A. 0.0 percent.

B. 1.2 percent.

C. 2.0 percent.

D. 2.4 percent.

E. 2.7 percent.

The constant perpetual growth model is applicable primarily to those firms which:

A. adhere to a residual dividend policy.

B. pay dividends that increase at a steady rate.

C. have irregular dividend growth rates.

D. maintain a constant dividend payout ratio.

E. have multiple rates of dividend growth.

A stock has a return of 16.18 percent and a beta of 1.47. The market return is 10.65

percent and the risk-free rate is 3.20 percent. What is the Jensen-Treynor alpha of this

stock?

A. -1.12 percent

B. -0.17 percent

C. 0.66 percent

D. 1.38 percent

E. 1.59 percent

The Jensen-Treynor alpha is equal to:

A. the Treynor ratio divided by Jensen’s alpha.

B. the Treynor ratio multiplied by Jensen’s alpha.

C. Jensen’s alpha divided by beta.

D. Jensen’s alpha divided by the standard deviation.

E. Jensen’s alpha divided by the Treynor ratio.

Stock X has a standard deviation of 22 percent per year and stock Y has a standard

deviation of 8 percent per year. The correlation between stock A and stock B is .21. You

have a portfolio of these two stocks wherein stock Y has a portfolio weight of 40

percent. What is your portfolio variance?

A. .02022

B. .02156

C. .02239

D. .02247

E. .02350

Dinner Foods stock has a beta of 1.45 and an expected return of 13.43 percent.

Edwards’ Meals stock has a beta of .95 and an expected return of 10.27 percent. Assume

that both stocks are correctly priced. Given this, the risk-free rate is _____ percent and

the market rate of return is _____ percent.

A. 4.02; 11.53

B. 4.09; 12.35

C. 4.10; 11.53

D. 4.27; 10.59

E. 4.41; 10.25

Whole Wheat Farms, Inc. has a net income of $20,000 and a dividend payout ratio of

30 percent. The firm issued $12,000 worth of common stock during the period. The

firm has no long-term debt. What is the financing cash flow for the period?

A. $2,500

B. $3,000

C. $6,000

D. $9,000

E. $25,000

Which one of the following qualifies as diversifiable risk?

A. market risk

B. systematic risk associated with an individual security

C. market crash

D. the systematic portion of an expected return

E. the unsystematic portion of an unexpected return

What is the covariance of security A to the market given the following information?

A. 507.9

B. 514.1

C. 517.5

D. 523.5

The process of moving investments between sectors of the economy over time is called.

A. sector rotation

B. sector selection

C. rotational investing

D. sector exchange

E. sector swapping

Which sector has a low sensitivity to the business cycle?

A. defensive

B. offensive

C. lagging

D. cyclical

E. leading

Use the following stock quotes to answer this question:

Josh owns 200 shares of Chelsea stock. What is the current value of his shares?

A. $6,605

B. $8,820

C. $9,640

D. $9,850

E. $10,920

Which one of the following values would be the most preferable as a Sharpe ratio?

A. -1.11

B. -0.89

C. 0.00

D. .10

E. 1.02

The market rate on a bond fell from 8.76 percent to 8.73 percent. This is a decline of

how many basis points?

A. 0.003

B. .0003

C. 0.03

D. 0.3

E. 3