A covered call strategy benefits from what environment?
A. Falling interest rates
B. Price stability
C. Price volatility
D. Unexpected events
What is the geometric average return of the following quarterly returns: 3%, 5%, 4%,
and 7%?
A. 3.72%
B. 4.23%
C. 4.74%
D. 4.90%
Portfolio managers Martin and Krueger each manage $1 million funds. Martin has
perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger
is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all
bear markets. The value of Krueger’s imperfect forecasting ability is
__________.
A. $30,000
B. $67,500
C. $108,750
D. $217,500
In the Treynor-Black model, the weight of each analyzed security in the portfolio
should be proportional to its __________.
A. alpha/beta
B. alpha/residual variance
C. beta/residual variance
D. none of these options
Which of the following strategies makes a profit when the stock price declines and
loses money when the stock price increases?
A. long call and short put
B. long call and long put
C. short call and short put
D. short call and long put
During the 1926-2013 period the geometric mean return on Treasury bonds was
_________.
A. 5.07%
B. 5.56%
C. 9.34%
D. 11.43%
A bond pays annual interest. Its coupon rate is 9%. Its value at maturity is $1,000. It
matures in 4 years. Its yield to maturity is currently 6%.
The modified duration of this bond is ______ years.
A. 4
B. 3.56
C. 3.36
D. 3.05
If interest rates increase, business investment expenditures are likely to __________
and consumer durable expenditures are likely to _________.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
Which of the following is not an example of fiscal policy?
A. Social Security spending
B. Medicare spending
C. Fed purchases of Treasury securities
D.
My pension plan will pay me a yearly retirement amount equal to 2% of my highest
annual salary for each year of service. I must have
___________.
A. a defined benefit plan
B. a defined contribution plan
C. an endowment fund
D. a variable annuity
A __________ gives its holder the right to buy an asset for a specified exercise price on
or before a specified expiration date.
A. call option
B. futures contract
C. put option
D. interest rate swap
Harold has just taken his company public and owns a large quantity of restricted stock.
For purposes of diversification, what fund might he help create in order to diversify his
holdings?
A. commingled funds
B. hedge funds
C. ETF
D. REITs
Which of the following is a strategy to shield net worth from interest rate movements?
A. interest rate management
B. immunization
C. convexity management
D. intermarket spread swap
Large-growth companies generally emerge in the __________ stage.
A. start-up
B. consolidation
C. maturity
D. relative decline
The table presents the actual return of each sector of the manager’s portfolio in column
(1), the fraction of the portfolio allocated to each sector in column (2), the benchmark
or neutral sector allocations in column (3), and the returns of sector indexes in column
4.
What was the
manager’s return
in the month?
A. 2.07%
B. 2.21%
C. 2.24%
D. 4.8%
The ratio of the average yield on 10 top-rated corporate bonds to the average yield on
10 intermediate-grade bonds is called the __________.
A. bond price index
B. confidence index
C. relative strength index
D. TRIN ratio
In a perfectly efficient market the best investment strategy is probably _____ .
A. an active strategy
B. a passive strategy
C. asset allocation
D. market timing
The term quality of earnings refers to ________.
A. how well reported earnings conform to GAAP
B. the realism and sustainability of reported earnings
C. whether actual earnings matched expected earnings
D. how well reported earnings fit a trend line of earnings growth
An investor can design a risky portfolio based on two stocks, A and B. The standard
deviation of return on stock A is 24%, while the standard deviation on stock B is 14%.
The correlation coefficient between the returns on A and B is .35. The expected return
on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance
portfolio that would be invested in stock B is approximately _________.
A. 45%
B. 67%
C. 85%
D. 92%
A hypothetical futures contract on a nondividend-paying stock with a current spot price
of $100 has a maturity of 1 year. If the T-bill rate is 5%, what should the futures price
be?
A. $95.24
B. $100
C. $105
D. $107
Immunization of coupon-paying bonds does not imply that the portfolio manager is
inactive because:
I. The portfolio must be rebalanced every time interest rates change.
II. The portfolio must be rebalanced over time even if interest rates don’t change.
III. Convexity implies duration-based immunization strategies don’t work.
A. I only
B. I and II only
C. II only
D. I, II, and III
If a mutual fund has multiple-class shares, which class typically has a front-end load?
A. Class A
B. Class B
C. Class C
D. Class I
You work for Fun-A-Rama Corporation and receive stock options as an incentive for
your performance on the job. You are counting on the stock options to provide the funds
you’ll need for your retirement. This is called _____________.
A. adverse selection
B. a 529 plan
C. a moral hazard
D. a Texas hedge
Which of the following is not a nickname for an agency associated with the mortgage
markets?
A. Fannie Mae
B. Freddie Mac
C. Sallie Mae
D. Ginnie Mae
Advantages of ECNs over traditional markets include all but which one of the
following?
A. lower transactions costs
B. anonymity of the participants
C. small amount of time needed to execute and order
D. ability to handle very large orders
The annual inflation rate is ______ risk variable.
A. a firm-specific
B. a political
C. a financial
D. an economic
Bill, Jim, and Shelly are all interested in buying the same stock that pays dividends. Bill
plans on holding the stock for 1 year. Jim plans on holding the stock for 3 years. Shelly
plans on holding the stock until she retires in 10 years. Which one of the following
statements is correct?
A. Bill will be willing to pay the most for the stock because he will get his money back
in 1 year when he sells.
B. Jim should be willing to pay three times as much for the stock as Bill will pay
because his expected holding period is three times as long as Bill’s.
C. Shelly should be willing to pay the most for the stock because she will hold it the
longest and hence will get the most dividends.
D. All three should be willing to pay the same amount for the stock regardless of their
holding period.