The relationship between GDP and market capitalization for the leading economies of
the world is generally _______.
A. weakly related
B. inversely related
C. negatively correlated
D. positively correlated
E. unrelated
Which one of the following options is in-the-money?
A. call with a $45 strike and an underlying stock price of $42
B. put with a $35 strike and an underlying stock price of $36
C. call with a $15 strike and an underlying stock price of $15
D. put with a $45 strike and an underlying stock price of $42
E. call with a $30 strike and an underlying stock price of $29
Which one of the following correlation coefficients must apply to two assets if the
equally weighted portfolio of those assets creates a minimum variance portfolio that has
a standard deviation of zero?
A. -1.0
B. -0.5
C. 0.0
D. 0.5
E. 1.0
Inflation-indexed Treasury securities:
I. adjust the principal amount on an annual basis.
II. are default-free.
III. offer a positive real rate of return.
IV. have a variable coupon rate.
A. II and III only
B. III and IV only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV
The CPI for this year was reported as 145.6, If inflation was 2.2 percent, what must the
CPI have been last year?
A. 141.21
B. 141.63
C. 142.47
D. 142.65
E. 142.88
Which one of the following is used by Treasury dealers to indicate the price they are
willing to pay to purchase a Treasury bill?
A. par rate
B. bid discount
C. face rate
D. asked discount
E. bank discount
Phil is a contestant on a game show. At this point in the game, he can either accept $500
or spin a wheel for a chance of winning $100,000. Which type of behavior is he
displaying if he spins the wheel?
A. forward-looking
B. risk-adverse
C. prospective
D. introspective
E. risk-taking
Market timing is the:
A. placing of an order within the last half-hour of trading for a day.
B. period of time between the placement of a short sale and the covering of that sale.
C. buying and selling of securities in anticipation of the overall direction of the market.
D. staggering of either buy or sell orders to mask the total size of a large transaction.
E. placing of trades within the last half-hour prior to the commencement of daily
trading.
Anita wants to buy $10,000 of securities in her margin account. Her advisor has
informed her that she must pay a minimum of $7,000 in cash and maintain a minimum
equity position of 30 percent. The initial margin requirement is _____ percent and the
maintenance margin is _____ percent.
A. 30; 30
B. 30; 70
C. 70; 30
D. 70; 50
E. 70; 70
The risk-free rate is 4.20 percent. What is the expected risk premium on this stock given
the following information?
A. 5.85 percent
B. 6.59 percent
C. 8.22 percent
D. 10.16 percent
E. 11.21 percent
The Stone Wall Fund has an offer price of $32.90 and a front-end load of 3.25 percent.
What is the net asset value?
A. $31.68
B. $31.75
C. $31.83
D. $32.90
E. $34.05
Which of the following will exempt a hedge fund from registering with the SEC?
A. offering shares to the general public
B. being in existence for more than two years
C. limiting sales to individual investors
D. locking up investor’s money for at least two years
E. exceeding $25 million in assets
Sarah has a brokerage account with Jeff, who is a money manager with Downtown
Brokers. Sarah pays an all-inclusive annual fee to the firm and Jeff manages her funds.
She pays no trading costs or commissions. Which one of the following best describes
this type of account?
A. wrap
B. cash
C. margin
D. mutual
E. advisory
Which sector has a high sensitivity to the business cycle?
A. defensive
B. offensive
C. lagging
D. cyclical
E. leading
A Treasury note has 3.5 years left to maturity, a yield to maturity of 4.25 percent, and a
coupon rate of 4.40 percent. What is the price of the bond?
A. $1,004.83
B. $1,005.53
C. $1,006.56
D. $1,007.58
E. $1,008.96
Home Interiors has net income of $248,000. The firm has decided to pay $160,000 of
that income out to the shareholders. What is the firm’s retention ratio?
A. .355
B. .412
C. .450
D. .588
E. .645
To reduce risk as much as possible, you should combine assets which have one of the
following correlation relationships?
A. strong positive
B. slightly positive
C. slightly negative
D. strongly negative
E. zero
According to the capital asset pricing model, which of the following will increase the
expected rate of return on a security that has a beta that is less than that of the market?
Assume the market rate of return is greater than the risk-free rate and both rates are
positive.
I. increase in the risk-free rate
II. decrease in the risk-free rate
III. increase in the market risk premium
IV. decrease in the market rate of return
A. I and III only
B. II and III only
C. I and IV only
D. II and IV only
E. II, III, and IV only
Which one of the following variables is NOT included in the Black-Scholes option
pricing model?
A. strike price
B. time remaining until option expiration
C. stock volatility as measured by standard deviation
D. stock price
E. market rate of return
The labor force divided by the nonmilitary working age population equals the
__________________.
A. work force participation rate
B. employable participation rate
C. labor population participation rate
D. labor force participation rate
E. participating employees rate
Assume that a mortgage pool follows a specified PSA prepayment schedule. Given this,
the cash flow yield on the mortgage pool will do which one of the following?
A. equal the average interest rate of the mortgages contained in the pool
B. equal the anticipated cash flow for the next year divided by the current value of the
pool
C. equate the present value of the future cash flows from the pool to the current value of
the pool
D. equate the average interest rate on the mortgages to the current market rate of
interest
E. equal the current market rate of interest
Big Town Markets common stock returned 13.8, 14.2, 9.7, 5.3, and 12.2 percent,
respectively, over the past five years. What is the arithmetic average return?
A. 10.99 percent
B. 11.04 percent
C. 11.56 percent
D. 12.20 percent
E. 13.80 percent
Which one of the following terms is defined as debt issued without specific collateral
pledged as security?
A. unsecured debt
B. indenture
C. vanilla bond
D. naked bond
E. risk-free bond
Ted is an engineer for True Tech and has just discovered a revolutionary method for
strengthening metals. He knows this knowledge will add value to True Tech’s stock. Ted
happens to mention this discovery and its value to his neighbor, Fred. Fred can be
charged with insider trading if he:
A. continues to hold the True Tech shares of stock he already owns.
B. shares this information with another neighbor.
C. sells his shares in True Tech immediately after the news of the discovery is
announced.
D. provides this information to a friend who will trade the stock and split the profits
with him.
E. buys shares in True Tech immediately after the news is announced and then shortly
thereafter sells the shares at a profit.
Which one of the following statements related to TIPS is correct assuming an
inflationary environment?
A. TIPS have a maturity value of $1,000.
B. TIPS pay an interest payment based on the latest T-bill rate.
C. TIPS pay a fixed coupon rate.
D. The principal amount of a TIPS is adjusted annually for inflation.
E. The interest rate is adjusted semiannually for inflation.
What is the extra compensation paid to an investor who invests in a risky asset rather
than in a risk-free asset called?
A. efficient return
B. correlated value
C. risk premium
D. expected return
E. realized return
A callable bond:
A. can be paid off early at either the issuer’s or the bondholder’s request.
B. can be redeemed early if the bondholder so requests.
C. can have its maturity date extended by the issuer.
D. can be redeemed by the issuer prior to maturity.
E. is a bond that pays a variable interest payment.
A risky asset has a beta of .90 and an expected return of 7.4 percent. What is the
reward-to-risk ratio if the risk-free rate is 2.69 percent?
A. 4.04 percent
B. 5.23 percent
C. 6.51 percent
D. 8.41 percent
E. 11.59 percent
You just purchased a 5-year STRIPS security that was created from a 30-year T-bond.
How many payments will you receive?
A. 1
B. 10
C. 11
D. 60
E. 61
The spot price of corn is $5.85 a bushel. The 3-month futures price of corn is $5.80.
Which one of the following best describes this market?
A. buyer’s market
B. arbitrage opportunity
C. inverted market
D. carrying-charge market
E. market parity
A firm has net income of $25,000 on sales of $210,000. Sales are expected to increase
by 8 percent next year and the dividend payout ratio is 35 percent. The firm uses the
percentage of sales approach when compiling pro forma statements. What amount is
expected to be added to retained earnings next year?
A. $14,300
B. $15,400
C. $15,686
D. $17,550
E. $21,600