Which one of the following is not a demand shock?
A. increase in government spending
B. increases in the money supply
C. reductions in consumer spending
D. improvements in education of U.S. workers
Investing in two assets with a correlation coefficient of 1 will reduce which kind of
risk?
A. market risk
B. unique risk
C. unsystematic risk
D. none of these options (With a correlation of 1, no risk will be reduced.)
You invest in various broadly diversified international mutual funds as well as your
U.S. portfolio. The one risk you probably don’t have to worry about affecting your
returns is __________.
A. business-cycle risk
B. beta risk
C. inflation risk
D. currency risk
Hedge funds that change strategies and types of securities invested and also vary the
proportions of assets invested in particular market sectors according to the fund
manager’s outlook are called
____________________.
A. asset allocation funds
B. multistrategy funds
C. event-driven funds
D. market-neutral funds
Inflation is caused by ________________.
A. unions
B. rapid growth of the money supply
C. excess supply
D. low rates of capacity utilization
Contrarian investors consider a high put/call ratio a __________.
A. bearish signal
B. bullish signal
C. trend confirmation signal
D. signal to enter the options market
In the context of a bond portfolio, price risk and reinvestment rate risk exactly cancel
out at a time horizon equal to the ____.
A. average bond maturity in the portfolio
B. duration of the portfolio
C. difference between the shortest duration and longest duration of the individual bonds
in the portfolio
D. average of the shortest duration and longest duration of the bonds in the portfolio
Generally speaking, countries with ______ capitalization of equities ________.
A. larger; have higher GDP
B. smaller; are wealthier
C. larger; have smaller GDP
D. larger; are higher-growth countries
Investors will earn higher rates of returns on TIPS than on equivalent default-risk
standard bonds if _______________.
A. inflation is lower than anticipated over the investment period
B. inflation is higher than anticipated over the investment period
C. the U.S. dollar increases in value against the euro
D. the spread between commercial paper and Treasury securities remains low
Today’s futures markets are dominated by trading in _______ contracts.
A. metals
B. agriculture
C. financial
D. commodity
The geometric average of -12%, 20%, and 25% is _________.
A. 8.42%
B. 11%
C. 9.7%
D. 18.88%
The process of decomposing ROE into a series of component ratios is called
______________.
A. DuPont analysis
B. technical analysis
C. comparative analysis
D. liquidity analysis
__________ represents an ownership share in a corporation.
A. A call option
B. Common stock
C. A fixed-income security
D. Preferred stock
If a stock price increases, the price of a put option on the stock will __________ and the
price of a call option on the stock will __________.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
One of the biggest impediments to a global capital market has been _________.
A. volatile exchange rates
B. the lack of common accounting standards
C. lower disclosure standards in the United States than abroad
D. the lack of transparent reporting standards across the EU
If you limit your investment opportunity set to only the largest six countries in the
world in terms of equity capitalization as a percentage of total global equity capital, you
will include about _______ of the world’s equity.
A. 34%
B. 44%
C. 54%
D. 64%
The major participants who directly purchase securities in the capital markets of other
countries are predominantly ____________.
A. large institutional investors
B. individual investors
C. government agencies
D. central banks
The complete portfolio refers to the investment in _________.
A. the risk-free asset
B. the risky portfolio
C. the risk-free asset and the risky portfolio combined
D. the risky portfolio and the index
The duration of a perpetuity varies _______ with interest rates.
A. directly
B. inversely
C. convexly
D. randomly
An official description of a particular mutual fund’s planned investment policy can be
found in the fund’s _____________.
A. prospectus
B. indenture
C. investment statement
D. 12b-1 forms
Consider the theory of active portfolio management. Stocks A and B have the same beta
and nonsystematic risk. Stock A has a higher positive alpha than stock B. You should
want __________ in your active portfolio.
A. equal proportions of stocks A and B
B. more of stock A than stock B
C. more of stock B than stock A
D. The answer cannot be determined from the information given.
What is the proper alpha given the following data? A portfolio generates an annual
return of 13%, a beta of 1.5, and the market index returns 12%. The risk free rate is 3%.
A. + 3.5 %
B. ” 3.5 %
C. 13.0 %
D. 13.5 %
_____ is considered to be an emerging market country.
A. France
B. Norway
C. Brazil
D. Canada
The financial statements of Flathead Lake Manufacturing Company are shown below.
Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm’s
current ratio for 2015 indicates that Flathead’s liquidity has ________ since 2014.
A. risen
B. fallen
C. stayed the same
D. The answer cannot be determined from the information given.
Answer:
Use the following cash flow data of Haven Hardware for the year ended December 31,
2015.
What is the net cash provided by or used in financing activities of Haven Hardware?
A. −$10,000
B. −$120,000
C. $10,000
D. $120,000
Answer:
A firm reports EBIT of $100 million. The income statement shows depreciation of $20
million. If the tax rate is 35% and total capital expenditures and increases in working
capital total $10 million, what is the free cash flow to the firm?
A. $57
B. $65
C. $75
D. $95
The financial statements of Burnaby Mountain Trading Company are shown below.
Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm’s
market-to-book value for 2015 is _________.
A. .1708
B. .1529
C. .1462
D. .1636
Which one of the following measures time-weighted returns and allows for
compounding?
A. geometric average return
B. arithmetic average return
C. dollar-weighted return
D. historical average return
One method of forecasting the risk premium is to use the _______.
A. coefficient of variation of analysts’ earnings forecasts
B. variations in the risk-free rate over time
C. average historical excess returns for the asset under consideration
D. average abnormal return on the index portfolio
Investors who want to liquidate their holdings in a unit investment trust may
___________________.
A. sell their shares back to the trustee at a discount
B. sell their shares back to the trustee at net asset value
C. sell their shares on the open market
D. sell their shares at a premium to net asset value
What is the most likely correlation coefficient between a stock-index mutual fund and
the S&P 500?
A. -1
B. 0
C. 1
D. .5
Consider two perfectly negatively correlated risky securities, A and B. Security A has an
expected rate of return of 16% and a standard deviation of return of 20%. B has an
expected rate of return of 10% and a standard deviation of return of 30%. The weight of
security B in the minimum-variance portfolio is _________.
A. 10%
B. 20%
C. 40%
D. 60%
A bond currently has a price of $1,050. The yield on the bond is 6%. If the yield
increases 25 basis points, the price of the bond will go down to $1,030. The duration of
this bond is ____ years.
A. 7.46
B. 8.08
C. 9.02
D. 10.11
When a pass-through mortgage security is issued, what does the issuing agency expect
to receive?
A. the amount of the original loan plus a servicing fee
B. the principal and interest that are paid by the homeowner
C. the principal and interest that are paid by the homeowner, minus a servicing fee
D. the interest paid by the homeowner, plus a servicing fee
Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in 6 months. What is
the effective annual rate of return for this investment?
A. 6.38%
B. 12.77%
C. 3.17%
D. 14.25%