Points above the efficient frontier have superior risk-return characteristics to those
along the efficient frontier, but are not part of the feasible set.
High coupon bonds will usually have higher durations than low coupon bonds of the
same maturity.
An investor in mutual funds must also be sensitive to the excessive performance claims
that are sometimes made by mutual fund salespeople.
Most industries are similarly affected by the cyclical swings in the economy.
Korean stock prices are measured by the Nikkei 225 average.
Every investment requires a total return comprised of a real rate of return,
compensation for inflationary expectations, and a risk premium.
A tax hedge is used to reduce or eliminate tax on the capital gains on a portfolio.
Prior to the Taxpayer Relief Act of 1997, long-term capital gains were taxed at ordinary
income tax rates.
A support level signals new demand.
The approximate yield to maturity method tends to understate the true yield for bonds
trading at a discount.
As inflation increases, the required rate of return on common stocks falls, as well as the
prices.
Morningstar Mutual Fund Survey is considered one of the leading authorities on mutual
fund performance.
Cash flows from operating activities would include the payment of cash dividends.
With convertible bonds, the bond market price minus the conversion value is the
conversion premium.
The support level is the stock price that generates new demand, while the resistance
level is the price at which investors begin to sell in order to take a profit.
The profit on a stock index option is determined by the change in the underlying value
of the futures contract.
Firms such as WalMart and McDonald’s have a low level of bargaining power over their
suppliers.
Trading in financial futures is similar to trading in commodities except for considerably
higher margin requirements for financial futures.
The Dow Jones Composite index combines the Dow Jones Industrial, Transportation,
and Utility averages into an index of 65 stocks.
The Mini S&P 500 contract is made up of different stocks than the traditional S&P 500
contract.
As the yield to maturity on a bond increases, the duration also increases because of the
effect of present value on duration.
The effectiveness of portfolio diversification can be measured by the coefficient of
determination, which is the correlation between excess returns on the market and those
on the fund.
Companies that have a strong ability to control suppliers enjoy a competitive advantage.
Silver is an example of a financial asset.
Commodity futures are a form of financial asset.
Open-end funds often sell at a discount to net asset value.
The total premium (option price) is a combination of a time premium and a speculative
premium.
An increase in reserve requirements by the Federal Reserve would decrease the money
supply.
Abnormal returns refer to gains beyond what the market would normally provide after
adjustment for risk.
The expectations hypothesis is that any long-term rate is an average of the expectations
of future short-term rate over the applicable time horizon.
The study by Barry and Jennings of new stock issues indicates that 90% of the gain
occurs in the opening transaction.
Risk is generally associated only with loss from possible investments.
By picking stocks that are not perfectly correlated, unsystematic risk may be
eliminated.
Floor values are sensitive to interest rates.
The expected value for a portfolio is a weighted average of the individual securities’
expected values.
Fiscal policy that results in a deficit will cause more inflation when it finances the
deficit through:
A.international currency exchange.
B.the sale of treasury securities to the Federal Reserve.
C.the sale of treasury securities to individuals in the private sector.
D.None of the above
For the major bond-rating agencies, the lowest level of an investment grade bond is:
A.AA (investment grade includes AAA and AA).
B.A (investment grade includes AAA, AA and A).
C.BBB (investment grade includes AAA, AA, A, and BBB).
D.B (investment grade includes AAA, AA, A, BBB, BB and B).
A(n) _____ is a legally documented claim on an asset, while a(n) _____ is an actual,
tangible asset which may be seen, felt, held, or collected.
A.Real asset; financial asset
B.Financial asset; real asset
C.Indirect equity claim; direct equity claim
D.Direct equity claim; indirect equity claim
E.None of the above
The major device that indicates what the firm owns, and how these assets are financed,
in the form of liabilities or ownership interest is:
A.the balance sheet.
B.the statement of cash flows.
C.the income statement.
D.the general ledger.
Fund managers normally compare their performance to:
A.a benchmark portfolio.
B.Moody’s Bond ratings.
C.the Barron’s Confidence Index.
D.None of the above
Factors which influence the relationship between duration and maturity include all of
the following EXCEPT:
A.the face value of the bond.
B.the coupon rate of the bond.
C.the number of years to maturity.
D.All of the above are factors
Which of the following statements about the information available on publicly traded
foreign firms is NOT true?
A.At least the accounting standards are the same for U.S. and international companies
B.Comparative industry data is generally not available
C.If you purchase a foreign firm directly on a foreign market, you will receive your
annual reports in the language of the country, which most likely will not be English
D.The information is less rigorously regulated than in the United States
Relative to other asset classes, hedge funds are:
A.not highly correlated.
B.negatively correlated.
C.not correlated at all.
D.related only to the currencies.
Using the Table below, assume a single person has a taxable income of $40,000.
(a) How much tax will be owed? (You will need to refer to the Table plus make your
own calculations).
(b) What is the person’s average tax rate?
(c) What is the person’s marginal tax rate?
The problem in reading charts has always been:
A.with the errors that are frequently made in the graphing process.
B.understanding the past market movements.
C.in analyzing the patterns in such a fashion that they truly predict stock market
movements before they unfold.
D.None of the above
Funds that invest in specific industries, such as energy, leisure, or defense, are called:
A.balanced funds.
B.industry funds.
C.sector funds.
D.specialty funds.
Common stock dividends are now taxed at a maximum rate of:
A.10%.
B.15%.
C.20%.
D.30%.
E.38.8%.
Common date gold coins may trade at ________ their pure bullion value.
A.50-75% of
B.100% of
C.2 to 3 times
D.50 to 100 times
If an investor is in a 34% tax bracket and has held a stock for two years, the applicable
tax rate that will apply to dividends is:
A.15%.
B.20%.
C.28%.
D.34%.
The most widely used theory to explain the term structure of interest rates is the:
A.liquidity preference theory.
B.market segmentation theory.
C.expectations hypothesis.
D.interest allocation theory.
Which of the following statements is false?
A.Industry life cycles measure the growth path of an industry through 5 stages
B.Industry life cycles predict an industry’s sensitivity to the economy
C.The industry life cycle curve is graphed so that, the steeper the slope of the line, the
faster the growth rate of the industry
D.The particular phase of the life cycle of an industry determines the growth of
earnings, dividends, capital expenditures, and market demand for products
E.The five stages of the industry life cycle are development, growth, expansion,
maturity, and decline
Which of the following are true statements?
A.When a country’s economy is healthy, its citizens will spend more in general.
B.When a country’s economy is healthy, its citizens will import more high-priced
luxury goods.
C.When a country’s economy is healthy, its currency rises against its trading partners.
D.A and B are both correct
In order to stimulate the economy out of the 2008-2010 recession, the Federal Reserve
Board:
A.printed more money than they have in decades.
B.did everything they could to see that the federal deficit was reduced as much as
possible.
C.drove interest rates to their lowest levels in decades.
D.lowered taxes.
Asset-utilization ratios measure all of the following except:
A.productivity of fixed assets in terms of sales.
B.the relationship of sales on the income statement to various assets on the balance
sheet.
C.how many times per year the inventory is sold and accounts receivable collected.
D.the firm’s ability to pay off short-term obligations as they come due.
A stock is selling for $45.75, with a put option available at a $50 strike that has a
premium of $7.50. What is the intrinsic value of the put?
A. $4.25
B. $1.25
C. $3.25
D. $5.25
E. $7.50
Warrants are considered to be highly speculative because:
A.they are attached to the bond issue.
B.they have a short life and their value is magnified by movements in the stock price.
C.the intrinsic value is highly volatile.
D.ownership of warrants provides no dividends or interest.
The term structure of interest rates refers to:
A.the relationships between interest rates and term to maturity.
B.the idea that any long-term rate is the average of expected future short-term rates.
C.a general expectation of higher future interest rates.
D.the idea that the terms of the bond may change as time to maturity changes.
E.More than one of the above are true
In recent times, suppliers of second mortgages have often been:
A.buyers of real estate.
B.Real Estate Investment Trusts (REITs).
C.sellers of real estate.
D.real estate brokers.
Which of the following is NOT an advantage of listed options markets over the
previous method of over-the-counter trading?
A. Direct contact between buyers and sellers of options
B. Standardized contract periods and exercise price
C. More certainty and more efficient trading strategies
D. All of the above are advantages
What is the conversion ratio of a $1,000 bond convertible at $27 per share? The coupon
rate is 10% and the market rate 12%. This company’s common stock is currently trading
at $23 per share.
A.37.04 shares
B.43.478 shares
C.83 shares
D.35.2 shares
Since the stock market is the most accurate and reliable of the ten leading indicators,
A.investors need indicators which provide more lead time than the stock market.
B.investors are able to reduce or eliminate uncertainty about trading stocks.
C.investors should use lagging indicators to forecast changes in stock prices.
D.None of the above
The profit of an index option is determined by:
A.the total value of the increase in the index.
B.the total value of the option.
C.the size of the premium.
D.More than one above
There may be an opportunity for profit in a politically unstable country if:
A.that country’s domestic investors overreact in response to political changes.
B.the regime in power is openly courting big business.
C.the leaders of that country decide to cancel all foreign debt obligations.
D.More than one of the above
Investing directly in the international equities markets refers to buying shares:
A.of multinational corporations.
B.of foreign companies.
C.of internationally invested mutual funds.
D.More than one of the above
Which of the following four industry sectors would benefit the most from rising
inflation?
A.Consumer cyclical goods
B.Basic materials
C.Household durable goods
D.Consumer non-cyclical goods
Which of the following is NOT a characteristic of the Dow Jones Industrial Average?
A.It includes only very high quality common stock
B.It generally follows the trend of the market
C.The companies included comprise over 25% of the market value of companies listed
on the New York Stock Exchange
D.It is a value-weighted average
E.Dividends require adjustments to the divisor