A bond has a par value of $1,000 and a coupon rate of 6.5 percent. What is the dollar
amount of each semiannual interest payment if you own 8 of these bonds?
A. $180
B. $260
C. $320
D. $420
E. $840
Kim Lee purchased 6 put option contracts on Eastern Imports stock at a strike price of
$47.50. The option premium was $0.65. At expiration, the stock was valued at $44.90 a
share. What is her percentage return?
A. -100 percent
B. 0 percent
C. 5.47 percent
D. 32.82 percent
E. 300 percent
A European put option grants the holder the right to:
A. buy the underlying security at a stated price at any time up to and including the
expiration date.
B. sell the underlying security at the strike price on or before the expiration date.
C. sell the underlying asset at the strike price only on the expiration date.
D. buy the underlying asset at or below the exercise price on or before the expiration
date.
E. buy the underlying asset at the exercise price on the expiration date.
The rate of return an investor actually earns from owning a bond is called which one of
the following?
A. market return
B. realized yield
C. annualized coupon yield
D. maturity yield
E. call yield
A moral obligation bond is which type of a bond?
A. municipal revenue
B. municipal GO
C. municipal hybrid
D. U.S. Treasury
E. U.S. agency
You own a portfolio which is invested equally in two stocks and a risk-free security.
The stock betas are .89 for Stock A and 1.26 for Stock B. Which one of the following
will increase the portfolio beta, all else constant?
A. increasing the amount invested in the risk-free security
B. decreasing the weight of Stock B and increasing the weight of Stock A
C. replacing Stock A with a security that has a beta of .77
D. increasing the weight of Stock A and decreasing the weight of the risk-free security
E. replacing Stock B with Stock C, which has a beta equal to that of the market
An asset had annual returns of 13, 10, -14, 3, and 36 percent, respectively, for the past
five years.
What is the standard deviation of these returns?
A. 8.96 percent
B. 16.05 percent
C. 17.92 percent
D. 18.09 percent
E. 20.03 percent
For the year, Widgets Manufacturing, Inc. increased its current accounts by $52,000,
decreased its current liabilities by $38,000, and decreased its fixed assets by $31,000.
What is the investment cash flow for the year?
A. -$31,000
B. -$12,000
C. $19,000
D. $31,000
E. $48,000
Which one of the following is a security that only pays the principal cash flows to
investors?
A. split strip
B. interest-only strip
C. amortized strip
D. principal-only strip
E. final strip
Given the following information, what is the value of the closing Arms?
A. 0.29
B. 0.36
C. 0.42
D. 2.81
E. 3.45
Which one of the following is an ownership interest in a firm?
A. asset
B. expense
C. net income
D. liability
E. equity
Based on expectations theory, the term structure of interest rates will be _____ anytime
investors believe that interest rates will be higher in the future than they are today.
A. volatile
B. flat
C. downward sloping
D. upward sloping
E. vertical
The Miller Fund’s correlation with the market is .648. What percentage of the fund’s
movement can be explained by movements in the overall market?
A. 35 percent
B. 42 percent
C. 51 percent
D. 65 percent
E. 71 percent
Which one of the following terms is defined as the process of recognizing gains and
losses on outstanding futures positions on a daily basis?
A. profit taking
B. margin adjusting
C. daily distributing
D. market adjusting
E. marking-to-market
The off-exchange market in which exchange-listed securities trade is referred to as the
_____ market.
A. independent
B. secondary
C. fourth
D. third
E. primary
You are trying to value a 3-month futures contract on a stock. The market rate of return
is 11.2 percent, the risk-free rate is 3.8 percent, and the dividend yield on the stock is
2.6 percent. The stock is currently selling for $33 a share. What is the value of “T” as
used in the formula for computing the future stock price (FT = S(1 – r)^T)?
A. .112
B. .250
C. .026
D. .038
E. .064
You want to purchase shares in a fund and also ensure that your money does not support
firms that harm the environment. Which type of fund should you purchase?
A. international fund
B. income fund
C. tax-managed fund
D. index fund
E. social conscience fund
What is the probability that a mortgage will be prepaid during a given year called?
A. mortgage reduction rate
B. amortization rate
C. filtration rate
D. prepayment rate
E. postponement rate
One year ago, you purchased 300 shares of Southern Cotton at $32.60 a share. During
the past year, you received a total of $280 in dividends. Today, you sold your shares for
$35.80 a share.
What is your total return on this investment?
A. 8.79 percent
B. 9.64 percent
C. 10.16 percent
D. 11.64 percent
E. 12.68 percent
The change in the option symbol quotation system was driven by which of the
following?
I. Advances in technology
II. Increase in the number and type of option products
III. Difficulty in applying the old system to NASDAQ stocks
IV. Difficulty in applying the system to complicated option products
A. I, II, III, and IV
B. II, III, and IV
C. I, II, and IV
D. II and III
E. I, II and III
If you are willing to sell a stock and wish to receive the option premium you should:
A. buy a call.
B. sell a call.
C. buy a put.
D. sell a put.
E. either sell a call or buy a put.
You have a 15-year, fixed-rate, $150,000 mortgage. The monthly payment amount is
constant and the mortgage is amortized on a monthly basis. How much will the
principal balance be after the 90th payment has been paid?
A. zero
B. < $75,000
C. $75,000
D. > $75,000
E. cannot be determined from the information provided
What is the current price per underlying share if you wish to buy a June $32.50 call
option on General Electric stock?
A. $0.68
B. $0.70
C. $0.73
D. $1.60
E. $1.62
You have determined that you need -1,589 call options to hedge your stock portfolio.
What should you do based on this information?
A. buy 16 call option contracts
B. buy 1,589 call option contracts
C. write 16 call option contracts
D. write 160 call option contracts
E. write 1,589 call option contracts
Which of the following is NOT considered a lagging economic indicator?
A. prime rate
B. change in CPI for services
C. industrial production
D. commercial and industrial loans
E. consumer expectations index
Which one of the following theories states that the term structure of interest rates
reveals the financial market’s projections of future interest rates?
A. market rate theory
B. market yield theory
C. Fisher hypothesis
D. expectations theory
E. rational rate hypothesis
Which one of the following statements is correct concerning the dividend yield and the
total return?
A. The dividend yield can be zero while the total return must be a positive value.
B. The total return can be negative but the dividend yield cannot be negative.
C. The total return must be greater than the dividend yield.
D. The total return plus the capital gains yield is equal to the dividend yield.
E. The dividend yield exceeds the total return when a stock increases in value.
A price-weighted index consists of stocks A, B, and C which are priced at $50, $35, and
$15 a share, respectively. The current index divisor is 2.75. What will the new index
advisor be if stock A undergoes a 5-for-1 stock split?
A. 0.40
B. 0.65
C. 1.00
D. 1.65
E. 1.85
What is the beta of a risk-free security?
A. .00
B. .50
C. 1.00
D. 1.50
E. 2.00
You know that a call will finish in-the-money. Based on that single piece of
information, you also know which one of the following?
A. The stock price will equal the strike price at expiration.
B. The risk-free rate is zero percent.
C. A put on the same underlying asset with the same strike and expiration will finish
out-of-the-money.
D. The strike price will exceed the stock price at expiration.
E. The price of the call is equal to the price of the put.
Yesterday, the DJIA closed at 12,309.16. The divisor is 0.123017848. Today, every one
of the stocks in the index increased in value by $0.40 a share. What is the value of
today’s closing DJIA?
A. 12,367
B. 12,407
C. 12,442
D. 12,564
E. 12,571
Smith’s Corner Market had annual sales of $425,300 and total assets of $366,000. What
is the return on assets if the profit margin is 11 percent?
A. 8.2 percent
B. 9.8 percent
C. 10.6 percent
D. 11.0 percent
E. 12.8 percent