Which one of the following best describes a real interest rate?
A. current rate on a U.S. Treasury bill
B. nominal rate minus the risk-premium on an individual security
C. market return minus the risk-free rate
D. nominal rate minus inflation
E. historical rate rather than a projected rate
Which one of the following correctly identifies the phenomenon that states that one
month has the greatest tendency for small stocks to earn large returns?
A. January effect
B. March effect
C. September effect
D. October effect
E. December effect
Based solely on the maturity preference theory, long-term interest rates:
A. should equal short-term rates.
B. are unrelated to short-term rates.
C. may be higher than or lower than short-term rates.
D. should be lower than short-term rates.
E. should be higher than short-term rates.
Your portfolio has an expected return of 14.2 percent, a beta of 1.31, and a standard
deviation of 15.3 percent. The U.S. Treasury bill rate is 3.48 percent. What is the Sharpe
ratio of your portfolio?
A. .65
B. .67
C. .70
D. .77
E. .83
Phil realized a total return of 13.2 percent which is less than his expected return of 14.4
percent. What is the amount of his unexpected return?
A. -1.2 percent
B. -0.6 percent
C. 0.6 percent
D. 1.2 percent
E. 1.3 percent
The value of an IO strip will most likely increase when:
A. the PSA schedule rate decreases from 200 to 100.
B. market interest rates remain constant.
C. prepayments increase.
D. mortgage refinancings increase.
E. market interest rates decrease significantly.
How long is the “lock-up” period that is commonly found in an IPO underwriting
contract?
A. one month
B. three months
C. six months
D. one year
E. eighteen months
If you want the right, but not the obligation, to buy a stock at a specified price 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.
Terry has a portfolio comprised of two individual securities. Which one of the following
computations that he might do is NOT a weighted average?
A. correlation between the securities
B. individual security expected return
C. portfolio expected return
D. portfolio variance
E. portfolio beta
A contract that grants its buyer the right, but not the obligation, to sell an asset at a
specified price is called a:
A. futures contract.
B. call option.
C. preset contract.
D. put option.
E. primary contract.
What is the closing value of one September futures contract on wheat?
A. $8.110
B. $811.00
C. $40,550
D. $405,500
E. $4,055,000
Which one of the following borrowers will pay the rates depicted on a Treasury yield
curve?
A. large corporation
B. municipal government
C. bank’s best customers
D. high-risk borrower
E. default-free borrower
Which one of the following is a municipal bond that is secured by both the revenues
from a project and also by the taxing authority of the municipality?
A. mixed bond
B. general obligation bond
C. hybrid bond
D. dual bond
E. multiple bond
The following portfolio has an expected return of _____ percent and a beta of _____.
A. 10.53; 1.13
B. 10.99; 1.11
C. 11.03; 1.28
D. 11.16; 1.11
E. 11.11; 1.16
Which one of the following concerns a money manager’s control over investment risks,
particularly potential short-run losses?
A. Alpha management
B. Normal distribution management
C. Investment risk management
D. Raw return distributions
E. Volatility performance measures
Which one of the following statements related to a put bond is correct?
A. Put bonds are generally redeemed at a premium over par value.
B. Put bonds can be redeemed at any time once the put protection period has elapsed.
C. The put feature effectively sets the ceiling price for the bond.
D. The put feature helps protect bondholders from the risk associated with rising
interest rates.
E. A putable bond is generally priced lower than a comparable nonputable bond.
Which one of the following statements appears to be correct based on current research?
A. Single, female investors tend to earn lower returns than their male counterparts.
B. Overconfidence tends to result in lower returns.
C. Excessive trading tends to increase returns.
D. Men tend to trade less frequently than women.
E. Investors with higher incomes tend to be more risk-adverse than other investors.
Mountain Top Nursery is a relatively young firm which just paid its first annual
dividend of $0.30 a share. Management projects dividend increases of 15 percent per
year for five years followed by a constant growth rate of 3.0 percent annually. What is
this stock worth today if the applicable discount rate is 12.5 percent?
A. $3.59
B. $4.66
C. $5.23
D. $6.01
E. $6.59
A bond has a Macaulay duration of 6.25 years. What will be the percentage change in
the bond price if the yield to maturity increases from 6 percent to 6.4 percent?
A. -2.23 percent
B. -2.43 percent
C. -3.30 percent
D. -3.38 percent
E. -3.46 percent
There is a 30 percent probability that a particular stock will earn a 17 percent return and
a 70 percent probability that it will earn 11 percent. What is the risk-free rate if the risk
premium on the stock is 8.60 percent?
A. 4.20 percent
B. 4.80 percent
C. 5.20 percent
D. 5.40 percent
E. 5.80 percent
Which one of the following statements is correct?
A. A portfolio variance is a weighted average of the variances of the individual
securities which comprise the portfolio.
B. A portfolio variance is dependent upon the portfolio’s asset allocation.
C. A portfolio variance is unaffected by the correlations between the individual
securities held in the portfolio.
D. The portfolio variance must be greater than the lowest variance of any of the
securities held in the portfolio.
E. The portfolio variance must be less than the lowest variance of any of the securities
held in the portfolio.
The summation of the operating, investment, and financing cash flows for a stated
period of time must equal which one of the following for the same time period?
A. net income
B. total assets
C. ending cash balance
D. change in the cash balance
E. taxable income
How is a sustainable dividend growth rate defined?
A. a constant rate at which dividends increase
B. a rate of growth that does not exceed two percent of the annual increase in revenue
C. a rate of growth that is set equal to one-half of the average growth rate of a firm’s
earnings
D. a rate that can be supported over time by a company’s earnings
E. a rate of dividend growth that is equal to the discount rate used to value the firm’s
stock
To immunize your portfolio, you should:
A. avoid callable bonds.
B. match bond maturity dates to your target dates.
C. match bond durations to your target dates.
D. purchase only par value bonds.
E. purchase only high-coupon bonds.
Which one of the following is another name for the cash market?
A. futures market
B. forward market
C. arbitrage market
D. current basis market
E. spot market
What is the expected return on this stock given the following information?
A. -2.05 percent
B. -1.08 percent
C. 0.47 percent
D. 1.22 percent
E. 1.43 percent
A bond has a nominal rate of return of 5.87 percent and the inflation rate is 4.13
percent. What is the approximate real rate?
A. 1.62 percent
B. 1.70 percent
C. 1.74 percent
D. 1.83 percent
E. 1.88 percent
Given the following information, what is the value of the advance/decline line on the
third day of this 3-day period?
A. -277
B. -198
C. +202
D. +326
E. +409
Which of the following can you do with an ETF that you cannot do with an open-end
fund?
I. sell at mid-day prices
II. short sell
III. buy options on them
IV. resell
A. I and III only
B. II and III only
C. III and IV only
D. I, II, and III only
E. I, II, III, and IV
Stock prices and call option prices are:
A. unrelated.
B. negatively correlated.
C. directly related.
D. perfectly related.
E. inversely related.
Which one of the following provides information on a firm’s assets and liabilities as of a
particular date?
A. cash flow statement
B. pro-forma income statement
C. income statement
D. tax return
E. balance sheet
Assume you own a portfolio that is invested 50 percent in large-company stocks and 50
percent in corporate bonds. If you want to increase the potential annual return on this
portfolio, you could:
A. decrease the investment in stocks and increase the investment in bonds.
B. replace the corporate bonds with intermediate-term government bonds.
C. replace the corporate bonds with Treasury bills.
D. increase the standard deviation of the portfolio.
E. reduce the expected volatility of the portfolio.
Over the past five years, an investment produced annual returns of 16.5, 21, -18, 4, and
17 percent, respectively. What is the geometric average return?
A. 6.42 percent
B. 7.06 percent
C. 8.00 percent
D. 15.60 percent
E. 16.00 percent
Cee The Moon is offering 700 shares in a Dutch auction IPO. The following bids have
been received:
How much will Cee The Moon receive from this offering if the underwriter’s fee is 5.5
percent?
A. $9,905.75
B. $9,440.60
C. $10,184.25
D. $11,245.50
E. $12,095.30
Jackie manages a $620 million bond portfolio which has a duration of 4.05 years. She
wants to hedge the portfolio with Treasury note futures that have a duration of 4.53
years and a futures price of 112. U.S. Treasury notes futures contracts are based on a
par value of $100,000 and quoted as a percentage of par. How many contracts does she
need to sell to complete this hedge?
A. 4,667 contracts
B. 4,868 contracts
C. 4,949 contracts
D. 5,183 contracts
E. 5,216 contracts