If investors in the market become more pessimistic, it is expected that the required
return will ———-.
a. decrease.
b. increase.
c. stay the same.
d. there is not enough information to answer the question.
_____ governs employer-sponsored retirement plans.:
a. Investors Advisors Act.
b. Investment Company Act.
c. Security Investors Protection Act.
d. Employment Retirement Income Security Act.
The ————– provides investors with a method of calculating a required return for a
stock.
a. dividend discount model
b. risk-free rate
c. Fisher model
d. Capital Asset Pricing Model
In the U.S. since the end of World War II, the typical business cycle consists of an
expansion of how many months?
a. 57.
b. 66.
c. 75.
d. 84.
Which of the following statements is true regarding an investment in mortgage-backed
securities?
a. There is little default risk.
b. The stated maturity is generally 10 years.
c. They receive a fixed payment per month.
d. They are not subject to prepayment.
Automatic Shelf Registration refers to the practice of allowing:
a. well-seasoned issuers to file shelf registration statements with the SEC that become
effective immediately, or the filing of a ‘base prospectus,’ enabling efficient stock issue
b. well-seasoned issuers to file shelf registration statements with the SEC that become
effective immediately, or the filing of a ‘base prospectus,’ enabling efficient debt issue
c. well-seasoned issuers to file shelf registration statements with the SEC that become
effective immediately, or the filing of a ‘base prospectus,’ enabling efficient stock or
debt issue
d. well-seasoned issuers to file shelf registration statements with the SEC that become
effective immediately upon filing of a fired herring prospectus,’ enabling efficient stock
or bond issue
Which of the following is the best definition of wealth?
a. the sum of all current and future income
b. the total of all assets and all income
c. the total of assets and income less any liabilities.
d. the sum of current income and the present value of future income.
For most long term bonds, when coupons are reinvested, what is the most important
component of the bond’s total return?
a) Coupon rate.
b) Interest-on-interest.
c) Yield to Maturity
d) Interest-on-principal.
Which of the following statements is most correct?
a) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal
for the shortest term federal securities.
b) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal
for the longest term federal securities.
c) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal
for the shortest term federal securities, plus a forecast of the rate of inflation for the
period of the securities.
d) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal
for the longest term federal securities, plus a forecast of the rate of inflation for the
period of the securities.
Which of the following statements regarding the arithmetic mean and the geometric
mean is true?
a. The arithmetic mean is always a better measure of average performance
b. The geometric mean is always a better measure of average performance
c. The arithmetic mean is a better measure of performance over single periods
d. The geometric mean is the best estimate of the expected return for the next period
Passive common stock strategies attempt to minimize:
a. capital losses.
b. transactions costs, including time spent managing the portfolio.
c. market risk.
d. company and industry risk.
XYZ Company has expected earnings of $3.00 for next year and usually retains 40
percent for future growth. Its dividends are expected to grow at a rate of 10 percent
indefinitely. If an investor has a required rate of return of 15 percent, what price would
he be willing to pay for XYZ stock?
a. $12.50
b. $25.00
c. $30.00
d. $36.00
Consider Example 18-11 and Table 18-1. Let’s say the price is $950.00 rather $974.17
(so the YTM goes to 6.1% from 5.6%). What happens to duration?
a. It increases substantially.
b. It increases only a little amount.
c. It decreases substantially.
d. It decreases only a little amount
The single-index model implies stocks covary only because of their common:
a. currency
b. relationship to each other
c. relationship to the market
d. desire to make a profit
Which of the following is not one of the stages of the industry life cycle?
a. expansion
b. destabilization
c. declining
d. pioneering
A relatively new valuation technique that emphasizes the difference between a firm’s
operating profits and its cost of capital is called:
a. the discounted dividend model.
b. the capital asset pricing model.
c. economic value added model.
d. the market capitalization model.
Which of the following statements concerning global stock market capitalization is
true?
a. The United States accounts for roughly 85 percent of stock market capitalization
worldwide.
b. The United States accounts for roughly 50 percent of stock market capitalization
worldwide.
c. The United States accounts for roughly 25 percent of stock market capitalization.
d. It is expected that the United States will increase its percentage of stock market
capitalization in the world over time.
At what stage in the industry life cycle do financial policies become firmly established?
a. Pioneering stage
b. Expansion stage
c. Stabilization stage
d. Declining stage
If an industry is ranked number one, based on price performance of the S&P Industry
Stock Indexes, an investor
a. cannot necessarily expect that same industry to be ranked number one again next
year.
b. can usually depend on an industry to maintain its top ranking for five years or more.
c. can expect that industry to do well over the next 10 to 20 years.
d. can expect that industry to drop out of the top ten within five years.
What stated coupon rate would a taxable corporate bond have to have to be comparable
to a municipal bond with a coupon rate of 7 percent if the investor is in the 28 percent
tax bracket?
What are some of the functions of the NASD?
Is it useful to do a trend analysis of P/E ratios of the S&P 500 Composite Index over
time and extrapolate it to project future expected P/Es?
Real estate has never been shown to be positively correlated with the performance of
stocks.
Suppose the SML has a risk-free rate of 5 percent and an expected market return of 15
percent. Now suppose that the SML shifts, changing slope, so that kRF is still 5 percent
but kM is now 16 percent. What does this shift suggest about investors’ risk aversion? If
the slope were to change downward, what would that suggest?
Which of the following statements regarding classical immunization is false?
a. It is Easy to implement.
b. It requires frequent rebalancing.
c. It is not a passive bond strategy.
d. It faces real-world problems in its implementation.
A major difference between real and nominal returns is that:
real returns adjust for inflation and nominal returns do notreal returns use actual
cashflows and nominal returns use expected cashflowsreal returns adjust for
commissions and nominal returns do notreal returns show the highest possible return
and nominal returns show the lowest possible return
Spot markets are for immediate delivery. Forward prices are:
a. The price agreed upon today for an asset for deferred delivery in the future.
b. The price in the future for an asset delivered in the future.
c. The price today for a forward price in the future.
d. Based on current spot market prices
Declining interest rates in the market should send P/E ratios, on average, higher.