The Option Clearing Corporation is owned by _________.
A. the exchanges on which stock options are traded
B. the Federal Deposit Insurance Corporation
C. the Federal Reserve System
D. major U.S. banks
When the market is more optimistic about a firm, its share price will ______; as a
result, it will need to issue _______ shares to raise funds that are needed.
A. rise; fewer
B. fall; fewer
C. rise; more
D. fall; more
Yields on municipal bonds are generally lower than yields on similar corporate bonds
because of differences in _________.
A. marketability
B. risk
C. taxation
D. call protection
The primary market where new security issues are offered to the public is a good
example of _________.
A. an auction market
B. a brokered market
C. a dealer market
D. a direct search market
In his famous critique of the CAPM, Roll argued that the CAPM ______________.
A. is not testable because the true market portfolio can never be observed
B. is of limited use because systematic risk can never be entirely eliminated
C. should be replaced by the APT
D. should be replaced by the Fama-French three-factor model
Which one of the following is a correct statement?
A. Exercise of warrants results in more outstanding shares of stock, while exercise of
listed call options does not.
B. A convertible bond consists of a straight bond plus a specified number of detachable
warrants.
C. Call options always have an initial maturity greater than 1 year, while warrants have
an initial maturity less than 1 year.
D. Call options may be convertible into the stock, while warrants are not convertible
into the stock.
In the PRS country composite risk ratings, a score of ______ represents the least risky
and a score of _____ represents the most risky.
A. 0; 100
B. 0; 50
C. 50; 0
D. 100; 0
A firm has current assets that could be sold for their book value of $10 million. The
book value of its fixed assets is $60 million, but they could be sold for $95 million
today. The firm has total debt at a book value of $40 million, but interest rate changes
have increased the value of the debt to a current market value of $50 million. This
firm’s market-to-book ratio is ________.
A. 1.83
B. 1.5
C. 1.35
D. 1.46
Money market securities are characterized by:
I. Maturity less than 1 year
II. Safety of the principal investment
III. Low rates of return
A. I only
B. I and II only
C. I and III only
D. I, II, and III
A market timer now believes that the economy will soften over the rest of the year as
the housing market slump continues, and she also believes that foreign investors will
stop buying U.S. fixed-income securities in the large quantities that they have in the
past. One way the timer could take advantage of this forecast is to ________________.
A. buy T-bond futures and sell stock-index futures
B. sell T-bond futures and buy stock-index futures
C. buy stock-index futures and buy T-bond futures
D. sell stock-index futures and sell T-bond futures
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. In 2015
Flathead generated ______ of EBIT for every dollar of sales.
A. $.075
B. $.086
C. $.092
D. $.099
The advantage that standardization of futures contracts brings is that _____ is improved
because ____________________.
A. liquidity; all traders must trade a small set of identical contracts
B. credit risk; all traders understand the risk of the contracts
C. pricing; convergence is more likely to take place with fewer contracts
D. trading cost; trading volume is reduced
The average maturity of fund investments in a money market mutual fund is _______.
A. slightly more than 1 month
B. slightly more than 1 year
C. about 9 months
D. between 2 and 3 years
ART has come out with a new and improved product. As a result, the firm projects an
ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be
$3 per share. Investors expect a 12% rate of return on the stock.
At what P/E ratio would you expect ART to sell?
A. 8.33
B. 11.43
C. 14.29
D. 15.25
Operating ROA can be found as the product of ______.
A. return on sales ATO
B. tax burden interest burden
C. interest burden leverage ratio
D. ROE dividend payout ratio
The value of a call option increases with all of the following except ___________.
A. stock price
B. time to maturity
C. volatility
D. dividend yield
A European put option gives its holder the right to _________.
A. buy the underlying asset at the exercise price on or before the expiration date
B. buy the underlying asset at the exercise price only at the expiration date
C. sell the underlying asset at the exercise price on or before the expiration date
D. sell the underlying asset at the exercise price only at the expiration date
Level 3 NASDAQ subscribers _____.
A. are registered market makers
B. can post bid and ask prices
C. have the fastest execution of trades
D. all of these options
If investors overweight recent performance in forecasting the future, they are exhibiting
_______.
A. representativeness bias
B. framing error
C. memory bias
D. overconfidence
The price of your investment increases 20% one month after you buy it. You do not
believe that the stock’s prospects have changed. Which one of the following actions
would indicate the lowest amount of risk aversion?
A. You hang on to the stock, anticipating that it will go higher.
B. You buy more stock, anticipating that it will go higher.
C. You sell all of your stock holdings immediately.
D. You sell half of your stock holdings and invest the proceeds in other areas of your
portfolio.
Under current rules most workers will have ________ of their salary deducted to pay
for Social Security retirement benefits and _______ toward Medicare.
A. 1.45%; 6.2%
B. 6.2%; 1.45%
C. 7.65%; 1.45%%
D. 15.3%; 4.9%
Members of the Board of Governors of the Federal Reserve System are appointed by
____________ to serve _____________ terms.
A. the Senate; 10-year
B. the House of Representatives; 8-year
C. the President; 14-year
D. the Secretary of the Treasury; 6-year
The duration of a bond normally increases with an increase in:
I. Term to maturity
II. Yield to maturity
III. Coupon rate
A. I only
B. I and II only
C. II and III only
D. I, II, and III
The free cash flow to the firm is reported as $275 million. The interest expense to the
firm is $60 million. If the tax rate is 35% and the net debt of the firm increased by $33
million, what is the free cash flow to the equity holders of the firm?
A. $269 million
B. $296 million
C. $305 million
D. $327 million
Approximately __________ of trades involving shares issued by firms listed on the
New York Stock Exchange actually take place on the New York Stock Exchange.
A. 50%
B. 25%
C. 60%
D. 75%
An increase in the value of the yen against the U.S. dollar can cause the Japanese
automaker Toyota to either _____________ on its U.S. sales.
A. lose market share or reduce its profit margin
B. gain market share or reduce its profit margin
C. lose market share or increase its profit margin
D. gain market share or increase its profit margin
When the stock price falls below a moving average, a possible conclusion is that _____.
A. market momentum has become positive
B. market momentum has become negative
C. there is no regular pattern for this stock’s market momentum
D. professional analysts’ opinions are invalid until the stock price rises again
The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its
expected ROE is 12%, and its expected EPS is $5. If the firm’s plowback ratio is 50%,
its P/E ratio will be _________.
A. 8.33
B. 12.5
C. 19.23
D. 24.15
The term “residual claimant” refers to
A. bond holders.
B. option holders.
C. equity/shareholders.
D. suppliers.
Regulation NMS:
I. Supports the goal of integrating financial markets II. II. Requires the use of specialists
to execute trades
III. Requires that exchanges honor quotes of other exchanges when they can be
executed automatically
A. I only
B. I and II only
C. I and III only
D. I, II, and III
In 2012, the S&P 500 increased 16%. Given the low interest rate environment, many
large companies had to pour billions of dollars into their pension funds. This example
illustrates _______.
A. horizon analysis
B. convexity
C. cash flow matching and dedication
D. duration mismatch