The intrinsic value of a call option is equal to _______________.
A. the stock price minus the exercise price
B. the exercise price minus the stock price
C. the stock price minus the exercise price plus any expected dividends
D. the exercise price minus the stock price plus any expected dividends
If a firm increases its plowback ratio, this will probably result in _______ P/E ratio.
A. a higher
B. a lower
C. an unchanged
D. The answer cannot be determined from the information given.
An attribution analysis will not likely contain which of the following components?
A. asset allocation
B. index returns
C. risk-free returns
D. security selection
Corruption is _________ risk variable.
A. a firm-specific
B. a political
C. a financial
D. an economic
A person in excellent health with a long life expectancy chooses a lifetime annuity. This
is an example of _________.
A. moral hazard
B. adverse selection
C. a Texas hedge
D. actuarial error
The Dow Jones Industrial Average is _________.
A. a price-weighted average
B. a value weight and average
C. an equally weighted average
D. an unweighted average
Violation of the spot-futures parity relationship results in _______________.
A. fines and other penalties imposed by the SEC
B. arbitrage opportunities for investors who spot them
C. suspension of delivery privileges
D. suspension of trading
Large well-known companies often issue their own short-term unsecured debt notes
directly to the public, rather than borrowing from banks; their notes are called
_________.
A. certificates of deposit
B. repurchase agreements
C. bankers’ acceptances
D. commercial paper
What aspect of the time value of money does the factor of e represent in the
Black-Scholes option value formula?
A.
annual compounding
B.
compounding at the expiration time frame
C.
continuous compounding
D.
A hedge ratio of .70 implies that a hedged portfolio should consist of ________.
A. long .70 calls for each short stock
B. long .70 shares for each long call
C. long .70 shares for each short call
D. short .70 calls for each long stock
The Standard & Poor’s 500 is __________ weighted index.
A. an equally
B. a price-
C. a value-
D. a share-
Which of the following investment strategies would have produced the highest returns
in the time period since 1926?
A. T-bills portfolio
B. S&P 500 Index fund
C. perfect market timing
D. random stock selection
The NYSE has lost market share to ECNs in recent years. Part of the NYSE’s response
to the growth of ECNs has been to:
I. Purchase Archipelago, a major ECN, and rename it NYSE Arca II. Enable automatic
trade execution through its new Market Center
III. Impose a tighter limit on bid-ask spreads
A. I only
B. II and III only
C. I and II only
D. I, II, and III
What strategy might a hedge fund use to take advantage of positive alpha in a long
equity position?
A. short sell the security with positive alpha
B. leverage and use the proceeds to go long in the alpha security
C. create a neutral position and gain from the alpha value increase
D. reduce reliance on margin
Investors gravitate toward the latest hot stock even though it has never paid a dividend.
Even though net income is projected to fall over the current and next several years, the
price of the stock continues to rise. What behavioral concept may explain this price
pattern?
A. Overconfidence
B. Loss aversion
C. Mental accounting
D. Calendar bias
The price-to-sales ratio is probably most useful for firms in which phase of the industry
life cycle?
A. start-up phase
B. consolidation
C. maturity
D. relative decline
The brokers’ call rate represents
A. the rate the broker charges an investor on a margin account.
B. the rate the broker pays its bank on borrowed funds.
C. the return earned by the broker on a margin account.
D. the return earned by the investor on a margin account .
Under the pure expectations hypothesis and constant real interest rates for different
maturities, an upward-sloping yield curve would indicate
__________________.
A. expected increases in inflation over time
B. expected decreases in inflation over time
C. the presence of a liquidity premium
D. that the equilibrium interest rate in the short-term part of the market is lower than the
equilibrium interest rate in the long-term part of the market
Sharon decides to put $5,000 into her retirement plan at the age of 25. She will continue
to invest the same amount for a total of 6 years and then stop contributing. Assume 10%
annual return.
How much money will Sharon have in her retirement plan when she is ready to retire at
age 62?
A. $554,856
B. $623,245
C. $740,480
D. $1,311,805
A contingent deferred sales load is commonly called a ____.
A. front-end load
B. back-end load
C. 12b-1 charge
D. top-end sales commission
Which industry had the highest ROE in 2013 according to the text?
A. lectric utilities
B. business software
C. airlines
D. money center banks
Which one of the following statements is correct?
A. invoice price = flat price – accrued interest
B. invoice price = flat price + accrued interest
C. flat price = invoice price + accrued interest
D. invoice price = settlement price – accrued interest
Target date immunization would primarily be of interest to _________.
A. banks
B. mutual funds
C. pension funds
D. individual investors
When used in the context of investment decision making, the term liquidity refers to
_____________.
A. the ease and speed with which an asset can be sold at any value possible
B. the ease and speed with which an asset can be sold without having to discount the
value
C. an aspect of monetary policy
D. the proportion of short-term to long-term investments held in an investor’s portfolio
No taxes are paid on withdrawals made during retirement from a _________.
A. traditional retirement plan
B. Roth retirement plan
C. 401k
D. 403b plan
The theory of efficient frontiers has __________.
A. no adherents among practitioners
B. a small number of adherents among practitioners
C. a significant number of adherents among practitioners
D. complete support by practitioners
The current stock price of Howard & Howard is $64, and the stock does not pay
dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard
deviation of H&H’s stock is 20%. You want to purchase a put option on this stock with
an exercise price of $55 and an expiration date 73 days from now.
Using Black-Scholes, the put option should be worth __________ today.
A. $.01
B. $.07
C. $9.26
D. $9.62
Private placements can be advantageous, compared to public issue, because:
I. Private placements are cheaper to market than public issues.
II. Private placements may still be sold to the general public under SEC Rule 144A.
III. Privately placed securities trade on secondary markets.
A. I only
B. I and III only
C. II and III only
D. I, II, and III
An insurance company plans to sell annuities to investors. Based on actuarial
calculations, an investor has a 15-year life span, and he wants a $30,000-per-year
annuity, payable at the end of each year. If the insurance company uses a 4% assumed
investment rate, how much should the annuity cost?
A. $296,928
B. $312,236
C. $333,552
D. $353.982
The risk-free rate in the United States is 4%, and the risk-free rate in Japan is 1.2%. If
the spot rate of yen to dollars is 105, what is the likely yen-per-dollar forward rate?
A. 101
B. 102
C. 105
D. 108
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. The firm’s
P/E ratio for 2015 is _________.
A. 3.39
B. 3.6
C. 13.33
D. 10.67
A mutual fund has total assets outstanding of $69 million. During the year the fund
bought and sold assets equal to $17.25 million. This fund’s turnover rate was _____.
A. 25%
B. 28.5%
C. 18.63%
D. 33.4%
An investor who goes short in a futures contract will _____ any increase in value of the
underlying asset and will _____ any decrease in value in the underlying asset.
A. pay; pay
B. pay; receive
C. receive; pay
D. receive; receive
A U.S. hedge fund owns Swiss franc bonds. The fund manager believes that if Swiss
interest rates rise relative to U.S. interest rates, the value of the franc will rise. To limit
the risk to the fund’s dollar return, the fund manager should __________.
A. sell the Swiss franc bonds now
B. sell the Swiss franc forward
C. probably do nothing because the franc move will offset the lower bond price
D. enter into an interest rate swap to pay variable and receive fixed
Stalwarts are typically found in the _________ stage of the industry life cycle.
A. start-up
B. consolidation
C. maturity
D. relative decline