An adjusted beta will be ______ than the unadjusted beta.
A. lower
B. higher
C. closer to 1
D. closer to 0
Mutual funds provide the following for their shareholders.
A. diversification
B. professional management
C. record keeping and administration
D. all of these options
A corporation will be issuing bonds in 6 months, and the treasurer is concerned about
unfavorable interest rate moves in the interim. The best way for her to hedge the risk is
to _________________.
A. buy T-bond futures
B. sell T-bond futures
C. buy stock-index futures
D. sell stock-index futures
A tax shelter that allows for tax-exempt saving for higher education is called a _____.
A. Roth savings plan
B. 403b
C. 401k
D. 529 plan
What is the proper strategy to capture alpha given the following data? A portfolio
generates an annual return of 14%, a beta of 1.5, and the market index returns 12%. The
risk free rate is 3%.
A. long the index
B. short the portfolio
C. short the index
D. long the portfolio
The May 17, 2015, price quotation for a Boring call option with a strike price of $50
due to expire in November is $20.80, while the stock price of Boring is $69.80. The
premium on one Boring November 50 call contract is _________.
A. $1,980
B. $4,900
C. $5,000
D. $2,080
Use the following cash flow data of Haven Hardware for the year ended December 31,
2015.
What is the net
increase or
decrease in cash
for Haven
Hardware for
2015?
A. −$94,000
B. −$88,000
C. $88,000
D. $188,000
The current level of the S&P 500 is 1,250. The dividend yield on the S&P 500 is 3%.
The risk-free interest rate is 6%. The futures price quote for a contract on the S&P 500
due to expire 6 months from now should be __________.
A. 1,274.33
B. 1,286.95
C. 1,268.61
D. 1,291.29
If the price of a $10,000 par Treasury bond is $10,23.50, the quote would be listed in
the newspaper as ________.
A. 102.23
B. 102.102
C. 102.35
D. 102.50
Which measure of downside risk predicts the worst loss that will be suffered with a
given probablility?
A. standard deviation
B. variance
C. value at risk
D. Sharpe ratio
Jill is offered a choice between receiving $50 with certainty or possibly receiving the
proceeds from a gamble. In the gamble a fair coin is tossed, and if it comes up heads,
Jill will receive $100; if the coin comes up tails, she will receive nothing. Jill chooses
the $50 instead of the gamble. Jill’s behavior indicates __________________.
A. regret avoidance
B. overconfidence
C. that she has a diminishing marginal utility of wealth
D. prospect theory loss aversion
Which of the following will result in an increase in cash to the firm?
A. dividends paid
B. a delay in collecting on accounts receivable
C. net new investments
D. an increase in accounts payable
Of the variables in the Black-Scholes OPM, the __________ is not directly observable.
A. price of the underlying asset
B. risk-free rate of interest
C. time to expiration
D. variance of the underlying asset return
__________ portfolio construction starts with asset allocation.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
On a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an ask
price of $1003.25. The dealer made 10 trades that totaled 500 bonds traded that day.
What was the dealer’s gross trading profit for this security?
A. $1,375
B. $500
C. $275
D.$1,450
_____ is an example of an exchange-traded fund.
A. An SPDR or spider
B. A samurai
C. A Vanguard
D. An open-end fund
The variation in the betas of emerging markets suggests that ____________.
A. emerging markets are more uniform than developed markets
B. beta does not hold in international markets
C. international diversification may reduce portfolio risk
D. riskier emerging markets have uniformly lower betas
A tax free municipal bond provides a yield of 3.2%. What is the equivalent taxable
yield on the bond given a 35% tax bracket?
A. 3.2%
B. 3.68%
C. 4.92%
D. 5%
According to the Flow of Funds Accounts of the United States, the largest financial
asset of U.S. households is ____.
A. mutual fund shares
B. corporate equity
C. pension reserves
D. deposits
T-bills are issued with initial maturities of:
I. 4 weeks
II. 16 weeks
III. 26 weeks
IV. 32 weeks
A. I and II only
B. I and III only
C. I, II, and III only
D. I, II, III, and IV
A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of
19%. The market index return is 12% and has a standard deviation of 16%. What is the
Treynor measure of the portfolio if the risk-free rate is 6%?
A. .0833
B. .1083
C. .1114
D. .1163
Consider two bonds, A and B. Both bonds presently are selling at their par value of
$1,000. Each pays interest of $120 annually. Bond A will mature in 5 years, while bond
B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to
14%, _________.
A. both bonds will increase in value but bond A will increase more than bond B
B. both bonds will increase in value but bond B will increase more than bond A
C. both bonds will decrease in value but bond A will decrease more than bond B
D. both bonds will decrease in value but bond B will decrease more than bond A
An employee has an average wage of $60,000 and has worked for the firm for 25 years.
The defined benefit pension plan pays retirees 2.5% of the average wage times the years
of service. The employee can expect to receive _______ per year upon retirement.
A. $18,000
B. $37,500
C. $45,325
D. $55,250
To _____ means to mitigate a financial risk.
A. invest
B. speculate
C. hedge
D. renege
Which of the following rates represents a bond’s annual interest payment per dollar of
par value?
A. holding period return
B. coupon rate
C. IRR
D. YTM
You sell short 300 shares of Microsoft that are currently selling at $30 per share. You
post the 50% margin required on the short sale. If you earn no interest on the funds in
your margin account, what will be your rate of return after 1 year if Microsoft is selling
at $27? (Ignore any dividends.)
A. 10%
B. 20%
C. 6.67%
D. 15%
The difference between LIBOR and the Treasury-bill rate
A. is called the TED spread.
B. measures credit risk in the banking sector.
C. was very low just before the 2008 financial crisis.
D. All of the options.
An investor plans to retire at age 60 with total savings of $1,000,000. If she is currently
35 years old, has no savings, and expects to earn 8% per year on her investments, how
much money must she set aside every year?
A. $15,546
B. $13,679
C. $11,892
D. $10,324
Which of the
following are
assumptions of
the simple CAPM
model?
I. Individual trades of investors do not affect a stock’s price.
II. All investors plan for one identical holding period.
III. All investors analyze securities in the same way and share the same economic view
of the world.
IV. All investors have the same level of risk aversion.
A. I, II, and IV only
B. I, II, and III only
C. II, III, and IV only
D. I, II, III, and IV
A stock with a current market price of $50 and a strike price of $45 has an associated
put option priced at $3.50. This put has an intrinsic value of ______ and a time value of
_____.
A. $3.50; $0
B. $5; $3.50
C. $3.50; $5
D. $0; $3.50
In order for a binomial option price to approach the Black Scholes price,
____________.
A.the number of subintervals must increase substantially
B.the volatility must be low
C.the probability of each subinterval needs to be similar to the stock’s standard
deviation
D.the interest rate needs to increase
The market share held by the “Other” category (which includes dark pools) constitutes
roughly ______% of trading volume in NYSE-listed shares.
A. 5%
B. 10%
C. 30%
D. 50%
A call option with several months until expiration has a strike price of $55 when the
stock price is $50. The option has _____
intrinsic value and _____ time value.
A. negative; positive
B. positive; negative
C. zero; zero
D. zero; positive
The standard deviation of return on investment A is .10, while the standard deviation of
return on investment B is .04. If the correlation coefficient between the returns on A and
B is -.50, the covariance of returns on A and B is _________.
A. -.0447
B. -.0020
C. .0020
D. .0447