Which one of the following trading symbols is associated with the ETF on the S&P 500
index?
A. DIA
B. QQQQ
C. SPY
D. SPX
E. DIAX
PT Boats plans to pay a $2.25 a share dividend at the end of each of the next 2 years. At
the end of year 3, it will pay a final liquidating dividend of $15 a share. After that, the
company plans to close its doors permanently. What is the current value of this stock at
a discount rate of 15 percent?
A. $9.89
B. $10.26
C. $11.54
D. $12.47
E. $13.50
Which of the following will increase if the coupon rate increases?
I. face value
II. market value
III. yield-to-maturity
IV. current yield
A. I and II only
B. III and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
You have a portfolio which is comprised of 72 percent of stock A and 28 percent of
stock B. What is the variance of this portfolio?
A. 190.9
B. 203.8
C. 268.1
D. 290.9
E. 306.9
Which one of the following is probably the best measure of the performance of a
well-diversified portfolio?
A. Jensen’s alpha
B. Value at Risk
C. Jensen-Treynor alpha
D. Sharpe ratio
E. Treynor ratio
A call option is an agreement that:
A. obligates both the buyer and seller to a future transaction.
B. grants the seller the right to buy a security at a predetermined price.
C. gives the buyer the right to purchase an asset at some point in the future.
D. grants the seller the right, but not the obligation, to sell an asset.
E. presets a price but not a time period.
A firm that specializes in arranging financing for companies is called a(n):
A. floor broker
B. investment banking firm
C. investment dealer
D. private broker
E. marketing firm
Beach & Company reported net income of $40 million for last year. Depreciation
expense totaled $18 million and capital expenditures came to $8 million. Free cash flow
is expected to grow at a rate of 5% for the foreseeable future. Beach faces a 40% tax
rate and has a 0.40 debt to equity ratio with $200 million (market value) in debt
outstanding. Beach’s equity beta is 1.25, the risk-free rate is currently 4.5% and the
market risk premium is estimated to be 8.0%. What is the current total value of Beach
& Company (in millions)?
A. $655.90
B. $730.18
C. $840.95
D. $919.46
E. $1,025.95
You have an equity portfolio valued at $1.55 million that has a beta of 1.21. You have
decided to hedge this portfolio using SPX call option contracts. The S&P 500 index is
currently 1457. The option delta is .6435. How many option contracts must you write to
effectively hedge your portfolio?
A. 14 contracts
B. 18 contracts
C. 20 contracts
D. 25 contracts
E. 28 contracts
Handy Man Services, Inc. has net income of $525,000. What is the addition to retained
earnings if the dividend payout ratio is 40 percent?
A. $123,253
B. $157,250
C. $183,750
D. $221,813
E. $315,000
Which one of the following is a government agency?
A. FHLMC
B. Fannie Mae
C. Freddie Mac
D. GNMA
E. FNMA
A stock is currently selling for $28 a share and has a dividend yield of 3.2 percent. The
risk-free rate is 2.5 percent. What is the 6-month futures price on this stock?
A. $27.66
B. $27.90
C. $28.02
D. $28.10
E. $28.35
The security market line depicts the graphical relationship between which two of the
following?
I. expected return
II. surprise return
III. systematic risk
IV. unsystematic risk
A. I and III
B. I and IV
C. II and III
D. II and IV
E. none of these
The constant perpetual growth model assumes the:
A. dividends are paid for a stated number of years only.
B. net income is all paid out in dividends.
C. growth rate is less than the discount rate.
D. dividends are constant in amount.
E. discount rate increases at a constant rate.
Jeff owns a taxable bond portfolio which is yielding 8.76 percent. His after-tax yield is
6.57 percent. What is his marginal tax rate?
A. 25 percent
B. 28 percent
C. 31 percent
D. 32 percent
E. 34 percent
When the seller of a futures contract is granted a choice among various assets to deliver,
the seller is said to have which one of the following options?
A. right-to-choose option
B. spot or futures option
C. cheapest-to-deliver option
D. mark-to-market option
E. flexible delivery option
Anna is an individual investor. She purchases shares at the _____ price and sells at the
_____ price.
A. asked; bid
B. average; asked
C. bid; asked
D. bid; average
E. asked; average
The dirty price of a bond is the:
A. invoice price.
B. quoted price.
C. issue price.
D. average of the bid and asked prices.
E. dealer purchase price.
U.S. government agency bonds pay interest which is subject to which of the following
taxes?
A. federal only
B. state only
C. state and local only
D. state and federal only
E. state, local, and federal
A stock with a current price of $28 will either move up by a factor of 1.10 or down by a
factor of .90 each period over the next two periods. The risk-free rate of interest is 4
percent. What is the current value of a call option with a strike price of $30?
A. $1.36
B. $1.49
C. $1.71
D. $2.09
E. $2.13
Which one of the following represents a residual ownership interest in the issuer?
A. U.S. Treasury bond
B. corporate bond
C. municipal bond
D. preferred stock
E. common stock
Which one of the following combinations creates an in-the-money option?
A. underlying stock price is less than the strike price of a call
B. underlying stock price is $18 and the put has an exercise price of $15
C. underlying stock price is $22 and the call has an exercise price of $25
D. put strike price exceeds the underlying stock price
E. put price is equal to the call price
You bought a put option contract with a strike price of $37.50 and a premium of $1.80.
At expiration, the stock was selling for $35 a share. What is the net total amount you
received for your shares assuming that you disposed of your shares on the expiration
date?
A. $3,680
B. $3,930
C. $3,570
D. $3,330
E. $3,320
According to the systematic risk principle, the reward for bearing risk is based on which
one of the following types of risk?
A. unsystematic
B. firm specific
C. expected
D. systematic
E. diversifiable
A convertible bond has a par value of $1,000, a market value of $875, and a conversion
ratio of 14. What is the conversion price?
A. $55.56
B. $58.82
C. $62.50
D. $66.67
E. $71.43
Which one of the following is the best example of systematic risk?
A. there is a shortage of nurses
B. a fire destroys a warehouse
C. gas prices rise sharply
D. the cost of sugar increases
E. two firms merge their operations
Which one of the following situations will produce the highest put price, all else
constant? Assume the options are all in-the-money.
A. $30 stock price; 20 percent standard deviation
B. $30 stock price; 25 percent standard deviation
C. $35 stock price; 20 percent standard deviation
D. $35 stock price; 25 percent standard deviation
E. Insufficient information is provided to answer this question.
A short straddle:
A. involves exercising two or more options simultaneously.
B. is the purchase of both a put and a call on the same underlying asset.
C. obtains its maximum profit when the underlying stock price is equal to the strike
price.
D. involves writing a call on shares of stock you currently own.
E. is a highly bullish strategy.
A 6 percent, semiannual coupon bond has a yield to maturity of 7.4 percent and a
Macaulay duration of 5.7. The bond has a modified duration of _____ and will have a
_____ percentage increase in price in response to a 25 basis point decrease in the yield
to maturity.
A. 5.4829; 1.35
B. 5.4966; 1.32
C. 5.4966; 1.37
D. 5.3073; 1.33
E. 5.3073; 1.38
Celsius stock had year end prices of $42, $37, $44, and $46 over the past four years,
respectively. What is the arithmetic average rate of return?
A. 3.17 percent
B. 3.85 percent
C. 4.28 percent
D. 10.63 percent
E. 11.79 percent
A firm’s current stock price divided by the firm’s revenue per share is referred to as
which one of the following ratios?
A. price-earnings
B. price-book
C. price-income
D. price-sales
E. price-cash flow
A portfolio has an actual return of 15.17 percent, a beta of .85, and a standard deviation
of 7.2 percent. The market return is 13.4 percent and the risk-free rate is 2.8 percent.
What is the portfolio’s Jensen’s alpha?
A. 2.25 percent
B. 2.51 percent
C. 2.67 percent
D. 3.36 percent
E. 4.04 percent
Immediately following the Crash of 1987, the stock market:
A. remained in a slump for five years.
B. remained flat for an extended period of time.
C. had one of the biggest short-term gains ever.
D. began a very slow and choppy recovery.
E. began a very slow and smooth recovery.
A portfolio has a Sharpe ratio of .80, a standard deviation of 17.4 percent, and an
expected return of 15.9 percent. What is the risk-free rate?
A. 1.98 percent
B. 2.36 percent
C. 2.48 percent
D. 3.09 percent
E. 3.15 percent
You own a 6.5 percent, semiannual coupon bond that matures in 7 years. The par value
is $1,000 and the current yield to maturity is 6.8 percent. What will the percentage
change in the price of your bond be if the yield to maturity suddenly increases by 75
basis points?
A. -4.05 percent
B. -4.19 percent
C. -4.24 percent
D. -4.31 percent
E. -4.47 percent