The __________ is among the world’s largest derivatives exchanges and operates a
fully electronic trading and clearing platform.
A. CBOE
B. CBOT
C. CME
D. Eurex
The difference between balanced funds and asset allocation funds is that _____.
A. balanced funds invest in bonds while asset allocation funds do not
B. asset allocation funds invest in bonds while balanced funds do not
C. balanced funds have relatively stable proportions of stocks and bonds while the
proportions may vary dramatically for asset allocation funds
D. balanced funds make no capital gain distributions and asset allocation funds make
both dividend and capital gain distributions
An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity.
The investor’s bond equivalent yield on this investment is
_____.
A. 4.8%
B. 4.97%
C. 5.47%
D. 5.74%
A common stock pays an annual dividend per share of $1.80. The risk-free rate is 5%,
and the risk premium for this stock is 4%. If the annual dividend is expected to remain
at $1.80 per share, what is the value of the stock?
A. $17.78
B. $20
C. $40
D.
The ____ requires full disclosure of relevant information relating to the issue of new
securities.
A. Insider Trading Act of 1931
B. Securities Act of 1933
C. Securities Exchange Act of 1934
D. Investment Company Act of 1940
In a recent study, Malkiel found that evidence of persistence in the performance of
mutual funds ________________ in the 1980s.
A. grew stronger
B. remained about the same
C. became slightly weaker
D. virtually disappeared
Which of the following is a false statement regarding open-end mutual funds?
A. They offer investors a guaranteed rate of return.
B. They offer investors a well-diversified portfolio.
C. They redeem shares at their net asset value.
D. They offer low-cost diversification.
An investor who is in the 35% federal tax bracket and the 5% state bracket buys a 6.5%
yield corporate bond. What is his after-tax yield? (Assume that federal taxes are not
deductible against state taxes and vice versa).
A. 3.9%
B. 4.75%
C. 6.5%
D. 9.9%
The stock price of Harper Corp. is $33 today. The risk-free rate of return is 6%, and
Harper Corp. pays no dividends. A put option on Harper Corp. stock with an exercise
price of $30 and an expiration date 73 days from now is worth $.95 today. A call option
on Harper Corp. stock with an exercise price of $30 and the same expiration date
should be worth __________
today.
A. $2.25
B. $3.14
C. $3.99
D. $4.31
Both a wife and her husband work in the airline industry. They are in their 40s, and they
have a high tax bracket and are concerned about their after-tax rate of return. A meeting
with their financial planner reveals that they are primarily focused on long-term capital
gains and will need at least a 9% to 11% average rate of return to meet their retirement
goals. They desire a diversified portfolio, and liquidity is not currently a major concern.
Which of the following asset allocations seems to best fit their situation?
A. 10% money market; 40% long-term bonds; 10% commodities; 40%
high-dividend-paying stocks
B. 0% money market; 60% long-term bonds; 40% stocks
C. 10% money market; 30% long-term bonds; 10% commodities; 50%
high-dividend-paying stocks
D. 5% money market; 30% long-term bonds; 5% commodities; 60% stocks, most with
low dividends and high growth prospects
The financial statements of Burnaby Mountain Trading Company are shown below.
Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm’s
fixed-asset turnover ratio for 2015 is _________. (Please keep in mind that when a ratio
involves both income statement and balance sheet numbers, the balance sheet numbers
for the beginning and end of the year must be averaged.)
A. 2.8
B. 6
C. 9
D. 11.11
Security A has a higher standard deviation of returns than security B. We would expect
that:
I. Security A would have a higher risk premium than security B.
II. The likely range of returns for security A in any given year would be higher than the
likely range of returns for security B.
III. The Sharpe ratio of A will be higher than the Sharpe ratio of B.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
The yen-per-dollar spot rate is 104. The yen-per-dollar forward rate is 107. If the U.S.
risk-free rate is 2.4%, what is the likely yen risk-free rate?
A. 1.24%
B. 2.35%
C. 3.98%
D. 5.35%
The overwhelming majority of trading in futures contracts is done via ______.
A. trading pits
B. phone
C. open outcry
D. electronic networks
Empirical tests to date show ______________.
A. that many investors have earned large rewards by market timing
B. little evidence of market-timing ability
C. clear-cut evidence of substantial market-timing ability
D. evidence that absolutely no market-timing ability exists
The risk that can be diversified away is __________.
A. beta
B. firm-specific risk
C. market risk
D. systematic risk
Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.
After 1 year, the exchange rate is $1.50/₤ and the share price is ₤45. How much of your
dollar-denominated return is due to the currency change?
A. 10%
B. 6.43%
C. 4.34%
D. 2.12%
You purchased 200 shares of ABC common stock on margin at $50 per share. Assume
the initial margin is 50% and the maintenance margin is 30%. You will get a margin call
if the stock drops below ________. (Assume the stock pays no dividends, and ignore
interest on the margin loan.)
A. $26.55
B. $35.71
C. $28.95
D. $30.77
Suppose you find two bonds identical in all respects except that bond A is convertible to
common stock and bond B is not. Bond A is priced at $1,245, and bond B is priced at
$1,120. Bond A has a promised yield to maturity of 5.6%, and bond B has a promised
yield to maturity of 6.7%. The stock of bond A is trading at $49.80 per share. Which of
the following statements is (are) correct?
I. The value of the conversion option for bond A is $125.
II. The lower promised yield to maturity of bond A indicates that the bond is priced
according to its straight debt value rather than its conversion value.
III. If bond A can be converted into 25 shares of stock, the investor would break even at
the current prices.
A. II only
B. I and III only
C. III only
D. I, II, and III
The table presents the actual return of each sector of the manager’s portfolio in column
(1), the fraction of the portfolio allocated to each sector in column (2), the benchmark
or neutral sector allocations in column (3), and the returns of sector indexes in column
4.
What was the
bogey’s return in
the month?
A. 2.07%
B. 2.21%
C. 2.24%
D. 4.8%
Value stocks are more likely to have a PEG ratio _____.
A. less than 1
B. equal to 1
C. greater than 1
D. less than zero
Which one of the following statements about 401k plans is not correct?
A. The employer will typically match some portion of an employee’s contributions to a
401k.
B. A 401k plan is a defined contribution plan.
C. Allowable contributions to 401k plans are limited.
The largest nongovernmental regulator of securities firms in the United States is
________.
A. the CFA Institute
B. the Public Company Accounting Oversight Board
C. the Financial Industry Regulatory Authority
D. the Board of Directors of NYSE Euronext
A worker plans to retire in 20 years. He needs $20,000 per year in retirement income in
today’s dollars. If inflation is forecast at 3.5% per year, what annual income should he
plan to receive in the first year of retirement in order to maintain the purchasing power
on $20,000?
A. $30,353
B. $34,159
C. $37,398
D. $39,796
A __________ is a private investment pool open only to wealthy or institutional
investors that is exempt from SEC regulation and can therefore pursue more speculative
policies than mutual funds.
A. commingled pool
B. unit trust
C. hedge fund
D. money market fund
According to Elliot’s wave theory, stock market behavior can be explained as
_________________.
A. a series of medium-term wave cycles with no short-term trend
B. a series of long-term wave cycles with no short-term trend
C. a series of superimposed long-term and short-term wave cycles
D. sine and cosine functions
You buy one Huge-Packing August 50 call contract and one Huge-Packing August 50
put contract. The call premium is $1.25, and the put premium is $4.50. Your highest
potential loss from this position is _________.
A. $125
B. $450
C. $575
D. unlimited
As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5
minutes if large stocks’ prices change by more than _____ in a 5-minute period.
A. 10%
B. 20%
C. 30%
D. 40%
You would typically find all but which one of the following in a bond contract?
A. a dividend restriction clause
B. a sinking fund clause
C. a requirement to subordinate any new debt issued
D. a price-earnings ratio
You put half of your money in a stock portfolio that has an expected return of 14% and
a standard deviation of 24%. You put the rest of your money in a risky bond portfolio
that has an expected return of 6% and a standard deviation of 12%. The stock and bond
portfolios have a correlation of .55. The standard deviation of the resulting portfolio
will be ________________.
A. more than 18% but less than 24%
B. equal to 18%
C. more than 12% but less than 18%
D. equal to 12%
The nominal interest rate is 6%. The inflation rate is 3%. The exact real interest rate
must be _________.
A. 2.91%
B. 3.85%
C. 1.45%
D. 2.12%
In a study conducted by Jagannathan and Wang, it was found that the performance of
beta in explaining security returns could be considerably enhanced by:
I. Including the unsystematic risk of a stock
II. Including human capital in the market portfolio
III. Allowing for changes in beta over time
A. I and II only
B. II and III only
C. I and III only
D. I, II, and III