Which of the following is true regarding Modigliani-squared?
a. It compares Treasury bills to the S&P 500 Index.
b. It states its results in both percentage and graphical form.
c. It equates the volatility of a portfolio with the market.
d. It compares fixed income securities with equities securities.
The basic competitive factors facing industries include all of the following except:
a. bargaining power of suppliers
b. threat of government regulation
c. rivalry between existing competitors
d. threat of substitute products
Under the Markowitz model, investors:
a. are assumed to be risk-seekers
b. are not allowed to use leverage
c. are assumed to be institutional investors
d. are always better off if they select portfolios consisting of multiple securities
Which of the following statements is true regarding TIPS?
a. As inflation changes, the interest rate on the bond is adjusted
b. The correlation between TIPS and the S&P 500 Index has often been negative
c. TIPS are more volatile than regular Treasury bonds of similar maturity
d. TIPS always pay a premium over inflation
Fama and Blume (1969) tested 24 filters ranging from 0.50% to 50% on each of the 30
DJIA stocks. Among the tested filters:
a. several were profitable before commissions but not after.
b. several were profitable before and after commissions.
c. none were profitable even before commissions.
d. all were profitable before commissions but not after.
One aspect of the tax considerations in asset allocation is that
a. capital gains are often taxed at a higher rate than income.
b. current income is seldom a significant consideration for an investor in the
spending phase of the life cycle.
c. investors are exempt from taxes on capital gains once they reach age 65.
d. taxes on capital gains are deferred until the gain is realized.
The coupon rate is another name for the:
a. market interest rate.
b. current yield.
c. stated interest rate.
d. yield to maturity
Which of the following industry categories is said to be “bought to be sold?”
a. cyclical
b. defensive
c. growth
d. countercyclical
Given the following for Mighty Manufacturing Company:
Operating efficiency = 0. 1
Net income = $50,000,000
Net income margin = 0. 05
Total asset turnover = 3
Leverage = 1. 5
Retention rate = 0. 3
(a)Calculate ROA.
(b)Calculate ROE.
(c)Find the growth rate of dividends.
Europe’s leading cross border exchange is:
a. Deutsche Boerse
b. Euromarket
c. London Stock Exchange
d. NYSE Euronext
Security analysis is most concerned with:
a. analysis of the overall securities market and its direction.
b. valuation and analysis of individual securities.
c. purchasing securities at the best price.
d. determination of the investor’s required return.
The random walk hypothesis is most related to the:
a. weak-form EMH
b. semistrong-form EMH
c. semiweak-form EMH
d. strong-form EMH
Which of the following is considered to a leading indicator of a country’s economy?
a. duration of unemployment
b. stock prices
c. money supply
d. interest rate spread
EPS are of higher quality if:
a. the company is a blue chip.
b. the auditor’s reputation is high.
c. they were derived using conservative principles.
d. FASB has approved them.
Which of the following is not true regarding life-cycle approach?
a. It is most appropriate for institutions. .
b. It automatically adjusts to a more conservative position as the investor nears
retirement age.
c. It is suited to 401(k) plans.
d. It can be implemented using life-cycle (also known as target-date) funds.
The largest electronic screen-based equity securities market in the U.S. is known as:
a. Pink Sheets
b. Instinet
c. Amex
d. NASDAQ
——Call—— ——Put——Option/Strike Exp. Vol.
Last Vol. Last.XYZ38 5/8 25 Dec. — —– 100 1/838 5/8 30
Nov. 250 8 ¾ 464 1/1638 5/8 30 Dec. — —– 572
5/1638 5/8 35 Nov. 154 4 1/2 1748 5/1638 5/8 35 Dec. 923 5
1/4 580 1 3/1638 5/8 35 Mar. — —– 33 2 5/838 5/8 40
Nov. 2023 1 1/8 530 2 3/8 The closest quote for the Dec. 25 call, were it to
trade, would be
a. 12.
b. 4 7/8.
c. 10 1/2.
d. 13 5/8.
Ans: d
An investor purchases 100 shares of a $60 stock when the initial margin requirement is
50 percent and the maintenance margin is 30 percent.
(a) How much must the investor put up initially in order to purchase the stock?
(b) Calculate the actual margin if the price of the stock drops to $55.
(c) At what stock price will a margin call occur?
(d) If the stock price falls to $58, is the account restricted?
If security markets are totally efficient, the best common stock strategy to take is:
a. an asset allocation approach.
b. the modern portfolio theory.
c. an active strategy.
d. a passive strategy.
Now let’s look from the view of the investor who buys an 8 percent semiannual bond
with 8 years remaining to maturity, when market rates are 6%. If this investor pays
$1,125.44 for the bond, what is his current yield?
a) 3.55 percent
b) 7.11 percent
c) 8.00 percent
d) 10.00 percent
An investor who sells a Treasury bond futures contract is expecting to profit from
a. an increase in the price of the treasury bond.
b. an increase in the underlying level of interest rates.
c. interest rates remaining unchanged.
d. a decrease in the underlying level of interest rates.
What four factors should be considered in testing technical trading rules?
P/E ratios are generally low when interest rates and inflation are high.
The NAICS uses a five digit hierarchical coding system to classify all economic activity
into 20 industry sectors, providing greater flexibility relative to SIC codes. A total of 15
of these sectors are devoted to services-producing sectors, compared to only 5 that are
mainly goods-producing sectors. NAICS allows for identification of 1,170 industries. It
includes 9 new service sectors and 250 new service industries.
The purpose of performance attribution is to assess the risk of a portfolio.
Under the life cycle approach, the lowest risk and lowest return should come during the
spending and gifting stages.
Both present value and future value are based upon the concept of the time value of
money.
What is the role of the clearinghouse in futures trading?
Approaches to assessing the stock market’s likely direction include application of the
________________ model, also called the Fed model.
Money market securities generally carry a low chance of default.
Monitoring and revision are part of the Maginn et al. (2007) portfolio management
process.