The interest rate charged on margin accounts is determined by:
a. adding a percentage to the broker call rate.
b. adding a percentage to the margin interest rate.
c. subtracting a percentage to the broker call rate.
d. subtracting a percentage to the margin interest rate.
Which of the following statements is TRUE?
a. An American option’s premium almost never declines below its intrinsic value.
b. If a call is in the money, its intrinsic value equals zero.
c. The speculative premium reflects the option’s immediate value.
d. If the exercise price of an put is less than the stock price, the put is “out of the
money.”
Investment bankers are compensated by:
a. the underwriting spread
b. commissions paid by the buyers of the security
c. commission paid by the sellers of the security
d. guaranteed investment contracts
According to the behavioral finance, markets are always
a. informationally efficient.
b. informationally inefficient.
c. weak-form efficient.
d. semi-strong form efficient.
Which of the following might be used as a factor in an APT factor model?
a. The risk-free rate
b. Expected inflation
c. Unanticipated deviations from expected inflation
d. Loss by fire at a company’s manufacturing plant
The expected market return is 16 percent. The risk-free rate of return is 7 percent, and
BC Co. has a beta of 1.1. Their required rate of return is
a. 17.6 percent.
b. 16.0 percent.
c. 16.9 percent.
d. 23.0 percent.
Which exchange member is assigned to a specific trading post?
a. Commission broker
b. Floor trader
c. Specialist
d. Dealer
Assume that an investor buys one June NYSE Composite Index Futures Contract on
May 1 at a price of 72. The position is closed out after four days. The prices on the three
days after purchase were 72.5, 72.1 and 72.2. The initial margin is $3500. (a) Calculate
the current equity on each of the next three days.
(b) Calculate the excess equity for those three days.
(c) Calculate the final gain or loss on this position.
The National Bureau of Economic Research that measures business cycles and
officially decides when there are economic “turning points” is:
a. a division of the Department of Commerce of the U.S. Government.
b. an association of academic and professional economic forecasters.
c. a unit within the U.S. Federal Reserve.
d. a private nonprofit organization.
Which of the following is not one of the reasons two investors both using the constant
growth version of the DDM on the same stock might arrive at different estimates of the
stock’s value?
a. They used different expected returns.
b. They used different growth rates of dividends.
c. They used different required returns.
d. They assume a different payout ratio.
The only asset class to provide systematic protection against inflation is:
a. bonds
b. real estate
c. foreign stocks
d. TIPS
The expected market return is 9 percent. The risk-free rate of return is 1 percent, and
XYZ Co. has a beta of 1.4. The risk premium is
a. 8 percent.
b. 11.2 percent.
c. 12.2 percent.
d. 10.3 percent
Studies cited in the text show technical trading rules based on price and volume data
lead to investment timing decisions that
a. consistently outperform the buy-and-hold strategy.
b. minimize brokerage costs.
c. do not provide excess returns after all brokerage costs are deducted.
d. do provide excess returns to most investors who follow the rules faithfully.
To provide insurance against declining prices on previously purchased stock, an
investor could
a. buy a call.
b. write a put.
c. buy a stock index option.
d. buy a put.
A major difference between the dividend discount model (DDM) and the free cash flow
to equity model (FCFE) is that the FCFE:
a. accounts for potential capital gains and the DDM does not.
b. measures what a firm could pay out in dividends and the DDM measures what is
actually paid.
c. measures both dividend growth and stability and the DDM only measures the
dividend growth.
d. bases its calculations on future value techniques while the DDM uses present value
calculations.
Select the FALSE statement concerning efficient markets.
a. The current price of a stock reflects all known information.
b. Investors will use all relevant data in making their decisions.
c. A perfect adjustment in price follows any new information.
d. Following any adjustment, the new price does not have to be the new
equilibrium price.
Which of the following is not one of the characteristics of exchange traded funds
(ETFs)?
a. They are mostly passive portfolios.
b. They are sometimes managed portfolios.
c. They often track a particular sector of the market.
d. They are priced based on Net Asset Value.
Which of the following statements is true regarding multi-national corporations?
a. Both Exxon Mobil and Hewlett Packard earn roughly 70% of their profits from their
overseas operations.
b. Google currently derives about 95% of its earnings from the U.S.
c. Wal-Mart earns nearly 50% of its profits outside the U.S.
d. Coca-Cola has no overseas operations and no earnings outside the U.S. at all
Which of the following indicates the market is at its peak, according to contrarians?
a. the short-interest ratio is low
b. the bearish sentiment index is around 20 percent
c. mutual fund liquidity is low
d. all of the above would indicate a market peak to a contrarian
One way to calculate EPS is:
a. ROA x Book value per share.
b. ROE x Book value per share.
c. ROA/ Book value per share.
d. ROE/ Book value per share.
Over the period 1926-2007, which of the following financial assets showed the greatest
amount of price volatility, as measured by standard deviation?
Small-cap stocksLarge-cap stocksTreasury bondsTreasury bills
In terms of Venn Diagrams in terms of states of the world, explain how weak-form,
semistrong form, and strong form market efficiency relate to one another.
The two major considerations in investing are return and timing.
To estimate the intrinsic value of a company, investors could use the dividend discount
model to estimate intrinsic value, or an earnings multiplier model based on a forecast of
next year’s EPS and what is thought to be an appropriate P/E ratio.
The Crazy Horse Corporation’s stock is trading at $75. The firm paid out $2.20 in
dividends during the last year. If the payout ratio of the firm is 45 percent, what is its
price earnings ratio?
What is the difference between a seasoned new issue and an initial public offering?
How is relative strength calculated and used?
By 2005, program trading accounted for over 70 percent of total NYSE volume.