1) both investors and gamblers take on risk. the difference between an investor and a
gambler is that an investor _______.
a.is normally risk neutral
b.requires a risk premium to take on the risk
c.knows he or she will not lose money
d.knows the outcomes at the beginning of the holding period
2) use the following cash flow data of haven hardware for the year ended december 31,
2012.
what is the cash at the end of 2012 for haven hardware?
a.$6,000
b.$94,000
c.$736,000
d.$188,000
3) research by aragon (2007) indicates that lock-up restrictions tend to hold
____________ portfolios.
a.less liquid
b.more liquid
c.event-driven
d.shorter-maturity
4) which one of the following is not likely to be subject to adverse selection?
a.health insurance providers
b.lifetime annuity providers
c.life insurance providers
d.social security
5) which of the following transactions will result in a decrease in cash flow from
operations?
a.increase in accounts receivable
b.decrease in inventories
c.decrease in taxes payable
d.decrease in bonds outstanding
6) the values of beta coefficients of securities are __________.
a.always positive
b.always negative
c.always between positive 1 and negative 1
d.usually positive but are not restricted in any particular way
7) behavioralists point out that even if market prices are ____________, there may be
_______________.
a.distorted; limited arbitrage opportunities
b.distorted; fundamental efficiency
c.allocationally efficient; limitless arbitrage opportunities
d.distorted; allocational efficiency
8) a convertible bond has a par value of $1,000, but its current market price is $950. the
current price of the issuing company’s stock is $19, and the conversion ratio is 40
shares. the bond’s conversion premium is _________.
a.$50
b.$190
c.$200
d.$240
9) financial markets allow for all but which one of the following?
a.shift consumption through time from higher-income periods to lower
b.price securities according to their riskiness
c.channel funds from lenders of funds to borrowers of funds
d.allow most participants to routinely earn high returns with low risk
10) you believe that the spread between the september s&p 500 future and the s&p 500
index is too large and will soon correct. to take advantage of this mispricing, a hedge
fund should ______________.
a.buy all the stocks in the s&p 500 and write put options on the s&p 500 index
b.sell all the stocks in the s&p 500 and buy call options on the s&p 500 index
c.sell s&p 500 index futures and buy all the stocks in the s&p 500
d.sell short all the stocks in the s&p 500 and buy s&p 500 index futures
11) my pension plan will pay me a yearly retirement amount equal to 2% of my highest
annual salary for each year of service. i must have ___________.
a.a defined benefit plan
b.a defined contribution plan
c.an endowment fund
d.a variable annuity
12) a treasury bond due in 1 year has a yield of 6.3%, while a treasury bond due in 5
years has a yield of 8.8%. a bond due in 5 years issued by high country marketing corp.
has a yield of 9.6%, while a bond due in 1 year issued by high country marketing corp.
has a yield of 6.8%. the default risk premiums on the 1-year and 5-year bonds issued by
high country marketing corp. are, respectively, __________ and _________.
a..4%; .3%
b..4%; .5%
c..5%; .5%
d..5%; .8%
13) the market share held by the nyse arca system in february 2011 was approximately
____.
a.65%
b.45%
c.25%
d.10%
14) an importer of televisions from japan has a contract to purchase a shipment of
televisions for 2 million yen. the spot rate increases from 105 yen per dollar to 108 yen
per dollar. what is the importer’s gain or loss?
a.$529 gain
b.$529 loss
c.$619 gain
d.$619 loss
15) 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
16) the standard & poor’s 500 is __________ weighted index.
a.an equally
b.a price-
c.a value-
d.a share-
17) during the 1926-2010 period the geometric mean return on treasury bonds was
_________.
a.5.12%
b.5.56%
c.9.34%
d.11.43%