The risk premium for exposure to exchange rates is 5%, and the firm has a beta relative
to exchange rates of .4. The risk premium for exposure to the consumer price index is
-6%, and the firm has a beta relative to the CPI of .8. If the risk-free rate is 3%, what is
the expected return on this stock?
A. .2%
B. 1.5%
C. 3.6%
D. 4%
The level of real income of a firm can be distorted by the reporting of depreciation and
interest expense. During periods of low inflation, the level of reported depreciation
tends to __________ income, and the level of interest expense reported tends to
__________ income.
A. understate; overstate
B. understate; understate
C. overstate; understate
D. overstate; overstate
What strategy might an insurance company employ to ensure that it will be able to meet
the obligations of annuity holders?
A. cash flow matching
B. index tracking
C. yield pickup swaps
D. substitution swap
When all investors analyze securities in the same way and share the same economic
view of the world, we say they have
____________________.
A. heterogeneous expectations
B. equal risk aversion
C. asymmetric information
D. homogeneous expectations
You sell one Huge-Packing August 50 call contract and sell one Huge-Packing August
50 put contract. The call premium is $1.25 and the put premium is $4.50. Your strategy
will pay off only if the stock price is __________ in August.
A. either lower than $44.25 or higher than $55.75
B. between $44.25 and $55.75
C. higher than $55.75
D. lower than $44.25
You are considering acquiring a common share of Sahali Shopping Center Corporation
that you would like to hold for 1 year. You expect to receive both $1.25 in dividends
and $35 from the sale of the share at the end of the year. The maximum price you would
pay for a share today is __________ if you wanted to earn a 12% return.
A. $31.25
B. $32.37
C. $38.47
D. $41.32
Strips and straps are variations of __________.
A. straddles
B. collars
C. money spreads
D. time spreads
What was the result of high-frequency traders’ leaving the market during the flash crash
of 2010?
A. Market liquidity decreased.
B. Market liquidity increased.
C. Market volatility decreased.
D. Trading frequency increased.
The CFA Institute Standards of Professional Conduct require that members _____.
A. place their clients’ interests before their own
B. disclose conflicts of interest to clients
C. inform their employers that they are obligated to comply with the Standards of
Professional Conduct
D. all of these options
______ option can only be exercised on the expiration date.
A. A Mexican
B. An Asian
C. An American
D. A European
A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is
$2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold
futures contracts on 10,000 bushels of corn.
What are the farmer’s proceeds from the sale of corn?
A. $27,500
B. $31,875
C. $33,875
D. $35,950
A project has a 60% chance of doubling your investment in 1 year and a 40% chance of
losing half your money. What is the standard deviation of this investment?
A. 25%
B. 50%
C. 62%
D. 73%
If you expect a stock market downturn, one potential defensive strategy would be to
__________.
A. buy stock-index futures
B. sell stock-index futures
C. buy stock-index options
D. sell foreign exchange futures
_______ bonds represent a novel way of obtaining insurance from capital markets
against specified disasters.
A. Asset-backed bonds
B. TIPS
C. Catastrophe
D. Pay-in-kind
Liabilities equal approximately _____ of total assets for nonfinancial U.S. businesses.
A. 10%
B. 25%
C. 45%
D. 75%
Cash Flow Data for Interceptors, Inc.
Based on the cash flow data in the table for Interceptors Inc., which of the following
statements is (are) correct?
I. This firm appears to be a good investment because of its steady growth in cash.
II. This firm has been able to generate growing cash flows only by borrowing or selling
equity to offset declining operating cash flows.
III. Financing activities have been increasingly important for this firm’s operations, at
least in the short run.
A. I only
B. II and III only
C. II only
D. I and II only
During the 1926-2013 period the geometric mean return on small-firm stocks was
______.
A. 5.31%
B. 5.56%
C. 9.34%
D. 11.82%
Bonds issued in the currency of the issuer’s country but sold in other national markets
are called _____________.
A. Eurobonds
B. Yankee bonds
C. Samurai bonds
D. foreign bonds
On a particular day, there were 890 stocks that advanced on the NYSE and 723 that
declined. The volume in advancing issues was 80,846,000, and the volume in declining
issues was 70,397,000. The common measure of market breadth is __________.
A. -10,449,000
B. -167
C. 167
D. 10,449,000
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.2.
Stock B has an expected return of 14% and a beta of 1.8. The expected market rate of
return is 9% and the risk-free rate is 5%. Security __________ would be considered the
better buy because
_________.
A. A; it offers an expected excess return of .2%
B. A; it offers an expected excess return of 2.2%
C. B; it offers an expected excess return of 1.8%
D. B; it offers an expected return of 2.4%
You have calculated the historical dollar-weighted return, annual geometric average
return, and annual arithmetic average return. If you desire to forecast performance for
next year, the best forecast will be given by the ________.
A. dollar-weighted return
B. geometric average return
C. arithmetic average return
D. index return
To earn a high rating from the bond rating agencies, a company would want to have:
I. A low times-interest-earned ratio
II. A low debt-to-equity ratio
III. A high quick ratio
A. I only
B. II and III only
C. I and III only
D. I, II, and III
Initial margin is usually set in the region of ________ of the total value of a futures
contract.
A. 5%-15%
B. 10%-20%
C. 15%-25%
D. 20%-30%
Most real estate investment trusts (REITs) have a debt ratio of around _________.
A. 10%
B. 30%
C. 50%
D. 70%
Which type of fund is often priced at a significant discount to net asset value?
A. open-end fund
B. closed-end fund
C. hedge fund
D. ETF
Which one of the following performance measures is the Sharpe ratio?
A. average excess return to beta ratio
B. average excess return to standard deviation ratio
C. alpha to standard deviation of residuals ratio
D. average return minus required return
If the quote for a Treasury bond is listed in the newspaper as 99.25 bid, 99.26 ask, the
actual price at which you can sell this bond given a $10,000 par value is
_____________.
A. $9,828.12
B. $9,925
C. $9,934.3
D. $9,955.43
Which one of the following averaging methods is the preferred method of constructing
returns series for use in evaluating portfolio performance?
A. geometric average
B. arithmetic average
C. dollar weighted
D. internal
Real assets are ______.
A. assets used to produce goods and services
B. always the same as financial assets
C. always equal to liabilities
D. claims on a company’s income