1)
the confidence index on day 1 is _____.
a..82
b..89
c..92
d.1.09
2) the put/call ratio is a ______ indicator.
a.sentiment
b.flow of funds
c.market structure
d.fundamental
3) specialists try to maintain a narrow bid-ask spread because:
i. if the spread is too large, they will not participate in as many trades, losing
commission income.
ii. the exchange requires specialists to maintain price continuity.
iii. specialists are nonprofit entities designed to facilitate market transactions rather than
make a profit.
a.i only
b.i and ii only
c.ii and iii only
d.i, ii, and iii
4) a high dividend payout will ______ the value of a call option and ______ the value
of a put option.
a.increase; decrease
b.increase; increase
c.decrease; increase
d.decrease; decrease
5) an official description of a particular mutual fund’s planned investment policy can be
found in the fund’s _____________.
a.prospectus
b.indenture
c.investment statement
d.12b-1 forms
6) in a well-diversified portfolio, __________ risk is negligible.
a.nondiversifiable
b.market
c.systematic
d.unsystematic
7) __________ often accompany short sales and are used to limit potential losses from
the short position.
a.limit orders
b.restricted orders
c.limit loss orders
d.stop-buy orders
8) firm a acquires firm b when firm b has a book value of assets of $155 million and a
book value of liabilities of $35 million. firm a actually pays $175 million for firm b.
this purchase would result in goodwill for firm a equal to _____.
a.$175 million
b.$155 million
c.$120 million
d.$55 million
9) according to the semistrong form of the efficient markets hypothesis, ____________.
a.stock prices do not rapidly adjust to new information
b.future changes in stock prices cannot be predicted from any information that is
publicly available
c.corporate insiders should have no better investment performance than other investors
even if allowed to trade freely
d.arbitrage between futures and cash markets should not produce extraordinary profits
10) the free cash flow to the firm is reported as $405 million. the interest expense to the
firm is $76 million. if the tax rate is 35% and the net debt of the firm increased by $50
million, what is the free cash flow to the equity holders of the firm?
a.$405.6 million
b.$454.2 million
c.$505.8 million
d.$553.5 million
11) the risk-free interest rate in the united states is 8%, while the risk-free interest rate
in the united kingdom is 15%. if the 1-year futures price on the british pound is $2.40,
the spot market value of the british pound today should be __________.
a.$1.93
b.$2.22
c.$2.56
d.$2.76
12) _____ is a mechanism for mitigating potential agency problems.
a.tying income of managers to success of the firm
b.directors defending top management
c.antitakeover strategies
d.the straight voting method of electing the board of directors
13) by 2008, over 100 countries had adopted financial reporting standards that are in
conformance with ________.
a.gaap
b.ifrs
c.fasb
d.gasb
14) a portfolio generates an annual return of 13%, a beta of .7, and a standard deviation
of 17%. the market index return is 14% and has a standard deviation of 21%. what is
the m2 measure of the portfolio if the risk-free rate is 5%?
a..58%
b..68%
c..78%
d..88%
15) a 6% coupon u.s. treasury note pays interest on may 31 and november 30 and is
traded for settlement on august 10. the accrued interest on the $100,000 face amount of
this note is _________.
a.$581.97
b.$1,163.93
c.$2,327.87
d.$3,000
16) estimates of a stock’s intrinsic value calculated with the free cash flow methodology
depend most critically on _______.
a.the terminal value used
b.whether one uses fcff or fcfe
c.the time period used to estimate the cash flows
d.whether the firm is currently paying dividends
17) according to the capital asset pricing model, in equilibrium _________.
a.all securities’ returns must lie below the capital market line
b.all securities’ returns must lie on the security market line
c.the slope of the security market line must be less than the market risk premium
d.any security with a beta of 1 must have an excess return of zero