You sold short 300 shares of common stock at $30 per share. The initial margin is 50%.
You must put up _________.
A. $4,500
B. $6,000
C. $9,000
D. $10,000
Yields on municipal bonds are typically ___________ yields on corporate bonds of
similar risk and time to maturity.
A. lower than
B. slightly higher than
C. identical to
D. twice as high as
You find digital option quotes on jobless claims. You can buy a call option with a strike
price of 300,000 jobless claims. This option pays $100 if actual claims exceed the strike
price and pays zero otherwise. The option costs $68. A second digital call with a strike
price of 305,000 jobless claims is available at a cost of $53. Suppose you buy the option
with the 300,000 strike and sell the option with the 305,000 strike and jobless claims
actually wind up at 303,000. Your net profit on the position is ______.
A. -$15
B. $200
C. $85
D. $185
A pension fund will owe $15 million to retirees in 20 years. An actuary assumes a 6%
rate of return on the funds invested in the pension plan, but the fund actually earns 8%.
The pension plan receives annual contributions from the company sponsor. If the 8%
rate of return is expected to continue, by how much can the company reduce its pension
payments per year?
A. $65,437
B. $79,985
C. $89,462
D. $95,320
The ______________ is the most important dealer market in the United States, and the
______________ is the most important auction market.
A. NYSE; NASDAQ
B. NASDAQ; NYSE
C. CME; OTC
D. AMEX; NYSE
A clearly understood investment policy statement is not critical for which one of the
following?
I. Mutual funds
II. Individuals
III. Defined benefit pension funds
A. II only
B. III only
C. I only
D.
The __________ calculates the reward to risk trade-off by dividing the average
portfolio excess return by the portfolio beta.
A. Sharpe ratio
B. Treynor measure
C. Jensen measure
D. appraisal ratio
The proper formula for interest rate parity is ___________.
A. [1 + rf(foreign)]/[1 + rf(US)] = F1/E0
B. [1 + rf(US)]/[1 + rf(foreign)] = E0/F1
C. [1 + rf(US)]/[1 + rf(foreign)] = F0/E0
D. [1 + rf(foreign)]/[1 + rf(foreign)] = F0/E1
Financial institutions that specialize in assisting corporations in primary market
transactions are called _______.
A. mutual funds
B. investment bankers
C. pension funds
D. globalization specialists
Which one of the following types of markets requires the greatest level of trading
activity to be cost-effective?
A. broker market
B. dealer market
C. continuous auction market
D. direct search market
A nonprofit organization offers a 5% salary contribution to John’s 403b plan regardless
of his own contributions, plus a matching 5% when John contributes 5% of his salary.
John makes $56,000 a year.
What is the amount of the total contribution to his 403b if John contributes 5% of his
own money?
A. $5,600
B. $8,400
C. $11,200
D. $12,500
Which word most accurately describes the way in which euro and pound exchange rates
are quoted relative to the U.S. dollar?
A. indirect
B. direct
C. spot
D. futures
The value of a put option increases with all of the following except ___________.
A. stock price
B. time to maturity
C. volatility
D. dividend yield
If the gross profit is positive and the net profit is negative, you will _________.
A. let the option expire with no action
B. not exercise the option
C. exercise the option
D. sell the option for less than the gross profit
A put option on Dr. Pepper Snapple Group, Inc., has an exercise price of $45. The
current stock price is $41. The put option is _________.
A. at the money
B. in the money
C. out of the money
D. knocked out
You can be sure that a bond will sell at a premium to par when _________.
A. its coupon rate is greater than its yield to maturity
B. its coupon rate is less than its yield to maturity
C. its coupon rate is equal to its yield to maturity
D. its coupon rate is less than its conversion value
Go Global Investment Management has an asset allocation strategy of 60% U.S.
investments and 40% global investments. Within the United States, Go Global has
allocated 70% of its portfolio to equities and 30% to bonds. Go Global now holds 3% of
its U.S. equity portfolio in the stock of Wally World. Internationally, Go Global has
allocated 55% to equities and 45% to bonds. About what percentage of Go Global’s
total portfolio is invested in Wally World?
A. 1%
B. 1.26%
C. 1.5%
D. 1.77%
A person in poor health trying to buy supplemental health insurance is an example of
________.
A. moral hazard
B. adverse selection
C. a Texas hedge
D. actuarial error
A bond that has no collateral is called a _________.
A. callable bond
B. debenture
C. junk bond
D. mortgage
Serial bonds are associated with _________.
A. staggered maturity dates
B. collateral
C. coupon payment dates
D. conversion features
Commercial paper is a short-term security issued by __________ to raise funds.
A. the Federal Reserve
B. the New York Stock Exchange
C. large well-known companies
D. all of these options
The quoted interest rate on a 3-month Canadian security is 8%. The current exchange
rate is C$1 = US$.68. The 3-month forward rate is C$1 = US$.70. The APR
(denominated in US$) that a U.S. investor can earn by investing in the Canadian
security is __________.
A. 5%
B. 7.25%
C. 20%
D. 22.43%
A regular retirement plan requires that taxes be paid at the time the money is removed
from the plan. What is the after-tax value of a $5,000 deposit into a retirement plan
today that generates an 8% return for 20 years if the investor is taxed at the 28% level?
A. $16,779
B. $20,135
C. $21,685
D. $23,305
Duration is a concept that is useful in assessing a bond’s _________.
A. credit risk
B. liquidity risk
C. price volatility
D. convexity risk
An institutional investor will have to pay off a maturing bond issue in 3 years. The
institution has 10,000 bonds outstanding, each with a $1,000 par value. The institutional
money manager is reevaluating the fund’s total portfolio of $100 million at this time.
She is bullish on stocks and wants to put the most she can into the stock market, but she
cannot risk being unable to pay off the bonds. Three-year zero-coupon bonds are
available paying 6% interest. What percentage of the total $100 million portfolio can
she put in stocks and still ensure meeting the bond payments?
A. 87.4%
B. 88.5%
C. 90%
D. 91.6%
Restrictions on trading involving insider information apply to:
I. Corporate officers and directors
II. Major stockholders
III. Relatives of corporate directors and officers
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Real U.S. interest rates move above Japanese interest rates. If you believe that Japanese
interest rates won’t move and that interest rate parity will hold, then ____________.
A. the yen-per-dollar exchange rate should rise
B. the dollar-per-yen exchange rate should rise
C. the exchange rate should stay the same if parity holds
D. The answer cannot be determined from the information given.
Supply-side economics tends to focus on _______________.
A. government spending
B. price controls
C. monetary policy
D. increasing productive capacity
The amount of risk an individual should take depends on his or her:
I. Return requirements
II. Risk tolerance
III. Time horizon
A. I only
B. I and II only
C. II and III only
D. I, II, and III
A __________ bond gives the bondholder the right to cash in the bond before maturity
at a specific price after a specific date.
A. callable
B. coupon
C. puttable
D. Treasury
The free cash flow to the firm is reported as $198 million. The interest expense to the
firm is $15 million. If the tax rate is 35% and the net debt of the firm increased by $20
million, what is the approximate market value of the firm if the FCFE grows at 3% and
the cost of equity is 14%?
A. $1,950 billion
B. $2,497 billion
C. $2,585 billion
D. $3,098 billion