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1) what economic variable is most closely associated with increasing corporate profits?
a.exchange rates
b.inflation
c.gross domestic product
d.budget deficits
2) even if the markets are efficient, professional portfolio management is still important
because it provides investors with:
i. low-cost diversification
ii. a portfolio with a specified risk level
iii. better risk-adjusted returns than an index
a.i only
b.i and ii only
c.ii and iii only
d.i, ii, and iii
3) according to the capital asset pricing model, fairly priced securities have _________.
a.negative betas
b.positive alphas
c.positive betas
d.zero alphas
4) the maximum loss a buyer of a stock call option can suffer is the _________.
a.call premium
b.stock price
c.stock price minus the value of the call
d.strike price minus the stock price
5) which one of the following is a true statement?
a.a margin deposit can be met only by cash.
b.all futures contracts require the same margin deposit.
c.the maintenance margin is the amount of money you post with your broker when you
buy or sell a futures contract.
d.the maintenance margin is the value of the margin account below which the holder of
a futures contract receives a margin call.
6)
refer to the figure above. assuming this market is representative of the economy as a
whole, a negative demand shock will most likely:
a.cause inflation.
b.increase unemployment.
c.lower prices, but leave output unaffected.
d. reduce both prices and output.
7) when a short-selling hedge fund advertises in a prospectus that it is a 120/20 fund,
this means that the fund may sell short up to ______ for every $100 in net assets and
increase the long position to __________ of net assets.
a.$120; $20
b.$20; $120
c.$20; $20
d.$120; $120
8) which of the following provides the best example of a systematic-risk event?
a.a strike by union workers hurts a firm's quarterly earnings.
b.mad cow disease in montana hurts local ranchers and buyers of beef.
c.the federal reserve increases interest rates 50 basis points.
d.a senior executive at a firm embezzles $10 million and escapes to south america.
9) the black-scholes option-pricing formula was developed for __________.
a.american options
b.european options
c.tokyo options
d.out-of-the-money options
10) the average returns, standard deviations, and betas for three funds are given below
along with data for the s&p 500 index. the risk-free return during the sample period is
6%.
you want to evaluate the three mutual funds using the sharpe ratio for performance
evaluation. the fund with the highest sharpe ratio of performance is __________.
a.fund a
b.fund b
c.fund c
d.the answer cannot be determined from the information given.
11) your two best friends each tell you about a person they know who successfully
started a small business. that's it, you decide; if they can do it, so can you. this is an
example of _____________.
a.mental accounting
b.framing bias
c.conservatism
d.representativeness bias
12) one of the biggest impediments to a global capital market has been _________.
a.volatile exchange rates
b.the lack of common accounting standards
c.lower disclosure standards in the united states than abroad
d.the lack of transparent reporting standards across the eu
13) you own a stock portfolio worth $50,000. you are worried that stock prices may
take a dip before you are ready to sell, so you are considering purchasing either
at-the-money or out-of-the-money puts. if you decide to purchase the out-of-the-money
puts, your maximum loss is __________ than if you buy at-the-money puts and your
maximum gain is __________.
a.greater; lower
b.greater; greater
c.lower; greater
d.lower; lower
14) a __________ is an option valuation model based on the assumption that stock
prices can move to only two values over any short time period.
a.nominal model
b.binomial model
c.time model
d.black-scholes model
15) a futures call option provides its holder with the right to ___________.
a.purchase a particular stock at some time in the future at a specified price
b.purchase a futures contract for the delivery of options on a particular stock
c.purchase a futures contract at a specified price for a specified period of time
d.deliver a futures contract and receive a specified price at a specific date in the future
