Where y = yield to maturity, the duration of a perpetuity would be _________.
A. y
B. y/(1 + y)
C. 1/y
D. (1 + y)/y
An investor’s degree of risk aversion will determine his or her ______.
A. optimal risky portfolio
B. risk-free rate
C. optimal mix of the risk-free asset and risky asset
D. capital allocation line
The top Morningstar mutual fund performance rating is ________.
A. five stars
B. four stars
C. three stars
D. two stars
The cost of buying and selling a stock includes:
I. Broker’s commissions
II. Dealer’s bid-asked spread
III. Price concessions that investors may be forced to make
A. I and II only
B. II and III only
C. I and III only
D. I, II, and III
What ratio will definitely increase when a firm increases its annual sales with no
corresponding increase in assets?
A. asset turnover
B. current ratio
C. liquidity ratio
D. quick ratio
______ are private partnerships of a small number of wealthy investors, are often
subject to lock-up periods, and are allowed to pursue a wide range of investment
activities.
A. Hedge funds
B. Closed-end funds
C. REITs
D. Mutual funds
A bond was purchased at a premium and is now selling at a discount because of a
change in market interest rates. If the bond pays a 4% annual coupon, what is the likely
impact on the holding-period return if an investor decides to sell now?
A. increased
B. decreased
C. stayed the same
D. The answer cannot be determined from the information given.
If an investor places a _________ order, the stock will be sold if its price falls to the
stipulated level. If an investor places a __________
order, the stock will be bought if its price rises above the stipulated level.
A. stop-buy; stop-loss
B. market; limit
C. stop-loss; stop-buy
D. limit; market
Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means
that ______.
A. the returns on the stock and bond portfolios tend to move inversely
B. the returns on the stock and bond portfolios tend to vary independently of each other
C. the returns on the stock and bond portfolios tend to move together
D. the covariance of the stock and bond portfolios will be positive
You have the following rates of return for a risky portfolio for several recent years.
Assume that the stock pays no dividends.
what is the geometric average return for the period?
A. 2.87%
B. .74%
C. 2.6%
D. 2.21%
The __________ of a bond is computed as the ratio of the annual coupon payment to
the market price.
A. nominal yield
B. current yield
C. yield to maturity
D. yield to call
If a firm’s ratio of stockholders’ equity/total assets is lower than the industry average
and its ratio of long-term debt/stockholders’ equity is also lower than the industry
average, this would suggest that the firm _________.
A. has more current liabilities than the industry average
B. has more leased assets than the industry average
C. will be less profitable than the industry average
D. has more current assets than the industry average
The price on a Treasury bond is 104.3625, with a yield to maturity of 3.45%. The price
on a comparable maturity corporate bond is 103.5, with a yield to maturity of 4.59%.
What is the approximate percentage value of the credit risk of the corporate bond?
A. 1.14%
B. 3.45%
C. 4.59%
D. 8.04%
If you want to tilt your savings toward later years, you might be well advised to
purchase which of the following types of readily available insurance?
A. Career failure insurance
B. Disability insurance
C. Unemployment insurance
D. Moral hazard insurance
If you are not a contrarian, you consider a high put/call ratio to be a __________.
A. bearish signal
B. bullish signal
C. trend confirmation signal
D. signal to enter the options market
Suppose you purchase a call and write a put on the same stock with the same exercise
price and expiration. If prices are at equilibrium, the value of this portfolio is ________.
A.
S0–Xe-rt
B.
S0–X
C.
S0+Xe-rt
D.
A possible limit on arbitrage activity that may allow behavioral biases to persist is
_______.
A. technical trends in prices
B. momentum effects
C. fundamental risk
D. trend reversals
The duration rule always ________ the value of a bond following a change in its yield.
A. underestimates
B. provides an unbiased estimate of
C. overestimates
D. The estimated price may be biased either upward or downward, depending on
whether the bond is trading at a discount or a premium.
Assume that you have recently purchased 100 shares in an investment company. Upon
examining the balance sheet, you note that the firm is reporting $225 million in assets,
$30 million in liabilities, and 10 million shares outstanding. What is the net asset value
(NAV) of these shares?
A. $25.50
B. $22.50
C. $19.50
D. $1.95
The duration of a 5-year zero-coupon bond is ____ years.
A. 4.5
B. 5
C. 5.5
D. 3.5
Assuming semiannual compounding, a 20-year zero coupon bond with a par value of
$1,000 and a required return of 12% would be priced at
_________.
A. $9.22
B. $104.49
C. $364.08
D. $32.14
Explicit costs of an IPO tend to be around ______ of the funds raised.
A. 1%
B. 7%
C. 15%
D. 25%
51. $1,000 par value zero-coupon bonds (ignore liquidity premiums)
One year from now bond C should sell for ________ (to the nearest dollar).
A. $85
B. $842
C. $835
D. $821
Active trading in markets and competition among securities analysts helps ensure that:
I. Security prices approach informational efficiency.
II. Riskier securities are priced to offer higher potential returns.
III. Investors are unlikely to be able to consistently find under- or overvalued securities.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Surf City Software Company develops new surf forecasting software. It sells the
software to Microsoft in exchange for 1,000 shares of Microsoft common stock. Surf
City Software has exchanged a _____ asset for a _____ asset in this transaction.
A. real; real
B. financial; financial
C. real; financial
D. financial; real
A major problem with technical trading strategies is that ________.
A. it is very difficult to identify a true trend before the fact
B. it is very difficult to identify the correct trend after the fact
C. it is so easy to identify trends that all investors quickly do so
D. Kondratieff showed that you can’t identify trends without 48 to 60 years of data
According to the Flow of Funds Accounts of the United States, the largest single asset
of U.S. households is ___.
A. mutual fund shares
B. real estate
C. pension reserves
D. corporate equity
According to the International Country Risk Guide in 2011, which of the following
countries was the riskiest according to the current composite risk rating?
A. Japan
B. United States
C. China
D. India
At the beginning of the month, the healthcare index was 134 and the stock market index
was 2100. At the end of the month, the healthcare index was 147 and the stock market
index was 2214. Consider the ratio of the healthcare index to the market index at the
beginning and end of the month. The healthcare index is _______ the market index, and
technical analysts who use relative strength would advise ________ the healthcare
index.
A. underperforming; buying
B. underperforming; selling
C. outperforming; buying
D. outperforming; selling
Annie’s Donut Shops, Inc., has expected earnings of $3 per share for next year. The
firm’s ROE is 18%, and its earnings retention ratio is 60%. If the firm’s market
capitalization rate is 12%, what is the value of the firm excluding any growth
opportunities?
A. $25
B. $50
C. $83.33
D. $208
A stock’s alpha measures the stock’s ____________________.
A. expected return
B. abnormal return
C. excess return
D. residual return
Assume there is a fixed exchange rate between the Canadian and U.S. dollars. The
expected return and standard deviation of return on the U.S. stock market are 13% and
15%, respectively. The expected return and standard deviation of return on the
Canadian stock market are 12% and 16%, respectively. The covariance of returns
between the U.S. and Canadian stock markets is 1.2%. If you invested 50% of your
money in the Canadian stock market and 50% in the U.S. stock market, the expected
return on your portfolio would be __________.
A. 12%
B. 12.5%
C. 14%
D. 15.5%