Inflation-indexed Treasury securities are commonly called ____.
A. PIKs
B. CARs
C. TIPS
D. STRIPS
An investment strategy that entails shifting the portfolio into industry sectors that are
expected to outperform others based on macroeconomic forecasts is termed
______________.
A. sector rotation
B. contraction/expansion analysis
C. life-cycle analysis
D. business-cycle shifting
Which one of the following is a life insurance policy that will provide a fixed death
benefit and allows the policyholder to choose where to invest the policy’s cash value?
A. term life
B. whole life
C. variable life
D. industrial life
According to the CAPM, which of the following is not a true statement regarding the
market portfolio.
A. All securities in the market portfolio are held in proportion to their market values.
B. It includes all risky assets in the world, including human capital.
C. It is always the minimum-variance portfolio on the efficient frontier.
D. It lies on the efficient frontier.
Research has identified two systematic factors that affect U.S. stock returns. The factors
are growth in industrial production and changes in long-term interest rates. Industrial
production growth is expected to be 3%, and long-term interest rates are expected to
increase by 1%. You are analyzing a stock that has a beta of 1.2 on the industrial
production factor and .5 on the interest rate factor. It currently has an expected return of
12%. However, if industrial production actually grows 5% and interest rates drop 2%,
what is your best guess of the stock’s return?
A. 15.9%
B. 12.9%
C. 13.2%
D. 12%
You purchased a 5-year annual-interest coupon bond 1 year ago. Its coupon interest rate
was 6%, and its par value was $1,000. At the time you purchased the bond, the yield to
maturity was 4%. If you sold the bond after receiving the first interest payment and the
bond’s yield to maturity had changed to 3%, your annual total rate of return on holding
the bond for that year would have been approximately _________.
A. 5%
B. 5.5%
C. .6%
D. 8.9%
The financial statements of Flathead Lake Manufacturing Company are shown below.
Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm’s
compound leverage ratio is __________. (Please keep in mind that when a ratio
involves both income statement and balance sheet numbers, the balance sheet numbers
for the beginning and end of the year must be averaged.)
A. 1.5
B. 2
C. 2.5
D. 3
You are considering purchasing the Zions Bank $4.50 preferred stock. If you require a
4% return on this investment, what should you be willing to pay for this stock?
A. $11.25
B. $112.50
C. $4.50
D. $45.00
____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of the options (All of the answers are derivative securities.)
__________ portfolio management calls for holding diversified portfolios without
spending effort or resources attempting to improve investment performance through
security analysis.
A. Active
B. Momentum
C. Passive
D. Market-timing
The Dodd-Frank Reform Act does all of the following except:
A. reduces capital requirements for banks.
B. increases transparency in the derivatives market
C. limits the risk-taking in which banks can engage
D. requires public companies to set “claw-back” provisions
E. creates an office within the SEC to oversee credit rating agencies.
The arithmetic average of -11%, 15%, and 20% is ________.
A. 15.67%
B. 8%
C. 11.22%
D. 6.45%
The practice of “selling” large quantities of goods to customers in order to get quarterly
sales up while allowing these customers to return the goods next quarter is termed
_____________.
A. channel stuffing
B. clogging the network
C. spamming the johns
D. artificial sales
Investor portfolios are notoriously overweighted in home-country stocks. This is
commonly called ________.
A. local fat
B. nativism
C. home-country bias
D. misleading representation
An employee uses her firm’s 401k plan. If she decides to contribute $11,000 per year
and pays an effective tax rate for all items of 28%, what is the reduction in her
take-home pay each year?
A. $3,080
B. $4,210
C. $7,920
D. $11,000
Your return will generally be higher using the __________ if you time your transactions
poorly, and your return will generally be higher using the __________ if you time your
transactions well.
A. dollar-weighted return method; dollar-weighted return method
B. dollar-weighted return method; time-weighted return method
C. time-weighted return method; dollar-weighted return method
D. time-weighted return method; time-weighted return method
The ratio of trading activity of a portfolio to the assets of the portfolio is called the
____________.
A. reinvestment ratio
B. trading rate
C. portfolio turnover
D. tax yield
Conventional finance theory assumes investors are _______, and behavioral finance
assumes investors are _______.
A. rational; irrational
B. irrational; rational
C. greedy; philanthropic
D. philanthropic; greedy
An investor should do which of the following for stocks with negative alphas?
A. go long
B.sell short
C. hold
D. do nothing
The term complete portfolio refers to a portfolio consisting of _________________.
A. the risk-free asset combined with at least one risky asset
B. the market portfolio combined with the minimum-variance portfolio
C. securities from domestic markets combined with securities from foreign markets
D. common stocks combined with bonds
According to market technicians, it is time to sell stock in a head-and-shoulders
formation when ___________.
A. the price index pierces the left shoulder
B. the price index pierces the right shoulder
C. the price index pierces the head
D. none of these options takes place
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 Treynor measure for performance
evaluation. The fund with the highest Treynor measure of performance is
__________.
A. fund A
B. fund B
C. fund C
D. The answer cannot be determined from the information given.
During the 1986-2013 period, the Sharpe ratio was lowest for which of the following
asset classes?
A. small U.S. stocks
B. large U.S. stocks
C. long-term U.S. Treasury bonds
D. equity world portfolio in U.S. dollars
For a bank, the difference between the interest rate charged to borrowers and the
interest rate paid on liabilities is called the
__________.
A. insurance premium
B. interest rate spread
C. risk premium
D. term premium
As a result of bond convexity, an increase in a bond’s price when yield to maturity falls
is ________ the price decrease resulting from an increase in yield of equal magnitude.
A. greater than
B. equivalent to
C. smaller than
D. The answer cannot be determined from the information given.
Assume the risk-free interest rate is 10% and is equal to the fund’s benchmark, the
portfolio’s net asset value is $100, and the fund’s standard deviation is 20%. Also
assume a time horizon of 1 year. Assuming a 2% management fee and a 20% incentive
bonus, what is the expected management compensation per share if the fund’s net asset
value exceeds the stated benchmark?
A. $4.24
B. $4
C. $3.84
D. $2.20
Brevik Builders has an expected ROE of 25%. Its dividend growth rate will be
__________ if it follows a policy of paying 30% of earnings in the form of dividends.
A. 5%
B. 15%
C. 17.5%
D. 45%
Even though indexing is growing in popularity, only about _____ of equity in the
mutual fund industry is held in indexed funds. This may be a sign that investors and
managers __________.
A. 5%; are excessively conservative
B. 20%; overestimate their ability
C. 15%; suffer from framing biases
D. 25%; engage in mental accounting
The _________ price is the price at which a dealer is willing to sell a security.
A. bid
B. ask
C. clearing
D. settlement
At maturity of a futures contract, the spot price and futures price must be approximately
the same because of __________.
A. marking to market
B. the convergence property
C. the open interest
D. the triple witching hour
The SEC requires funds to disclose:
I. After-tax returns for the past year
II. After-tax returns for the last 5-year period
III. The tax impact of portfolio turnover
A. I only
B. I and II only
C. I and III only
D. I, II, and III
In ________ markets, participants post bid and ask prices at which they are willing to
trade, but orders are not automatically executed by computer. ____________ execute
trades for people other than themselves, and in _______________ markets a computer
matches orders with an existing limit order book and executes the trades automatically.
A. electronic; Dealers; brokers
B. dealer; Brokers; electronic
C. direct search; Brokers; electronic
D. brokered; Dealers; direct search
A bond has a flat price of $985, and it pays an annual coupon. The last coupon payment
was made 90 days ago. What is the invoice price if the annual coupon is $69?
A. $999.55
B. $1,002.01
C. $1,00.45
D. $1,012.13
The _________ contract dominates trading in stock-index futures.
A. S&P 500
B. DJIA
C. Nasdaq 100
D. Russell 2000
If a defined benefit pension fund’s actual rate of return is _____ than the actuarial
assumed rate, then the ___________.
A. greater; employees will benefit
B. greater; firm’s shareholders will benefit
C. lower; employees will benefit
D. lower; firm’s shareholders will benefit