One of the most famous investment advisory services since 1965 is:
a. The Wall Street Journal
b. Standard and Poor’s Corporate Records
c. Moody’s
d. Value Line Investment Survey
Which of the following is not true regarding money market funds?
a. They charge no sales charge, redemption fee or management fee.
b. Their maximum average maturity is 90 days.
c. Normally, there are no capital gains or losses on their shares.
d. They represent a relatively low risk investment.
Which of the following statements regarding intrinsic value and market price is true?
a. If intrinsic value is greater than the current market price, the stock should be avoided
or, if already held, sold.
b. If intrinsic value is less than the current market price, the stock is undervalued.
c. If intrinsic value is equal to the current market price, the stock is correctly valued.
d. If the intrinsic value is greater than the current market price, the stock is considered
speculative.
Which brokerage firm was charged in 2004 with allowing late trading of mutual funds
for some of its clients?
a. Merrill Lynch
b. E. F. Hutton
c. Charles Schwab
d. Edward D. Jones
A significant advantage of index funds is their:
a. lower market price than other types of funds.
b. sector rotation.
c. tax efficiency.
d. minimization of risk.
Most secondary bond trading takes place on:
a. the NYSE
b. the American Stock Exchange
c. the OTC
d. the Philadelphia Exchange
The following information is to be used to answer questions
SD_ Beta alpha R 2
_
Fund 1 1.97 1.0 1.3 0.95
Fund 2 2.94 0.8 0.6* 0.80
Fund 3 3.82 1.2 -3.5 0.90
Fund 4 4.70 1.4 4.2 0.65
*Significant at the 5 percent level
Which of these four funds had the largest total risk?
a. Fund 1
b. Fund 2 deviation
c. Fund 3
d. Fund 4
Under a laddering approach, investors can mitigate the effects of an increase in interest
rates by:
a. purchasing bonds with the same maturity dates and selling short bonds with other
maturity dates.
b. purchasing bonds with the same maturity date but different coupon rates.
c. purchasing bonds with different maturity dates.
d. purchasing bonds with different yield to maturity.
Standard and Poor’s new Global Industry Classification System already includes
_______ companies.
a. 10,000 +
b. 25,000+
c. 50,000 +
d. 75,000+
One reason for the declining importance of pension funds is the:
a. decrease in pension benefits for workers.
b. downsizing of U.S. companies
c. large number of conversions into self-directed plans.
d. increasing number of federal regulations that restrict pension fund portfolios.
If an investor searches for patterns in security returns by examining various techniques
applied to a set of data and then applying the technique that works, this is known as:
a. fundamental analysis.
b. technical analysis.
c. random-walk theory.
d. data mining.
——Call—— ——Put——Option/Strike Exp. Vol.
Last Vol. Last.XYZ38 5/8 25 Dec. — —– 100 1/838 5/8 30
Nov. 250 8 ¾ 464 1/1638 5/8 30 Dec. — —– 572
5/1638 5/8 35 Nov. 154 4 1/2 1748 5/1638 5/8 35 Dec. 923 5
1/4 580 1 3/1638 5/8 35 Mar. — —– 33 2 5/838 5/8 40
Nov. 2023 1 1/8 530 2 3/8 Which of the following calls is not “in-the-money?”
a. 25 Dec
b. 30 Nov
c. 35 Dec
d. 40 Nov
Which of the following is true regarding the Markowitz Model as covered in this
chapter?
a. It fully addresses the use of leverage
b. Investors must have homogeneous expectations about model parameters
c. Investors must be better off if they invest in portfolios to the Northwest of the
efficient frontier
d. Markowitz diversification is inefficient diversification
An investor sells 100 shares of stock short at $40.
(a) Ignoring commissions, at what price will the investor earn $700?
(b) Ignoring commissions, what is the gain or loss if the stock price goes to $53 and the
investor closes out the position?
A market capitalization-weighted index obtains the current market value of each stock
by:
a. using the closing market price.
b. multiplying price times shares outstanding.
c. multiplying price times daily volume.
d. dividing earnings by shares outstanding.
The Bureau of Economic Analysis of the U.S. Government releases advance estimates
of quarterly GDP in the first month following quarter end. In the second month, it
provides a preliminary estimate. In the third, it provides a “final” estimate (though even
this estimate is subject to annual revisions). Over the past 30 years, the average revision
of GDP growth rate from advance to final has been approximately what fraction of a
percentage point?
a. 1/4.
b. 1/3.
c. 1/2.
d. 2/3.
If maintenance margin is not maintained, the broker will place:
a. a sell order on sufficient securities to ensure the portfolio is compliant with
maintenance margin requirements
b. a sell order on sufficient securities to ensure the portfolio is compliant with initial
margin requirements
c. contact the investor with a margin put
d. contact the investor with a margin call
If an investor strongly believes that the stock market is going to have a sharp decline
shortly, he or she could maximize profit by
a. short selling stock-index futures contracts.
b. hedging current short positions.
c. using stock-index futures to straddle the market.
d. buying stock-index futures contracts.
Portfolio risk is most often measured by professional investors using the:
expected valueportfolio betaweighted average of individual riskstandard deviation
The term structure of interest rates denotes the relationship between _____________
and _________________ for a specific category of bonds at a particular point in time.
What are two passive management strategies? Two active strategies?
Net asset value takes into account:
both realized and unrealized capital gains.only realized capital gains.only unrealized
capital gains.neither realized or unrealized capital gains.
Discuss the importance of the asset allocation decision for portfolio performance.