The spot rate on a non-dividend-paying stock is $42.30. The risk-free rate is 3.75
percent and the market rate is 11.50 percent. What is the three-month futures rate if
spot-futures parity exists?
A. $42.14
B. $42.54
C. $42.69
D. $42.82
E. $43.89
Which one of the following correctly applies to hedge funds?
A. highly liquid
B. must be highly diversified
C. available to the general public
D. vast array of investment objectives
E. limited investment options
Matt short sold 600 shares of stock at $10.50 a share. The initial margin is 80 percent
and the maintenance margin is 50 percent. The stock is currently selling for $6.80 a
share. What is Matt’s account equity at this time? Ignore margin interest.
A. $3,070
B. $5,590
C. $7,260
D. $9,950
E. $11,510
A portfolio consists of two stocks and has a beta of 1.07. The first stock has a beta of
1.48 and comprises 38 percent of the portfolio. What is the beta of the second stock?
A. .41
B. .66
C. .82
D. 1.28
E. 1.35
A securities dealer is a(n):
A. intermediary who arranges trades between a buyer and a seller.
B. trader who buys and sells from his or her inventory.
C. firm which charges a commission for arranging a transaction.
D. person who buys securities for his or her own account on an exchange floor.
E. trader who transacts business on behalf of a securities issuer.
Which of the following correctly identifies the factors included in the Fama-French
three-factor model?
A. standard deviation, beta, and company size
B. the risk-free rate, beta, and the market risk premium
C. company size, company industry, and beta
D. price-earnings ratios, beta, and book-to-market ratios
E. beta, company size, and book-to-market ratios
What is the covariance of security A to the market given the following information?
A. 23.14
B. 29.88
C. 48.83
D. 99.18
E. 114.01
Ina purchased 800 shares of Detroit Motors stock at a price of $55 a share. The initial
margin requirement is 65 percent and the maintenance margin is 30 percent. The
effective interest rate on the margin loan is 4.69 percent. How much margin interest will
she pay if she repays the loan in seven months?
A. $387.29
B. $401.32
C. $417.29
D. $530.42
E. $647.96
The price of a stock increased from $32 to $38. Using phi, what are the primary and
secondary support areas for the stock?
A. $35.33; $33.67
B. $33.67; $35.33
C. $35.71; $34.29
D. $38.14; $36.99
E. $36.99; $38.14
Which one of the following market sentiment index (MSI) values indicates that all
polled investors were bearish?
A. -1
B. 0
C. 1
D. 50
E. 100
Investors tend to make better decisions when looking at a decision:
A. based on historical performance.
B. only in respect to potential losses.
C. based on individual securities.
D. in broad terms.
E. based on historical costs.
The risk-free rate is:
A. another term for the dividend yield.
B. defined as the increase in the value of a share of stock over time.
C. the rate of return earned on an investment in a firm that you personally own.
D. defined as the total of the capital gains yield plus the dividend yield.
E. the rate of return on a riskless investment.
You own a portfolio which is valued at $6.4 million and which has a beta of 1.27. You
would like to create a riskless portfolio by hedging with S&P 500 futures contracts. The
contract size is $250 times the index level. How many futures contracts are needed if
the current S&P 500 index is 1406?
A. short 16 contracts
B. short 18 contracts
C. short 23 contracts
D. long 18 contracts
E. long 23 contracts
You have a 25-year mortgage at 5 percent interest. The initial loan amount was
$250,000. By how much did the principal decrease over the first 10 years of the loan?
Payments are made monthly.
A. $61,345
B. $64,580
C. $65,189
D. $66,453
E. $68,618
Kelly wants to sell 600 shares of DeLux stock at the going market price after the stock
reaches $42 a share. Which type of order should she place?
A. stop
B. limit
C. market
D. fixed
E. loss
An index consists of the following securities and has an index divisor of 3.0. What is
the price-weighted index return?
A. 9.43 percent
B. 9.67 percent
C. 10.53 percent
D. 10.91 percent
E. 11.03 percent
Which of the following comprise the nominal interest rate on default-free securities
according to the modern view of the term structure of interest rates?
I. liquidity premium
II. real rate
III. interest rate risk premium
IV. inflation premium
A. I and II only
B. II and III only
C. III and IV only
D. II, III, and IV only
E. I, II, III, and IV
Generally, the average life of a mortgage is _____ the mortgage’s stated maturity.
A. much less than
B. marginally less than
C. equal to
D. marginally greater than
E. significantly greater than
What is the primary purpose of Dow theory?
A. to measure the level of investor optimism and pessimism
B. to analyze daily market movements
C. to identify and measure market waves
D. to eliminate market corrections
E. to signal changes in the market’s primary direction
A firm maintains a constant dividend payout ratio of .40. What must the plowback ratio
be?
A. 1 + .40
B. 1 – .40
C. 1 .40
D. 1/.40
E. .40
The method of valuing a stock based on the present value of the future income derived
from that stock is called:
A. technical analysis.
B. constant valuation.
C. the basic stock valuation method.
D. compound dividend analysis.
E. the dividend discount model.
The duties of a specialist include which of the following?
I. maintain an orderly market
II. offer a higher bid price than the floor brokers
III. provide liquidity to the market
IV. purchase all shares offered as limit sells
A. I and III only
B. II and III only
C. I, II, and III only
D. I, III, and IV only
E. I, II, III, and IV
Trailer Co. stock has an expected return of 12.2 percent and a standard deviation of 11.8
percent. What is the smallest expected loss over the next month given a probability of 5
percent?
A. -4.59 percent
B. -6.09 percent
C. -7.27 percent
D. -11.49 percent
E. -13.77 percent
Which one of the following relates to the risk-adjustment problem encountered when
testing market efficiency?
A. ascertaining how historical prices relate to current stock prices
B. determining whether a market reaction was appropriate or overstated
C. correctly determining the correct risk-adjustment procedure
D. determining what undocumented information existed on any particular trading day
E. identifying patterns that occur over time in the pricing of a particular security
You are buying the June call on General Electric stock at $0.19. What amount will you
pay per share if you decide to exercise this option?
A. $32.50
B. $32.69
C. $33.81
D. $34.00
E. $34.19
Which of the following affect the value of a PO strip based on a GNMA bond?
I. changes in the PSA schedule
II. prepayment rates
III. time value of money
IV. changes in the default rates for the underlying mortgages
A. I and II only
B. II and III only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV
Which one of the following statements related to convertible bonds is correct?
A. Bondholders forego higher coupon rates in exchange for the conversion option.
B. Convertible bonds are generally issued such that the conversion value is equal to the
par value.
C. The conversion price is equal to the bond’s market value divided by the conversion
ratio.
D. The conversion value is equal to the bond’s market price multiplied by the
conversion ratio.
E. Bonds should be converted as soon as the conversion value exceeds the face value.
Which one of the following describes an investment company that generally has an
unrestricted investment strategy and is not accessible to the general public?
A. mutual fund
B. open-end fund
C. closed-end fund
D. exchange-traded fund
E. hedge fund
What is the Treynor ratio of a portfolio comprised of 45 percent portfolio A and 55
percent portfolio B?
The risk-free rate is 3.12 percent and the market risk premium is 8.5 percent.
A. .041
B. .058
C. .069
D. .114
E. .136
What is the one year interest rate one year from now if the current one-year interest rate
is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are
effective annual rates.
A. 3.62 percent
B. 3.67 percent
C. 3.71 percent
D. 3.75 percent
E. 3.88 percent
Best Value Outlet recently announced that it intends to pay dividends of $0.40, $0.60,
$0.75, and $1.00 per share over the next four years, respectively. After that, the plan is
to increase the dividend by 3.5 percent annually. What is the current value of this stock
if the applicable discount rate is 13.5 percent?
A. $6.44
B. $7.83
C. $8.17
D. $9.55
E. $13.10