1) advantages of ecns over traditional markets include all but which one of the
following?
a.lower transactions costs
b.anonymity of the participants
c.small amount of time needed to execute and order
d.ability to handle very large orders
2) a worker plans to retire in 20 years. he needs $20,000 per year in retirement income
in today’s dollars. if inflation is forecast at 3.5% per year, what annual income should he
plan to receive in the first year of retirement in order to maintain the purchasing power
on $20,000?
a.$30,353
b.$34,159
c.$37,398
d.$39,796
3) consider the capm. the risk-free rate is 5%, and the expected return on the market is
15%. what is the beta on a stock with an expected return of 17%?
a..5
b..7
c.1
d.1.2
4) an established value below which a trader’s margin may not fall is called the
________.
a.daily limit
b.daily margin
c.maintenance margin
d.convergence limit
5) random price movements indicate ________.
a.irrational markets
b.that prices cannot equal fundamental values
c.that technical analysis to uncover trends can be quite useful
d.that markets are functioning efficiently
6) problems with behavioral finance include:
i. the behavioralists tell us nothing about how to exploit any irrationality.
ii. the implications of behavioral patterns are inconsistent from case to case, sometimes
suggesting overreaction, sometimes underreaction.
iii. as with technical trading rules, behavioralists can always find some pattern in past
data that supports a behavioralist trait.
a.i only
b.ii only
c.i and iii only
d.i, ii, and iii
7) what is the value of a $2,500 deposit into a retirement plan if the investment earns
12% per year for 15 years?
a.$12,174
b.$13,684
c.$14,652
d.$15,523
8) if an investment returns a higher percentage of your money back sooner, it will
______.
a.be less price-volatile
b.have a higher credit rating
c.be less liquid
d.have a higher modified duration
9) eafe stands for _______.
a.equity and foreign exchange
b.european, australian, far east
c.european, asian, foreign exchange
d.european, american, far east
10) portfolio managers martin and krueger each manage $1 million funds. martin has
perfect foresight, and the call option value of his perfect foresight is $150,000. krueger
is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all
bear markets. the correct measure of timing ability for krueger is __________.
a.20%
b.60%
c.75%
d.120%
11) which of the following transactions will result in a decrease in cash flow from
investments?
a.acquisition of another business
b.capital gain from sale of a subsidiary
c.decrease in net investments
d.sale of equipment
12) the solvency of social security is threatened by ______________.
a.increasing population longevity
b.above-replacement growth of the u.s. population
c.alternative tax shelters
d.the growth of competing defined contribution plans
13) shocks to the economy occur when:
a.stock prices rise by more than 10 percent per year.
b.government takes a more active role in the economy.
c.prices are flexible.
d.actual economic events do not match what people expected.
14) the stock price index and contracts and orders for nondefense capital goods are
_________.
a.leading economic indicators
b.coincidental economic indicators
c.lagging economic indicators
d.leading and coincidental indicators, respectively
15) money market securities are characterized by:
i. maturity less than 1 year
ii. safety of the principal investment
iii. low rates of return
a.i only
b.i and ii only
c.i and iii only
d.i, ii, and iii
16) the most common measure of __________ is the spread between the number of
stocks that advance in price and the number of stocks that decline in price.
a.market breadth
b.market volume
c.odd-lot trading
d.short interest
17) sanders, inc., paid a $4 dividend per share last year and is expected to continue to
pay out 60% of its earnings as dividends for the foreseeable future. if the firm is
expected to generate a 13% return on equity in the future, and if you require a 15%
return on the stock, the value of the stock is _________.
a.$26.67
b.$35.19
c.$42.94
d.$59.89
18) net asset value is defined as ________________________.
a.book value of assets divided by shares outstanding
b.book value of assets minus liabilities divided by shares outstanding
c.market value of assets divided by shares outstanding
d.market value of assets minus liabilities divided by shares outstanding
19) a clearly understood investment policy statement is not critical for which one of the
following?
i. mutual funds
ii. individuals
iii. defined benefit pension funds
a.ii only
b.iii only
c.i only
d.none of these options (a policy statement is necessary for all three.)