Collateralized bonds
A. rely on the general earning power of the firm for the bond’s safety.
B. are backed by specific assets of the issuing firm.
C. are considered the safest variety of bonds.
D. are backed by specific assets of the issuing firm and are generally considered the
safest variety of bonds.
E. All of the options are true.
In 2016, ____________ was(were) the most significant real asset(s) of U.S.
nonfinancial businesses in terms of total value.
A. equipment and software
B. inventory
C. real estate
D. trade credit
E. marketable securities
The yield curve
A. is a graphical depiction of term structure of interest rates.
B. is usually depicted for U.S. Treasuries in order to hold risk constant across maturities
and yields.
C. is usually depicted for corporate bonds of different ratings.
D.is a graphical depiction of term structure of interest rates and is usually depicted for
U.S. Treasuries in order to hold risk constant across maturities and yields.
E. is a graphical depiction of term structure of interest rates and is usually depicted for
corporate bonds of different ratings.
An investor purchased a bond 45 days ago for $985. He received $15 in interest and
sold the bond for $980.
What is the holding-period return on his investment?
A. 1.02%
B. 0.50%
C. 1.92%
D. 0.01%
If you determine that the DAX-30 Index futures is overpriced relative to the spot
DAX-30 Index, you could make an arbitrage profit by
A. buying all the stocks in the DAX-30 and selling put options on the DAX-30 Index.
B. selling short all the stocks in the DAX-30 and buying DAX-30 futures.
C. selling all the stocks in the DAX-30 and buying call options on the DAX-30 Index.
D. selling DAX-30 Index futures and buying all the stocks in the DAX-30.
One way that banks can reduce the duration of their asset portfolios is through the use
of
A. fixed-rate mortgages.
B. adjustable-rate mortgages.
C. certificates of deposit.
D. short-term borrowing.
You want to evaluate three mutual funds using the Treynor measure for performance
evaluation. The risk-free return during the sample period is 6%. The average returns,
standard deviations, and betas for the three funds are given below, in addition to
information regarding the S&P 500 Index.
The fund with the highest Treynor measure is
A. Fund A.
B. Fund B.
C. Fund C.
D. Funds A and B (tied for highest).
E. Funds A and C (tied for highest).
You wish to earn a return of 12% on each of two stocks, A and B. Each of the stocks is
expected to pay a dividend of $2 in the upcoming year. The expected growth rate of
dividends is 9% for stock A and 10% for stock B. The intrinsic value of stock A
A. will be greater than the intrinsic value of stock B.
B. will be the same as the intrinsic value of stock B.
C. will be less than the intrinsic value of stock B.
D. will be the same or greater than the intrinsic value of stock B.
E. None of the options are correct.
The material wealth of a society is a function of
A. all financial assets.
B. all real assets.
C. all financial and real assets.
D. all physical assets.
You purchased a share of stock for $12. One year later, you received $0.25 as a
dividend and sold the share
for $12.92. What was your holding-period return?
A. 9.75%
B. 10.65%
C. 11.75%
D. 11.25%
E. None of the options are correct.
The ____ index represents the performance of the Canadian stock market.
A. DAX
B. FTSE
C. TSX
D. Hang Seng
Which of the following is the best measure of the floor for a stock price?
A. Book value
B. Liquidation value
C. Replacement cost
D. Market value
E. Tobin’s Q
The __________ measures the reward to volatility trade-off by dividing the average
portfolio excess return by the standard deviation of returns.
A. Sharpe measure
B. Treynor measure
C. Jensen measure
D. information ratio
E. None of the options are correct.
The Modigliani M2 measure and the Treynor T2 measure
A. are identical.
B. are nearly identical and will rank portfolios the same way.
C. are nearly identical, but might rank portfolios differently.
D. are somewhat different; M2 can be used to rank portfolios, but T2 cannot.
E. are somewhat different; T2 can be used to rank portfolios, but M2 cannot.
What should the purchase price of a 4-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
A. $887.42
B. $821.15
C. $879.54
D. $856.02
E. $866.32
Some more “traditional” assets have option-like features; some of these instruments
include
A. callable bonds.
B. convertible bonds.
C. warrants.
D. callable bonds and convertible bonds.
E.All of the options are correct.
What would the yield to maturity be on a four-year zero-coupon bond purchased today?
A. 5.80%
B. 7.30%
C. 6.65%
D. 7.25%
E. None of the options are correct.
A mutual fund had year-end assets of $437,000,000 and liabilities of $37,000,000. If the
fund NAV was $60.12, how many shares must have been held in the fund?
A. 6,653,360
B. 8,412,642
C. 10,165,476
D. 9,165,414
E. 9,219,160
Which of the financial statements recognizes only transactions in which cash changes
hands?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Balance sheet and income statement
E. All of the options are correct.
Benchmark error
A. refers to the use of an incorrect market proxy in tests of the CAPM.
B. can result in inconclusive tests of the CAPM.
C. can result in incorrect evaluation measures for portfolio managers.
D. refers to the use of an incorrect market proxy in tests of the CAPM and can result in
inconclusive tests of the CAPM.
E. All of the options are correct.
Targetdate retirement funds are not
A. funds of funds diversified across stocks and bonds.
B. designed to change their asset allocation as time passes.
C. a simple, but useful, strategy.
D. designed to function much like hedge funds.
Assume that you manage a $1.3 million portfolio that pays no dividends and has a beta
of 1.45 and an alpha of 1.5% per month. Also, assume that the risk-free rate is 0.025%
(per month) and the S&P 500 is at 1,220. If you expect the market to fall within the next
30 days, you can hedge your portfolio by ______ S&P 500 futures contracts (the futures
contract has a multiplier of $250).
A. selling 1
B. selling 6
C. buying 1
D. buying 6
E. selling 4
You purchased 100 shares of common stock on margin at $40 per share. Assume the
initial margin is 50%, and the stock pays no dividend. What would the maintenance
margin be if a margin call is made at a stock price of $25? Ignore interest on margin.
A. 0.33
B. 0.55
C. 0.20
D. 0.23
E. 0.25
In their study about predicting beta coefficients, which of the following did Rosenberg
and Guy find to be factors that influence beta?
I) Industry group
II) Variance of cash flow
III) Dividend yield
IV) Growth in earnings per share
A. I and II
B. I and III
C. I, II, and III
D. I, II, and IV
E. I, II, III, and IV
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has
total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed
costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If
the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a
recession, each firm will sell 1,100,000 widgets. If the economy enters a recession, the
after-tax profit of Firm B will be
A. $0.
B. $6,000.
C. $36,000.
D. $60,000.
E.-None of the options are correct.
A municipal bond issued to finance an airport, hospital, turnpike, or port authority is
typically a
A. revenue bond.
B. general-obligation bond.
C. industrial-development bond.
D. revenue bond or general-obligation bond.
Which of the following statement(s) is (are) true regarding municipal bonds?
I) A municipal bond is a debt obligation issued by state or local governments.
II) A municipal bond is a debt obligation issued by the federal government.
III) The interest income from a municipal bond is exempt from federal income taxation.
IV) The interest income from a municipal bond is exempt from state and local taxation
in the issuing state.
A. I and II only
B. I and III only
C. I, II, and III only
D. I, III, and IV only
E. I and IV only
Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios
are 5% and 3%, respectively. The risk-free rate of return is 10%. Stock A has an
expected return of 19% and a beta on factor 1 of 0.8. Stock A has a beta on factor 2 of
A. 1.33.
B. 1.50.
C. 1.67.
D. 2.00.
Music Doctors just announced yesterday that its first quarter sales were 35% higher
than last year’s first quarter. You observe that Music Doctors had an abnormal return of
2% yesterday. This suggests that
A. the market is not efficient.
B. Music Doctors stock will probably rise in value tomorrow.
C. investors expected the sales increase to be larger than what was actually announced.
D. investors expected the sales increase to be smaller than what was actually
announced.
E. earnings are expected to decrease next quarter.
The present exchange rate is C$ = U.S. $0.78. The 1-year future rate is C$ = U.S. $0.75.
The yield on a 1-year U.S. bill is 5%. A yield of __________ on a 1-year Canadian bill
will make investor indifferent between investing in the U.S. bill and the Canadian bill.
A. 9.2%
B. 8.3%
C. 6.4%
D. 11.3%
E. None of the options
You purchased a futures contract on corn at a futures price of 331, and at the time of
expiration, the price was 343. What was your profit or loss?
A. –$12.00
B. $12.00
C. –$600
D. $600
Use the below information to answer the following question.
U = E(r ) (A/2)s2,where A = 4.0.
The variable (A) in the utility function represents the
A. investor’s return requirement.
B. investor’s aversion to risk.
C. certainty-equivalent rate of the portfolio.
D. minimum required utility of the portfolio.
The desirable components of an Investment Policy Statement for individual investors
can be divided into
A. three main elements consisting of scope and purpose, governance, and risk
management.
B. three main elements consisting of scope and purpose, governance, and investment,
returnandrisk objectives.
C. four main elements consisting of scope and purpose, governance, risk management,
and feedback.
D. four main elements consisting of scope and purpose, governance, risk management,
and investment, returnandrisk objectives.
E. five main elements consisting of scope and purpose, governance, risk management,
investment, returnandrisk objectives, and evaluation.
If the hedge ratio for a stock call is 0.70, the hedge ratio for a put with the same
expiration date and exercise price as the call would be
A. 0.70.
B. 0.30.
C. −0.70.
D. −0.30.
E. −0.17.
The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT
with a beta of 1.0 to offer
a rate of return of 10%, you should
A. buy CAT because it is overpriced.
B. sell short CAT because it is overpriced.
C. sell short CAT because it is underpriced.
D. buy CAT because it is underpriced.
E. None of the options, as CAT is fairly priced.