The greatest profit, and the greatest risk, arises from trying to identify an acquisition
candidate before the announcement.
A stock split has no effect on the par value of a stock.
Exchange-traded funds (ETFs) are similar to index mutual funds, but they trade on
stock exchanges like common stock.
The market for stock index futures began in February of 1982, when the NYSE began
trading futures on the Dow Jones Industrial Average.
Real estate is a good example of an investment that lacks liquidity.
The Tax Act of 2001 lowered the capital gains tax rate.
An investment banker overprices an issue in order to satisfy the corporate issuer.
Monetary policy can be implemented very quickly to reinforce fiscal policy, or, when
necessary, to offset the effects of fiscal policy.
The intent of dollar-cost averaging is to avoid buying high and selling low.
Real estate investment trusts provide a large, liquid investment alternative to small
investors.
Underwriters are less concerned with the fees from their activities than simply the
amount of dollars underwritten.
Efficient markets need not be liquid, as long as buyers and sellers can eventually get a
fair price for the assets they trade.
Interest rate changes affect low-quality issues to a greater degree than high-quality
issues.
The standard deviation for a portfolio is a weighted average of the individual securities’
standard deviations.
A convertible bond’s price is usually the same as the stock price times the conversion
ratio.
A hedger reduces risk of loss and enhances additional profit opportunities.
Graduated payment mortgages may require payment of interest on accumulated, unpaid
interest.
Odd-lot traders traditionally are assumed to be strong sellers right before the bottom of
a bear market, but this is not always the case.
The Federal Reserve Bank’s buying and selling of securities for its own portfolio is
known as open-market operations.
The current price of a stock should equal the future value of the expected dividend
stream.
Mutual fund cash positions are not generally a reliable indicator of market health or
activity.
By combining foreign securities with domestic securities, investors increase their
portfolio risk because foreign securities are more volatile than United States securities.
There is an inverse relationship between interest rates and bond values, and between the
amount of coupon payments and weighted average life.
Dividends and long-term capital gains are now taxed at the same maximum rate.
There is concern by the SEC and Congress that dark pools create a two-tier market.
An example of an interest rate futures contract would be a Treasury bill future.
Jensen uses alpha as a measure of performance.
In general, the best portfolio managers are those who earn the highest returns.
Commodity trading is based on the use of margin rather than actual cash dollars.
Past information, when extrapolated without adjustment into the future, will provide an
accurate forecast.
LEAPS have a maximum time to expiration of 5 years.
Corporations may use warrants for which of the following reasons?
A.To issue debt under normal circumstances
B.To use as an ‘add-on’ in a merger or acquisition agreement
C.To lower the cost of the bonds to the corporation
D.None of the above
LEAPS:
A. are long-term equity anticipation securities.
B. have higher speculative premiums than regular options.
C. are limited to a maximum of 2 years to expiration.
D. All of the above are true
The quantity theory of money holds that, as the supply of money increases relative to
the demand for money, people will adjust their portfolios of assets by adding:
A.bonds first, then stocks, then real assets.
B.stocks first, then bonds, then real assets.
C.real assets first, then stocks, then bonds.
D.bonds first, then real assets, then stocks.
Which of the following is a disadvantage of a regular partnership investment
arrangement?
A.It is the simplest legal arrangement
B.There is a well-defined center of responsibility
C.The liability of each investor is not limited to his or her investment
D.All of the above are advantages
A banker who is paying a fixed 6% rate on CDs for the next two years, and is afraid
interest rates may go down on new loans, may hedge this exposure with interest rate
swaps by:
A.swapping a fixed rate for a variable rate.
B.swapping a variable rate for a fixed rate.
C.swapping short-term exposure for long-term exposure.
D.swapping long-term exposure for short-term exposure.
Asset allocation is generally ________________ stock selection.
A.less important than
B.more important than
C.of equal importance to
D.none of the above are true
Capacity utilization measures current manufacturing output against potential output.
Which of the following statements is correct?
A.When capacity utilization is low, companies use their most productive and efficient
plants and equipment.
B.As capacity utilization increases, companies bring less efficient plants and equipment
on line.
C.When the capacity utilization rate moves above 80%, inflationary pressures may start
to build in the economy.
D.All of the above are true
Junk bonds normally provide:
A.a higher yield than Treasury bonds.
B.a lower yield than Treasury bonds.
C.a lower yield than AA corporate bonds.
D.More than one of the above is true
All of the following are goals of monetary and fiscal policy, except:
A.stable prices.
B.business stability at high levels of production.
C.sustained economic growth.
D.a balance in domestic payments.
Using paper gains to expand the number of contracts outstanding is referred to as:
A.horizontal pyramiding.
B.vertical pyramiding.
C.reserve pyramiding.
D.inverse pyramiding.
The reason price-earnings ratios and inflation are related is because:
A. as inflation increases, the required return in the market rises, pushing down the
prices of securities.
B. as inflation increases, the required return in the market rises, pushing up the prices of
securities.
C. as price-earnings ratios fall, the market changes its expectations about the future rate
of inflation.
D. as price-earnings ratio rise, the market anticipates that inflation will decrease,
sending stock prices higher.
Alfred Jones’ original strategy was to:
A.identify strong and weak stocks, buy strong ones, short the weak ones, and use
leverage to enhance the returns.
B.buy only weak stocks and hold them long.
C.buy only strong stocks and hold them long.
D.identify strong and weak stocks, buy weak ones, short the strong ones, and avoid
leverage.
___________ invest entirely in short-term securities, and are particularly popular
during periods of high short-term interest rates.
A.Index funds
B.Balanced funds
C.Mutual stock funds
D.Money market funds
The efficient frontier:
A.represents all possible portfolios for a given level of risk.
B.separates unattainable portfolios from less than optimal portfolios.
C.is different for every investor.
D.More than one of the above
Assume you have just purchased a corn futures contract for 5,000 bushels at $3.24 per
bushel. What will your percentage profit on the cash investment be if the price of corn
rises $.10 per bushel in 4 months? Your initial margin requirement was $1,500.
A.3.1%
B.33%
C.9.2%
D.None of the above
The Brinson, Hood, and Beebower (BHB) study indicated that asset managers are more
likely to lose their jobs because of poor _____________ rather than poor _________.
A.asset allocation; stock selection
B.stock selection; asset allocation
C.customer relations; performance
D.performance; customer relations
An employee of an investment house who executes orders on the floor of the exchange
for customers of the firm is called a:
A.floor broker.
B.registered trader.
C.commission broker.
D.specialist.
E.dealer.
____, because of increasing replacement value and scarcity, perform(s) best in periods
of high inflation.
A.Real assets
B.Common stock
C.Preferred stock
D.Financial assets
E.More than one of the above
According to the traditional definitions, a recession is two or more quarters of:
A.negative nominal Gross Domestic Product (GDP) growth.
B.negative real GDP growth.
C.a rate of inflation which exceeds real GDP growth.
D.declining growth in real past GDP.
By using dollar-cost averaging,
A.the investor is attempting to beat the market.
B.the investor buys when prices are favorable only.
C.the investor invests a fixed amount at regular intervals, at current market prices.
D.None of the above
Under Markowitz’s theory, the ideal portfolio for an investor is represented by:
A.the point of tangency between the efficient frontier and the investor’s indifference
curve.
B.the highest possible indifference curve.
C.the highest possible point on the efficient frontier.
D.None of the above
Which of the following is not a disadvantage of investing in mutual funds?
A.They do not outperform the market as a group
B.Some mutual funds may be expensive to purchase
C.Mutual funds provide more diversification than investing in individual securities.
D.With 5,000 funds to choose from, the selection of a fund is just as difficult as
selecting an individual stock
What is the risk-free rate in an environment where the real rate is 3% and inflation is
running at 3%? Use either method found in chapter one.
A.14.5% or just 14%
B.10.21% or just 10%
C.6.09% or just 6%
D.9.09% or just 9%
E.0%
An investor who wishes to achieve high returns and low risk exposure through
international diversification would probably look for:
A.a compound rate of return higher than that in the United States and a negative or low
positive correlation of returns with the United States market.
B.stable currencies relative to the dollar, total market value potential higher than the
United States, and high correlation of returns.
C.a compound rate of return equal to that of the United States and a correlation
coefficient close to that of the United States.
D.None of the above
Duration is:
A.always longer than maturity.
B.always the same as maturity.
C.normally shorter than maturity.
D.always shorter than maturity.
Methods of indirect international investment include all of the following except:
A.buying shares of a multinational corporation.
B.investing in mutual or closed-end worldwide investment funds.
C.hiring a specialist in foreign investments.
D.All of the above are methods
The strong form of the efficient market hypothesis states that:
A.a market is more than highly efficient; it is actually perfect.
B.it is easy to beat the market.
C.mutual fund managers are superior performers.
D.None of the above
The Sarbanes-Oxley Act:
A.has reduced the number of foreign companies willing to list their shares on U.S.
exchanges.
B.was enacted under the Securities Exchange Act of 1934.
C.reduces the reporting requirements for publicly traded firms.
D.has made it possible for small firms to list their shares in the public markets.
E.was the loophole that enabled corporate executives to misrepresent their financial
statements during the late 1990s and early 2000s.
You have invested $1,000 in a 12% coupon bond that matures in three years. You are
investing the interest income in a fund earning 8%. At the end of three years, what will
be your portfolio sum?
A.$1,120.00
B.$1,249.60
C.$1,360.00
D.$1,389.57
E.$1,540.73
The holding period to qualify for long-term capital gains is:
A.at least 6 months.
B.at least 9 months.
C.at least 18 months.
D.at least 2 years.
E.more than one year.
Real estate investment trusts are similar to mutual funds or investment companies
because:
A.they do not trade on organized exchanges, but do trade over-the-counter.
B.they pool investors’ funds.
C.they are both limited partnerships.
D.All of the above