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The following portfolio has an expected return of _____ percent and a beta of _____.
A. 12.45; 1.38
B. 12.84; 1.39
C. 13.39; 1.23
D. 13.39; 1.40
E. 13.45; 1.32
Which one of the following statements related to insider trading is correct?
A. Licensed stockbrokers are exempt from insider trading laws.
B. Individuals, such as Martha Stewart, who have been convicted of crimes, can be
barred from being executive officers of publicly-traded companies.
C. Because of the increased speed of information flows and the improved efficiency of
the markets, insider trading laws were abolished in 2006.
D. Martha Stewart was convicted of insider trading and subjected both to a fine and a
jail sentence.
E. An investor who receives advice from an investment advisor is automatically
charged with insider trading when the advisor bases his recommendations on private
information.
You recently assumed a 15-year mortgage for $150,000 at 6.5 percent interest. How
much of the second monthly payment will be applied to the principal balance?
A. $453.02
B. $482.02
C. $685.00
D. $809.82
E. $938.18
Treasury STRIPS are:
A. zero-coupon bonds issued by the U.S. Treasury with maturities of one year or less.
B. currently quoted in 32nds of a dollar.
C. zero-coupon securities.
D. a type of mortgage bond.
E. coupon securities created from the interest and principal payments of Treasury
bonds.
The Diamond Outlet has current earnings per share of $1.96 and an expected earnings
growth rate of 2.2 percent. The required return on the stock is 13 percent and the current
book value per share is $12.70. What is the current market value of this stock?
A. $15.07
B. $15.62
C. $15.96
D. $16.31
E. $16.67
The Treasury yield curve is a graph which plots Treasury yields against which one of
the following?
A. corporate bond yields
B. Fed funds rate
C. maturities
D. inflation rates
E. S&P 500 yield
A mutual fund has an NAV of $9.55 with 272,400 shares outstanding. What is the value
of the fund's assets if it has $350,400 in liabilities?
A. $2,844,537
B. $2,951,820
C. $3,055,380
D. $3,187,019
E. $3,267,337
"PIGS" refers to which 4 countries in Europe?
A. Portugal, Ireland, Greece and Spain
B. Portugal, Ireland, Germany and Switzerland
C. Poland, Ireland, Germany and Sweden
D. Poland, Italy, Greece and Spain
E. Poland, Italy, Greece and Slovenia
You are the chief financial officer of Donnelly Industries. On multiple occasions, you
have engaged in insider trading but have never been able to earn any abnormal returns.
Which form of market efficiency most likely exists given your situation?
A. mild-form
B. weak-form
C. historical-form
D. semi-strong form
E. strong-form
Asset allocation is the:
A. selection of specific securities within a particular class or industry.
B. division of a purchase price between a cash payment and a margin loan.
C. division of a portfolio into short and long positions.
D. distribution of investment funds among various broad asset classes.
E. dividing of assets into those that are hypothecated and those that are not.
Which one of the following is the preferred method of evaluating interest rate risk on
mortgage bonds?
A. PSA rating
B. modified duration
C. Macaulay duration
D. effective duration
E. postponed duration
You took out a 20-year, $125,000, 4.5 percent loan 8 years ago. What is your current
principal balance, assuming payments are made monthly?
A. $58,588
B. $65,130
C. $74,988
D. $87,867
E. $88,889
You own a bond that has a face value of $1,000 and a conversion ratio of 26. You have
just received notification that the bond is being called at a premium of $40. The stock
price is $41.20 a share. You should _____ your bond because the conversion value is
_____.
A. convert; less than the call price by $40.00
B. convert; greater than the call price by $31.20
C. convert; greater than the call price by $4.75
D. not convert; less than the call price by $31.20
E. not convert; greater than the call price by $40.00
Last week, New Plastics announced that it had developed a new plastic container that is
stronger and more durable, yet easier to recycle. In response to this announcement, the
firm's stock price rose from $21 a share to a high of $27 a share and has remained at
that level. This is an example of a(n):
A. over-reaction and correction.
B. post-activity reaction.
C. delayed reaction.
D. pre-activity action.
E. efficient market reaction.
Which one of the following statements is correct?
A. Reduced Value index options are equal in size to one percent of the standard index
option.
B. The holder of a stock index put option is betting that the underlying index will
increase in value.
C. Most index options are traded on the New York Options Exchange.
D. The contract size for a call option on the S&P 500 is 10 times the index.
E. Some stock index options close in the morning while others close at the end of the
trading day.
Which type of stock fund focuses primarily on current income?
A. growth and income
B. small-company
C. equity income
D. capital appreciation
E. growth
How is a futures contract on the S&P 500 settled?
A. cash
B. shares of stock selected by the contract buyer
C. shares of stock selected by the contract seller
D. shares of stock equivalent to those in the index
E. delivery of a Treasury bill equal in value to the settlement amount
Which one of the following is the distinguishing characteristic of a municipal bond
fund?
A. high-yield
B. federally tax-free income
C. mortgage backed
D. short-term
E. low quality
Last week, you sold 400 shares of Hi-Lo stock for $12,400. The sale was a short sale
with an initial margin requirement of 70 percent. The maintenance margin is 40 percent.
Some positive news concerning the company was released last night and the stock price
jumped this morning to $38 a share. What is your current margin position in this stock?
A. 61.33 percent
B. 56.67 percent
C. 48.33 percent
D. 38.68 percent
E. 25.83 percent
What is the financing cash flow, given the following information?
A. -$180
B. -$150
C. -$110
D. -$75
E. -$10
Which one of the following is a research method used to study the effects news has on
stock prices?
A. polarization
B. market analysis
C. event study
D. news theory
E. reaction hypothesis
What is the percentage of a firm's earnings that is distributed to shareholders called?
A. payout ratio
B. distribution percentage
C. retention ratio
D. dividend portion
E. outflow ratio
Which one of the following is the cash flow resulting from the payment of dividends
and the issuance or repurchase of equity securities?
A. balance sheet cash flow
B. operating cash flow
C. financing cash flow
D. business cash flow
E. investment cash flow
Which one of the following statements is correct concerning the Black-Scholes option
pricing model?
A. The model assumes a stock pays a constant annual dividend.
B. The model expresses time in terms of years.
C. The model is based on American-style options.
D. The model assumes that the current stock price is equal to the strike price.
E. The model assumes the put is in-the-money.
You have the following information:
You want the beginning price-weighted index of these two stocks to be 100. Given this,
what is the ending index value?
A. 93.44
B. 98.10
C. 107.02
D. 108.36
E. 110.40
The geometric mean return on large-company stocks for the 1926-2012 period:
A. is approximately equal to the arithmetic mean return plus one-half of the standard
deviation.
B. exceeds the arithmetic mean return.
C. is approximately equal to the arithmetic mean return minus one-half of the standard
deviation.
D. is approximately equal to the arithmetic mean return plus one-half of the variance.
E. is less than the arithmetic mean return.
If the financial markets were regulated such that the markets maintained strong-form
efficiency, then:
A. insider trading laws would be unnecessary.
B. all investors would earn equivalent rates of return.
C. risk premiums would vanish.
D. all investors would become arbitrage traders.
E. securities would tend to be continually underpriced.
You own a portfolio comprised of 4 stocks and the economy has 3 possible states.
Assume you invest your portfolio in a manner that results in an expected rate of return
of 7.5 percent, regardless of the economic state. Given this, what must be value of the
portfolio's variance be?
A. negative, but not -1
B. -1.0
C. 0.0
D. 1.0
E. positive, but not +1
An index is valued on a daily basis. However, some stocks in this particular index have
not traded recently. As a result, this index suffers from index:
A. fatigue.
B. devaluation.
C. flatness.
D. staleness.
E. weighting.
A price-weighted index consists of stocks A, B, and C which are priced at $38, $21, and
$26 a share, respectively. The current index divisor is 2.7. What will the new index
divisor be if stock B undergoes a 3-for-1 stock split?
A. 2.1684
B. 2.2553
C. 2.5890
D. 2.7000
E. 3.1447
Which one of the following terms applies to the amount of money required when a
futures position is first bought or sold?
A. original deposit
B. initial margin
C. spot margin
D. equity deposit
E. mark-to-market
Which of the following are bullish indicators?
I. flat advance/decline line
II. breakout of a support level
III. Arms ratio of .38
IV. heavy advancing volume
A. I and II only
B. III and IV only
C. I and III only
D. II and III only
E. I and IV only
The Federal Reserve is offering Treasury bills with a par value of $25 billion for sale.
They have received $7 billion of noncompetitive bids. The competitive bids for a
$10,000 par value bond are: (Qty in billions)
What price will Bidder A pay per bond, assuming that bid is accepted?
A. $9,600
B. $9,650
C. $9,675
D. $9,700
E. $9,750
When a borrower pays a fixed monthly amount on his or her home mortgage based on a
fixed rate of interest, he or she has which type of mortgage?
A. prepayment-based
B. open-end
C. fixed-rate
D. variable-rate
E. floating-rate
A pension fund purchases bonds so that the payments from the bonds provide sufficient
cash inflow in a timely manner to offset the cash outflows from the pension fund. What
is this investment strategy called?
A. cash flow matching
B. cash diversification
C. cash stabilization
D. in-out investing
E. plain vanilla matching
