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1) according to market technicians, it is time to sell stock in a head-and-shoulders
formation when ___________.
a.the price index pierces the left shoulder
b.the price index pierces the right shoulder
c.the price index pierces the head
d.none of these options takes place
2) real u.s. interest rates move above japanese interest rates. if you believe that japanese
interest rates won't move and that interest rate parity will hold, then ____________.
a.the yen-per-dollar exchange rate should rise
b.the dollar-per-yen exchange rate should rise
c.the exchange rate should stay the same if parity holds
d.the answer cannot be determined from the information given.
3) which one of the following is a correct statement?
a.exercise of warrants results in more outstanding shares of stock, while exercise of
listed call options does not.
b.a convertible bond consists of a straight bond plus a specified number of detachable
warrants.
c.call options always have an initial maturity greater than 1 year, while warrants have
an initial maturity less than 1 year.
d.call options may be convertible into the stock, while warrants are not convertible into
the stock.
4) inflation is defined as:
a.an increase in the overall level of prices.
b.the rate of growth in nominal gdp.
c.a situation where all prices in the economy rise simultaneously.
d.the growth phase of the business cycle.
5) assume you purchased a rental property for $100,000 and sold it 1 year later for
$115,000 (there was no mortgage on the property). at the time of the sale, you paid
$3,000 in commissions and $1,000 in taxes. if you received $10,000 in rental income
(all received at the end of the year), what annual rate of return did you earn?
a.6%
b.11%
c.21%
d.25%
6) a major problem with technical trading strategies is that ________.
a.it is very difficult to identify a true trend before the fact
b.it is very difficult to identify the correct trend after the fact
c.it is so easy to identify trends that all investors quickly do so
d.kondratieff showed that you can't identify trends without 48 to 60 years of data
7) explicit costs of an ipo tend to be around ______ of the funds raised.
a.1%
b.7%
c.15%
d.25%
8) historical returns have generally been __________ for stocks of small firms as (than)
for stocks of large firms.
a.the same
b.lower
c.higher
d.none of these options (there is no evidence of a systematic relationship between
returns on small-firm stocks and returns on large-firm stocks.)
9) the bid-ask spread exists because of _______________.
a.market inefficiencies
b.discontinuities in the markets
c.the need for dealers to cover expenses and make a profit
d.lack of trading in thin markets
10)
the characteristic line for this stock is rstock = ___ + ___ rmarket.
a..35; .12
b.4.05; 1.32
c.15.44; .97
d..26; 1.36
11) a put on sanders stock with a strike price of $35 is priced at $2 per share, while a
call with a strike price of $35 is priced at $3.50. the maximum per-share loss to the
writer of an uncovered put is __________, and the maximum per-share gain to the
writer of an uncovered call is _________.
a.$33; $3.50
b.$33; $31.50
c.$35; $3.50
d.$35; $35
12) you are a u.s. investor who purchased british securities for 3,500 pounds 1 year ago
when the british pound cost $1.35. no dividends were paid on the british securities in
the past year. your total return based on u.s. dollars was __________ if the value of the
securities is now 4,200 pounds and the pound is worth $1.15.
a.-3.8%
b.2.2%
c.5.6%
d.15%
13) when economists refer to "investment," they are describing a situation where:
a.people are buying shares of corporate stock.
b.resources are devoted to increasing future output.
c.money is saved in a bank account.
d.financial assets are purchased in the hope of a monetary gain.
14) the bulk of most initial public offerings (ipos) of equity securities goes to
___________.
a.institutional investors
b.individual investors
c.the firm's current shareholders
d.day traders
15) art has come out with a new and improved product. as a result, the firm projects an
roe of 25%, and it will maintain a plowback ratio of .20. its earnings this year will be $3
per share. investors expect a 12% rate of return on the stock.
at what p/e ratio would you expect art to sell?
a.8.33
b.11.43
c.14.29
d.15.25
16) demand shocks:
a.refer to unexpected changes in the desires of households and businesses to buy goods
and services.
b.refer to unexpected changes in the ability of firms to produce and sell goods and
services.
c.always have a negative impact on the economy.
d.cause fewer short-run fluctuations than supply shocks.
17) the risk that a downturn in the market may substantially reduce your investment
principal is called _______.
a.purchasing power risk
b.interest rate risk
c.market risk
d.liquidity risk
18) in securities markets, there should be a risk-return trade-off with higher-risk assets
having _________ expected returns than lower-risk assets.
a.higher
b.lower
c.the same
d.the answer cannot be determined from the information given.
19) the inside quotes on a limit order book can be found ______.
a.at the top of the list
b.at the bottom of the list
c.by taking the averages of the bid and ask prices on the list
d.only by direct contact with the specialist who maintains the book
20) a u.s. insurance firm must pay 75,000 in 6 months. the spot exchange rate is $1.32
per euro, and in 6 months the exchange rate is expected to be $1.35. the 6-month
forward rate is currently $1.36 per euro. if the insurer's goal is to limit its risk, should
the insurer hedge this transaction? if so how?
a.the insurer need not hedge because the expected exchange rate move will be
favorable.
b.the insurer should hedge by buying the euro forward even though this will cost more
than the expected cost of not hedging.
c.the insurer should hedge by selling the euro forward because this will cost less than
the expected cost of not hedging.
d.the insurer should hedge by buying the euro forward even though this will cost less
than the expected cost of not hedging.
