1) ______ are mutual funds that vary the proportions of funds invested in particular
market sectors according to the fund manager’s forecast of the performance of that
market sector.
a.asset allocation funds
b.balanced funds
c.index funds
d.income funds
2) which of the following is an example of a supply shock?
a.a surge in consumer optimism prompts increased buying of goods and services.
b.a surprise tax rebate from the government gives people more money to spend.
c.a dramatic increase in energy prices increases production costs for firms in the
economy.
d.government increases spending on education.
3) all else equal, call option values are _____ if the _____ is lower.
a.higher; stock price
b.higher; exercise price
c.lower; dividend payout
d.lower; stock volatility
4) security selection refers to _________.
a.choosing specific securities within each asset class
b.deciding how much to invest in each asset class
c.deciding how much to invest in the market portfolio versus the riskless asset
d.deciding how much to hedge
5) an institutional investor will have to pay off a maturing bond issue in 3 years. the
institution has 10,000 bonds outstanding, each with a $1,000 par value. the institutional
money manager is reevaluating the fund’s total portfolio of $100 million at this time.
she is bullish on stocks and wants to put the most she can into the stock market, but she
cannot risk being unable to pay off the bonds. three-year zero-coupon bonds are
available paying 6% interest. what percentage of the total $100 million portfolio can
she put in stocks and still ensure meeting the bond payments?
a.87.4%
b.88.5%
c.90%
d.91.6%
6) a 1% decline in yield will have the least effect on the price of a bond with a
_________.
a.10-year maturity, selling at 80
b.10-year maturity, selling at 100
c.20-year maturity, selling at 80
d.20-year maturity, selling at 100
7) the federal reserve board of governors directly controls which of the following
interest rates?
a.bankers’ acceptances
b.brokers’ calls
c.federal funds
d.libor
8) assuming all other factors remain unchanged, __________ would increase a firm’s
price-earnings ratio.
a.an increase in the dividend payout ratio
b.a reduction in investor risk aversion
c.an expected increase in the level of inflation
d.an increase in the yield on treasury bills
9) the sml is valid for _______________, and the cml is valid for ______________.
a.only individual assets; well-diversified portfolios only
b.only well-diversified portfolios; only individual assets
c.both well-diversified portfolios and individual assets; both well-diversified portfolios
and individual assets
d.both well-diversified portfolios and individual assets; well-diversified portfolios only
10) the greatest percentage of mutual fund assets are invested in ________.
a.bond funds
b.equity funds
c.hybrid funds
d.money market funds
11) in calculating the variance of a portfolio’s returns, squaring the deviations from the
mean results in:
i. preventing the sum of the deviations from always equaling zero
ii. exaggerating the effects of large positive and negative deviations
iii. a number for which the unit is percentage of returns
a.i only
b.i and ii only
c.i and iii only
d.i, ii, and iii
12) if a stock is correctly priced, then you know that ____________.
a.the dividend payout ratio is optimal
b.the stock’s required return is equal to the growth rate in earnings and dividends
c.the sum of the stock’s expected capital gain and dividend yield is equal to the stock’s
required rate of return
d.the present value of growth opportunities is equal to the value of assets in place
13) which one of the following is not an example of a brokered market?
a.residential real estate market
b.market for large block security transactions
c.primary market for securities
d.nasdaq
14) the primary difference between treasury notes and bonds is ________.
a.maturity at issue
b.default risk
c.coupon rate
d.tax status