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1) Which of the following is not a secondary equity market?
a.Treasury market
b.National exchanges
c.Regional exchanges
d.Over-the-counter market
e.All of the above are secondary equity markets.
2) Studies of the relationship between P/E ratios and stock returns have found that
a.Low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
b.Low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks.
c.High P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
d.High P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks.
e.none of the above.
3) Exhibit 21.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The S&P 500 stock index is at 1100. The annualized interest rate is 3.5% and the
annualized dividend is 2%.
If the futures contract was currently available for 1250, indicate the appropriate strategy
that would earn an arbitrage profit.
a. Long futures, and short the index.
b. Short futures and long the index.
c. Long futures and long the index.
d. Short futures and short the index.
e. None of the above.
4) The importance of the reinvestment assumption increases with a ____ coupon and a
____ term to maturity.
a. Low, short
b. Low, long
c. High, short
d. High, long
e. Zero, very long
5) Exhibit 14.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
In the listing above, which three factors influence the earnings multiple for a stock?
a. 1, 4, and 5
b. 1, 4, and 6
c. 2, 4, and 6
d. 2, 5, and 6
e. 4, 5, and 6
6) Consider the Defiance Bond Fund that consists of the 3 bonds shown below and has
no liabilities.
If initially the value of the fund was $250,000 and the original shares were offered to
the public with a NAV of $25 per share, what is the current NAV of the fund?
a. $25.00
b. $38.91
c. $39.81
d. $31.98
e. $39.91
7) Exhibit 19.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold
a 15 year, 7 percent coupon bond priced to yield 8 percent. As a swap candidate you are
considering a 15 year, 7 percent coupon bond priced to yield 8.5 percent. Assume a
reinvestment rate of 8.5 percent, semiannual compounding, and a one-year workout
period.
The realized compound yield on the current bond is
a. 15.50%
b. 11.03%
c. 10.30%
d. 8.01%
e. 9.00%
8) Financial futures include all of the following underlying securities except
a. Stock indexes
b. Treasury bonds
c. Bank deposits
d. Foreign currencies
e. All of the above are examples of underlying securities for financial futures
9) You are attempting to estimate expected earnings per share for a major stock market
series. You have determined an appropriate estimate for sales per share. Which of the
following methods can be used to estimate the profit margin?
a. Base the estimate on recent trends of net profit margins.
b. Estimate the net before tax (NBT) profit margin along with a tax estimate.
c. Incorporate an estimate an operating profit margin, defined as earnings before
interest, taxes, and depreciation.
d. All of the above methods are appropriate.
e. None of the above methods are appropriate.
10) The bond that maximizes the difference between the invoice price and the delivery
price is referred to as the
a. Cheapest-to-deliver.
b. Conversion bond.
c. Delivery bond.
d. Cheapest to substitute.
e. Cost-of-carry.
11) Exhibit 19.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year,
maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond
X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year,
and a face value of $1000.
Calculate the modified duration for Bond X.
a. 4.22
b. 7.8
c. 7.5
d. 9.2
e. 4.34
12) While there is substantial dispersion in industry risk over periods of time, there is
consistency in the industry risk during a period of time.
13) Fundamentalists contend that past price movements will indicate future price
movements.
14) Financial ratios are used in stock and bond valuation models.
15) A block house is a brokerage firm that buys and sells blocks of stock for
institutions.
16) The majority of technicians follows many trading rules and attempt to arrive at a
consensus among their rules.
17) The Dow theory contends that stock price movements are similar to the movement
of tides, waves, and ripples.
18) Investment costs are generally higher in the derivative markets than in the
corresponding cash markets.
19) When securities are held in an investment company the appropriate way to value a
client's investment is by net asset value (NAV).
20) Yield to maturity and current yield are equal when the bond is selling for exactly
par value.
