A frequency distribution, which is completely defined by its average (mean) and
standard deviation, is referred to as a(n):
A. normal distribution.
B. variance distribution.
C. expected rate of return.
D. average geometric return.
E. average arithmetic return.
What is the put option premium given the following information?
A. $3.62
B. $4.23
C. $4.47
D. $4.89
E. $5.01
Which one of the following statements is correct?
A. The standard deviation of the returns on Treasury bills is zero.
B. Large-company stocks are historically riskier than small-company stocks.
C. The variance is a means of measuring the volatility of returns on an investment.
D. A risky asset will always have a higher annual rate of return than a riskless asset.
E. There is an indirect relationship between risk and return.
Blue Water Tours has paid annual dividends of $2.10, $2.12, $2.15, $2.15, and $2.22
over the past 5 years, respectively. What is the arithmetic average growth rate for these
dividends?
A. 1.08 percent
B. 1.41 percent
C. 1.57 percent
D. 1.70 percent
E. 1.73 percent
The maximum price at which a security is expected to trade is called the:
A. fourth wave.
B. stop limit.
C. relative point.
D. resistance level.
E. support level.
An investment company that will repurchase shares at any time is called a(n) _____
fund.
A. hedge
B. closed-end
C. open-end
D. public
E. exchange traded
An index consists of the following securities. What is the value-weighted index return?
A. -0.43 percent
B. -1.46 percent
C. 4.43 percent
D. 4.51 percent
E. 4.62 percent
Given the following information, what is the net money flow at the end of the trading
day?
A. -290,500
B. -85,100
C. 322,200
D. 235,000
E. 421,400
Which one of the following is a correct formula for computing a geometric average
dividend growth rate?
A. [(1 + D0) + (1 + D1) (1 + DN)]N + 1 – 1
B. [(1 + D0) (1 + D1) (1 + DN)]N – 1 – 1
C. [DN/D0]1/N – 1
D. [D0/DN]N – 1
E. [DN/D0]N/1 – 1
Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before
reselling it. What is the value of “m” when computing the annualized return on this
investment?
A. .25
B. .33
C. .40
D. 3.00
E. 4.00
Net income is equal to which one of the following?
A. operating income plus interest expense minus taxes
B. gross profit minus depreciation and interest expense
C. pretax income plus income taxes
D. dividends plus the change in retained earnings
E. pretax income minus taxes and dividends
A Roth IRA:
A. is a form of “tax-deferred” account
B. funds are taxed at the time you begin withdrawals
C. are well-suited to investors nearing retirement
D. invests after-tax dollars
E. is the type of account offered by most employers
Which of the following measures are dependent upon the accuracy of a security’s beta?
I. Sharpe ratio
II. Treynor ratio
III. Jensen’s alpha
A. I only
B. II only
C. I and II only
D. II and III only
E. I, II, and III
Which one of the following betas represents the greatest level of systematic risk?
A. .05
B. .68
C. 1.00
D. 1.19
E. 1.27
A portfolio has an average return of 12.4 percent, a standard deviation of 15.8 percent,
and a beta of 1.35. The risk-free rate is 2.6 percent. What is the Sharpe ratio?
A. .49
B. .52
C. .62
D. .71
E. .75
A portfolio consists of one risky asset and one risk-free asset. The risky asset has an
expected return of 11.2 percent and a beta of 1.39. The risk-free asset has an expected
return of 3.4 percent. How much of the portfolio is invested in the risk-free asset if the
portfolio beta is 1.07?
A. 16 percent
B. 23 percent
C. 32 percent
D. 45 percent
E. 54 percent
A firm has the following account balances for this year. Sales for the year are $500,000.
Projected sales for next year are $545,000. The percentage of sales approach is used for
pro forma purposes. All balance sheet accounts, except long-term debt and common
stock, change according to that approach. The firm plans to decrease the long-term debt
balance by $5,000 next year. Retained earnings is expected to increase by $3,500 next
year. What is the projected external financing need?
A. $10,520
B. $14,720
C. $18,520
D. $20,720
E. $25,620
You have a market position which allows you to profit when market prices increase but
causes you a loss when market prices decline. This position is defined by which one of
the following terms?
A. forward position
B. futures position
C. long position
D. short position
E. speculative position
A call option grants its owner which one of the following?
A. right to buy
B. obligation to buy
C. right to sell
D. obligation to sell
E. choice to either buy or sell
The Sharpe ratio measures a security’s return relative to which one of the following?
A. total risk
B. diversifiable risk
C. market rate of return
D. risk-free rate
E. systematic risk
Which one of the following decisions falls under the category of asset allocation?
A. Purchasing Ford stock rather than General Motors stock
B. Determining that thirty percent of a portfolio should be invested in bonds
C. Adopting a passive investment strategy
D. Deciding to actively analyze individual securities
E. Deciding to use an online broker
The model used to value a stock that pays a dividend which increases at a constant rate
forever is referred to as which one of the following? Assume the growth rate is less than
the discount rate.
A. diminishing valuation growth model
B. increasing valuation growth model
C. constant perpetual growth model
D. irregular growth perpetual model
E. two-stage growth model
You own one futures contract on gold that you purchased at a quoted price of 948.4.
The current price quote is 1008.8. The contract size is 100 ounces and the quotes are
expressed in dollars and cents per ounce. What is your current profit or loss on this
investment?
A. $30.40
B. $912.00
C. $3,040.00
D. $6,040.00
E. $9,120.00
A.B. Pharmaceutical announced FDA approval for a new drug on October 12. Uptown
Drug Co. announced FDA approval for its new drug on October 14. No other
information was released that would affect returns over this time period. What is the
combined cumulative abnormal return for the 5 day period commencing 2 days prior to
the FDA approval announcement date? Use the following data to answer this question.
No trading occurred on October 15 or 16.
A. 0.6 percent
B. 1.0 percent
C. 1.2 percent
D. 1.3 percent
E. 1.6 percent
The last dividend paid by New Technologies was an annual dividend of $1.40 a share.
Dividends for the next 3 years will be increased at an annual rate of 8 percent. After
that, dividends are expected to increase by 3 percent each year. The discount rate is 16
percent. What is the current value of this stock?
A. $10.40
B. $12.60
C. $13.33
D. $14.10
E. $15.55
During a bankruptcy proceeding, Bond A will be paid only if funds remain after the
bonds that have a higher claim on the issuer’s assets have been paid. What type of bond
is Bond A?
A. plain vanilla bond
B. senior trust bond
C. junior trust bond
D. subordinated debenture
E. senior debenture
Stephen is purchasing 700 shares of KPT, Inc., stock at a price per share of $28.00.
What is the minimum amount the Federal Reserve will require Stephen to pay in cash
for this purchase?
A. $4,488
B. $7,480
C. $9,800
D. $10,968
E. $11,960
Over the past four years, a stock produced returns of 13, 6, -5, and 18 percent,
respectively.
What is the standard deviation of these returns?
A. 8.63 percent
B. 9.93 percent
C. 9.97 percent
D. 10.11 percent
E. 10.15 percent
An index consists of the following securities and has an index divisor of 3.0. What is
the price-weighted index return?
A. -4.76 percent
B. -2.05 percent
C. 3.09 percent
D. 5.17 percent
E. 7.48 percent
Which one of the following transactions occurs in the primary market?
A. sale of stock by Shareholder A to Shareholder B
B. gift of shares from a grandmother to her granddaughter
C. sale of newly issued shares by the issuer to a shareholder
D. sale of shares in the third market
E. purchase of shares by a dealer from a shareholder