1) A currency call is like being ____ in the currency futures.
a. Out-of-the-money
b. In-the-money
c. Long
d. Short
e. At-the-money
2) Contingent immunization strategies
a. Provide the bond portfolio manager to engage in various active portfolio strategies if
the client is willing to accept a floor value.
b. Insure that the modified duration of the portfolio is always equal to the desired
investment horizon.
c. Guarantee that the end of the holding period wealth will not be impacted by interest
rate changes.
d. All of the above statements are true.
e. None of the above statements are true.
3) Exhibit 22.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
Calculate the net value of a protective put position at a stock price at expiration of $20,
and a stock price at expiration of $45.
a. $6.35, $18.85
b. $29.65, $42.15
c. $21.65, $34.15
d. $8, $8
e. -$8, -$8
4) Exhibit 4.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60
percent and Turtle Industries is currently selling at $50 per share.
Refer to Exhibit 4.1. If the maintenance margin is 25 percent, to what price can Turtle
Industries fall before Jackie receives a margin call?
a.$14.56
b.$23.17
c.$32.42
d.$26.67
e.None of the above
5) Studies of correlations among monthly equity price index returns have found:
a.Low correlations between various U.S. equity indexes
b.High correlations between various U.S. equity indexes
c.High correlations between U.S. and non-U.S. equity indexes
d.Negative correlations between various U.S. equity indexes
e.None of the above
6) A mutual fund typically performs all of the following functions, except
a. Provides alternative risk-return options.
b. Eliminates unsystematic risk.
c. Provides diversification.
d. Derives a risk-adjusted performance that is consistently superior to risk-adjusted net
return of the aggregate market.
e. Administers the account, keeps records and provides timely information.
7) A stock currently trades for $115. January call options with a strike price of $100 sell
for $16, and January put options a strike price of $100 sell for $5. Estimate the price of
a risk free bond.
a. $120
b. $15
c. $105
d. $116
e. $104
8) For an investor with a time horizon of 8 years and higher risk tolerance, an
appropriate asset allocation strategy would be
a.100% stocks
b.100% cash
c.30% cash, 50% bonds, and 20% stocks
d.10% cash, 30% bonds, and 60% stocks
e.100% bonds
9) What is the standard deviation of an equally weighted portfolio of two stocks with a
covariance of 0.009, if the standard deviation of the first stock is 15% and the standard
deviation of the second stock is 20%?
a. 2.0%
b. 2.1%
c. 7.8%
d. 14.2%
e. 14.7%
10) Municipal bonds are sold using the following method or methods:
a.Competitive bid
b.Negotiated sale
c.Private placement
d.All of the above
e.None of the above
11) The results of return prediction studies have found
a.Limited success predicting short-horizon returns.
b.Limited success predicting long-horizon returns.
c.Good success predicting long-horizon returns.
d.a and b.
e.a and c.
12) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the unweighted index for Dec 31, 2003, prior to the
splits. Assume a base index value of 100. The base year is Dec 31, 2003.
a.100.0
b.200.0
c.150.0
d.120.0
e.175.0
13) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the unweighted index for Dec 31, 2003, after the splits.
Assume a base index value of 100. The base year is Dec 31, 2003.
a.110.0
b.200.0
c.100.0
d.120.0
e.150.0
14) A stock currently sells for $150 per share. A call option on the stock with an
exercise price $155 currently sells for $2.50. The call option is
a. At-the-money.
b. In-the-money.
c. Out-of-the-money.
d. At breakeven.
e. None of the above.
15) For an investor with a time horizon of 12 years and higher risk tolerance, an
appropriate asset allocation strategy would be
a.100% stocks
b.30% cash, 50% bonds, and 20% stocks
c.10% cash, 30% bonds, and 60% stocks
d.50% bonds and 50% stocks
e.100% bonds
16) Which of the following statements regarding Collateralized Debt Obligations
(CDOs) is false?
a. CDOs experienced rapid growth since the year 2000.
b. The assets used to back the CDOs are substantially diverse.
c. The credit quality within a CDO at the time of issue is diverse.
d. CDOs have generated significant credit and liquidity problems.
e. All of the above statements are true.
17) Indicators that tell what smart investors are doing include
a. The put/call ratio.
b. Mutual fund cash position.
c. The Dow theory.
d. Short sales by specialists.
e. Head and tail indicator.
18) The first step in the investment process is the development of a(n)
a.Objective statement.
b.Policy statement.
c.Financial statement.
d.Statement of cash needs.
e.Statement of cash flows.
19) The longer the time to expiration, the greater the value of a call option.
20) Investors buy call options because they expect the price of the underlying stock to
increase before the expiration of the option.
21) A major advantage of the cyclical indicator approach is that it spans all important
major economic sectors including the service sector and import-exports.
22) A test of bond performance over time indicated that bond portfolio managers are
more consistent over time than equity managers.
23) The decrease in the standard deviation of returns after adding 40 to 50 securities
within a country is known as domestic diversification.
24) The price of a bond can be calculated by discounting future coupons over the bonds
life by the yield to maturity.
25) Diversifying a portfolio to eliminate unsystematic risk is one of the major benefits
of investing in mutual funds.