The issuer of ________ bond may choose to pay interest either in cash or in additional
bonds.
A. an asset-backed
B. a TIPS
C. a catastrophe
D. a pay-in-kind
The stock price of Atlantis Corp. is $43 today. The risk-free rate of return is 10%, and
Atlantis Corp. pays no dividends. A call option on Atlantis Corp. stock with an exercise
price of $40 and an expiration date 6 months from now is worth $5 today. A put option
on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months
from now should be worth __________ today.
A. $.05
B. $.14
C. $2
D. $3.95
The 32 “developed” countries with the largest equity capitalization made up about
_____ of the world GDP in 2011.
A. 22%
B. 44%
C. 68%
D. 85%
Until 1999, the __________ Act separated commercial banking and investment banking
activities.
A. Dodd-Frank Wall Street Reform and Consumer Protection
B. Sarbanes-Oxley
C. Glass-Steagall
D. Volker Rule
Which of the following companies is the best example of a turnaround?
A. Coca-Cola
B. Microsoft
C. ExxonMobil
D. Kmart
Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and
coupon rate of 5%. Assume annual coupon payments.
What is the nominal rate of return on the TIPS bond in the first year?
A. 5%
B. 5.15%
C. 8.15%
D. 9%
Countercyclical fiscal policy is best described by which of the following statements?
A. Government surpluses are planned during economic booms, and deficits are planned
during economic recessions.
B. The annual budget should always be balanced.
C. Deficits should always equal surpluses.
D. Government deficits are planned during economic booms, and surpluses are planned
during economic recessions.
If you require a real growth in the purchasing power of your investment of 8%, and you
expect the rate of inflation over the next year to be 3%, what is the lowest nominal
return that you would be satisfied with?
A. 3%
B. 8%
C. 11%
D. 11.24%
The expected return on the market portfolio is 15%. The risk-free rate is 8%. The
expected return on SDA Corp. common stock is 16%. The beta of SDA Corp. common
stock is 1.25. Within the context of the capital asset pricing model, _________.
A. SDA Corp. stock is underpriced
B. SDA Corp. stock is fairly priced
C. SDA Corp. stock’s alpha is -.75%
D. SDA Corp. stock alpha is .75%
According to the CAPM, what is the expected market return given an expected return
on a security of 15.8%, a stock beta of 1.2, and a risk-free interest rate of 5%?
A. 5%
B. 9%
C. 13%
D. 14%
Single stock futures, as opposed to stock index futures, are _______________.
A. not yet being offered by any exchanges
B. offered overseas but not in the United States
C.
currently trading on OneChicago, a joint venture of several exchanges
D. scheduled to begin trading in 2015 on several exchanges
Suppose you pay $9,800 for a $10,000 par Treasury bill maturing in 2 months. What is
the annual percentage rate of return for this investment?
A. 2.04%
B. 12 %
C. 12.24%
D. 12.89%
The interest rate charged by large banks in London to lend money among themselves is
called _________.
A. the prime rate
B. the discount rate
C. the federal funds rate
D. LIBOR
The risk-free rate, average returns, standard deviations, and betas for three funds and
the S&P 500 are given below.
Based on the M2
measure,
portfolio C has a
superior return
of _____ as compared to the S&P 500.
A. -1.33%
B. 1.43%
C. 2%
D. 0%
An investor purchases one municipal bond and one corporate bond that pay rates of
return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his
after-tax rates of return on the municipal and corporate bonds would be, respectively,
_____.
A. 5% and 6.4%
B. 5% and 5.44%
C. 4.25% and 6.4%
D. 5.75% and 5.44%
Interest rate futures contracts exist for all of the following except __________.
A. federal funds
B. Eurodollars
C. banker’s acceptances
D. repurchase agreements
A high price-to-book ratio may indicate which one of the following?
A. The firm expanded its plant and equipment in the past few years.
B. The firm is doing a poorer job controlling its inventory expense than other related
firms.
C. Investors may believe that this firm has opportunities for earning a rate of return in
excess of the market capitalization rate.
D. All of these options.
Which of the following firms was not engaged in a major accounting scandal between
2000 and 2005?
A. General Electric
B. Parmalat
C. Enron
D. WorldCom
The highest possible value for the interest-burden ratio is ______, and this occurs when
the firm _________.
A. 0; uses as much debt as possible
B. 1; uses debt to the point where ROA = interest cost of debt
C. 1; uses no interest-bearing debt
D. -1; pays down its existing debts
When Google’s share price reached $475 per share, Google had a P/E ratio of about 68
and an estimated market capitalization rate of 11.5%. Google pays no dividends.
Approximately what percentage of Google’s stock price was represented by PVGO?
A. 92%
B. 87%
C. 77%
D. 64%
Margin must be posted by ________.
A. buyers of futures contracts only
B. sellers of futures contracts only
C. both buyers and sellers of futures contracts
D. speculators only
An American put option gives its holder the right to _________.
A. buy the underlying asset at the exercise price on or before the expiration date
B. buy the underlying asset at the exercise price only at the expiration date
C. sell the underlying asset at the exercise price on or before the expiration date
D. sell the underlying asset at the exercise price only at the expiration date
You have a 15-year maturity, 4% coupon, 6% yield bond with duration of 10.5 years
and a convexity of 128.75. The bond is currently priced at $805.76. If the interest rate
were to increase 200 basis points, your predicted new price for the bond (including
convexity) is _________.
A. $638.85
B. $642.54
C. $666.88
D. $705.03
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
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
Earnings yields tend to _______ when Treasury yields fall.
A. fall
B. rise
C. remain unchanged
D. fluctuate wildly
When bonds sell above par, what is the relationship of price sensitivity to rising interest
rates?
A. Price volatility increases at an increasing rate.
B. Price volatility increases at a decreasing rate.
C. Price volatility decreases at a decreasing rate.
D. Price volatility decreases at an increasing rate.
Sponsors of unit investment trusts earn a profit by ___________________.
A. deducting management fees from fund assets
B. deducting a percentage of any gains in asset value
C. selling shares in the trust at a premium to the cost of acquiring the underlying assets
D. charging portfolio turnover fees
Which of the following actions should the central bank take if monetary authorities
want to reduce the supply of money to slow the rate of inflation?
A. Sell government bonds, reducing money supply, increasing interest rates, and
slowing aggregate demand.
B. Buy government bonds, reducing money supply, increasing interest rates, and
slowing aggregate demand.
C. Decrease the discount rate, lowering interest rates and causing both costs and prices
to fall.
D. Increase taxes, reducing costs and causing prices to fall.
Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per
share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.
After 1 year, the exchange rate is unchanged and the share price is ₤55. What is the
dollar-denominated return?
A. 14%
B. 10%
C. 9.3%
D. 7.1%
Adding additional risky assets to the investment opportunity set will generally move the
efficient frontier _____ and to the ______.
A. up; right
B. up; left
C. down; right
D. down; left
From the perspective of determining profit and loss, the long futures position most
closely resembles a levered investment in a
____________.
A. long call
B. short call
C. short stock position
D. long stock position