The concept that well-capitalized, rational traders may be unable to correct a mispricing
defines which one of the following terms?
A. noise trading bounds
B. market bounds
C. limits to arbitrage
D. implementation limits
E. sentiment borders
A Treasury bill has a face value of $100,000, a price of $99,797.12, and matures in 35
days. What is the asked yield?
A. 1.98 percent
B. 2.12 percent
C. 2.28 percent
D. 3.67 percent
E. 3.74 percent
Municipal bonds are yielding 4.8 percent currently. Alicia has a marginal tax rate of 35
percent and Yvonne has a marginal tax rate of 22 percent. Alicia’s equivalent taxable
yield is _____ percent and Yvonne’s is _____ percent.
A. 7.50; 5.86
B. 7.39; 6.15
C. 6.53; 5.86
D. 6.53; 6.15
E. 8.29; 5.07
Which one of the following terms is defined as an option that would have a positive
payoff if exercised now?
A. in-the-money option
B. out-of-the-money option
C. straddle
D. crossed option
E. cash-settled
Four years ago, you borrowed $250,000 for 20 years at 8 percent. Payments are made
monthly. How much interest have you paid thus far?
A. $74,222
B. $75,756
C. $75,909
D. $76,456
E. $77,121
You invest $3,600 today at a nominal annual rate of 5.5 percent. This investment will
pay one payment five years from now. What will be the amount of that payment?
A. $2,754.48
B. $2,906.16
C. $4,705.06
D. $4,818.09
E. $5,018.62
The rate which an investor pays a brokerage firm for a margin loan is based on a
negotiated premium which is added to which one of the following rates?
A. prime
B. call
C. discount
D. T-bill
E. Federal funds
The net asset value of a money market mutual fund:
A. is dependent upon the value of the fund’s assets.
B. is guaranteed to be $1 a share.
C. fluctuates as new shares are issued and old shares are redeemed.
D. varies inversely with market interest rates.
E. is insured by the sponsoring investment advisory firm.
You are comparing three assets which have differing Treynor ratios. Given this, which
one of the following must be true?
A. The assets may all be correctly priced if they have differing betas.
B. The assets have differing rates of return.
C. The assets have differing levels of market risk but equal amounts of total risk.
D. The assets are all mispriced according to CAPM.
E. The preferred investment is the asset with the highest Treynor ratio.
Which of the following is not listed as a cause of increased integration of economies
around the world?
A. increased technology
B. increased international travel
C. improved supply chain logistic
D. reduced trade barriers
E. none of these
Which one of the following inputs is included in the Black-Scholes-Merton model but
not in the Black-Scholes model?
A. stock price volatility
B. time to option maturity
C. risk-free interest rate
D. underlying stock price
E. dividend yield
According to technical analysts, pricing patterns such as the head and shoulders are
indicators of potential:
A. reversals from the main trend line.
B. upcoming corrections which will return the market to the current main trend line.
C. increasing strength for the main trend line.
D. decreasing market activity.
E. increasing market activity.
The tendency to overvalue an item because you own it is referred to as which one of the
following?
A. endowment effect
B. money illusion
C. regret aversion
D. myopic loss aversion
E. sunk cost fallacy
One year ago, you purchased 421 shares of a mutual fund when both the offering price
and the NAV were $10.80 a share. Today, the NAV is $10.64 after today’s distribution of
$1.48 per share in short-term gains. There is no long-term gain distribution. What is
your rate of return?
A. 10.99 percent
B. 12.04 percent
C. 12.22 percent
D. 14.29 percent
E. 14.41 percent
Price risk is the risk that:
A. coupon payments will be reinvested at a rate that is less than the bond’s
yield-to-maturity.
B. the bond principal will not be paid in full or on time.
C. the bonds in a dedicated portfolio will decrease in value in response to an increase in
interest rates.
D. market prices increase due to market interest rate changes making bonds more
expensive to purchase.
E. the yield-to-maturity will be less than the inflation risk causing the real rate of return
to be negative.
Which one of the following is an unsecured bond issued by a corporation?
A. indenture
B. general obligation bond
C. plain vanilla bond
D. debenture
E. trust bond
Which one of the following statements is correct concerning premium bonds?
A. The premium increases when interest rates increase.
B. The coupon rate is less than the current yield.
C. As the time to maturity decreases, the premium increases.
D. The yield to maturity is less than the coupon rate.
E. The par value exceeds the face value.
According to technical analysis, which one of the following is best seen as a buying
opportunity?
A. a breakout of a resistance level
B. an MSI value of 0.1 or less
C. a downward sloping advance/decline line
D. a flat advance/decline line
E. top of Elliott wave 5
You wrote a $40 call option on a stock that has a market price of $43. Which one of the
following statements must be correct if the option expires three months from now?
A. Your option currently has zero intrinsic value.
B. Your option currently has a negative payoff.
C. You have the right to purchase shares at $40 a share.
D. Your option payoff will increase if the market price of the stock increases.
E. If the market price remains stable, you will make the decision to exercise this option
prior to expiration.
Which of the following combinations describes a “goldilocks” scenario?
A. slow income growth, low unemployment and low inflation
B. rapid income growth, high unemployment and low inflation
C. rapid income growth, low unemployment and low inflation
D. rapid income growth, low unemployment and high inflation
E. rapid income growth, high unemployment and high inflation
In an efficient market, daily abnormal returns:
A. are very volatile.
B. reflect news within the past week.
C. reflect news since the prior trading day.
D. remain constant.
E. do not exist.
Use the following bond quotes to answer this question:
What is the current price of a $1,000 face value Alpha Industrial bond?
A. $986.67
B. $991.04
C. $994.02
D. $998.23
E. $1,000.00
A hedge fund may charge a special performance fee which commonly ranges from:
A. 10 to 15 percent of NAV.
B. 15 to 20 percent of the fund’s profits.
C. 20 to 30 percent of NAV.
D. 20 to 40 percent of the market price.
E. 20 to 40 percent of the fund’s profits.
A STRIPS that matures in 8 years is selling for $11,490. The par value is $15,000. What
is the yield to maturity?
A. 3.36 percent
B. 4.67 percent
C. 5.25 percent
D. 6.54 percent
E. 6.75 percent
Which one of the following applies to U.S. Treasury auctions?
A. Every bidder has a choice of submitting either a competitive or a noncompetitive
bid.
B. The purchase price paid by all bidders is the highest bid price.
C. Each bidder with an accepted bid will pay the individual price he or she bid.
D. All noncompetitive bids are accepted automatically.
E. Noncompetitive bids are ignored unless there are not enough competitive bids to buy
the entire issue.
Which one of the following is the correct definition of a coupon rate?
A. semi-annual interest payment/par value
B. annual interest/par value
C. annual interest/market value
D. semi-annual coupon/bond price
E. annual coupon/bond price
Which one of the following is an unsecured bond that has a higher claim on a firm’s
assets than other unsecured bonds?
A. plain vanilla bond
B. subordinated debenture
C. refunded bond
D. senior debenture
E. collateral trust bond
A two-year STRIPS sells at an interest rate of 3.84 percent and a three-year STRIPS
sells at a rate of 3.97 percent. What is the implied one year interest rate two years from
now? Assume the rates are effective annual rates.
A. 4.23 percent
B. 4.36 percent
C. 4.41 percent
D. 4.45 percent
E. 4.50 percent
Which one of the following statements is correct?
A. The yield curve relates time to maturity to interest rates on zero-coupon bonds.
B. The yield curve is based on Treasury bill yields.
C. The term structure of interest rates is based on default-free, pure discount securities.
D. The term structure of interest rates is based on default-free, coupon bonds.
E. The yield curve ignores default risk while the term structure includes a default risk
premium.
A Treasury bond has a yield to maturity of 5.2 percent, a time to maturity of 8 years,
and a coupon rate of 7 percent. What is the bond price?
A. $940.65
B. $946.95
C. $1,054.55
D. $1,116.59
E. $1,169.56
Which one of the following is the primary purpose of the Value-at-Risk computation?
A. determine the 99 percent probability range given an abnormal distribution
B. evaluate the risk-return tradeoff for a given mix of securities
C. evaluate the probability of a significant loss
D. determine the portfolio that maximizes the risk premium per unit of total risk
E. determine the portfolio that maximizes the excess return per unit of systematic risk
All else constant, which one of the following situations will produce the highest call
price given a strike price of $25?
A. $30 stock price; 40 days to option expiration
B. $30 stock price; 60 days to option expiration
C. $35 stock price; 40 days to option expiration
D. $35 stock price; 60 days to option expiration
E. Insufficient information is provided to answer this question.
Green Roofing Materials has 7.5 percent bonds outstanding that are currently priced at
$1,068 each. The bonds pay interest on December 1 and June 1. What is the dirty price
of this bond if today’s date is May 1? Assume a 360-day year.
A. $1,099.25
B. $1,105.75
C. $1,112.00
D. $1,118.25
E. $1,124.50