1) in an efficient market and for an investor who believes in a passive approach to
investing, what is the primary duty of a portfolio manager?
a.accounting for results
b.diversification
c.identifying undervalued stocks
d.no need for a portfolio manager
2) preferred stock is like long-term debt in that ___________.
a.it gives the holder voting power regarding the firm’s management
b.it promises to pay to its holder a fixed stream of income each year
c.the preferred dividend is a tax-deductible expense for the firm
d.in the event of bankruptcy preferred stock has equal status with debt
3) the chompers index is a price weighted stock index based on the 3 largest fast food
chains. the stock prices for the three stocks are $54, $23, and $44. what is the price
weighted index value of the chompers index?
a.23.43
b.35.36
c.40.33
d.49.58
4) commodity and derivative markets allow firms to adjust their _________.
a.management styles
b.focus from their main line of business to their investment portfolios
c.ways of doing business so that they’ll always have positive returns
d.exposure to various business risks
5) a portfolio generates an annual return of 17%, a beta of 1.2, and a standard deviation
of 19%. the market index return is 12% and has a standard deviation of 16%. what is
the m2 measure of the portfolio if the risk-free rate is 4%?
a.2.15%
b.2.76%
c.2.94%
d.3.14%
6) you find digital option quotes on jobless claims. you can buy a call option with a
strike price of 300,000 jobless claims. this option pays $100 if actual claims exceed the
strike price and pays zero otherwise. the option costs $68. a second digital call with a
strike price of 305,000 jobless claims is available at a cost of $53. suppose you buy the
option with the 300,000 strike and sell the option with the 305,000 strike and jobless
claims actually wind up at 303,000. your net profit on the position is ______.
a.-$15
b.$200
c.$85
d.$185
7) the price of a stock put option is __________ correlated with the stock price and
__________ correlated with the exercise price.
a.negatively; negatively
b.negatively; positively
c.positively; negatively
d.positively; positively
8) according to the flow of funds accounts of the united states, the largest single asset of
u.s. households is ___.
a.mutual fund shares
b.real estate
c.pension reserves
d.corporate equity
9) 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
10) the value of a put option increases with all of the following except ___________.
a.stock price
b.time to maturity
c.volatility
d.dividend yield
11) a stock has a beta of 1.3. the systematic risk of this stock is ____________ the stock
market as a whole.
a.higher than
b.lower than
c.equal to
d.indeterminable compared to
12) a project has a 50% chance of doubling your investment in 1 year and a 50% chance
of losing half your money. what is the expected return on this investment project?
a.0%
b.25%
c.50%
d.75%
13) research suggests that option-pricing models that allow for the possibility of
___________ provide more accurate pricing than does the basic black-scholes
option-pricing model.
i. early exercise
ii. changing expected returns of the stock
iii. time varying stock price volatility
a.ii only
b.i and iii only
c.ii and iii only
d.i, ii, and iii
14) proponents of the emh think technical analysts __________.
a.should focus on relative strength
b.should focus on resistance levels
c.should focus on support levels
d.are wasting their time