1) the nominal interest rate is 10%. the real interest rate is 4%. the inflation rate must be
_________.
a.-6%
b.4%
c.5.77%
d.14.4%
2) published data on past returns earned by mutual funds are required to be ______.
a.dollar-weighted returns
b.geometric returns
c.excess returns
d.index returns
3) which of the following is not a money market security?
a.u.s. treasury bill
b.6-month maturity certificate of deposit
c.common stock
d.bankers’ acceptance
4) which of the following is used to back international sales of goods and services?
a.certificate of deposit
b.bankers’ acceptance
c.eurodollar deposits
d.commercial paper
5) a portfolio is composed of two stocks, a and b. stock a has a standard deviation of
return of 24%, while stock b has a standard deviation of return of 18%. stock a
comprises 60% of the portfolio, while stock b comprises 40% of the portfolio. if the
variance of return on the portfolio is .0380, the correlation coefficient between the
returns on a and b is _________.
a..583
b..225
c..327
d..128
6) if the nominal rate of return on investment is 6% and inflation is 2% over a holding
period, what is the real rate of return on this investment?
a.3.92%
b.4%
c.4.12%
d.6%
7) in planning for retirement, an investor decides she will save $2,000 every year for 25
years. at a 7% return on her investment, how much money will she have at the end of
25 years?
a.$119,015
b.$125,316
c.$126,498
d.$128,420
8) on a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an
ask price of $1003.25. the dealer made 10 trades that totaled 500 bonds traded that day.
what was the dealer’s gross trading profit for this security?
a.$1,375
b.$500
c.$275
d.$1,450
9) 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.
10) empirical results estimated from historical data indicate that betas _________.
a.are always close to zero
b.are constant over time
c.of all securities are always between zero and 1
d.seem to regress toward 1 over time
11) a coupon bond that pays interest of 4% annually has a par value of $1,000, matures
in 5 years, and is selling today at $785. the actual yield to maturity on this bond is
_________.
a.7.2%
b.8.8%
c.9.1%
d.9.6%
12) when the returns of an option and stock are perfectly correlated as in a two-state
binomial option model, the hedge ratio must be equal to the ratio of ____________.
a.the range of the option outcomes to the range of the stock outcomes
b.the range of the stock outcomes to the range of the option outcomes
c.the standard deviation of the option returns to the standard deviation of the stock
returns
d.the standard deviation of the stock returns to the standard deviation of the option
returns
13) the price of a corn futures contract is $2.65 per bushel when the contract is issued,
and the commodity spot price is $2.55. when the contract expires, the two prices are
identical. what principle is represented by this price behavior?
a.convergence
b.margin
c.basis
d.volatility
14) currently, the dow jones industrial average is computed by _________.
a.adding the prices of 30 large “blue-chip” stocks and dividing by 30
b.calculating the total market value of the 30 firms in the index and dividing by 30
c.measuring the current total market value of the 30 stocks in the index relative to the
total value on the previous day
d.adding the prices of 30 large “blue-chip” stocks and dividing by a divisor adjusted for
stock splits and large stock dividends