Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months
later for $64.60 a share. The initial margin requirement on this stock is 75 percent and
the maintenance margin is 40 percent. Ignoring dividends and costs, what is his holding
period return?
A. 3.72 percent
B. 3.86 percent
C. 4.54 percent
D. 4.95 percent
E. 5.14 percent
The greater the prepayment rate for a mortgage pool, the:
A. slower the payments to the holders of the bonds supported by the pool.
B. greater the decline in the bond principal for bonds supported by the pool.
C. longer the age of the mortgages held in the underlying pool.
D. lower the PSA benchmark rate.
E. greater the default risk.
When a put option is exercised, the:
A. seller of the option receives the strike price.
B. seller of the option receives the option premium.
C. buyer of the option sells the underlying asset and receives the option premium.
D. buyer of the option pays the option premium and receives the underlying asset.
E. seller of the option must buy the underlying asset and pay the strike price.
If you opt to purchase shares of stock on margin rather than with cash, you will:
A. decrease your maximum potential rate of return.
B. increase your maximum potential rate of return.
C. guarantee yourself a profit.
D. eliminate any potential profit.
E. have equal rates of return regardless of how the purchase is made.
If you benefit when a security decreases in value, you have a _____ position in the
security.
A. long
B. margined
C. short
D. covered
E. wrapped
Which one of the following represents an arbitrage opportunity?
A. stock price of $18 and strike price of $20
B. call price of $0.40 and put price of $0.40
C. PCP-implied put price of $0.30 and call price of $0.28
D. PCP-implied put price of $0.30 and put market price of $0.31
E. PCP-implied call price of $0.20 and a put market price of $0.22
RedStone Mines stock returned 7.5, 15.3, -9.2, and 11.5 percent over the past four
years, respectively. What is the geometric average return?
A. 5.84 percent
B. 6.36 percent
C. 7.75 percent
D. 9.94 percent
E. 10.33 percent
Blue Water Tours just paid an annual dividend of $0.80 a share. The firm has a policy of
increasing the dividend by 3.5 percent annually. What is the current value of this stock
at a discount rate of 11.5 percent?
A. $9.52
B. $9.78
C. $9.91
D. $10.02
E. $10.35
The portion of net income that is held by a firm, for future growth, comprises which
one of the following balance sheet accounts?
A. capital surplus
B. common stock
C. internal earnings
D. retained earnings
E. net earnings
A bond has a Macaulay duration of 5.5, a yield to maturity of 6.1 percent, a coupon rate
of 7.0 percent, and semiannual interest payments. What is the bond’s modified duration?
A. 4.59 years
B. 5.34 years
C. 5.92 years
D. 6.06 years
E. 6.26 years
Which one of the following items is most apt to be considered material non-public
information? Assume that none of this information is known publicly.
A. Barb knows that Sue, an accounting clerk, is planning on resigning on Friday.
B. Linda knows a new receptionist has just been hired.
C. Wendy knows that her firm’s net income is continuing to increase at a steady rate.
D. Tracey knows her employer just received patent approval on a key new product.
E. Maria is the chief financial officer and knows the firm intends to maintain its current
dividend policy.
Periodically rebalancing a portfolio so that the duration continues to match the target
date is called:
A. risk assessment.
B. duration testing.
C. dedication matching.
D. portfolio matching.
E. dynamic immunization.
Which measure would you use to know whether alpha is truly significant or just the
result of random chance?
A. Jensen’s alpha
B. Information ratio
C. Jensen-Treynor alpha
D. Sharpe ratio
E. Treynor ratio
Where will a security plot in relation to the security market line (SML) if it is
considered to be a good purchase because it is underpriced?
A. above the SML
B. either on or above the SML
C. on the SML
D. on or below the SML
E. below the SML
What is the standard deviation of the returns on this stock?
A. 3.33 percent
B. 4.62 percent
C. 5.01 percent
D. 5.77 percent
E. 6.06 percent
You just assumed a 30-year mortgage for $300,000 at 6 percent interest. How much of
the first monthly payment will be applied to the principal balance?
A. $253.14
B. $267.35
C. $272.17
D. $281.16
E. $298.65
Trevor currently owns 545,000 shares of ABC stock. He will sell those shares for
$17.10 a share. He is also willing to purchase additional shares for $17.07 a share.
Trevor is a securities:
A. broker.
B. representative.
C. underwriter.
D. floor broker.
E. dealer.
You have a portfolio which is comprised of 44 percent of stock A and 56 percent of
stock B. What is the variance of this portfolio?
A. 57.86
B. 61.05
C. 66.84
D. 70.15
E. 75.93
Staci owns 1,000 shares of stock in a margin account. Those shares are most likely held
in:
A. transit.
B. her registered name.
C. street name.
D. a wrap account.
E. a discretionary account.
Reliant Underwriters has agreed to a firm commitment underwriting in which they will
pay $36.75 million in exchange for 3 million shares of stock for an IPO offering. The
offering price is expected to be $13.50 a share. How much will the underwriters earn if
all of the shares can be sold?
A. $1.25 million
B. $2.75 million
C. $3.75 million
D. $4.25 million
E. $4.50 million
Green Recycling, Inc. has 150,000 shares of stock outstanding. The firm has total assets
of $568,000 and total liabilities of $415,000. The firm’s stock is selling for $31 a share.
What is the price-book ratio?
A. 22.3
B. 26.5
C. 27.5
D. 30.4
E. 37.8
The dividend discount model assumes that:
A. the dividend payout ratio will remain constant.
B. the dividend growth rate is equal to the discount rate.
C. discount rate increases at a constant rate.
D. at least one dividend will be paid in the future.
E. the dividend payout ratio increases at a constant rate.
Historically, what has been the relationship between bond prepayment rates and the
market rate of interest?
A. perfectly related
B. directly related
C. inversely related
D. minimally related
E. unrelated
You are assuming a 30-year mortgage for $230,000 at 7.75 percent interest. How much
would you save in interest if you financed this loan at 7.25 percent for 20 years?
A. $159,603
B. $158,504
C. $156,902
D. $154,116
E. $152,686
Under the provisions of a general cash offer, shares of stock are offered to:
A. underwriters on a guaranteed sale basis only.
B. current shareholders prior to being offered to the general public.
C. institutional investors only.
D. the issuer’s employees on a cash purchase basis only.
E. the general public on a “first-come” basis.
You own a diversified investment portfolio and wish to hedge it against market
declines. Which one of the following would be best suited as a cross-hedge for this
purpose?
A. going long on Treasury bonds in the spot market
B. going long on DJIA futures
C. going short on S&P 500 index futures
D. going long on an index fund
E. going short on Eurodollar futures
Based on the period of 1926-2012, the risk premium for small-company stocks
averaged:
A. 12.3 percent.
B. 13.9 percent.
C. 15.0 percent.
D. 16.8 percent.
E. 17.4 percent.
Wilderness Adventures has earnings per share of $2.45 and dividends per share of
$1.05. The total equity of the firm is $850,000. There are 40,000 shares of stock
outstanding. What is the sustainable rate of growth?
A. 2.14 percent
B. 3.31 percent
C. 4.97 percent
D. 5.32 percent
E. 6.59 percent
You invested $9,000 in a mutual fund when the offering price was $31.50 and the NAV
was $30.20. This purchase was made one year ago today. Today, the fund distributed a
total of $1.55 in long-term gains and $0.85 in short-term gains. The current offering
price is $33.42 and the NAV is $32.08. What is your return for the year?
A. 4.35 percent
B. 6.37 percent
C. 7.58 percent
D. 9.46 percent
E. 10.80 percent
Correlation is the:
A. squared measure of a security’s total risk.
B. extent to which the returns on two assets move together.
C. measurement of the systematic risk contained in an asset.
D. daily return on an asset compared to its previous daily return.
E. spreading of an investment across a number of assets.
Which one of the following models can be used to value the stock of a firm that
maintains a one hundred percent retention ratio?
A. two-stage growth
B. residual income
C. perpetual dividend growth
D. supernormal growth
E. perpetual cash flow
Which one of the following statements correctly relates to closed-end funds?
A. Closed-end funds must sell at the NAV or above.
B. The number of shares outstanding changes on a daily basis as shares are sold and
repurchased.
C. Shares in closed-end funds must be held until the funds mature.
D. Once a fund closes, a new investor is unable to purchase shares in that fund.
E. Shares of closed-end funds trade just like stocks.
Western Exports stock has a standard deviation of 15.6 percent and a covariance with
the market of .0150. The market has a standard deviation of 13.7 percent. What is the
correlation of this stock with the market?
A. .58
B. .61
C. .68
D. .70
E. .77
Which one of the following is a taxable municipal bond used to finance a facility used
by a private business?
A. private activity bond
B. private revenue bond
C. private corporate bond
D. private agency bond
E. private income bond