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Withdrawals from a traditional retirement plan prior to age ___ are taxable and must
pay a ___ tax penalty.
A. 59; 10%
B. 62; 5%
C. 65; 7 %
D. 63; 5%
Rank the interest sensitivity of the following from the most sensitive to an interest rate
change to the least sensitive:
I. 8% coupon, noncallable 20-year maturity par bond
II. 9% coupon, currently callable 20-year maturity premium bond
III. Zero-coupon 30-year maturity bond
A. I, II, III
B. II, III, I
C. III, I, II
D. III, II, I
On May 1, 200, Joe Hill is considering one of the following newly issued 10-year AAA
corporate bonds.
If the volatility of interest rates is expected to increase, then Joe Hill should __.
A. prefer the Wildwood bond to the Asbury bond
B. prefer the Asbury bond to the Wildwood bond
C. be indifferent between the Wildwood bond and the Asbury bond
D. The answer cannot be determined from the information given.
A bond has a 5% coupon rate. The coupon is paid semiannually, and the last coupon
was paid 35 days ago. If the bond has a par value of $1,000, what is the accrued
interest?
A. $4.81
B. $14.24
C. $25
D. $50
A managed portfolio has a standard deviation equal to 22% and a beta of .9 when the
market portfolio's standard deviation is 26%. The adjusted portfolio P* needed to
calculate the M2 measure will have ________ invested in the managed portfolio and the
rest in T-bills.
A. 84.6%
B. 118%
C. 18%
D. 15.4%
The inability of shareholders to influence the decisions of managers, despite
overwhelming shareholder support, is a breakdown in what process or mechanism?
A. auditing
B. public finance
C. corporate governance
D. public reporting
The CME weather futures contract is an example of ______________.
A. a cash-settled contract
B. an agricultural contract
C. a financial future
D. a commodity future
A firm in the early stages of its industry life cycle will likely have _________.
A. low dividend payout rates
B. low rates of investment
C. low rates of return on investment
D. low R&D spending
If a firm has a free cash flow equal to $50 million and that cash flow is expected to
grow at 3% forever, what is the total firm value given a WACC of 9.5%?
A. $679.81 million
B. $715.54 million
C. $769.23 million
D. $803.03 million
Investors require a risk premium as compensation for bearing ______________.
A. unsystematic risk
B. alpha risk
C. residual risk
D. systematic risk
According to a regression of GDP on market capitalization in 2010, virtually all
developed countries had _______ per capita GDP than (as) predicted by the regression.
A. higher
B. lower
C. the same
D. sometimes lower and sometimes higher
The net income of the company is $120. Accounts payable increase by $20,
depreciation is $15, and equipment is purchased for $40. If the firm issued $110 in new
bonds, what is the total change in cash for the firm for all activities?
A. increase of $225
B. increase of $130
C. decrease of $195
D. decrease of $110
One year U.S. interest rates are 5%, and European interest rates are 7%. The spot euro
direct exchange rate quote is 1.32, and the 1-year forward rate direct quote is 1.35. If
you can borrow either $1 million or €1 million to start with, what would be your dollar
profits from interest arbitrage based on these data?
A. $94,322
B. $55,345
C. $44,318
D. $33,595
Approximately how many securities does it take to diversify almost all of the unique
risk from a portfolio?
A. 2
B. 6
C. 8
D. 20
Assume that you have invested $500,000 to purchase shares in a hedge fund reporting
$800 million in assets, $100 million in liabilities, and 70 million shares outstanding.
Your initial lockout period is 3 years.
How many shares did you purchase?
A. 13,333
B. 25,000
C. 50,000
D. 66,000
Which strategy benefits from upside price movement and has some protection should
the price of the
security fall?
A. Bull spread
B. Long put
C. Short call
D. Straddle
You have the opportunity to invest $1,000 for one year. All other things being equal,
you have the opportunity to obtain a 1-year Mexican bond (in pesos) at 8.00%. The spot
rate is 10.9892 pesos per $1. The 1-year forward rate is 11.2274 pesos per $1. What will
be the value of the investment (in U.S. dollars) at the end of one year?
A. $1,057
B. $1,080
C. $1,072
D. $1,043
The fact that American put values may not equal the price implied by put-call parity is
attributable to the possibility of what event?
A.changes in the dividend
B.early exercise
C.interest rate declines
D.interest rate rises
You buy a call option and a put option on General Electric. Both the call option and the
put option have the same exercise price and expiration date. This strategy is called a
_________.
A. time spread
B. long straddle
C. short straddle
D. money spread
The critical variable in the determination of the success of the active portfolio is the
stock's __________.
A. alpha/nonsystematic risk ratio
B. alpha/systematic risk ratio
C. delta/nonsystematic risk ratio
D. delta/systematic risk ratio
__________ is (are) real assets.
A. Bonds
B. Production equipment
C. Stocks
D. Life insurance
If you thought prices of stock would be rising over the next few months, you might
want to __________________ on the stock.
A. purchase a call option
B. purchase a put option
C. sell a futures contract
D. place a short-sale order
The buyer of a new home is quoted a mortgage rate of .5% per month. What is the APR
on the loan?
A. .50%
B. 5%
C. 6%
D. 6.5%
Cash Cow, Inc. earned $750,000,000 last year. If it retains 40% of its earnings, and has
100 million shares outstanding, what was its dividend last year?
A. $3.00
B. $3.75
C. $4.50
D. $7.50
One way that life insurance firms can hedge the risk created by offering whole-life
insurance policies is by ________________.
A. holding long-term bonds
B. holding equities
C. holding short-term bonds
D. exercising its right to terminate the policy
In a particular year, Lost Hope Mutual Fund made the following investments in asset
classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of security
selection within asset classes to the total extra return was __________.
A. -1%
B. 0%
C. 1%
D. 2%
The only way for behavioral patterns to persist in prices is if ______________.
A. markets are not weak-form efficient
B. there are limits to arbitrage activity
C. there are no significant trading costs
D. market psychology is inconsistent over time
Market breadth is a ______ indicator.
A. sentiment
B. flow of funds
C. technical
D. fundamental
Approximately __________ of futures contracts result in actual delivery.
A. 0%
B. less than 1% to 3%
C. less than 5% to 15%
D. less than 60% to 80%
Three stocks have share prices of $12, $75, and $30 with total market values of $400
million, $350 million, and $150 million, respectively. If you were to construct a
price-weighted index of the three stocks, what would be the index value?
A. 300
B. 39
C. 43
D. 30
The most actively traded interest rate futures contract is for ___________.
A. LIBOR
B. Treasury bills
C. Eurodollars
D. Treasury bonds
Floating-rate bonds have a __________ that is adjusted with current market interest
rates.
A. maturity date
B. coupon payment date
C. coupon rate
D. dividend yield
