1) savings are generated whenever:
a.prices are rising.
b.current spending exceeds current income.
c.current income exceeds current spending.
d.real gdp exceeds nominal gdp
2) during a period when prices have been rising, the _________ will be _______ the
current price.
a.relative strength index; declining with
b.relative strength index; declining faster than
c.moving average; above
d.moving average; below
3) which of the following correlation coefficients will produce the most diversification
benefits?
a.-.6
b.-.9
c.0
d..4
4) you take a long position in a futures contract of one maturity and a short position in a
contract of a different maturity, both on the same commodity. this is called a
__________.
a.cross-hedge
b.reversing trade
c.spread position
d.straddle
5) why are economists concerned about inflation?
a.inflation generally causes unemployment rates to rise.
b.real gdp is necessarily falling when there is inflation.
c.inflation lowers the standard of living for people whose income does not increase as
fast as the price level.
d.inflation increases the value of peoples’ saving and encourages overspending on
goods and services.
6) a portfolio manager believes interest rates will drop and decides to sell short-duration
bonds and buy long-duration bonds. this is an example of __________ swap.
a.a pure yield pickup
b.a rate anticipation
c.a substitution
d.an intermarket spread
7) underwriting is one of the services provided by _____.
a.the sec
b.investment bankers
c.publicly traded companies
d.fdic
8) sharon decides to put $5,000 into her retirement plan at the age of 25. she will
continue to invest the same amount for a total of 6 years and then stop contributing.
assume 10% annual return.
how much money will sharon have in her retirement plan when she is ready to retire at
age 62?
a.$554,856
b.$623,245
c.$740,480
d.$1,311,805
9) exchange-traded stock options expire on the _______________ of the expiration
month.
a.second monday
b.third wednesday
c.second thursday
d.third friday
10) new-economy companies generally have higher _______ than old-economy
companies.
a.book value per share
b.p/e multiples
c.profits
d.asset values
11) you short-sell 200 shares of tuckerton trading co., now selling for $50 per share.
what is your maximum possible gain, ignoring transactions cost?
a.$50
b.$150
c.$10,000
d.unlimited
12) what is the geometric average return over 1 year if the quarterly returns are 8%, 9%,
5%, and 12%?
a.8%
b.8.33 %
c.8.47%
d.8.5 %
13) diversification can reduce or eliminate __________ risk.
a.all
b.systematic
c.nonsystematic
d.only an insignificant
14) most people would readily agree that the stock market is not _________.
a.weak-form efficient
b.semistrong-form efficient
c.strong-form efficient
d.efficient at all
15) a portfolio generates an annual return of 13%, a beta of .7, and a standard deviation
of 17%. the market index return is 14% and has a standard deviation of 21%. what is
the treynor measure of the portfolio if the risk-free rate is 5%?
a..1143
b..1233
c..1354
d..1477
16) a portfolio manager sells treasury bonds and buys corporate bonds because the
spread between corporate- and treasury-bond yields is higher than its historical average.
this is an example of __________ swap.
a.a pure yield pickup
b.a rate anticipation
c.a substitution
d.an intermarket spread
17) the common stock of the avalon corporation has been trading in a narrow range
around $40 per share for months, and you believe it is going to stay in that range for the
next 3 months. the price of a 3-month put option with an exercise price of $40 is $3,
and a call with the same expiration date and exercise price sells for $4.
suppose you write a strap and the stock price winds up to be $42 at contract expiration.
what was your net profit on the strap?
a.$200
b.$300
c.$700
d.$400
18) art has come out with a new and improved product. as a result, the firm projects an
roe of 25%, and it will maintain a plowback ratio of .20. its earnings this year will be $3
per share. investors expect a 12% rate of return on the stock.
at what price would you expect art to sell?
a.$25
b.$34.29
c.$42.86
d.$45.67