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The value of a listed put option on a stock is lower when:
I. The exercise price is higher.
II. The contract approaches maturity.
III. The stock decreases in value.
IV. A stock split occurs.
A. II only
B. II and IV only
C. I, II, and III only
D. I, II, III, and IV
A 20-year maturity bond pays interest of $90 once per year and has a face value of
$1,000. Its yield to maturity is 10%. You expect that interest rates will decline over the
upcoming year and that the yield to maturity on this bond will be only 8% a year from
now. Using horizon analysis, the return you expect to earn by holding this bond over the
upcoming year is _________.
A. 10%
B. 12%
C. 21.6%
D. 29.6%
The NAV of which funds is fixed at $1 per share?
A. equity funds
B. money market funds
C. fixed-income funds
D. commingled funds
The current stock price of KMW is $27, the risk-free rate of return is 4%, and the
standard deviation is 30%. What is the price of a 63-day call option with an exercise
price of $25?
A.$2.50
B.$2.65
C.$2.89
D.$3.12
Buyers of listed options __________ required to post margins, and writers of naked
listed options __________ required to post margins.
A. are; are not
B. are; are
C. are not; are
D. are not; are not
The systemic risk that led to the financial crisis of 2008 was increased by _____ .
A. collateralized debt obligations
B. subprime mortgages
C. credit default swaps
D. all of the options
A __________ gives its holder the right to sell an asset for a specified exercise price on
or before a specified expiration date.
A. call option
B. futures contract
C. put option
D. interest rate swap
The supply of funds in the economy is controlled primarily by ____________.
A. the Federal Reserve System
B. Congress
C. money center banks
D. the Treasury department
The objectives of personal trusts normally are __________ in scope than those of
individual investors, and personal trust managers typically are __________ than
individual investors.
A. broader; more risk averse
B. broader; less risk averse
C. more limited; more risk averse
D. more limited; less risk averse
Consider a -year bond with a 9% coupon and a yield to maturity of 12%. If interest
rates remain constant, 1 year from now the price of this bond will be _________.
A. higher
B. lower
C. the same
D. indeterminate
A firm that has large securities holdings and wishes to raise money for a short length of
time may be able to find the cheapest financing from which of the following?
A. reverse repurchase agreement
B. bankers' acceptance
C. commercial paper
D. repurchase agreement
Investors who take short positions in futures contract agree to ___________ delivery of
the commodity on the delivery date, and those who take long positions agree to
__________ delivery of the commodity.
A. make; make
B. make; take
C. take; make
D. take; take
According to historical data, over the long run which of the following assets has the
best chance to provide the best after-inflation, after-tax rate of return?
A. long-term Treasury bonds
B. corporate bonds
C. common stocks
D. preferred stocks
$1,000 par value zero-coupon bonds (ignore liquidity premiums)
The expected 1-year interest rate 1 year from now should be about _________.
A. 6%
B. .5 %
C. 9.02%
D. 10.08%
You would like to hold a protective put position on the stock of Avalon Corporation to
lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50.
Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill
rate is 5%. Unfortunately, no put options are traded on Avalon Co.
Suppose the desired put options with X = 50 were traded. What would be the hedge
ratio for the option?
A. -1
B. -.5
C. .5
D. 1
You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers
common stock. You've just learned that the company plans to issue more shares, so that
2 million shares will be outstanding. This is called _____.
A. an advanced equity offering
B. a weathered equity offering
C. a seasoned equity offering
D. a veteran equity offering
Privately held firms may have only _______ shareholders.
A. 10
B. 99
C. 250
D. 499
The free cash flow to the firm is $300 million in perpetuity, the cost of equity equals
14%, and the WACC is 10%. If the market value of the debt is $1 billion, what is the
value of the equity using the free cash flow valuation approach?
A. $1 billion
B. $2 billion
C. $3 billion
D. $4 billion
Attempting to forecast future earnings and dividends is consistent with which of the
following approaches to securities analysis?
A. technical analysis
B. fundamental analysis
C. both technical analysis and fundamental analysis
D. indexing
You are currently long in a futures contract. You instruct a broker to enter the short side
of a futures contract to close your position. This is called __________.
A. a cross-hedge
B. a reversing trade
C. a speculation
D. marking to market
The average returns, standard deviations, and betas for three funds are given below
along with data for the S&P 500 Index. The risk-free return during the sample period is
6%.
You want to evaluate the three mutual funds using the Jensen measure for performance
evaluation. The fund with the highest Jensen measure of performance is
__________.
A. fund A
B. fund B
C. fund C
D. S&P 500
In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the
following investments in asset classes:
The return on a bogey portfolio was 12%, based on the following:
The contribution of asset
allocation across markets to the
total excess return was
__________.
A. 1.5%
B. 2%
C. 2.5%
D. 3.5%
Hedge fund managers are compensated by ___________________.
A. deducting management fees from fund assets and receiving incentive bonuses for
beating index benchmarks
B. deducting a percentage of any gains in asset value
C. selling shares in the trust at a premium to the cost of acquiring the underlying assets
D. charging portfolio turnover fees
Which of the following is not a type of managed investment company?
A. unit investment trusts
B. closed-end funds
C. open-end funds
D. hedge funds
Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of
earning a 10% rate of return, and a 30% chance of losing 6%. What is your expected
return on this investment?
A. 12.8%
B. 11%
C. 8.9%
D. 9.2%
The first step any investor should take before beginning to invest is to __________.
A. establish investment objectives
B. develop a list of investment managers with superior records to interview
C. establish asset allocation guidelines
D. decide between active management and passive management
A firm purchases goods on credit worth $100. The same firm pays off $80 in old credit
purchases. An investment is made via the purchase of a new facility, and equity is
issued in the amount of $200 to pay for the purchase. What is the change in net cash
provided by financing?
A. $20 increase
B. $80 increase
C. $100 increase
D. $200 increase
If you believe the economy is about to go into a recession, you might change your asset
allocation by selling _______ and buying ______.
A. growth stocks; long-term bonds
B. long-term bonds; growth stocks
C. defensive stocks; growth stocks
D. defensive stocks; long-term bonds
In the Treynor-Black model, security analysts __________.
A. analyze the entire universe of stocks
B. assume that markets are inefficient
C. treat market index as a baseline portfolio from which an active portfolio is
constructed
D. focus on selecting the best-performing bogey
The current stock price of Alcoco is $70, and the stock does not pay dividends. The
instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of
Alcoco's stock is 40%. You want to purchase a call option on this stock with an exercise
price of $75 and an expiration date 30 days from now. Based on the Black-Scholes
OPM, the call option's delta will be __________.
A. .28
B. .31
C. .62
D. .70
Each listed stock option contract gives the holder the right to buy or sell __________
shares of stock.
A. 1
B. 10
C. 100
D. 1,000
