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1) a european call option gives the buyer the right to _________.
a.buy the underlying asset at the exercise price on or before the expiration date
b.buy the underlying asset at the exercise price only at the expiration date
c.sell the underlying asset at the exercise price on or before the expiration date
d.sell the underlying asset at the exercise price only at the expiration date
2) to become a cfa, you must do all of the following except which one?
a.pass three exams designed to ensure that you have sufficient knowledge of
investments.
b.obtain 3 years of work experience in money management.
c.become a member of a local society of the financial analysts federation.
d.divest all your own stock holdings to eliminate any potential conflicts of interest with
client recommendations.
3) an investment strategy that entails shifting the portfolio into industry sectors that are
expected to outperform others based on macroeconomic forecasts is termed
______________.
a.sector rotation
b.contraction/expansion analysis
c.life-cycle analysis
d.business-cycle shifting
4) the combined liabilities of american households represent approximately
__________ of combined assets.
a.11%
b.19%
c.25%
d.33%
5) an investor would want to __________ to hedge a long position in treasury bonds.
a.buy interest rate futures
b.buy treasury bonds in the spot market
c.sell interest rate futures
d.sell s&p 500 futures
6) in 1937 the eli lilly family donated millions of dollars in stock to fund a not-for-profit
charitable organization. such organizations are typically called _________________.
a.annuities
b.endowments
c.mutual funds
d.personal trusts
7) you purchased 250 shares of common stock on margin for $25 per share. the initial
margin is 65%, and the stock pays no dividend. your rate of return would be
__________ if you sell the stock at $32 per share. ignore interest on margin.
a.35%
b.39%
c.43%
d.28%
8) one year u.s. interest rates are 7%, and european interest rates are 5%. the spot euro
direct exchange rate quote is 1.30 and the 1-year forward rate direct quote is 1.25. 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.$60,384
b.$42,973
c.$68,422
d.$78,500
9) hedge funds can invest in various investment options that are not generally available
to mutual funds. these include:
i. futures and options
ii. merger arbitrage
iii. currency contracts
iv. companies undergoing chapter 11 restructuring and reorganization
a.i only
b.i and ii only
c.i, ii, and iii only
d.i, ii, iii, and iv
10) assume there is a fixed exchange rate between the canadian and u.s. dollars. the
expected return and standard deviation of return on the u.s. stock market are 13% and
15%, respectively. the expected return and standard deviation of return on the canadian
stock market are 12% and 16%, respectively. the covariance of returns between the u.s.
and canadian stock markets is 1.2%. if you invested 50% of your money in the canadian
stock market and 50% in the u.s. stock market, the expected return on your portfolio
would be __________.
a.12%
b.12.5%
c.14%
d.15.5%
11) which of the following funds is most likely to have a debt ratio of 70% or higher?
a.bond fund
b.commingled fund
c.mortgage-backed securities
d.reit
12) a time spread may be executed by _____.
a.selling an option with one exercise price and buying a similar one with a different
exercise price
b.buying two options that have the same expiration dates but different strike prices
c.selling two options that have the same expiration dates but different strike prices
d.selling an option with one expiration date and buying a similar option with a different
expiration date
13) which one of the following performance measures is the sharpe ratio?
a.average excess return to beta ratio
b.average excess return to standard deviation ratio
c.alpha to standard deviation of residuals ratio
d.average return minus required return
14) you write one ibm july 120 call contract for a premium of $ you hold the option
until the expiration date, when ibm stock sells for $121 per share. you will realize a
______ on the investment.
a.$300 profit
b.$200 loss
c.$600 loss
d.$200 profit
15) j. m. keyes put all his money in one stock, and the stock doubled in value in a
matter of months. he did this three times in a row with three different stocks. j. m. got
his picture on the front page of the wall street journal. however, the paper never
mentioned the thousands of investors who made similar bets on other stocks and lost
most of their money. this is an example of the ________ problem in deciding how
efficient the markets are.
a.magnitude
b.selection bias
c.lucky event
d.small firm
16) probably the biggest problem with evaluating the portfolio performance of actively
managed funds is the assumption that __________________________.
a.the markets are efficient
b.portfolio risk is constant over time
c.diversification pays off
d.security selection is more valuable than asset allocation
