An ascending term structure reflects the view that rates will increase in the future.
Money market funds represent a vehicle to buy short-term fixed-income securities
through a mutual fund arrangement.
Since there is never physical delivery of goods in the stock index futures market, all
open transactions are automatically closed out on the settlement date.
Bringing private companies public for the first time is called an initial public offering.
The strong inverse relationship between P/E ratios and changes in the Consumer Price
Index can be directly traced to investors’ required rate of return.
Interest and capital gains on municipal bonds are tax-exempt by the IRS.
Treasury bond futures trade on the New York Stock Exchange.
The divisor in the Dow Jones Industrial Average equals 30.
Chartists do not consider volume significant in reading market indicators.
Large or jumbo CDs are $100,000 or greater in size.
The January Effect refers to the observation that in January small stocks seem to
under-perform the market.
For two bonds with equal coupons, duration would be higher for the bond with the
shortest maturity.
The Federal Reserve Board of Governors controls money supply and interest rates
through its monetary policy.
Investors should buy consumer non-cyclical stocks in the early stages of recovery.
Closed-end funds have a fixed number of shares; open-end funds do not.
NASDAQ ranks as the largest equity market in the world.
The more saturated an industry gets with competitors, the further along the life cycle it
will probably be.
According to the capital asset pricing model, it is possible to compose a portfolio with a
return greater than any one on the efficient frontier, given equal risk, without borrowing
funds for investment.
The chief disadvantage of front-end load funds is that the investor has less money to
invest after commissions.
The value of real assets moves closely with the value of financial assets, and therefore
they provide effective portfolio diversification.
In managing a personal portfolio, an investor should consider opportunity costs.
Emerging markets seem to have fairly consistent valuation standards and ratios.
If a warrant is detachable from its bond, the bond converts upon exercise of the warrant.
A major advantage of real estate over other real assets is its liquidity.
The strong form of the EMH is generally confirmed by research evidence.
The Tax Act of 2003 offers greater potential for wealth accumulation.
U.S. multinational corporations are highly correlated with United States financial
markets and therefore do not reduce portfolio risk to the same extent as investing in
foreign corporations.
Hidden assets refer to assets that are not readily apparent to investors in a traditional
sense, but add substantial value to the firm.
Investment advisory recommendations are part of the smart money rules.
Conversion price is the face value divided by the conversion ratio.
Before investing in a new stock issue, the investor should consider the management of
the firm, past performance record, and intended use of funds.
Pure bond value is the conversion price, multiplied by the market price.
Dilution of EPS by warrants is not reflected in computations of earnings.
The strike price refers to the premium paid by the option buyer for the right to exercise
the option.
A high ratio of specialist short sales compared to exchange short sales is interpreted as
bearish.
The value of an option to purchase a stock index futures contract depends on the
outlook of the futures contract.
The difference between the cash market and the futures market is:
A.that commodity prices cannot be negotiated in the futures market, while they can be
in the cash market.
B.that larger margins are used in the cash market.
C.that in the cash market, there must be a transfer of the physical possession of the
goods.
D.that the commodities are usually less expensive in the futures market.
Creating prices for securities and allowing for liquidity are functions of:
A.the real estate market.
B.the secondary market.
C.the third market.
D.the fourth market.
A call is said to be “in-the-money” when the strike price is __________ the market
price.
A. equal to
B. greater than
C. less than
D. may be more than one of the above, depending on the option premium
Which of the following reasons might explain why international investing might offer
diversification benefits?
A.Companies operating in different countries will be affected differently by
international events such as crop failures, energy prices, wars, tariffs, etc.
B.Since the introduction of the euro, European and U.S. markets have a tendency to
move in the same direction on an annual basis
C.World markets are highly correlated to the U.S. market since the U.S. is the engine of
economic growth around the world
D.U.S. companies operating in foreign countries automatically provide the investor
with diversification against foreign currency fluctuations
Which of the following might be a reason for higher return potential in certain foreign
stock markets than in U.S. markets?
A.Some small economies have more growth potential because they are starting from a
smaller base of GDP
B.GDP is growing at a faster rate in some countries than in the United States
C.Many of these foreign economies have older populations that spend a higher
percentage of their income than the U.S. population
D.A and B are valid reasons
A stock is selling for $45.75, with a call option available at a $40 strike that has a
premium of $7.50. What is the speculative premium of the call?
A. $.75
B. $1.75
C. $5.00
D. $5.75
E. $7.50
The nonconstant dividend discount model is best applied to companies in the:
A. maturity stage of their life cycle.
B. development stage of their life cycle.
C. expansion stage of their life cycle.
D. A and B
The amount of taxes paid, divided by taxable income, is called:
A.the marginal tax rate.
B.the average tax rate.
C.the implied tax rate.
D.None of the above
A firm with an alpha of .5:
A.has performed half as well as the market.
B.has performed above the market line.
C.has performed below the market line.
D.is likely to have a high beta.
What is the difference between real GDP and inflation-adjusted GDP?
A.Real GDP is stated in current dollars
B.Inflation-adjusted, or nominal, GDP reflects output in physical terms
C.There is no difference between the two
D.None of the above
If the market rate of return is 10% and the beta on a particular stock is .78, the return on
the stock will be:
A.greater than 10%.
B.greater or less than 10%, depending on the risk-free rate of return.
C.less than 10%.
D.dependent on some other factor.
Which of the following economic structures of industries was not specifically
mentioned in this chapter?
A.Monopoly
B.Pure competition
C.Semi-strong competition
D.Oligopolies
The beta coefficient is a measure of:
A.the relationship between the return of an individual stock and the return on the
market.
B.the relationship between the return on a stock and the return on the portfolio.
C.the relationship between the portfolio risk and the market risk.
D.None of the above
Fiscal policy concerns the implementation of the government’s
A.spending and taxing plans.
B.money supply and interest rate strategy.
C.foreign trade policy.
D.attitude towards business investment.
The semi-strong form of the efficient market hypothesis maintains that:
A.all public and private information is already impounded into the value of a security.
B.there is no relationship between past and future prices.
C.all public information is already impounded into the value of a security.
D.insider information is immediately impounded into the value of a security.
The Gramm-Leach-Bliley Act was passed in 1999 by the U.S. Congress to allow:
A.financial institutions to offer full financial services, such as insurance and investment
banking, as well as traditional commercial banking.
B.financial institutions to be sued by stockholders for off-balance sheet accounting
errors.
C.savings and loans to compete with commercial banks in both the commercial banking
arena and mortgage loans.
D.European banks to acquire U.S. financial institutions.
Generally, the best time to buy convertible bonds is when interest rates are _________
and when stock prices are _______.
A.low; low
B.high; low
C.low; high
D.high; high
Some of the major leading indicators would be:
A.money supply (M2), consumer expectations, and stock prices (S&P 500).
B.personal income, employees on nonagricultural payrolls, and industrial production.
C.average prime rate charged by banks, labor cost per unit of output, and commercial
and industrial loans outstanding.
D.All of the above are leading indicators
Direct international investment without the numerous associated administrative
problems can be achieved by purchasing shares:
A.of foreign firms which trade on the New York Stock Exchange or NASDAQ.
B.in a mutual fund.
C.in an exchange-traded fund.
D.of multinational corporations.
Characteristics of mutual funds with a goal of investing in growth companies include
everything except:
A.different investors can pool their money.
B.the money is invested in stable companies, with an objective of strong dividend
income.
C.funds not included in the mutual fund are placed in short-term T-bills to earn interest.
D.the money is invested in stable companies’ common stock.
For the investor’s purposes, a normal business cycle (peak to peak or trough to trough)
lasts approximately ________, as reported by the National Bureau of Economic
Research (based on the last eight peace time business cycles).
A.ten months
B.eleven months
C.forty-six months
D.sixty-five to sixty-six months
Margin accounts are used by:
A.traders who think their long-run returns will be greater than the cost of borrowing.
B.speculators who think their long-run returns will be greater than the cost of
borrowing.
C.investors who think their long-run returns will be greater than the cost of borrowing.
D.All of the above
What are the components in determining the real rate of return?
A.The risk premium
B.The inflation factor
C.The required rate of return
D.Both a) and b) above
E.None of the above
Full disclosure of all pertinent investment information in the sale of new securities is a
provision of the:
A.Securities Act of 1933.
B.Securities Exchange Act of 1934.
C.Securities Acts Amendments of 1975.
D.Sarbanes-Oxley Act of 2002.
The three forms of the efficient market hypothesis (not in any particular order) are
stated as:
A.weak, semi-strong, and superior.
B.weak, normal, and strong.
C.semi-strong, weak, and strong.
D.semi-strong, normal, and superior.
A strong incentive to a corporation to meet preferred stock dividend payments is
provided by the ___________ feature of some preferred stocks.
A.Cumulative
B.Convertible
C.Callable
D.All of the above
A stock with a beta of 1.9 would be most likely to be found in what industry? (Use your
best judgment.)
A.Airlines
B.Grocery stores
C.Public utilities
D.Insurance
a) You invest in the Canadian Equity market and you lose 20% (quoted in Canadian
dollars). In the meantime, the United States dollar declines by 5% against the Canadian
dollar. What is your percentage gain or loss, translated into dollars?
b) If the United States dollar declines by 10% against the Canadian dollar, what would
be your percentage gain or loss, translated into dollars?
A straddle is a combination of a put and call on:
A. the same stock, with the same strike price and expiration date.
B. different stocks, with the same strike price and expiration date.
C. different stocks, with different strike price and expirations dates.
D. the same stock, with the same the strike price and different expiration dates.
In an index fund,
A.returns are adjusted for changes in the consumer price index.
B.funds are invested in a mutual fund that attempts to replicate the performance of a
major market index.
C.investors are guaranteed returns equal to a major market index.
D.high commissions and management fees are charged because of attempts to beat the
market.
Which of the following is NOT a characteristic of a warrant?
A.It is an option to buy a specified number of shares of stock at a given price over a
given period of time
B.It represents a cash inflow to the issuing company when exercised
C.When exercised, it replaces debt on the balance sheet
D.It allows the bond to carry a lower coupon rate