The method of starting the stock valuation process with an analysis of the economy is
referred to as the bottom-up approach.
Limited liability is particularly important in real estate because mortgage debt
obligations may exceed the net worth of participants.
One of the problems with duration is that it often assumes a parallel shift in yield
curves.
A closed-end fund stands ready to buy your shares back at all times.
The NYSE sets margin requirements.
Preferred stock dividends are tax-deductible to the corporation, and also provide tax
advantages to the corporate investor.
The Dow Jones Industrial Average is a value-weighted index.
Systematic risk measures risk that is related to the market.
The current cost method of inflation accounting adjusts statements by using the
Consumer Price Index.
A requirement of a futures contract is that the buyer takes possession on a given date.
The essence of the capital market line is that the only way to earn greater returns is to
take increasingly greater risks.
The crossover point on the life cycle curve is the point where companies sell stock in an
initial public offering (IPO).
Stocks may be used to satisfy margin requirements, rather than cash.
The price of diamonds around the world is controlled not by economic factors, but by
one monopolistic company.
A call provision allows the corporation to retire a bond before maturity by paying a
small discount below par value.
The S&P 100 Index is composed of 100 blue chip stocks on which the CME currently
has individual option contracts.
Most companies attempt to avoid the effects of synergy in putting a merger or
acquisition together.
Every valuation method has its limitations.
A limit order can ensure that you will not pay above a given price in purchasing a stock
or sell below a given price in selling a stock.
At the end of 2009, Citigroup (Smith Barney), JPMorgan, and Barclay’s Capital were
three of the top ranked investment bankers in the underwriting of both global and
domestic equity issues.
According to Z score analysis, the higher the Z score, the greater the firm’s bankruptcy
potential.
Industries in the decline stage suffer from shrinking sales because product innovation
has not increased the product base over the years.
The security market line shows the risk-return trade-off for an individual security.
Secondary markets include only organized exchanges such as the NYSE and the
regional exchanges.
Cash flows from investing activities would involve the purchase or sale of plant and
equipment.
The base period for the Standard & Poor’s Stock Indexes is 1957-58.
A frequent source of capital for profitable Stage I companies is venture capitalists.
Gross Domestic Product (GDP) measures only output from U.S. factories and
consumption within the United States.
The prospectus is designed to provide a broad overview of the mutual fund, but is not
required to disclose its investment focus or the investment style that it represents.
The delisting of a stock from the New York Stock Exchange tends to have a neutral
effect on the stock on the last day of trading. However, the stock normally has
downward movement approximately six months later.
Diversification is the process of determining the risk premium.
Seed capital is usually supplied by investors called:
A.hard-core investors.
B.angel investors.
C.hedge fund investors.
D.None of the above
Fiscal policy is implemented by:
A.the President of the U.S.
B.the Senate.
C.the House of Representatives.
D.Congress (the House and the Senate).
E.the Federal Reserve.
The following are all value-weighted indexes, except:
A.the S&P 500.
B.the Dow Jones Industrial Average.
C.midcap 400.
D.the S&P Industrials (400 stocks).
E.wilshire 5000.
When you buy a mutual fund, you:
A.may be purchasing a fund that has unrealized capital gains on stocks held in the
portfolio. You could be liable for the taxes if the fund sells those shares.
B.may be purchasing a fund that has unrealized capital losses on stocks held in the
portfolio. You could be liable for the taxes if the fund sells those shares.
C.will not have any tax consequences on assets owned by the fund before you
purchased the mutual fund.
D.Two of the above are correct
An example of secured debt would be a:
A.contract where two signatures specified how the contract would be paid.
B.contract in which a court kept the contract in its possession to see that nothing would
happen to it.
C.contract in which real assets are pledged as security for a loan.
D.debenture.
When duration of a coupon paying bond is plotted against years to maturity on the X
axis, the line:
A.is linear.
B.is concave.
C.is convex.
D.is linear at a 45 degree angle.
Assume a portfolio has the possibility of returning 7%, 8%, 10%, or 12%, with a
likelihood of 20%, 30%, 25%, and 25%, respectively. Considering the portfolio’s
standard deviation and expected value, would you say that this portfolio is of:
A.average yield, low-risk.
B.lower-than-average yield, low-risk.
C.average yield, average risk.
D.Not enough information to tell
Why do alternative investments make sense for institutional investors?
A.They reduce the rate of return and increase the standard deviation of the portfolio
B.They increase the rate of return and reduce the standard deviation of the portfolio
C.They reduce the rate of return and reduce the standard deviation of the portfolio
D.They increase the rate of return and increase the standard deviation of the portfolio
The first step in any stock valuation is
A.economic analysis.
B.an accurate stock market prediction.
C.financial analysis.
D.industry analysis.
E.technical analysis.
In a closed-end mutual fund, shares are traded:
A.through brokers.
B.on an exchange.
C.between shareholders.
D.B and C
Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.
How much interest would the investor receive?
A.$10
B.$15
C.$20
D.$30
E.$60
The settle price is the same as the:
A.opening price.
B.closing price.
C.intraday high price.
D.None of the above
Interest rate swaps are __________ structured than futures and options contracts.
A.usually less
B.usually more
C.always more
D.Never less
Compared to other investments, which of the following is not a disadvantage of
investing in real assets?
A.The initial amount of money is usually large
B.The absence of a relatively efficient, liquid market
C.High transaction and incidental costs
D.All of the above are disadvantages
Block Corp. 40 call option is selling for $6, and the common stock is selling for $41.
The intrinsic value is:
A. $6, and the speculative premium is $1.
B. $1, and the speculative premium is $5.
C. $1, and the speculative premium is $7.
D. $5, and the speculative premium is $7.
All of the following are advantages of buying call options instead of stock EXCEPT:
A. options represent an opportunity to control shares of stock without making a large
dollar commitment.
B. commissions on stock trading are greater than those on options trading.
C. options can be quite conservative and used to reduce risk.
D. All of the above are advantages
Depreciation
A.on residential real estate property can be written off over 31 1/2 years.
B.on commercial real estate can be written off over 39 years.
C.can be accelerated for commercial real estate.
D.None of the above
An investor bought a March S&P 500 Index futures contract in December for
$1,490.05. After six months the contract value went up to $1,539.95. The contract has a
multiplier of 250. With an initial margin of $20,000, what is the annualized percent
return on margin?
A.25.28%
B.29.8%
C.30.8%
D.120.64%
E.124.76%
The exchange with the largest dollar volume in major companies and which has the
most restrictive listing requirements is:
A.the New York Stock Exchange.
B.the American Exchange.
C.the NASDAQ Stock Market.
D.the Securities Exchange.
If a stock is sold short, the equity in the investor’s account will go up if the stock
A.price goes down.
B.price goes up.
C.is split 2 for 1.
D.A and C
Smart money rules or approaches to the market include:
A.short sales by specialists.
B.the put-call ratio.
C.Investment Advisory recommendations.
D.the odd-lot theory.
Countercyclical investments are more likely to have:
A.high positive correlation with a normal portfolio.
B.slight positive correlation with a normal portfolio.
C.no correlation with a normal portfolio.
D.high negative correlation with a normal portfolio.
In which stage in the industry life cycle are companies likely to be privately owned?
A.Development
B.Maturity
C.Decline
D.Expansion
An investor in Duke Energy can expect:
A.low dividends.
B.high dividends.
C.low inflation.
D.fast stock price growth.
E.None of the above
Which of the following bond pricing rules is incorrect?
A.Bond prices and interest rates are inversely related
B.Prices of long-term bonds are less sensitive to changes in interest rates than
short-term bonds
C.Bond price sensitivity increases at a decreasing rate as maturity increases
D.Bond prices are more sensitive to a decline in market yield to maturity
All of the following are minimum listing requirements for a New York Stock Exchange
listing except:
A.the market value of publicly held shares should be at least $100 million.
B.there should be at least 2,000 round lot holders.
C.there should be at least 1,200 employees.
D.a total of at least 1,100,000 shares should be held publicly.
A speculator purchases a 37,000-pound contract for coffee for $1.08 per pound with an
initial margin requirement of 7%. The price goes up to $1.13 in three months. What is
the annualized gain?
A.252.8%
B.264.4%
C.51.2%
D.63.2%
E.66.1%
Which investing approach do stock pickers favor?
A.Top-down approach
B.Bottom-up approach
C.Industry analysis
D.Rotational investing
A fund investing in T-bills, Eurodollar deposits, commercial paper, and repurchase
agreements is probably a:
A.money market fund.
B.balanced fund.
C.sector fund.
D.growth fund.
The most significant advantage(s) of limited partnerships is(are):
A.limited liability of limited partners, and direct assignment of profits and losses to the
partners.
B.unlimited liability of general partners.
C.favorable tax treatment of capital gains and management participation features.
D.None of the above
The constant growth dividend valuation model assumes
A. a constant annual dividend.
B. a constant dividend growth rate for no more than the first 10 years.
C. that the discount rate must be greater than the dividend growth rate.
D. that the dividend growth rate must be greater that the discount rate.
E. A and B are true assumptions
Besides management and prior performance, what primary factors should be considered
by the investor in a new issue?
A.The intended use of funds from the issue
B.Expected stock price in the secondary market
C.The investment banker handling the distribution
D.More than one of the above