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Models of financial markets that emphasize psychological factors affecting investor
behavior are called _______.
A. data mining
B. fundamental analysis
C. charting
D. behavioral finance
Which of the following transactions will result in a decrease in cash flow from
operations?
A. increase in accounts receivable
B. decrease in inventories
C. increase in taxes payable.
D. decrease in bonds outstanding
The market risk premium is defined as __________.
A. the difference between the return on an index fund and the return on Treasury bills
B. the difference between the return on a small-firm mutual fund and the return on the
Standard & Poor's 500 Index
C. the difference between the return on the risky asset with the lowest returns and the
return on Treasury bills
D. the difference between the return on the highest-yielding asset and the return on the
lowest-yielding asset
Following a period of falling prices, the moving average will _____.
A. be below the current price
B. be above the current price
C. be equal to the current price
D. become more volatile than it had been before prices fell
The price quotations of Treasury bonds in the Wall Street Journal show a bid price of
104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to
receive _________.
A. $ 1,000.00
B. $ 1,045.00
C. $ 1,045.31
D. $ 1,045.48
Initial margin requirements on stocks are set by _________.
A. the Federal Deposit Insurance Corporation
B. the Federal Reserve
C. the New York Stock Exchange
D. the Securities and Exchange Commission
If you believe you have a 60% chance of doubling your money, a 30% chance of
gaining 15%, and a 10% chance of losing your entire investment, what is your expected
return?
A. 5%
B. 15%
C. 54.5%
D. 114.5%
The firm's leverage ratio is 1.2, interest-burden ratio is .81, and profit margin is .24, and
its asset turnover is 1.25. What is the firm's ROA?
A. .25
B. .3
C. .335
D. .372
If the utility you derive from your next dollar of wealth increases by less than a loss of a
dollar reduces it, you are exhibiting __________.
A. loss aversion
B. regret avoidance
C. mental accounting
D. framing bias
28. In creating the P* portfolio, one mixes the original portfolio P and T-bills to match
the _________ of the market.
A. alpha
B. beta
C. excess return
D. standard deviation
You find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. If
you purchase or sell the stock, you must pay a flat commission of $25. If you buy 100
shares of the stock and immediately sell them, what is your total implied and actual
transaction cost in dollars?
A. $50
B. $25
C. $30
D. $55
The __________ system enables exchange members to send orders directly to a
specialist over computer lines.
A. FAX
B. Direct Plus
C. NASDAQ
D. SUPERDOT
You have an EAR of 9%. The equivalent APR with continuous compounding is _____.
A. 8.47%
B. 8.62%
C. 8.88%
D. 9.42%
The value of Internet companies is based primarily on _____.
A. current profits
B. Tobin's q
C. growth opportunities
D. replacement cost
At year-end, taxes on a futures position _______________.
A. must be paid if the position has been closed out
B. must be paid if the position has not been closed out
C. must be paid regardless of whether the position has been closed out or not
D. need not be paid if the position supports a hedge
According to the capital asset pricing model, in equilibrium _________.
A. all securities' returns must lie below the capital market line
B. all securities' returns must lie on the security market line
C. the slope of the security market line must be less than the market risk premium
D. any security with a beta of 1 must have an excess return of zero
A quanto provides its holder with the right to ______________.
A. participate in the payoffs from a portfolio of gambling casino stocks
B. exchange a fixed amount of a foreign currency for dollars at a specified exchange
rate
C. participate in the investment performance of a foreign security
D. exchange the payoff from a foreign investment for dollars at a fixed exchange rate
The use of leverage is practiced in the futures markets due to the existence of
_________.
A. banks
B. brokers
C. clearinghouses
D. margin
A higher- dividend payout policy will have a __________ impact on the value of a put
and a __________ impact on the value of a call.
A. negative; negative
B. negative; positive
C. positive; negative
D. positive; positive
Market-neutral hedge funds may experience considerable volatility. The source of
volatile returns is the use of _________.
A. pure play
B. leverage
C. directional bests
D. net short positions
The _______ decision should take precedence over the _____ decision.
A. asset allocation; stock selection
B. bond selection; mutual fund selection
C. stock selection; asset allocation
D. stock selection; mutual fund selection
A __________ is an option valuation model based on the assumption that stock prices
can move to only two values over any short time period.
A. nominal model
B. binomial model
C. time model
D. Black-Scholes model
Grott and Perrin, Inc., has expected earnings of $3 per share for next year. The firm's
ROE is 20%, and its earnings retention ratio is 70%. If the firm's market capitalization
rate is 15%, what is the present value of its growth opportunities?
A. $20
B. $70
C. $90
D. $115
In the context of the capital asset pricing model, the systematic measure of risk is
captured by _________.
A. unique risk
B. beta
C. the standard deviation of returns
D. the variance of returns
A firm cuts its dividend payout ratio. As a result, you know that the firm's _______.
A. return on assets will increase
B. earnings retention ratio will increase
C. earnings growth rate will fall
D. stock price will fall
In the futures market the short position's loss is ___________ the long position's gain.
A. greater than
B. less than
C. equal to
D. sometimes less than and sometimes greater than
The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so, the
fund buys shares in each S&P 500 company __________.
A. in proportion to the market value weight of the firm's equity in the S&P 500
B. in proportion to the price weight of the stock in the S&P 500
C. by purchasing an equal number of shares of each stock in the S&P 500
D. by purchasing an equal dollar amount of shares of each stock in the S&P 500
A firm has an ROA of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the
interest rate on its debt is 7%. Its ROE is _________.
A. 15.12%
B. 28.42%
C. 37.24%
D. 40.6%
A firm increases its financial leverage when its ROA is greater than the cost of debt.
Everything else equal, this change will probably increase the firm's:
I. Beta
II. Earnings variability over the business cycle
III. ROE
IV. Stock price
A. I and II only
B. III and IV only
C. I, III, and IV only
D. I, II, and III only
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 total excess return on the
managed portfolio was
__________.
A. 2%
B. 3%
C. 4%
D. 5%
You manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per
quarter. Assume the risk-free rate is 2% per quarter and the current value of the S&P
500 Index is 1,200. You want to exploit the positive alpha, but you are afraid that the
stock market may fall and you want to hedge your portfolio by selling 3-month S&P
500 future contracts. The S&P contract multiplier is $250.
Hedging this portfolio by selling S&P 500 futures contracts is an example of
___________.
A. statistical arbitrage
B. pure play
C. a short equity hedge
D. fixed-income arbitrage
Published data on past returns earned by mutual funds are required to be ______.
A. dollar-weighted returns
B. geometric returns
C. excess returns
D. index returns
An investor refuses to invest in any firm that produces alcohol or tobacco. This is an
example of a ___________ constraint.
A. return requirement
B. risk-tolerance
C. liquidity
D. social
How many years of Social Security contributions count for determination of benefits?
A. 25
B. 35
C. 45
D. All yearly contributions count.
