You bought a put with a strike price of $25. The current stock price is $23. What is the
current payoff value of this option?
A. -$2
B. -$1
C. $0
D. $1
E. $2
Over the past 5 days, the common stock of Tyler Mfg. had daily returns of 0.2, -0.1,
-0.2, 0.3, and 0.1 percent, respectively. For the same 5 days, the market had daily
returns of 0.0, 0.1, -0.3, 0.4, and 0.2 percent, respectively. What is the cumulative
abnormal return on Tyler Mfg. stock for this time period?
A. -0.2 percent
B. -0.1 percent
C. 0.0 percent
D. 0.1 percent
E. 0.2 percent
At the time a futures contract is written:
A. the underlying asset is specifically identified.
B. the buyer pays a good faith deposit to the seller.
C. the current market price of the underlying asset becomes the contract price.
D. the current market price of the underlying asset must be less than the agreed upon
futures price.
E. the buyer is granted the right, but not the obligation, to exercise the contract.
You bought a call option with a strike price of $35. What is your total payoff on this
option contract if the underlying stock is selling for $36.70 on the option expiration
date?
A. $.00
B. $30.00
C. $33.00
D. $133.00
E. $170.00
Use the following bond quotes to answer this question:
What was yesterday’s closing price on the Beta Movers bond?
A. $1,020.13
B. $1,033.54
C. $1,044.07
D. $1,053.54
E. $1,054.07
Which one of the following is the most common definition of cash flow as used in the
price-cash flow ratio?
A. net income minus dividends
B. net income plus depreciation
C. net income minus depreciation plus taxes
D. earnings before interest and taxes plus depreciation
E. earnings before interest and taxes
A firm has a current book value per share of $21.10 and a market price per share of
$37.57. Next year’s earnings are expected to be $5.60 per share and the expected
earnings growth rate is 2.5 percent. What is the required rate of return on this stock?
A. 14 percent
B. 15 percent
C. 16 percent
D. 17 percent
E. 18 percent
Money market mutual funds do which one of the following?
A. offer a guaranteed rate of return
B. invest in securities that mature in 90 days or less
C. provide a risk-free means of investing
D. invest only in government bonds
E. trade for $10 a share
A portfolio consists of the following two funds.
What is the Sharpe ratio of the portfolio?
A. 0.422
B. 0.547
C. 0.645
D. 0.721
E. 0.798
Brooke invested $4,500 in the stock market with the expectation of earning 6.25
percent. She actually earned 7.15 percent for the year. What is the amount of her
unexpected return?
A. -1.2 percent
B. -0.6 percent
C. 0.9 percent
D. 1.9 percent
E. 2.4 percent
The term “independent deviations from rationality” implies that:
A. irrational investors are absent from an efficient market.
B. arbitrage traders act independent of each other.
C. markets must be inefficient.
D. irrational investors behave differently from one another.
E. arbitrage traders act together to offset the actions of rational investors.
Which of the following characteristics are correct regarding the old style option
quotation system?
I. The system is known as OPRA – the Options Price Reporting Authority code
II. The system has 3 data elements
III. The system has 21 characters
IV. The system has 5 characters
V. The system is known as the OCC Series Key
VI. The root symbol is the underlying stock’s ticker symbol
A. I, II, III, and VI
B. II, III, IV, and V
C. I, II, and IV
D. II, III, V, and VI
E. III, V, and VI
Which one of the following correctly states the VaR for a 3-year period with a 2.5
percent probability?
A. Prob[Rp,T ≤ E(Rp) 3 – 1.645 σp √3]
B. Prob[Rp,T ≤ E(Rp) √3 – 1.645 σp 3]
C. Prob[Rp,T ≤ E(Rp) √3 – 1.645 σp √3]
D. Prob[Rp,T ≤ E(Rp) 3 – 1.960 σp √3]
E. Prob[Rp,T ≤ E(Rp) √3 – 1.960 σp 3]
The process of purchasing newly issued shares from the issuer and reselling those
shares to the general public is called:
A. underwriting
B. capitalizing
C. securing
D. brokering
E. deploying
You are buying a bond at a quoted price of $892. The bond has a 7.5 percent coupon
and pays interest semiannually on February 1 and August 1. What is the dirty price of
this bond if today is April 1? Assume a 360-day year.
A. $896.17
B. $904.50
C. $913.67
D. $938.50
E. $942.00
A stock is currently selling for $40.85. A 3-month call option with a strike price of $40
has an option premium of $1.30. The risk-free rate is 2 percent and the market rate is
9.5 percent. What is the option premium on a 3-month put with a $40 strike price?
Assume the options are European style.
A. $0.00
B. $0.05
C. $0.15
D. $0.25
E. $0.35
One year ago, you purchased a $1,000 face value bond at a yield to maturity of 9.45
percent. The bond has a 9 percent coupon and pays interest semiannually. When you
purchased the bond, it had 12 years left until maturity. You are selling the bond today
when the yield to maturity is 8.20 percent. What is your realized yield on this bond?
A. 14.54 percent
B. 15.27 percent
C. 16.35 percent
D. 17.60 percent
E. 18.11 percent
The division of a portfolio’s dollars among various types of assets is referred to as:
A. the minimum variance portfolio.
B. the efficient frontier.
C. correlation.
D. asset allocation.
E. setting the investment opportunities.
Which one of the following is the tendency to believe that random events that occur in
clusters are not really random?
A. clustering illusion
B. sequential clustering
C. random grouping
D. representativeness heuristic
E. gambler’s fallacy
Money market rates are generally one or the other of which two rates?
I. bank discount rate
II. bond equivalent rate
III. annual percentage rate
IV. effective annual rate
A. I and II only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
Which one of the following parties is the largest holder of U.S. corporate bonds?
A. pension funds
B. life insurance companies
C. banks
D. foreign investors
E. individual investors
The bond equivalent yield adjusts for leap years by using 366 days starting with:
A. January 1 of the leap year and ending with December 31 of the leap year.
B. February 1 of the year prior to the leap year and ending with February 29 of the leap
year.
C. March 1 of the year prior to the leap year and ending with February 29 of the leap
year.
D. the second quarter of the year prior to the leap year and ending with the first quarter
of the leap year.
E. February 1 of the leap year and ending with February 29 of the leap year.
Which one of the following does an issuer pay to redeem a bond prior to maturity?
A. par value
B. face value
C. put price
D. call price
E. discounted price
The European Growth Fund has $820 million in assets and $76,000 in liabilities. There
are 30.5 million shares outstanding. The fund charges a 4.4 percent front-end load.
What is the offering price?
A. $26.08
B. $26.47
C. $27.54
D. $28.12
E. $29.74
Marcus just placed a stop limit order to sell 100 shares at $21 stop, $18 limit. Which
one of the following statements is correct concerning this order if the current market
price is $16?
A. As soon as the price rises to $18, the stock will be sold.
B. The stock will sell for at least $18 but less than $21.
C. The stock will sell for $18 a share as soon as the price hits $21.
D. The order will become a limit order to sell at $21 once the market price reaches $18.
E. The order will become a limit order to sell at $18 once the market price reaches $21.
A bond pays semiannual interest payments of $42.50. What is the coupon rate if the par
value is $1,000?
A. 5.75 percent
B. 6.50 percent
C. 7.80 percent
D. 8.50 percent
E. 9.38 percent
You own a stock that has produced an arithmetic average return of 7.8 percent over the
past five years. The annual returns for the first four years were 16, 11, -19, and 3
percent, respectively.
What was the rate of return on the stock in year five?
A. -5.00 percent
B. 2.75 percent
C. 6.25 percent
D. 28.00 percent
E. 32.00 percent
Which one of the following will decrease the current yield of a bond?
A. increase in the face value
B. change from semi-annual to annual coupon payments
C. decrease in the call premium
D. decrease in the coupon rate
E. decrease in the bond price
You have a 30-year, $180,000 mortgage. The interest rate is 7.5 percent. What is the
amount of the mortgage prepayment if you pay $1,400 as your first payment?
A. $128.50
B. $130.46
C. $132.65
D. $135.89
E. $141.41
You bought eight call option contracts with a strike price of $27.50 and a premium of
$0.66. At expiration, the stock was selling for $26.90 a share. What is the total profit or
loss on your option position if you did not exercise it prior to the expiration date?
A. -$9.24
B. -$10.20
C. $0
D. -$528
E. -$920