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Which of the following reflects the value of economic output adjusted to remove the
effects of inflation?
A. current year GDP
B. real GDP
C. nominal GDP
D. adjusted GDP
E. actual GDP
A 6-month put has a strike price of $32.50. The underlying stock's price is $31.10. What
is intrinsic value of this put?
A. $0.00
B. $0.70
C. $1.40
D. $2.10
E. $2.80
Which one of the following measures a security's return in relation to the total risk
associated with that security?
A. beta
B. Jensen's alpha
C. Sharpe ratio
D. Treynor ratio
E. Value at Risk
The increased cash flows into mutual funds that have recently had superior returns is
most associated with which one of the following characteristics?
A. overconfidence
B. excess trading
C. clustering illusion
D. diversification
E. risk aversion
Investing in a futures contract:
A. guarantees a sale but not a sale price.
B. can be profitable for both the buyer and the seller simultaneously.
C. guarantees the buyer a profit on the contract.
D. creates a gain for one party without causing a loss for the other party.
E. can be offset by taking an opposing position.
You purchased 6 call options with a $40 strike price at a total cost of $150. On the
expiration date, the underlying stock was priced at $39.20. What is the percentage
return on your investment?
A. -420 percent
B. -100 percent
C. 68.75 percent
D. 2.02 percent
E. 220 percent
You own 300 shares of ABC stock. Which one of the following would allow you to
receive an option premium in exchange for selling your shares in ABC at the strike
price?
A. straddle
B. long spread
C. selling a put
D. buying a call
E. writing a covered call
A mutual fund is owned by:
A. its shareholders.
B. a management company.
C. a financial institution.
D. the fund's board of directors.
E. a mutual fund family.
Which one of the following orders is frequently used as a means to limit losses resulting
from a short sale?
A. limit
B. market
C. day
D. stop-sell
E. stop-buy
The approximate nominal interest rate is computed as the real rate:
A. minus the risk-free rate.
B. minus the inflation rate.
C. plus the risk-free rate.
D. plus the inflation rate.
E. divided by the inflation rate.
The short-term rate at which banks lend to each other is called the ______.
A. Fed Funds Rate
B. Federal Reserve Rate
C. Discount Rate
D. Federal Loan Rate
E. Reserve Loan Rate
Which one of the following statements concerning NASDAQ is correct?
A. The NASDAQ Capital Market has the most stringent listing requirements of any of
the NASDAQ companies.
B. NASDAQ is actually comprised of four separate markets.
C. Microsoft shares are listed on the NASDAQ Global Market.
D. NASDAQ has more total dollar volume of trading than does the NYSE.
E. There are more companies listed on NASDAQ than on NYSE.
You have owned a stock for seven years. The geometric average return on this
investment for those seven years is positive even though the annual rates of return have
varied significantly. Given this, you know the arithmetic average return for the period
is:
A. positive but less than the geometric average return.
B. less than the geometric return and could be negative, zero, or positive.
C. equal to the geometric average return.
D. either equal to or greater than the geometric average return.
E. greater than the geometric average return.
Which one of the following statements concerning the modern fixed-income market is
correct?
A. Pension funds generally have a preference for short maturities.
B. Current maturity preference theory states that both borrowers and lenders prefer
short maturities.
C. Market segmentation theory does little to explain the modern fixed-income market.
D. The major borrower in the modern market borrows primarily on a long-term basis.
E. Institutional investors tend to invest in only one maturity range.
The series of Fibonacci numbers contains the sequential values of 610 and 987. What is
the next number in this series?
A. 1,264
B. 1,364
C. 1,419
D. 1,597
E. 1,633
A call option with 1 month to expiration currently sells for $0.70. A put option with the
same expiration sells for $1.10. The options are European style. The risk-free rate is 3
percent and the strike price of both options is $18.00. What is the current stock price?
A. $16.87
B. $17.06
C. $17.29
D. $17.56
E. $17.86
Use the following bond quotes to answer this question:
The Talliru Company bond pays interest semi-annually. You own eight of these bonds.
What is the amount you will receive as your next interest payment?
A. $76.00
B. $228.00
C. $190.00
D. $254.00
E. $304.00
Which one of the following statements is true?
A. A call with a strike price of $25 and a stock price of $23 has positive intrinsic value.
B. A European style option is more valuable than an American style option.
C. An American style out-of-the-money call option can have a positive value.
D. A $40 put option has more intrinsic value than a $50 put option on the same
underlying asset.
E. The time value of an option is equal to the intrinsic value minus the option premium.
Where does the minimum variance portfolio lie in respect to the investment opportunity
set?
A. lowest point
B. highest point
C. most leftward point
D. most rightward point
E. exact center
Will purchased 3 futures contracts on corn. The contract size is 5,000 bushels and the
price is quoted in cents per bushel. Assume the initial margin requirement is 4.5 percent
of the contract value. What is the amount of the initial margin if the futures quote is
624?
A. $140.40
B. $421.20
C. $1,404
D. $2,808
E. $4,212
What are the securities that are created when a mortgage pool is divided into a number
of tranches called?
A. split strips
B. divided CMOs
C. sequential CMOs
D. indexed mortgage splits
E. tranche pools
A $20,000 face value STRIPS is currently quoted at 38.642 and has 8 years to maturity.
What is the yield-to-maturity?
A. 6.26 percent
B. 6.30 percent
C. 12.25 percent
D. 12.65 percent
E. 12.83 percent
The one-year interest rate is 4.80 percent and the two-year interest rate is 5.13 percent.
What is the one year interest rate one year from now? Assume the rates are effective
annual rates.
A. 5.02 percent
B. 5.23 percent
C. 5.46 percent
D. 5.51 percent
E. 5.74 percent
Lester has a portfolio with an average return of 12.8 percent and a standard deviation of
9.1 percent. He has a one percent probability of losing _____ percent or more in any
given year.
A. -33.97
B. -38.87
C. -20.67
D. -5.04
E. -8.37
An investor who shifts risk is referred to as which one of the following?
A. hedger
B. short seller
C. speculator
D. broker
E. dealer
GNMA mortgage pools are based on mortgages issued by which of the following?
I. FHLMC
II. FNMA
III. FHA
IV. FmHA
A. I and II only
B. II and III only
C. III and IV only
D. I, II, and IV only
E. I, II, III, and IV
The following premiums apply to a 8-month bond: interest rate risk premium = 0.32
percent; liquidity premium = 0.44 percent; default premium = 1.23 percent; inflation
premium = 3.12 percent; real rate = 3.20 percent. What is the expected nominal interest
rate on a 8-month risky security given these values?
A. 5.85 percent
B. 6.45 percent
C. 7.55 percent
D. 8.31 percent
E. 9.30 percent
Which option price(s) will increase when the interest rate increases?
A. both the call and put
B. call only
C. put only
D. neither the call nor the put
E. Answer cannot be determined from the information provided.
Over the past five years, Teen Clothing stock produced returns of 18.7, 5.8, 7.9, 10.8,
and 11.6 percent, respectively. For the same five years, the risk-free rate 5.2, 3.4, 2.8,
3.4, and 3.9 percent, respectively. What is the arithmetic average risk premium on Teen
Clothing stock for this time period?
A. 6.89 percent
B. 7.01 percent
C. 7.22 percent
D. 7.34 percent
E. 7.57 percent
Which one of the following is the portion of a prospectus that outlines the contractual
terms of a new bond issue?
A. indenture summary
B. financial disclosure
C. covenant agreement
D. security agreement
E. trust agreement
A firm has current sales of $32,000. Projected sales for next year are $35,520. The
percentage of sales approach is used for pro forma purposes. All balance sheet accounts,
except long-term debt and common stock, change according to that approach. The
expected increase in retained earnings is $2,200. What is the projected external
financing need given the following current account values?
A. -$3,532
B. -$1,969
C. -$1,390
D. $231
E. $1,341
What is the current structure of the NYSE?
A. general partnership
B. limited partnership
C. non-profit organization
D. publicly traded corporation
E. government agency
A 7 percent coupon bond has a face value of $1,000 and pays interest annually. The
current yield is 6.8 percent. What is the current price of this bond?
A. $971.43
B. $978.41
C. $1,068.00
D. $1,029.41
E. $1,104.00
NASDAQ dealers post which one of the following in addition to their bid and ask
prices?
A. commission rates
B. front-end load charges
C. number of shares they will commit to buy or sell
D. total trades for the day
E. trading fees
