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The riskiness of an investment is measured by the dispersion of possible outcomes.
Slow, steady, predictable growth in the money supply over the long-term is a positive
sign of economic growth.
Calls used to cover a short sale guarantee that no loss can occur.
Common stock investments that do not pay dividends are likely to provide relatively
low total returns.
LIFO accounting tends to increase inventory profits.
Perhaps the largest disadvantage of real assets is the absence of large, liquid, and
relatively efficient markets.
DuPont analysis illustrates that the return on equity can be increased by decreasing the
amount of debt used in the capital structure.
In a blind pool arrangement, funds are provided to the general partner to select
properties for investment.
Points below the efficient frontier have less desirable risk-return characteristics than
those along the efficient frontier.
In an efficient and informed capital market environment, those investments with the
greatest return tend to have the greatest risk.
The acceptable range for a mutual fund's total yearly expenses is from 2% to 3% of
assets.
A change in a high-priced stock's value has a greater impact on the Dow Jones
Industrial Average than a change in a low-priced stock.
Chartists carefully read point and figure charts to observe market patterns (where there
is support, resistance, breakouts, congestion, and so on).
Surpluses have a tendency to reduce economic growth.
Subjective beliefs and judgments are usually eliminated from economic forecasts.
Beta measures a security's return relative to the market.
Terminal wealth analysis is the process of measuring the effects of shifting market rates
on bond prices.
To achieve maximum diversification benefits, an investor should invest in projects
which are highly correlated.
All of the S&P measures are true indexes, in that they are linked to a base value.
The rise of financial-service firms through mergers and the consolidation of brokerage
companies have resulted from significant changes in the banking laws.
Under an equity participation arrangement, the lender not only provides the borrowed
capital, but part of the equity ownership funds as well.
As the maturity or duration of a bond increases, the impact on price of any changes in
interest rates increases at a decreasing rate.
Silver has more industrial and commercial uses than gold.
Return on assets can be stated to equal (net income/sales) x (sales/total assets).
The smart investor will compare the portfolio of a fund to its stated objectives.
Convertible securities have been used as a medium of exchange for acquiring other
companies' stock in mergers and acquisitions.
Evidence shows real assets to be an inflation hedge.
The book value to market value ratio is not as important as the P/E and size effect,
according to Professors Fama and French.
Load mutual funds outperform no-load funds.
If the market price is above the strike price, a call is "in-the-money."
Load funds, which charge a commission, generally perform no better than no-load
funds.
The stock price of an acquiring company generally changes parallel to that of the target.
You, a farmer, anticipate taking 80,000 bushels of soybeans to the market in three
months. The current cash price for soybeans is $5.85. The size of the futures contract is
5,000 bushels per contract, and the current three-month futures price is $5.88. You
decide to hedge one-half of your exposure to a drop in the value of soybeans. Assume
that in three months, when you take the soybeans to market, you close out the futures
contracts and the price has fallen to $5.80. What was your overall net gain or loss when
considering the actual gain or loss when taking the actual soybeans to market and the
partial hedge in the futures market?
A.$800 gain
B.$800 loss
C.$400 gain
D.$400 loss
E.$320 gain
Assume you invest in the European Equity Market and have a 15% return (quoted in
Euros).
a) If during this period the euro appreciated by 10% against the dollar, what would be
your actual return, translated into United States dollars?
b) What if the euro declined by 10% against the dollar, what would your actual return
be, translated into dollars?
c) Recompute the answer based on a 15% decline in the euro against the dollar.
From the corporate financial officer's viewpoint, which of the following is a reason for
not calling a bond for redemption when the conversion value is above the par value?
A.Calling the bond may encourage everyone to take the stock rather than the par value
in cash
B.The after-tax cost of the dividends on the new shares might be higher than the
after-tax cost of the interest expense on the existing convertible bond
C.The chief financial officer might want to wait until interest rates decline before
calling the bond
D.The number of new shares on the market will cause the diluted earnings per share to
decline
Value Line's Ranking System, covering 1,700 companies, has demonstrated:
A.that stocks ranked one under-perform the market.
B.that stocks ranked five perform about at the market average.
C.that stocks ranked one outperform the market.
D.that stocks ranked five outperform the market.
The essence of _______ is to determine whose judgment about the market is wrong.
A.key indicators
B.smart money rules
C.contrary opinion rules
D.None of the above
Which of the following is the final measure used to evaluate a portfolio manager's
performance using the Jensen approach?
A.Alpha ONLY
B.Alpha and the standard deviation
C.Standard deviation
D.None of the above
Secondary markets provide everything except:
A.illiquidity.
B.efficiency.
C.continuity.
D.competition.
Program trading calls for:
A.computer-based trigger points for large trades.
B.the use of computer programs to measure performance.
C.the use of only call options.
D.All of the above
Legal methods for attempting to profit through mergers and acquisitions include all of
the following, except identifying
A.an insider close to the information.
B.candidates through financial or operating characteristics.
C.securities which are undergoing unusual volume or pricing patterns.
D.industries where companies are being absorbed.
The pharmaceutical industry has submitted up to 2,900 drugs per year to the U.S. Food
and Drug Administration between 1995 and 2009, and the approval rate is close to:
A.3.3%.
B.8.2%.
C.10%.
D.22.2%.
An investment in common stock carries a higher return than a bank certificate of
deposit. The difference in returns is called:
A.the risk-free rate.
B.the real rate of return.
C.the risk premium.
D.the beta.
E.None of the above
The correlation coefficient:
A.measures the amount of risk associated with a given security at a given moment in
time.
B.measures the joint movement between two variables.
C.measures the expected value of a security at a specified moment in time.
D.All of the above
Which of the following is NOT a characteristic of an organized exchange?
A.It functions as a primary market
B.Securities are bought and sold in an auction market by brokers acting as agents for
buyers and sellers in a central location
C.It may be either national or regional
D.It has a central location where all trading takes place
E.It functions as a secondary market
The most important feature of municipal bonds is:
A.the wide range of denominations and maturities.
B.that the interest is not taxable by the federal government.
C.the risk-free nature of this investment.
D.its appeal to investors needing growth.
An Arthur Corp. 25 put option is selling for $3 when the stock is trading at $22.
A. The intrinsic value is $3 and the speculative premium is 0
B. The intrinsic value is $3 and the speculative premium is $3
C. The time to expiration must be very close
D. A and C
Wealthy investors may prefer the favorable tax treatment of investments such as:
A.corporate bonds.
B.municipal bonds.
C.common stock.
D.preferred stock.
Which of the following is a characteristic of an unfriendly takeover?
A.Usually there is a high premium on stock price
B.An unacceptable suitor attempts to buy out the target company
C.The White Knight may succeed in rescuing the target company
D.All of the above
What type of bond investor would probably be least concerned about a drop in market
interest rates?
A.Individuals who spend their interest income
B.Individuals who are building a retirement portfolio
C.Pension fund managers
D.All of the above would have cause for concern
A provision in which semiannual or annual contributions are made by a corporation into
a fund administered by a trustee for purposes of debt retirement is referred to as a:
A.call provision.
B.put provision.
C.sinking-fund provision.
D.serial payment.
All of the following are available to individual investors except:
A.commercial paper.
B.bankers' acceptances.
C.money market funds.
D.All of the above are available to individual investors
The P/E ratio of a particular firm would probably be affected by which of the
following?
A. Investors' perception of the quality of the firm's management
B. The firm's accounting practices
C. Supply and demand for the security
D. All of the above
The difference between speculators and hedgers is that speculators are ______, while
hedgers are _____.
A.risk-takers; risk-averters
B.individual investors; financial managers
C.short term; long-term
D.None of the above
What is the minimum value on a bond with market value of $900, conversion value of
$800, and pure bond value of $650?
A.$900
B.$800
C.$700
D.$650
Price Printing Co. had sales of $10 million, operating income of $3 million, after-tax
income of $1 million, assets of $8 million, stockholders' equity of $5 million, and a
total debt of $3 million. What is Price Printing Company's return on equity?
A.37.5%
B.10.0%
C.20.0%
D.60.0%
E.12.5%
A mutual fund with excess returns very similar to those of the market will have an R2
(coefficient of determination) of:
A.slightly less than 1.
B.slightly greater than 1.
C.greater than or less than one.
D.There is not enough information to tell
All of the following are characteristics of LEAPS except:
A. LEAPS have up to two years to expiration.
B. LEAPS have generally been limited to blue-chip stocks, such as Coca-Cola, Dow
Chemical, General Electric, IBM, and others.
C. LEAPS have the same characteristics as the short-term options, in general.
D. LEAPS generally have lower premiums because of their length.
Immunization is the process of ________ to ensure an outcome.
A.measuring bond price sensitivity to interest rates
B.tying all investment decisions to a particular market interest rate
C.tying all investment decisions to a duration period
D.none of the above
A company has a convertible bond with a conversion price of $27 per share. The
company's common stock is currently trading at $23 per share. What is the conversion
value of the bond (rounded to whole dollars)?
A.$1,000
B.$800
C.$852
D.$828
Which of the following is NOT a characteristic of put and call options?
A. They are contracts to buy or sell 100 shares of common stock
B. There is always a specified price
C. There is always a specified time period to exercise options
D. All of the above are characteristics
Advantages of real assets over other types of investments include that:
A.they provide a good hedge against inflation.
B.they tend to be negatively correlated with other types of investments.
C.they provide personal pleasure to the investor.
D.All of the options
Stock specialists and OTC dealers hedge their positions with stock index futures:
A.to profit from major market movements.
B.to reduce market risk on his or her inventory.
C.to reduce the unsystematic risk on the stocks in his or her inventory.
D.More than one of the above
What effect, if any, will a decrease in interest rates have on bond values?
A.Bond values will increase
B.Bond values will decrease
C.Bond values may increase or decrease, depending on the maturity, quality, and
coupon rate
D.None of the above
