An increase in assets is considered a source of funds.
A public utility is likely to appeal to an income-oriented, conservative investor.
When the value of the U.S. dollar rises relative to foreign currencies, foreign goods
become more expensive for U.S. consumers, and they spend less money on imports.
The short interest ratio is the total short sales position, divided by average daily
exchange volume for the month.
While the stock market has an active secondary market, the bond market consists
primarily of investors who buy and hold bond issues to maturity.
A put is purchased for $5 with a $22 strike price. If the stock ends up at $25, the
purchaser breaks even.
If the emerging markets were taken as a group at the end of 2005, their total market
capitalization would rank them second behind the United States.
Conversion value is the conversion price multiplied by the conversion ratio.
A specialist is supposed to maintain an orderly market.
The Jensen study indicates that mutual fund managers tend to have very superior
performances.
Those who attempt to engage in short-term market tactics are termed traders.
The higher the bond rating of a corporation, the higher the interest rate that is likely to
be paid.
Growth firms generally pay higher cash dividends than mature firms.
In an efficient market environment, it is reasonable to assume that the higher the
premium on a target company’s stock, the less the risk of cancellation.
If an investor can prove that he is hedging a long position, the margin requirement will
be less.
“In-the-money” and “out-of-the-money” generally mean the same thing regarding put
and call options.
A put writer exposes himself to the risk of declining stock prices.
Firms in the development stage are typically publicly owned.
During President Reagan’s first term, the three-year tax cut and negotiated cuts in
government spending reduced inflation dramatically and sparked growth in the GDP,
but also boosted the federal deficit to record levels.
One of the problems that investors face in determining required rates of return is
forecasting errors involving interest rates and inflation.
Electronic communication networks (ECNs) automatically match buy and sell orders at
specified prices, and orders are not routed to the floor of an exchange before
processing.
The Dow Theory puts emphasis on long-run trends.
A value-weighted index tends to give more importance to large companies than small
companies.
A sinking fund may be used to pay off a perpetual bond.
Twin factors that make real estate an attractive investment are tax write-offs and
appreciation from inflation.
Weighted average life refers to the time period over which the coupon payments and
maturity payment on a bond are recovered.
At the end of 2009, approximately 43% of U.S. households owned shares in mutual
funds.
An underlying assumption to the CAPM model is that an individual can choose an
investment combining the return on the risk-free asset with the market rate of return,
and this will provide superior returns to the efficient frontier at all points except M,
where they are equal.
Since the beginning of the 1990s, we have seen major growth in “emerging” markets,
such as Chile, Mexico, Poland, and the Czech Republic.
If a particular stock is less risky than the market, its beta coefficient will fall somewhere
between -1 and 0.
Deep discount bonds reflect questionable quality.
The greater the negative correlation between two (or more) securities, the lower the
portfolio standard deviation (all else being equal).
Results of research studies make it easy to identify characteristics of potential
acquisition candidates.
Duration times the reinvestment rate will give the approximate change in bond price for
a 1% change in interest rates.
Research on the weak form of the efficient market hypothesis suggests that:
A.stock prices are independent over time.
B.past trends cannot be used to predict the future.
C.charting and technical analysis have limited value.
D.More than one of the above
The semistrong form of the efficient market hypothesis maintains all of the following,
except that:
A.there is no learning lag in the distribution of public information.
B.all public information is immediately impounded into the value of a security.
C.technical analysis is helpful in determining whether a stock is overvalued or
undervalued.
D.fundamental analysis cannot outperform the market.
The grocery industry shows a fairly constant relationship between grocery store sales
versus real GDP data.
The basic premise of ________________ is that past trends in market movements can
be used to forecast or understand the future.
A.the Efficient Market Hypothesis
B.fundamental analysis
C.technical analysis
D.None of the above
The high-risk, speculative nature of commodities futures is due primarily to:
A.the presence of hedgers in the markets.
B.high leverage brought about by low margin requirements.
C.Both A and B
D.None of the above
The overuse of portfolio insurance in the market may be dangerous because:
A.a large amount of selling may take place simultaneously.
B.a small amount of arbitraging may take place simultaneously.
C.in a down market, the insurance companies may not be able to pay for the losses.
D.All of the above
A down-sloping yield curve indicates:
A.investors’ anticipation of lower interest rates.
B.investors’ anticipation of lower inflation.
C.that institutional investors are selling long-term bonds.
D.More than one of the above
(a) The stock of Furniture Unlimited went from $90 to $99 last year. The firm also paid
80 cents in dividends. Compute the rate of return.
(b) During the next year, the dividend paid was $1.60 per share and the stock closed at
$93 per share, down from $99 per share at the beginning of the year. Compute the
annual gain or loss for the second year holding period.
(a) 10.9%
(b) (4.4%) loss
While the Dow Jones Industrial Average may be weighted toward large firms, a
__________ indicator may be used to examine all stocks on an exchange.
A.Key
B.Contrary opinion
C.Breadth of the market
D.More than one of the above
A corporate venture capital fund is:
A.a fund operated by private investors.
B.a fund operated by a corporation.
C.a fund operated for a non-profit.
D.None of the above
As the economy recovers from a recession, what changes can be expected in the yield
spread of corporate Baa bonds and U.S. government bonds?
A.The yield on Baa bonds will approach that of government securities
B.The yield spread between U.S. government bonds and BBB corporate bonds will stay
the same
C.The yield spread will increase
D.Either A or B will occur
Futures contracts exist for the:
A.Dow Jones Industrial Average.
B.NASDAQ 100 Stock Index.
C.S&P 500.
D.All of the above
Stock index futures and options are sometimes referred to as derivative products
because they:
A.are often used as part of program trading.
B.make the market less volatile.
C.have intrinsic characteristics.
D.derive their existence from actual market indexes.
Which of the following is NOT a characteristic of preferred stock as an investment?
A.Preferred stockholders are entitled to receive their dividend prior to payment of
dividends to common stockholders
B.Preferred stock dividends are taxed at the capital gains rate for individual investors
C.Preferred stock dividends may be omitted by the corporation under certain
circumstances
D.It is a hybrid security of common stock and debt
Corporate bonds generally trade in units of:
A.$100.
B.$1,000.
C.$5,000.
D.$10,000.
Stock index futures and options allow an investor to:
A.select a security from any of those included in the index.
B.gain or lose from the movement of the index.
C.trade any of the securities in the index.
D.None of the above
Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months.
a) How much interest would an investor receive?
b) What will be the price of the Treasury bill?
c) What will be the true rate of return?
A positive alpha is an indication of:
A.low risk.
B.high risk.
C.superior performance.
D.low diversification.
IBM was trading at $100 when Mrs. Peterson bought a 100 call on IBM at a price of
$10. Three months later, IBM common stock was trading at $130, and the call option
was trading at $33. The leverage factor for this situation would be:
A. 11x.
B. 3.3x.
C. 7.66x.
D. 25.38x.
The ____________ suggests watching the small investor, who is right most of the time
but misses key market turns, and then doing the opposite.
A.contrary opinion rule
B.odd-lot theory
C.greed index
D.None of the above
A legal document which is administered by an independent trustee and spells out the
major provisions of a bond agreement is called the
A.bond contract.
B.bond indenture.
C.debenture.
D.bond subordination.
The _________ of the efficient market hypothesis suggests that there is little or nothing
to be gained from studying past stock price trends.
A.weak form
B.semi-strong form
C.strong form
D.semi-weak form
A good example of an industry that has a lot of growth companies in it is the:
A. automobile industry.
B. biotechnology industry.
C. food and beverage industry.
D. consumer products industry.
The required rate of return is intended to provide
A. compensation for expected inflation.
B. a premium for risk assumed.
C. a minimum real rate of return.
D. All of the above
A stock is a good buy when the value of which of these ratios is low, compared to a
market index or company history?
A.Price-to-book-value
B.Price-to-earnings
C.Dividend yield
D.All of the above
Duration is influenced by everything except:
A.maturity.
B.market rate of interest.
C.coupon rate on the bond.
D.the issuer of the bond.
Assume you have purchased a contract for 25,000 British pounds for $35,000. Your
margin requirement is $2,000. If the value of a pound increases .01, what is your
percentage profit?
A.10.0%
B.12.5%
C.15.0%
D.8.0%
E.None of the above
A bond with a put provision allows the investor to:
A.convert the bond to a specified number of shares of common stock.
B.sell the bond back to the corporation at a small premium over par at a specified time
period.
C.sell the bond back to the corporation at par at a specified time period.
D.receive additional interest payments if inflation goes above a specified level.
What is a major reason that entities invest in private equity funds?
A.Higher returns than can be earned from the stock market
B.The joy of seeing new companies start up
C.The safety of the investment
D.None of the above
Hedge funds are:
A.regulated by the SEC.
B.private limited partnerships.
C.unregulated by the SEC.
D.Both B and C
Duration is used primarily as a measure of:
A.the relationship between coupon rate and bond rating.
B.bond price-sensitivity to interest rate changes.
C.the present value of investment inflows.
D.None of the above
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. If we measure Price’s financial leverage, we would most likely
use which of the following ratios from chapter 8?
A.Debt-to-equity (60%) and debt-to-sales (30%)
B.Debt-to-equity (60%) and equity-to-assets (62.5%)
C.Debt-to-equity (60%) and debt-to-assets (37.5%)
D.Equity-to-assets (62.5%) and after-tax income-to-debt (33.3%)
Organizations responsible for bringing together large pools of capital for purposes of
reinvestment are called:
A.individual investors.
B.institutional investors.
C.social security clubs.
D.B and C
Which is not an approach to real estate valuation?
A.Cost approach
B.Comparative sales value
C.Price-earnings ratio
D.Income approach
An example of an equal-weighted index or average is the:
A.Russell 2000.
B.Dow Jones Industrial Average.
C.Value Line Average.
D.Russell 1000.
E.S&P 500.