American depository receipts allow foreign stocks to be traded in the United States
markets very similarly to U.S. stocks.
Correlations of foreign stock market movements to U.S. stock market movements show
that the period from 1997 to 2002 had higher correlations than in the past.
Common stock represents a direct equity claim.
One characteristic of efficient markets is that prices adjust rapidly to new information.
Professors Fama and French maintain that the ratio of book value to market value is
more important than either the size effect or the P/E effect in explaining superior stock
performance.
Risk is not correlated with return in the capital markets.
Companies with consistently high returns on equity usually are highly leveraged to take
advantage of the large profit margins.
Good till canceled (GTC) orders expire automatically after a set period of time.
Due to intense needs for capital to fund growth, Stage I companies rarely pay cash
dividends.
Institutional investors often take advantage of the small firm effect.
To take maximum advantage of new issues, an investor should own a stock for at least
one year.
Historically, interest rates have been coincident indicators in the economy.
Under a non-constant growth model, the growth rate (g) is varied from time period to
time period.
Valuation models using average price ratios and 10-year averages can be more useful
with cyclical companies, because valuation of cyclical companies benefits from an
analysis of longer time periods including at least one business cycle.
Program trading decreases market efficiency by exaggerating price discrepancies
between the cash and futures markets.
Cash prices and spot prices are very different in nature.
Value Line Group 5 Stocks tend to have the strongest performance.
It is thought that historical growth rates have more impact on an individual company’s
P/E ratio than expected future growth rate.
The major provisions in the bond agreement are spelled out in the bond debenture.
The longer the time to expiration, the higher the speculative premium per day.
Convertible securities are a good investment for conservative investors, for they offer
regular income and potential downside protection against falling stock prices.
The duration of a ten-year, 10%, $1,000 bond at a market rate of 6% is exactly equal to
the duration of the same bond at a 14% market rate.
Like the stock market, there is a strong secondary market for bond issues, particularly
corporate and municipal bonds.
Yield to maturity can be thought of as the internal rate of return of the bond.
In general, the greater the dispersion of outcomes, the lower the risk.
OTC stocks may not uphold the semi-strong form of the efficient market hypothesis,
while listed stocks generally do.
The strong form of the efficient market hypothesis suggests that only insiders are able
to show superior risk-adjusted returns.
The Securities Exchange Commission does not allow mutual funds to own foreign
securities in their portfolios.
The writer of a put agrees to sell stock at the strike price.
The steeper the slope on a risk-return indifference curve, the more anxious an investor
is to take risks.
Current yield does not take the maturity date into consideration.
Long-term capital gains are taxed as ordinary income.
When studying an industry, it is difficult to determine the “best-” and “and”
worst-performing companies in that industry.
The conversion feature always causes the bond’s price to vary with the stock price.
How are warrants used by corporations?
A.To decrease the volatility of their common stock
B.To allow for issuance of debt at rates lower than would otherwise be required
C.To decrease the dilution of earnings per share
D.More than one of the above
In order to effectively hedge a stock portfolio, the portfolio manager must know the
total dollar value of the portfolio, the current index futures price, and:
A.the number of contracts available in the market.
B.the portfolio P/E ratio.
C.the relative volatility of the portfolio to the market.
D.More than one of the above
Stocks and bonds are preferred during periods of:
A.higher inflation.
B.lower inflation.
C.rising stock prices.
D.higher risk premiums.
E.None of the above
Limited partners in venture capital investment funds typically receive ____ of the
profits.
A.20%
B.100%
C.50%
D.80%
Financial ratios are meaningless unless they are compared to a company standard or
historical or industry data.
Why does a stock repurchase improve the after-tax position of stockholders over cash
dividends?
A.The theoretical increase in value is taxed at the lower capital gains rate
B.Reduced shares outstanding increase earnings per share
C.Cash dividends are taxed as ordinary income
D.All of the above
The January upward stock movement effect is often linked to:
A.surprise earnings.
B.tax considerations.
C.early in the year enthusiasm.
D.the neglect effect.
The capital market line (CML) as defined by the capital asset pricing model is
characterized by all of the following except:
A.a straight line tangent to the efficient frontier.
B.a straight line which includes the rate of return on a risk-free asset.
C.a point on the efficient frontier above which higher returns can be generated by
borrowing funds without assuming more risk.
D.All of the above are characteristics of the capital market line
Deposits in an IRA are:
A.allowed to grow tax free until withdrawal.
B.deducted from current income tax due.
C.deducted from current income to reduce income tax due.
D.A and C
All equity investments in nonpublic companies is referred to as:
A.core-satellite strategy.
B.a hedge fund.
C.private equity.
D.None of the above
A type of index that weighs each company by its total market value as a percentage of
the total market value for all firms is:
A.an equal-weighted index.
B.a value-weighted index.
C.an equally-weighted index.
D.a price-weighted index.
Long-term capital gains treatment serves as encouragement for investors to buy:
A.high-yield stocks.
B.municipal bonds.
C.U.S. government bonds.
D.growth stocks.
From the investment banker’s point of view, the major reason syndicates are formed in
the distribution of large issues is for the purpose of:
A.improving the liquidity of the issue.
B.improving geographic distribution.
C.reducing the underwriter’s risk.
D.improving brand recognition.
The value of a bond may be expressed as the sum of:
A.the interest payments and the maturity value.
B.the present value of the par value and the present value of the sum of the interest
payments.
C.the present value of the maturity value and the sum of the present values of the
interest payments.
D.None of the above
An investor who wishes to take advantage of a current stock price, but does not expect
to have cash available until a specific date in the future, would probably use the
_________ strategy to invest in options.
A. hedging
B. leverage
C. guaranteed price
D. None of the above
Studies have shown that the best time to sell an unseasoned issue is:
A.prior to announcement of a merger.
B.shortly after the initial distribution.
C.after one year of trading.
D.More than one of the above
Corporate pension funds pose a threat to future earnings of the company because
A.the company is liable for all payments.
B.unfunded pensions will be paid from future earnings.
C.the firm may be unable to reinvest in new assets.
D.All of the above
Sector funds offer
A.good diversification.
B.high loss/reward potential.
C.stable returns.
D.None of the above
Which of the following is not one of the considerations in setting investment
objectives?
A.Risk versus safety of principal
B.Maximize wealth versus minimize expenses
C.Current income versus capital appreciation
D.Short-term versus long-term orientation
E.Taxes
The currency futures market is different than the other types of futures markets,
because:
A.the contracts are standardized.
B.the currency futures market provides a strong secondary market.
C.the currency market has communication networks throughout the world, whereas the
other ones do not.
D.A and B
One of the major criticisms of duration analysis is:
A.the difficulty of measuring the market rate of interest.
B.the assumption that long-term and short-term interest rates move by equal amounts.
C.the assumption that long-duration bonds are more price-sensitive than short-duration
bonds.
D.None of the above
When should an investor calculate both yield to maturity and yield to call?
A.Whenever there is a call provision
B.When the sum of the present values of the interest payments exceeds the call price
C.When the market price is greater than or equal to the call price
D.Whenever the funds can be reinvested
E.When interest rates increase above the coupon rate
What are buy-out funds?
A.A hedge fund that buys out overstocked inventory
B.A fund that purchases existing public companies or a division of a public company
that needs to be restructured
C.A fund which holds only money market securities
D.None of the above
The composite index of leading indicators, made up of ten leading indicators, has
historically
A.not always preceded changes in the business cycle.
B.given roughly the same notice at peaks as at troughs.
C.varied widely in its timing of notice at peaks and troughs.
D.More than one of the above
The basis of stock valuation includes an analysis of
A. economic variables.
B. industry variables.
C. financial statements.
D. All of the following
You would expect to find depreciation and amortized expenses in the statement of cash
flows under:
A.cash flows from operating activities.
B.cash flows from investing activities.
C.cash flows from financing activities.
D.cash flows from purchasing activities.
If inflation is higher than that expected at time of issue, inflation-indexed Treasury
securities:
A.provide a lower return than fixed-income securities.
B.provide a higher return than fixed-income securities.
C.do not adequately compensate the investor for loss of purchasing power.
D.may be called in by the government.
If the company’s profit margin is constant over time, the number of common shares
remains the same, and the dividend payout ratio stays the same, the price to sales ratio,
the price to earnings ratio and the price to book value ratio should:
A. provide similar valuations for the company’s stock value.
B. provide very different valuations for the company’s stock value.
C. not be related in any way.
D. None of the above are true
A terminal wealth table generates the ending value of the investment at the end of the
year, assuming that the bond:
A.has a maturity date corresponding to that year.
B.has a maturity date corresponding to the next year.
C.is a zero-coupon bond.
D.None of the above
Performance in the bond market is usually gauged by:
A.indexes and averages.
B.interest rate movements.
C.yield curve changes.
D.B and C
The No-Bias hedge fund strategy is to:
A.use multiple stocks to sell short or long.
B.pair two stocks in the same industry, sell one short and keep one long.
C.use no stocks, only CDs.
D.None of the above
Real assets in comparison to financial assets are more likely to produce:
A.superior returns.
B.high liquidity.
C.psychic pleasure.
D.deflationary benefits.
One way of calculating Ke is to use the Capital Asset Pricing model, as follows:
A. Ke = RF + (KM – RF)
B. Ke = RR + IP + ERP
C. Ke = RF + b(KM – RF)
D. Ke = D1/P0 + g
E. Ke = RF + b(KM)
A real estate loan that brings in a new lender is the:
A.adjustable rate mortgage.
B.graduate payment mortgage.
C.second mortgage.
D.None of the above