1) in the futures market the short position’s loss is ___________ the long position’s
gain.
a.greater than
b.less than
c.equal to
d.sometimes less than and sometimes greater than
2) on a particular day, there were 890 stocks that advanced on the nyse and 723 that
declined. the volume in advancing issues was 80,846,000, and the volume in declining
issues was 70,397,000. the common measure of market breadth is __________.
a.-10,449,000
b.-167
c.167
d.10,449,000
3) of the variables in the black-scholes opm, the __________ is not directly observable.
a.price of the underlying asset
b.risk-free rate of interest
c.time to expiration
d.variance of the underlying asset return
4) “active investment management may at times generate additional returns of about .
1%. however, the standard deviation of the typical well-diversified portfolio is about
20%, so it is very difficult to statistically identify any increase in performance.” even if
true, this statement is an example of the _________ problem in deciding how efficient
the markets are.
a.magnitude
b.selection bias
c.lucky event
d.allocation
5) malkiel and saha (2005) estimate that the survivorship bias for hedge funds equals
4.4%, which is __________ the survivorship bias for mutual funds.
a.about the same as
b.much lower than
c.much higher than
d.only slightly lower than
6) a convertible bond has a par value of $1,000, but its current market price is $975. the
current price of the issuing company’s stock is $26, and the conversion ratio is 34
shares. the bond’s market conversion value is _________.
a.$1,000
b.$884
c.$933
d.$980
7) which of the following provides the profit to a long position at contract maturity?
a.original futures price – spot price at maturity
b.spot price at maturity – original futures price
c.zero
d.basis
8) which one of the following is an example of “global” consumption smoothing?
a.borrowing to buy a car
b.borrowing to buy a home
c.saving to send children to college
d.saving during your working years for retirement
9) one of the main problems with the arbitrage pricing theory is __________.
a.its use of several factors instead of a single market index to explain the risk-return
relationship
b.the introduction of nonsystematic risk as a key factor in the risk-return relationship
c.that the apt requires an even larger number of unrealistic assumptions than does the
capm
d.the model fails to identify the key macroeconomic variables in the risk-return
relationship
10) the variation in the betas of emerging markets suggests that ____________.
a.emerging markets are more uniform than developed markets
b.beta does not hold in international markets
c.international diversification may reduce portfolio risk
d.riskier emerging markets have uniformly lower betas
11) if the maturity of a bank’s assets is much longer than the maturity of its liabilities
and it wants to limit its interest rate risk, the bank may _________.
a.prefer to invest in long-term bonds in its asset portfolio
b.prefer to invest in equities in its asset portfolio
c.prefer to invest in variable-rate assets
d.decide to increase its fixed-rate mortgage holdings
12) you have calculated the historical dollar-weighted return, annual geometric average
return, and annual arithmetic average return. you always reinvest your dividends and
interest earned on the portfolio. which method provides the best measure of the actual
average historical performance of the investments you have chosen?
a.dollar-weighted return
b.geometric average return
c.arithmetic average return
d.index return
13) the difference between balanced funds and asset allocation funds is that _____.
a.balanced funds invest in bonds while asset allocation funds do not
b.asset allocation funds invest in bonds while balanced funds do not
c.balanced funds have relatively stable proportions of stocks and bonds while the
proportions may vary dramatically for asset allocation funds
d.balanced funds make no capital gain distributions and asset allocation funds make
both dividend and capital gain distributions
14) if an individual confers legal title to property to another person or institution to
manage the property on their behalf, the individual has created ___________.
a.a personal trust
b.a charitable trust
c.an endowment fund
d.a mutual fund
15) an increase in a bond’s yield to maturity results in a price decline that is ________
the price increase resulting from a decrease in yield of equal magnitude.
a.greater than
b.equivalent to
c.smaller than
d.the answer cannot be determined.
16) which of the following statements best describes how firms respond to demand
shocks under conditions of inflexible prices?
a.firms respond to shorter term demand shocks by adjusting production levels; more
persistent changes in demand result in changes in inventories.
b.firms respond to shorter term demand shocks by adjusting inventories; more
persistent changes in demand result in changes in production levels.
c.firms are reluctant to adjust inventory levels because the costs are higher than
changing the quantity of output produced.
d. firms are quick to let go of workers when negative demand shocks occur.
17) _______ is a life insurance policy that will provide a death benefit only and has no
savings plan.
a.term life
b.whole life
c.variable life
d.universal life
18) an employee uses her firm’s 401k plan. if she decides to contribute $11,000 per year
and pays an effective tax rate for all items of 28%, what is the reduction in her
take-home pay each year?
a.$3,080
b.$4,210
c.$7,920
d.$11,000
19) a passive benchmark portfolio is:
i. a portfolio in which the asset allocation across broad asset classes is neutral and not
determined by forecasts of performance of the different asset classes
ii. one in which an indexed portfolio is held within each asset class
iii. often called the bogey
a.i only
b.i and iii only
c.ii and iii only
d.i, ii, and iii