Which of the following statements are true as applied to U.S. agency debt?
I. It is equally as risky as Treasury debt.
II. It is frequently subject to state taxes.
III. It has the same credit guarantee as U.S. Treasury debt.
IV. It generally has a lower yield than U.S. Treasury debt with the same maturity.
A. II only
B. III only
C. I and III only
D. III and IV only
E. I, III, and IV only
Which one of the following measures risk premium in relation to systematic risk?
A. Value at Risk
B. Jensen’s alpha
C. beta
D. Sharpe ratio
E. Treynor ratio
The High Yield Money Market Fund returned 5.20 percent for the last year. Currently,
you own 9,134 shares of this fund. If you invested in this fund one year ago, what was
the amount of your original investment?
A. $8,350.00
B. $8,402.38
C. $8,682.51
D. $8,750.00
E. $9,650.03
Shane purchased a stock this morning at a cost of $13 a share. He expects to receive an
annual dividend of $.27 a share next year. What will the price of the stock have to be
one year from today if Shane is to earn a 8 percent rate of return on this investment?
A. $12.38
B. $12.60
C. $12.88
D. $13.77
E. $14.28
You own a stock which is expected to return 14 percent in a booming economy and 9
percent in a normal economy. If the probability of a booming economy decreases, your
expected return will:
A. decrease.
B. either remain constant or decrease.
C. remain constant.
D. increase.
E. either remain constant or increase.
Which of the following is NOT considered a leading economic indicator?
A. stock prices
B. M2 money supply
C. industrial production
D. interest rate spread
E. consumer expectations index
All else constant, which one of the following situations will produce the highest call
price given a strike price of $27.50?
A. $25 stock price; 15 percent standard deviation
B. $25 stock price; 30 percent standard deviation
C. $30 stock price; 15 percent standard deviation
D. $30 stock price; 30 percent standard deviation
E. Insufficient information is provided to answer this question.
What are the two best reasons for considering a load fund?
A. lack of good no-load funds and superior market performance
B. preference for a particular fund manager or a specialized type of fund
C. superior market performance and preferential tax treatment
D. tax-free income and superior fund managers
E. no management fees and a particular fund manager
FHLMC and FNMA are government-sponsored enterprises charged with which one of
the following duties?
A. providing home mortgages directly to homeowners
B. purchasing only defaulted mortgages from banking institutions
C. guaranteeing mortgages with the full faith and credit of the U.S. government
D. providing guarantees equal to GNMA’s to the home mortgage market
E. promoting liquidity in the home mortgage market
A bond has a conversion ratio of 24 and a market price of $1,080. If the par value is
$1,000, what is the conversion price?
A. $40.00
B. $41.67
C. $42.60
D. $43.20
E. $43.80
Elise just sold a stock and realized a 6.2 percent return for a 4-month holding period.
What was her annualized rate of return?
A. 11.98 percent
B. 14.78 percent
C. 19.78 percent
D. 21.29 percent
E. 27.20 percent
A portfolio has a 2.5 percent chance of losing 16 percent or more according to the VaR
when T = 1. This can be interpreted to mean that the portfolio is expected to have an
annual loss of 16 percent or more once in every how many years?
A. 1.0
B. 2.5
C. 25
D. 40
E. 100
The price of a bond decreased by 1.45 percent in response to an increase in the yield to
maturity from 7.2 to 7.6 percent. What is the bond’s Macaulay duration?
A. 3.39 years
B. 3.76 years
C. 3.92 years
D. 4.04 years
E. 4.16 years
The U.S. Treasury bill is yielding 2.25 percent and the market has an expected return of
9.8 percent. What is the Sharpe ratio of a portfolio that has a beta of 1.32 and a variance
of .027556?
A. .55
B. .60
C. .69
D. .74
E. .82
A decrease in which one of the following will increase the gross margin?
A. taxes
B. sales
C. depreciation
D. variable costs
E. fixed costs
An investor who accepts the risk of a loss in exchange for the chance to earn a profit is
referred to as which one of the following?
A. hedger
B. short seller
C. speculator
D. broker
E. dealer
At what price will a dealer sell the Jun $34 put on General Electric stock?
A. $1.64
B. $1.73
C. $1.77
D. $2.52
E. $2.56
A stock was purchased for $51 a share and sold eleven months later for $54 a share. If
the shares were purchased totally with cash the holding period return would be _____
percent as compared to _____ percent if the purchase was made using 70 percent
margin. Ignore trading costs and margin interest.
A. 5.56; 3.89
B. 5.56; 7.94
C. 5.88; 4.12
D. 5.88; 6.69
E. 5.88; 8.40
Interest-only strips are securities that do which one of the following?
A. pay interest only at maturity
B. pay only the interest cash flows to investors
C. pay interest over the life of the security and the entire principal at maturity
D. pay interest only when requested by the holder with all remaining amounts paid at
maturity
E. pay interest monthly and principal quarterly
Based on the dividend discount model, an increase in which of the following will lower
the current value of a stock?
I. amount of the next dividend
II. dividend growth rate
III. discount rate
A. I only
B. III only
C. I and II only
D. II and III only
E. I, II, and III
The price-book ratio is computed as the market value per share divided by the per share
book value of:
A. total assets.
B. long-term debt.
C. equity.
D. long-term debt plus equity.
E. net working capital.
Which of the following features would you expect a plain vanilla bond to have?
I. semi-annual coupon payments
II. $1,000 face value
III. stated maturity date
IV. multiple bonds within one issue
A. I and II only
B. II and III only
C. II, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
Futures contracts:
A. require payment in full at the time the contract is written.
B. can be resold.
C. establish the quantity to be exchanged but not the date of the exchange.
D. establish both the quantity to be exchanged and the exchange date but not the price.
E. are primary financial assets.
You are considering buying shares of stock in the Steel Mill. The forecast for the firm is
steady growth over the next decade. The firm just paid its annual dividend of $1.42 per
share and has plans to increase that amount by 4 percent annually indefinitely. You
require a 12.5 percent return on this type of security. What is your estimate of the value
of this stock ten years from now?
A. $24.13
B. $24.38
C. $24.73
D. $25.06
E. $25.72
The spot price on orange juice is 121.55 cents per pound. The futures price is 124.30.
The basis is _____ and the market is a(n) _____ market.
A. -2.75; carrying-charge
B. -2.75; inverted
C. 1.75; inverted
D. 2.75; carrying-charge
E. 2.75; inverted
The Stable Utility Fund has an offering price of $54.11 and an NAV of $52.48. What is
the front-end load percentage?
A. 3.0 percent
B. 3.1 percent
C. 3.5 percent
D. 3.8 percent
E. 4.0 percent
You want to earn a real rate of return of 3.64 percent at a time when the inflation rate is
2.84 percent. What is the approximate nominal rate which you must earn?
A. 6.48 percent
B. 6.66 percent
C. 6.68 percent
D. 6.74 percent
E. 6.81 percent
The Blue Star Fund has assets with a market value of $10.6 million and liabilities of
$607,000.
What is the net asset value if there are 185,000 shares outstanding?
A. $54.02
B. $55.00
C. $56.67
D. $57.18
E. $58.25
You purchased a stock for $18.45 a share using 70 percent margin. You sold the stock
seven months later for $19.85 a share. You did not receive any dividend income. What
was your holding period percentage return on this investment? Ignore trading costs and
margin interest.
A. 8.77 percent
B. 9.12 percent
C. 10.84 percent
D. 11.75 percent
E. 12.13 percent
Which index measures the average prices paid by urban consumers for a basket of
consumer goods and services?
A. Urban Inflation Index (UII)
B. Price Inflation Index (PII)
C. Urban Consumer Index (UCI)
D. Consumer Inflation Index (CII)
E. Consumer Price Index (CPI)
One year ago, you purchased 100 shares of Southern Foods common stock for $42.20 a
share.
Today, you sold your shares for $39.70 a share. During this past year, the stock paid
$1.40 in dividends per share. What is your dividend yield on this investment?
A. 3.32 percent
B. 3.37 percent
C. 3.44 percent
D. 3.53 percent
E. 3.61 percent
You purchase 500 shares of stock on margin at a cost per share of $22. The initial
margin requirement is 60 percent. The effective interest rate on the margin loan is 6.4
percent. How much interest will you pay if you repay the loan in four months?
A. $68.77
B. $91.93
C. $102.16
D. $112.38
E. $117.04
Money market mutual funds:
A. must be valued at $1 a share or more.
B. invest only in certificates of deposit.
C. produce income that is always tax-exempt.
D. can provide “triple-tax-free” income.
E. are insured by the FDIC.
Which combination of bond characteristics causes a bond to be most sensitive to
changes in market interest rates?
I. low coupon rates
II. high coupon rates
III. short time to maturity
IV. long time to maturity
A. III only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
Blume’s formula is used to:
A. predict future rates of return.
B. convert an arithmetic average return into a geometric average return.
C. convert a geometric average return into an arithmetic average return.
D. measure past performance in a consistent manner.
E. compute the historical mean return over a multi-year period of time.