Fin 77012

subject Type Homework Help
subject Pages 27
subject Words 5047
subject Authors Geoffrey Hirt, Stanley Block

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page-pf1
The quantity theory of money states that as the supply of money increases relative to
the demand for money, people will make adjustments in their portfolios of assets. First,
they will buy bonds, stocks, and then real assets.
Industry life cycles measure the growth path of an industry through five stages.
Movements between various real and monetary assets are less positively correlated than
those for monetary assets alone.
page-pf2
A call can be used to cover a long position against the risk of rising stock prices.
The negative impact of tax reform on real estate was partly associated with declining
economic conditions in various sections of the country during the late 1980s and early
1990s.
page-pf3
As of 2009, no-load funds made up close to 65% of all mutual fund assets.
Between 1977 and 2007, the U.S. government budget has showed a surplus in only a
few years.
The Standard & Poor's Indexes are price-weighted indexes.
page-pf4
If a stock price increased by 76.5% and the leverage for the option was calculated to be
1.5, the option price increased by 25.5%.
Hedging is the basic reason for the existence of the commodity exchanges.
The first step in the top-down approach to stock valuation is analyzing the position of
the industry in its life cycle.
page-pf5
It is normal to issue convertibles and not have their presence reflect dilution until they
are converted.
Floor brokers act as agents for clients and execute buy and sell orders on the floor of the
NYSE exchange.
Mutual funds are a form of direct equity claims.
page-pf6
As the yield spread between high and low rating categories increases, this indicates a
gain of confidence in the economy.
The NASDAQ stock market is a publicly traded corporation.
page-pf7
If the market price of a bond is less than the call price, yield to call is a reasonable
calculation for yield.
As a general rule, transaction costs are lower in foreign markets than in the United
States.
The beta coefficient indicates how volatile a stock is, relative to the market.
page-pf8
Point and figure charts emphasize significant price changes and price reversals.
Industry life cycles predict an industry's sensitivity to the economy.
page-pf9
Deep discount bonds are not prone to calls because they sell at low prices.
Duration is a useful number because it combines the effects of maturity, coupon, and
market rates to indicate how the price of the bond will change with a change in interest
rates.
The Dow Jones Industrial Average is not adjusted for stock splits.
page-pfa
A cross hedge uses the same form of security to hedge against potential rate changes,
even though there may be different maturity dates in the securities.
Stock prices plummet as industries move across the crossover point, because
price-earnings ratios collapse as analysts lower growth expectations.
page-pfb
The indexes of The New York Stock Exchange, American Exchange, and NASDAQ are
all price-weighted.
A call option with a speculative premium of $3 and a strike price of $55 with an
intrinsic value of $3 may be related to a stock that is selling for $58 per share.
Because of price movement limitations, the commodities market is not always in
equilibrium.
page-pfc
The market price of the bond will not go below the pure bond value regardless of what
happens to the price of the common stock.
Commodities can usually be purchased with a very small margin requirement.
page-pfd
Common stock is a good example of an investment that lacks liquidity.
The tax ratio for forest product companies may be low because of the tax treatment
given timber cuttings.
The first step in using the income-statement method of estimating earnings per share
(EPS) is to develop an accurate sales forecast.
page-pfe
On average, mutual funds tend to outperform the market over the long run.
Technical analysis assumes that many chart patterns tend to repeat themselves.
Harry Markowitz developed the theory that an efficient set of portfolios exists which
represent the maximum return possible for any given level of risk.
page-pff
Generally, foreign markets are more liquid and efficient than U.S. capital markets.
A warrant is an option to buy a bond at a specific price over a given period of time.
page-pf10
Corporate financial managers use interest rate futures to reduce the risk of loss from a
change in interest rates.
Which of the following is not one of the primary categories of commodities?
A.Food and fiber
B.Wood
C.Gemstones
D.All of the above are primary categories
The primary tools used to stimulate economic activity are:
A.international banking policies.
page-pf11
B.monetary and fiscal policies.
C.tax policy and interest rates.
D.imports and exports.
Which of the following statements is the most accurate concerning security returns over
the eight decades since the 1920s?
A.Returns on large common stocks were very stable.
B.Returns on long-term corporate bonds were very stable.
C.Returns on long-term government bonds were very stable.
D.Returns on treasury bills were very consistent from period to period.
E.All securities exhibited very unstable returns over the eight decades in question.
Economic analysis is important for investors, because they need to anticipate
page-pf12
A.changes in corporate profits due to business cycle impacts.
B.growth in various industry segments based on changing economic trends.
C.how foreign trade might affect U.S. companies.
D.All of the above
A firm has warrants outstanding for investors to purchase 50,000 shares at $25 per
share. The current stock price is $40. The firm has l million shares outstanding and
earnings per share of $1.50. What are earnings per share when all these warrants are
exercised?
A.$1.43
B.$1.47
C.$1.45
D.None of the above
page-pf13
The interest rate futures market includes all of the following except:
A.Treasury bonds, notes and bills.
B.Eurodollars.
C.GNMA certificates and bank CDs.
D.All of the above are traded in the interest rate futures market
When warrants are exercised, the company goes through an accounting process to
determine the new number of shares created. This process assumes that the company:
A.creates one new share for every warrant exercised.
B.reduces the number of shares created by the amount of shares that can be bought in
the market with the proceeds of the cash generated by the exercise of the warrants.
C.creates one new share in the ratio of the exercise price and the current stock price.
D.None of the above
page-pf14
The semi-strong form of the efficient market hypothesis says that investors are not able
to use _____________ information for their gain.
A.public
B.insider
C.charting
D.leading indicators
Major investors in municipal bonds include:
A.banks.
B.pension funds.
C.wealthy individuals.
D.A and C
page-pf15
The difference between a general obligation and a revenue bond is:
A.the general obligation bond is backed by the full faith, credit, and "taxing power" of
the governmental unit.
B.that for a revenue bond, the repayment of the issue is fully dependent on the
revenue-generating capability of a specific project or venture.
C.that general obligation bonds are usually of high quality because of the taxing power
behind most of them.
D.All of the above
The degree of association between the independent and dependant variables is
measured by:
page-pf16
A.the beta.
B.the standard deviation.
C.the coefficient of determination.
D.A and B
Mutual funds which provide tax-free income are ________ and certain types of
________________.
A.stock funds; bond funds
B.money market funds; balanced funds
C.municipal bond funds; money market funds
D.none of the above
page-pf17
In general, the speculative premiums (in percent) are higher for:
A. high-beta, low-dividend yield stocks.
B. low-beta, high-dividend yield stocks.
C. high-beta, high-dividend yield stocks.
D. low-beta, low-dividend yield stocks.
With a given size portfolio, the higher the portfolio beta,
A.the more likely the portfolio is to go up, rather than down.
B.the more likely the portfolio is to go down, rather than up.
C.the fewer contracts necessary to hedge the portfolio.
D.the more contracts necessary to hedge the portfolio.
Under dollar-cost averaging, the investor buys a:
page-pf18
A.fixed dollar's worth of a given security regardless of the security's price or the current
market outlook.
B.floating dollar's worth of a given security regardless of the security's price or the
current market outlook.
C.fixed dollar's worth of any security.
D.None of the above
Of the predictors of economic patterns and stock market movements, the best is:
A.the money supply.
B.the level of interest rates.
C.the ten leading indicators.
D.No one variable is best, as many as possible should be considered
page-pf19
Historically, the real rate of return in the U.S. economy has been:
A.1-2%.
B.2-3%.
C.3-4%.
D.4-5%.
E.5-6%.
A fund that always has a negative bias and can be 100% short or a blend of short and
long is:
A.a no-bias fund.
B.an event-driven fund.
C.a short-bias fund.
D.a long-bias fund.
page-pf1a
Under which of the following circumstances would terminal wealth analysis NOT be
relevant?
A.When the bond is sold prior to maturity
B.When market interest rates rise above the coupon rate
C.Terminal wealth analysis is ALWAYS relevant
D.None of the above
The investor can maximize risk reduction benefits by combining United States
securities with those of countries which are ________.
A.oil-exporting nations.
B.negatively or least positively correlated with the United States.
C.correlated with the United States.
D.None of the above
page-pf1b
The Securities Investor Protection Corporation (SIPC) was established to:
A.oversee the liquidation of brokerage firms, and insure an investor's accounts to a
maximum value of $500,000 in case of bankruptcy by the broker.
B.protect investors from corporate insider trading, and insure their accounts for
$500,000 in case corporate fraud caused a company to go bankrupt.
C.cover the total market loss on an investor's brokerage account in case of the
bankruptcy of the broker.
D.create an insurance pool for brokerage firms, so that if one firm went bankrupt, all
investor losses would be covered out of the insurance pool.
Short-term interest rates have _________ volatility in comparison to long-term interest
rates.
A.Much less
B.More
C.Equal
D.Slightly less
page-pf1c
The measure of performance defined as the difference between a fund's excess return
and a point on the market line corresponding to the fund's beta is called:
A.alpha.
B.average differential return.
C.the Jensen measure.
D.More than one of the above
The loss on option purchase is always:
A.limited to the premium paid.
B.limited to the margin maintenance requirement.
C.the difference between the strike price and the premium paid.
D.None of the above
page-pf1d
What would be the rate of return for a stock that increased in value from $60 per share
to $63 per share and paid a $3 dividend?
A.12%
B.11%
C.10%
D.1.5%
E.5%
One disadvantage of investing through mutual funds is
A.that they provide time savings.
B.that there are more than 8,100 to choose from.
C.the professional management.
D.too much diversification.
page-pf1e
The major exchange for warrants, options, and commodity futures is the:
A.American Stock Exchange.
B.New York Stock Exchange.
C.NASDAQ.
D.None of the above
The National Bureau of Economic Research publishes information about economic
indicators in its monthly Survey of Current Business. The most important indicators to
investors are the
A.leading indicators.
B.coincident indicators.
C.lagging indicators.
D.market indicators.
E.None of the above
page-pf1f
The financial futures market has evolved recently because of:
A.volatility and risk in the foreign exchange markets.
B.the volatility of interest rates.
C.appeal to speculators due to low margin requirements.
D.All of the above
Duration equals maturity if:
A.all cash flows are paid at the end of the year.
B.the coupon rate equals the market rate.
C.the bond is a zero-coupon bond.
page-pf20
D.More than one of the above
Multinational corporations are firms that:
A.are located in one country and invest in another.
B.operate in one country and export those goods to other countries.
C.operate in several countries.
D.have clients in several countries.
Which of the following is NOT a problem associated with proving the validity of the
security market line?
A.The appropriate risk-free and market rates
B.The additional return required for each additional increment of risk in the market
place
C.The stability of beta on an individual security over time
D.All of the above are associated problems
page-pf21
The second largest equity market in the world at the end of 2005 was that of:
A.Japan.
B.the United Kingdom.
C.the United States.
D.Germany.

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