One extensive study found that about ______ of financial managers use CAPM to
estimate cost of capital.
A. one-third
B. one-half
C. three quarters
D. ninety percent
The bid-ask spread exists because of _______________.
A. market inefficiencies
B. discontinuities in the markets
C. the need for dealers to cover expenses and make a profit
D. lack of trading in thin markets
Compute the modified duration of a 9% coupon, 3-year corporate bond with a yield to
maturity of 12%.
A. 2.45
B. 2.75
C. 2.88
D. 3
The ___________ is the document that defines the contract between the bond issuer and
the bondholder.
A. indenture
B. covenant agreement
C. trustee agreement
D. collateral statement
Which one of the following refers to the daily settlement of obligations on future
positions?
A. marking to market
B. the convergence property
C. the open interest
D. the triple witching hour
Relative strength is ______ indicator.
A. a fundamental
B. an economic
C. a technical
D. an international
If all investors become more risk averse, the SML will _______________ and stock
prices will _______________.
A. shift upward; rise
B. shift downward; fall
C. have the same intercept with a steeper slope; fall
D. have the same intercept with a flatter slope; rise
According to the Flow of Funds Accounts of the United States, the largest liability of
U.S. households is ________.
A. mortgages
B. consumer credit
C. bank loans
D. gambling debts
Consider the theory of active portfolio management. Stocks A and B have the same beta
and the same positive alpha. Stock A has higher nonsystematic risk than stock B. You
should want __________ in your active portfolio.
A. equal proportions of stocks A and B
B. more of stock A than stock B
C. more of stock B than stock A
D. The answer cannot be determined from the information given.
The price of a stock is $55 at the beginning of the year and $50 at the end of the year. If
the stock paid a $3 dividend and inflation was 3%, what is the real holding-period
return for the year?
A. -3.64%
B. -6.36%
C. -6.44%
D. -11.74%
A bank has made long-term fixed-rate mortgages and has financed them with short-term
deposits. To hedge out its interest rate risk, the bank could ________.
A. sell T-bond futures
B. buy T-bond futures
C. buy stock-index futures
D. sell stock-index futures
The yield curve spread between the 10-year T-bond yield and the federal funds rate is a
_______ economic indicator.
A. leading
B. lagging
C. coincident
D. mixed
The reward-to-volatility ratio is given by _________.
A. the slope of the capital allocation line
B. the second derivative of the capital allocation line
C. the point at which the second derivative of the investor’s indifference curve reaches
zero
D. the portfolio’s excess return
At contract maturity the value of a call option is ___________, where X equals the
option’s strike price and ST is the stock price at contract expiration.
A. max (0, ST – X)
B. min (0, ST – X)
C. max (0, X – ST)
D. min (0, X – ST)
The beta of this
stock is ____.
A. .12
B. .35
C. 1.32
D. 4.05
Firm B produces gadgets. The price of gadgets is $2 each. Firm B has total fixed costs
of $300,000 and variable costs of $1.40 per gadget. The corporate tax rate is 40%. What
is the breakeven number of gadgets B must sell to make a zero after-tax profit?
A. 300,000
B. 400,000
C. 500,000
D. 600,000
Inclusion of international equities in a U.S. investor’s portfolio has historically produced
___________________.
A. a substantially reduced portfolio variance
B. a slightly reduced portfolio variance
C. a substantially poorer portfolio variance
D. a slightly poorer portfolio variance
Investor A bought a call option, and investor B bought a put option. All else equal, if the
interest rate increases, the value of investor A’s position will ______ and the value of
investor B’s position will _______.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
The clearing corporation has a net position equal to ______.
A. the open interest
B. the open interest times 2
C. the open interest divided by 2
D. zero
The current stock price of Alcoco is $70, and the stock does not pay dividends. The
instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of
Alcoco’s stock is 40%. You want to purchase a put option on this stock with an exercise
price of $75 and an expiration date 30 days from now. According to the Black-Scholes
OPM, you should hold
__________ shares of stock per 100 put options to hedge your risk.
A. 30
B. 34
C. 69
D. 74
Low-load mutual funds have front-end loads of no more than _____.
A. 2%
B. 3%
C. 4%
D. 5%
The average duration of unemployment is _________.
A. a leading economic indicator
B. a coincidental economic indicator
C. a lagging economic indicator
D. both a coincidental indicator and a lagging indicator
On a particular day, there were 920 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 trin ratio is __________, and technical analysts are likely to
be __________.
A. .90; bullish
B. .90; bearish
C. 1.11; bullish
D. 1.11; bearish
In securities markets, there should be a risk-return trade-off with higher-risk assets
having _________ expected returns than lower-risk assets.
A. higher
B. lower
C. the same
D. The answer cannot be determined from the information given.
According to __________ economists, the growth of the U.S. economy in the 1980s
can be attributed to lower marginal tax rates, which improved the incentives for people
to work.
A. Keynesian
B. monetarist
C. supply-side
D. demand-side
A convertible bond has a par value of $1,000, but its current market price is $950. The
current price of the issuing company’s stock is $19, and the conversion ratio is 40
shares. The bond’s conversion premium is _________.
A. $50
B. $190
C. $200
D. $240
The TRIN statistic is a ______ indicator.
A. sentiment
B. flow of funds
C. market structure
D. fundamental
Endowment funds are held by __________.
A. financial intermediaries
B. individuals
C. profit-oriented firms
D. nonprofit institutions
The rate of interest on short-term loans among financial institutions is _____.
A. bankers’ acceptances
B. brokers’ calls
C. federal funds
D. LIBOR