For the period 1926-2012, long-term government bonds had an average return that
______ the average return on long-term corporate bonds while having a standard
deviation that _______ the standard deviation of the long-term corporate bonds.
A. exceeded; was less than
B. exceeded; equaled
C. exceeded; exceeded
D. was less than; exceeded
E. was less than; was less than
The interest rate the Federal Reserve charges its member banks on loans is called:
A. Fed Funds Rate
B. Federal Reserve Rate
C. Discount Rate
D. Federal Loan Rate
E. Reserve Loan Rate
Which one of the following statements is correct?
A. All real interest rates will be positive as long as the inflation rate is positive.
B. Real rates must exceed inflation rates.
C. Short-term interest rates are affected by future inflation expectations.
D. Treasury bill returns tend to vary in direct relation to inflation rates.
E. The Fisher hypothesis advocates that real interest rates follow inflation rates.
Which one of the following is a common characteristic of a closed-end fund but not of
an open-end fund?
A. professional management
B. annual fees
C. stated objective
D. discounted price
E. taxable distributions
A firm has net sales of $35,000, operating expenses of $6,100, depreciation of $1,700,
and cost of goods sold of $18,300. What is the gross margin?
A. 31.1 percent
B. 35.4 percent
C. 47.7 percent
D. 52.9 percent
E. 59.2 percent
Rosita owns a stock with an overall expected return of 14.40 percent. The economy is
expected to either boom or be normal. There is a 52 percent chance the economy will
boom. If the economy booms, this stock is expected to return 15 percent. What is the
expected return on the stock if the economy is normal?
A. 12.00 percent
B. 12.83 percent
C. 13.15 percent
D. 13.75 percent
E. 14.40 percent
The 47.50 put on a stock is trading at 1.32 bid and 1.37 ask. To buy one option contract,
you must pay _____ at the time the contract is purchased.
A. $1.32
B. $132.00
C. $137.00
D. $4,613.00
E. $4,882.00
The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a
modified duration of 10.8. If the yield to maturity instantly decreased to 7.5 percent, the
bond’s price would increase/decrease by _____ percent.
A. -10.08
B. -9.67
C. 8.45
D. 9.72
E. 10.08
Roger has a portfolio comprised of $8,000 of stock A and $12,000 of stock B. What is
the standard deviation of this portfolio?
A. 4.67 percent
B. 9.97 percent
C. 7.23 percent
D. 8.83 percent
E. 10.42 percent
A portfolio has an average return of 9.7 percent, a standard deviation of 8.6 percent, and
a beta of .72. The risk-free rate is 2.1 percent. What is the Treynor ratio?
A. .098
B. .106
C. .121
D. .636
E. .884
A portfolio has an expected return of 13.8 percent, a beta of 1.14, and a standard
deviation of 12.7 percent. The U.S. Treasury bill rate is 3.2 percent. What is the Treynor
ratio?
A. .093
B. .138
C. .146
D. .835
E. .951
A security originally sold by a business or government to raise money is called a(n):
A. derivative.
B. primary asset.
C. primary debt.
D. futures contract.
E. option contract.
Which one of the following statements concerning the NYSE is correct?
A. The NYSE was created based on the Walnut Tree Agreement.
B. The average daily trading volume on the NYSE in 2007 was approximately one
billion shares.
C. The NYSE and NASDAQ merged in 2007.
D. The NYSE is part of a firm that also operates a stock exchange in Amsterdam.
E. The NYSE merged with NASDAQ in 2007.
A stock with a current price of $18 will either move up by a factor of 1.2 or down by a
factor of .9 each period over the next two periods. The risk-free rate of interest is 4.5
percent. What is the current value of a call option with a strike price of $20?
A. $1.02
B. $1.08
C. $1.17
D. $1.21
E. $1.27
Which one of the following statements is correct in relation to a security that has a
negative Jensen’s alpha?
A. The security is overpriced and will plot below the security market line.
B. The security is overpriced and will plot above the security market line.
C. The security is underpriced and will plot below the security market line.
D. The security is underpriced and will plot above the security market line.
E. The security is incorrectly priced but you cannot tell if it is underpriced or overpriced
based on the information provided.
You purchased two futures contracts on soybeans at a price quote of 1344″0. The initial
margin requirement is $4,750 per contract and the maintenance margin is $3,500 per
contract. The contract quantity is 5,000 bushels and the price quote is in cents per
bushel. What is the lowest the price quote can go before you receive a margin call?
A. 1314″0
B. 1315″0
C. 1319″0
D. 1322″0
E. 1325″0
You have a portfolio which is comprised of 20 percent of stock A and 80 percent of
stock B. What is the portfolio standard deviation?
A. 4.00 percent
B. 5.56 percent
C. 6.07 percent
D. 6.82 percent
E. 7.47 percent
The geometric return on an investment is approximately equal to the arithmetic return:
A. plus half the standard deviation.
B. plus half the variance.
C. minus half the standard deviation.
D. minus half the variance.
E. divided by two.
You purchased four call option contracts with a strike price of $40 and an option
premium of $1.25.
You closed your contract on the expiration date when the stock was selling for $42.50 a
share. What is your total profit or loss on your option position?
A. -$50
B. -$10
C. $135
D. $385
E. $500
A stock with a current price of $25 will either move up to $32 or down to $20 over the
next period. The risk-free rate of interest is 3.5 percent. What is the value of a call
option with a strike price of $30?
A. $0.61
B. $0.72
C. $0.93
D. $1.11
E. $1.36
You recently purchased 900 shares of Western Timber stock for $38 a share. Your
broker required a cash payment of $25,650, plus trading costs, for this purchase. What
was the initial margin requirement?
A. 60 percent
B. 65 percent
C. 70 percent
D. 75 percent
E. 80 percent
Which one of the following will increase the slope of the security market line? Assume
all else constant.
A. increasing the beta of an efficiently-priced portfolio
B. increasing the risk-free rate
C. increasing the market risk premium
D. decreasing the market rate of return
E. replacing a low-beta stock with a high-beta stock within a portfolio
You own a bond that pays semiannual interest payments of $38. The bond is callable in
2 years at a premium of $76. What is the callable bond price if the yield to call is 7.9
percent?
A. $995.46
B. $1,016.86
C. $1,059.64
D. $1,124.87
E. $1,220.87
The average risk premium on long-term corporate bonds for the period 1926-2012 was:
A. 2.4 percent.
B. 2.9 percent.
C. 3.3 percent.
D. 3.7 percent.
E. 3.9 percent.
You are currently borrowing $175,000 to buy a house. The mortgage is for 15 years at 6
percent. How much would you save each month if you could finance this amount at 5
percent for the same time period?
A. $84.37
B. $86.27
C. $88.95
D. $90.24
E. $92.86
A bond has a face value of $1,000 and a call price of $1,030. The bond is callable in 3.5
years and pays a 5 percent, semi-annual coupon. What is the current price if the yield to
call is 6 percent?
A. $912.36
B. $927.19
C. $966.25
D. $993.24
E. $1,009.01
A hedge fund:
A. may charge relatively high fees.
B. must be registered if there are ten or more investors.
C. is generally structured as a corporation.
D. is limited to $1 million in assets.
E. is fairly complicated to legally establish.
An order book displays the following information:
You place a market order to buy 100 shares. At what price will your order be executed?
A. $18.13
B. $18.14
C. $18.16
D. $18.17
E. $18.18
You own 4,800 shares of a stock that is currently priced at $34 a share. Given this price,
the option delta for a $30 call option on this stock is .955. How many $30 call option
contracts do you need to hedge against a -$1 change in the price of the stock?
A. buy 50 option contracts
B. buy 503 option contracts
C. write 50 option contracts
D. write 503 option contracts
E. write 5,026 option contracts
Use the following wheat futures quotes to answer this question.
What price would you have paid today per bushel for the Mar 08 wheat futures contract
if you bought the contract at the final price of the day?
A. $10.8010
B. $10.8025
C. $10.9320
D. $10.9325
E. $11.0960
An option that would NOT yield a positive payoff if exercised today is referred to by
which one of the following terms?
A. hollow option
B. zero option
C. in-the-cellar option
D. out-of-the-money option
E. strike-out
Technical analysis is the study of which one of the following as the basis for trading?
A. systematic risk
B. historical prices
C. dividend growth
D. financial statements
E. investor’s required return
You purchased five August 13 futures contracts on soybeans at a price quote of 1056″6.
Each contract is for 5,000 bushels with the price quoted in cents and 1/8 ths of a cent
per bushel. Assume the contract price is 1061″4 when you close out your contract six
weeks from now. What will be your total profit or loss on this investment?
A. $950.25
B. $1,187.50
C. $6,480.75
D. $16,200.50
E. $24,000.00
Which one of the following risks is related to irrational beliefs?
A. systematic
B. firm-specific
C. industry-specific
D. sentiment-based
E. market
What is the maximum percentage loss you can incur if you buy a put option?
A. 0%
B. 10%
C. 100%
D. 1,000%
E. unlimited percentage