Which one of the following is largely based on forecasts of macroeconomic factors?
A. security selection
B. passive investing
C. market efficiency
D. market timing
During a period when prices have been rising, the _________ will be _______ the
current price.
A. relative strength index; declining with
B. relative strength index; declining faster than
C. moving average; above
D. moving average; below
A firm is planning on paying its first dividend of $2 three years from today. After that,
dividends are expected to grow at 6% per year indefinitely. The stock’s required return
is 14%. What is the intrinsic value of a share today?
A. $25
B. $16.87
C. $19.24
D. $20.99
A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is
_________.
A. 2.88
B. 2
C. 1.75
D. .69
The over-the-counter securities market is a good example of _________.
A. an auction market
B. a brokered market
C. a dealer market
D. a direct search market
You invest $10,000 in a complete portfolio. The complete portfolio is composed of a
risky asset with an expected rate of return of 15% and a standard deviation of 21% and
a Treasury bill with a rate of return of 5%. How much money should be invested in the
risky asset to form a portfolio with an expected return of 11%?
A. $6,000
B. $4,000
C. $7,000
D. $3,000
WEBS are ____________________.
A. investments in country-specific portfolios
B. traded exactly like mutual funds
C. identical to ADRs
D. designed to give investors foreign currency exposure to multiple countries
According to multiple studies by Ritter, initial public offerings tend to exhibit
__________ performance initially and __________
performance over the long term.
A. bad; good
B. bad; bad
C. good; good
D. good; bad
You are considering investing in a no-load mutual fund with an annual expense ratio
of .6% and an annual 12b-1 fee of .75%. You could also invest in a bank CD paying
6.5% per year. What minimum annual rate of return must the fund earn to make you
better off in the fund than in the CD?
A. 7.1%
B. 7.45%
C. 7.25%
D. 7.85%
Banks and other financial institutions can best manage interest rate risk by
_____________.
A. maximizing the duration of assets and minimizing the duration of liabilities
B. minimizing the duration of assets and maximizing the duration of liabilities
C. matching the durations of their assets and liabilities
D. matching the maturities of their assets and liabilities
Which country experienced the largest-ever sovereign default in 2012?
A. Germany
B. Ireland
C. Greece
D. Portugal
Which one of the following best describes fundamental risk?
A. A stock is overpriced, but your fund does not allow you to engage in short sales.
B. Your models indicate a stock is mispriced, but you are not sure if this is a real profit
opportunity or a model input error.
C. You buy a stock that you believe is underpriced, and the underpricing persists for a
long time, hurting your short-term results.
D. A stock is trading in two different markets at two different prices.
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 30%. If the
economy is strong, the firm will sell 2,000,000 gadgets. If the economy enters a
recession, the firm will sell only half as many gadgets. If the economy is strong, the
after-tax profit of firm B will be _________.
A. $90,000
B. $210,000
C. $300,000
D. $630,000
According the Financial Accounting Standards Board’s Statement No. 157 on fair value
accounting, Level 3 assets __________.
A. must be reduced to book value
B. must be compared to market valuations
C. are hardest to value
D. are easiest to value
Bill Jones inherited 5,000 shares of stock priced at $45 per share. He does not want to
sell the stock this year due to tax reasons, but he is concerned that the stock will drop in
value before year-end. Bill wants to use a collar to ensure that he minimizes his risk and
doesn’t incur too much cost in deferring the gain. January call options with a strike of
$50 are quoted at a cost of $2, and January puts with a $40 exercise price are quoted at
a cost of $3. If Bill establishes the collar and the stock price winds up at $35 in January,
Bill’s net position value including the option profit or loss and the stock is _________.
A. $195,000
B. $220,000
C. $175,000
D. $215,000
Caribou Gold Mining Corporation is expected to pay a dividend of $6 in the upcoming
year. Dividends are expected to decline at the rate of 3% per year. The risk-free rate of
return is 5%, and the expected return on the market portfolio is 13%. The stock of
Caribou Gold Mining Corporation has a beta of .5. Using the constant-growth DDM,
the intrinsic value of the stock is _________.
A. $50
B. $100
C. $150
D. $200
Ownership of a call option entitles the owner to the __________ to __________ a
specific stock, on or before a specific date, at a specific price.
A. right; buy
B. right; sell
C. obligation; buy
D. obligation; sell
An investor establishes a long position in a futures contract now (time 0) and holds the
position until maturity (time T). The sum of all daily settlements will be __________.
A. F0–FT
B. F0–S0
C. FT–F0
D. FT–S0
Hedge ratios for long puts are always __________.
A. between -1 and 0
B. between 0 and 1
C. 1
D. greater than 1
The risk-free rate, average returns, standard deviations, and betas for three funds and
the S&P 500 are given below.
If these
portfolios are
subcomponents
that make up
part of a
well-diversified portfolio, then portfolio ______ is preferred.
A. A
B. B
C. C
D. S&P 500
A security’s beta coefficient will be negative if ____________.
A. its returns are negatively correlated with market-index returns
B. its returns are positively correlated with market-index returns
C. its stock price has historically been very stable
D. market demand for the firm’s shares is very low
You want to earn a return of 11% on each of two stocks, A and B. Stock A is expected to
pay a dividend of $3 in the upcoming year, while stock B is expected to pay a dividend
of $2 in the upcoming year. The expected growth rate of dividends for both stocks is
4%. Using the constant-growth DDM, the intrinsic value of stock A _________.
A. will be higher than the intrinsic value of stock B
B. will be the same as the intrinsic value of stock B
C. will be less than the intrinsic value of stock B
D. The answer cannot be determined from the information given.
The Hang Seng index reflects market performance on which of the following major
stock markets?
A. Japan
B. Singapore
C. Taiwan
D. Hong Kong
Sanders, Inc., paid a $4 dividend per share last year and is expected to continue to pay
out 60% of its earnings as dividends for the foreseeable future. If the firm is expected to
generate a 13% return on equity in the future, and if you require a 15% return on the
stock, the value of the stock is _________.
A. $26.67
B. $35.19
C. $42.94
D. $59.89
Rank the following fund categories from most risky to least risky:
I. Equity growth fund
II. Balanced fund
III. Sector fund
IV. Money market fund
A. IV, I, III, II
B. III, II, IV, I
C. I, II, III, IV
D. III, I, II, IV
When matching orders from the public, a specialist is required to use the _______.
A. lowest outstanding bid price and highest outstanding ask price
B. highest outstanding bid price and highest outstanding ask price
C. lowest outstanding bid price and lowest outstanding ask price
D. highest outstanding bid price and lowest outstanding ask price
The use of a Roth IRA versus a traditional IRA will allow you to ______________.
A. retire with less money in your savings account
B. select more sophisticated investments
C. avoid relying as much upon social security
D. protect your spouse from a decline in income upon death
An example of a neutral pure play is _______.
A. pairs trading
B. statistical arbitrage
C. convergence arbitrage
D. directional strategy
_______ have become the main way for investors to speculate in precious metals.
A. Strategic income funds
B. Balanced funds
C. Specialized-sector funds
D. Exchange-traded funds
The constant-growth dividend discount model (DDM) can be used only when the
___________.
A. growth rate is less than or equal to the required return
B. growth rate is greater than or equal to the required return
C. growth rate is less than the required return
D. growth rate is greater than the required return
The market value of all final goods and services produced during a given time period is
called ______.
A. GDP
B. industrial production
C. capacity utilization
D. factory orders
Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B
has an expected return of 20% and a reward-to-variability ratio of .3. A risk-averse
investor would prefer a portfolio using the risk-free asset and ______.
A. asset A
B. asset B
C. no risky asset
D. The answer cannot be determined from the data given.
Which of the following would not be considered a supply shock?
A. a change in the price of imported oil
B. frost damage to the orange crop
C. a change in the level of education of the average worker
D. an increase in the level of government spending
Synthetic stock positions are commonly used by ______ because of their ______.
A. market timers; lower transaction cost
B. banks; lower risk
C. wealthy investors; tax treatment
D. money market funds; limited exposure