Everything else equal, the __________ the maturity of a bond and the __________ the
coupon, the greater the sensitivity of the bond’s price to interest rate changes.
A. longer; higher
B. longer; lower
C. shorter; higher
D. shorter; lower
The return on the risky portfolio is 15%. The risk-free rate, as well as the investor’s
borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%.
If the standard deviation on the complete portfolio is 25%, the expected return on the
complete portfolio is _________.
A. 6%
B. 8.75 %
C. 10%
D. 16.25%
A preferred share of Coquihalla Corporation will pay a dividend of $8 in the upcoming
year and every year thereafter; that is, dividends are not expected to grow. You require a
return of 7% on this stock. Using the constant-growth DDM to calculate the intrinsic
value, a preferred share of Coquihalla Corporation is worth _________.
A. $13.50
B. $45.50
C. $91
D. $114.29
If the direct quote for the exchange rate for the U.S. dollar versus the Canadian dollar is
.98, what is the indirect quote?
A. 1.98
B. 1.02
C. .02
D. 1.05
Futures contracts have many advantages over forward contracts except that _________.
A. futures positions are easier to trade
B. futures contracts are tailored to the specific needs of the investor
C. futures trading preserves the anonymity of the participants
D. counterparty credit risk is not a concern on futures
Which type of insurance product allows policyholders to adjust their death benefit
according to their needs?
A. term
B. variable life
C. universal life
D. whole life
GDP refers to _________.
A. the amount of personal disposable income in the economy
B. the difference between government spending and government revenues
C. the total manufacturing output in the economy
D. the total production of goods and services in the economy
The breadth
on day 3 is
_______.
A. -70
B. 10
C. 90
D. 170
Among emerging countries the largest equity market in 2011 was located in
_____________.
A. China
B. India
C. Brazil
D. Russia
Rose Hill Trading Company is expected to have EPS in the upcoming year of $6. The
expected ROE is 18%. An appropriate required return on the stock is 14%. If the firm
has a plowback ratio of 70%, its intrinsic value should be _________.
A. $20.93
B. $69.77
C. $128.57
D. $150
On May 1, 200, Joe Hill is considering one of the following newly issued 10-year AAA
corporate bonds.
Suppose market interest rates decline by 100 basis points (i.e., 1%). The effect of this
decline would be ______.
A. the price of the Wildwood bond would decline by more than the price of the Asbury
bond
B. the price of the Wildwood bond would decline by less than the price of the Asbury
bond
C. the price of the Wildwood bond would increase by more than the price of the Asbury
bond
D. the price of the Wildwood bond would increase by less than the price of the Asbury
bond
The asset universe is the _____________________.
A. set of investments in which an investment company can legally invest
B. existing set of assets the investment company currently owns in one or more of its
portfolios
C. list of assets approved by the investment committee that may be placed into the
investment company’s portfolio
D. market portfolio of all available risky assets
Which one of the following is an example of “global” consumption smoothing?
A. borrowing to buy a car
B. borrowing to buy a home
C. saving to send children to college
D. saving during your working years for retirement
An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial
margin. The broker charges 6% on the margin loan and requires a 30% maintenance
margin. In 1 year the investor has interest payable and gets a margin call. At the time of
the margin call the stock’s price must have been ____.
A. $20
B. $29.77
C. $30.29
D. $32.45
A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the
bond matures in 16 years, it should sell for a price of
__________ today.
A. $458.11
B. $641.11
C. $89.11
D. $1,100.11
The free cash flow to the firm is reported as $205 million. The interest expense to the
firm is $22 million. If the tax rate is 35% and the net debt of the firm increased by $25
million, what is the approximate market value of the firm if the FCFE grows at 2% and
the cost of equity is 11%?
A. $2,168 billion
B. $2,445 billion
C. $2,565 billion
D. $2,998 billion
Which one of the following stocks represents industries with below-average sensitivity
to the state of the economy?
A. financials
B. technology
C. food and beverage
D. cyclicals
A high amount of short interest is typically considered as a __________ signal, and
contrarians may consider it as a _________ signal.
A. bearish; bullish
B. bullish; bearish
C. bearish; false
D. bullish; false
You purchase one MBI March 120 put contract for a put premium of $10. The
maximum profit that you could gain from this strategy is _________.
A. $120
B. $1,000
C. $11,000
D. $12,000
Problems with behavioral finance include:
I. The behavioralists tell us nothing about how to exploit any irrationality.
II. The implications of behavioral patterns are inconsistent from case to case, sometimes
suggesting overreaction, sometimes underreaction.
III. As with technical trading rules, behavioralists can always find some pattern in past
data that supports a behavioralist trait.
A. I only
B. II only
C. I and III only
D. I, II, and III
Identify the resistance-level stock price.
A. $40
B. $42
C. $44
D. $46
When the housing bubble burst in 2007, it set off the worst financial crisis _____.
A. in 25 years.
B. in 40 years.
C. in 50 years.
D. in 75 years.
Assume you purchased 500 shares of XYZ common stock on margin at $40 per share
from your broker. If the initial margin is 60%, the amount you borrowed from the
broker is _________.
A. $20,000
B. $12,000
C. $8,000
D. $15,000
Beta is a measure of ______________.
A. total risk
B. relative systematic risk
C. relative nonsystematic risk
D. relative business risk
The term latency refers to _____.
A. the lag between when an order is placed on the NYSE and when it is executed.
B. the amount of time it takes to accept, process, and deliver a trading order.
C. the time it takes to implement new rules and procedures for stock exchanges and
computer trading systems.
D. the lag between when an order is executed and when the investor takes possession of
the securities.
Depreciation expense is in what broad category of expenditures?
A. operating expenses
B. general and administrative expenses
C. debt interest expense
D. tax expenditures
EAFE stands for _______.
A. Equity and Foreign Exchange
B. Europe, Australasia, Far East
C. Europe, Asian, Foreign Exchange
D. Europe, American, Far East
Under a “passive core” portfolio management strategy, a manager would ___________.
A. index the entire portfolio
B. index part of the portfolio and actively manage the rest
C. delegate the management of core segments of the portfolio to other managers
D. actively manage the entire portfolio
You find that the TRIN ratio is up, the market breadth is down, and the market has
closed below its 50-day moving average. In total, how many bearish signs do you have?
A. 0
B. 1
C. 2
D. 3
The tax burden of the firm is .5, the interest burden is .55, the profit margin is .25, the
asset turnover is 1.5, and the leverage ratio is 1.65. What is the ROE of the firm?
A. 1.88%
B. 6.68%
C. 12.15%
D. 17.02%
A company with an expected earnings growth rate which is greater than that of the
typical company in the same industry most likely has _________________.
A. a dividend yield which is greater than that of the typical company
B. a dividend yield which is less than that of the typical company
C. less risk than the typical company
D. less sensitivity to market trends than the typical company
Your sister, an avid outdoors person, works in the airline industry, and she has come to
you (the financial guru) for investment advice. She is looking into purchasing stocks
she knows something about. She is considering purchasing stock in Boeing, Lockheed
Martin, United Technologies (maker of aircraft engines), and Cabela’s Sporting Goods.
Based only on the information given, which stock should you recommend for her?
A. Boeing
B. Lockheed Martin
C. United Technologies
D. Cabela’s
The Black-Scholes hedge ratio for a long put option is equal to __________.
A.
N(d1)
B.
N(d2)
C.
N(d1) – 1
D.
Venture capital is _________.
A. frequently used to expand the businesses of well-established companies
B. supplied by venture capital funds and individuals to start-up companies
C. illegal under current U.S. laws
D. most frequently issued with the help of investment bankers
The rate of return on _____ is known at the beginning of the holding period, while the
rate of return on ____ is not known until the end of the holding period.
A. risky assets; Treasury bills
B. Treasury bills; risky assets
C. excess returns; risky assets
D. index assets; bonds