Sugar is currently selling for $0.201 a pound while the 6-month futures price is $0.208.
You take a long position in the 6-month sugar futures. Which one of the following
prices would cause you the greatest loss if that price turns out to be the actual price of
sugar per pound 6 months from now?
A. $0.198
B. $0.201
C. $0.205
D. $0.208
E. $0.211
Which one of the following statements applies to a par value bond?
A. The current yield is less than the coupon rate.
B. The yield-to-maturity equals the risk-free, or Treasury bill, rate.
C. The par value exceeds the market price.
D. The current yield, coupon rate, and yield-to-maturity are equal.
E. The dirty price equals the clean price.
You have been granted stock options on 300 shares of your employer’s stock. The stock
is currently selling for $37.80 and has a standard deviation of 30 percent. The option’s
strike price is $35 and the time to maturity is 10 years. What is the value of each option
given a risk-free rate of 3.0 percent? Assume that no dividends are paid.
A. $12.95
B. $14.47
C. $16.68
D. $18.39
E. $20.01
An investment company that issues a fixed number of shares which can only be resold
in the open stock market is called a(n) _____ fund.
A. hedge
B. closed-end
C. open-end
D. public
E. market
Which one of the following statements is correct?
A. The call money rate is the rate of interest brokerage firms charge on margin loans.
B. The spread is the fee a deep-discount broker charges to execute a trade.
C. The percentage of a purchase paid for with borrowed funds is referred to as the
margin.
D. A margin loan is treated as an asset on an account balance sheet.
E. Margin is equal to account equity divided by the value of the securities owned.
Which of the following are needed to determine the number of stock index futures
required to cross-hedge a stock portfolio?
I. standard deviation of the stock portfolio
II. beta of the stock portfolio
III. value of the index futures contract
IV. value of the stock portfolio
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, III, and IV only
Which one of the following statements concerning the stock market is correct?
A. Leverage was one of the contributing factors of the Crash of 1929.
B. “Black Monday” refers to October 29, 1929.
C. Program trading is cited as the sole cause of the Crash of 1987.
D. Generally speaking, market crashes tend to last longer than market bubbles.
E. It took the market 10 years to recover from the Crash of 1987.
What is the total amount you will receive if you sell 10 June $27.50 puts on Texas
Instruments?
A. unknown
B. $70
C. $100
D. $4,050
E. $4,300
If the S&P 500 falls by 7 percent, the NYSE will:
A. halt trading for thirty minutes.
B. halt trading for two hours if the decline occurs before 3:25 P.M.
C. halt trading for one hour.
D. halt trading for one hour if the decline occurs after noon.
E. halt trading for 15 minutes if the decline occurs before 3:25 pm.
The following are the daily returns for both the overall market and for Dexter Inc. What
is the cumulative abnormal return on Dexter, Inc., stock for these 5 days?
A. -0.7 percent
B. -0.3 percent
C. -0.2 percent
D. 0.3 percent
E. 0.6 percent
Studies indicate that the Vanguard 500 Index fund tends to:
A. underperform most professional money managers.
B. produce a return equal to that of professional managers.
C. outperform the average professional money manager, but only over the short-term.
D. outperform most professional money managers especially over longer-periods of
time.
E. support the argument that the stock market is inefficient.
One year ago, you purchased $6,000 worth of a mutual fund at an offering price of
$38.10 a share. Today, the fund distributed $0.20 in short-term gains and $1.04 in
long-term gains. The current offering price is $41.80. The fund has a front-end load of 5
percent and total annual operating expenses of 1.25 percent. What is your rate of return
on this investment?
A. 2.87 percent
B. 3.54 percent
C. 6.06 percent
D. 7.48 percent
E. 9.91 percent
A fully-hedged stock portfolio will have a beta equal to which one of the following?
A. an average asset
B. U.S. Treasury bill
C. S&P 500
D. the beta of the stock portfolio exclusive of the hedge
E. one-half of the beta of the stock portfolio exclusive of the hedge
An asset has an average historical rate of return of 13.2 percent and a variance of .
00972196. What range of returns would you expect to see approximately two-thirds of
the time?
A. -2.28 to +24.48 percent
B. -6.52 to +32.92 percent
C. -9.58 to +38.8 percent
D. +3.34 to +23.06 percent
E. +13.1 to +13.3 percent
Which one of the following terms is the measure of the tendency of two things to move
or vary together?
A. variance
B. squared deviation
C. standard deviation
D. alpha
E. covariance
The income earned by a regulated investment company is:
A. exempt from all taxation.
B. taxed only at the state and local level.
C. taxed only at the federal level.
D. taxable income for the fund.
E. taxable income for the fund’s shareholders.
Which one of the following is an argument against repricing employee stock options?
A. ESO’s are originally issued with positive intrinsic value so there’s no reason to
reprice.
B. Employees have more incentive when options are “under-water”.
C. Repricing is a reward for failure.
D. It is unnecessary to reprice as ESOs expire quickly.
E. Repricing affects the market price of the firm’s stock for all shareholders.
The average risk premium on large-company stocks for the period 1926-2012 was:
A. 6.7 percent.
B. 8.0 percent.
C. 8.5 percent.
D. 12.3 percent.
E. 13.6 percent.
You just sold 1,200 shares of stock short at a price per share of $13.50. The initial
margin requirement is 60 percent and the maintenance margin is 30 percent. What is
your initial equity position?
A. $6,480
B. $7,520
C. $9,720
D. $10,520
E. $16,200
The Shoe Box will not pay a dividend for the next two years. The following two years,
it will pay annual dividends of $1 per share. Starting in year 5, the dividends will
increase by 4 percent annually. The discount rate is 8 percent. What is the value of this
stock today?
A. $18.18
B. $20.64
C. $22.63
D. $24.08
E. $27.09
Which one of the following statements is correct concerning asset allocation?
A. Because there is an ideal mix, all investors should use the same asset allocation for
their portfolios.
B. The minimum variance portfolio will have a 50/50 asset allocation between stocks
and bonds.
C. Asset allocation affects the expected return but not the risk level of a portfolio.
D. There is an ideal asset allocation between stocks and bonds given a specified level of
risk.
E. Asset allocation should play a minor role in portfolio construction.
An open-end fund which invests solely in short-term debt obligations is called a(n)
_____ mutual fund.
A. growth
B. stock
C. money market
D. asset allocation
E. balanced
A portfolio had an original value of $7,400 seven years ago. The current value of the
portfolio is $11,898. What is the average geometric return on this portfolio?
A. 7.02 percent
B. 7.47 percent
C. 7.59 percent
D. 7.67 percent
E. 7.88 percent
Over the past 4 years, a local firm has paid annual dividends of $1.52, $1.55, $1.60, and
$1.68. What is the arithmetic average dividend growth rate?
A. 2.69 percent
B. 2.98 percent
C. 3.24 percent
D. 3.40 percent
E. 3.62 percent
ML Underwriters paid an issuer $37,694,528 as IPO proceeds. The IPO offered 1.86
million shares of which 1.835 million were sold at an offer price of $21.85 a share. The
underwriting spread was 7.25 percent. What type of underwriting was this?
A. best efforts
B. variable
C. firm commitment
D. plain vanilla
E. stand-by
What are the securities which are created by splitting the cash flows from mortgage
pools according to specific allocation rules called?
A. collateralized mortgage obligations
B. collateralized housing bonds
C. mortgage amortized strips
D. pooled mortgage obligations
E. secured mortgage strips
Jim began his investing program with a $4050 initial investment. The table below
recaps his returns each year as well as the amounts he added to his investment account.
What is his dollar-weighted average return?
A. 1.5 percent
B. 1.8 percent
C. 2.0 percent
D. 2.2 percent
E. 2.5 percent
You own one SPX put option with a strike of 1,300. What is the payoff at maturity for
this option contract if the S&P 500 index is 1,322?
A. -$3,600
B. -$36
C. $0
D. $36
E. $3,600
Wilson’s Furniture is experiencing good growth so has decided to commence paying
dividends starting next year. The first dividend will be $0.50 a share with annual
increases of 4 percent in the dividend amount. The discount rate is 10 percent. What
will the value of this stock be four years from now?
A. $8.50
B. $8.72
C. $9.03
D. $9.23
E. $9.75
Jeff paid a call premium of $0.60 when he purchased his call option with a strike price
of $22.00. What is the break-even stock price?
A. $0.00
B. $0.25
C. $22.25
D. $22.60
E. $22.75
Rosita purchased 300 shares of a stock for $37 a share. Today, the stock is selling for
$41 a share.
The initial margin requirement is 70 percent and the maintenance margin is 30 percent.
Rosita had to pay _____ in cash to purchase the stock and must have at least _____ in
equity today.
A. $3,690; $3,330
B. $3,690; $3,690
C. $7,770; $3,330
D. $7,770; $3,690
E. $8,610; $3,690
A stock is currently priced at $22 a share while the $30 put option is priced at $5.22.
The put option delta is -.25. What is the approximate put price if the stock increases in
value to $25?
A. $3.76
B. $4.97
C. $5.08
D. $5.27
E. $5.50
What is Jensen’s alpha of a portfolio comprised of 45 percent portfolio A and 55 percent
of portfolio B?
The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.
A. -1.25 percent
B. 0.47 percent
C. 1.08 percent
D. 1.46 percent
E. 2.04 percent
Use the following stock quotes to answer this question:
Aldridge, Inc. pays an annual dividend of $1.18. What is the dividend yield on this
stock?
A. 2.09 percent
B. 3.42 percent
C. 4.60 percent
D. 7.20 percent
E. 8.04 percent