In the last few years (since 2006), the trade deficit has increased dramatically.
The Options Clearing Corporation functions as a middleman or broker, bringing
together writers and buyers of options.
Major studies have shown that fund managers in general are unable to efficiently
diversify the portfolios primarily due to a small number of securities.
In the formula P0 = D1/(Ke – g), if D1= $2.00, Ke= .10, and g = .06, P0 is equal to $55.
Information on publicly traded foreign securities is not as regulated or as available as it
is on United States securities.
Margin percentages are set by the Board of Governors of the Federal Reserve System.
Duration analysis is subject to the assumption that all interest income can be reinvested
at the market rate of interest.
Short-selling by individual investors provides future demand potential to cover their
short position.
When a merger becomes relatively certain, arbitrageurs come in and attempt to lock in
profits.
The final value calculated in dividend valuation models is typically very accurate.
Short-term rates are more volatile than long-term rates.
Terminal wealth analysis for a zero-coupon bond is irrelevant.
Mature industries are not likely to be sensitive to short-term swings in the business
cycle.
The bond market investor must be prepared to deal in a relatively strong primary
market (new issues market) and a relatively weak secondary market (resale market).
Stock dividends are used to signal to investors that a company is making profit.
Corporate bonds carry a higher yield than government issues, and are fully taxable for
federal, state, and local purposes.
According to insider trading rules of the SEC, securities analysts and financial writers
may not trade on insider information, but these rules do not extend to relatives and
friends.
Under a non-constant growth model, Ke (required rate of return) is varied from time
period to time period.
Warrants are a form of direct equity claims.
A share in a money market fund is an indirect equity claim.
The margin requirement on stock is currently 30%.
When the U.S. T-bill rate is 5.75%, the excess returns on a portfolio earning 14% would
be 8.25%.
International diversification will provide low risk when the investor finds international
securities having a compound rate of return equal to that of the United States and a
correlation coefficient close to that of the United States portfolio.
All dividend valuation models are based on the present value of a future income stream.
A basis point is one-tenth of l%.
In general, if the market perceives that the direction of interest rates and inflation is
down, this perception will have a positive effect on price-earnings ratios.
The leverage associated with a warrant increases as the stock price increases.
The wise money manager will generally adhere strictly to stated objectives.
If the stock price is low or declining, the pure bond value is not very important in
determining the bond price.
The general dividend model assumes the value of a firm is equal to the present value of
future dividends.
In an efficient market context, the ability to achieve high returns may be more directly
related to absorption of additional risk than superior ability in selecting stocks.
The investor is only assumed to receive additional returns for unsystematic risk.
The age and economic circumstances of an investor are important variables in
determining an appropriate level of risk.
Under the Sharpe, Treynor, and Jensen approaches, the return measurement must be
compared to risk in some form.
There is evidence that the bond market may be less efficient than the stock market.
Odd-lot traders have never outguessed professional traders.
Equity participation:
A.is popular in commercial real estate.
B.lets the lender provide borrowed capital.
C.lets the lender provide part of the equity or ownership funds.
D.All of the above
What is the percentage downside risk on a bond with market value of $900, conversion
value of $800, and pure bond value of $650?
A.66.7%
B.27.7%
C.55.6%
D.None of the above
A good reason for a stock repurchase is:
A.that management believes that the stock is undervalued in the market.
B.so the company can escape the threat of a future merger or acquisition.
C.to avoid obligations under an employee stock ownership plan.
D.None of the above
Since late 2002, the Bush administration has followed a weak dollar policy, and
A.the euro has fallen against the dollar.
B.the euro has risen against the dollar.
C.the Chinese renminbi has declined against the dollar.
D.None of the above happened
Which of the following is not a form of real asset?
A.Rare paintings
B.Baseball cards
C.Diamonds
D.Real estate
E.Commodity futures
What variables are needed to calculate basic earnings per share?
A.Adjusted earnings after taxes, number of shares outstanding, and number of common
shares from all potential securities convertible into common stock
B.Earnings after taxes and number of shares outstanding
C.Adjusted earnings after taxes, shares outstanding, common stock equivalents, and all
convertibles
D.Earnings after taxes, common shares outstanding, and all convertible preferred stock
Which of the following statements is NOT true?
A.Like gold, silver is a good hedge against inflation
B.Silver has extensive industrial and commercial uses
C.The supply of silver immediately increases with the price of silver
D.All of the above are true
Advantages of mutual funds include:
A.mutual funds outperform the market, on average.
B.efficient diversification.
C.exceptionally low level of risk.
D.All of the above
From the time prior to announcement until an acquisition takes effect, the value of the
stock of the acquiring company will likely:
A.rise sharply.
B.rise sharply, then slowly fall.
C.remain largely unchanged.
D.fall slowly, then rise sharply.
E.None of the above
a) What is the approximate yield to maturity of a 10% coupon rate, $1,000 par value
bond which is currently priced at $1,200 with 11 years to maturity?
b) What would be the yield to call if the call can be made in 7 years at a price of
$1,025?
The major problem associated with trying to profit from mergers and acquisitions is
A.that contradictory information is available.
B.pinpointing reasons for stock price changes.
C.the threat of cancellation.
D.None of the above
As the ratio of specialist short sales to total short sales increases, technicians consider
the market to be:
A.bullish.
B.bearish.
C.neutral.
D.in the second leg of a bull market.
Which of the following is NOT a valid reason for discounting the importance of stable
foreign currency in evaluating international investment alternatives?
A.A devaluation in one country is usually offset by an increase in value in another
B.The overall effect of a devaluation in the economy of the country is insignificant
C.Risk exposure can be hedged through foreign exchange contracts or foreign currency
options
D.All of the above are valid reasons
Which of the following is true of over-the-counter markets?
A.Trading takes place by telephone or electronic network
B.It is regulated by the Securities and Exchange Commission and the National
Association of Securities Dealers
C.Government securities of the U.S. Treasury provide the largest dollar volume.
D.All of the above are true
One of the reasons a short-term trader has difficulty in beating the market is because of:
A.risk.
B.lack of information.
C.large institutional investors.
D.commissions.
A low Barron’s Confidence Index means that:
A.investors prefer stocks to bonds.
B.the yield on bonds is greater than that on stock.
C.low-quality bonds have returns much higher than high-quality bonds.
D.low-quality bonds have returns slightly higher than high-quality bonds.
Yields on money market funds are closely associated with:
A.short-term interest rates.
B.the prime rate.
C.long-term interest rates.
D.None of the above
If the company’s profit margin is constant over time, and the number of shares of stock
remains the same, the price to sales ratio and the price to earnings ratio:
A. should provide similar valuations for the company’s stock value.
B. should provide very different valuations for the company’s stock value.
C. should not be related in any way.
D. All of the above are true
Indirect international investment effectively eliminates problems with:
A.taxation by foreign governments.
B.administration of foreign securities problems.
C.different cultures and reporting standards.
D.All of the above
A closed-end fund might trade at a premium due to:
A.the quality of fund management.
B.an upcoming dividend payable to the portfolio.
C.an impending stock split in the portfolio.
D.a closed-end fund would never trade at a premium.
A study indicated that what type of stock had the best performance four years after
announcement of a stock repurchase?
A.Growth stocks
B.Convertible preferred stocks
C.Low-yield stocks
D.Value-oriented stocks
The multiplier for the S&P 500 futures contract is:
A.5.
B.10.
C.100.
D.250.
E.500.
For which year were estate taxes eliminated under the Economic Growth and Tax
Reconciliation Act of 2001?
A.2008
B.2009
C.2010
D.2019
E.The estate tax will not be eliminated.
Widji Outfitters is expected to pay a dividend (D1) of $1.00 next year, with an expected
constant growth in dividends of 5%. The required rate of return is 11%.
a) Calculate the present value of this stock.
b) What will be the new price of this stock if the discount rate rises to 12%?
c) What will be the new price of this stock if the discount rate falls to 10%?
Treasury strips provide return through:
A.increase in value over their life.
B.high-dividend yields.
C.indexing for inflation.
D.changing par value with the passage of time.
From an institutional investor’s standpoint, many convertible securities lack liquidity
because:
A.of small trading volume.
B.of the small amount of convertibles that are usually issued by one company.
C.of the high premiums that usually come in with buying a convertible.
D.A and B
In evaluating a general partner of a limited partnership, an investor should be sensitive
to his or her:
A.experience.
B.possible lawsuits.
C.law degree.
D.A and B
The best way to measure adherence to the objectives of money managers and the
financial needs of investors is:
A.to calculate the total returns on the portfolios that they manage.
B.to evaluate the risk exposure that the fund manager has accepted.
C.to calculate the dividend income that the portfolio has achieved.
D.to calculate the capital gains that the portfolio has achieved.
Studies generally show that the price-earnings ratio is a function of:
A. expected changes in interest rates.
B. future estimated growth of earnings for the individual company.
C. expected changes in the required rate of return, Ke.
D. All of the above impact price-earnings ratios
A house broker is one who:
A.is registered to trade on the exchange but is not an employee of a member firm.
B.is not associated with a member firm.
C.represents a retail brokerage firm and transacts business on the floor for customers of
that firm.
D.transacts orders for individuals buying or selling less than 100 shares.
Program trading
A.means that when a given market indicator reaches a certain point, a large sale or
purchase of securities may take place.
B.has been argued to affect the market by accelerating price movements.
C.relies on mathematical algorithms.
D.All of the above
All of the following are characteristics of the cash market except:
A.that the spot price represents the actual dollar value for the immediate transfer of a
commodity.
B.that there must be a transfer of the actual physical possession of the goods.
C.that prices in the cash market are independent of prices in the futures market.
D.All of the above are characteristics of the cash market
A person who is registered to trade on an exchange, who owns a seat but is not an
employee of any member firm is a:
A.commission broker.
B.floor broker.
C.registered trader.
D.dealer.
E.B and C
Under what conditions might a return of 15% be actually worse than a return of 10%?
A.In a bull market
B.In a bear market
C.On a risk-adjusted basis
D.More than one of the above
Assume the real rate of return for the economy is 3.75% and the expected rate of
inflation is 6.75%. What is the risk-free rate?
A shopping center has annual net operating income of $1,050,000 and a capitalization
rate of 8%. What is its value?
An investor controls contracts on five 5,000 bushel futures contracts on grain, at a price
of $3 per bushel. The margin requirement is 5%, and the maintenance margin is 80%.
How much would the price per bushel have to change to provide a $750 profit?
$0.03
Feedback: Refer to the Application example. 5 contracts x 5,000 bushels each = 25,000
bushels
25,000 bushels x ? price change = $750
?
You buy an S&P 500 Index Call Option for $15. The strike price is $1,250. If the index
closes at $1,290, what is your total profit?