Before expiration, the time value of an at-the-money put option is always
A. equal to zero.
B. equal to the stock price minus the exercise price.
C. negative.
D. positive.
E. None of the options are correct.
Unique risk is also referred to as
A. systematic risk or diversifiable risk.
B. systematic risk or market risk.
C. diversifiable risk or market risk.
D. diversifiable risk or firm-specific risk.
E. None of the options are correct.
A 10% coupon bond with annual payments and 10 years to maturity is callable in three
years at a call price of $1,100. If the bond is selling today for $975, the yield to call is
A. 10.26%.
B. 10.00%.
C. 9.25%.
D. 13.98%.
E. None of the options are correct.
In 2016, ____________ was(were) the least significant liability(ies) of U.S.
nonfinancial businesses in terms of total value.
A. bonds and mortgages
B. bank loans
C. inventories
D. trade debt
E. marketable securities
Active portfolio managers try to construct a risky portfolio with
A.a higher Sharpe measure than a passive strategy.
B. a lower Sharpe measure than a passive strategy.
C. the same Sharpe measure as a passive strategy.
D. very few securities.
Security returns
A. are based on both macro events and firm-specific events.
B. are based on firm-specific events only.
C. are usually positively correlated with each other.
D. are based on firm-specific events only and are usually positively correlated with
each other.
E. are based on both macro events and firm-specific events and are usually positively
correlated with each other.
Stock returns are usually highly positively correlated with each other. Stock returns are
affected by both macroeconomic events and firm-specific events.
Barber and Odean (2001) report that women __________ men.
A. earn higher returns than
B. earn lower returns than
C. earn about the same returns as
D. generate higher trading costs than
You are given the following information about a portfolio you are to manage. For the
long term, you are bullish, but you think the market may fall over the next month.
If the anticipated market value materializes, what will be your expected loss on the
portfolio?
A. 7.58%
B. 6.52%
C. 15.43%
D. 8.57%
E. 6.42%
Since deltas change as stock values change, portfolio hedge ratios must be constantly
updated in active markets. This process is referred to as
A. portfolio insurance.
B. rebalancing.
C. option elasticity.
D. gamma hedging.
E. dynamic hedging.
One problem with comparing financial ratios prepared by different reporting agencies is
A. some agencies receive financial information later than others.
B. agencies vary in their policies as to what is included in specific calculations.
C. some agencies are careless in their reporting.
D. some firms are more conservative in their accounting practices.
E. None of the options are correct.
In 2016, ____________ was(were) the most significant financial asset(s) of U.S.
commercial banks in terms of total value.
A. loans and leases
B. cash
C. real estate
D. deposits
E. investment securities
The principle of duration matching is
A. used only in bond portfolio management.
B. a useful concept for investments with target dates.
C. matching one’s assets to one’s objectives.
D. a useful concept for investments with target dates and means matching one’s assets
to one’s objectives.
E. None of the options are correct.
A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000. If the
bond matures in eight years, the bond should sell for a price of _______ today.
A. $422.41
B. $501.87
C. $513.16
D. $483.49
E. None of the options are correct.
A mutual fund had NAV per share of $23.00 on January 1, 2016. On December 31 of
the same year, the fund’s NAV was $23.15. Income distributions were $0.63, and the
fund had capital gain distributions of $1.26. Without considering taxes and transactions
costs, what rate of return did an investor receive on the fund last year?
A. 11.26%
B. 10.54%
C. 8.87%
D. 8.26%
E. 9.63%
Which of the following statement(s) is(are) true?
A. Inflation has no effect on the nominal rate of interest.
B. The realized nominal rate of interest is always greater than the real rate of interest.
C. Certificates of deposit offer a guaranteed real rate of interest.
D. None of the options are true.
Which country has the highest in GDP per capita?
A. Luxembourg
B. Canada
C. Germany
D. U.S.
A put option on a stock is said to be out of the money if
A. the exercise price is higher than the stock price.
B.the exercise price is less than the stock price.
C. the exercise price is equal to the stock price.
D. the price of the put is higher than the price of the call.
E. the price of the call is higher than the price of the put.
Genny Webb is 27 years old and has accumulated $7,500 in her selfdirected defined
contribution pension plan. Each year she contributes $2,000 to the plan, and her
employer contributes an equal amount. Genny thinks she will retire at age 63 and
figures she will live to age 90. The plan allows for two types of investments. One offers
a 3% riskfree real rate of return. The other offers an expected return of 12% and has a
standard deviation of 39%. Genny now has 20% of her money in the riskfree
investment and 80% in the risky investment. She plans to continue saving at the same
rate and keep the same proportions invested in each of the investments. Her salary will
grow at the same rate as inflation. How much can Genny be sure of having in the safe
account at retirement?
A. $45,473
B. $62,557
C. $78,943
D. $54,968
E. $74,643
The financial statements of Midwest Tours are given below.
Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours. The firm’s inventory turnover ratio
for 2009 is
A. 2.86.
B. 1.23.
C. 5.96.
D. 4.42.
E. 4.86.
Lamm Corporation is expected have EBIT of $6.2M this year. Lamm Corporation is in
the 40% tax bracket, will report $1.2M in depreciation, will make $1.4M in capital
expenditures, and will have a $160,000 increase in net working capital this year. What
is Lamm’s FCFF?
A. 6,200,000
B. 6,160,000
C. 3,360,000
D. 3,680,000
E. 4,625,000
Classifying firms into groups, such as _________, provides an alternative to the
industry life cycle.
A. slow-growers
B. stalwarts
C. countercyclicals
D.-slow-growers and stalwarts
E. slow-growers and countercyclicals
A mutual fund had NAV per share of $36.15 on January 1, 2016. On December 31 of
the same year, the fund’s rate of return for the year was 14.0%. Income distributions
were $1.16, and the fund had capital gain distributions of $2.12. Without considering
taxes and transactions costs, what ending NAV would you calculate?
A. $37.93
B. $34.52
C. $44.69
D. $47.25
E. $36.28
The duration of a par-value bond with a coupon rate of 6.5% and a remaining time to
maturity of 4 years is
A. 3.65 years.
B. 3.45 years.
C. 3.85 years.
D. 4.00 years.
Targetdate retirement funds
A. change their asset allocation as time passes.
B. are a simple, but useful, strategy.
C. function much like hedge funds.
D. change their asset allocation as time passes and are a simple, but useful, strategy.
E. All of the options are correct.
Consider the Treynor-Black model. The alpha of an active portfolio is 1%. The
expected return on the market
index is 11%. The variance of return on the market portfolio is 6%. The nonsystematic
variance of the active
portfolio is 2%. The risk-free rate of return is 4%. The beta of the active portfolio is 1.1.
The optimal proportion
to invest in the active portfolio is
A.45%.
B. 25%.
C. 50%.
D. 100%.
The Sarbanes-Oxley Act
A. requires corporations to have more independent directors.
B. requires the firm’s CFO to personally vouch for the firm’s accounting statements.
C. prohibits auditing firms from providing other services to clients.
D. requires corporations to have more independent directors and requires the firm’s
CFO to personally vouch for the firm’s accounting statements.
E. All of the above.
A 7%, 14-year bond has a yield to maturity of 6% and duration of 7 years. If the market
yield changes by 44 basis points, how much change will there be in the bond’s price?
A. 1.85%
B. 2.91%
C. 3.27%
D. 6.44%
A hedge fund attempting to profit from a change in the spread between mortgages and
Treasuries is using a ______ strategy.
A. market neutral
B. directional
C. relative value
D. divergence
E. convergence
The stock market follows a
A. nonrandom walk.
B. submartingale.
C. predictable pattern that can be exploited.
D. nonrandom walk and predictable pattern that can be exploited.
E. submartingale and predictable pattern that can be exploited.
Security M has expected return of 17% and standard deviation of 32%. Security S has
expected return of
13% and standard deviation of 19%. If the two securities have a correlation coefficient
of 0.78, what is their
covariance?
A. 0.038
B. 0.049
C. 0.047
D. 0.045
E. 0.054
If the currency of your country is appreciating, the result should be to ______ exports
and to _______ imports.
A. increase; increase
B. increase; decrease
C.-decrease; increase
D. decrease; decrease
E. not affect; not affect
The financial statements of Black Barn Company are given below.
Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm’s market-to-book
value for 2009 is
A. 1.13.
B. 1.62.
C. 1.00.
D. 1.26.