The largest component of the fixed-income market is _______ debt.
A. Treasury
B. asset-backed
C. corporate
D. tax-exempt
E. mortgage-backed
If the yield on mortgage-backed securities was abnormally high compared to Treasury
bonds, a hedge fund pursuing a relative value strategy would
A. short sell the Treasury bonds and short sell the mortgage-backed securities.
B. short sell the Treasury bonds and buy the mortgage-backed securities.
C. buy the Treasury bonds and buy the mortgage-backed securities.
D. buy the Treasury bonds and short sell the mortgage-backed securities.
E. None of the options are correct.
A portfolio consists of 100 shares of stock and 1500 calls on that stock. If the hedge
ratio for the call is 0.7, what would be the dollar change in the value of the portfolio in
response to a $1 decline in the stock price?
A. +$700
B. +$500
C. −$1,150
D. −$520
Assume that stock market returns do follow a single-index structure. An investment
fund analyzes 200 stocks in order to construct a mean-variance efficient portfolio
constrained by 200 investments. They will need to calculate ________ estimates of
expected returns and ________ estimates of sensitivity coefficients to the
macroeconomic factor.
A. 200; 19,900
B. 200; 200
C. 19,900; 200
D. 19,900; 19.900
Hedge funds may invest or engage in
A. distressed firms.
B. convertible bonds.
C. currency speculation.
D. merger arbitrage.
E. All of the options are correct.
An analyst estimates the index model for a stock using regression analysis involving
total returns. The estimated intercept in the regression equation is 6% and the β is 0.5.
The risk-free rate of return is 12%. The true β of the stock is
A. 0%.
B. 3%.
C. 6%.
D. 9%.
An important benefit of Keogh plans is that
A. they are not taxable until funds are withdrawn as benefits.
B. they are protected against inflation.
C. they are automatically insured by the Federal government.
D. they are not taxable until funds are withdrawn as benefits, and they are protected
against inflation.
E. they are not taxable until funds are withdrawn as benefits, and they are automatically
insured by the Federal government.
Which one of the following stock index futures has a multiplier of 25 euros times the
index?
A. FTSE 100
B. Hang Seng
C. Nikkei
D. DAX-30
E. FTSE 100 and Hang Seng
According to the Treynor-Black model, the weight of a security in the active portfolio
depends on the ratio of
__________ to __________.
A.the degree of mispricing; the nonsystematic risk of the security
B. the degree of mispricing; the systematic risk of the security
C. the market sensitivity of the security; the nonsystematic risk of the security
D. the nonsystematic risk of the security; the systematic risk of the security
E. the total return on the security; the nonsystematic risk of the security
Arbitrageurs may be unable to exploit behavioral biases due to
I) fundamental risk.
II) implementation costs.
III) model risk.
IV) conservatism.
V) regret avoidance.
A. I and II only
B. I, II, and III
C. I, II, III, and V
D. II, III, and IV
E. IV and V
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May
105 call contract at $2. What is the lowest stock price at which you can break even?
A. $101
B. $102
C.$103
D. $104
E. None of the options are correct.
Demand-side economics is concerned with
A. government spending and tax levels.
B. monetary policy.
C. fiscal policy.
D. government spending, tax levels, and monetary policy.
E.-All of the options are correct.
If the interest rate paid by borrowers and the interest rate received by savers accurately
reflect the realized rate
of inflation,
A. borrowers gain and savers lose.
B. savers gain and borrowers lose.
C. both borrowers and savers lose.
D. neither borrowers nor savers gain nor lose.
E. both borrowers and savers gain.
Duration
A. assesses the time element of bonds in terms of both coupon and term to maturity.
B. allows structuring a portfolio to avoid interest-rate risk.
C. is a direct comparison between bond issues with different levels of risk.
D. assesses the time element of bonds in terms of both coupon and term to maturity and
allows structuring a portfolio to avoid interest-rate risk.
E. assesses the time element of bonds in terms of both coupon and term to maturity and
is a direct comparison between bond issues with different levels of risk.
Holding other factors constant, the interest-rate risk of a coupon bond is higher when
the bond’s
A. term to maturity is higher.
B. coupon rate is higher.
C. yield to maturity is higher.
D. All of the options are correct.
E. None of the options are correct.
A year ago, you invested $2,500 in a savings account that pays an annual interest rate of
5.7%. What is your
approximate annual real rate of return if the rate of inflation was 1.6% over the year?
A. 4.1%
B. 2.5%
C. 2.9%
D. 1.6%
Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is
5%, the risk premium on the first-factor portfolio is 4%, and the risk premium on the
second-factor portfolio is 6%. If portfolio A has a beta of 0.6 on the first factor and 1.8
on the second factor, what is its expected return?
A. 7.0%
B. 8.0%
C. 18.2%
D. 13.0%
E. 13.2%
Which of the following are true about the interest-rate sensitivity of bonds?
I) Bond prices and yields are inversely related.
II) Prices of long-term bonds tend to be more sensitive to interest-rate changes than
prices of short-term bonds.
III) Interest-rate risk is correlated with the bond’s coupon rate.
IV) The sensitivity of a bond’s price to a change in its yield to maturity is inversely
related to the yield to maturity at which the bond is currently selling.
A. I and II
B. I and III
C. I, II, and IV
D. II, III, and IV
E. I, II, III, and IV
Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year.
The expected growth rate of dividends is 10% for both stocks. You require a rate of
return of 11% on stock A and a return of 20% on stock B. The intrinsic value of stock A
A. will be greater 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. cannot be calculated without knowing the market rate of return.
A coupon bond that pays interest semi-annually has a par value of $1,000, matures in
five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will
be __________ if the coupon rate is 8%.
A. $922.78
B. $924.16
C. $1,075.80
D. $1,077.20
E. None of the options
The bonds of Ford Motor Company have received a rating of “B” by Moody’s. The “B”
rating indicates
A. the bonds are insured.
B. the bonds are junk bonds.
C. the bonds are referred to as “high-yield” bonds.
D. the bonds are insured or junk bonds.
E. the bonds are “high-yield” or junk bonds.
The shortest time horizons are likely to be set by
A. banks.
B. property and casualty insurance companies.
C. pension funds.
D. banks and property and casualty insurance companies.
E. property and casualty insurance companies and pension funds.
You purchased a futures contract on corn at a futures price of 350, and at the time of
expiration, the price was 352. What was your profit or loss?
A. $2.00
B. –$2.00
C. $100
D. –$100
The on the run yield curve is
A. a plot of yield as a function of maturity for zero-coupon bonds.
B. a plot of yield as a function of maturity for recently-issued coupon bonds trading at
or near par.
C. a plot of yield as a function of maturity for corporate bonds with different risk
ratings.
D. a plot of liquidity premiums for different maturities.
A top-down analysis of a firm starts with
A. the relative value of the firm.
B. the absolute value of the firm.
C. the domestic economy.
D.-the global economy.
E. the industry outlook.
Which country has the largest stock market compared to GDP?
A. Japan
B. Germany
C. Hong Kong
D. U.S.
Consider the following probability distribution for stocks C and D:
The standard deviations of stocks C and D are _____ and _____, respectively.
A. 7.62%; 11.24%
B. 11.24%; 7.62%
C. 10.35%; 12.93%
D. 12.93%; 10.35%
Consider the single-index model. The alpha of a stock is 0%. The return on the market
index is 10%. The risk-free rate of return is 3%. The stock earns a return that exceeds
the risk-free rate by 11%, and there are no firm-specific events affecting the stock
performance. The β of the stock is
A. 1.57.
B. 0.75.
C. 1.17.
D. 1.33.
E. 1.50.
Block transactions are transactions for more than _______ shares, and they account for
about _____ percent of all trading on the NYSE.
A. 1,000; 5
B. 500; 10
C. 100,000; 50
D. 10,000; 30
E. 5,000; 23
The Option Clearing Corporation is owned by
A. the Federal Reserve System.
B.the exchanges on which stock options are traded.
C. the major U.S. banks.
D. the Federal Deposit Insurance Corporation.
_________ is equal to common shareholders’equity divided by common shares
outstanding.
A. Book value per share
B. Liquidation value per share
C. Market value per share
D. Tobin’s Q
