Which one of the following describes a short position?
A. Purchasing a security on margin
B. Selling a security that you originally purchased on margin
C. Loaning a security to your broker to cover a margin call
D. Having less equity than required in your margin account
E. Selling a security that you do not own
Which one of the following is the primary flaw of a price-weighted index?
A. Price-weighted indexes ignore stock splits which affect stock prices.
B. The effect a company has on the index is dependent solely on the price per share.
C. Only a small number of stocks can be included in a price-weighted index.
D. If the number of shares outstanding of an index stock changes, the index divisor
must be recomputed.
E. The index can only be computed once the trading day is over.
Which one of the following is the amount of a mortgage loan outstanding?
A. mortgage remainder
B. mortgage face value
C. mortgage par value
D. mortgage principal
E. mortgage accrual
Which one of the following is defined as bonds which represent a claim on the cash
flows of an underlying pool of mortgages which flow through to bondholders?
A. mortgage bonds
B. mortgage certificates
C. mortgage passthroughs
D. collateralized securities
E. mortgage collaterals
Which of the following is not a Threat of New Entrants according to Porter’s Five
Forces?
A. economies of scale
B. product differentiation
C. quality of substitutes
D. capital requirements
E. government policies
Which one of the following is a characteristic of the self-attribution bias?
A. believing what you wish to believe
B. placing too much weight on information which you can gather easily
C. believing that other investors agree with your thinking
D. taking credit for the wins and blaming the losses on bad luck
E. believing that your recent performance is an indication of your future performance
You want to sell shares of stock at the current price. Which type of order should you
place?
A. limit
B. post
C. market
D. short
E. stop
Assume there are 475 million people in the United States, 175 million of which make
up the labor force. If 16 million are unemployed, what is the unemployment rate?
A. 8.35%
B. 9.14%
C. 10.91%
D. 11.05%
E. 11.74%
Ultra Fine Furnishings is in the process of selling its peripheral businesses and focusing
on its upscale clients. In conjunction with this reorganization, the dividend will be
decreased by 10 percent for the next three years. After that, the dividend will resume
increasing at an annual rate of 5 percent. The required return on this stock is 14 percent
and the last dividend paid was $2.40 a share. What is one share of this stock worth
today?
A. $17.34
B. $18.08
C. $18.35
D. $19.68
E. $20.72
A fee that is charged at the time mutual fund shares are purchased by an investor is
called a:
A. contingent deferred sales charge.
B. 12b-1 fee.
C. back-end load.
D. front-end load.
E. issuance charge.
Which one of the following statements is correct?
A. Most brokerage agreements require disputes be settled in a court of law.
B. Arbitration is a formal legal process for settling disputes related to brokerage
accounts.
C. Churning is the preferred method of providing deep-discount brokerage services.
D. Discount brokers only provide order execution services.
E. Full service brokers frequently provide financial planning services to clients.
Which of the following was the largest sector in the S&P as of April 2012?
A. consumer discretionary
B. energy
C. health care
D. technology
E. financials
Kate just purchased $7,000 worth of stock. She paid $5,000 in cash and borrowed
$2,000. In this example, the term margin refers to:
A. the total amount of the purchase.
B. the percentage of the purchase that was paid in cash.
C. the percentage of the purchase paid with borrowed funds.
D. any future increase in the value of the stock.
E. any future decrease in the value of the stock.
Bill has been adding funds to his investment account each year for the past 3 years. He
started with an initial investment of $1,000. After earning a 10% return the first year, he
added $3,000 to his portfolio. In this year his investments lost 5%. Undeterred, Bill
added $2,000 the next year and earned a 2% return. Last year, discouraged by the recent
results, he only added $500 to his portfolio, but in this final year his investments earned
8%. What was Bill’s dollar-weighted average return for his investments?
A. 1.5 percent
B. 2.0 percent
C. 2.5 percent
D. 3.0 percent
E. 3.5 percent
The additional return earned for accepting risk is called the:
A. inflated return.
B. capital gains yield.
C. real return.
D. riskless rate.
E. risk premium.
What is the highest price at which the May coffee futures contract traded during this
day?
A. $1.3715
B. $1.3800
C. $137.15
D. $138.00
E. $140.20
Which one of the following is most commonly used as the measure of the overall
market rate of return?
A. DJIA
B. S&P 500
C. NASDAQ 100
D. Wilshire 5000
E. Wilshire 3000
According to the expectations theory and the Fisher hypothesis, a downward-sloping
term structure is indicative of which of the following based on market expectations?
I. nominal interest rates are expected to increase
II. nominal interest rates are expected to decline
III. inflation rates are expected to increase
IV. inflation rates are expected to decrease
A. I only
B. II only
C. IV only
D. I and III only
E. II and IV only
Which one of the following characteristics best fits an index fund?
A. market outperformer
B. high expenses
C. passively managed
D. dividend oriented
E. high turnover rate
A futures price is a price that is negotiated _____ and paid _____.
A. today; in the future
B. today; today
C. in the future; in the future
D. in the future; today
E. either today or in the future; in the future
An investor who has a resource constraint:
A. pays no income taxes.
B. has insufficient funds to purchase a security.
C. has a relatively high marginal tax rate.
D. has only one source of income.
E. will only invest in socially acceptable securities.
Monthly payments to investors in GNMA mortgage-backed bonds include which of the
following cash flows?
I. mortgage interest
II. fixed principal payment
III. scheduled amortization of mortgage principal
IV. mortgage prepayments
A. II only
B. I and II only
C. I, III, and IV only
D. I, II, and III only
E. I, II, III, and IV
The spot price for a non-dividend-paying stock is $24. The risk-free rate is 2.8 percent
and the market rate is 10.6 percent. What is the 6-month futures price of this stock if
spot-futures parity exists?
A. $24.33
B. $24.41
C. $24.54
D. $24.59
E. $24.70
You purchased a stock for $46.70 a share and resold it one year later. Your total return
for the year was 11.2 percent and the dividend yield was 2.8 percent. At what price did
you resell the stock?
A. $42.78
B. $50.62
C. $51.93
D. $52.08
E. $57.54
Which one of the following had the smallest standard deviation of returns for the period
1926-2012?
A. large-company stocks
B. small-company stocks
C. long-term government bonds
D. intermediate-term government bonds
E. long-term corporate bonds
Selling a call option on stock which you own is referred to as which one of the
following strategies?
A. covered call
B. naked call
C. protective put
D. underlying put
E. straddle
You have a portfolio which is comprised of 55 percent of stock A and 45 percent of
stock B. What is the expected rate of return on this portfolio?
A. 9.67 percent
B. 9.88 percent
C. 10.03 percent
D. 11.79 percent
E. 12.40 percent
An increase in the retention ratio will:
A. increase the dividends per share.
B. decrease a firm’s sustainable rate of growth.
C. decrease the equity of a firm.
D. increase the dividend growth rate.
E. increase the value of a firm’s stock.
You own 7,500 shares of GO stock which is currently valued at $47 a share. The $50
put has a premium of $2.50 and a put delta of -.60. What position should you take in
$50 put contracts to hedge your stock against a $1 decrease in price?
A. buy 125 contracts
B. buy 1,250 contracts
C. buy 12,500 contracts
D. write 125 contracts
E. write 1,250 contracts
Which one of the following statements correctly applies to an unseasoned mortgage?
A. The mortgage is less than 30 months old.
B. The mortgage is still held by the original mortgage company.
C. The mortgage has at least one term or provision that is uncommon to most
mortgages.
D. The mortgage has an adjustable interest rate that has not been adjusted to date.
E. The mortgage was obtained by a first-time home owner.
The seller of a naked call is betting that the price of the underlying asset will:
A. decrease.
B. increase.
C. decrease and then increase prior to the expiration date.
D. will remain constant for a period of time and then increase prior to the expiration
date.
E. have no effect on the value of the call.
Robin sold 800 shares of a non-dividend paying stock this morning for a total of
$29,440. She had purchased these shares on margin nine months ago at a cost per share
of $35. The initial margin requirement on this stock is 60 percent and the maintenance
margin is 30 percent. Robin pays 1.2 percent over the call money rate of 4.9 percent.
What is her total dollar return on this investment?
A. $816.48
B. $897.29
C. $931.41
D. $1,164.93
E. $1,440.00
A portfolio has a variance of .0165, a beta of 1.05, and an expected return of 12.65
percent. What is the Sharpe ratio if the expected risk-free rate is 3.4 percent?
A. .66
B. .70
C. .72
D. .82
E. .86