Which one of the following debt instruments guarantees investors a positive real rate of
return?
A. zero-coupon bond
B. default-free, pure-discount bond
C. T-bill
D. TIPS
E. T-bond
Which one of the following should be used as the mean return when you are defining
the normal distribution of an investment’s annual rates of return?
A. arithmetic average return for the period
B. geometric average return for the period
C. total return for the period divided by N – 1
D. arithmetic average return for the period divided by N – 1
E. geometric average return for the period divided by N – 1
Which of the following are common sources of venture capital?
I. private individuals
II. NASDAQ
III. university endowment funds
IV. insurance companies
A. I and II only
B. III and IV only
C. I, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Which one of the following statements related to book value per share (BVPS) is
correct?
A. BVPS is equal to total assets divided by the number of shares outstanding.
B. An increase in the market value of a firm’s fixed assets will increase the firm’s
BVPS.
C. The payment of a dividend increases BVPS.
D. BVPS is equal to the market price of a share of stock.
E. The issuance of new shares at market value may increase the BVPS.
A stock has a standard deviation of 25.4 percent and a covariance with the market of .
0160. The market has a standard deviation of 12.2 percent. What is the beta of this
stock?
A. .294
B. .572
C. .926
D. .973
E. 1.075
Brooke has decided to invest 55 percent of her money in large company stocks, 40
percent in small company stocks, and 5 percent in cash. This is a(n) _____ decision.
A. market timing
B. security selection
C. tax-advantaged
D. active strategy
E. asset allocation
Elizabeth short sold 400 shares of stock at $72 a share. One month later, she covered
the short at a price of $68. What was her total dollar return on this investment?
A. -$2,400
B. -$1,800
C. -$920
D. $1,600
E. $2,200
If the nominal GDP was reported at $1,255.80 billion and inflation was 3.55%, what is
the level of real GDP for the period?
A. $1,179.54
B. $1,191.41
C. $1,212.75
D. $1,255.01
E. $1,272.45
An order to sell that involves a preset trigger point is called a _____ order.
A. limit
B. day
C. stop
D. short
E. market
You own a mortgage passthrough. Which one of the following statements correctly
describes the payments you will receive on that security?
A. The payments will decrease at a constant rate over the life of the security.
B. The payments will increase at a decreasing rate over the life of the security.
C. The payments will be fixed for the life of the security.
D. The payments will vary depending upon the amount paid on the underlying
mortgages each period.
E. The payments will decrease based on the interest shown on the amortization
schedule.
Gold Jewelry, Inc. has annual sales of $4.5 million and a gross profit margin of 55
percent. The operating expenses are $540,750 and depreciation is $170,300. Interest
expense is $95,000 and the tax rate is 35 percent. What is the net income?
A. $1,002,980
B. $1,084,818
C. $1,356,220
D. $1,589,200
E. $2,385,000
What is the expected return on this stock given the following information?
A. 9.36 percent
B. 9.74 percent
C. 10.85 percent
D. 11.78 percent
E. 12.05 percent
A call option with 6 months to expiration currently sells for $2.05. A put option with the
same expiration sells for $0.60. The options are European style. The risk-free rate is 3.0
percent and the strike price of both options is $50. What is the current stock price?
A. $47.89
B. $49.19
C. $50.72
D. $51.29
E. $52.08
Use the following stock quotes to answer this question:
Baker Company has 136,000 shares of stock outstanding and a PE ratio of 18. What
was the net income for the most recent four quarters?
A. $590,089
B. $678,003
C. $727,972
D. $1,306,900
E. $1,405,800
Use the following wheat futures quotes to answer this question.
What are the lowest and highest prices per bushel at which the March 08 wheat futures
contract sold today?
A. $10.9320; $10.9340
B. $10.9325; $10.9350
C. $10.6300; $10.9320
D. $10.6300; $10.9340
E. $10.6300; $10.9350
A mutual fund has a current offering price of $52.31. What is the net asset value if the
fund charges a 3 percent front-end load?
A. $50.74
B. $51.66
C. $54.57
D. $54.86
E. $54.91
A portfolio beta is computed as which one of the following?
A. weighted average
B. arithmetic average
C. geometric average
D. correlated value
E. covariance value
What is the market value of a share of stock divided by the net income per share called?
A. earnings per share
B. price-earnings ratio
C. value-earnings ratio
D. earnings yield
E. market multiple
The yield to maturity is the:
A. discount rate that equates a bond’s price with the present value of the bond’s future
cash flows.
B. rate you will earn if your bond is called on the earliest possible date.
C. rate computed by dividing the annual interest by the par value.
D. rate used to compute the amount of each interest payment.
E. rate computed as the annual interest divided by the market value.
A portfolio of securities has a beta of 1.14. Given this, you know that:
A. adding another security to the portfolio must lower the portfolio beta.
B. the portfolio has more risk than a risk-free asset but less risk than the market.
C. each of the securities in the portfolio has more risk than an average security.
D. the portfolio has 14 percent more risk than a risk-free security.
E. the expected return on the portfolio is greater than the expected market return.
The value of the Amex Internet Index increased by about _____ percent from October
1998 to March 2000 and subsequently declined by about _____ percent by October
2002.
A. 100; 50
B. 200; 75
C. 400; 80
D. 500; 90
E. 600; 80
Assume that the Federal Reserve injects $5 billion into the financial system. If the
reserve requirement is 25 percent, what is the maximum increase in money supply (in
billions)?
A. $20.00
B. $21.30
C. $21.88
D. $22.10
E. $22.60
Your portfolio actually earned 6.2 percent for the year. You were expecting to earn 8.6
percent based on the CAPM formula. What is Jensen’s alpha if the portfolio standard
deviation is 12.1 percent and the beta is .93?
A. -3.91 percent
B. -3.40 percent
C. -2.96 percent
D. -2.40 percent
E. -1.87 percent
The price paid to purchase an option contract is called the:
A. strike price.
B. option premium.
C. exercise price.
D. future premium.
E. current yield.
Use the following soybean futures quotes to answer this question:
Last week, you purchased four November 08 soybean futures contracts when the price
quote was 1300΄6. What is your current profit or loss on this investment?
A. -$3,100.00
B. -$2,625.00
C. -$31.00
D. $987.50
E. $3,350.00
Mortgage prepayments are best defined by which one of the following?
A. reducing the mortgage according to a schedule over the life of the mortgage
B. paying a monthly mortgage payment before the regular due date
C. paying off the principal faster than required by the amortization schedule
D. paying a cash deposit when purchasing a property
E. paying each mortgage payment as scheduled
Stocks D, E, and F have actual reward-to-risk ratios of 7.1, 6.8, and 7.4, respectively.
Given this, you know for certain that:
A. stock E is preferable to stock F.
B. stock D has a higher beta than stock F.
C. the market risk premium is greater than 6.8 and less than 7.4.
D. stock F is riskier than stock D.
E. at least two of the securities are mispriced.
Which of the following will result from a decrease in an option’s strike price?
I. increase in call option price
II. decrease in call option price
III. increase in put option price
IV. decrease in put option price
A. I only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
You want to buy a bond that has a quoted price of $923. The bond pays interest
semiannually on April 1 and October 1. The coupon rate is 6 percent. What is the clean
price of this bond if today’s date is June 1? Assume a 360-day year.
A. $927.62
B. $923.00
C. $923.23
D. $936.85
E. $1,076.83
A brokerage account in which purchases can be made using credit is referred to as
which type of account?
A. clearing
B. funds available
C. cash
D. call
E. margin
The location on an exchange floor where a particular security trades is called a(n):
A. specialist’s post.
B. broker’s terminal.
C. floor spot.
D. exchange spot.
E. market pit.