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Which one of the following is the key function of GNMA?
A. providing direct financing for first-time home buyers only
B. directly refinancing existing home mortgages
C. providing mortgage funds to military personnel only
D. providing direct financing to first-time home buyers, military personnel, and farmers
E. sponsoring the repackaging of mortgages into mortgage-backed securities pools
Assume the inflation rate in 2012 is 2.1 percent. If the nominal GDP grew 3.2 percent
and nominal wages grew 2.6 percent, what are the approximate real growth rates of
GDP and wages?
A. 1.00%; 0.40%
B. 1.05%; 0.50%
C. 1.10%; 0.50%
D. 1.10%; 0.60%
E. 1.15%; 0.60%
Which one of the following statements is correct?
A. Futures contracts must be held to maturity.
B. Futures contracts can be closed out only by contract buyers.
C. Futures contracts can be closed out, but only during the week prior to maturity.
D. You cannot avoid accepting delivery once you purchase a futures contract.
E. Futures contracts can be closed out by entering a reverse trade.
Which one of the following situations will produce the highest put price, all else
constant? Assume the options are all in-the-money.
A. $50 stock price; 60 days to option expiration
B. $50 stock price; 90 days to option expiration
C. $55 stock price; 60 days to option expiration
D. $55 stock price; 90 days to option expiration
E. Insufficient information is provided to answer this question.
Jim began his investing program with a $4,000 initial investment. The table below
recaps his returns each year as well as the amounts he added to his investment account.
What is his dollar-weighted average return?
A. 1.6 percent
B. 2.2 percent
C. 2.6 percent
D. 3.2 percent
E. 3.6 percent
Which one of the following is a bull call spread?
A. buying a $20 call and selling a $25 call on the same stock
B. selling a $20 call and buying a $25 call on the same stock
C. buying a $20 call and selling a $15 call on the same stock
D. selling a $20 call and buying a $25 put
E. buying a $20 call and selling a $25 put
Which one of the following is the definition of investment cash flow?
A. revenue minus expenses
B. cash flow from the purchases and sales of fixed assets and investments
C. cash flow originating from the issuance of securities
D. cash generated by a firm's normal business activities
E. pre-tax income
The CPR for an unseasoned 100 PSA mortgage is 4.5 percent. What is the single
monthly mortality?
A. 0.3557 percent
B. 0.3635 percent
C. 0.3752 percent
D. 0.3830 percent
E. 0.3986 percent
If the nominal GDP was reported at $122.3 billion and real GDP was reported at $120.1
billion, what was the inflation rate for the period?
A. 1.59%
B. 1.83%
C. 2.32%
D. 2.62%
E. 2.88%
A semi-annual coupon bond has a 6.5 percent coupon rate, a $1,000 face value, a
current value of $1,054.54, and 4 years until the first call date. What is the call price if
the yield to call is 6.7 percent?
A. $1,000
B. $1,020
C. $1,040
D. $1,060
E. $1,080
Of the following, Stock _____ has the greatest level of total risk and Stock _____ has
the highest risk premium.
A. A; B
B. B; E
C. C; D
D. D; C
E. C; E
Assume there are 450 million people in the United States, 165 million of which make
up the labor force. If 18 million are unemployed, what is the unemployment rate?
A. 8.35%
B. 9.58%
C. 10.91%
D. 11.05%
E. 11.74%
Which one of the following is a difference between a forward contract and a futures
contract?
A. Forward contracts are based on commodities while futures contracts are based on
financial instruments.
B. The price of the asset exchanged is determined when a forward contract is entered
while the price is set on the exchange date for a futures contract.
C. A forward contract is a formal agreement while a futures contract is an informal
agreement.
D. Futures contracts are managed through an organized exchange while forward
contracts are not.
E. There are no differences between forward and futures contracts.
Which one of the following statements is true regarding futures contracts?
A. Futures prices are generally set equal to the spot price on the delivery date.
B. Futures contracts generally grant the buyer the option to accept only a portion of the
contract.
C. Cost and convenience are the two key considerations when establishing the
settlement procedures.
D. The seller of a futures contract has the option to deliver cash in an amount equal to
the contract value in lieu of the underlying asset.
E. The buyer and seller of the contract negotiate the price on the maturity date.
Preferred stock:
A. is a type of corporate debt.
B. is treated like debt for tax purposes.
C. is listed in the liabilities section of a balance sheet.
D. has a stated dividend but no stated liquidation value.
E. is treated like equity for both tax and accounting purposes.
Which one of the following statements is correct regarding prospect theory?
A. Average investors tend to lose more money than they earn from investing.
B. Typical investors feel that losing $1 is twice as painful as the pleasure derived from
making $1.
C. Investors should focus on gains and losses in individual securities rather than their
portfolio's total value.
D. Typical investors tend to react irrationally only when focusing on total portfolio
value.
E. Average investors tend to prefer higher levels of risk.
Jennifer believes that Northern Wine stock is going to decline in value so she is short
selling 1,000 shares at $32 a share. Her initial margin requirement is 70 percent and the
maintenance margin is 30 percent. What is the highest the stock price can go before she
receives a margin call?
A. $38.97
B. $40.15
C. $41.85
D. $43.75
E. $45.77
A $5,000 face value STRIPS matures in 7 years and is currently quoted at a price of
64.238. What is the yield-to-maturity?
A. 3.21 percent
B. 3.38 percent
C. 4.87 percent
D. 6.42 percent
E. 6.76 percent
A stock is currently selling for $26.50. A 3-month put option with a strike price of $30
has an option premium of $4.05. The risk-free rate is 2.5 percent and the market rate is
9.75 percent. What is the option premium on a 2-month call with a $30 strike price?
Assume the options are European style.
A. $0.00
B. $0.33
C. $0.41
D. $0.67
E. $0.73
Dennison Mfg. pays annual dividends. For the past six years, the firm has paid
dividends of $1.10, $1.12, $1.25, $1.28, $1.30, and $1.40, respectively. What is the
geometric average dividend growth rate for this time period?
A. 3.51 percent
B. 4.10 percent
C. 4.94 percent
D. 5.07 percent
E. 6.03 percent
Your portfolio has a standard deviation of 11.7 percent. What is the two-year standard
deviation?
A. 14.87 percent
B. 15.80 percent
C. 16.55 percent
D. 23.40 percent
E. 24.15 percent
The market has a standard deviation of 10.8 percent (0.108) while a risky security has a
standard deviation of 22.5 (0.225) percent. The covariance of the stock with the market
is .0149. What is the beta of the stock?
A. 1.09
B. 1.11
C. 1.15
D. 1.19
E. 1.28
Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $89,100.
Stock X is worth $57,800. What is the portfolio weight of stock Y?
A. .351
B. .390
C. .523
D. .610
E. .649
Futures margin is defined as the deposit of funds into a futures trading account for
which one of the following purposes?
A. purchase additional futures contracts
B. take a hedge position in the future
C. cover potential losses from outstanding positions
D. cover the trading costs and commissions
E. cover the future costs of reversing the position
You invest $60,000 in Germany when the exchange rate is $1.41/€. Your investment
gains 12%, and you subsequently exchange the euros back into dollars at a rate of
$1.49/€. What is your total percentage return on this investment?
A. 17.48%
B. 17.89%
C. 18.10%
D. 18.35%
E. 18.85%
The market where individual investors directly trade exchange-listed securities with
other individual investors is referred to as the _____ market.
A. home
B. independent
C. third
D. fourth
E. SuperDot
You wrote a covered call with a strike price of $45 and an option premium of $1.10.
Assume the stock price is $44 a share currently and that it falls to $42 a share and
remains at that price until the option expires. As a result, you will:
A. lose an amount equal to the option premium.
B. lose the option premium but get to keep the stock.
C. keep both your stock and the option premium.
D. keep the option premium but lose your shares of stock.
E. lose both your stock and the option premium.
How much will it cost to purchase 5 May $27.50 calls on Texas Instruments?
A. $21
B. $1,215
C. $1,245
D. $1,720
E. $2,075
The amount of risk premium allocated to Security A is dependent upon which one of the
following?
A. unsystematic risk associated only with Security A
B. total risk associated with Security A's classification
C. total surprise associated with Security A
D. the difference between the expected return and the actual return on Security A
E. systematic risk associated with Security A
What is the beta of a portfolio which consists of the following?
A. 1.01
B. 1.24
C. 1.26
D. 1.29
E. 1.32
A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.
The call option delta is .86. What is the approximate call price if the stock increases in
value to $45?
A. $0.12
B. $0.26
C. $0.96
D. $1.98
E. $2.08
