Suppose you are a U.S. investor who is planning to invest $350,000 in China. Your
Chinese investment gains 8 percent. If the exchange rate moves from 6.09 Yuan per
dollar to 6.12 per dollar over the period, what is your total return on this investment?
A. 6.55%
B. 6.71%
C. 6.98%
D. 7.29%
E. 7.47%
The Sharpe ratio is best used to evaluate which one of the following?
A. corporate bonds
B. government bonds
C. Treasury bills
D. individual stocks
E. diversified portfolios
Which one of the following statements is correct concerning a Treasury bill?
A. The asked discount indicates the amount a bond dealer is willing to pay to purchase
a Treasury bill.
B. The asked yield on a Treasury bill is a bond equivalent yield.
C. The asked discount for a Treasury bill is greater than the bid discount.
D. The asked yield for a Treasury bill is computed based on a 360-day year.
E. The bid price on a Treasury bill is computed based on a 365, or 366-day year.
Which one of the following measures a portfolio’s raw return against the expected
return based on the Capital Asset Pricing Model?
A. Sharpe ratio
B. Treynor ratio
C. Jensen’s alpha
D. beta
E. Value at Risk
Which of the following characteristics are correct regarding the new style option
quotation system?
I. The system is known as OPRA – the Options Price Reporting Authority code
II. The system has 3 data elements
III. The system has 21 characters
IV. The system has 5 characters
V. The system is known as the OCC Series Key
VI. The root symbol is the underlying stock’s ticker symbol
A. I, II, III, and VI
B. II, III, IV, and V
C. I, II, and IV
D. II, III, V, and VI
E. III, V, and VI
Government determination of tax rates and spending policies is called _______.
A. tax policy
B. budgetary policy
C. federal spending policy
D. fiscal policy
E. monetary policy
By how much did one September futures contract on wheat vary during today’s trading?
A. $.115
B. $1.15
C. $11.50
D. $115.00
E. $575.00
How are the cash flows allocated when actual prepayments fall below a PAC collar’s
lower bound?
A. The entire cash flow is paid to the non-PAC support bonds until those bonds are paid
in full.
B. The cash flows are divided between PAC and non-PAC bonds on a pro-rata basis.
C. PAC payments are recomputed to a reduced fixed amount.
D. The entire cash flow is paid to the PAC bondholders.
E. The interest income is paid to the non-PAC bondholders with all principal amounts
paid to the PAC bondholders.
A best efforts IPO underwriting consisted of 2.2 million shares at an offer price of $17 a
share. The underwriter’s fee was set at 6.65 percent. How many shares were sold if the
issuer received $31,926,260.10?
A. 2,011,800 shares
B. 1,878,015 shares
C. 1,760,915 shares
D. 2,346,300 shares
E. 2,053,700 shares
A $50,000 face value STRIPS matures in 12 years and has a yield to maturity of 6.50
percent. What is the current dollar price of this security?
A. $21,199.68
B. $23,206.44
C. $25,038.18
D. $26,141.41
E. $28,809.18
Options expire on the _____ of the expiration month.
A. last trading day
B. 3rd Friday
C. last Friday
D. Saturday following the 3rd Friday
E. Saturday following the last Friday
A bond has a modified duration of 7.22 and a yield to maturity of 8.1 percent. If interest
rates increase by 75 basis points, the bond’s price will decrease by _____ percent.
A. -0.46
B. -0.54
C. -4.60
D. -5.42
E. -6.18
How does the size of the change in a bond’s price react in response to a given change in
the yield to maturity as the time to maturity increases?
A. decreases at an increasing rate
B. decreases at a diminishing rate
C. increases at a constant rate
D. increases at a diminishing rate
E. increases at an increasing rate
Wholesale Grocer’s has total assets of $580,000 and total liabilities of $375,000. Net
sales for the year are $523,000 and the profit margin is 10.5 percent. What is the return
on equity?
A. 10.6 percent
B. 26.8 percent
C. 31.2 percent
D. 37.4 percent
E. 44.6 percent
Steve placed a limit order to sell 500 shares of stock at $14 a share. Which of the
following does Steve know for sure?
I. His order will execute but the time of execution is unknown.
II. His order may never execute.
III. He will receive exactly $7,000 if his order executes.
IV. He could receive more, but not less, than $14 a share.
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. I only
Swenson Co. announced its merger plans on August 25 and had a daily return of 0.8
percent. Tyler Co. announced its merger plans on August 26 and had a daily return of
0.6 percent. The Underwood Co. announced its merger plans on August 27 and had a
daily return of -0.5 percent. The daily market returns for August 25 through August 27
were 0.2, 0.3, and -0.4, respectively. What is the combined cumulative abnormal return
for the announcement date?
A. 0.0 percent
B. 0.2 percent
C. 0.6 percent
D. 0.8 percent
E. 1.0 percent
Which one of the following had the greatest volatility of returns for the period
1926-2012?
A. large-company stocks
B. U.S. Treasury bills
C. long-term government bonds
D. small-company stocks
E. long-term corporate bonds
Which of the following measures should be used to determine if a security should be
included in a master portfolio?
I. Sharpe ratio
II. Treynor ratio
III. Jensen’s alpha
A. I only
B. II only
C. III only
D. I and II only
E. II and III only
Which one of the following describes an ECN?
A. Web site used by investors to trade directly with other investors
B. Web site limited to use by professional brokers and dealers
C. computerized trading floor
D. communications network used by specialists
E. cellular trading network
Which one of the following is the Treasury program allowing interest and principal
payments from Treasury notes or bonds to be sold separately?
A. EDGAR
B. TRSTRP
C. TRIPS
D. TZEROES
E. STRIPS
Which one of the following is the set of portfolios that provides the maximum return for
a given standard deviation?
A. minimum variance portfolio
B. Markowitz efficient frontier
C. correlated market frontier
D. asset allocation relationship
E. diversified portfolio line
Which one of the following is a statistical model, defined by its mean and standard
deviation, that is used to assess probabilities?
A. variance
B. normal distribution
C. efficient frontier
D. Value at Risk
E. Jensen’s alpha
The dividend yield is defined as the annual dividend expressed as a percentage of the:
A. average stock price.
B. initial stock price.
C. ending stock price.
D. total annual return.
E. capital gain.
Which one of the following is the difference between the price a bond dealer is willing
to pay to buy and the price at which he or she is willing to sell?
A. commission
B. imputed cost
C. imputed interest
D. bid-ask spread
E. ask price
Which one of the following statements is correct regarding moving averages?
A. The 50-day moving average reflects the long-term trend of the market.
B. An exponential moving average is a weighted average.
C. Moving averages are used primarily to measure trading volume.
D. Short-term and long-term moving averages always move in the same direction.
E. Moving averages are generally computed using average daily prices.
Mutual fund trading costs:
A. are computed as a percentage of a fund’s assets.
B. are generally set at a flat amount per year.
C. generally include a bonus fee for outperforming an index.
D. increase in direct relation to the turnover rate.
E. are the costs paid to brokers in the form of sales commissions.
A bond has a $1,000 par value, semiannual interest payments of $40, and a current
market value of $1,054. The bonds mature in 12.5 years. The coupon rate is _____
percent, the current yield is _____ percent, and the yield to maturity is _____ percent.
A. 8.00; 7.67; 7.72
B. 8.00; 7.72; 7.64
C. 8.00; 7.59; 7.33
D. 8.50; 7.87; 7.73
E. 8.50; 8.12; 8.19
Lucas wants to sell 9,000 shares of stock and places a market order. The floor broker is
unable to arrange the sale with another floor broker so the specialist agrees to “stop” the
stock. What has the specialist agreed to do?
A. cancel the order
B. place the order into the order book to hold until an order to buy 9,000 shares is
received
C. purchase the shares if no other buyer is readily available
D. sell the shares to the next available buyer regardless of the price received
E. sell the shares at the end of the trading day at the best price available at that time
If you believe that stock market prices follow a random walk, then:
A. historical price information provides no benefit in predicting future prices.
B. there is no financial benefit from investing in the stock market.
C. having inside information will not lead to excess profits.
D. studying past price movements will lead to excess profits.
E. you also believe the market is strong-form efficient.
A preliminary document provided to investors who are interested in a stock offering is
called a(n):
A. prospectus.
B. inquiry form.
C. draft offer.
D. green shoe.
E. red herring.
A Treasury bond matures in 13 years, has a 5.25 percent coupon, and a quoted price of
98:01. What is the yield to maturity?
A. 5.25 percent
B. 5.34 percent
C. 5.46 percent
D. 5.55 percent
E. 5.68 percent
Which two of the following determine how sensitive a security is relative to movements
in the overall market?
I. the standard deviation of the security
II. correlation between the security’s return and the market return
III. the volatility of the security relative to the market
IV. the amount of unsystematic risk inherent in the security
A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. III and IV only
Explain the role the external financing need plays in the future growth outlook for a
firm.
Draw a graph with the option price on the vertical axis and the time to expiration on the
horizontal axis. Illustrate how put and call option prices vary as the time to expiration
increases.
Identify and describe each of the three components of a security’s expected return
according to the capital asset pricing model.
Farmer Mac raises wheat. He expects his yield this summer to be 320,000 bushels but
he decides to sell futures contracts on only 230,000 bushels. What is his logic for
selling futures and why didn’t he sell futures on his entire crop?
Explain why some futures contracts are settled in cash while others are not. Provide an
example of each.
Write a short paragraph comparing a bank discount rate to a bond equivalent rate.
How is the minimal value for a convertible bond determined?
What should the primary role of portfolio managers be given the research to date on
their market performance and based on the assumption that markets are efficient?
What are the primary differences between an ETF and an ETN?
A conservative investor has a well-diversified portfolio but is still concerned about two
things. First, he is concerned about the downside risk and secondly, he is concerned
whether he is earning a sufficient rate of return to compensate for the total risk he is
assuming. How could you quantify these concerns for this investor?
This morning, you shorted 100 shares of Better Foods stock at a price per share of $46.
What is the maximum potential profit and maximum potential loss on this position?
Identify and briefly explain four of Malkiel’s five theorems.
Josh is saving money to purchase a home in 9 years. Explain why Josh should create a
coupon bond portfolio with a duration of 9 years, rather than purchasing coupon bonds
that mature in 9 years.