A bond has a current yield that is equal to the yield-to-maturity. Given this, which one
of the following must also be true?
A. The bond must pay annual interest.
B. The maturity value must be greater than the bond price.
C. The bond can have any maturity date.
D. The coupon rate must exceed the current yield.
E. The price must exceed the par value.
An analyst gathered the following year-end price level data for an economy. What is the
economy’s annual compounded inflation rate for 2007-2012?
A. 2.22%
B. 2.49%
C. 2.68%
D. 2.87%
E. 2.92%
You purchased six put option contracts with a strike price of $45 and a premium of
$1.10.
What is the total net amount you will receive for your shares if you exercise this
contract when the underlying stock is selling for $42.90 a share?
A. $23,660
B. $24,700
C. $25,740
D. $26,340
E. $26,400
Which one of the following is the definition of operating cash flow?
A. revenue minus expenses
B. cash realized from the sale of assets
C. cash flow originating from the issuance of securities
D. cash generated by a firm’s normal business activities
E. pre-tax income
Which one of the following sentences is correct concerning fixed-income securities?
A. The coupon rate on a fixed-income security is equal to the current yield.
B. The price of a fixed-income security is inversely related to the current yield.
C. Fixed-income securities are default free.
D. Fixed-income securities tend to be more liquid than money market securities.
E. Fixed-income securities include all debt instruments issued by the U.S. government.
A $1,000 face value, 120-day bond is quoted at a bank discount yield of 3.38 percent.
What is the current bond price?
A. $957.60
B. $960.09
C. $974.18
D. $982.02
E. $988.73
The minimum equity that must be maintained at all times in a margin account is called
the:
A. initial margin.
B. initial equity position.
C. maintenance margin.
D. call requirement.
E. margin call.
A 90-day Treasury bill has a bank discount yield of 4.2 percent. What is the effective
annual rate?
A. 4.22 percent
B. 4.25 percent
C. 4.28 percent
D. 4.32 percent
E. 4.37 percent
Research on semistrong-form efficient markets indicates which one of the following is
correct?
A. Identifying a stock with repetitive price movements is generally the best method of
active investing.
B. Future returns on large company stocks tend to closely follow past pricing patterns.
C. Buying and holding a broad market index is one of the best investment strategies.
D. Predicting future stock prices is relatively easy for academic researchers.
E. Trading costs have little, if any, impact on investment returns.
Which one of the following describes the typical initial margin requirements for a
futures contract?
A. 2 to 5 percent of contract value on short positions only
B. 2 to 5 percent of contract value on both long and short positions
C. 4 to 8 percent of contract value on long positions only
D. 4 to 8 percent of contract value on short positions only
E. 5 to 15 percent of contract value on both long and short positions
Market timing tends to lead to:
A. fairly consistent abnormal returns.
B. increasing profits as experience is gained.
C. superior returns but only if you are a professional money manager.
D. a rate of return roughly equal to that of the overall market.
E. underperforming the overall market.
Which of the following are offered as possible causes of the January effect?
I. new professional money managers who assume the role at the beginning of the year
II. tax loss selling in December
III. bonus lock-in effect
IV. window dressing
A. I and II only
B. III and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV
A 6-month put has a strike price of $40. The underlying stock’s price is $38.25. What is
the intrinsic value of this put?
A. $0.00
B. $0.90
C. $1.75
D. $2.30
E. $3.60
Downtown Industries common stock had returns of 8.2, 12.2, 11.5, and 6.3 percent,
respectively, over the past four years. What is the standard deviation of these returns?
A. 2.07 percent
B. 2.38 percent
C. 2.41 percent
D. 2.59 percent
E. 2.82 percent
You would like to know the value of a firm’s equity today in relation to the cost of that
equity.
Which one of the following ratios will provide you with this information?
A. price-earnings
B. price-book
C. price-sales
D. price-cash flow
E. price-assets
The amount of money per share that will be received when a put option on stock is
exercised is called the _____ price.
A. market
B. stock
C. strike
D. future
E. obligated
Which one of the following statements about efficient portfolios is correct?
A. Any efficient portfolio will lie below the minimum variance portfolio when the
expected portfolio return is plotted against the portfolio standard deviation.
B. An efficient portfolio will have the lowest standard deviation of any portfolio
consisting of the same two securities.
C. There are multiple efficient portfolios that can be constructed using the same two
securities.
D. Any portfolio mix consisting of only two securities will be an efficient portfolio.
E. There is only one efficient portfolio that can be constructed using two securities.
Over the past four years, the common stock of JL Steel Co. produced annual returns of
6.2, 5.8, 11.2, and 13.6 percent, respectively. Treasury bills produced returns of 3.4, 3.3,
4.1, and 4.7 percent, respectively over the same period. What is the standard deviation
of the risk premium on JL Steel Co. stock for this time period?
A. 2.23 percent
B. 2.86 percent
C. 3.22 percent
D. 4.46 percent
E. 4.61 percent
The annual interest payment divided by the current price of a bond is called the:
A. coupon rate.
B. current yield.
C. yield-to-maturity.
D. yield-to-market.
E. market yield.
Behrend Corporation has annual sales of $4.5 million, depreciation of $425,000,
operating expenses of $679,000, cost of goods sold of $2.3 million, and interest expense
of $230,000. What is the operating income?
A. $1,096,000
B. $2,036,000
C. $3,525,000
D. $4,000,000
E. $4,811,000
When stocks are held in an index in proportion to their total company market value, the
index is:
A. dollar-weighted.
B. front-weighted.
C. back-weighted.
D. price-weighted.
E. value-weighted.
Which one of the following generally applies to municipal bonds?
A. noncallable
B. risk-free
C. high credit rating
D. zero coupon
E. par value of $1,000
When your equity position in a security is less than the required amount, your
brokerage firm will issue a:
A. margin call.
B. margin certificate.
C. cash certificate.
D. limit order.
E. leverage call.
If government expenditures exceed tax revenue the resulting shortfall is termed a
_________.
A. budget shortfall
B. taxing deficiency
C. budget deficit
D. revenue shortfall
E. revenue deficiency
The total payment amount on an IO strip is:
A. fixed.
B. equal to the interest rate multiplied by the par value multiplied by the PSA rate
schedule.
C. equal to the par value multiplied by the interest rate.
D. unknown until all payments have been made.
E. equal to the total interest computed on the bond’s amortization schedule.
A cash-settled option is defined as an option which does which one of the following?
A. requires a cash deposit upon purchase
B. has a foreign currency as its underlying asset
C. has the U.S. dollar at its underlying asset
D. entails a cash payment to the holder upon exercise
E. offers the option to either deliver the underlying asset or a cash payment
What is the 3-day simple moving average as of day 5, given the following information?
A. $35.28
B. $35.35
C. $35.41
D. $35.57
E. $35.62
A one-year STRIPS sells at an interest rate of 3.54 percent and a two-year STRIPS sells
at an interest rate of 3.49 percent. What is the implied one year forward rate? Assume
the rates are effective annual rates.
A. 3.44 percent
B. 3.50 percent
C. 3.54 percent
D. 3.57 percent
E. 3.60 percent
Yvette recently purchased 500 shares of stock at a cost per share of $43.50. The initial
margin requirement on this stock is 75 percent and the maintenance margin is 40
percent. The stock is currently valued at $44.75 a share. What is her current margin
position? Ignore margin interest.
A. 74.29 percent
B. 74.78 percent
C. 75.70 percent
D. 76.03 percent
E. 76.14 percent
Which one of the following is a financial planning method wherein some account
values vary in relation to expected sales?
A. common size approach
B. linear method
C. percentage of net income method
D. adjusted sales method
E. percentage of sales approach
You currently have a portfolio comprised of 70 percent stocks and 30 percent bonds.
Which one of the following must be true if you change the asset allocation?
A. The expected return will remain constant.
B. The revised portfolio will be perfectly negatively correlated with the initial portfolio.
C. The two portfolios could have significantly different standard deviations.
D. The portfolio variance will be unaffected.
E. The portfolio variance will most likely decrease in value.
Rosalita purchased a put option with a strike price of $35. She paid a total of $140 for
the contract. What is the break-even stock price?
A. $31.40
B. $33.60
C. $38.00
D. $41.60
E. $42.80
Three months ago, Trevor purchased 500 shares of stock at a cost per share of $64.20.
The purchase was made on margin with an initial margin requirement of 65 percent.
Trevor pays 1.6 percent over the call money rate of 4.8 percent. What will his total
dollar return be on this investment if he sells his shares today at a price per share of
$63.40? Ignore dividends.
A. -$548.60
B. -$539.67
C. -$534.95
D. -$575.60
E. -$591.19
An asset had returns of 6.8, 5.4, 3.6, -4.2, and -1.3 percent, respectively, over the past
five years.
What is the variance of these returns?
A. .00173
B. .00184
C. .00216
D. .00240
E. .00259
You have a 30-year, fixed-rate mortgage with equal monthly payments. The amount of
interest you pay each month will _____ and the amount of principal you pay each
month will ____.
A. decrease; decrease
B. decrease; increase
C. increase; decrease
D. increase; increase
E. remain constant; remain constant