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At the end of July, the average yields on 10 top-rated corporate bonds and 10
intermediate-grade bonds were 7.65% and 8.42%, respectively. At the end of August,
the average yields on 10 top-rated corporate bonds and 10 intermediate-grade bonds
were 6% and 6.71%, respectively. The confidence index _________ during August, and
bond technical analysts are likely to be ________.
A. increased; bullish
B. increased; bearish
C. decreased; bullish
D. decreased; bearish
Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a
promissory note to pay back the loan over 5 years. In this transaction, _____ .
A. a new financial asset was created
B. a financial asset was traded for a real asset
C. a financial asset was destroyed
D. a real asset was created
Increases in the money supply will cause demand for investment and consumption
goods to __________ in the short run and may cause prices to __________ in the long
run.
A. increase; increase
B. increase; decrease
C. decrease; increase
D. decrease; decrease
When assessing the sustainability of a firm's cash flows, analysts will prefer to see cash
growth generated from which of the following sources?
A. cash flow from investment activities
B. cash flow from operating activities
C. cash flow from financing
D. cash flow from extraordinary events
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of
return of 35%, while stock B has a standard deviation of return of 15%. The correlation
coefficient between the returns on A and B is .45. Stock A comprises 40% of the
portfolio, while stock B comprises 60% of the portfolio. The standard deviation of the
return on this portfolio is _________.
A. 23%
B. 19.76%
C. 18.45%
D. 17.67%
Diversification is most effective when security returns are _________.
A. high
B. negatively correlated
C. positively correlated
D. uncorrelated
If the coupon rate on a bond is 4.5% and the bond is selling at a premium, which of the
following is the most likely yield to maturity on the bond?
A. 4.3%
B. 4.5%
C. 5.2%
D. 5.5%
_____________ are likely to close their positions before the expiration date, while
____________ are likely to make or take delivery.
A. Investors; regulators
B. Hedgers; speculators
C. Speculators; hedgers
D. Regulators; investors
In technical analysis, __________ is a value below which the market is relatively
unlikely to fall.
A. book value
B. resistance level
C. support level
D. the Dow line
The Treynor-Black model combines an actively managed portfolio with an efficiently
diversified portfolio in order to:
I. Improve the diversification of the overall portfolio
II. Improve the overall portfolio's Sharpe ratio
III. Reach a higher CAL than would otherwise be possible
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Which one of the following is the ticker symbol for the CBOE option contract on the
S&P 100 Index?
A. SPX
B. DJX
C. CME
D. OEX
The efficient frontier represents a set of portfolios that
A. maximize expected return for a given level of risk.
B. minimize expected return for a given level of risk.
C. maximize risk for a given level of return.
D. None of the options.
______________________ are often called mutual funds.
A. Unit investment trusts
B. Open-end investment companies
C. Closed-end investment companies
D. REITs
A convertible bond has a par value of $1,000, but its current market price is $95. The
current price of the issuing company's stock is $26, and the conversion ratio is 34
shares. The bond's market conversion value is _________.
A. $1,000
B. $884
C. $933
D. $980
The dollar-per-euro spot rate is 1.4457 and the 1-yr forward rate is 1.4194. If inflation
in Germany is forecasted at 4.5% this year, what is the forecasted inflation rate in the
United States?
A. 1.9%
B. 2.6%
C. 4.5%
D. 5.3%
If you choose a zero-coupon bond with a maturity that matches your investment
horizon, which of the following statements is (are) correct?
I. You will have no interest rate risk on this bond.
II. In the absence of default, you can be sure you will earn the promised yield rate.
III. The duration of your bond is less than the time to your investment horizon.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
An investor wants to retire when she has $3,000,000 in savings, after taxes. Given a
20% tax rate at retirement, how much money, per year, must she save in order to retire
in 30 years, given an 11% annual return? Assume she uses a traditional IRA and
liquidates the entire portfolio at retirement.
A. $12,827
B. $13,903
C. $15,074
D. $18,842
A pension fund must pay out $1 million next year, $2 million the following year, and
then $3 million the year after that. If the discount rate is 8%, what is the duration of this
set of payments?
A. 2 years
B. 2.15 years
C. 2.29 years
D. 2.53 years
Consider the theory of active portfolio management. Stocks A and B have the same
positive alpha and the same nonsystematic risk. Stock A has a higher beta than stock B.
You should want __________ in your active portfolio.
A. equal proportions of stocks A and B
B. more of stock A than stock B
C. more of stock B than stock A
D. The answer cannot be determined from the information given.
The price of a stock fluctuates over a period of 10 days. The movement of the stock
price below the 10-day minimum price of $25 triggers a rash of selling. The $25 price
might now be considered the _______________.
A. congestion area
B. penetration point
C. resistance level
D. support level
Benjamin Graham thought that the benefits from detailed analysis of a firm's financial
statements had _________ over his long professional life.
A. increased greatly
B. increased slightly
C. remained constant
D. decreased
Compute the duration of an 8%, 5-year corporate bond with a par value of $1,000 and
yield to maturity of 10%.
A. 3.92
B. 4.28
C. 4.55
D. 5
Hedge funds are typically set up as _______________.
A. limited liability partnerships
B. corporations
C. REITs
D. mutual funds
A pension fund will owe $10 million to retirees in 6 years. An actuary assumes an 8%
rate of return on the funds invested in the pension plan. If the pension plan receives
annual contributions from the company sponsor, how much must the company pay each
year to fully fund the pension liability?
A. $1,212,587
B. $1,363,154
C. $1,533,333
D. $1,666,667
The New York Stock Exchange is a good example of _________.
A. an auction market
B. a brokered market
C. a dealer market
D. a direct search market
In a private defined benefit pension plan the ___________ bears the investment risk,
and in a private defined contribution plan the ____________ bears the investment risk.
A. plan sponsor; employee
B. employee; plan sponsor
C. U.S. government; plan sponsor
D. plan sponsor; U.S. government
Which of the following transactions will result in a decrease in cash flow from
investments?
A. acquisition of another business
B. capital gain from sale of a subsidiary
C. decrease in net investments
D. sale of equipment
An investor with high risk aversion will likely prefer which of the following risk and
return combinations?
A. expected return = 12%, historical standard deviation = 17%
B. expected return = 14%, historical standard deviation = 19%
C. expected return = 16%, historical standard deviation = 21%
D. expected return = 18%, historical standard deviation = 23%
A hog farmer decides to sell hog futures. This is an example of __________ to limit
risk.
A. cross-hedging
B. short hedging
C. spreading
D. speculating
Suppose that over the same time period two portfolios have the same average return and
the same standard deviation of return, but portfolio A has a higher beta than portfolio B.
According to the Sharpe ratio, the performance of portfolio A __________.
A. is better than the performance of portfolio B
B. is the same as the performance of portfolio B
C. is poorer than the performance of portfolio B
D. cannot be measured since there is no data on the alpha of the portfolio
Which one of the following exploits differences between actual future prices and their
theoretically correct parity values?
A. index arbitrage
B. marking to market
C. reversing trades
D. settlement transactions
Which of the following analysts focus more on past price movements of a firm's stock
than on the underlying determinants of its future profitability?
A. credit analysts
B. fundamental analysts
C. systems analysts
D. technical analysts
June call and put options on King Books Inc. are available with exercise prices of $30,
$35, and $40. Among the different exercise prices, the call option with the _____
exercise price and the put option with the _____ exercise price will have the greatest
value.
A. $40; $30
B. $30; $40
C. $35; $35
D. $40; $40
The offer price of an open-end fund is $18 and the fund is sold with a front-end load of
5%. What is the fund's NAV?
A. $18.74
B. $17.10
C. $15.40
D. $16.57
