One way of maintaining growth when domestic markets have become saturated is to
expand into markets overseas.
The Beaver and Altman bankruptcy studies found that firms can survive at least two
years once they declare bankruptcy.
Stock index futures provide the portfolio manager a realistic alternative to selling either
a part or the entirety of a portfolio in a declining market.
A combination of a futures and options contract is an option to purchase the futures
contract.
It is possible for any gain in real GDP to be completely offset by the rate of inflation.
For investors putting their funds in tax-deferred accounts, the capital gains tax
provisions during the holding period are irrelevant.
A growth stock is sometimes defined as the common stock of a company which is
growing faster than the economy in general.
Circuit breakers will shut down the market for a period of time if a dramatic drop in
stock prices occurs.
The price of a lower coupon rate bond is more sensitive to interest rate changes than
higher coupon rate bonds.
A drawback to using convertibles is their dilutive effect.
Pure competition in manufacturing is common in the United States.
Studies by Ippolito and Goodwin indicate that mutual fund managers are superior
performers.
Diamonds represent a form of real assets, but cattle do not.
The only tax benefit for real estate owners is depreciation allowances.
The S&P Indexes are often used by professionals because they are weighted by total
market value of the companies in the index.
With the income-statement method of forecasting earnings per share (EPS), you start
with a forecast of profits.
A corporation must generally pay taxes on only 30% of the dividends (preferred or
common) that it receives from another corporation.
Real estate may be favored by investors in high tax brackets.
Under a graduated payment mortgage, annual payments are adjusted based on the new
existing interest rate.
Firms in industries with low barriers to entry are limited in their ability to raise prices.
Over 20-year rolling periods, the worst performance by small company stocks was
positive, according to Ibbotson and Associates.
When comparing international growth in real GDP between 2000 and 2009 among the
United States, Japan, China, Germany, and the United Kingdom, the United States
clearly is at the top of the group of countries.
Actually, the term mutual fund applies specifically to open-end investment companies,
although closed-end funds are sometimes loosely labeled as mutual funds as well.
Companies that do not have a differentiated product and compete on price are probably
in purely competitive industries.
In the formula P0 = D1/(Ke – g), if Ke rises while dividends and growth stay the same,
the stock price will decline.
Stock index futures and options are sometimes referred to as derivatives.
Dealer spreads on real assets tend to be less than on stocks or bonds.
History shows that, as inflation increases, price-earnings ratios increase along with
inflation.
The Intercontinental Exchange (ICE) is now operating 24 hours per day using a
computerized trading system.
The S&P 500 Index and Gross Domestic Product (GDP) seem to have similar long-term
growth paths.
The primary participants in the commodities market include both the speculators and
the hedgers.
The DuPont method demonstrates the relationship between assets, sales, income, and
debt for creating returns on assets and equity.
A naked option write is a conservative strategy.
Super Dot refers to the New York Stock Exchange’s designated order transfer system,
which allows NYSE member firms to electronically transmit all market and limit orders
directly to the specialist at the trading post.
Terminal wealth analysis is one way of analyzing the effect of the reinvestment rate
risk.
In the developing world, Germany has the second largest equity market after the United
States.
Commissions charged by stock brokers tend to vary among different classes of brokers.
The Value Line Average is an equal-weighted index.
When the portfolio manager wants to hedge a stock portfolio using an index futures
contract, he or she must know: 1) the total dollar value of the portfolio, 2) the current
index futures price, and 3) the relative volatility of the portfolio to the market.
A market is a way of exchanging assets.
What is the percentage conversion premium of a convertible bond with market value of
$900, conversion value of $800, and par value of $1,000?
A.25%
B.20%
C.12.5%
D.10.5%
As the stock price moves higher, the conversion premium that the investor is willing to
pay:
A.becomes higher.
B.stays the same.
C.becomes lower.
D.None of the above
Exchange-Traded Funds offer the investor many advantages over open-end and
closed-end mutual funds. Which of the following are comparative advantages?
A.There are global and international funds to choose
B.There are over 80 broad-based domestic equity index funds
C.They are bought and sold like common stocks
D.All of the above are comparative advantages
A means of exchanging assets, which may or may not include a specified location, and
in which the seller may or may not own the assets being sold, is called:
A.ETF.
B.program trading.
C.a market.
D.None of the above
A bar chart is used to demonstrate:
A.advances and declines of stock prices.
B.high, low, and closing stock price on a daily basis.
C.changes of two points or more.
D.More than one of the above
One reason a firm may repurchase its own shares is:
A.that management views the firm’s future prospects to be bright.
B.to go public.
C.to qualify for an exchange listing.
D.to adhere to SEC requirements on number of shares outstanding.
In an inflationary economy, many firms use the ________ method of inventory
valuation to reduce distortion of profits.
A.Current cost
B.LIFO
C.FIFO
D.LILO
E.Average cost
Administrative problems, such as different settlement procedures for various markets,
can best be avoided by:
A.becoming thoroughly comfortable with each country’s procedures.
B.using a local broker.
C.investing in a mutual fund.
D.None of the above
Least squares trend analysis is used to take a simple average of past data.
The difference between a put and a call option is that:
A. a put is an option to sell common stock at a specified price while a call is an option
to buy common stock at a specified price.
B. a call is an option to sell common stock at a specified price while a put is an option
to buy common stock at a specified price.
C. a call is an option to buy common stock at a specified price while a put is the option
to buy preferred stock at a specified price.
D. a call is an option to sell common stock at a specified price while a put is the option
to sell preferred stock at a specified price.
For all bonds of equal risk, the type of bond that had the greatest duration, and therefore
the greatest price sensitivity, is:
A.Treasury bonds.
B.zero-coupon bonds.
C.corporate bonds.
D.long-term government bonds.
The minimum holding period to qualify for the long-term capital gains treatment is:
A.1 month.
B.12 months.
C.18 months.
D.24 months.
E.36 months.
If a pension fund manager is afraid interest rates may go down on his short-term
portfolio of 90-day Treasury bills, he could hedge by going:
A.long on Treasury bill futures contracts.
B.short (sell) on Treasury bill futures contracts.
C.long on U.S. dollar contracts.
D.short (sell) on the U.S. dollar contracts.
Systematic risk is rewarded with a premium in the marketplace because:
A.risk is particular to the stock or industry.
B.it represents a random occurrence which could not have been foreseen.
C.it is associated with market movements which cannot be eliminated through
diversification.
D.None of the above
Which of the following shareholder services is a taxable event?
A.Safekeeping
B.Automatic reinvestment
C.Pre-authorized check plan
D.Exchange privilege
Net asset value
A.is the value of the securities minus the liabilities, divided by the number of shares
outstanding.
B.is the price at which the shares of a closed-end fund trade.
C.is the value of the fund’s year’s earnings, divided by the total amount invested in the
fund.
D.A and B
What factors must be considered in choosing between investment alternatives?
A.Risk and liquidity
B.Interest or dividends versus capital gains
C.Time frame for managing funds and evaluating performance and tax effects
D.Safety of principal
E.All of the above
One basic problem with the application of the Capital Asset Pricing Model when
computing Ke is that
A. (Km– RF) is not observable in the market.
B. the analyst needs to forecast dividends for next year.
C. beta is a historical number.
D. the risk-free rate changes every day.
Which of the following best describes the function of an investment banker selling an
issue on a “best efforts” basis?
A.Return unsold securities to the firm
B.Guarantee a continuous liquid market
C.Private placements to financial institutions
D.More than one of the above
While hedging through interest rate futures reduces or eliminates the risk of loss, it also:
A.is illegal in some cases.
B.has not been accepted by most corporate financial managers.
C.eliminates the possibility of an abnormal gain.
D.None of the above
When a company repurchases shares of their own common stock,
A.the earnings per share will rise.
B.the dividends paid out in total will decline.
C.the earnings per share growth rate will rise.
D.All of the above will happen
Specialists in international securities associated with financial management firms
provide their expertise primarily to:
A.wealthy investors.
B.institutional investors.
C.managers of mutual funds.
D.More than one of the above
If you took all the possible investments that investors could acquire and determined the
optimum basket of investments, you would come up with point _________ on the
capital market line.
A.RF
B.K
C.M
D.Z
A call feature may be valuable to:
A.investors.
B.the issuing company.
C.corporate employers.
D.the IRS.
Yield to maturity takes into account everything except:
A.annual interest received.
B.the difference between the current bond price and its maturity value.
C.the number of years to maturity.
D.the number of years since the bond’s purchase.
An acquisition may be canceled because of any of the following except:
A.antitrust action.
B.an unusually high premium on stock price.
C.a lawsuit brought by stockholders.
D.disapproval of the target company’s management.
Which of the following statements is(are) true?
A.Debt-to-equity and debt-to-asset ratios measure capital structure and vary widely
among industries
B.Debt-utilization ratios alone do not measure a firm’s ability to meet its cash
obligations
C.DuPont analysis considers the impact of debt on the profitability of the firm
D.Two of the above are true
Margin requirements on commodities contracts:
A.are much higher than those on common stock transactions.
B.vary over time, and even among exchanges, for a given commodity.
C.typically are 2-10% of the value of the contract.
D.None of the above are true
Which of the following are features of margin accounts?
A.They leverage returns (i.e., magnify the size of a gain or loss)
B.You must put up part of the purchase price in cash or other securities
C.Purchased securities are not delivered to the investor
D.The percentage of the total cost the investor must pay is set by the Federal Reserve
Board
E.All of the above are features
The capital asset pricing model (CAPM) takes off where the _________ concluded.
A.Security market line
B.Capital market line
C.Efficient frontier and Markowitz portfolio theory
D.Arbitrage pricing theory
The standard deviation of a risk-free asset is:
A.1.
B.0.
C.-1.
D.any number between -1 and 1.
Which of the four following industries was not mentioned as an example of a consumer
non-cyclical industry?
A.Utility companies
B.Food stocks
C.Pharmaceuticals
D.Tobacco stocks
A primary difference between stock options and stock index options is:
A.stock index options tend to be more highly speculative.
B.stock index options are ALWAYS settled ONLY for cash.
C.there is rarely a premium on stock index options.
D.None of the above
The highest duration and maximum price sensitivity relative to years to maturity are
produced by:
A.a coupon rate equal to the market rate.
B.a low coupon rate.
C.a zero-coupon.
D.None of the above