Which one of the following is the largest market in the world for new debt securities
with maturities of one year or less?
A. commercial paper
B. U.S. Treasury bill
C. banker’s acceptance
D. Eurodollar money market
E. certificates of deposit
What is the variance of the returns on a security given the following information?
A. 48.18
B. 56.23
C. 64.38
D. 72.87
E. 91.35
Use the following stock quotes to answer this question:
What was the previous day’s closing price for Chelsea Ind. stock?
A. $34.70
B. $44.10
C. $48.20
D. $58.10
E. $60.40
A taxable money market fund has an annual return of 4.62 percent. What is the
equivalent aftertax yield if the tax rate is 27 percent?
A. 1.25 percent
B. 3.37 percent
C. 4.62 percent
D. 5.87 percent
E. 6.13 percent
A Treasury bond has a dollar price of $1,015.63. What would you expect the bond quote
to be?
A. 101:05
B. 101:15
C. 101:16
D. 101:18
E. 101:22
You own a portfolio of 5 stocks and have 3 expected states of the economy. You have
twice as much invested in Stock A as you do in Stock E. How will the weights be
determined when you compute the rate of return for each economic state?
A. The weights will be the probability of occurrence for each economic state.
B. Each stock will have a weight of 20 percent for a total of 100 percent.
C. The weights will decline steadily from Stock A to Stock E.
D. The weights will be based on the amount invested in each stock as a percentage of
the total amount invested.
E. The weights will be based on a combination of the dollar amounts invested as well as
the economic probabilities.
A European call has a strike price of $37.50. The underlying stock’s price is $38.20.
What is the lower price bound of this call?
A. $0.00
B. $0.30
C. $0.50
D. $0.70
E. $1.00
Your portfolio has an expected annual return of 11.6 percent. What is the two-year
expected return?
A. 11.60 percent
B. 14.65 percent
C. 16.40 percent
D. 21.60 percent
E. 23.20 percent
Preferred stock:
A. represents the residual ownership of a corporation.
B. is generally issued only by new firms that are small in size.
C. has a fixed maturity date similar to a bond.
D. dividends can be skipped at the discretion of the company president.
E. may or may not be cumulative.
You own a portfolio which is valued at $12.5 million and which has a beta of 1.42. You
would like to create a riskless portfolio by hedging using S&P 500 futures contracts.
The contract size is $250 times the index level. How many futures contracts do you
need to acquire if the current S&P 500 index is 1420?
A. short 68 contracts
B. short 50 contracts
C. long 41 contracts
D. long 57 contracts
E. short 63 contracts
Will owns a bond with a make-whole call provision. The bond matures in 13 years but
is being called today. The coupon rate is 8.25 percent with interest paid semiannually.
What is the current call price if the applicable discount rate is 7.75 percent and the
make-whole call provision applies?
A. $932.84
B. $957.11
C. $1,040.51
D. $1,110.28
E. $1,128.66
An American call option grants the holder the right to:
A. sell the underlying security at the strike price on or before the expiration date.
B. sell the underlying asset at the strike price only on the expiration date.
C. buy the underlying asset at or below the exercise price on or before the expiration
date.
D. buy the underlying asset at the exercise price only on the expiration date.
E. buy the underlying security at a stated price on or before the expiration date.
An ETF is best described as:
A. an index fund that trades like a closed-end fund.
B. a closed-end fund that trades like a stock.
C. a sector fund that trades like a bond.
D. an index fund that trades only at the end of each day.
E. an international fund that trades like a domestic stock.
What is the normal means of delivery on a Treasury note futures contract?
A. delivery in cash
B. change in registered ownership
C. direct deposit of cash into the seller’s bank account
D. wire transfer of funds from the buyer’s bank to the seller’s bank
E. payment by certified check on the maturity date
Which one of the following is a requirement of the two-stage dividend growth model?
A. both growth rates must be less than the discount rate
B. one of the two growth rates must exceed the discount rate
C. the first growth rate must exceed the second growth rate
D. the first growth rate must equal the discount rate
E. the second growth rate must be less than the discount rate
An investor owns a security that is expected to return 14 percent in a booming economy
and 6 percent in a normal economy. The overall expected return on the security is 8.88
percent. Given there are only two states of the economy, what is the probability that the
economy will boom?
A. 28 percent
B. 33 percent
C. 36 percent
D. 41 percent
E. 45 percent
To determine the actual objective of a fund, you should primarily refer to the:
A. fund’s objective statement.
B. fund’s prospectus.
C. portfolio holdings.
D. sales literature.
E. portfolio manager’s comments in the annual report.
The U.S. Treasury bill has a return of 2.84 percent while the S&P 500 is returning 10.84
percent. Your portfolio has an actual return of 14.76 percent and a beta of 1.31. What is
the portfolio’s Jensen’s alpha?
A. -0.47 percent
B. -0.92 percent
C. 1.37 percent
D. 1.44 percent
E. 1.57 percent
Which one of the following occurred following the Crash of 1987?
A. Program trading was barred.
B. All market orders were changed to electronic orders.
C. Trading is now halted for the day anytime the market declines by 10 percent or more.
D. Trading now stops for one hour anytime the market declines by 10 percent.
E. Congress decided not to pass any anti-takeover legislation.
Which of the following reflects the dollar value of economic output in terms of the
current year?
A. current year GDP
B. real GDP
C. nominal GDP
D. adjusted GDP
E. actual GDP
After the call protection period, which one of the following basically serves as the
upper price limit on a callable bond?
A. present value of all future bond payments discounted at the current market rate of
interest
B. face value of the bond
C. call price of the bond
D. current market price of the bond
E. current market price of a comparable noncallable bond
Which one of the following accurately describes bond refunding?
A. replacing maturing bonds with a new bond issue
B. calling existing bonds and refinancing those bonds with new debt
C. paying off bonds early with excess cash generated by the firm
D. replacing maturing bonds with an equity issue
E. paying bonds off early to satisfy disgruntled bondholders
Assume the CPI increases from 125.9 to 126.4 over the period. What is the inflation
rate implied by this CPI change?
A. 0.10%
B. 0.20%
C. 0.30%
D. 0.40%
E. 0.50%
You have 50,000 pounds of cotton in storage. You don’t want to sell the cotton today as
you believe the price of cotton will be higher six months from now than what the
markets currently predict. However, you also realize that the price could decline. Which
one of the following would hedge your risk of owning the cotton for the next few
months?
A. short futures position
B. long futures position
C. short spot position
D. long spot position
E. long futures position combined with a short spot position
Phil owns a 7 percent, semiannual coupon bond that has a face value of $1,000 and
matures in 16 years. The bond has a current yield to maturity of 7.1 percent. What will
the percentage change in the price of his bond be if interest rates decrease by 50 basis
points?
A. 4.33 percent
B. 4.68 percent
C. 4.91 percent
D. 5.17 percent
E. 5.26 percent
A $1,000 face value bond has a 6.85 percent semi-annual coupon and sells for $980.00.
What is the current yield?
A. 6.75 percent
B. 6.82 percent
C. 6.89 percent
D. 6.99 percent
E. 6.61 percent
Consider the following information on GDP and CPI for an economy over the last 3
years. Calculate nominal GDP growth for 2011.
A. 2.15%
B. 2.56%
C. 2.95%
D. 3.15%
E. 3.22%
The value of an option is dependent upon the value of the underlying security. This
relationship defines an option as which one of the following?
A. equity security
B. fixed income security
C. derivative security
D. transfer security
E. dependent security
Which one of the following describes a banker’s acceptance?
A. agreement to loan money in exchange for an agreement by the borrower to offer an
asset as collateral
B. written agreement to loan funds in the future once the loan terms have been accepted
C. postdated check with payment guaranteed by a bank
D. agreement by a bank to provide short-term funds for the construction phase of a
project
E. the sale of a security by a bank accompanied by an agreement to repurchase the
security the following day
The January effect:
A. does not occur in the domestic market every year.
B. occurs every year but only for large-company stocks.
C. occurs every year but only for small-company stocks.
D. is unaffected by institutional investors.
E. is unique to the United States.
You are a baker and need to purchase a substantial amount of wheat flour three months
from now in preparation for your busy season. Your concern is that the price of wheat
will increase substantially before you make your purchase. Which one of the following
positions in wheat would be an effective hedge for you?
A. long position in spot market
B. short position in spot market
C. long position in futures market
D. short position in futures market
E. none of these
How long is the expected average mortgage life of a mortgage held in a 30-year
mortgage pool with a 100 PSA?
A. 14.68 years
B. 18.29 years
C. 21.33 years
D. 23.90 years
E. 25.25 years