Which statement is not true regarding the capital market line (CML)?
A. The CML is the line from the risk-free rate through the market portfolio.
B. The CML is the best attainable capital allocation line.
C. The CML is also called the security market line.
D. The CML always has a positive slope.
E. The risk measure for the CML is standard deviation.
HighFlyer Stock currently sells for $48. A one-year call option with strike price of $55
sells for $9, and the risk-free interest rate is 6%. What is the price of a one-year put with
strike price of $55?
A. $9.00
B.$12.89
C. $16.00
D. $18.72
E. $15.60
If information processing was perfect, many studies conclude that individuals would
tend to make __________ decisions using that information due to __________.
A. less than fully rational; behavioral biases
B. fully rational; behavioral biases
C. less than fully rational; fundamental risk
D. fully rational; fundamental risk
E. fully rational; utility maximization
You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks is
expected to pay a dividend of $2 in the upcoming year. The expected growth rate of
dividends is 9% for stock C and 10% for stock D. The intrinsic value of stock C
A. will be greater than the intrinsic value of stock D.
B. will be the same as the intrinsic value of stock D.
C. will be less than the intrinsic value of stock D.
D. will be the same or greater than the intrinsic value of stock D.
E. None of the options are correct.
Systematic risk is also referred to as
A. market risk or nondiversifiable risk.
B. market risk or diversifiable risk.
C. unique risk or nondiversifiable risk.
D. unique risk or diversifiable risk.
E. None of the options are correct.
Suppose that Chicken Express, InC. has an ROA of 7% and pays a 6% coupon on its
debt. Chicken Express has a capital structure that is 70% equity and 30% debt. Relative
to a firm that is 100% equity-financed, Chicken Express’s net profit will be ________,
and its ROE will be ________.
A. lower; lower
B. higher; higher
C. higher; lower
D. lower; higher
E. It is impossible to predict.
Suppose the 1-year risk-free rate of return in the U.S. is 6%. The current exchange rate
is 1 pound = U.S. $1.62. The 1-year forward rate is 1 pound = $1.53. What is the
minimum yield on a 1-year risk-free security in Britain that would induce a U.S.
investor to invest in the British security?
A. 15.44%
B. 13.50%
C. 12.24%
D. 7.62%
E. None of the options
If an investment provides a 1.25% return quarterly, its effective annual rate is
A. 5.23%.
B. 5.09%.
C. 4.02%.
D. 4.04%.
A year ago, you invested $10,000 in a savings account that pays an annual interest rate
of 5%. What is your
approximate annual real rate of return if the rate of inflation was 3.5% over the year?
A. 1.5%
B. 10%
C. 7%
D. 3%
E. None of the options are correct.
A mutual fund had year-end assets of $560,000,000 and liabilities of $26,000,000.
There were 23,850,000 shares in the fund at year end. What was the mutual fund’s net
asset value?
A. $22.87
B. $22.39
C. $22.24
D. $17.61
E. $19.25
The financial statements of Black Barn Company are given below.
Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm’s return on sales
ratio for 2009 is
A. 15.5%.
B. 14.6%.
C. 14.0%.
D. 15.0%.
E. 16.5%.
JCPenney Company is expected to pay a dividend in year 1 of $1.65, a dividend in year
2 of $1.97, and a dividend in year 3 of $2.54. After year 3, dividends are expected to
grow at the rate of 8% per year. An appropriate required return for the stock is 11%. The
stock should be worth _______ today.
A. $33.00
B. $40.67
C. $71.80
D. $66.00
E. None of the options are correct.
Which of the following statement(s) is(are) true regarding the variance of a portfolio of
two risky securities?
I) The higher the coefficient of correlation between securities, the greater the reduction
in the portfolio variance.
II) There is a linear relationship between the securities’ coefficient of correlation and the
portfolio variance.
III) The degree to which the portfolio variance is reduced depends on the degree of
correlation between
securities.
A. I only
B. II only
C. III only
D. I and II
E. I and III
Targetdate retirement funds are not
A. inappropriate for most investors.
B. very high in fees.
C. designed to function much like hedge funds.
D. inappropriate for most investors or very high in fees.
E. All of the options are correct.
A bet on particular mispricing across two or more securities with extraneous sources of
risk, such as general market exposure hedged away, is a
A. pure play.
B. relative play.
C. long shot.
D. sure thing.
E. relative play and sure thing.
In 2016, ____________ was the most significant financial asset of U.S. households in
terms of total value.
A. real estate
B. mutual fund shares
C. debt securities
D. life insurance reserves
E. pension reserves
Duration measures
A. weighted-average time until a bond’s half-life.
B. weighted-average time until cash flow payment.
C. the time required to make excessive profit from the investment.
D. weighted-average time until a bond’s half-life and the time required to make
excessive profit from the investment.
E. weighted-average time until cash flow payment and the time required to make
excessive profit from the
investment.
__________ is a report of the cash flow generated by the firm’s operations, investments,
and financial activities.
A. The balance sheet
B. The income statement
C. The statement of cash flows
D. The auditor’s statement of financial condition
E. None of the options are correct.
NASDAQ subscriber levels
A. permit those with the highest level, 3, to “make a market” in the security.
B. permit those with a level 2 subscription to receive all bid and ask quotes but not to
enter their own quotes.
C. permit level 1 subscribers to receive general information about prices.
D. include all OTC stocks.
E. permit those with the highest level, 3, to “make a market” in the security; permit
those with a level 2 subscription to receive all bid and ask quotes but not to enter their
own quotes; and permit level 1 subscribers to receive general information about prices.
Certificates of deposit are insured for up to ____________ in the event of bank
insolvency.
A. $10,000
B. $100,000
C. $250,000
D. $500,000
An example of ________ is that it is not as painful to have purchased a blue chip stock
that decreases in value as it is to lose money on an unknown start up firm.
A. mental accounting
B. regret avoidance
C. overconfidence
D. conservatism
Given an optimal risky portfolio with expected return of 12%, standard deviation of
26%, and a risk free rate of
5%, what is the slope of the best feasible CAL?
A. 0.64
B. 0.27
C. 0.08
D. 0.33
E. 0.36
In the event of the firm’s bankruptcy,
A. the most shareholders can lose is their original investment in the firm’s stock.
B. common shareholders are the first in line to receive their claims on the firm’s assets.
C. bondholders have claim to what is left from the liquidation of the firm’s assets after
paying the shareholders.
D. the claims of preferred shareholders are honored before those of the common
shareholders.
E.the most shareholders can lose is their original investment in the firm’s stock and the
claims of preferred shareholders are honored before those of the common shareholders.
A put option on a stock is said to be in the money if
A.the exercise price is higher than the stock price.
B. the exercise price is less than the stock price.
C. the exercise price is equal to the stock price.
D. the price of the put is higher than the price of the call.
E. the price of the call is higher than the price of the put.
Holding other factors constant, the interest-rate risk of a coupon bond is higher when
the bond’s
A. term to maturity is lower.
B. coupon rate is lower.
C. yield to maturity is higher.
D. term to maturity is lower and yield to maturity is higher.
E. None of the options are correct.
You purchased 1000 shares of CSCO common stock on margin at $19 per share.
Assume the initial margin is 50%, and the maintenance margin is 30%. Below what
stock price level would you get a margin call? Assume the stock pays no dividend;
ignore interest on margin.
A. $12.86
B. $15.75
C. $19.67
D. $13.57
If a 7% coupon bond that pays interest every 182 days paid interest 32 days ago, the
accrued interest would be
A. $5.67.
B. $7.35.
C. $6.35.
D. $6.15.
E. $7.12.
When stocks are held in street name,
A. the investor receives a stock certificate with the owner’s street address.
B. the investor receives a stock certificate without the owner’s street address.
C. the investor does not receive a stock certificate.
D. the broker holds the stock in the brokerage firm’s name on behalf of the client.
E. the investor does not receive a stock certificate, and the broker holds the stock in the
brokerage firm’s name on behalf of the client.
Empirical tests of the Black-Scholes option pricing model
A. show that the model generates values fairly close to the prices at which options
trade.
B. show that the model tends to overvalue deep in-the-money calls and undervalue deep
out-of-the-money calls.
C. indicate that the mispricing that does occur is due to the possible early exercise of
American options on dividend-paying stocks.
D. show that the model generates values fairly close to the prices at which options trade
and indicate that the mispricing that does occur is due to the possible early exercise of
American options on dividend-paying stocks.
E. All of the options are correct.
A year ago, you invested $1,000 in a savings account that pays an annual interest rate of
6%. What is your
approximate annual real rate of return if the rate of inflation was 2% over the year?
A. 4%
B. 2%
C. 6%
D. 3%
A firm in the early stages of the industry life cycle will likely have
A. high market penetration.
B. high risk.
C. rapid growth.
D. high market penetration and rapid growth.
E.-high risk and rapid growth.