The Elliott wave theory gives a buy signal when you can identify a primary bull trend
by identifying _________.
A. when the long-term direction of the market is positive
B. when the long-term direction of the market is negative
C. when the long-term direction of the market is stable
D. good stocks without regard to the long-term direction of the market
Which of the following is not a characteristic of common stock ownership?
A. residual claimant
B. unlimited liability
C. voting rights
D. right to any dividend paid by the corporation.
An investor in a 28% tax bracket is trying to decide whether to invest in a municipal
bond or a corporate bond. She looks up municipal bond yields (rm) but wishes to
calculate the taxable equivalent yield r. The formula she should use is given by ______.
A. r = rm (1 – 28%)
B. r = rm / (1 – 72%)
C. r = rm (1 – 72%)
D. r = rm / (1 – 28%)
A restriction under which investors cannot withdraw their funds for as long as several
months or years is called __________.
A. transparency
B. a lock-up period
C. a back-end load
D. convertible arbitrage
The term Jensen Measure is synonymous with which performance calculation?
A. Sigma
B. Delta
C. Beta
D. Alpha
A high water mark is a limiting factor of hedge fund manager compensation. This
means that managers can’t charge incentive fees ________.
A. when a fund stays flat
B. when a fund falls and does not recover to its previous high value
C. when a fund falls by 10% or more
D. none of these options. (Managers can always charge incentive fees.)
All other things equal, which of the following has the longest duration?
A. a 20-year bond with a 10% coupon yielding 10%
B. a 20-year bond with a 10% coupon yielding 11%
C. a 20-year zero-coupon bond yielding 10%
D. a 20-year zero-coupon bond yielding 11%
You have purchased a guaranteed investment contract (GIC) from an insurance firm
that promises to pay you a 5% compound rate of return per year for 6 years. If you pay
$10,000 for the GIC today and receive no interest along the way, you will get
__________ in 6 years (to the nearest dollar).
A. $12,565
B. $13,000
C. $13,401
D. $13,676
The financial statements of Burnaby Mountain Trading Company are shown below.
Note: The common shares are trading in the stock market for $27 each.
Refer to the financial statements of Burnaby Mountain Trading Company. The firm’s
leverage ratio for 2015 is _________.
A. 1.3
B. 1.5
C. 1.69
D. 2.83
A __________ bond gives the issuer an option to retire the bond before maturity at a
specific price after a specific date.
A. callable
B. coupon
C. puttable
D. Treasury
A put option has a strike price of $35 and a stock price of $38. If the call option is
trading at $1.25, what is the time value embedded in the option?
A. $0
B. $.75
C. $1.25
D. $3
The initial maturities of most exchange-traded options are generally __________.
A. less than 1 year
B. less than 2 years
C. between 1 and 2 years
D. between 1 and 3 years
The nominal interest rate is 10%. The real interest rate is 4%. The inflation rate must be
_________.
A. -6%
B. 4%
C. 5.77%
D. 14.4%
The arbitrage pricing theory was developed by _________.
A. Henry Markowitz
B. Stephen Ross
C. William Sharpe
D. Eugene Fama
Between 2003 and 2013, the purchasing power of the U.S. dollar increased relative to
the purchasing power of _______.
A. Japan
B. the Euro
C. Switzerland
D. Canada
You have an investment horizon of 6 years. You choose to hold a bond with a duration
of 4 years. Your realized rate of return will be larger than the promised yield on the
bond if ___________________.
A. interest rates increase
B. interest rates stay the same
C. interest rates fall
D. The answer cannot be determined from the information given.
An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is
the offering price?
A. $14.57
B. $15.95
C. $17.55
D. $16.49
The part of a stock’s return that is systematic is a function of which of the following
variables?
I. Volatility in excess returns of the stock market
II. The sensitivity of the stock’s returns to changes in the stock market
III. The variance in the stock’s returns that is unrelated to the overall stock market
A. I only
B. I and II only
C. II and III only
D. I, II, and III
Which of the following statistics cannot be negative?
A. covariance
B. variance
C. E(r)
D. correlation coefficient
The material wealth of society is determined by the economy’s _________, which is a
function of the economy’s _________.
A. investment bankers; financial assets
B. investment bankers; real assets
C. productive capacity; financial assets
D. productive capacity; real assets
Research conducted by Rubinstein (1994) suggests that _______________ command a
disproportionately high time value.
A. out-of-the-money call options
B. out-of-the-money put options
C. in-the-money call options
D. in-the-money put options
A call option has an exercise price of $30 and a stock price of $34. If the call option is
trading for $5.25, what is the intrinsic value of the option?
A. $0
B. $1.25
C. $4
D. $5.25
You have the opportunity to invest $1,000 for one year. All other things being equal,
you have the opportunity to obtain a 1-year Mexican bond (in pesos) at 7.35% or a
1-year U.S. bond (in dollars) at 6.00%. The spot rate is 10.9892 pesos per $1. The
1-year forward rate is 11.2274 pesos per $1. How much better or worse off are you if
you invested in the U.S. bond instead of the Mexican bond?
A. $9 worse off
B. $9 better off
C. $6 worse off
D. $6 better off
A stock priced at $65 has a standard deviation of 30%. Three-month calls and puts with
an exercise price of $60 are available. The calls have a premium of $7.27, and the puts
cost $1.10. The risk-free rate is 5%. Since the theoretical value of the put is $1.525, you
believe the puts are undervalued.
If you construct a riskless arbitrage to exploit the mispriced puts, your arbitrage profit
will be _____.
A. $5.75
B. $6.17
C. $.96
D. $.42
All exchange rates are expressed as units of foreign currency that can be purchased with
one U.S. dollar. Answer the following about decomposing the manager’s performance.
What is the difference in return of the manager’s portfolio due to country selection?
A. -.60%
B. -.75%
C. .12%
D. .22%
What is the standard deviation of a portfolio of two stocks given the following data:
Stock A has a standard deviation of 30%. Stock B has a standard deviation of 18%. The
portfolio contains 60% of stock A, and the correlation coefficient between the two
stocks is -1.
A. 0%
B. 10.8%
C. 18%
D. 24%
Firm-specific risk is also called __________ and __________.
A. systematic risk; diversifiable risk
B. systematic risk; nondiversifiable risk
C. unique risk; nondiversifiable risk
D. unique risk; diversifiable risk
You estimate that the present value of a firm’s cash flow is valued at $15 million. The
break up value of the firm if you were to sell the major assets and divisions separately
would be $20 million. This is an example of what Peter Lynch would call
___________.
A. a stalwart
B. slow growth
C. a star
D. an asset play
You have a $50,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000
in Intel, $12,000 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have
betas of 1.3, 1, and .8, respectively. What is your portfolio beta?
A. 1.048
B. 1.033
C. 1
D. 1.037
Which one of the following is a true statement?
A. A margin deposit can be met only by cash.
B. All futures contracts require the same margin deposit.
C. The maintenance margin is the amount of money you post with your broker when
you buy or sell a futures contract.
D. The maintenance margin is the value of the margin account below which the holder
of a futures contract receives a margin call.
A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20
years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84.
The yield to call on this bond is _________.
A. 6%
B. 6.58%
C. .2%
D. 8%