Finance 73210 | Course Paper

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You purchased a share of stock for $29. One year later you received $2.25 as dividend

and sold the share for $28. Your holding-period return was _________.

A. -3.57%

B. -3.45%

C. 4.31%

D. 8.03%

Which of the following ETFs tracks the S&P 500 Index?

A. Qubes

B. Diamonds

C. Vipers

D. Spiders

When interest rates increase, the duration of a 20-year bond selling at a premium

_________.

A. increases

B. decreases

C. remains the same

D. increases at first and then declines

In a ___________ index, changes in the value of the stock with the greatest market

value will move the index value the most, everything else equal.

A. value-weighted index

B. equally weighted index

C. price-weighted index

D. bond price index

The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its

expected ROE is 12%, and its expected EPS is $5. If the firm’s plowback ratio is 60%,

its P/E ratio will be _________.

A. 7.14

B. 14.29

C. 16.67

D. 22.22

The German stock market is measured by which market index?

A. FTSE

B. Dow Jones 30

C. DAX

D. Nikkei

Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of

earning a 10% rate of return, and a 10% chance of losing 3%. What is the standard

deviation of this investment?

A. 5.14%

B. 7.59%

C. 9.29%

D. 8.43%

The tendency of investors to hold on to losing investments is called the ________.

A. overweighting effect

B. head-in-the-sand effect

C. disposition effect

D. prospector effect

Taxes are applied to the _______________________.

A. real value of sheltered investment income

B. nominal value of unsheltered investment income

C. nominal value of sheltered investment income

D. real value of unsheltered investment income

A decrease of 1% in both your tax exemption and your income tax rate would, on net,

_______________.

A. make you better off

B. make you worse off

C. make you neither better off nor worse off

D. make you either better or worse off depending on your age

Which of the following is (are) true about dark pools?

I. They allow anonymity in trading.

II. They often involve large blocks of stocks.

III. Trades made through them might not be reported.

A. I and II only

B. II and III only

C. I and III only

D. I, II, and III

The maximum loss a buyer of a stock call option can suffer is the _________.

A. call premium

B. stock price

C. stock price minus the value of the call

D. strike price minus the stock price

Your timing was good last year. You invested more in your portfolio right before prices

went up, and you sold right before prices went down. In calculating historical

performance measures, which one of the following will be the largest?

A. dollar-weighted return

B. geometric average return

C. arithmetic average return

D. mean holding-period return

You would expect the beta of cyclical industries to be ______ and the beta of defensive

industries to be ______.

A. greater than 1; less than 1

B. less than 1; less than 1

C. less than 1; greater than 1

D. greater than 1; greater than 1

A TRIN ratio of greater than 1 is considered a __________.

A. bearish signal

B. bullish signal

C. bearish signal by some technical analysts and a bullish signal by other technical

analysts

D. trend reversal signal

Technical traders view mutual fund investors as _________ market timers.

A. excellent

B. frequent

C. neutral

D. poor

If an investment returns a higher percentage of your money back sooner, it will ______.

A. be less price-volatile

B. have a higher credit rating

C. be less liquid

D. have a higher modified duration

Market 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

A stock with a current market price of $50 and a strike price of $45 has an associated

call option priced at $6.50. This call has an intrinsic value of ______ and a time value

of _____.

A. $5; $1.50

B. $1.50; $5

C. $0; $6.50

An investor would want to __________ to hedge a long position in Treasury bonds.

A. buy interest rate futures

B. buy Treasury bonds in the spot market

C. sell interest rate futures

D. sell S&P 500 futures

Which of the following does not approximate the performance of a buy-and-hold

portfolio strategy?

A. an equally weighted index

B. a price-weighted index

C. a value-weighted index

D. all of these options (Weights are not a factor in this situation.)

Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of

21%. Portfolio B has a beta of .7 and an expected return of 17%. The risk-free rate of

return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should

take a short position in portfolio __________ and a long position in portfolio

_________.

A. A; A

B. A; B

C. B; A

D. B; B

Which one of the following provides the best example of securitization?

A. convertible bond

B. call option

C. mortgage pass-through security

D. preferred stock

If you know that a call option will be profitably exercised, then the Black-Scholes

model price will simplify to _______.

S0–X

X –S0

S0– PV(X)

Everything else equal, which variable is negatively related to the intrinsic value of a

company?

A. D1

B. D0

C. g

D. k

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

P/E ratio for 2015 is _________.

A. 2.8

B. 3.6

C. 6

D. 11.11

Suppose a U.S. investor wants to invest in a British firm currently selling for ₤50 per

share. The investor has $7,000 to invest, and the current exchange rate is $1.40/₤.

How many shares can the investor purchase?

A. 140

B. 100

C. 71.43

D. none of these options

Risk that can be eliminated through diversification is called ______ risk.

A. unique

B. firm-specific

C. diversifiable

D. all of these options

Arbitrage is based on the idea that _________.

A. assets with identical risks must have the same expected rate of return

B. securities with similar risk should sell at different prices

C. the expected returns from equally risky assets are different

D. markets are perfectly efficient

Net asset value is defined as ________________________.

A. book value of assets divided by shares outstanding

B. book value of assets minus liabilities divided by shares outstanding

C. market value of assets divided by shares outstanding

D. market value of assets minus liabilities divided by shares outstanding

A forecast of bond returns based largely on a prediction of the yield curve at the end of

the investment horizon is called a _________.

A. contingent immunization

B. dedication strategy

C. duration analysis

D. horizon analysis

You have the following rates of return for a risky portfolio for several recent years:

2011 35.23% 2012 18.67% 2013 −9.87% 2014 23.45%

If you invested $1,000 at the beginning of 2011, your investment at the end of 2014

would be worth ___________.

A. $2,176.60

B. $1,785.56

C. $1,645.53

D. $1,247.87

A mutual fund may not hold more than ______ of the shares of any publicly traded

company.

A. 5%

B. 10%

C. 25%

D. 50%

A longer time to maturity will unambiguously increase the value of a call option

because:

I. The longer maturity time reduces the effect of a dividend on call price.

II. With a longer time to maturity the present value of the exercise price falls.

III. With a longer time to maturity the range of possible stock prices at expiration

increases.

A. I only

B. I and II only

C. II and III only

D. I, II, and III