Stacy purchased 400 shares of stock for $38 a share. She sold those shares six months
later for $34 a share. The initial margin requirement is 80 percent and the maintenance
margin is 40 percent.
Ignore margin interest and trading costs. If she purchased the shares for cash her
holding period return would be _____ percent as compared to _____ percent if she had
used margin.
A. -10.12; -12.84
B. -10.53; -13.16
C. -11.63; -14.30
D. -11.63; -14.54
E. -12.27; -15.82
A public offering of securities which are offered first to current shareholders is called
a(n):
A. existing shareholder offer.
B. limited offer.
C. rights offer.
D. venture offer.
E. preference offer.
Borrowers must pay which one of the following if they are to pay off their home
mortgage?
A. remaining principal balance plus any accrued interest
B. present value of all future payments discounted at the current market rate
C. all remaining payments in full
D. remaining principal balance plus one year’s interest
E. present value of the remaining principal balance
ABC Construction, Inc. has buildings and equipment of $315,600, long-term debt of
$154,700, accounts payable of $52,000, cash of $9,800, accounts receivable of $18,300,
inventory of $62,000, and retained earnings of $147,000. What is the total equity of the
firm?
A. $5,200
B. $97,000
C. $147,000
D. $199,000
E. $228,000
If the S&P 500 falls by 20 percent, the NYSE will:
A. do nothing if the drop occurs after 2:30 P.M.
B. halt trading for one hour.
C. halt trading for one hour if the decline occurs before 3 P.M.
D. halt trading for one-half hour if the decline occurs after noon.
E. cease trading for the day.
A convertible bond has a par value of $1,000 and a market price of $1,116.76. If the
conversion ratio is 19, what is the conversion price?
A. $43.48
B. $45.45
C. $47.62
D. $52.63
E. $55.56
A futures contract is an agreement:
A. that obligates a corporation to issue additional securities at a specified date in the
future.
B. to exchange financial assets on a specified date in the future with the price
determined on that date.
C. to deliver goods today in exchange for an agreed upon payment to be paid on a
specified date in the future.
D. to exchange a specified quantity of goods on a specified date in the future at the
current market price.
E. to exchange goods on a specified date in the future at a price that is agreed upon
today.
Your portfolio has a standard deviation of 12.3 percent and an average return of 9.6
percent. You have a 5 percent probability of losing _____ percent or more in any given
year.
A. -33.79
B. -31.54
C. -12.59
D. -10.63
E. -3.34
Which one of the following descriptors is used to identify a bond that pays one single
payment at maturity?
A. zero coupon
B. imputed value
C. solo
D. STRIP
E. term
The power of a “rippling effect” of adding money to the financial system is measured
by the ________.
A. ripple ratio
B. money multiplier
C. multiplier ratio
D. money magnifier
E. magnifier ratio
Consider a money market instrument with 48 days to maturity and a quoted ask price of
99. Which two of the following statements are correct as they relate to this instrument?
I. The bond equivalent yield is an effective annual rate.
II. The bank discount rate is lower than the bond equivalent yield.
III. The bank discount rate is an effective annual rate.
IV. The bond equivalent yield is lower than the effective annual rate.
A. I and II only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
Assume the futures price of a commodity is equal to the future value of the cash price,
calculated at the risk-free rate. Given this, which one of the following terms applies to
the market for this commodity?
A. positive basis equilibrium
B. humped market
C. inverted market
D. time equilibrium
E. spot-futures parity
The day-of-the-week effect refers to which trading day?
A. Monday
B. Tuesday
C. Wednesday
D. Thursday
E. Friday
A portfolio has an average return of 14.2 percent and a standard deviation of 14.5
percent. Given this, you should expect to lose at least _____ percent on an annual basis
once every century.
A. -19.53
B. -17.24
C. -15.68
D. -1.710
E. -1.550
What is the difference in the value of one November heating oil contract between this
day’s opening and closing prices?
A. $59.40
B. $249.48
C. $2,494.80
D. $2,970.00
E. $5,940.00
Tony brags that his portfolio’s rate of return is “beating the market”. Which one of the
following would best substantiate his claim?
A. positive Sharpe ratio
B. negative Treynor ratio
C. positive Jensen’s alpha
D. zero Value at Risk
E. beta greater than 1.0
Which two of the following are key to making SPX options an easy choice as a hedge
against an equity portfolio?
I. European style
II. American style
III. trade in whole or partial contracts
IV. cash settlement
A. III only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
A stock has an average historical return of 11.3 percent and a standard deviation of 20.2
percent.
Which range of returns would you expect to see approximately two-thirds of the time?
A. -23.8 to +53.0 percent
B. +4.6 to +33.8 percent
C. +5.8 to +31.6 percent
D. -3.9 to +32.5 percent
E. -8.9 to +31.5 percent
The outstanding bonds of International Plastics mature in 6 years and pay semiannual
interest payments of $33.50 on a $1,000 face value bond. The bonds are currently
selling for $1,008.64. The coupon rate is _____ percent, the current yield is _____
percent, and the yield to maturity is _____ percent.
A. 6.70; 6.64; 6.52
B. 6.70; 6.78; 6.57
C. 6.64; 6.83; 6.57
D. 6.55; 6.86; 6.60
E. 6.55; 6.91; 6.75
Kay plans to retire in two years and wishes to liquidate her account at that time. Kay
has a _____ constraint.
A. resource
B. horizon
C. liquidity
D. tax
E. special circumstances
Which one of the following statements is correct?
A. Company insiders are not permitted to trade their employer’s securities.
B. Only tippers can be accused of illegal insider trading.
C. Tippees are permitted to trade securities based on information they know is private.
D. Trading on private information which you just happen to overhear is legal.
E. Any trading based on information known to be private is illegal.
Which one of the following is the best example of a risk associated with stock
ownership?
A. The stock paid a regular quarterly dividend.
B. The firm’s net income decreased by 4 percent for the quarter, as had been expected.
C. One of the firm’s patent applications was unexpectedly rejected.
D. The firm’s cost of debt increased as the result of an expected tax cut.
E. The firm’s production costs increased in line with previous years.
You purchased 600 shares of SLG, Inc. stock at a price of $41.20 a share. You then
purchased put options on your shares with a strike price of $45.00 and an option
premium of $1.10. At expiration, the stock was selling for $48.30 a share. You sold your
shares on the option expiration date. What is your net profit or loss your transactions
related to SLG, Inc. stock?
A. $2,650
B. $3,250
C. $3,600
D. $4,150
E. $4,300
What is the variance of the returns on a security given the following information?
A. 239.77
B. 284.05
C. 321.16
D. 347.15
E. 362.98
Assume the returns on Stock X were positive in January, February, April, July, and
November. The other months the returns on Stock X were negative. The returns on
Stock Y were positive in January, April, May, July, August, and October and negative
the remaining months. Which one of the following correlation coefficients best
describes the relationship between Stock X and Stock Y?
A. -1.0
B. -0.5
C. 0.0
D. 0.5
E. 1.0
Which one of the following is a trader whose trades are not based on meaningful
financial analysis or information?
A. specialist
B. arbitrageur
C. noise trader
D. sentiment trader
E. market maker
Which one of the following is equal to net income expressed as a percentage of total
assets?
A. return on equity
B. return on the balance sheet
C. operating yield
D. net yield
E. return on assets
When can a homeowner prepay on his or her home mortgage?
A. only on prespecified dates
B. only during the last five years of the loan period
C. only if the prepayment pays the mortgage balance in full
D. at any time
E. only if the property securing the mortgage is being sold
A portfolio has a beta of 1.16, a standard deviation of 12.2 percent, and an expected
return of 11.55 percent. The market return is 10.4 percent and the risk-free rate is 3.2
percent. What is the portfolio’s Sharpe ratio?
A. .57
B. .68
C. .73
D. .77
E. .85
A common rule of thumb on Wall Street says that the sum of the inflation rate plus the
market price-earnings ratio equals _____.
A. 10
B. 15
C. 20
D. 25
E. 30
Money market instruments:
A. tend to be illiquid.
B. are generally sold in small denominations.
C. cannot be resold.
D. may be sold on a discount basis.
E. are quoted in terms of a spread.
A bond has a modified duration of 5.87 years, a par value of $1,000, and a current
market value of $1,008. What is the dollar value of an 01?
A. $0.0698
B. $0.0700
C. $0.5917
D. $0.6401
E. $0.7023
Which of the following will increase the expected risk premium for a security, all else
constant?
I. an increase in the security’s expected return
II. a decrease in the security’s expected return
III. an increase in the risk-free rate
IV. a decrease in the risk-free rate
A. I only
B. III only
C. IV only
D. I and IV only
E. II and III only
Your company has pretax income of $52,000 on sales of $506,000. Sales are expected
to increase by 6 percent next year and the tax rate is 40 percent. What is the expected
net income for next year if your firm uses the percentage of sales approach when
compiling pro forma statements?
A. $28,938
B. $31,835
C. $33,072
D. $35,582
E. $44,520