Which one of the following terms is used to identify the evaluation method that
determines the value of a stock by reviewing a firm’s financial statement in conjunction
with other financial and economic information?
A. technical analysis
B. conceptual analysis
C. prediction valuation
D. fundamental analysis
E. discounted valuation
Gerold purchased 3 put option contracts at an option premium of $0.95 and a strike
price of $40. At expiration, the stock price was $42.25 per share. What is his percentage
return?
A. -100 percent
B. 0 percent
C. 15.79 percent
D. 21.62 percent
E. 31.58 percent
Which of the following types of indexes is a stock market index in which stocks are
held in proportion to their share price?
A. balanced
B. market-weighted
C. dollar-weighted
D. price-weighted
E. value-weighted
The market segmentation theory states that interest rates on debt vary dependent upon
market segments which are segmented based upon which one of the following?
A. time to maturity
B. principal amount
C. use of funds
D. type of lender
E. type of borrower
Bonds issued with a regular sequence of maturity dates are called which one of the
following?
A. callable bonds
B. sequential bonds
C. serial bonds
D. sinking bonds
E. put bonds
Which one of the following statements is correct concerning an inverted futures
market?
A. The basis will be negative.
B. The basis will equal zero.
C. The cash price will equal the futures price.
D. The cash price will exceed the futures price.
E. Arbitrage opportunities must exist.
Which one of the following is the risk that a bond issuer will cease paying the interest
and principal payments as scheduled?
A. interest rate risk
B. default risk
C. market risk
D. conversion risk
E. earnings risk
Matt short sold 500 shares of Tall Pines stock at $19 a share at an initial margin of 65
percent.
The maintenance margin is 35 percent. What is the highest the stock price can go before
he receives a margin call?
A. $20.12
B. $21.48
C. $23.22
D. $24.07
E. $25.16
Which of the following is NOT considered in the first filter or phase of top-down
analysis?
A. Domestic spending
B. Fiscal policy
C. Business cycles
D. Monetary Policy
E. Economic indicators
Which one of the following is the best interpretation of this VaR statistic: Prob (Rp ≤
-.15) = 37%?
A. If your portfolio declines by 15 percent or more, that decline is expected to be
followed by a 37 percent increase in value.
B. Your portfolio is expected to lose at least 15 percent, but not more than 37 percent in
any given year.
C. There is a 37 percent chance that your portfolio will decline in value by at least 15
percent over the next year.
D. Sometime in the future, your portfolio is expected to lose 15 percent or more in a
single year, but have an overall average rate of return of 37 percent.
E. There is a 37 percent chance that your portfolio will lose at least 15 percent of its
value over the next 10 years.
Which one of the following must be equal for two bonds if they are to have similar
changes in their prices given a relatively small change in bond yields?
A. coupon payment
B. time to maturity
C. market price
D. duration
E. current yield
Which one of the following actions is the Federal Reserve most likely to take if it is
concerned about a slowing economy?
A. lower the tax rate
B. lower the discount rate
C. increase the call rate
D. increase the tax rate
E. increase the discount rate
Explain a key advantage and a key disadvantage of Jensen’s alpha.
Nelson purchased 1,600 shares of stock for $18.75 a share. The initial margin
requirement is 70 percent and the maintenance margin is 40 percent. What is the
maximum percent by which the stock price can decline before he receives a margin
call?
A. 30 percent
B. 45 percent
C. 50 percent
D. 65 percent
E. 70 percent
You own 4 put option contracts on ALZ stock. The contracts have a $17.50 strike price
and you paid an option premium of $0.40. What is the break-even stock price?
A. $17.10
B. $17.30
C. $17.50
D. $17.70
E. $17.90
Which one of the following types of funds is most apt to invest in preferred stocks?
A. income
B. balanced
C. world
D. insured
E. index
The standard deviation is a measure of:
A. volatility.
B. total return.
C. capital gains.
D. changes in dividend yields.
E. changes in the capital gains rate.
How frequently do corporations file 10K reports with the SEC?
A. monthly
B. quarterly
C. semi-annually
D. annually
E. only when the firm engages in a merger or an acquisition
Marco Painting Supplies is a publicly-traded firm with 250,000 shares of stock
outstanding. If the firm issues an additional 10,000 shares, those shares will be referred
to as a(n):
A. supplemental offering.
B. seasoned equity offering.
C. initial public offer.
D. market expansion offer.
E. after-market underwriting.
Laura has an equity portfolio valued at $11.2 million that has a beta of 1.32. She has
decided to hedge this portfolio using SPX call option contracts. The S&P 500 index is
currently 1402. The option delta is .582. How many option contracts must Laura write
to effectively hedge her portfolio?
A. 37 contracts
B. 42 contracts
C. 175 contracts
D. 181 contracts
E. 191 contracts
A company has net income of $65,430, a price-earnings ratio of 22.6, and 25,800 shares
of stock outstanding. If the price-cash flow ratio is 20.4, what is the cash flow per
share?
A. $2.05
B. $2.34
C. $2.50
D. $2.81
E. $3.14
Which one of the following is NOT included in operating income?
A. sales
B. depreciation
C. interest expense
D. cost of goods sold
E. other operating expenses
A stock sells for $12.36 a share and has a required return of 9 percent. Dividends are
paid annually and increase at a constant 3 percent per year. What is the amount of the
last dividend paid?
A. $0.46
B. $0.50
C. $0.59
D. $0.63
E. $0.72
Which one of the following statements is correct concerning Macaulay duration?
A. The duration of a zero coupon bond is equal to the time to maturity.
B. Most bonds have durations in excess of 15 years.
C. The duration of a coupon bond is a linear function between the time to maturity and
the duration.
D. The duration of a coupon bond is greater than that of a zero coupon bond given equal
maturity dates.
E. The percentage change in a bond’s price is approximately equal to the change in the
yield to maturity multiplied by (-1 Macaulay duration).
The determination of which individual stocks to purchase within a particular asset class
is referred to as:
A. security selection.
B. asset allocation.
C. security analysis.
D. market timing.
E. market selection.
Four of the last five stocks your investment adviser recommended have outperformed
the market.
Thus, you believe that if you continue to follow her advice, that 80 percent of your
investments will outperform the market over the long term. This belief is based on the:
A. gambler’s fallacy.
B. law of small numbers.
C. law of large numbers.
D. clustering illusion.
E. positive performance illusion.
The Free Cash Flow Model:
I. can be used to value a company with negative earnings
II. is based on a firm having positive cash flows
III. requires that a firm pay a dividend
IV. directly estimates a value for a firm’s equity
A. I only
B. I and II only
C. I and III only
D. I, II, and III only
E. I, II, III, and IV
A stock has a beta of 1.58 and an expected return of 16.2 percent. The risk-free rate is
3.8 percent. What is the market risk premium?
A. 7.85 percent
B. 10.01 percent
C. 11.72 percent
D. 12.50 percent
E. 13.40 percent
A Treasury bond has a face value of $25,000 and a quoted price of 102:20. What is the
bond’s dollar price?
A. $25,002.80
B. $25,102.18
C. $25,656.25
D. $25,787.50
E. $31,475.00
Letter grades are most frequently assigned to mutual funds based on the fund’s:
A. projected future returns.
B. historical rates of return.
C. management style.
D. portfolio size.
E. investment objective.
A portfolio that belongs to the Markowitz efficient set of portfolios will have which one
of the following characteristics? Assume the portfolios are comprised of five individual
securities.
A. the lowest return for any given level of risk
B. the largest number of potential portfolios that can achieve a specific rate of return
C. the largest number of potential portfolios that can achieve a specific level of risk
D. a positive rate of return and a zero standard deviation
E. the lowest risk for any given rate of return
Travis has a portfolio consisting of two stocks, A and B, which is valued at $53,800.
Stock A is worth $23,900. What is the portfolio weight of stock B?
A. .528
B. .543
C. .549
D. .551
E. .556
Great Lakes Farm agreed this morning to sell General Mills 25,000 bushels of wheat six
months from now at a price per bushel of $9.75. This is an example of a:
A. call option.
B. put option.
C. futures contract.
D. money market security.
E. fixed-income security.
Tricia has lost money on a particular stock for the past three years. Thus, she believes
the stock will have a high positive rate of return this year because earning a good return
is long overdue. This assumption is best described as the:
A. law of small numbers.
B. house money effect.
C. gambler’s fallacy.
D. false consensus.
E. recency bias.