In the article “Danger: High Levels of Company Stock,” what is the maximum amount
of your employer’s stock that the author recommends you hold in your retirement
account?
A. 5%
B. 10%
C. 50%
D. 90%
Recent analysis indicates that the style of investing is a critical component of fund
performance. In fact, on average about _____ of fund performance is attributable to the
asset allocation decision.
A. 68%
B. 74%
C. 88%
D. 97%
You would like to hold a protective put position on the stock of Avalon Corporation to
lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50.
Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill
rate is 5%. Unfortunately, no put options are traded on Avalon Co.
What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff
that would be provided by a protective put with X = $50?
A. share of stock and $25 in bills
B. 1 share of stock and $50 in bills
C. share of stock and $26.19 in bills
D. 1 share of stock and $25 in bills
The risk-free interest rate in the United States is 8%, while the risk-free interest rate in
the United Kingdom is 15%. If the 1-year futures price on the British pound is $2.40,
the spot market value of the British pound today should be __________.
A. $1.93
B. $2.22
C. $2.56
D. $2.76
Which of the following are barriers to entry?
I. Large economies of scale required to be profitable
II. Established brand loyalty
III. Patent protection for the firm’s product
IV. Rapid industry growth
A. I and II only
B. I, II, and III only
C. II, III, and IV only
D. III and IV only
If the economy is going into a recession, a good industry to invest in would be the
__________ industry.
A. automobile
B. banking
C. construction
D. medical services
Moving averages are ______ indicators.
A. sentiment
B. flow of funds
C. trend
D. fundamental
In what industry are investors likely to use the dividend discount model and arrive at a
price close to the observed market price?
A. import/export trade
B. software
C. telecommunications
D. utility
As you get older, you decide to reduce the risk level of your retirement portfolio
because your portfolio is nearing your minimum acceptable level. As the portfolio does
better, you reallocate funds into higher-risk categories. You are practicing a form of
____________.
A. manipulating tax shelters
B. involuntary intergenerational transfers
C. excessive savings
D. dynamic hedging
Which industry had the highest stock price performance in 2013 according to the text?
A. biotech
B. electric utilities
C. computer systems
D. major airlines
What phrase might be used as a substitute for the Treynor-Black model developed in
1973?
A. solely active management
B. enhanced index approach
C. passive management
D. random selection
You have calculated the historical dollar-weighted return, annual geometric average
return, and annual arithmetic average return. You always reinvest your dividends and
interest earned on the portfolio. Which method provides the best measure of the actual
average historical performance of the investments you have chosen?
A. dollar-weighted return
B. geometric average return
C. arithmetic average return
D. index return
The employees of a firm complain that they cannot afford to contribute $8,000 per year
to a 401k because of the loss of $8,000 of take-home pay. In fact, how much will the
take-home pay be reduced if all taxes combined total 33%?
A. $5,360
B. $6,340
C. $7,637
D. $8,000
A mutual fund with a beta of 1.1 has outperformed the S&P 500 over the last 20 years.
We know that this mutual fund manager _____.
A. must have had superior stock selection ability
B. must have had superior asset allocation ability
C. must have had superior timing ability
D. may or may not have outperformed the S&P 500 on a risk-adjusted basis
New manufacturers continue to enter the market.
Characteristics 4 and 5 would indicate that the industry is in the _________ stage.
A. start-up
B. consolidation
C. maturity
D. relative decline
You find that the confidence index is down, the market breadth is up, and the trin ratio
is down. In total, how many bullish signs do you have?
A. 0
B. 1
C. 2
D. 3
Money market securities are sometimes referred to as cash equivalents because _____.
A. they are safe and marketable
B. they are not liquid
C. they are high-risk
D. they are low-denomination
A futures contract __________.
A. is a contract to be signed in the future by the buyer and the seller of a commodity
B. is an agreement to buy or sell a specified amount of an asset at a predetermined price
on the expiration date of the contract
C. is an agreement to buy or sell a specified amount of an asset at whatever the spot
price happens to be on the expiration date of the contract
D. gives the buyer the right, but not the obligation, to buy an asset some time in the
future
New-economy companies generally have higher _______ than old-economy
companies.
A. book value per share
B. P/E multiples
C. profits
D. asset values
Which one of the following firms falsely claimed to have a $4.8 billion bank account at
Bank of America and vastly understated its debts, eventually resulting in the firm’s
bankruptcy?
A. WorldCom
B. Enron
C. Parmalat
D. Global Crossing
ART has come out with a new and improved product. As a result, the firm projects an
ROE of 25%, and it will maintain a plowback ratio of .20. Its earnings this year will be
$3 per share. Investors expect a 12% rate of return on the stock.
At what price would you expect ART to sell?
A. $25
B. $34.29
C. $42.86
D. $45.67
The expected return of the risky-asset portfolio with minimum variance is _________.
A. the market rate of return
B. zero
C. the risk-free rate
D. The answer cannot be determined from the information given.
An investor puts up $5,000 but borrows an equal amount of money from his broker to
double the amount invested to $10,000. The broker charges 7% on the loan. The stock
was originally purchased at $25 per share, and in 1 year the investor sells the stock for
$28. The investor’s rate of return was ____.
A. 17%
B. 12%
C. 14%
D. 19%
The M2 measure of portfolio performance was developed by ______________.
A. Modigliani and Miller
B. Modigliani and Modigliani
C. Merton and Miller
D. Fama and French
P/E ratios tend to be _______ when inflation is ______.
A. higher; higher
B. lower; lower
C. higher; lower
D. they are unrelated
Which one of the following institutions typically has the longest investment horizon?
A. mutual funds
B. pension funds
C. property and casualty insurers
D. banks
At what point in the industry life cycle are inefficiencies in competitors most likely to
be removed?
A. start-up stage
B. consolidation stage
C. maturity stage
D. relative decline stage
The volume of interest rate swaps increased from almost zero in 1980 to over
__________ today.
A. $40 million
B. $400 million
C. $400 billion
D. $400 trillion
An investor is bearish on a particular stock and decided to buy a put with a strike price
of $25. Ignoring commissions, if the option was purchased for a price of $.85, what is
the break-even point for the investor?
A. $24.15
B. $25
C. $25.87
D. $27.86
Stock A has a beta of 1.2, and stock B has a beta of 1. The returns of stock A are ______
sensitive to changes in the market than are the returns of stock B.
A. 20% more
B. slightly more
C. 20% less
D. slightly less
You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of .
90. The beta of this portfolio is _________.
A. 1.14
B. 1.2
C. 1.26
D. 1.5
A fund has excess performance of 1.5%. In looking at the fund’s investment breakdown,
you see that the fund overweighted equities relative to the benchmark and that the
average return on the fund’s equity portfolio was slightly lower than the equity
benchmark return. The excess performance for this fund is probably due to
_______________.
A. security selection ability
B. better sector weightings in the equity portfolio
C. the asset allocation decision
D. finding securities with positive alphas
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
quick ratio for 2015 is _________.
A. 1.3
B. 1.5
C. 1.69
D. 2.83
If you combine a long stock position with selling an at-the-money call option, the
resulting net payoff profile will resemble the payoff profile of a _______.
A. long call
B. short call
C. short put
D. long put