Even though Korea and China have markets bigger than some markets in developed
countries, they are considered to be emerging markets because they have low per-capita
gross domestic product.
The requirements for an exchange listing tend to be highly restrictive.
Current yield is always the best measure of a bond’s yield.
The Gramm-Leach-Bliley Act essentially repealed many of the prohibitions of the
Glass-Steagall Act, which restricted commercial banks from also being in the
investment banking business.
A shared appreciation mortgage usually has an interest rate below current market rates.
Yield to maturity is equivalent to market rate of interest.
The International Securities Market is an ECN (electronic communication network)
trading options and has not been a major factor in its competition with the Chicago
Board Options Exchange.
Stocks in sector funds tend to be underpriced.
Research indicates that stocks tend to peak in value on Friday and generally decline in
value on Monday.
For a firm with old, heavy fixed assets, replacement cost accounting will normally
increase the debt-to-total-assets ratio.
In the financial world, risk is defined as variability of returns.
The problem with the pure short-term earnings model is that the stock value is highly
sensitive to short-term swings in earnings per share (EPS).
A high short interest ratio is considered bullish.
The Tax Relief Act of 2003 has made stocks that pay high dividends more attractive
than they previously were.
An industry reaches the maturity stage when its sales growth matches the rate of growth
of the economy.
Between 70% and 75% of all investment funds in the U.S. are open-ended.
A Stage II industry is one that is growing, and thus provides opportunities without much
risk.
A technically innovative firm in a mature industry may provide better growth
opportunities than a high-growth industry.
Analysts generally are not influenced by accounting changes that have no economic
consequences.
A forced conversion is when the company calls the convertible security knowing the
owners will take stock and thus convert debt to equity.
Every year since 1980, the U.S. has imported more goods than it has exported.
The value of a warrant is the market value of the stock minus the option price of the
warrant divided by the number of shares it will buy.
Under the Securities Act of 1933, the SEC can certify that a stock is fairly priced.
Because of the 1987 market collapse, the SEC put circuit breakers into effect.
While providing an effective hedge against inflation, real assets do not have particularly
efficient liquid markets.
Option writers must own common stock in order to write call options on that particular
stock.
The actual yield to maturity an investor receives becomes more of a function of the
reinvestment rate the shorter the maturity of the bond.
Primary markets are for new issues of securities.
Stock index options tend to be more highly speculative than stock index futures.
Of particular interest to stock repurchases is the fact that most of the negative market
movement comes on after the announcement, rather than before it.
Much of the liquidity and ease of operation of the option exchanges is due to the role of
the Options Clearing Corporation.
A fund manager has almost total control over the beta of his portfolio.
As in the stock and bond markets, interest is paid on a margined commodity contract.
Changes in the market rate of interest are reflected in the semiannual interest payments
of a variable rate note, while the price remains stable.
If a stock is held for less than 12 months, any gain in value is taxed as ordinary income.
There is little relationship between R&D expenditures as a percent of sales, and growth
of earnings per share.
In the distribution of corporate bond issues, private placements to large insurance
companies dominate the volume of public offerings.
The U.S. treasury often uses investment bankers to sell new issues of government
securities.
The Federal Open Market Committee (FOMC) determines the monetary policy for the
U.S. economy.
Municipal bonds normally pay:
A.higher rates than taxable bonds.
B.lower rates than taxable bonds.
C.the same rate as taxable bonds.
D.None of the above
Online brokers have become popular because:
A.they offer discounts on stock research reports.
B.their commissions are lower than full-service or discount brokers.
C.they specialize in the stock of low priced securities.
D.only online brokers can service self-directed individual retirement accounts.
Real assets often increase in value when:
A.higher levels of inflation are anticipated.
B.the stock market is advancing.
C.the public is confident about world events.
D.bond prices are advancing.
Ratio analysis, which compares a company to an industry, is complicated because:
A.reliable industry data is not readily accessible.
B.the accounting conventions between companies may be dissimilar.
C.large companies are diversified across several industries.
D.More than one of the above
All of the following are disadvantages of fiscal policy, except:
A.a long implementation lag.
B.that it may be politically motivated.
C.that it may be economically motivated.
D.that congress must approve the budgets and develop the tax laws.
A 15-year, 7% coupon rate bond is selling for $771.82. What is the current yield of the
bond?
A.22.8%
B.7.0%
C.9.1%
D.10.0%
E.30.7%
An investor bought a March S&P 500 Index futures contract in December for
$1,490.05. After six months the contract value went down to $1,466.00. The contract
has a multiplier of 250. With an initial margin of $20,000, and a $16,000 maintenance
margin requirement, would there be a call for more margin?
A.No, the account would have an excess of $2,012.50
B.Yes, an additional $3,677.19 would be required
C.No, the account would have exactly enough cash for margin
D.Yes, an additional $2,012.50 would be required
E.No, the account would have an excess of $3,677.19
Why are warrants less desirable than convertible debentures as financing devices for the
creation of new common stock?
A.There is no device for forcing investors to exercise warrants
B.The conversion of convertible securities erases debt on the balance sheet
C.Warrants increase the equity of a firm when exercised, but there is no change in the
debt
D.All of the above
Investment company shares that trade on stock exchanges just like common stock and
are essentially funds that mimic some index are:
A.open-end mutual funds.
B.exchange-traded funds.
C.money market funds.
D.load funds traded on stock exchanges.
E.index mutual funds.
In developing a least squares trend line, the analyst should:
A. include several business cycles.
B. fit the trendline between a peak and a trough, or vice versa.
C. use as many data points as are practical.
D. All of the above
When a mutual fund you own buys and sells securities in its portfolio,
A.you are responsible for paying taxes on the net gains and losses incurred.
B.the mutual fund is responsible for paying the taxes before distributing your share of
the net gains.
C.the IRS does not levy taxes on mutual funds.
D.you have a choice on whether to pay taxes on the gains during the current year, or to
pay the taxes over a five-year period.
An investor will purchase shares of companies in the development stage for:
A.current income only.
B.current income and capital gains.
C.capital gains only.
D.passive losses to offset other income.
“Special or abnormal returns” refer to:
A.the Efficient Market Hypothesis.
B.gains in excess of the market risk-adjusted average.
C.convertibles and warrants, etc.
D.More than one of the above
Which of the following statements about liquidity ratios is true?
A.The higher the current ratio, the more likely a firm is able to pay its short-term
obligations
B.The lower the quick ratio relative to the current ratio, the safer a firm is in terms of
liquidity
C.The lower the current ratio, the more likely a firm is able to pay its short-term
obligations
D.Relatively high current ratios are usually a sign of efficient working capital
management
The primary difference between dividend valuation models and earnings valuation
models is:
A. selecting the appropriate discount rate.
B. dividends are never considered in earnings models.
C. whether the investor’s income stream or the firm’s income stream is measured.
D. More than one of the above
The value of a bond at any given time is the sum of:
A.the future interest payments and the par value.
B.the present value of future interest payments and the present value of the par value.
C.the future value of the interest payments and the future value of the par value.
D.the present value of future interest payments and the market value.
E.the present value of future interest payments and the future value of the par value.
Stock valuation based on the relationship between a stock’s P/E ratio and the market
may result in superior returns if:
A. the firm is riskier than the market.
B. the firm has a high P/E ratio, relative to the market.
C. the stock is trading at the low end of its P/E ratio, relative to the market.
D. More than one of the above
The _____, which functions as the issuer of all options listed on the exchanges, is
responsible for the liquidity and ease of operation of the options market.
A. Chicago Board Options Exchange
B. Options Clearing Corporation
C. New York Stock Exchange
D. None of the above
An investor striving for maximum leverage will generally buy options that are:
A. in-the-money, or slightly out-of-the-money.
B. out-of-the-money, or slightly in-the-money.
C. deep in-the-money.
D. at-the-money.
The tax rate that specifically applies to each new dollar of income is the:
A.marginal tax rate.
B.average tax rate.
C.short-term capital gains tax rate.
D.long-term capital gains tax rate.
The demand side of the bond market is dominated by
A.the federal government.
B.wealthy individual investors.
C.institutional investors.
D.None of the above
Which of the following stages does not belong in the industry life cycle?
A.Growth
B.Stagnation
C.Decline
D.Maturity
E.Expansion
Direct sources of return on a mutual fund investment include:
A.dividends distributed.
B.interest accumulated.
C.stock market appreciation.
D.dividends distributed and stock market appreciation.
An interest rate futures contract represents a bet or hedge on:
A.the direction of future interest rates.
B.the direction of future bond prices.
C.the expectation of future interest rates.
D.All of the above
The tax rate that is simply the amount of taxes paid, divided by taxable income is:
A.the marginal tax rate.
B.the average tax rate.
C.the short-term capital gains tax rate.
D.the long-term capital gains tax rate.
What variables are needed to calculate diluted earnings per share?
A.Adjusted earnings after taxes, number of shares outstanding, and number of common
shares from all potential securities convertible into common stock
B.Adjusted earnings after taxes and number of shares outstanding
C.Adjusted earnings after taxes, shares outstanding, common stock equivalents, and all
convertibles
D.Earnings after taxes, common shares outstanding, and all convertible preferred stock
According to a study by John McDonald published in the Journal of Financial and
Quantitative Analysis, portfolio managers generally:
A.follow the objectives initially set for the portfolio.
B.set objectives for the portfolio but don’t follow them.
C.have difficulty following the portfolio objectives.
D.None of the above
Asset allocation represents an attempt by individuals or portfolio managers to determine
what?
A.percentage of assets should be distributed to beneficiaries.
B.mutual funds are appropriate for investment based on risk and return.
C.percent of funds under management should be invested in stocks, bonds, and the like.
D.brokerage houses best meet their needs.
Only a limited number of corporate securities are distributed by this method:
A.underwriting.
B.best efforts.
C.shelf registration.
D.syndicated offering.
E.direct by issuer.
__________ analysis is the process of studying a series of ratios for a company and/or
industry over time.
A.DuPont
B.Trend
C.Common size
D.Critical
E.All of the above
Which of the following types of bond issues is the most price-sensitive?
A.Fixed-rate long-term bonds
B.Floating-rate bonds
C.Long-term zero-coupon bonds
D.Fixed-rate short-term bonds
E.Treasury bills
A stock is selling for $45.75, with a call option available at a $40 strike that has a
premium of $7.50. What is the intrinsic value of the call?
A. $.75
B. $1.75
C. $5.00
D. $5.75
E. $7.50
Investment in a mutual fund results in:
A.an indirect equity claim.
B.a direct equity claim.
C.a creditor claim.
D.None of the above