FINA 469 Test 1

54. The offer price of an open-end fund is $18.00 and the fund is sold with a front-end load of 5%? What is the fund's NAV? A. $18.74 B. $17.10 C. $15.40 D. $16.57

(18)(1-.05)= B. $17.10

52. A mutual fund has total assets outstanding of $69 million. During the year the fund bought and sold assets equal to $17.25 million. This fund's turnover rate was _. A. 25.00% B. 28.50% C. 18.63% D. 33.40%

17.25/69 = A. 25%

50. Consider a mutual fund with $300 million in assets at the start of the year, and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year end value, what is the rate of return on the fund? A. 15.64% B. 16.00% C. 17.25% D. 17.50%

A. 15.64%

2. ____ is not a derivative security. A. A share of common stock B. A call option C. A futures contract D. All of the above are derivative securities.

A. A share of common stock

19. 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. Weights are not a factor in this situation

A. An equally weighted index

3. ___________portfolio construction starts with selecting attractively priced securities. A. Bottom-up B. Top-down C. Upside-down D. Side-to-side

A. Bottom-up

43. are partnerships of investors with portfolios that are larger than most individual investors but are still too small to warrant managing on a separate basis. A. Commingled funds B. Closed-end funds C. REITs D. Mutual funds

A. Commingled funds

43. ______ are partnerships of investors with portfolios that are larger than most individual investors but are still too small to warrant managing on a separate basis. A. Commingled funds B. Closed-end funds C. REITs D. Mutual funds

A. Commingled funds

46. The primary measurement unit used for assessing the value of one's stake in an investment company is ___________________. A. Net Asset Value B. Average Asset Value C. Gross Asset Value D. Total Asset Value

A. Net Asset Value

2. Asset allocation refers to the . A. allocation of the investment portfolio across broad asset classes B. analysis of the value of securities C. choice of specific assets within each asset class D. none of the answers define asset allocation

A. allocation of the investment portfolio across broad asset classes

8. After considering current market conditions an investor decides to place 60% of their funds in equities and the rest in bonds. This is an example of A. asset allocation B. security analysis C. top down portfolio management D. passive management

A. asset allocation

32. A __________ bond is a bond where the issuer has an option to retire the bond before maturity at a specific price after a specific date. A. callable B. coupon C. puttable D. treasury

A. callable

50. Revenue sharing with respect to mutual funds refers to _________. A. fund companies paying brokers if the broker recommends the fund to investors B. allowing certain classes of investors to engage in market timing C. charging loads to new investors in a mutual fund D. directly marketing funds over the Internet

A. fund companies paying brokers if the broker recommends the fund to investors

4. In securities markets, there should be a risk-return trade-off with higher-risk assets having expected returns than lower-risk assets. A. higher B. lower C. the same D. Can't tell from the information given

A. higher

24. The inside quotes on a limit order book would be comprised of the ______. A. highest bid price and the lowest ask price B. lowest bid price and the lowest ask price C. lowest bid price and the highest ask price D. highest bid price and the highest ask price

A. highest bid price and the lowest ask price

51. If you place an order to buy or sell a share of a mutual fund during the trading day the order will be executed at A. the NAV calculated at the market close at 4:00 pm New York time. B. the real time NAV. C. the NAV delayed 15 minutes. D. the NAV calculated at the open of the next day's trading.

A. the NAV calculated at the market close at 4:00 pm New York time.

55. If you place an order to buy or sell a share of a mutual fund during the trading day the order will be executed at A. the NAV calculated at the market close at 4:00 pm New York time. B. the real time NAV. C. the NAV delayed 15 minutes. D. the NAV calculated at the open of the next day's trading.

A. the NAV calculated at the market close at 4:00 pm New York time.

45. Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the Net Asset Value (NAV) of these shares? A. $12.00 B. $9.00 C. $10.00 D. $1.00

B. $9.00

15. A level _____ subscriber to the NASDAQ system may enter bid and ask prices. A. 1 B. 2 C. 3 D. 4

B. 2

21. According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for _ following initial registration. A. 1 year B. 2 years C. 3 years D. 4 years

B. 2 years

10. When computing the bank discount yield you would use ____ days in the year. A. 260 B. 360 C. 365 D. 366

B. 360

26. Bonds rated or better by Standard and Poor's are considered investment grade. A. AA B. BBB C. BB D. CCC

B. BBB

53. Which type of investment fund is commonly known to invest in options and futures in large scale? A. Commingled funds B. Hedge funds C. ETFs D. REITS

B. Hedge funds

56. Which type of investment fund is commonly known to invest in options and futures in large scale? A. Commingled funds B. Hedge funds C. ETFs D. REITS

B. Hedge funds

13. All but which one of the following indices is value weighted? A. Nasdaq Composite B. S&P 500 C. Wilshire 5000 D. DJIA

B. S&P 500

16. Which one of the following is a false statement regarding NYSE specialist? A. On a stock exchange all buy or sell orders are executed at a specialist's post on the exchange B. Specialists cannot trade for their own accounts C. Specialists earn income from commissions and spreads in stock prices D. Specialists stand ready to trade at quoted bid and ask prices

B. Specialists cannot trade for their own accounts

7. An example of a derivative security is _________. A. a common share of General Motors B. a call option on Intel stock C. a Ford bond D. a U.S. Treasury bond

B. a call option on Intel stock

31. Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require _________. A. a higher yield on short term bonds than long term bonds B. a higher yield on long term bonds than short term bonds C. the same yield on both short term bonds and long term bonds D. the liquidity preference theory cannot be used to make any of the other statements.

B. a higher yield on long term bonds than short term bonds

20. The price is the price at which a dealer is willing to sell a security. A. bid B. ask C. clearing D. settlement

B. ask

49. Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called . A. income funds B. balanced funds C. asset allocation funds D. index funds

B. balanced funds

25. The difference between the price at which a dealer is willing to buy, and the price at which a dealer is willing to sell, is called the _________. A. market spread B. bid-ask spread C. bid-ask gap D. market variation

B. bid-ask spread

27. Consider the expectations theory of the term structure of interest rates. If the yield curve is downward sloping, this indicates that investors expect short-term interest rates to in the future. A. increase B. decrease C. not change D. change in an unpredictable manner

B. decrease

38. A firm cuts its dividend payout ratio. As a result you know that the firm's _______. A. return on assets will increase B. earnings retention ratio will increase C. earnings growth rate will fall D. stock price will fall

B. earnings retention ratio will increase

7. Deposits of commercial banks at the Federal Reserve are called . A. bankers acceptances B. federal funds C. repurchase agreements D. time deposits

B. federal funds

19. In a underwriting arrangement, the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price. A. best efforts B. firm commitment C. private placement D. none of the above

B. firm commitment

52. You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a __________ rather than a __________, everything else equal. A. 12b-1 fee; front-end load B. front-end load; 12b-1 fee C. back-end load, front-end load D. 12b-1 fee; back-end load

B. front-end load; 12b-1 fee

20. Underwriting is one of the services provided by _____. A. the SEC B. investment bankers C. publicly traded companies D. FDIC

B. investment bankers

6. Firms that specialize in helping companies raise capital by selling securities to the public are called _________. A. pension funds B. investment banks C. savings banks D. REITs

B. investment banks

17. An order to buy or sell a security at the current price is a . A. limit order B. market order C. stop loss order D. stop buy order

B. market order

5. The efficient markets hypothesis suggests that . A. active portfolio management strategies are the most appropriate investment strategies B. passive portfolio management strategies are the most appropriate investment strategies C. either active or passive strategies may be appropriate, depending on the expected direction of the market D. a bottom up approach is the most appropriate investment strategy

B. passive portfolio management strategies are the most appropriate investment strategies

9. In a perfectly efficient market the best investment strategy is probably a/an A. active strategy B. passive strategy C. asset allocation D. market timing

B. passive strategy

28. Transactions that do not involve the original issue of securities take place in _________. A. primary markets B. secondary markets C. over-the-counter markets D. institutional markets

B. secondary markets

12. The bid price of a treasury bill is _________. A. the price at which the dealer in treasury bills is willing to sell the bill B. the price at which the dealer in treasury bills is willing to buy the bill C. greater than the ask price of the treasury bill expressed in dollar terms D. the price at which the investor can buy the treasury bill

B. the price at which the dealer in treasury bills is willing to buy the bill

11. If a treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be . A. 99:25 B. 99:63 C. 99:20 D. 99:08

C. 99:20

3. Which of the following is not a money market security? A. U.S. Treasury bill B. Six month maturity certificate of deposit C. Common stock D. Banker's acceptance

C. Common stock

48. funds stand ready to redeem or issue shares at their net asset value. A. Closed-end B. Index C. Open-end D. Hedge

C. Open-end

49. __________ funds stand ready to redeem or issue shares at their net asset value. A. Closed-end B. Index C. Open-end D. Hedge

C. Open-end

6. Which of the following is not a money market instrument? A. Treasury bill B. Commercial paper C. Preferred stock D. Banker's acceptance

C. Preferred stock

1. assets generate net income to the economy and _ assets define allocation of income among investors. A. Financial, financial B. Financial, real C. Real, financial D. Real, real

C. Real, financial

5. Security selection refers to the ________. A. allocation of the investment portfolio across broad asset classes B. analysis of the value of securities C. choice of specific securities within each asset class D. top down method of investing

C. choice of specific securities within each asset class

48. A fund that invests in securities worldwide, including the United States is called a/an ______. A. international fund B. emerging market fund C. global fund D. regional fund

C. global fund

34. The constant growth dividend discount model (DDM) can be used only when the . A. growth rate is less than or equal to the required return B. growth rate is greater than or equal to the required return C. growth rate is less than the required return D. growth rate is greater than the required return

C. growth rate is less than the required return

44. A is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds. A. commingled pool B. unit trust C. hedge fund D. money market fund

C. hedge fund

13. Commercial paper is a short-term security issued by __________ to raise funds. A. the Federal Reserve B. commercial banks C. large well-known companies D. the New York Stock Exchange

C. large well-known companies

18. If an investor places a order the stock will be sold if its price falls to the stipulated level. If an investor places a _ order the stock will be bought if its price rises above the stipulated level. A. stop-buy; stop-loss B. market; limit C. stop-loss; stop-buy D. limit; market

C. stop-loss; stop-buy

31. Yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in . A. marketability B. risk C. taxation D. call protection

C. taxation

1. Real assets in the economy include all but which one of the following? A. Land B. Buildings C. Consumer durables D. Common stock

D. Common stock

57. Advantages of ETFs over mutual funds include all but which one of the following? A. ETFs trade continuously so investors can trade throughout the day B. ETFs can be sold short or purchased on margin, unlike fund shares C. ETF providers do not have to sell holdings to fund redemptions D. ETF values can diverge from NAV

D. ETF values can diverge from NAV

45. Advantages of investment companies to investors include all but which one of the following? A. Record keeping and administration B. Low cost diversification C. Professional management D. Guaranteed rates of return

D. Guaranteed rates of return

16. Which of the following indices are market-value weighted? I. The NYSE Composite II. The S&P 500 III. The Wilshire 5000 A. I and II only B. II and III only C. I and III only D. I, II and III

D. I, II and III

4. Which of the following are financial assets? I. Debt securities II. Equity securities III. Derivative securities A. I only B. I and II only C. II and III only D. I, II and III

D. I, II and III

17. The interest rate charged by large banks in London to lend money among themselves is called _________. A. the prime rate B. the discount rate C. the federal funds rate D. LIBOR

D. LIBOR

42. Which one of the following invests in a portfolio that is fixed for the life of the fund? A. Mutual fund B. Money market fund C. Managed investment company D. Unit investment trust

D. Unit investment trust

44. Which one of the following invests in a portfolio that is fixed for the life of the fund? A. Mutual fund B. Money market fund C. Managed investment company D. Unit investment trust

D. Unit investment trust

10. Currently the Dow Jones Industrial Average is computed by A. adding the prices of 30 large "blue-chip" stocks and dividing by 30 B. calculating the total market value of the 30 firms in the index and dividing by 30 C. measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day D. adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

D. adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

11. An investor in a T-bill earns interest by _________. A. receiving interest payments every 90 days B. receiving dividend payments every 30 days C. converting the T-bill at maturity into a higher valued T-note D. buying the bill at a discount from the face value received at maturity

D. buying the bill at a discount from the face value received at maturity

23.When matching orders from the public a specialist is required to use the _______. A. lowest outstanding bid price and highest outstanding ask price B. highest outstanding bid price and highest outstanding ask price C. lowest outstanding bid price and lowest outstanding ask price D. highest outstanding bid price and lowest outstanding ask price

D. highest outstanding bid price and lowest outstanding ask price

37. If a firm increases its plowback ratio this will probably result in a(n) _______ P/E ratio. A. higher B. lower C. unchanged D. unable to determine

D. unable to determine

21. Under firm commitment underwriting the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price. A. red herring B. issuing company C. initial stockholder D. underwriter

D. underwriter

22. You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss? A. $50 B. $150 C. $10,000 D. unlimited

D. unlimited