Investments Exam 2

Initial public offering

(IPO) occurs when a company offers stock for sale to the public for the first time. Usually happens in the primary market.

Over the Counter market

(OTC) Securities market in which trading is almost done exclusively done through dealers who buy and sell for their own inventories.

Seasoned equity offering

(SEO) the sale of additional shares of stock by a company whose shares are already publicly traded. Secondary and follow-on

Market

You want to sell shares of stock at the current price. Which type of order should you place? A. limit B. post C. market D. short E. stop

marketing costs

A 12b-1 fee is a fee charged by a mutual fund: A. at the time shares are issued. B. if shares are sold within a stated period of time. C. to cover trading costs. D. to pay the fund's managers. E. to cover marketing costs.

6.28 percent discount

A closed-end fund has total assets of $379 million and liabilities of $640,000. There are 36 million shares outstanding. What is the premium or discount if the shares are currently selling for $9.85 each? A. 7.46 percent discount B. 6.28 percent discount C. 6.94 percent discount D. 6.80 percent premium E. 7.46 percent premium

front-end load

A fee that is charged at the time mutual fund shares are purchased by an investor is called a: A. contingent deferred sales charge. B. 12b-1 fee. C. back-end load. D. front-end load. E. issuance charge.

General cash offer

A public issue of securities in which securities are first offered to existing shareholders (also called a rights offering).

$21.88

Assume that the Federal Reserve injects $3.5 billion into the financial system. If the reserve requirement is 16 percent, what is the maximum increase in money supply (in billions)? A. $20.44 B. $21.30 C. $21.88 D. $22.10 E. $22.60

market price

After the trigger point is reached, a stop-loss order will be executed at the: A. trigger price. B. stop price. C. trigger price or better. D. stop price or better. E. market price.

$12,344.05

Alex invested $10,000 in a mutual fund two and one-half years ago when the NAV of the fund was $25. Today, the NAV has risen to $28.30. Since the time of his original investment, Alex has obtained an additional 54.36 shares by reinvesting the fund distributions. The fund charges a contingent deferred sales charge of 6 percent the first year with the charge decreasing by 1 percent each year. How much money will he receive if he redeems his shares today? A. $11,633.78 B. $11,930.52 C. $12,344.05 D. $12,858.39 E. $13,501.31

3.42%

An analyst gathered the following year-end price level data for an economy. What is the economy's annual inflation rate for 2012? 2007 174.0 2011 190.3 2012 196.8 A. 3.22% B. 3.42% C. 3.68% D. 3.87% E. 3.92%

9.33 percent

An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return? SOS Beginning price Ending Price 1,000 $26 $32 4,000 $30 $28 3,000 $19 $22 A. 9.33 percent B. 10.35 percent C. 11.54 percent D. 12.33 percent E. 13.00 percent

-0.43 percent

An index consists of the following securities. What is the value-weighted index return? SOS Beg. End 1,000 $32 $38 4,000 $22 $23 6,000 $57 $55 A. -0.43 percent B. -1.46 percent C. 4.43 percent D. 4.51 percent E. 4.62 percent

25.00 percent

An index consists of the following securities. What is the value-weighted index return? SOS Beg. End 5,000 $20 $28 2,000 $38 $40 A. 12.75 percent B. 15.00 percent C. 16.50 percent D. 18.75 percent E. 25.00 percent

104.73

An index has a market value of $689,400 at the beginning of the period and $722,009 at the end of the period. If you want the beginning index value to be 100, what is the ending index value? A. 104.73 B. 105.42 C. 105.67 D. 105.89 E. 106.13

open-end

An investment company that will repurchase shares at any time is called a(n) _____ fund. A. hedge B. closed-end C. open-end D. public E. exchange traded

pools funds from individual investors

An investment company: A. specializes in investing funds on behalf of a financial institution. B. is a closed-end fund that invests in real estate. C. pools funds from individual investors. D. is a specific type of a bank. E. is a specialized form of a joint stock company.

$18.07

An order book displays the following information: Buy Orders Sell Orders 100 @ $18.07 100 @ $18.11 500 @ $18.06 500 @ $18.12 300 @ $18.05 100 @ $18.12 You place an order to SELL 100 shares. At what price will your order be executed? A. $18.05 B. $18.06 C. $18.07 D. $18.11 E. $18.12

$18.17

An order book displays the following information: Buy Orders Sell Orders 200 @ $18.15 100 @ $18.17 300 @ $18.14 500 @ $18.18 100 @ $18.14 100 @ $18.19 You place a market order to BUY 100 shares. At what price will your order be executed? A. $18.13 B. $18.14 C. $18.16 D. $18.17 E. $18.18

limit

An order to buy shares of stock at a stated price or less is called a _____ order. A. limit B. stop C. market D. short E. bid

asked; bid

Anna is an individual investor. She purchases shares at the _____ price and sells at the _____ price. A. asked; bid B. average; asked C. bid; asked D. bid; average E. asked; average

7.20%

As a U.S. investor, you decide to invest $110,000 in Switzerland. You do so at a starting exchange rate of 1.093 SwFr/$. Your Swiss investment gains 7 percent, and the ending exchange rate is 1.091SwFr/$. What is your total return on this investment? A. 6.30% B. 6.85% C. 7.20% D. 7.40% E. 7.55%

2.20%; 1.30%

Assume the inflation rate in 2012 is 1.3 percent. If the nominal GDP grew 3.5 percent and nominal wages grew 2.6 percent, what are the approximate real growth rates of GDP and wages? A. 2.00%; 0.80% B. 3.05%; 0.90% C. 2.10%; 1.10% D. 2.20%; 1.20% E. 2.20%; 1.30%

9.14%

Assume there are 475 million people in the United States, 175 million of which make up the labor force. If 16 million are unemployed, what is the unemployment rate? A. 8.35% B. 9.14% C. 10.91% D. 11.05% E. 11.74%

17.90 percent

At the beginning of the year, you invested $4,000 in a no-load mutual fund with a NAV of $20.00. At the end of the year, the fund distributed $1.06 in short-term earnings and $3.10 in long-term earnings. The end of year NAV was $19.42. What was your annual rate of return on this investment? A. -5.90 percent B. -1.86 percent C. 11.80 percent D. 15.36 percent E. 17.90 percent

2.95%

Consider the following information on GDP and CPI for an economy over the last 3 years. Calculate nominal GDP growth for 2011. GDP CPI 2010 128.6 104.1 2011 132.4 104.9 2012 136.8 105.8 A. 2.15% B. 2.56% C. 2.95% D. 3.15% E. 3.22%

any unregistered fund pursuing any type of investment style

Currently, the term "hedge fund" refers to: A. any registered fund with a stated investment objective. B. any unregistered fund pursuing any type of investment style. C. any fund that equally invests in long and short positions. D. any fund that adheres to a "market-neutral" investment strategy. E. any private fund that has a minimum investment requirement of $1 million or more.

Stop

Customer orer to buy or sell securities when a preset "stop" price is reached A. limit B. stop C. market D. short E. bid

.25

Eastern States Mutual Fund sold $82.5 million of assets during the year and purchased $93 million of new assets. The average daily assets of the fund were $330 million. What is the fund's turnover rate for the year? A. .25 B. .27 C. .52 D. .94 E. 1.07

leading

Economic metrics that tend to rise and fall in advance of the economy are called _____ indicators. A. predictive B. forecast C. leading D. coincident E. cyclical

market

Faith placed an order to sell 7,500 shares of stock she currently owned. As soon as the order reached the trading floor, the shares were immediately sold. Which type of order did Faith place? A. limit B. day C. market D. short E. stop

fiscal policy

Government determination of tax rates and spending policies is called _______. A. tax policy B. budgetary policy C. federal spending policy D. fiscal policy E. monetary policy

Primary

High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets? A. primary B. secondary C. third D. fourth E. over-the-counter

appreciated

If the number of Euros required to buy $1 (USD) decreases then the Euro has _______ versus the U.S. dollar. A. depreciated B. appreciated C. declined D. improved E. increased

NASDAQ

In terms of total dollar volume of trading, the second largest stock market in the United States is this. In fact, in terms of companies listed and, on most days recently, number of shares traded is bigger than the NYSE.

balanced

Jim has managed to save $1,000 and wants to start investing. The financial markets make him nervous as he has very limited financial resources. Which one of the following types of funds is probably best for Jim at this time? A. sector B. aggressive growth C. social conscience D. high yield E. balanced

stop

Kelly wants to sell 600 shares of DeLux stock at the going market price after the stock reaches $42 a share. Which type of order should she place? A. stop B. limit C. market D. fixed E. loss

The order will become a limit order to sell at $18 once the market price reaches $21

Marcus just placed a stop limit order to sell 100 shares at $21 stop, $18 limit. Which one of the following statements is correct concerning this order if the current market price is $16? A. As soon as the price rises to $18, the stock will be sold. B. The stock will sell for at least $18 but less than $21. C. The stock will sell for $18 a share as soon as the price hits $21. D. The order will become a limit order to sell at $21 once the market price reaches $18. E. The order will become a limit order to sell at $18 once the market price reaches $21.

fourth market

Market for exchange-listed securities in which investors trade directly with other investors, usually through a computer network.

invest in securities that mature in 90 days or less

Money market mutual funds do which one of the following? A. offer a guaranteed rate of return B. invest in securities that mature in 90 days or less C. provide a risk-free means of investing D. invest only in government bonds E. trade for $10 a share

Third market

Off-exchange market for securities listed on an organized exchange.

7.48 percent

One year ago, you purchased $6,000 worth of a mutual fund at an offering price of $38.10 a share. Today, the fund distributed $0.20 in short-term gains and $1.04 in long-term gains. The current offering price is $41.80. The fund has a front-end load of 5 percent and total annual operating expenses of 1.25 percent. What is your rate of return on this investment? A. 2.87 percent B. 3.54 percent C. 6.06 percent D. 7.48 percent E. 9.91 percent

$3.75 million

Reliant Underwriters has agreed to a firm commitment underwriting in which they will pay $36.75 million in exchange for 3 million shares of stock for an IPO offering. The offering price is expected to be $13.50 a share. How much will the underwriters earn if all of the shares can be sold? A. $1.25 million B. $2.75 million C. $3.75 million D. $4.25 million E. $4.50 million

II and IV only

Steve placed a limit order to sell 500 shares of stock at $14 a share. Which of the following does Steve know for sure? I. His order will execute but the time of execution is unknown. II. His order may never execute. III. He will receive exactly $7,000 if his order executes. IV. He could receive more, but not less, than $14 a share. A. I and III only B. I and IV only C. II and III only D. II and IV only E. I only

$54.02

The Blue Star Fund has assets with a market value of $10.6 million and liabilities of $607,000. What is the net asset value if there are 185,000 shares outstanding? A. $54.02 B. $55.00 C. $56.67 D. $57.18 E. $58.25

$16.02

The Market Stability Fund owns the following stocks: Shares Price 8,790 $49 6,700 $39 4,200 $55 The fund has no liabilities and has 57,600 shares outstanding. What is the NAV? A. $14.72 B. $14.88 C. $15.47 D. $15.95 E. $16.02

$31.83

The Stone Wall Fund has an offer price of $32.90 and a front-end load of 3.25 percent. What is the net asset value? A. $31.68 B. $31.75 C. $31.83 D. $32.90 E. $34.05

Open market operations

The buying and selling of bonds to manage the money supply is called ________. A. Quantitative easing B. Discount window operations C. Open market operations D. Money supply management E. Federal Reserve operations

Money multiplier

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

labor force participation rate

The labor force divided by the nonmilitary working age population equals the __________________. A. work force participation rate B. employable participation rate C. labor population participation rate D. labor force participation rate E. participating employees rate

a global fund invests in U.S. stocks while an international fund does not

The primary difference between an international fund and a global fund is the fact that: A. a global fund invests in U.S. stocks while an international fund does not. B. an international fund invests in U.S. stocks while a global fund does not. C. all international funds are country specific while global funds are not. D. global funds may opt to be country or region specific while international funds may not. E. international funds tend to be more geographically diversified than global funds.

rotational investing

The process of moving investments between sectors of the economy over time is called. A. sector rotation B. sector selection C. rotational investing D. sector exchange E. sector swapping

Fed Funds Rate

The short-term rate at which banks lend to each other is called the ______. A. Fed Funds Rate B. Federal Reserve Rate C. Discount Rate D. Federal Loan Rate E. Reserve Loan Rate

$38,445.60

You want to buy 1,400 shares of a mutual fund that has an NAV of $26.50. The fund charges a 3.5 percent front-end load. How much will you have to spend to make this purchase? A. $34,878.87 B. $35,913.00 C. $36,953.37 D. $37,333.33 E. $38,445.60

97 percent of the closing NAV

Today, you are selling shares of an open-end mutual fund and will be charged a CDSC of 3 percent. The price you will receive per share is equal to: A. 103 percent of the opening NAV. B. 97 percent of the opening offering price. C. 97 percent of the closing NAV. D. 103 percent of the closing offering price. E. the closing offering price.

low initial investments, professional management, diversification

Which of the following are three key advantages of mutual funds? A. diversification, taxes, high initial investments B. low initial investments, professional management, diversification C. liquidity, high initial investments, diversification D. professional management, high initial investments, taxes E. costs, diversification, liquidity

I, II, and III only

Which of the following can you do with an ETF that you cannot do with an open-end fund? I. sell at mid-day prices II. short sell III. buy options on them IV. resell A. I and III only B. II and III only C. III and IV only D. I, II, and III only E. I, II, III, and IV

rapid income growth, low unemployment and low inflation

Which of the following combinations describes a "goldilocks" scenario? A. slow income growth, low unemployment and low inflation B. rapid income growth, high unemployment and low inflation C. rapid income growth, low unemployment and low inflation D. rapid income growth, low unemployment and high inflation E. rapid income growth, high unemployment and high inflation

M1 plus time deposits, savings accounts and money markets

Which of the following describes the "M2" Money Supply? A. M1 plus time deposits, savings accounts and money markets B. M1 plus time deposits and savings accounts C. M1 plus time deposits and money markets D. M1 plus money markets E. M1 plus checking and time deposits

encourage consumer spending

Which of the following is NOT a primary goal of the Federal Reserve? A. keep inflation in check B. encourage consumer spending C. generate full employment D. moderate the business cycle E. help achieve long-term economic growth

industrial production

Which of the following is NOT considered a lagging economic indicator? A. prime rate B. change in CPI for services C. industrial production D. commercial and industrial loans E. consumer expectations index

Boom

Which of the following is NOT one of the four stages of the business cycle? A. boom B. peak C. contraction D. trough E. expansion

nominal GDP

Which of the following reflects the dollar value of economic output in terms of the current year? A. current year GDP B. real GDP C. nominal GDP D. adjusted GDP E. actual GDP

real GDP

Which of the following reflects the value of economic output adjusted to remove the effects of inflation? A. current year GDP B. real GDP C. nominal GDP D. adjusted GDP E. actual GDP

value-weighted index

Which of the following types of indexes is a stock market index in which stocks are held in proportion to the aggregate market value of the companies in the index? A. balanced B. market-weighted C. dollar-weighted D. price-weighted E. value-weighted

Price-weighted index

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

Securities and Exchange Commission

Which one of the following is the federal agency which regulates the financial markets in the U.S.? A. Treasury Department B. National Association of Securities Dealers C. Over the Counter Commission D. Federal Reserve E. Securities and Exchange Commission

Secondary

Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets? A. primary B. Secondary C. third D. fourth E. fifth

8.2%

You are planning to invest $150,000 in Hong Kong. If your Hong Kong investment gains 7.5 percent while the exchange rate moves from 7.75 Hong Kong dollars (HK$) per U.S. dollar to 7.70 per dollar over the period, what is your total return on this investment? A. 6.8% B. 7.1% C. 7.6% D. 8.2% E. 8.4%

closed-end

You recently purchased a fund at a price of $39.97 per share. The NAV at the time of purchase was $40.67. You must have purchased a(n) _____ fund. A. closed-end B. global C. bond D. index E. asset allocation