investment management exam

The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive _______.

$ 1,045.31

On a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades that totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security? (q5)

$1,375

Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit fees were $90,000. The offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the equity issue? (q5)

$1,690,000

Assume you purchased 700 shares of XYZ common stock on margin at $80 per share from your broker. If the initial margin is 55%, the amount you borrowed from the broker is _________. (q5)

$25,200

You short-sell 100 shares of Tuckerton Trading Company, now selling for $44 per share. What is your maximum possible gain, ignoring transactions cost? (q5)

$4,400

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? (q6)

$9

A T-bill quote sheet has 90-day T-bill quotes with a 5.17 ask and a 5.11 bid. If the bill has a $10,000 face value, an investor could sell this bill for _____.

$9,872.25

Rank the following from highest average historical return to lowest average historical return from 1926 to 2019. (q4) 1. Small stocks 2. Long-term bonds 3. Large stocks 4. T-bills

1, 3, 2, 4

The geometric average of −22%, 30%, and 35% is __________. (q4)

11.03%

You put up $50 at the beginning of the year for an investment. The value of the investment grows 6% and you earn a dividend of $5.50. Your HPR was __________. (q4)

17.0%

The arithmetic average of -24%, 41%, and 46% is __________. (q4)

21.00%

Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in 3 months. What is the holding-period return for this investment? (q4)

3.09%

Rank the following types of markets from least integrated and organized to most integrated and organized: (q5) 1. Brokered markets 2. Continuous auction markets 3. Dealer markets 4. Direct search markets

4, 1, 3, 2

The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss? (q5)

48%

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV? (q6)

8.47% discount

If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be _________.

99.6250

_______ funds stand ready to redeem or issue shares at their net asset value. (q6)

Open-end

_______ are often called mutual funds. (q6)

Open-end investment companies

(q4 - question 10)

REVIEW

_______ assets generate net income to the economy, and _______ assets define allocation of income among investors.

Real; financial

a. Assuming that the table gives today's prices, what was the firm's closing price yesterday? (Round your answer to 2 decimal places.) b. How many shares could you buy for $5,000? (Round your answer to the nearest whole number.) c. What would be your annual dividend income from those shares? (Round your answer to 2 decimal places.) d. What must be Home Depot's earnings per share? (Round your answer to 2 decimal places.)

The closing price today is $224.15, which is $1.44 above yesterday's price. Therefore, yesterday's closing price was: $224.15 − $1.44 = $222.71. You would buy 22 shares: $5,000/$224.15 = 22.31 (round down for 22 shares) Your annual dividend income on 22 shares would be 22 × $5.44 = $119.68. Earnings per share can be derived from the price-earnings (PE) ratio: Given price/Earnings = 22.36 and Price = $224.15, we know that Earnings per Share = $224.15/22.36 = $10.02

The rate of return on __________ is known at the beginning of the holding period, while the rate of return on __________ is not known until the end of the holding period. (q4)

Treasury bills; risky assets

Which one of the following invests in a portfolio that is fixed for the life of the fund? (q6)

Unit investment trust

An example of a real asset is: 1. A college education 2. Customer goodwill 3. A patent

all of the above

The __________ measure of returns ignores compounding. (q4)

arithmetic average

The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ______. (q5)

book building

An investor in a T-bill earns interest by _________.

buying the bill at a discount from the face value to be received at maturity

Security selection refers to _______.

choosing specific securities within each asset class

_______ are examples of financial intermediaries.

commercial banks, insurance companies, investment companies

Real assets in the economy include all but which one of the following?

common stock

Mutual funds provide the following for their shareholders. (q6)

diversification, professional management, record keeping and administration

An individual who goes short in a futures position _______.

has the obligation to deliver the underlying commodity at contract maturity

Purchases of new issues of stock take place _______. (q5)

in the primary market

Net asset value is defined as _______. (q6)

market value of assets minus liabilities divided by shares outstanding

The primary measurement unit used for assessing the value of one's stake in an investment company is _______. (q6)

net asset value

_______ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.

passive

Suppose an investor is considering one of two investments that are identical in all respects except for risk. If the investor anticipates a fair return for the risk of the security he invests in, he can expect to _______.

pay less for the security that has higher risk

Which of the following is not a money market instrument?

preferred stock

Disadvantages of ETFs include all of the following except: (q6)

prices are only quoted once each day.

The material wealth of society is determined by the economy's _______, which is a function of the economy's _______.

productive capacity; real assets

A _______ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

put option

The excess return is the __________. (q4)

rate of return in excess of the Treasury-bill rate

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 _______. (q6)

the NAV calculated at the market close at 4 pm New York time

The holding period return on a stock is equal to __________. (q4)

the capital gain yield over the period plus the dividend yield

The bid price of a Treasury bill is _______.

the price at which the dealer in Treasury bills is willing to buy the bill

Money market securities are sometimes referred to as cash equivalents because _______.

they are safe, marketable, and offer low returns

Initial public offerings (IPOs) are usually _______ relative to the levels at which their prices stabilize after they begin trading in the secondary market. (q5)

underpriced