Finance Questions from Practice

The self-regulatory body that monitors brokers and dealers is:

FINRA.

A coefficient of determination has a range from -1 to +1.

False

If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate

False

When a yield on a bond increases, all else held constant, the value of that bond tends to increase

False

A US Treasury bill with a maturity of 180 days is trading at 99.5. What is the difference between the investment yield and the discount yield for this security in basis points?

2

Which of the following are characteristics of a limited liability company (LLC)? -Taxes as partnerships -Provided limited liability protection -Taxed as corporations -Owners have votes in proportion to their ownership interest -General partners have full control of the business

-Taxes as partnerships -Provided limited liability protection -Owners have votes in proportion to their ownership interest

Suppose that the mean of a set of observations is 7.2 and the variance is 3.5. For a given observation, 9.2, what is the standardized value corresponding to this observation?

1.069

Annuity due

A finite series of periodic cash flows where the first cash flow occurs immediately

The risk that a decline in interest rate will lead to a decline in the income of a bond portfolio is best described as ____________.

reinvestment risk

If the hypothesized value of a parameter under the null hypothesis lies outside the confidence interval, the researcher should: -fail to reject the null hypothesis. -reject the null hypothesis.

reject the null hypothesis.

The level of significance is the probability of: -rejecting a false hypothesis. -rejecting a true hypothesis.

rejecting a true hypothesis.

Disregarding risk, if money has time value, it is impossible for the present value of a given sum to exceed its future value.

True

For any given sample, the arithmetic mean is larger than the harmonic mean

True Harmonic mean penalizes Volatility

The short-fall risk of a portfolio is the risk:

that the value of the portfolio will fall below a minimum, acceptable level over some time horizon.

The yield to maturity of a bond will equal the bond s coupon yield when: -the bond is selling at its face value. -the bond is selling at a premium. -the bond is selling at a discount. -the yield to maturity is equal to the yield to call.

the bond is selling at its face value.

A risk averse investor

will take on risk if he/she is adequately compensated for the risk borne.

Which of the following can be used to examine the fit of a multiple regression equation? -Coefficient of determination -F-statistic -t-statistic -Slope

-Coefficient of determination -F-statistic

Which of the following is considered a liquidity ratio? -Return on equity -Current ratio -Quick ratio Total asset turnover

-Current ratio -Quick ratio

Which of the following is used to test whether there is serial correlation of the residuals of a time-series model? -Durbin-Watson test -Dickey-Fuller test -Mean reversion test

-Durbin-Watson test

Which of the following are components of an interest rate? -Turnover premium -Liquidity premium -Default risk premium -Activity premium -Inflation premium -Real risk-free rate -Volatility premium -Efficiency premium

-Liquidity premium -Default risk premium -Inflation premium -Real risk-free rate

Which of the following are measures of dispersion? -Range -Standard deviation -Harmonic mean -Mean square error -Variance

-Range -Standard deviation -Mean square error -Variance

Suppose you can combine securities in a portfolio, Portfolio L, in such a way to mimic the factor sensitivity of another portfolio, Portfolio K, but with a higher return than Portfolio K. Which of the following apply? -Portfolio L is an arbitrage portfolio -Portfolio K is an arbitrage portfolio -Short L and buy K to exploit this opportunity -Short K and buy L to exploit this opportunity

-Short K and buy L to exploit this opportunity

We use the Chi-square test to test which of the following? Indicate all that apply. -Test of a mean -Test of the mean of differences -Test of a variance -Test of a difference in means -Test of the difference in variances

-Test of a variance

Which of the following statements is correct? -The Pearson correlation is a nonparametric correlation. -The Spearman and Pearson correlations will provide the same conclusions regarding the significance of a correlation. -The R-squared of the regression of Y on X is the square of the bivariate correlation of Y and X. -If two variables Y and X have a statistically significant Pearson correlation, the regression of Y on X will have a statistically significant slope. -The Spearman correlation coefficient is the correlation of the ranks of two variables. -The test of significance of a correlation coefficient is not affected by the sample size. -The slope coefficient of the regression of Y on X is the same value as the correlation of Y and X. -A correlation of 0.85 is statistically significant because it is close to 1.0.

-The R-squared of the regression of Y on X is the square of the bivariate correlation of Y and X. -If two variables Y and X have a statistically significant Pearson correlation, the regression of Y on X will have a statistically significant slope. -The Spearman correlation coefficient is the correlation of the ranks of two variables.

assumption of least squares, simple regression

-The mean of the residuals is zero. -Residuals are homoskedastic -The residual for one observation is uncorrelated with residuals of another observation. -The relationship between the dependent and independent variable is linear

Assume that you are applying for three jobs, one with the firm of Smith, Carlyle, and Snookums, one with the firm of Dewy, Cheatham, and Howe, and the last with the firm House of Pancakes. Assume the probability that you get a job offer from Smith et al. is 50%, the probability of getting an offer from Dewey et al. is 61%, and the probability of getting an offer from House et al is 53%. What is the probability that you will get a job offer from Smith et. al. or Dewey et. al.?

0.805

if the coefficient of determination is 68.018% for a simple regression, the correlation coefficient is

0.8247

If the correlation of returns for two stocks is 0.149, and the standard deviations for the two stocks are 0.013 and 0.059, respectively, the covariance is equal to:

0.0001 Covarience = STD a * STD b * Corr

Given the following returns, what is the value of the target semi-variance if the targets 0%?

0.0004 If the target is the mean, then the target semivariance is equal to the semivariance.

What is the holding period return on an investment of $104.47 million that generates $1.68 million in dividends at the end of the year, and is worth $103.93 at the end of the year?

0.0109

A US Treasury bill that has a price of 99.5 and 97 days to maturity has an investment yield of _____.

0.0189

If the correlation coefficient from a simple linear regression is 0.163, how much of the variation of the dependent variable is explained by the independent variable?

0.0266

A money market security with 89 days to maturity and priced at 99.23 has an effective annual yield of ________.

0.0322 HPY 100-99.23/99.23 ((1+HPY)^(365/T) ) - 1

Consider the following probability distribution of possible returns to a project: Probability Return 5% -6% 10% -2% 60% 3% 25% 8% The standard deviation of this probability distribution is closest to: - 0.0013 - 0.1063 - 0.0113 - 0.0357

0.0357

A US Treasury bill that has a price of 98.9 and 110 days to maturity has an investment yield of _____.

0.0369

Consider a security with a bank discount yield of 6.409%. If this security has a maturity of 90 days, what is its money market yield? (report your answer to four decimal places, e.g., 1.23% is reported as 0.0123)

0.0651

0.073

0.073

The effective annual rate when the stated rate is 8% and interest is continuously compounded is _______.

0.0833

Consider an investment of $100 million that is expected to generate $1.22 million in one year and then $116.78 million in the second year. What is the time-weighted rate of return on this two-year investment?

0.0872

A money market security with 47 days to maturity and priced at 98.59 has a money market yield of ________.

0.1095

If a Treasury bill has a current price of 96.8 and 105 days to maturity, the discount yield on this bill is _______.

0.1097

The effective annual rate when the stated rate is 14% and interest is continuously compounded is _______.

0.1503 E^(apr) - 1

Consider an investment of $100 million that is expected to generate $20 million in one year and then $110 million in the second year. What is the money-weighted rate of return on this two-year investment?

0.1536

At the end of 2010, the company's stock price was $21 per share. At the end of 2014, the stock price was $38. The company paid no dividends during this period. What is the annual growth rate for this stock?

0.1598

Consider an investment that requires $596 today, but promised to pay $3,998 11 years from now. The effective annual rate of return on this investment is ____.

0.189

If a Treasury bill has a current price of 95.4 and 76 days to maturity, the discount yield on this bill is _______.

0.2179

The sample variance of the following sample is ________.

0.2467

What is the effective annual rate for a stated rate of 24%, compounded quarterly?

0.2625

What is the effective annual yield on an investment whose 30-day holding period yield is 2.074%?

0.2837

If a company has a return on assets of 22% and a ratio of debt-to-assets of 23%, what is the company's return on equity?

0.2857

In the estimated model yt = 0.068 + 0.789 xt, the mean reverting level is _________

0.322 b0/1-b1

In the estimated model yt = 0.073 + 0.79 xt, the mean reverting level is _________

0.348

Suppose we have the following data on a sample: Mean -0.05 Standard deviation 0.014 Sample size 40 and want to test whether the variance is equal to 0.02. The calculated test statistic is equal to ________.

0.3822

Suppose that the upward transition in a binomial tree is 21% and a downward transition is 11%. If the risk-free rate of interest is 2.1%, what is the probability of an upward transition?

0.4094

Suppose the random variable Y has a mean of 7.581 and a standard deviation of 3.392. The standardized value corresponding to a value of Y of 9.285 is equal to _______.

0.5024

Suppose you bought a security at the beginning of the last year for $20.22 and held the security to the end of this year. If the security paid no dividends or interest, and was worth $30.45 at the end of this year, what it the annual money-weighted return on this investment?

0.5059

If a company with revenues of $1,666,746, cost of goods sold of $513,193, and total assets of $1,690,009, what is its total asset turnover?

0.9862 Sales/ total Assets

Suppose you invest $929 in an account that pays interest of 9% the first year and 8% the second year. If you make no withdrawals, what is the balance in the account at the end of the two years? Report your answer to two decimal places, and do not include the $ sign.

1,093.62

Consider an investment of $1,000 whose value grows at a rate of 8 percent the first year, 2 percent the second year, 10 percent the third year, and 3 the fourth year. What is the value of the investment at the end of the fourth year?

1,248.11

Consider an investment of $1,000 whose value grows at a rate of 2 percent the first year, 9 percent the second year, 9 percent the third year, and 6 the fourth year. What is the value of the investment at the end of the fourth year?

1,284.57

A simple regression with 60 observations has how many degrees of freedom?

58 N-k-1

Suppose you invest $765 in an account at the end of each year for 8 years. If the account earns interest at the rate of 1%, how much will you have in the account at the end if you make no withdrawals?

6,338.54

Two series are said to be ___________________ if the series do not diverge from each other without bound in the long-term.

cointegrated

Growth that is exponential is growth that is consistent with:

continuous compounding.

We must assume that a time series is ___________________ in order to make appropriate statistical inference from the estimated values. -covariance stationary. -not covariance stationary.

covariance stationary.

Consider a bond with a coupon rate of 10% that is currently trading to yield 5%. If the yield remains at 5%, the price of the bond, as the bond approaches maturity, will:

decrease

If the yield to maturity on a bond remains constant, a premium bond's value will ______ as it approaches maturity.

decrease

Heteroskedasticity refers to a situation in which the error terms from a regression analysis

do not have equal variance.

The Spearman correlation coefficient

is the correlation of the ranks of two variables.

Perpetuity Payment

it is an annuity that goes on forever.

If a bond is trading at a discount from its face value, its coupon rate must be

less than its yield to maturity.

If the holding period return for a given stock for the month is 4 percent, the continuously compounded monthly return is:

ln(1.04) = 0.0392207

Suppose a one-week return on a stock is 5 percent. The continuously compounded return for this week is equal to

ln(1.05)=0.04879 or 4.879%

Joe Researcher created a model to describe stocks' returns. He used annual stock returns for 2019 as the dependent variable and used 2019 earnings per share to explain these returns. The bias that this best describes is:

look-ahead bias.

Joe Researcher created a model to describe stocks' returns. He used annual stock returns for 2019 as the dependent variable and used 2019 earnings per share to explain these returns. The bias that this best describes is: -survivorship bias. -selection bias. -data mining. -look-ahead bias.

look-ahead bias.

Using a variable in a model that has information that is not known at the date of the testing is a problem best described as:

look-ahead bias.

The Capital Asset Pricing Model (CAPM) describes returns on individual stocks as being comprised of two elements: the return on a risk-free asset and the return which compensates the investor for 1. market risk. 2. specific risk. 3. operating risk. 4. default risk.

market risk.

US Treasury Bills are traded in the: -money markets. -capital markets.

money markets.

In a multiple regression, the correlation among independent variables is best described as:

multicollinearity.

Suppose you calculate the standard deviation of the continuous compounded monthly returns on a stock. The annualized volatility is determined by:

multiplying the standard deviation of monthly returns by the square root of 12.

If the F test statistic for a regression is greater than the critical value from the F distribution, it implies that

one or more of the independent variables in the regression model have a significant effect on the dependent variable.

We compare forecasting models by choosing the model with the smallest: -t-value -root mean square error. -coefficient of determination. -F-value.

root mean square error.

The Sharpe Ratio is the

the difference between the mean portfolio return and the mean return to the risk-free asset, divided by the standard deviation of the portfolio's returns.

A researcher collected P/E ratios for two industries, Electronics and Transportation. He wants to test whether there is a difference in P/Es for these two industries. The most appropriate test is a test of:

the difference in means.

We use the F-distributed test statistic to test:

the equality of variances.

We use the F-distributed test statistic to test: -the equality of variances. -the mean of the differences. -the equality of the means. -whether the variance is equal to a specific value.

the equality of variances.

If the return to stock selection is negative, this means that

the portfolio manager is not good at picking securities.

If the return to stock selection is negative, this means that: -the portfolio manager should have tilted his portfolio closer to the factor sensitivities of the benchmark. -the portfolio manager is not good at picking securities. -the portfolio manager is good at choosing factor tilts.

the portfolio manager is not good at picking securities.

If two variables Y and X have a statistically significant Pearson correlation:

the regression of Y on X will have a statistically significant slope.

Beta is a measure of

the sensitivity of a stock's return to changes in the return on the market.

Multicollinearity refers to a situation in which

there is a high degree of correlation between the independent variables included in a multiple regression model.

If the standard deviation of continuously compounded daily returns is 1 percent. If there are 250 trading days in a year, the annualized volatility, in decimal form, is:

volatility = 0.01 x SQRT(250) = 0.158113883

In describing the built-in function FV as: =FV(RATE,NPER,PMT,PV,TYPE) the TYPE is used to indicate: -whether ordinary annuity or annuity due. -whether the interest rate involves annual compounding. -the use of discrete versus continuous compounding. -whether the present value is entered as a negative number.

whether ordinary annuity or annuity due.

The covariance and the correlation must always be the same sign.

T

The risk of a portfolio declines as assets whose returns are not perfectly correlated with those of the assets already in the portfolio are added.

T

The revision of probabilities based on new information is derived from: -Bernoulli's Theorem. -Bayes' Theorem. -Markowitz's efficient frontier. -Chebyshev's Inequality.

-Bayes' Theorem.

Company Y

Company _

Which of the following increases the risk of buying a stock? -Buying it on margin. -Buying the call option on the stock.

-Buying it on margin

Which of the following is a continuous distribution? -Chi-square -F -Normal -Binomial

-Chi-square -F -Normal

In a market that is semi-strong efficient, the average active return on portfolios (excluding any management fee) is most likely: -negative. -zero. -positive.

zero.

Information Ratio

(Return of the Portfolio - Return of the Benchmark) Tracking Risk

If the degrees of freedom are 24 and the level of significance is 5 percent, the critical t-value is:

+ 2.064

You were injured in an accident, called Pisces & Aquarius, and received a settlement offer in your lawsuit. The defendant has offered you a settlement that may be paid four different ways, but you must choose one before signing the settlement papers. If the interest rate is 7 percent, which of the following offers the most value to you today? -$180,000 for each of the next ten years, starting today -$1.5 million at the end of five years from now -$200,000 for each of the next ten years, starting in one year -$1 million now

-$200,000 for each of the next ten years, starting in one year

Return 5% 6% 1% -1% -5% The skewness of this sample is closest to: 1.20 0.03 -0.38 -1.14

-.38

When evaluating your portfolio at year-end, you notice that the mutual fund you bought a year ago for $19.12 is now trading for $17.56. The mutual fund has recently paid a $1.4 dividend. What is your total return on this investment?

-0.0084

If the average annual return over two years is 3.3 percent and the return in the first year is 6.9 percent, what is the return in the second year?

-0.1788

If a stock has a return of 3% the first year and -5% the second year, the average annual return is ___________%

-1.0808

Suppose you estimate the time series as: yt = -0.02 + -0.55 t, t = 1, 2, ... 20. The year ahead forecast of y in this series is _________.

-11.57

Using 247 observations, the correlation between the CBOE S&P 500 Volatility Index and the return on the S&P 500 is -0.7. What is the value of the t-statistic used to test this correlation for statistical significance? Report the value to four decimal places.

-15.3425

Which of the following will result in a rejection of the null hypothesis? -A p-value for the calculated test statistic that is greater than α . -The p-value corresponding to the calculated test statistic that is less than the level of significance. -A calculated t-value of 1.75 and a critical t-value of 1.64. -A calculated t-value of 2.3 and critical t-values of -2.2 and +2.2. -The p-value corresponding to the calculated test statistic that is less than the confidence level.

-The p-value corresponding to the calculated test statistic that is less than the level of significance. -A calculated t-value of 1.75 and a critical t-value of 1.64. -A calculated t-value of 2.3 and critical t-values of -2.2 and +2.2.

The level of significance is the risk of a: -rejecting a true hypothesis -Type II error. -correct answer. -rejecting a false hypothesis -Type I error

-Type I error -rejecting a true hypothesis

The error of rejecting a true null hypothesis is: -the power of the test. -the same as β -a Type I error. - the level of significance. -1 less the confidence level. -committed when there is insufficient information. -a Type II error.

-a Type I error. - the level of significance. -1 less the confidence level.

The probability of making a Type I error when the null hypothesis is true is: (indicate all that apply) -alpha -the power of the test -the compliment of the confidence level. -the level of significance. -β -the confidence level.

-alpha -the compliment of the confidence level. -the level of significance.

The probability that the test statistic will fall inside rejection region due to chance alone is equal to: -the power of the test. -the confidence level. -one minus the confidence level. -beta. -alpha. -the significance level

-alpha. -the significance level -one minus the confidence level.

If a bond is trading at a discount from its face value, its coupon rate must be: -greater than its yield to maturity. -less than its yield to maturity. -equal to its yield to maturity.

-less than its yield to maturity.

The power of the test is the ______________. (indicate all the apply) -level of significance -inverse of the level of significance -compliment to the probability of making a Type I error -likelihood of rejecting a false hypothesis -compliment to the probability of a Type II error

-likelihood of rejecting a false hypothesis -compliment to the probability of a Type II error

Autocorrelation may be the result of: -nonlinearities in the relationship between the dependent and independent variables. -the omission of an important explanatory variable. -the presence of a trend in the independent variable.

-nonlinearities in the relationship between the dependent and independent variables. -the omission of an important explanatory variable. -the presence of a trend in the independent variable.

The level of significance is the risk of a: -rejecting a true hypothesis -Type I error. -correct answer. -Type II error. -rejecting a false hypothesis

-rejecting a true hypothesis -Type I error.

The capital asset pricing model is best described as a: -single-factor model. -multi-factor model. -attribution model. -arbitrage models.

-single-factor model.

Which of the following is most appropriate in testing the role of an individual independent variable in a multiple regression? -F-statistic -Chi-squared statistic -t-statistic

-t-statistic

Which of the following is most appropriate in testing the role of an individual independent variable in multiple regression? -F-statistic -t-statistic -Chi-squared statistic

-t-statistic

A macroeconomic models purport that returns are driven by: -unanticipated economic factors. -anticipated economic factors. -market returns only.

-unanticipated economic factors.

The coefficient of determination: -is the square root of the correlation coefficient. -will generally increase if additional independent variables are added to the regression analysis. -is maximized by ordinary least squares. -has a value between zero and one.

-will generally increase if additional independent variables are added to the regression analysis. -is maximized by ordinary least squares. -has a value between zero and one.

If the correlation of X and Y is 0.7, the coefficient of determination of the regression of Y on X is _________

.49 Corr*Corr = coefficient of determination

Willard Billingsley is valuing a call option for a stock. The exercise price is $45 and the option can be exercised in two years. The underlying stock has a current price of $40 per share. If the stock's price increases, it is expected to increase by 40%; if the stock's price decreases, it is expected to decrease by 30%. The risk free rate of interest is 5 percent. What is the value of the call in two years if the stock price goes up in the first period and down in the second? $_____

0

The Pensioners' pension fund has four stocks in its portfolio, Stock A, Stock B, Stock C, and Stock D, investing equal dollar amounts in each stock. Stock A has a beta of 2.0, Stock B has a beta of 1.5, Stock C has a beta of 0.5, and Stock D has a beta of 1.25. The beta of the Pensioners' pension fund portfolio is closest to

1.3125 bp = ((0.25)(2)) + ((0.25)(1.5)) + ((0.25)(0.5)) + ((0.25)(1.25))

If a company with revenues of $1,492,699, cost of goods sold of $870,490, and total assets of $1,029,634, what is its total asset turnover?

1.4497

Suppose that the mean of a set of observations is 3.2 and the variance is 2.5. For a given observation, 5.7, what is the standardized value corresponding to this observation?

1.5811 Obs-Mean/Sqr(Var)

If a company with revenues of $1,964,721, cost of goods sold of $652,451, and total assets of $1,176,982, what is its total asset turnover? Report your answer in decimal form rounded to the fourth decimal place.

1.6693

If a company with revenues of $1,964,721, cost of goods sold of $652,451, and total assets of $1,176,982, what is its total asset turnover?

1.6693 Sales/Total Assets

If a stock has a return of 8% the first year and -4% the second year, the average annual return is ___________%

1.8234

Suppose you have the following information for a simple regression of Y regressed on X: Standard error of the estimate 2.37 Variance of Y 0.25 Variance of X 0.38 Number of observations 31 Estimated slope 1.38 What is the value of the test statistic to test whether the slope is different from zero?

1.966

If you invest $100 today and receive $10 one year from today, $50 two years from today, and finally $70 three years from today, the return on your investment is closest to: -24.11% 10.00% 11.35% 30%

11.35%

If the odds that a certain company will go bankrupt next year are 1 in 5, the probability that the company will go bankrupt next year is:

16.7 percent. probability = 1 / (1 + 5) = 1/6 = 16.67%

A US Treasury bill with a maturity of 180 days is trading at 97.6. What is the difference between the investment yield and the discount yield for this security in basis points? Report to the nearest whole basis point.

19

What is the present value of $7,993 to be received in 14 years if the discount rate is 7.6%?

2,866.41

A company that sells annuities must base the annual payout on the probability distribution of the length of life of the participants in the plan. Suppose the probability distribution of the lifetimes of the participants is approximately a normal distribution with a mean of 68 years and a standard deviation of 3.5 years. What proportion of the plan recipients would receive payments beyond age 75?

2.28%

A recruiter has a stack of 41 resumes to choose from, but only 7 interview slots. How many combinations of persons to interview can he select?

22,481,940

Of the following investments, which would a risk averse person prefer? 1. expected return of 12% and a stanard deviation of 12% 2. expected return of 10% and a standard deviation of 12% 3. expected return of 12% and a standard deviation of 11%

3. expected return of 12% and a standard deviation of 11%

If the average annual return over two years is 4.9 percent and the return in the first year is 6 percent, what is the return in the second year?

3.8114%

A regression model with 9 independent variables and 42 observations has a t-critical value for the significance of an independent variable's coefficient of

32

Suppose you invest $892 in an account at the end of each year for 4 years. If the account earns interest at the rate of 8%, how much will you have in the account at the end if you make no withdrawals?

4,019.45

Suppose you invest $419 today in an account that pays 6% interest that is compounded annually. At the end of 8 years, what is the amount of interest paid on interest in this account?

47.7023

The present value of $7,288.5 to be received five years from now if the appropriate interest rate is 6 percent, compounded continuously is $_________.

5,399.4536

An investor begins saving $1,140 each year, starting three years from now, for 7 years. What is the present value of those savings right now if the discount rate is 5 percent per year? Report your answer to the nearest cent (e.g., 1234.56)

5,983.19

The expected return on the market for next period is 6 percent. The risk-free rate of return is 2 percent. The company's stock has a beta of 1.1. This company's required rate of return falls into which of the following ranges? -6% < required rate of return < 6.25% -5.75% <required rate of return < 6% -6.25% < required rate of return< 6.5% -6.5% < required rate of return -required rate of return < 5.75%

6.25% < required rate of return< 6.5%

Consider the following sample of returns: 5% 6% 7% 8% 7% The harmonic mean is closest to:

6.59%

Consider the following sample values: 6 3.7 9 9.2 6.1 The sample mean is _______ (report to four decimal places)

6.8

A client sold 100 shares of a stock short at $51 per share. One year later, he bought back the stock at $44 per share. The commission is 1 percent for purchases and sales. Assuming that there is no interest or other charges for borrowing the shares and the stock does not pay dividends, what is the client's gain or loss on this transaction?

605

Suppose you invest $565 in an account that pays interest of 6.8% the first year and 9.8% the second year. If you make no withdrawals, what is the balance in the account at the end of the two years?

662.56

The future value of $639 invested for four years at 1.8 percent, compounded continuously is $___________.

686.7

An investor begins saving $1,371 each year, starting three years from now, for 7 years. What is the present value of those savings right now if the discount rate is 5 percent per year?

7,195.57

A recruiter interviewed 10 job candidates. She can only choose three candidates for a company visit and must rank order these three candidates. How many possible ranked sets of three candidates are there from the pool of job candidates?

720

Suppose there are 100 applicants for an analyst position, and the mutual fund is looking to hire 5 analysts. If all applicants are equally qualified, how many different combinations of analysts can the mutual fund select analysts from this job pool?

75,287,520

8.8%

8.8%

The future value of $830 invested for four years at 2 percent, compounded continuously is $___________. Report your answer to two decimal places.

899.13

The present value of $16,265 to be received in 7 years if the discount rate is 7.86 percent APR, compounded quarterly is $__________.

9,432.41

If data is normally distributed, what percent of the observations will be contained within two standard deviations around the mean?

95.44

ordinary annuity

A finite series of periodic cash flows where the cash flows begin one period from today

S(Rp-Rb)

Active Risk Tracking Risk Tracking Error

Deferred Annuity

An annuity in which the rents begin after a specified number of periods.

If three annuities have the same number of payments and the same discount rate that is greater than 0%, which annuity will have the largest present value? -Annuity due -Deferred annuity -Ordinary annuity

Annuity Due

Tim has two bonds to choose from. Both of them have $1,000 face values. Bond A has a 9% coupon, 10 years remaining to maturity, and is priced to yield 7%. Bond B has a 10% coupon, 10 years remaining to maturity, and is priced to yield 6%. Both bonds pay interest semi-annually. Which bond has a higher value?

Bond B $1,297.5495 vs A $1,152.124

Stocks are traded in the: -capital markets. -Money Markets

Capital Markets

If the annual percentage rate of 12%, ________ compounding will produce the highest effective annual rate and_________ compounding will produce the lowest effective annual rate.

Continuous Annual

Which of the following is a desirable quality of a time series' residuals? -Covariance stationarity -Homoskedastic residuals -Autocorrelated residuals -Heteroskedastic residuals.

Covariance stationarity Homoskedastic residuals

In regression models, the variable that is being predicted is best described as the:

Dependent Variable

A pooled variance, s p 2, is used when the population variances are assumed to be unequal.

F

A sample of book-to-market ratios as of the end of 2014 for all NYSE-traded companies is best considered a time-series sample.

F

As the number of assets in a portfolio increases, the risk of the portfolio increases

F

If a market is weak form efficient, it is necessarily semi-strong form efficient.

F

If the market is semi-strong efficient, there would be no abnormal returns to insider trading.

F

If you own a stock on the day before the ex-dividend date and then sell the stock on the ex-dividend date, you do not get the forthcoming dividend.

F

The basic idea behind diversification is to reduce risk by combining securities whose returns are perfectly positively correlated.

F

The correlation of the returns on Asset M and Asset N is positive. This means that as the returns of Asset M go up, the returns on Asset N tend to go down.

F

The value of α is generally known as the acceptance level.

F

When a yield on a bond increases, all else held constant, the value of that bond tends to increase.

F

VAR, or value at risk, is a monetary measure of the maximum amount of losses anticipated over a specified period of time.

F it is the minimum amount of loses anticipated

Mortgage backed securities are: -Interests in the cash flows of a pool of mortgages. -swaps. -individual home mortgages.

Interests in the cash flows of a pool of mortgages

The Central Limit Theorem states that the distribution of sample means from samples of a given sample size from a population will have a distribution that is approximately

Normal

Suppose the return on the market is expected to increase 5%. According to the capital asset pricing model, the expected return of a stock with a security beta of 0.9 is expected to increase by

Less than 5%

If a times series tends to fall when its values are above its mean and increase when its values are below its mean, we refer to this as a series that is: -covariance reverting. -covariance stationary. -Mean Reverting

Mean Reverting

Which of the following is considered a liquidity ratio?

Quick ratio Current ratio

Which of the following is(are) a scale of measurement for a variable? [Indicate all that apply] -Ratio -Ordinal -Parameter -Interval

Ratio Interval

For a times series that is a random walk, the best predictor of next period's value is the current value

T

If the covariance of the returns of two securities is zero, the correlation of the returns of the two securities is also zero.

T

In a time trend model, the slope is the change in the dependent variable for the passage of one unit of time.

T

Investors are compensated for the market risk of their portfolio.

T

Consider two distributions: Sample 1: mean= 19 variance= 10 Sample 2: mean= 10 variance= 19 Which sample has the greater dispersion?

Sample 2

If the coefficient on a lagged value of a time series is equal to 1.0, the series is best described as having: -Stationary -a unit root. -mean reversion.

Stationary

The risk that cannot be diversified away by adding additional assets is referred to as the asset's : -market risk. -diversifiable risk. -business risk. -systematic risk. -expected risk. -financial risk

Systematic Risk Market Risk

An assumption of regression models is that the regression errors are not correlated across observations.

T

Excess kurtosis is a measure of peakedness relative to a normal distribution.

T

Francine Stepford calculated the geometric mean return of a sample of 30 stock returns as 3.25%. Which of the following statements is true? -The arithmetic mean return for the sample is greater than 3.25%. -The harmonic mean return for the sample is greater than 3.25%.

The arithmetic mean return for the sample is greater than 3.25%.

Which method of calculating a portfolio return is most appropriate for evaluating the performance of a portfolio manager?

Time-weighted rate of return

-The internal rate of return of Project X is equal to the internal rate of return of Project Y. -The internal rate of return of Projects X and Y cannot be determined based on this information. -The internal rate of return of Project X is greater than the internal rate of return of Project Y. -The internal rate of return of Project Y is greater than the internal rate of return of Project X.

The internal rate of return of Project X is greater than the internal rate of return of Project Y.

Consider the 3 observations: 3, 7, 11 for which the mean is 7 and the standard deviation is 4. If we add 2 to each value, what are the new mean and standard deviation?

The mean is 9 and the standard deviation is 4.

A binomial random variable can take on one of two values.

True

A sample consisting of monthly observations on GDP over 30 years is considered a time series sample.

True

If a market is semi-strong efficient, it is necessarily weak form efficient.

True

If a market is weak form efficient, there would be no abnormal profits from technical trading.

True

If the slope coefficient in a simple regression is different from zero at the 5 percent level, the correlation coefficient between the independent and dependent variables is different from zero at the 5 percent level as well

True

In a time trend model, the slope is the change in the dependent variable for the passage of one unit of time

True

The residual is the difference between the observed value of the dependent variable and the predicted value of the dependent variable.

True

If a series' values are correlated with its own past values, we describe this series as:

autocorrelated.

If the F test statistic for regression is greater than the critical value from the F distribution, it implies that: -all of the independent variables in the regression model have significant effects on the dependent variable. -one or more of the independent variables in the regression model has a significant effect on the dependent variable. -none of the independent variables in the regression model have a significant effect on the dependent variable.

one or more of the independent variables in the regression model have a significant effect on the dependent variable.

Stocks represent interests of _______, whereas bonds represent interests of _______.

owners; lenders

Central Limit Theorem

permits us to make precise probability statements about the population mean by using the sample mean, no matter the distribution of the population.

The number of ways in which r objects can be chosen from a set of n objects, when the order matters is determined using the: -permutation formula. -combination formula. -multinomial formula.

permutation formula

You sell a stock short if you are __________ about the stock's price.

pessimistic

The net present value method assumes that the cash flows from a project can be reinvested at the _______________.

project's cost of capital

Safety-first rules focus on: -short fall risk. -total risk. -systematic risk.

short fall risk.

If the t ratio for the slope of a simple linear regression equation is -2.48 and the critical values of the t distribution at the 1% and 5% levels, respectively, are 3.499 and 2.365, then the slope is: -significantly different from zero at both the 1% and the 5% levels. -Significantly different from zero at the 5% level but not at the 1% level. -not significantly different from zero. -significantly different from zero at the 1% level but not at the 5% level.

significantly different from zero at the 5% level but not at the 1% level.

The R-squared of the regression of Y on X is the:

square of the bivariate correlation of Y and X.

Examining historical returns and performing an analysis of the factors that appear to drive returns is best described as a: -statistical factor model. -fundamental factor model. -macroeconomic model.

statistical factor model.

Autocorrelation refers to a situation in which

successive error terms derived from the application of regression analysis to time series data are correlated.

The coefficient of determination is the ratio of the __________________ to the sum-of-squares total.

sum-of-squares regression

Risk that cannot be diversified away is described as

systematic risk.