exam 1 fin 327

Assume that in any given year, 6 out of ten stocks outperform the general market. Also, assume that all investors have zero stock picking skill and that half of the investors are Republicans. Further, assume that ten years ago, there were 30,000 investors trying to beat the market. After ten years, how many investors would have perfect records (round up to the nearest investor)?

182 0.6^10 *30,000 = 181.39=182

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

360

An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity. The investor's actual annual rate of return on this investment is _____. A. 4.8% B. 4.97% C. 5.47% D. 5.74%

4.97 9800=10000x[1-(.0480x150)] (10,000/9800-1)x(365/140)=4.97

Flipping an IPO refers to the practice of: A. Buying more shares in the IPO, up to the maximum allocation quantity B. Doing gymnastics with your shares of the IPO in your pocket C. Short selling the S&P500 index D. Selling your IPO shares within a few days after purchase

D. Selling your IPO shares within a few days after purchase

Money market securities are characterized by I. Maturity less than 1 year II. Safety of the principal investment III. Low rates of return A. I only B. I and II only C. I and III only D. I, II, and III

all

16. The German stock market is measured by which market index A. FTSE B. Dow Jones 30 C. DAX D. Nikkei

dax

A bond that has no collateral is called a _________. A. callable bond B. debenture C. junk bond D. mortgage

debenture

Men usually __________________ women in their investing. This is due to _______________ on the part of men A. Overperform, superior intelligence B. Underperform, inferior intelligence C. Do about the same, watching monster truck contests D. Underpeform, overconfidence

underperform, overconfidence

Concerning the WSJ's dartboad contest, the pros usually __________________ relative to the dartboard picks. B. Underperfom C. Do about the same

do the same

A major cause of mortgage market meltdown in 2007 and 2008 was linked to A. private equity investments B. securitization C. negative analyst recommendations D. online trading

securitization

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

the allocation of the investment portfolio across broad asset classes

Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize within a few months. A. over priced B. correctly priced C. under priced D. mispriced but without any particular bias

under priced

A corporate bond has ten years remaining until it matures. It pays a coupon semi-annually, was issued at par for $1000, the firm has a ROI of 8.6 percent, and the bond was issued with an 8 percent coupon yield. The current interest rate is 6 percent. The current price of the bond is_________________. A. $1487.77 B. $897.66 C. $1148.77 D. Don't have enough information to find an answer.

1148.77 Price today=$1148.77. On a calculator: I/yr=3, N=20, PMT=40, FV=1000, PV=1148.77

34. An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____. A. 5% and 6.4% B. 5% and 5.44% C. 4.25% and 6.4% D. 5.75% and 5.44%

5% and 5.44% After-tax return on municipal bond = .05 After-tax return on corporate bond = .064(1 - .15) = .0544 = 5.44%

What are business firms most likely to use derivative securities for? A. hedging B. speculating C. doing calculus problems D. none of the above

hedging

A treasury bill has a face value of $10,000 and is selling for $9,800. If the Treasury bill matures in 90 days, its effective annual yield is __________. A. 2.04% B. 6.12% C. 8.16% D. 8.54%

8.54 1 +[(10,000 / 9,800)^(365/90)] - 1 = .0854

A bond issued by the state of Alabama is priced to yield 6.25%. If you are in the 28% tax bracket, this bond would provide you with an equivalent taxable yield of _________. A. 4.5% B. 7.25% C. 8.68% D. none of these options

8.68% 8.68% = 6.25%/(1 - .28)

A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____. A. $10,000 B. $9,878.50 D. online trading 31. A bond that has no collateral is called a _________. A. callable bond B. debenture C. junk bond D. mortgage 32. A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____. A. $10,000 B. $9,878.50 C. $9,877 D. $9,880.16

9,878.50 $9,878.50 = $10,000 x [1-(.0486x90)/360]

__________ is not a true statement regarding municipal bonds. A. A municipal bond is a debt obligation issued by state or local governments. B. A municipal bond is a debt obligation issued by the Federal Government. C. The interest income from a Municipal bond is exempt from federal income taxation. D. The interest income from a Municipal bond is exempt from state and local taxation in the issuing state. 91 10. __________ is not a true statement regarding municipal bonds. A. A municipal bond is a debt obligation issued by state or local governments. B. A municipal bond is a debt obligation issued by the Federal Government. C. The interest income from a Municipal bond is exempt from federal income taxation. D. The interest income from a Municipal bond is exempt from state and local taxation in the issuing state. 11. Assume that in any given year, 6 out of ten stocks outperform the general market. Also, assume that all investors have zero stock picking skill and that half of the investors are Republicans. Further, assume that ten years ago, there were 30,000 investors trying to beat the market. After ten years, how many investors would have perfect records (round up to the nearest investor)? A. 91 B. 1400 C. 182 D. 1834

A municipal bond is a debt obligation issued by the Federal Government.

Suppose the market prices of the 30 stocks in the Dow Jones Industrial Average all change by the same dollar amount on a given day. Assuming there are no stock splits, which stock will have the greatest impact on the average? A. The one with the highest price B. The one with the lowest price C. All 30 stocks will have the same impact. D. The answer cannot be determined from the information given.

All 30 stocks will have the same impact

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. All of these options (Weights are not a factor in this situation.)

An equally weighted index

_______________ tend to outperform _____________ in investing. This finding has been attributed to _____________. A. Men, women, bad cooking B. Democrats, Republicans, George W. Bush C. Women, men, excess trading D. Women, small children, lack of finance training in kindergarten

C. Women, men, excess trading

__________ is a true statement regarding the Dow Jones Industrial Average. A. It is a value-weighted average of 30 large industrial stocks B. It is a price-weighted average of 30 large industrial stocks C. It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange

It is a price-weighted average of 30 large industrial stocks

The Standard & Poor's 500 is __________ weighted index. A. an equally B. a price- C. a value- D. a share-

a value-

Active trading in markets and competition among securities analysts helps ensure that: I. Security prices approach informational efficiency II. Riskier securities are priced to offer higher potential returns III. Investors are unlikely to be able to consistently find under- or overvalued securities I. Security prices approach informational efficiency II. Riskier securities are priced to offer higher potential returns III. Investors are unlikely to be able to consistently find under- or overvalued securities A. I only B. I and II only C. II and III only D. I, II, and III

all

If you place a market order to buy (sell) a stock, it will usually get filled at the best ________ (_______) price. A. bid, ask B. spread midpoint, spread median point C. ask, bid D. (ask-bid)/2, (bid-ask)/2

ask,bid

. Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called A. certificates of deposit B. repurchase agreements C. bankers' acceptances D. commercial paper

commercial paper

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

common stock

Commodity and derivative markets allow firms to adjust their _________. A. management styles B. focus from their main line of business to their investment portfolios C. ways of doing business so that they'll always have positive returns D. exposure to various business risks 27. Which of the following is not a financial intermediary?

exposure to various business risks

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

federal funds

According to Loughran and Ritter, initial public offerings tend to exhibit __________ performance initially, and __________ performance over the long term. A. bad; good B. bad; bad C. good; good D. good; bad

good/bad

The ________ the ratio of municipal bond yields to corporate bond yields, the _________ the cutoff tax bracket at which more individuals will prefer to hold municipal debt. A. higher; lower B. lower; lower C. higher; higher D. The answer cannot be determined without more information

higher,lower

Purchases of new issues of stock take place __________. A. at the desk of the Fed B. in the primary market C. in the secondary market D. none of the above

in the primary market

Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if _______________. A. inflation is lower than anticipated over the investment period B. inflation is higher than anticipated over the investment period C. the U.S. dollar increases in value against the euro D. the spread between commercial paper and Treasury securities remains low

inflation is higher than anticipated over the investment period

The efficient market 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

passive portfolio management strategies are the most appropriate investment strategies

The material wealth of society is determined by the economy's _________, which is a function of the economy's _________. A. investment bankers; financial assets B. investment bankers; real assets C. productive capacity; financial assets D. productive capacity; real assets

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. A. call option B. futures contract C. put option D. none of the above

put option

Which of the following is not a financial intermediary? A. a mutual fund B. an insurance company C. a real estate brokerage firm D. a savings and loan company

real estate brokerage firm

_________ 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

real, financial

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

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