FIN 350 1st test
T-bills are issued with initial maturities of: I. 4 weeks II. 16 weeks III. 26 weeks IV. 32 weeks A. I and II only B. I and III only C. I, II, and III only D. I, II, III, and IV
B. I and III only
. Ownership of a put option entitles the owner to the __________ to ___________ a specific stock, on or before a specific date, at a specific price. A. right; buy B. right; sell C. obligation; buy D. obligation; sell
B. right; sell
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
The yield on tax-exempt bonds is ______. A. usually less than 50% of the yield on taxable bonds B. normally about 90% of the yield on taxable bonds C. greater than the yield on taxable bonds D. less than the yield on taxable bonds
D. less than the yield on taxable bonds
Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. What is the expected return and standard deviation of your client's portfolio? A. 13% and 17.37% B. 14% and 18.9% C. 12.50% and 19% D. 14.57% and 18.7%
Expected Return = (0.30 * 7%) + (0.7 * 17%) = 14% per Year Standard Deviation = 0.70 * 27% = 18.9% per Year B. 14% and 18.9%
Assume you purchased 200 shares of XYZ common stock on margin at $55 per share from your broker. If the initial margin is 55%, the amount you borrowed from the broker is _________. A. $6,050 B. $15,950 C. $4,950 D. $11,000
Rationale: (200 shares * $55/share) * (1-0.55) = $11,000 * (0.45) = $4,950 C. $4,950
You purchased a share of stock for $49. One year later you received $2.90 as a dividend and sold the stock for $48. What was your holding-period return? A. -3.96% B. -5.92% C. 3.88% D. 6.04%
($48 - $49 + $2.90)/$49 = 3.88% C. 3.88%
Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return, and a 30% chance of losing 6%. What is your expected return on this investment? A. 12.8% B. 11.00% C. 8.90% D. 9.20%
(.2)(30%) + (.5)(10%) + (.3)(-6%) = 9.2% D. 9.2%
____ is not a derivative security. a. A share of common stock b. A futures contract c. A call option d. None of these options (All of the answers are derivative securities.)
a. A share of common stock
Which of the following is not a money market security? a. U.S. Treasury bill b. Bankers' acceptance c. Common stock d. 6-month maturity certificate of deposit
c. Common stock
Asset allocation refers to _________. a. the analysis of the value of securities b. the choice of specific assets within each asset class c. the allocation of the investment portfolio across broad asset classes d. none of these options
c. the allocation of the investment portfolio across broad asset classes.
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 a. I and II only b. I only c. II and III only d. I, II, and III
d. I, II, and III
The arithmetic average of -24%, 41%, and 46% is ________. A. 37.00% B. 21.00% C. 29.00% D. 46.00%
Arithmetic Average = (Sum of returns) / (Number of years) =(-24 + 41 + 46)/3 = 21 B. 21.00%
An investor puts up $16,000 but borrows an equal amount of money from his broker to double the amount invested to $32,000. The broker charges 7% on the loan. The stock was originally purchased at $50 per share, and in 1 year the investor sells the stock for $55. The investor's rate of return was ____. A. 13.50% B. 6.50% C. 13.00% D. 3.00%
# of shares purchased = $32,000/$50 = 640 Initial investment = $16,000 Sale price = $55(640) = $35,200 Interest on the loan = $16000(7%) = $1120 Rate of Return = ($35,200 -$32,000 - $1120)/16000 = .13 C. 13.00%
On a given day a stock dealer maintains a bid price of $1000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades which totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security? A. $1,375 B. $500 C. $275 D. $1,450
(1003.15 - 1000.50) * (500) = $1,375 A. $1,375
A dollar-denominated deposit at a London bank is called _____. A. eurodollars B. LIBOR C. fed funds D. bankers' acceptance
A. eurodollars
Suppose that your risky portfolio includes the following investments in the given proportions: Stock A 27 % Stock B 33 % Stock C 40 % What are the investment proportions of each stock in your client's overall portfolio? A. Stock A: 17.2%, B: 22.6%, C: 28.7% B. Stock A: 18.5%, B: 24.3%, C: 27.6% C. Stock A: 19.1%, B: 23.9%, C: 28.2% D. Stock A: 18.9%, B: 23.1%, C: 28.0%
T- Bill- 30% (from question) Stock A: .27*.7= 18.9% Stock B: .33*.7= 23.1% Stock C: .40*.7= 28% D. Stock A: 18.9%, B: 23.1%, C: 28.0%
You short-sell 500 shares of Tuckerton Trading Co., now selling for $28 per share. What is your maximum possible gain, ignoring transactions cost? A. $28 B. $472 C. $14,000 D. Unlimited
C. $14,000 Explanation: Max gain= proceeds- min possible replacements =500($28)- 500($0) =$14,000
The purchase of a futures contract gives the buyer _________. A. the right to buy an item at a specified price B. the right to sell an item at a specified price C. the obligation to buy an item at a specified price D. the obligation to sell an item at a specified price
C. the obligation to buy an item at a specified price
Higher portfolio turnover: I. Results in greater tax liability for investors II. Results in greater trading costs for the fund, which investors have to pay for III. Is a characteristic of asset allocation funds A. I only B. II only C. I and II only D. I, II, III
D. I, II, III
Consider a no-load mutual fund with $580 million in assets and 20 million shares at the start of the year, and $630 million in assets and 21 million shares at the end of the year. During the year investors have received income distributions of $6 per share, and capital gains distributions of $0.50 per share. Assuming that the fund carries no debt, and that the total expense ratio is 2%, what is the rate of return on the fund? A. 23.47% B. 23.79% C. 29.00% D.25.55% E. There is not sufficient information to answer this question
NAV0 = 580/20 = 29 NAV1 = (630 - (630 * 0.02)) / 21 = 29.4 Return = (NAV1 - NAV0 + IncomeDistributions + CapGainsDistributions)/ NAV0 =(29.4 - 29 + 6 + .50)/29 = .2379 B. 23.79%
What is the sharpe ratio from your risky portfolio and your client's overall portfolio from the information given in Question 20, 21? A. .3704 and .3704 B. .3755 and .3716 C. .3689 and .3718 D. .3724 and .3726
Sharpe Ratio = (Portfolio Return - Risk Free Return)/Standard Deviation of Portfolio Sharpe Ratio of Risky Portfolio =( 17%-7%)/27% = 0.3704 Sharpe Ratio of Client Portfolio =( 14%-7%)/18.9% = 0.3704 A. .3704 and .3704