FIN-4432 Mock Final
An investor is looking at different retirement investment choices, and he is willing to accept one with upside potential even if that means sacrificing certainty. Which of the following will he most likely select? fixed annuity defined benefit plan defined contribution plan bonds invested in a retirement plan
defined contribution plan
if you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the __________. geometric average return arithmetic average return dollar-weighted return index return
dollar-weighted return index return
The term "residual claimant" refers to: bond holders. option holders. equity/shareholders. suppliers.
equity/shareholders.
A firm that fails to pay dividends on its preferred stock is said to be _________. insolvent in arrears insufferable delinquent
in arrears
Investor A bought a call option, and investor B bought a put option. All else equal, if the interest rate increases, the value of investor A's position will __________ and the value of investor B's position will __________. increase; increase increase; decrease decrease; increase decrease; decrease
increase; decrease
The Jensen portfolio evaluation measure: is a measure of return per unit of risk, as measured by standard deviation. is an absolute measure of return in excess of that predicted by the CAPM. is a measure of return per unit of risk, as measured by beta. is an absolute measure of return in excess of the risk-free rate of return.
is an absolute measure of return in excess of that predicted by the CAPM.
A moving average of stock prices __________. always lies above the most recent price always lies below the most recent price is less volatile than the actual prices is more volatile than the actual prices
is less volatile than the actual prices
Everything else equal, which variable is negatively related to the intrinsic value of a company? D1 D0 g k
k
the yield curve spread between the 10-year T-bond yield and the federal funds rate is a __________ economic indicator. leading lagging coincident mixed
leading
Value stocks are more likely to have a PEG ratio __________. less than 1 equal to 1 greater than 1 less than zero
less than 1
Hedge funds are typically set up as __________. limited liability partnerships corporations REITs mutual funds
limited liability partnerships
Investors who take short positions in futures contract agree to __________ delivery of the commodity on the delivery date, and those who take long positions agree to __________ delivery of the commodity. make; make make; take take; make take; take
make; take
The risk that a downturn in the market may substantially reduce your investment principal is called __________. purchasing power risk interest rate risk market risk liquidity risk
market risk
The tendency of poorly performing stocks and well-performing stocks in one period to continue their performance into the next period is called the __________. fad effect martingale effect momentum effect reversal effect
momentum effect
The Conference Board's Consumer Confidence Index is released __________. daily weekly monthly quarterly
monthly
The fact that the U.S. government provides deposit insurance to banks creates a form of __________, which is at least partially offset by requiring banks to hold more capital if they are riskier. moral hazard adverse selection risk aversion interest rate risk
moral hazard
Bond prices are __________ sensitive to changes in yield when the bond is selling at a __________ initial yield to maturity. more; lower more; higher less; lower equally; higher or lower
more; lower
During a period when prices have been rising, the __________ will be __________ the current price. relative strength index; declining with relative strength index; declining faster than moving average; above moving average; below
moving average; below
Hedge funds that change strategies and types of securities invested and also vary the proportions of assets invested in particular market sectors according to the fund manager's outlook are called __________. asset allocation funds multistrategy funds event-driven funds market-neutral funds
multistrategy funds
At the beginning of the month, the healthcare index was 134, and the stock market index was 2100. At the end of the month, the healthcare index was 147, and the stock market index was 2214. Consider the ratio of the healthcare index to the market index at the beginning and end of the month. The healthcare index is __________ the market index, and technical analysts who use relative strength would advise __________ the healthcare index. underperforming; buying underperforming; selling outperforming; buying outperforming; selling
outperforming; buying
Studies of style analysis have found that __________ of fund returns can be explained by asset allocation alone. between 50% and 60% less than 10% between 40 and 50% over 90%
over 90%
Which one of the following institutions typically has the longest investment horizon? mutual funds pension funds property and casualty insurers banks
pension funds
Over the period 2014−2018, most correlations between the U.S. stock index and stock-index portfolios of other countries were: negative. positive but less than 0.9. approximately zero. 0.9 or above.
positive but less than 0.9.
A put option with several months until expiration has a strike price of $55 when the stock price is $50. The option has __________ intrinsic value and __________ time value. negative; positive positive; positive zero; zero zero; positive
positive; positive
Futures contracts are said to exhibit the property of convergence because __________. the profits from long positions and short positions must ultimately be equal the profits from long positions and short positions must ultimately net to zero price discrepancies would open arbitrage opportunities for investors who identify them the futures price and spot price of any asset must ultimately net to zero
price discrepancies would open arbitrage opportunities for investors who identify them
A long hedger will __________ from an increase in the basis; a short hedger will __________. be hurt; be hurt be hurt; profit profit; be hurt profit; profit
profit; be hurt
Employers commonly match at least some portion of employee contributions to:401k plans403b plansSelf-directed retirement plans 1 only 1 and 2 only 2 only 1, 2, and 3
1 and 2 only
Research suggests that option-pricing models that allow for the possibility of __________ provide more accurate pricing than does the basic Black-Scholes option-pricing model.early exercisechanging expected returns of the stocktime varying stock price volatility 2 only 1 and 3 only 2 and 3 only 1, 2, and 3
1 and 3 only
Management fees for hedge funds typically range between __________ and __________. 0.5%; 1.5% 1%; 2% 2%; 5% 5%; 8%
1%; 2%
Warrants differ from listed options in that:Exercise of warrants results in dilution of a firm's earnings per share.When warrants are exercised, new shares of stock must be created.Warrant exercise results in cash flows to the firm, whereas exercise of listed options does not. 1 only 1 and 2 only 2 and 3 only 1, 2, and 3
1,2,&3
Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is the beta on a stock with an expected return of 17%? 0.5 0.7 1.0 1.2
1.2
The yield on a 1-year bill in the U.K. is 8%, and the present exchange rate is 1 pound = U.S. $1.60. If you expect the exchange rate to be 1 pound = U.S. $1.50 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is: −6.70%. 0.00%. 8.25%. 1.25%.
1.25%
SoHo International Investment Management has an asset allocation strategy of 57% U.S. investments and 43% global investments. Within the United States, Go Global has allocated 55% of its portfolio to equities and 45% to bonds. SoHo International now holds 4.4% of its U.S. equity portfolio in the stock of Bright Force. Internationally, SoHo International has allocated 72% to equities and 28% to bonds. About what percentage of SoHo International's total portfolio is invested in Bright Force? 1.00% 1.26% 1.56% 1.81%
1.81%
A firm has current assets that could be sold for their book value of $10 million. The book value of its fixed assets is $60 million, but they could be sold for $95 million today. The firm has total debt at a book value of $40 million, but interest rate changes have increased the value of the debt to a current market value of $50 million. This firm's market-to-book ratio is __________. 1.83 1.50 1.35 1.46
1.83
The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend, what is the dividend yield? 5% 10% 15% 20%
10%
Each listed stock option contract gives the holder the right to buy or sell __________ shares of stock. 1 10 100 1,000
100
A perpetuity pays $100 each and every year forever. The duration of this perpetuity will be __________ if its yield is 9%. 7.01 9.00 9.39 12.11
12.11
The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12%, and its expected EPS is $5. If the firm's plowback ratio is 60%, its P/E ratio will be _________. 7.14 14.29 16.67 22.22
14.29
Assume that you have invested $500,000 to purchase shares in a hedge fund reporting $800 million in assets, $100 million in liabilities, and 70 million shares outstanding. Your initial lockout period is 3 years.What is your annualized return over the 3-year holding period? 14.45% 15.18% 16.00% 17.73%
15.18%
During the 1927-2018 period the geometric mean return on small/value stocks was __________. 28.21% 5.56% 8.99% 15.38%
15.38%
The two-factor model on a stock provides a risk premium for exposure to market risk of 12%, a risk premium for exposure to silver commodity prices of 3.5%, and a risk-free rate of 4%. The beta for exposure to market risk is 1, and the beta for exposure to commodity prices is also 1. What is the expected return on the stock? 11.64% 13.05% 15.35% 19.50%
19.50%
Which one of the following represents local consumption smoothing?Saving during your working years for retirementBorrowing money to buy a carPutting off a vacation for a year until you can afford it 1 only 2 and 3 only 1 and 2 only 1, 2, and 3
2 and 3 only
The following data are available relating to the performance of Hayek Stock Fund and the market portfolio: Calculate the Jensen measure of performance evaluation for Hayek Stock Fund. 2.60% 4.00% 8.67% 31.43%
2.60%
A firm has a P/E ratio of 24 and an ROE of 12%. Its market-to-book-value ratio is __________. 2.88 2.44 1.75 0.69
2.88
The maximum maturity on commercial paper is _____. 270 days 180 days 90 days 30 days
270 days
You are a U.S. investor who purchased British securities for 2,000 pounds, one year ago when the British pound cost $1.50. No dividends were paid on the British securities in the past year. Your total return based on U.S. dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $1.60. 16.75% 20.05% 28.00% 40.43%
28.00%
In a particular year, the Taleb Mutual Fund earned a return of 15% by making the following investments in the following asset classes: The contribution of asset allocation across markets to the total abnormal return was: 1%. 3%. 4%. 5%.
4%.
A bond has a current price of $1,030. The yield on the bond is 8%. If the yield changes from 8% to 8.1%, the price of the bond will go down to $1,025.88. The modified duration of this bond is __________. 4.32 4.00 3.25 3.75
4.0
You earn 6% on your corporate bond portfolio this year, and you are in a 24% federal tax bracket and an 9% state tax bracket. Your after-tax return is __________. (Assume that federal taxes are not deductible against state taxes and vice versa). 4.10% 3.84% 4.02% 3.12%
4.02%
In 2015, the U.S. equity market represented __________ of the world equity market. 79.5% 60.0% 45.5% 40.5%
40.5%
You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be _______ if you sell the stock at $32 per share. Ignore interest on margin. 35% 39% 43% 28%
43%
You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%. 100% 55% 45% 15%
45%
The nominal interest rate is 10%. The real interest rate is 4%. The inflation rate must be __________. −6.00% 4.57% 5.77% 14.40%
5.77%
Explicit costs of a stock IPO tend to be around _______ of the funds raised. 1% 7% 15% 25%
7%
You purchased a 5-year annual-interest coupon bond 1 year ago. Its coupon interest rate was 6%, and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately _________. 5.0% 5.5% 7.6% 8.9%
7.6%
A firm has an earnings retention ratio of 40%. The stock has a market capitalization rate of 15% and an ROE of 18%. What is the stock's P/E ratio? 12.82 7.69 8.33 9.46
7.69
You are considering investing in a no-load mutual fund with an annual expense ratio of 0.60% and an annual 12b-1 fee of 0.75%. You could also invest in a bank CD paying 6.50% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD? 7.10% 7.45% 7.25% 7.85%
7.85%
On Monday morning you sell one June T-bond futures contract at $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. The cumulative rate of return on your investment after Wednesday is a __________. 79.86% loss 2.63% loss 33.00% gain 53.95% loss
79.86% loss
Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5%. Assume annual coupon payments. What is the nominal rate of return on the TIPS bond in the first year? 5.00% 5.15% 8.15% 9.00%
8.15%
A coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is __________. 7.24% 8.82% 9.12% 9.62%
9.62%
If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be _________. 99:25 99:63 99:20 99:08
99:20
For an investor concerned with maximizing liquidity, which of the following investments should be avoided? real estate bonds domestic stocks international stocks
real estate
Which of the following is not one of the main areas covered in the examinations that must be taken in order to achieve the designation of Chartered Financial Analyst? investment management ethics securities analysis securities marketing techniques portfolio management
securities marketing techniques
An investor should do which of the following for stocks with negative alphas? Go long Sell short Hold Do nothing
sell short
Historically, small-firm stocks have earned higher returns than large-firm stocks. When viewed in the context of an efficient market, this suggests that __________. small firms are better run than large firms government subsidies available to small firms produce effects that are discernible in stock market statistics small firms are riskier than large firms small firms are not being accurately represented in the data
small firms are riskier than large firms
Steel Pier Company has issued bonds that pay semiannually with the following characteristics: CouponYield to MaturityMaturityMacaulay Duration10%10%10 years6.76 years If the maturity of the bond was less than 10 years, the modified duration would be __________ compared to the original modified duration. larger unchanged smaller The answer cannot be determined from the information given.
smaller
Which one of the following is not likely to be subject to adverse selection? Health insurance providers Lifetime annuity providers Life insurance providers social security
social security
Which combination of stock, exercise, and option prices are most likely associated with an American call option? stock = $60, exercise = $65, option = $5 stock = $65, exercise = $60, option = $5 stock = $65, exercise = $60, option = $7 stock = $60, exercise = $65, option = $7
stock = $65, exercise = $60, option = $7
Strike prices of options are adjusted for __________ but not for __________. dividends; stock splits stock splits; cash dividends exercise of warrants; stock splits stock price movements; stock dividends
stock splits; cash dividends
In macroeconomic terms, an increase in the price of imported oil or a decrease in the availability of oil is an example of a __________. demand shock supply shock monetary shock refinery shock
supply shock
Whenever OPEC attempts to influence the price of oil by significantly altering production, economists refer to this type of event as a __________. demand shock equilibrium event expanding commodity event supply shock
supply shock
the price of a stock fluctuates between $43 and $60. If the time frame referenced encompasses the primary trend, the $43 price may be considered the __________. intermediate trend level minor trend level resistance level support level
support level
The EAFE is: the East Asia Foreign Equity index. the Economic Advisor's Foreign Estimator index. the European and Asian Foreign Equity index. the European, Australian, Far East index.
the European, Australian, Far East index.
The supply of funds in the economy is controlled primarily by __________. the Federal Reserve System Congress money center banks the Treasury department
the Federal Reserve System
A firm's earnings per share increased from $10 to $12, its dividends increased from $4 to $4.40, and its share price increased from $80 to $100. Given this information, it follows that __________. the stock experienced a drop in its P/E ratio the company had a decrease in its dividend payout ratio both earnings and share price increased by 20% the required rate of return increased
the company had a decrease in its dividend payout ratio
The Option Clearing Corporation is owned by __________. the exchanges on which stock options are traded the Federal Deposit Insurance Corporation the Federal Reserve System major U.S. banks
the exchanges on which stock options are traded
the term "underwriting syndicate" describes _______. the issuing firm the lead underwriter only the investment banks that participate in the underwriting the private investors that purchase the shares
the investment banks that participate in the underwriting
Small firms have tended to earn abnormal returns primarily in __________. the month of January the month of July the trough of the business cycle the peak of the business cycle
the month of january
The divergence between an option's intrinsic value and its market value is usually greatest when __________. the option is deep in the money the option is approximately at the money the option is far out of the money time to expiration is very low
the option is approximately at the money
The term investment horizon refers to __________. the proportion of short-term to long-term investments held in an investor's portfolio the planned liquidation date of an investment the average maturity date of investments held in a portfolio the maturity date of the longest investment in the portfolio
the planned liquidation date of an investment
The dollar-weighted return on a portfolio is equivalent to: the time-weighted return. the geometric average return. the arithmetic average return. the portfolio's internal rate of return.
the portfolio's internal rate of return.
The duration of a portfolio of bonds can be calculated as __________. the coupon weighted average of the durations of the individual bonds in the portfolio the yield weighted average of the durations of the individual bonds in the portfolio the value weighted average of the durations of the individual bonds in the portfolio averages of the durations of the longest- and shortest-duration bonds in the portfolio
the value weighted average of the durations of the individual bonds in the portfolio
In a 1953 study of stock prices, Maurice Kendall found that __________. there were no predictable patterns in stock prices stock prices exhibited strong serial autocorrelation day-to-day stock prices followed consistent trends fundamental analysis could be used to generate abnormal returns
there were no predictable patterns in stock prices
Exchange-traded stock options expire on the __________ of the expiration month. second Monday third Wednesday second Thursday third Friday
third Friday
Standard deviation of portfolio returns is a measure of __________. total risk relative systematic risk relative nonsystematic risk relative business risk
total risk
Capital goods industries such as industrial equipment, transportation, and construction would be good investments during the __________ stage of the business cycle. peak contraction trough expansion
trough
Most professionally managed equity funds generally: outperform the S&P 500 Index on both raw and risk-adjusted return measures. underperform the S&P 500 Index on both raw and risk-adjusted return measures. outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures.
underperform the S&P 500 Index on both raw and risk-adjusted return measures.
Which one of the following invests in a portfolio that is fixed for the life of the fund? Mutual fund Money market fund Unit investment trust
unit investment trust
In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal. value-weighted index equally weighted index price-weighted index bond price index
value-weighted index
In a 1981 study, Banz found that on average, the risk-adjusted returns of small firms __________. were higher than the risk-adjusted returns of large firms were the same as the risk-adjusted returns of large firms were lower than the risk-adjusted returns of large firms were negative
were higher than the risk-adjusted returns of large firms
Unlike market-neutral hedge funds, which have betas near __________, directional long funds exhibit highly __________ betas. zero; positive positive; negative positive; zero negative; positive
zero; positive
The yield on a 1-year bill in the U.K. is 6%, and the present exchange rate is 1 pound = U.S. $1.65. If you expect the exchange rate to be 1 pound = U.S. $1.55 a year from now, the return a U.S. investor can expect to earn by investing in U.K. bills is: −6.75%. 0.16%. 8.14%. −0.42%.
−0.42%.
During the 1927-2018 period which one of the following asset classes provided the lowest real return? Small U.S. stocks Large U.S. stocks Long-term U.S. Treasury bonds Equity world portfolio in U.S. dollars
Long-term U.S. Treasury bonds
Suppose the 1-year risk-free rate of return in the U.S. is 4%, and the 1-year risk-free rate of return in Britain is 7%. The current exchange rate is 1 pound = U.S. $1.65. A 1-year future exchange rate of __________ for the pound would make a U.S. investor indifferent between investing in the U.S. security and investing in the British security. $1.60 $2.04 $1.75 $2.34
$1.60
In planning for retirement, an investor decides she will save $2,000 every year for 25 years. At a 7% return on her investment, how much money will she have at the end of 25 years? $119,015 $125,316 $126,498 $128,420
$126,498
You own a $15 million bond portfolio with a modified duration of 11 years. Interest rates are expected to decrease by 5 basis points, or 0.05%. What is the price value of a basis point? $10,400 $14,300 $16,500 $21,300
$16,500
An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price? $14.57 $15.95 $17.55 $16.49
$17.55
An investor wants to retire when she has $3,000,000 in savings, after-taxes. Given a 20% tax rate at retirement, how much money, per year, must she save in order to retire in 30 years, given an 11% annual return? Assume she uses a traditional IRA and liquidates the entire portfolio at retirement. $12,827 $13,903 $15,074 $18,842
$18,842
$1,000 par value zero-coupon bonds (ignore liquidity premiums) One year from now bond C should sell for __________. $827.58 $894.37 $835.64 $921.87
$894.37
a market neutral hedge fund is likely to have __________. various derivative strategies designed to create stability a low beta compared to other equity only investments a beta well above 1.0 compared to other equity investments a beta near 1.0
a low beta compared to other equity only investments
You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You've just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _______. an advanced equity offering a weathered equity offering a seasoned equity offering a veteran equity offering
a seasoned equity offering
The exchange of one bond for a bond that has similar attributes but is more attractively priced is called __________. a substitution swap an intermarket spread swap a rate anticipation swap a pure yield pickup swap
a substitution swap
The following data are available relating to the performance of Friedman Stock Fund and the market portfolio: Calculate Sharpe's measure of performance for Friedman Stock Fund and the market. 0.01; 0.36 0.46; 0.36 0.44; 1.00 0.55; 1.00
0.46; 0.36
The ratio of the average yield on 10 top-rated corporate bonds to the average yield on 10 intermediate-grade bonds is called the __________. bond price index confidence index relative strength index TRIN ratio
confidence index
A stock with a current market price of $50 and a strike price of $45 has an associated put option priced at $3.50. This put has an intrinsic value of __________ and a time value of __________. $3.50; $0 $5; $3.50 $3.50; $5 $0; $3.50
$0; $3.50
A bond with a 9-year duration is worth $1,080, and its yield to maturity is 8%. If the yield to maturity falls to 7.84%, you would predict that the new value of the bond will be approximately __________. $1,035 $1,036 $1,094 $1,124
$1,094
You have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10 years and a convexity of 135.5. If the interest rate were to fall 125 basis points, your predicted new price for the bond (including convexity) is __________. $1,098.45 $1,104.56 $1,113.41 $1,124.22
$1,124.22
Bill Jones inherited 5,000 shares of stock priced at $45 per share. He does not want to sell the stock this year due to tax reasons, but he is concerned that the stock will drop in value before year-end. Bill wants to use a collar to ensure that he minimizes his risk and doesn't incur too much cost in deferring the gain. January call options with a strike of $50 are quoted at a cost of $2, and January puts with a $40 exercise price are quoted at a cost of $3. If Bill establishes the collar and the stock price winds up at $35 in January, Bill's net position value including the option profit or loss and the stock is __________. $195,000 $220,000 $175,000 $215,000
$195,000
A stock index spot price is $1,350. The zero-coupon interest rate is 2.6%. What is the potential arbitrage profit if the 6-month futures contract on the index is priced at $1,342? $8.42 $25.44 $32.38 $39.46
$25.44
You are considering purchasing a put option on a stock with a current price of $33. The exercise price is $35, and the price of the corresponding call option is $2.25. According to the put-call parity theorem, if the risk-free rate of interest is 4% and there are 90 days until expiration, the value of the put should be __________. $2.25 $3.91 $4.05 $5.52
$3.91
ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this coming year will be $3 per share. Investors expect a 12% rate of return on the stock.At what price would you expect ART to sell? $25 $34.29 $42.86 $45.67
$34.29
You buy one Huge-Packing August 50 call contract and one Huge-Packing August 50 put contract. The call premium is $1.25, and the put premium is $4.50. Your highest potential loss from this position is __________. $125 $450 $575 unlimited
$575
Shares of several foreign firms are traded in the U.S. markets in the form of: ADRs. ECUs. single-country funds. All of the options are correct.
ADRs.
The performance of an internationally-diversified portfolio may be affected by: country selection. currency selection. stock selection. All of the options are correct.
All of the options are correct.
Portfolio A has a beta of 0.2 and an expected return of 14%. Portfolio B has a beta of 0.5 and an expected return of 16%. The risk-free rate of return is 10%. If you manage a long-short equity fund and want to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio __________. A; A A; B B; A B; B
B; A
Futures markets are regulated by the __________. CFA Institute CFTC CIA SEC
CFTC
What strategy is designed to ensure a value within the bounds of two different stock prices? Collar Covered Call Protective put Straddle
Collar
In a 2011 study, Agarwal, Daniel, and Naik documented that hedge funds tend to report average returns in __________ that are __________ than their average returns in other months. September; lower January; higher January; lower December; higher
December; higher
Bonds issued in the currency of the issuer's country but sold in other national markets are called __________. Eurobonds Yankee bonds Samurai bonds foreign bonds
Eurobonds
Which one of the following is a correct statement? Exercise of warrants results in more outstanding shares of stock, while exercise of listed call options does not. A convertible bond consists of a straight bond plus a specified number of detachable warrants. Call options always have an initial maturity greater than 1 year, while warrants have an initial maturity less than 1 year. Call options may be convertible into the stock, while warrants are not convertible into the stock.
Exercise of warrants results in more outstanding shares of stock, while exercise of listed call options does not.
You want to evaluate three mutual funds using the information ratio measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 19%. The average returns, residual standard deviations, and betas for the three funds are given below.The fund with the highest information ratio measure is: Fund A. Fund B. Fund C. Funds A and B (tied for highest).
Fund B.
What economic variable is most closely associated with increasing corporate profits? Exchange rates Inflation Gross domestic product Budget deficits
Gross domestic product
What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001? No change, as both yields will remain the same Increase, as the spread usually increases in response to a crisis Decrease, as the spread usually decreases in response to a crisis No change, as both yields will move in the same direction
Increase, as the spread usually increases in response to a crisis
A supply-side economist would likely agree with which of the following statements? Real output and aggregate employment are primarily determined by aggregate demand. Real income will rise when government expenditures and tax rates increase. Real output and aggregate employment are primarily determined by tax rates. Increasing the money supply will increase real output without causing higher inflation.
Real output and aggregate employment are primarily determined by tax rates.
An investor will deposit $2,000 into a traditional or Roth IRA. After 30 years, given a 9% annual return and a 20% tax rate, how much more or less money will the investor have if all investments are liquidated after 30 years? Roth value is $5,307 higher Roth value is $4,907 higher traditional value is $4,907 higher traditional value is $5,307 higher
Roth value is $4,907 higher
Which of the following expressions represents the value of a call option to its holder on the expiration date? ST − X if ST > X, 0 if ST ≤ X − (ST − X) if ST > X, 0 if ST ≤ X 0 if ST ≥ X, X − ST if ST < X 0 if ST ≥ X, − (X − ST) if ST < X
ST − X if ST > X, 0 if ST ≤ X
The price-to-sales ratio is probably most useful for firms in which phase of the industry life cycle? Start-up phase Consolidation Maturity Relative decline
Start-up phase
Insiders are able to profitably trade and earn abnormal returns prior to the announcement of positive news. This is a violation of which form of efficiency? Weak-form efficiency Semistrong-form efficiency Strong-form efficiency Technical analysis
Strong-form efficiency
The most actively traded interest rate futures contract is for __________. LIBOR Treasury bills Eurodollars Treasury bonds
Treasury bonds
Which one of the following statements about 401k plans is not correct? The employer will typically match some portion of an employee's contributions to a 401k. A 401k plan is a defined contribution plan. Allowable contributions to 401k plans are limited. Withdrawals from 401k plans are not taxed upon retirement.
Withdrawals from 401k plans are not taxed upon retirement.
Just 2 months after you put money into an investment, its price falls 25%. Assuming that none of the investment fundamentals have changed, which of the following actions would evidence the greatest risk tolerance? You sell to avoid further worry and buy something else. You do nothing and wait for the investment to come back. You buy more, thinking that if it was a good investment before, it is now cheap too. You sue your financial adviser.
You buy more, thinking that if it was a good investment before, it is now cheap too.
The practice of trying to buy life insurance upon diagnosis of a terminal illness is an example of __________. estate planning profit maximization adverse selection insurance fraud
adverse selection
Mutual fund returns may be granted pass-through status if _______. virtually all income is distributed to shareholders the fund qualifies for pass-through status according to the U.S. tax code the fund is sufficiently diversified All of these options combined.
all of these options combined
Because of convexity, when interest rates change, the actual bond price will __________ the bond price predicted by duration. always be higher than sometimes be higher than always be lower than sometimes be lower than
always be higher than
The spot price of a futures contract is different than the price for which an investor can buy the underlying commodity for immediate delivery. This represents an opportunity for __________. arbitrage hedging speculation loss leading
arbitrage
Violation of the spot-futures parity relationship results in __________. fines and other penalties imposed by the SEC arbitrage opportunities for investors who identify them suspension of delivery privileges suspension of trading
arbitrage opportunities for investors who identify them
The Modigliani M2 measure and the Treynor T2 measure: are identical. are nearly identical and will rank portfolios the same way. are nearly identical, but might rank portfolios differently. are somewhat different; M2 can be used to rank portfolios, but T2 cannot.
are nearly identical, but might rank portfolios differently.
For which one of the following institutions is liquidity usually the most important? mutual funds pension funds life insurers banks
banks
Of the following, the investment time horizon is typically the shortest for __________. banks endowment funds life insurance companies pension funds
banks
The delta of a put option on a stock is always __________. between 0 and −1 between −1 and 1 positive but less than 1 greater than 1
between 0 and −1
The accounting measure of a firm's equity value generated by applying accounting principles to asset and liability acquisitions is called __________. book value market value liquidation value Tobin's q
book value
U.S. investors: can trade derivative securities based on prices in foreign security markets. cannot trade foreign derivative securities. can trade options and futures on the Nikkei stock index of 225 stocks traded on the Tokyo stock exchange and on FTSE (Financial Times Share Exchange) indexes of U.K. and European stocks. both A and C are correct.
both A and C are correct.
Maintenance requirements for margin accounts are set by _______. brokerage firms the SEC the Federal Reserve System's Board of Governors the Supreme Court
brokerage firms
Which one of the following describes the amount by which government spending exceeds government revenues? balance of trade budget deficit gross domestic product output gap
budget deficit
You find the option prices for three June call options on the same stock. The 95 call has an implied volatility of 25%, the 100 call has an implied volatility of 25%, and the 105 call has an implied volatility of 30%. If you believe this represents a mispricing situation. you may want to __________. buy the 105 call and write the 100 call buy the 105 call and write the 95 call buy either the 95 or the 100 call and write the 105 call write the 105 call and write either the 95 or the 100 call
buy either the 95 or the 100 call and write the 105 call
The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of 0.8 to offer a rate of return of 12%, then you should __________. buy stock X because it is overpriced buy stock X because it is underpriced sell short stock X because it is overpriced sell short stock X because it is underpriced
buy stock X because it is underpriced
The difference between market-neutral and long-short hedges is that market-neutral hedge funds __________. establish long and short positions on both sides of the market to eliminate market risk and to benefit from security asset mispricing whereas long-short hedges establish positions only on one side of the market allocate money to several other funds while long-short funds do not invest in relatively stable proportions of stocks and bonds while the proportions may vary dramatically for long-short funds invest only in equities and bonds while long-short funds use only derivatives
establish long and short positions on both sides of the market to eliminate market risk and to benefit from security asset mispricing whereas long-short hedges establish positions only on one side of the market
A quanto provides its holder with the right to __________. participate in the payoffs from a portfolio of gambling casino stocks exchange a fixed amount of a foreign currency for dollars at a specified exchange rate participate in the investment performance of a foreign security exchange the payoff from a foreign investment for dollars at a fixed exchange rate
exchange the payoff from a foreign investment for dollars at a fixed exchange rate
As a result of bond convexity, an increase in a bond's price when yield to maturity falls is __________ the price decrease resulting from an increase in yield of equal magnitude. greater than equivalent to smaller than The answer cannot be determined from the information given.
greater than equivalent to
Suppose you purchase 100 shares of GM stock at the beginning of year 1 and purchase another 100 shares at the end of year 1. You sell all 200 shares at the end of year 2. Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock. Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock. higher than the same as less than exactly proportional to
higher than
Convertible arbitrage hedge funds __________. attempt to profit from mispriced interest-sensitive securities hold long positions in convertible bonds and offsetting short positions in stocks establish long and short positions in global capital markets use derivative products to hedge their short positions in convertible bonds
hold long positions in convertible bonds and offsetting short positions in stocks
