Final Exam Multiple Choice old exams
When the stock market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of A) +1.5. B) +0.5. C) 0.0. D) +2.0. E) -1.0.
+2.0
Between 1900 and 2014, a typical annual return in the U.S. stock market ranged from A) -10.2% to 29.4% B) 4.5% to 14.7% C) -16.2% to 35.4% D) -14.7% to 24.9% E) 0% to 20%
-10.2% to 29.4%
Megan bought 200 shares of stock at a price of $10 a share. She used her 70% margin account to make the purchase. Megan sold her stock after a year for $9 a share. Ignoring margin interest and trading costs, what is Megan's return on investor's equity for this investment? A) -10% B) -29% C) 14% D) 29% E) -14%
-14%
Emily bought 200 shares of ABC Co. stock for $29.00 per share on 60% margin. Assume she holds the stock for one year and that her interest costs will be $80 over the holding period. Ignoring commissions, what is her percentage return (loss) on invested capital if the stock price went down 10%? A) 10% B) -19% C) -32% D) -10% E) -16%
-19%
At 10:45 a.m., Ashley placed a stop-loss order to sell 200 shares of Alpha stock at $43 a share. At 2:15 p.m., the price of Alpha fell to $42.90, then rose to $43.40 a share by the end of the trading day. If Ashley's order was executed that day, she would receive a price A) equal to the average prices paid by the specialist during that trading day. B) of $43.40 a share for her stock since that was the closing price on the day of execution. C) between $42.90 and $43.40 a share depending upon when her trade executed. D) of $42.90 a share for her stock since her order was already recorded in the specialist's book. E) none of the above.
Between $42.90 and $43.40 a share depending upon when her trade executed.
Which one of the following statements about the NYSE is correct? A) Each member of the exchange owns a trading post. B) Any listed stock may be traded at any of 20 trading posts. C) Brokerage firms are only permitted to have one individual trading on the floor of the exchange. D) Most trades for NYSE listed stocks occur on the trading floor. E) Buy orders are filled at the lowest price and sell orders are filled at the highest price.
Buy orders are filled at the lowest price and sell orders are filled at the highest price
The present value of $1,000, discounted at the rate of 5% per year, to be received at the end of 3 years is equal to A) $1,000 × (1.05) × (1.05) × (1.05) B) $1,000 - ($1,000) × .03 × 5. C) $1,000 × (1.05)3. D) $1,000/(1.03)5. E) $1,000/(1.05)3.
$1,000/(1.05)3
Global Warning's EPS for the current year is $2.75 and its current P/E ratio is 50. You have forecasted that EPS will grow by 10% but the P/E ratio will fall to 40. What do you expect the price of a share of GW's stock to be at the end of next year? A) $121 B) $151.25 C) $137.50 D) $110 E) Cannot be determined from the information given.
$121
The Charbridge Inc. has 4 million shares of stock outstanding. The stock has a par value of $1.00 per share and is currently trading at $36 per share. Charbridge has a book value per share of $18 and you estimate that the investment value of this stock at $38.50. According to this information, the market capitalization of Charbridge is A) $72 million. B) $154,000,000. C) $36. D) $144,000,000. E) $4,000,000.
$144,000,000
The common stock of Rob's Discount Furniture is currently selling at $65.20 a share. The company adheres to a 60% dividend payout ratio and has a trailing P/E ratio of 19. There are 42,000 shares of stock outstanding. What is the amount of the annual net income for the firm? A) $36,032 B) $57,651 C) $72,064 D) $42,338 E) $144,126
$144,126
JJ Industries has a P/E ratio of 18 and an EPS of $0.93. This means that JJ's stock is currently selling for A) $19.35 per share. B) $16.74 per share. C) $18.00 per share. D) $18.00 per share. E) $17.07 per share.
$16.74 per share
Taylor has saved $400 at the end of every month for the last 4 years with the intention of paying cash for a new car. She has earned a fixed annual rate of 4% over the 4 year period; interest is compounded monthly. How much can she pay for her new car at the end of the fourth year? A) $55,705 B) $1,699 C) $20,784 D) $22,272 E) $17,716
$20,784
According to Wall Street Journal articles discussed in class: I. Charles Dow created the Dow Jones Industrial Average during the 1930s. II. General Electric was an original member of the Dow Jones Industrial Average. III. Boeing and Caterpillar have been among the biggest contributors to the Dow's rise since Election Day. IV. The Dow Jones Industrial Average is a value-weighted measure. A) I, II and IV only B) II, III and IV only C) II and IV only D) II and III only E) I, II, III and IV
General Electric was an original member of the Dow Jones Industrial Average and Boeing and Caterpillar have been among the biggest contributors to the Dow's rise since Election Day.
The following calendar describes some relevant dates for an upcoming dividend distribution of $1.50 In the absence of any new relevant information about the firm: I. If the stock traded for $25 at the close of trading on the 5th, it would most likely begin trading at $23.50 on the 6th. II. If the stock traded for $25 at the close of trading on the 6th, it would most likely begin trading at $23.50 on the 7th. III. All investors that purchased the stock before the close of trading on the 7th would receive the dividend. IV. All investors that purchased the stock before the close of trading on the 6th would receive the dividend. A) I and IV B) II and III only C) I only D) II only E) IV only
If the stock traded for $25 at the close of trading on the 5th, it would most likely begin trading at $23.50 on the 6th.
Which of the following are true about stock market returns as measured by the S&P 500 index? I. In 2008 alone stocks in the index lost between 30% and 40% of their value. II. $10,000 invested in the index in March 2009 would have been worth more than $20,000 by the end of 2016. III. From the beginning of 2000 to the end of 2010, the index more than doubled in value. IV. Both stock and real estate prices recovered strongly in the period between early 2009 and late 2014. A) I, and IV only B) II, III and IV only C) II and IV only D) I II and III only E) I ,II and IV only
In 2008 alone stocks in the index lost between 30% and 40% of their value, $10,000 invested in the index in March 2009 would have been worth more than $20,000 by the end of 2016, and Both stock and real estate prices recovered strongly in the period between early 2009 and late 2014.
An exchange traded fund that invests in the stocks of large corporations is an example of A) tangible investment. B) actively managed investment. C) indirect investment. D) direct investment. E) derivative investment.
Indirect investment
The expected rate of return and standard deviations, respectively for four stocks are given below: LMN 4%, 0% OPQ 11%, 8% RST 11%, 9% UVW 12%, 10% XYZ 12%, 8% Which stock is clearly most desirable? A) LMN B) XYZ C) UVW D) OPQ E) RST
LMN
An order to sell 300 shares of ABC stock at the best available price is called a A) market order. B) margin trade. C) stop loss order. D) fill-or-kill order. E) limit order.
Market order
Beta is the slope of the best fit line for the points with coordinates representing the ________ and the ________ for each one of several years. A) rate of inflation; rate of return for an individual security B) market rate of return; security's rate of return C) market rate of return; security's rate of return D) risk level of a stock; market rate of return E) rate of return; level of risk for an individual security
Market rate of return; Security's rate of return
The initial margin requirements set by the Securities Exchange Commission are A) more stringent for Nasdaq OMX stocks than for listed common stock. B) more stringent for listed common stock than for preferred stock. C) more stringent for U.S. government bonds than for corporate bonds. D) more stringent for corporate bonds than for convertible bonds. E) none of the above.
None of the above
Which of the following is true about the 2018 IPO market? I. On average, technology companies have been trading well above their IPO price since going public. II. Spotify's IPO raised more money than any other deal this year. III. The booming IPO market has begun to dent private equity deal making. IV. The IPO market is having one its worst years since 2008. A) II and IV only B) II and III only C) II only D) I and II only E) I and III only
On average, technology companies have been trading well above their IPO price since going public and The booming IPO market has begun to dent private equity deal making.
Which of the following represents an indirect foreign investment? I. Purchasing ADRs. II. Purchasing shares in a mutual fund that invests in foreign companies. III. Purchasing shares of a U.S. based company such as Coca Cola or McDonald's with extensive international operations. IV. Purchasing the securities of foreign companies that trade on organized U.S. exchanges. A) I and III only B) II and IV only C) II and III only D) I and IV only E) II only
Purchasing shares in a mutual fund that invests in foreign companies; Purchasing shares of a U.S. based company such as Coca Cola or McDonald's with extensive international operations.
According to a Wall Street Journal article discussed in class: I. The fiduciary rule, proposed last Spring, would require brokers and advisers who work with tax-advantaged retirement savings accounts to work in the best interest of their clients. II. In a list of frequently asked questions meant to help the brokerage industry with compliance, the Labor Department confirmed that financial advisers would be required to move clients from commission-based accounts to fee-based accounts. III. Recently, President Donald Trump signed an executive action aimed at rolling back the fiduciary rule scheduled to take effect in April. A) I and II only B) II only C) I and III only D) I only E) I, II and III
The fiduciary rule, proposed last Spring, would requires brokers and advisers who work wih tax-advantaged retirement savings accounts to work in the best interest of their clients and Recently, President Donald Trump signed an executive action aimed at rolling back the fiduciary rule scheduled to take effect in April.
Which one of the following is true about price quotes in a dealer market? A) The bid price is always s higher than the ask price. B) The offer price is sometimes higher than the ask price. C) The bid price is sometimes higher than the ask price. D) Designated market makers are required to provide bid and offer quotes at all times. E) The offer price is always higher than the bid price.
The offer price is always higher than the bid price
According to Wall Street Journal articles discussed in class: I. For companies going public, newly listed shares begin trading immediately after the opening bell. II. The opening auction for IPO shares is facilitated by a designated market maker that is chosen by the firm. III. Snapchat shares surged more than 40% during their first day of trading. IV. Each share of Snapchat stock owned by the founders is entitled to 10 votes, whereas each share of stock sold to the public is entitled to 1 vote. A) II and IV only B) I, II and IV only C) I, II, III and IV D) II, III and IV only E) II and III only
The opening auction for IPO shares is facilitated by a designated market maker that is chosen by the firm and Snapchat shares surged more than 40% during their first day of trading.
Which of the following statements are true? I. Wrap accounts typically charge a commission for individual transactions. II. Wrap accounts increase the likelihood of account churning. III. The short-lived "fiduciary rule" encouraged many brokerage firms to transfer most of their clients into wrap accounts. IV. Wrap accounts eliminate all conflicts of interest whereby a broker or financial adviser recommends certain investments because of incentives that benefit them personally. A) III only B) IV only C) I, III and IV only D) III and IV only E) I and II only
The short-lived "fiduciary rule" encouraged many brokerage firms to transfer most of their clients into wrap accounts.
The Charbridge Inc. has 4 million shares of stock outstanding. The stock has a par value of $1.00 per share and is currently trading at $36 per share. Charbridge has a book value per share of $18 and you estimate that the investment value of this stock at $38.50. If Charbridge Inc. decides to repurchase $1,800,000 of it's own stock, A) their book value per share will rise. B) their book value per share will fall. C) shares outstanding will rise. D) their book value per share will stay the same. E) their investment value per share will fall.
Their book value per share will fall
One feature that mutual funds and exchange traded funds have in common is A) they invest in broadly diversified portfolios of securities. B) they trade continuously throughout the trading day. C) they are both organized as limited partnerships. D) investors purchase shares directly from the fund's managers rather than from other investors. E) their portfolios are always based on one of the major market indexes.
They invest in broadly diversified portfolios of securities
Which of the following are provisions of the Sarbanes-Oxley Act of 2002? I. a requirement that companies disclose material information to all investors at the same time II. tougher penalties for executives who commit corporate fraud III. stricter prohibitions against insider trading IV. the establishment of the SEC as the administrator of federal securities laws A) II and IV only B) II only C) I and IV only D) I and III only E) II and III only
Tougher penalties for executives who commit corporate fraud
Which one of the following has the lowest level of risk? A) commercial paper B) banker's acceptance C) money market mutual fund account D) U.S. Treasury bill E) common equity.
U.S. Treasury bill
Since 2009, A) U.S. stock market investors have quadrupled their money. B) U.S. stock market investors have doubled their money. C) U.S. stock market investors have tripled their money. D) U.S. stock market investors have lost half of their money. E) U.S. stock market investors have quintupled their money.
U.S. stock market investors have quadrupled their money
Mike bought 200 shares of EG stock two years ago at $16 per share. The stock has traded in a range of $21 to $44 a share over the past year. EG is now selling for $43.60 a share. EG announces its earnings today and Mike feels the stock could go to $60 on good news or fall to $30 on bad. To protect his profits, the most appropriate order for him to place is A) market order to sell immediately. B) a stop loss order at $42. C) a stop loss order at $16. D) a stop-limit order to sell at $45. E) a limit sell order at $60.00.
a stop loss order at $42
Which of the following has declined in recent years? A) the value of total assets managed by ETFs. B) institutional ownership of common stocks C) the amount of trading taking place on the floor of the NYSE D) the percentage of foreign stocks held in typical portfolios E) the timeliness of information available to investors
The amount of trading taking place on the floor of the NYSE
Which of the following are characteristics of short selling? I. borrowing shares of stock from a brokerage firm or other investors II. selling shares of stock you do not own III. betting the stock price will increase IV. limiting losses per share to the price at which the stock was sold A) III and IV only B) I, II, III and IV C) I, II and IV only D) I and II only E) I, II, III only
borrowing shares of stock from a brokerage firm or other investors and selling shares of stock you do not own.
Excessively trading a customer's account to increase a stockbroker's commission income is A) an acceptable method of timing the market to increase rates of return. B) called churning which is an illegal practice. C) permitted provided that the customer does not object. D) probably unethical but yet is acceptable by the securities industry.
called churing which is an illegal practice
To determine whether a pharmaceutical company's profitability ratios indicate strength or weakness, we should I. compare them to others in the same industry. II. compare them to companies in unrelated industries such as energy or banking. III. compare them to previous years. IV. compare them to absolute standards established by the CFA Institute. A) IV only B) I and II only C) III and IV only D) III only E) I and III only
compare them to others in the same industry and compare them to previous years
Dr. Lynch told our class that his red Chevy Avalanche, an objectively ugly truck, appeared better looking to him after he had purchased the vehicle. This change in perception is most consistent with A) familiarity bias. B) loss aversion. C) self-attribution bias. D) confirmation bias. E) narrow framing.
confirmation bias
The maximum rate of return that can be earned for a given rate of interest occurs when interest is compounded A) continuously. B) annually. C) monthly. D) daily.
continuously
The Securities Exchange Act of 1934 A) requires full disclosure of information on all new security issues. B) established trade associations such as the NASD. C) established FINRA as the primary rule making body of the securities industry. D) created the SEC as the regulator of the securities exchanges. E) authorized the SEC to regulate mutual funds.
created the SEC as the regulator of the securities exchanges
To take advantage of the opportunity to acquire additional shares of a company's stock without incurring any brokerage commissions, many investors participate in A) initial public offerings. B) corporate trusts. C) dividend reinvestment plans. D) 401(k) plans. E) deferred equity securities
dividend reinvestment plans
Jocelyn sells short 1000 shares of JKLO stock at $31.25 per share and six months later purchases the shares at $29.00 each. Ignoring brokerage fees, Nancy will A) lose a total of $2,900. B) earn a total profit of $2,250. C) earn a total profit of $3,125. D) lose a total of $3,125. E) lose a total of $2,250.
earn a total profit of $2,250
The normal sequence in performing top down analysis is A) market conditions, risk, company fundamentals. B) profitability, efficiency, liquidity. C) economy, industry, company. D) competition, consumer demand, threat of substitute products.
economy, industry, company
Even if a company does not officially follow a fixed-dividend policy, dividend payments are usually A) volatile and subject to economic conditions. B) tied to a company's P/E ratio. C) based on a stable payout ratio. D) fairly stable from one time period to another. E) extremely difficult to predict.
fairly stable from one time period to another
The risk of a portfolio consisting of two uncorrelated assets will be A) greater than the risk of the least risky asset but less than the risk level of the more risky asset. B) greater than zero but less than the risk of the more risky asset. C) equal to zero. D) equal to the average of the risk level of the two assets. E) none of the above.
greater than zero but less than the risk of the more risky asset.
Which of the following contributes to high P/E ratios? A) high debt ratios B) periods of high inflation C) high dividend payout ratios D) high discount rates E) high rate of earnings growth
high rate of earnings growth
Typical characteristics of growth stocks include A) acquisitions of competing companies. B) strong performance even in market downturns. C) long-term stability. D) rapidly growing dividends. E) high rates of growth in operations and earnings.
high rates of growth in operations and earnings
Which one of the following statements about margin trading is correct? A) Margin traders are willing to accept lower return to reduce their risk. B) Margin traders are pessimistic about the future price of the stock. C) If Fred buys $1,000 worth of stock using 60% margin, he will need to pay $600 in cash to make the purchase. D) The Securities Exchange Commission sets the minimum margin requirement for margin trading. E) If Fred buys $1,000 worth of stock using 60% margin, he will need to pay $400 in cash to make the purchase.
if Fred buys $1,000 worth of stock using 60% margin, he will need to pay $600 in cash to make the purchase
A type of mutual fund with particular appeal to investors who accept the efficient market hypothesis is a(n) A) emerging markets fund. B) asset allocation fund. C) growth opportunities fund. D) index fund. E) value fund.
index fund
The U.S. stock market A) currently represents about 66% of the world's equity market. B) consistently outperforms the foreign markets once exchange rates are considered. C) lists over 25,000 stocks. D) is decreasing as a percentage of the world's equity market. E) is down roughly 10% in 2018.
is down roughly 10% in 2018
When a corporation declares a stock split, it usually does so because A) the firm's retained earnings are excessive. B) it wants to maintain eligibility for membership in the S&P 500. C) there are too many shares of stock outstanding. D) investors sometimes require nontaxable returns. E) it wants to make its stock more affordable to average investors.
it wants to make its stock more affordable to average investors
Which one of the following is a characteristic of blue chip stocks? A) relatively high risk exposure B) long and stable dividend and earnings records C) headquarters location near the ocean D) annual dividends of more than $5 per share E) guaranteed minimum annual dividend of $2 a share
long and stable dividend and earnings records
Barb and Ken purchased a house for $300,000 in 2005. When they needed to sell because of a job transfer in 2009, the house was appraised for $250,000 but they put it on the market for $300,000 anyway. The house is still on the market. Behavioral tendencies at work here may include A) representativeness and narrow framing. B) loss aversion and anchoring. C) narrow framing and self-attribution bias. D) overconfidence and representativeness. E) familiarity bias and self-attribution bias.
loss aversion and anchoring
According to a Wall Street Journal article discussed in class, HFT profits are being threatened by I. low levels of market volatility. II. the growing popularity of ETFs. III. the abundance of structural flaws in the market. IV. increasingly expensive technologies for transmitting data between market centers. A) II and IV only B) I and IV only C) II, III and IV only D) I, II, III and IV E) I, II and IV only
low levels of market volatility and increasingly expensive technologies for tansmitting data between market centers
Which one following will lower required rates of return? A) steeper yield curves B) lower rates of inflation C) lower dividend yields D) higher risk premiums E) higher rates of inflation
lower rates of inflation
An individual investor who wishes to borrow money to buy stocks must open a A) custodial account. B) signature account. C) joint account. D) PayPal account. E) margin account
margin account
An informal, voluntary agreement to solve disputes between an investor and his/her broker by utilizing a person to facilitate negotiations between the two parties is called A) litigation. B) tribunal. C) mediation. D) binding arbitration. E) voluntary arbitration.
mediation
Which one of the following activities is likely to be useful if the market is only weak form efficient? A) attempting to determine if stock prices have upward or downward momentum B) attempting to find repeating pattern in stock price behavior C) attempting to find the best times to buy and sell D) meticulously reading through the annual reports of many different companies E) None of the above would be useful.
meticulously reading through the annual reports of many different companies
Investors seeking a diversified, professionally managed portfolio of securities can purchase shares of A) insurance policies. B) mutual funds. C) common equity. D) convertible securities. E) preferred stock
mutual funds
Investors are rewarded for assuming A) diversifiable risk. B) nondiversifiable risk. C) any type of risk. D) idiosyncratic risk. E) total risk.
nondiversifiable risk
A rights offering is the A) sale of securities directly to a select group of investors. B) sale of newly issued shares of stock to the general public with voting rights included. C) sale of newly issued shares of stock to the general public with voting rights withheld. D) secondary offering of securities to the general public. E) offering of new securities to current shareholders on a pro-rata basis.
offering of new securities to current shareholders on a pro-rata basis
The risk-return tradeoff of four diversified portfolios is described in the following figure: If you were a hedge fund manager interested in earning a positive return without taking on systematic risk, you should A) purchase portfolio C and short an equal proportion of portfolio D. B) short portfolio D. C) purchase portfolio A and short an equal proportion of portfolio C. D) purchase portfolio B and short an equal proportion of portfolio D. E) purchase portfolio A
purcahse portfolio B and short an equal proportion of portfolio D
Which one of the following is most likely to increase the price of a stock? A) a dramatic increase in dividend payouts B) rapid increases in bond interest rates C) rapid growth in earnings D) a dramatic decrease in the company's debt levels E) rapid growth in sales
rapid growth in earnings
Heather believes that by carefully examining a company's fundamentals and by applying the best valuation models she can identify stocks whose market prices are lower than their intrinsic values. In order for this to be true A) the market must be at least semi-strong form efficient. B) P/E ratios for both the stock and the market must be stable over time. C) she needs an accurate estimate of future earnings and dividends. D) betas must be stable over time. E) some stocks must be incorrectly priced.
some stocks must be incorrectly priced
Which stage of an industry's growth cycle is interesting only for potentially high dividend payouts? A) initial development B) mature growth C) incubation phase D) stability or decline E) rapid expansion
stability or decline
Which stage of an industry's growth cycle is interesting only for potentially high dividend payouts? A) stability or decline B) rapid expansion C) initial development D) mature growth
stability or decline
A stock's beta value is a measure of A) interest rate risk. B) total risk. C) systematic risk. D) manageable risk. E) diversifiable risk.
systematic risk
In 2018, I. industrials and materials companies have just barely outperformed the S&P 500. II. the Dow Jones Industrial Average reached a new all-time high. III. more than 50% of the S&P 500's gains have come from Amazon and Google. IV. the U.S. dollar has become stronger. A) I and III only B) I, II and III only C) II and IV only D) II only E) I, II and IV only
the Dow Jones Industrial Average reached a new all-time high and the U.S. dollare has become stronger
According to the Wall Street Journal, sales of existing homes are falling because I. the Trump administration's tax bill reduced incentives to own. II. interest rates have fallen recently despite rising most of last year. III. home prices have risen rapidly in most major cities. IV. new home construction has picked up sharply in 2018. A) I, II and III only B) I and III only C) II and IV only D) II and III only E) I, II and IV only
the Trump administration's tax bill reduced incentives to own and home prices have risen rapidly in most major cities.
When the rate of return is equal to the discount rate A) the cost of an investment equals the future value of its benefits. B) the cost of an investment equals the sum of its benefits. C) the present value of an investment's benefits must be greater than its cost. D) the IRR is a positive number. E) the cost of an investment equals the present value of its benefits.
the cost of an investment equals the present value of its benefits
Which of the following factors are considered when analyzing an industry? I. the nature and conditions of governmental regulations II. the involvement and relations, if any, with labor unions III. the development of new technologies relevant to the industry IV. the extent of competition within the industry A) II, III and IV only B) I, II and III only C) I, II, III and IV D) III and IV only E) I, II and IV only
the nature and conditions of government regulations, the involvement and relations, if any, with labor unions, the development of new technologies relevant to the industry, and the extent of competition within the industry
Which of the following represent unsystematic risks? I. the president of a company suddenly resigns II. the economy goes into a recessionary period III. a company's product is recalled for defects IV. the Federal Reserve unexpectedly changes interest rates A) I and III only B) I, II and III only C) II only D) II and IV only E) I, II and IV only
the president of a company suddenly resigns and a company's product is recalled for defects
If a corporation declares a 10% stock dividend, then A) the share price of the stock will most likely increase by about 10%. B) investors must pay income taxes on the distribution. C) the share price of the stock will most likely decline by about 9%. D) the share price of the stock will most likely remain unchanged. E) each shareholder will get a 10% cash rebate off his or her next round lot purchase of the stock.
the share price of the stock will most likely decline by about 9%
Which of the following should be considered when deciding among alternative investments? I. time value of money II. risks associated with each investment III. risk free rate of return IV. personal risk tolerance level A) I, II and IV only B) II and III only C) I and II only D) I, II, III and IV E) III and IV only
time value of money, risks associated with each investment and personal risk tolerance level
Which one of the following is a leverage measure? A) quick ratio B) net profit margin C) times interest earned D) net working capital E) return on equity
times interest earned
Investment bankers who join together to share the financial risk associated with buying an entire issue of new securities and reselling them to the public is called a(n) A) tombstone group. B) IPO team. C) underwriting syndicate. D) primary market group. E) selling group.
underwriting syndicate
Melissa owns the following portfolio of stocks. What is the return on her portfolio? A) 9.0% B) 11.5% C) 8.0% D) 10.9% E) 9.8%
9.8%
Which of the following tend to signal that stock prices are likely to rise in the future? I. Employment increases after several months of recession. II. Interest rates are low compared to the recent past. III. Major market indexes have just reached record highs. IV. Housing starts increase after several months of decline. A) I, II, III and IV B) II and IV only C) II and III only D) I and II only E) I, II and IV only
Employment increases after several months of recession, Interest rates are low compared to the recent past, and Housing starts increase after several months of decline.
According the Morningstar interview assigned as homework, I. Robert Shiller created the efficient markets hypothesis. II. According to Cliff Asness, Robert Shiller will not take a bubble bath. III. Examples of market anomalies are: cheap beats expensive; good momentum beats bad momentum; low risk seems to outperform high risk. A) I, II and III B) I and II only C) II only D) III only E) I only
Examples of market anomalies are: cheap beats expensive, good momentum beats bad momentum; low risk seems to outperform high risk.
In which of the following cases might an investor receive help from The Securities Investor Protection Corporation? A) The investor holds $100,000 worth of stock in certificate form. The certificates are destroyed in a fire. B) The investor purchases stock in a company that shortly later was forced into bankruptcy because of accounting fraud. C) The investor discovers that their broker's mutual fund recommendation might have been based on a private incentive arrangement. D) The investor purchased a stock at $40 per share because his broker recommended it. Over the next six months, it fell to $20 per share. E) A broker took money sent by investors to cover stock purchases, but never invested it and sent falsified statements to cover the fraud.
A broker took money sent by investors to cover stock purchases, but never invested it and sent falsified statements to cover the fraud.
The Consumer Financial Protection Agency was established by A) Investment Company Act of 1940. B) The Securities Acts Amendments of 1975. C) The Dodd-Frank Act of 2010. D) Regulation Fair Disclosure of 2000. E) The Sarbanes-Oxley Act of 2002.
The Dodd-Frank Act of 2010
The risk-free rate of return is 2.2 percent, the expected market return is 11 percent, and the beta for Solstice, Inc. is 1.12. What is Solstice's required rate of return? A) 13.20% B) 9.86% C) 8.80% D) 14.30% E) 12.06%
12.06%
Newton, Inc. just paid an annual dividend of $0.95. Their dividends are expected to increase by 4% annually. Newton Company stock is selling for $11.54 a share. What is the required rate of return on this stock implied by the dividend-growth model? A) 8.23% B) 13.9% C) 12.6% D) 4.6% E) 12.2%
12.6%
What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a risk-free rate of 4%? A) 8.72% B) 12.72% C) 13.08% D) 4.36% E) 8.36%
12.72%
Lauren purchased a stock for $28 a share and sold it six months later for $31. While she owned the stock, Lauren received two quarterly dividends of $0.35 per share. Brittany's holding period return on this stock is A) 13.2%. B) 23.8%. C) 11.9%. D) 10.7%. E) 26.4%.
13.2%
For a taxpayer in the 25% marginal tax bracket, a realized capital gain from a stock purchased 18 months ago will be taxed at A) 10%. B) 5%. C) 20%. D) 25%. E) 15%.
15%
The widely accepted definition of a bear market is a A) 10% decline in one year. B) 20% decline in one year. C) 20% drop from the last peak in this cycle. D) 10% decline year-to-date. E) 10% drop from the last peak in this cycle.
20% drop from the last peak in this cycle
Engines, Inc. declares a 4-for-10 stock split. The stock currently sells for $3 a share. A shareholder who owned 1000 shares of stock prior to the split will now own A) 40 shares valued at about $1.20 a share. B) 400 shares valued at about $10.00 a share. C) 400 shares valued at about $7.50 a share. D) 250 shares valued at about $7.50 a share. E) 250 shares valued at about $1.20 a share.
400 shares valued at about $7.50 a share
The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate of return in the market is 1%, and the inflation rate is 3%. In this case, the risk premium associated with Cosmos stock is A) 5%. B) 10% C) 6%. D) 8%. E) 7%.
6%
In the U. S., the most prestigious designation for financial planners is A) CFA. B) ING. C) CFP. D) CPA. E) SIPC.
CFP.
High-frequency traders I. are prohibited from participating in dark pools. II. have taken the place of dealers and designated market makers in modern electronic markets. III. buy and sell huge chunks of stock with each trade. IV. are usually subsidiaries of large investment banks. A) II and III only B) II only C) I and III only D) II and IV only E) I and II only
Have taken the place of dealers and designated market makers in modern electronic markets
Which one of the following statements about secondary markets is true? I. The total U.S. Equity volume handled by NYSE has been surpassed by rival exchange operator CBOE. II. Historically, the NYSE operated as a broker market. III. Electronic Communications Networks (ECNs) are typically organized as dealer markets. IV. The regular trading session begins at 9:30 A.M. and ends at 4:00 P.M. eastern time for most U.S. exchanges. A) I, III and IV only B) II and III only C) I and IV only D) II and IV only E) I, II and III only
Historically, the NYSE operated as a broker market and The regular trading session begins at 9:30 A.M. and ends at 4:00 P.M. eastern time for most U.S. exchanges
Which one of the following statements concerning the random walk hypothesis is correct? A) Stock prices in general follow repetitive patterns but the actions of individual investors are random in nature. B) Stock price movements are predictable but only over short periods of time. C) Unexpected price shocks imply that markets are probably not very efficient. D) Random price movements support the weak form efficient market hypothesis. E) Random price movements indicate that investors can earn abnormal profits on a routine basis.
Random price movements support the weak form efficient market hypothesis
Which of the following accurately reflect appropriate investment guidelines? I. Always invest in last year's best performing mutual fund. II. Trade frequently to increase your investment returns. III. Sell losing stocks unless you are willing to buy them at the current price. IV. Make changes to your portfolio as your situation changes. A) I and II only B) III and IV only C) III only D) I, III and IV only E) I, II, III and IV
Sell losing stocks unless you are willing to buy them at the current price and Make changes to your portfolio as your situation changes.
According to the videos assigned as homework: I. Citadel operates a conglomeration of dark pools. II. Most dark pools are subsidiaries of a formal exchange. III. Roughly 5% of all trading is done by high speed trading firms. IV. Somewhere between 10% and 50% of all trading takes place away from the formal exchanges. A) IV only B) I and III only C) II and IV only D) II and III only E) III and IV only
Somewhere between 10% and 50% of all trading takes place away from the formal exchanges
Which one of the following organizations provides bond ratings? A) Standard & Poor's B) Value Line C) Bureau of the Public Debt Online D) Securities Exchange Commission E) Yahoo Finance
Standard & Poor
Which one of the following statements is correct? A) Stock prices are independent of the economic cycle. B) Corporate earnings usually fall months before the beginning of a recession. C) Stock prices often start to rise before the end of a recession. D) Stock prices change simultaneously with the economy. E) Changes in stock prices generally lag changes in the economy.
Stock prices often start to rise before the end of a recession
According to this information, A) the real rate of return is between 2.157% and 2.674%. B) bond investors expect average inflation between 0.798% and 1.031% per year over the next three years. C) bond investors expect the prices of most goods in the economy to rise between 0.798% and 1.031% by the end of 2021. D) bond investors expect the prices of most goods in the economy to rise between 1.9% and 2.2% by the end of 2021. E) bond investors expect average inflation between 1.9% and 2.2% per year over the next three years.
bond investors expect average inflation between 1.9% and 2.2% per year over the next three years
Typical hedge funds are characterized by A) their appeal to a large number of small investors. B) investment portfolios consisting only of traditional stocks and bonds. C) a fee structure that only pays managers when the fund makes money. D) low minimum investment requirements. E) active investment strategies.
active investment strategies
A margin account A) can be opened by any investor who wants to purchase securities by charging them to his/her credit card. B) allows an investor to borrow one hundred percent of the cost of the securities purchased. C) allows an investor to borrow a portion of the purchase price at a reasonable rate of interest. D) allows an investor to buy and sell option contracts. E) is permitted only in wrap accounts.
allows an investor to borrow a portion of the purchase price at a reasonable rate of interest
The intrinsic value of a security is based on the I. amount of risk. II. current market value of the security. III. discount rate applicable to the security. IV. estimated future cash flows from the security. A) III and IV only B) I, III and IV only C) I and III only D) I, II and III only E) IV only
amount of risk, discount rate applicable to the security, and estimated future cash flows from the security
