Capital Markets Midterm
When the return to be realized in the future is known with certainty today, the asset is said to be: a. Risky. b. Riskfree. c. Neutral. d. b and c only. e. None of the above.
B
A stop order that designates a price limit is a: a. Stop order. b. Limit order. c. Stop-limit order. d. Market-if-touched order. e. None of the above.
C
A stop order that designates a price limit is called: a. Stop order. b. Limit order. c. Stop-limit order. d. Market order. e. Fill order.
C
In the U.S., secondary trading of common stock occurs on: a. Major national stock exchanges. b. Regional stock exchanges. c. The OTC market. d. All of the above. e. a and b only.
D
Most stock markets around the world use: a. The specialist system. b. Some version of competitive dealer system. c. An electronically assisted market maker system. d. b and c only. e. All of the above.
D
Portfolio theory deals with: a. The selection of portfolios that maximize expected returns consistent with individually acceptable levels of risk. b. The relationship that should exist between security returns and risk. c. The effects of investor decisions on security prices. d. a and b only. e. All of the above.
D
Prior to February 2001, the Chinese stock market was divided into: a. A shares. b. B shares. c. H shares. d. a and b only. e. All of the above.
D
Private transactions between institutional investors who deal directly with each other without an intermediary take place in the: a. First Market. b. Second Market. c. Third Market. d. Fourth Market. e. None of the above.
D
Secondary market trading in common stocks occurs: a. On organized exchanges, such as the NYSE. b. In the over-the-counter market, such as NASDAQ. c. In the call market. d. a and b only. e. All of the above.
D
Some underwriting firms have found the bought deal to be attractive because it: a. Offers timing flexibility. b. Reduces the risk of capital loss. c. Requires greater amounts of funds. d. a and b only. e. All of the above.
D
Studies of common stock returns have shown that total portfolio risk declines: a. As the number of security holdings increases. b. Security returns are less than perfectly correlated. c. As diversification increases. d. All of the above. e. None of the above.
D
The construction of stock market indicators differs on the basis of: a. The relative weights assigned to the stocks included in the index. b. The method of averaging used across all the stocks. c. The universe of stocks represented by the sample underlying the index. d. All of the above. e. A and b only.
D
The current Treasury yield curve can be used to extrapolate the: a. Theoretical spot rates. b. The market's consensus of future interest rates. c. Discount rate. d. a and b only. e. All of the above.
D
The execution of trades in a large number of different stocks at or near the same time as possible is called: a. Block trades. b. Program trades. c. Basket trades. d. b and c only. e. All of the above.
D
The highest expected return for all feasible portfolios with the same risk is called: a. Feasible portfolios. b. Markowitz efficient portfolios. c. Mean-variance efficient portfolios. d. b and c only. e. All of the above.
D
The investment return can be measured in terms of: a. An arithmetic average rate of return. b. A time-weighted rate of return. c. A dollar-weighted rate of return. d. All of the above. e. None of the above.
D
The key distinction between a primary market and a secondary market is that: a. In the secondary market the issuer receives funds from the buyer. b. In the secondary market the issuer of the asset does not receive funds from the buyer. c. In the secondary market the existing issue changes hands. d. b and c only. e. None of the above.
D
The major applications of program trades are: a. Asset allocation. b. Index arbitrage. c. Indexing. d. All of the above. e. None of the above.
D
The major difference between the broker and the dealer is that: a. The broker receives a commission for receiving, transmitting, and executing investors' orders. b. The broker does not buy and hold in inventory or sells from inventory the financial asset that is subject of a trade. c. The broker acts as an auctioneer in some market structures. d. a and b only. e. All of the above.
D
The market segmentation theory recognizes that investors have preferred habitats, which are dictated by: a. Saving flows. b. Investment flows. c. Cash flows. d. a and b only. e. All of the above.
D
Within the corporate market sector, issuers are classified as: a. Utilities. b. Industrials. c. Finance. d. Banks. e. All of the above.
E
A measure of price volatility that relates to coupon and maturity is: a. Duration. b. Convexity. c. Yield spread. d. Yield to maturity. e. None of the above.
A
According to the liquidity theory of the term structure, the forward rate should reflect both interest rate expectations and: a. A liquidity premium. b. A risk premium. c. A maturity premium. d. A marketability premium. e. None of the above.
A
An appealing feature of the APT model is that: a. It makes fewer assumptions about investor behavior and the market structure. b. Is simple to use. c. Is easier to implement. d. Is more accurate in estimating the expected rate of return of an asset. e. None of the above.
A
Common stock represents: a. Ownership interest in a corporation. b. A liability. c. Program trading. d. Arbitrage. e. None of the above.
A
Dollar duration of a bond measures the: a. Dollar price change. b. Percentage price change. c. Average price change. d. Change in yield. e. None of the above.
A
For all option-free bonds, the approximate percentage price change that is not explained by duration will have a: a. Positive value. b. Negative value. c. Unchanged value. d. Changed value. e. None of the above.
A
For common stock, an order of 100 shares is called: a. A round lot. b. An odd lot. c. A block trade. d. An open order. e. None of the above.
A
Graphically, all the Markowitz efficient portfolios lie: a. On the boundary of the set of feasible portfolios. b. Below the efficient frontier. c. Above the efficient frontier. d. None of the above. e. All of the above.
A
If the market price of a bond is less than the par value, then the coupon rate is: a. Less than the par yield. b. Greater than the required yield to maturity. c. Equal to the market interest rate. d. Below the riskless rate. e. None of the above.
A
In constructing a portfolio of assets, investors seek to maximize the expected return from their investment given some level of risk they are willing to accept. Portfolios that satisfy this requirement are called: a. Efficient portfolios. b. Optimal portfolios. c. Markowitz efficient portfolios. d. a and c. e. All of the above.
A
In graphically depicting the model for security returns usually referred to as the market model, the slope of the line can be thought of as the: a. Beta factor. b. Error term. c. Residual term. d. Alpha factor. e. None of the above.
A
Investment-grade bonds are bond issues that are assigned a rating: a. In the top four rating categories. b. Below the top four rating categories. c. Of zero. d. Junk. e. None of the above.
A
Margin calls must be satisfied: a. In cash. b. With additional stocks as collateral. c. With an extension of the credit limit. d. With commodities. e. None of the above.
A
Since diversification reduces unsystematic risk, the relevant measure of risk for an investor who holds a well-diversified portfolio is: a. Market risk. b. Company-specific risk. c. Total risk. d. Residual risk. e. None of the above.
A
The graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities is known as: a. The yield curve. b. The term to maturity. c. The term structure of interest rates. d. The yield spread. e. None of the above.
A
The market-clearing interest rate is found: a. At the intersection of the saving and investment function. b. At the intersection of supply and demand. c. At the point where borrowing and saving take place. d. At the point where the transformation curve has a slope equal to R. e. None of the above.
A
The most common type of order submitted to the stock market is the: a. Market order. b. Stop order. c. Limit order. d. Conditional order. e. None of the above.
A
The optimum rate of investment for a firm is found at the point where: a. The marginal productivity of capital equals the market gross rate. b. The supply of capital equals the demand for capital. c. Total investment equals total savings. d. The firm's indifference curve is just tangent to the market line. e. None of the above.
A
The price of a debt instrument must equal the sum of the: a. Present value of the payments that the debtor is required to make until maturity. b. Present value of all expected cash dividends. c. Present value of the maturity value. d. Future value of all expected future cash flows. e. None of the above.
A
The rate that would prevail in the economy if price levels remain constant is referred to as the: a. Real rate. b. Short-term interest rate. c. Nominal rate. d. Effective rate. e. None of the above.
A
The ratio of the gain on an investment, which arises either from a change in the investment's value or a cash distribution, to the initial value of the investment is known as the: a. Return. b. Risk. c. Expected return. d. Dispersion. e. None of the above.
A
The risk associated with a bond whose proceeds are reinvested at an unknown rate is referred to as: a. Reinvestment rate risk. b. Interest rate risk. c. Price risk. d. Default risk. e. None of the above.
A
The yield spread between a non-Treasury security and a Treasury security of comparable maturity is called a: a. Risk premium. b. Treasury spread. c. Income spread. d. Government option spread. e. None of the above.
A
When a U.S. corporation's equities are traded in a foreign market, they are typically issued in the form of: a. A Global Depository Receipt. b. An American Depository Receipt. c. A Depository Receipt. d. A foreign share. e. None of the above.
A
When orders are batched or grouped together for simultaneous execution at the same price, the marked is known as: a. A call market. b. A continuous market. c. An auction market. d. A clearinghouse. e. None of the above.
A
When the issuer of a security files a registration statement with the SEC, part I of the registration is: a. The prospectus. b. Supplemental information. c. A letter of comments. d. A deficiency letter. e. None of the above.
A
When the issuer announces the terms of the issue and interested parties submit bids for the entire issue, the arrangement is referred to as: a. Bought deal. b. Auction process. c. Firm commitment underwriting. d. Underwriting. e. None of the above.
B
When world capital markets are mildly segmented, there are opportunities to: a. Raise funds at a lower cost in capital markets of another country. b. Reduce the risks of doing business in foreign markets. c. Earn the same required rate of return on securities of comparable risk. d. All of the above. e. None of the above.
A
Which of the following statements is most correct? a. Municipalities are not permitted to tax the interest income from securities issued by the U.S. Treasury. b. Municipal bonds are securities issued by the U.S. Treasury. c. The equivalent taxable yield is the before-tax yield on Treasury securities. d. The yield on municipal bonds is more than that on Treasuries with the same maturity. e. None of the above.
A
A corporation can issue new common stock directly to existing stockholders through a: a. Warrant. b. Preemptive rights offering. c. Initial public offering. d. Leveraged buyout. e. None of the above.
B
A provision in a bond issue that grants the issuer the right to retire the debt, fully or partially, before the scheduled maturity date is called: a. A tax provision. b. A call provision. c. A put provision. d. A conversion provision. e. None of the above.
B
A short sale involves: a. Selling securities that are owned at the time of sale. b. Selling securities that are not owned at the time of sale. c. Buying the securities, which are subsequently sold. d. All of the above. e. None of the above.
B
A transaction in which an investor borrows to buy additional securities using the securities themselves as collateral is called: a. Leveraged buyout. b. Buying on margin. c. Short selling. d. All of the above. e. None of the above.
B
A transaction in which an investor borrows to buy shares using the shares themselves as collateral is called: a. Short selling. b. Buying on margin. c. Going long. d. Going short. e. None of the above.
B
An odd lot is defined as: a. 100 shares of stock. b. Less than a round lot. c. A block trade. d. Less than 100 shares of stock. e. b and d only.
B
An underwriting arrangement whereby an investment banking firm or group of firms offers a potential issuer of debt securities a firm bid to purchase a specified amount of the securities with a certain coupon rate and maturity is known as: a. Firm commitment underwriting. b. Bought deal. c. Dutch auction. d. Underwriting process. e. None of the above.
B
Any company that publicly offers a security in the U.S. becomes a reporting company and, as such, is subject to: a. The Securities Act of 1933. b. The Securities Exchange Act of 1934. c. The SEC. d. The NASD. e. None of the above.
B
Diversification reduces the variability of returns if the correlation among security returns is: a. High. b. Low. c. The same. d. Indifferent. e. None of the above.
B
Even securities issued by the U.S. government are risky assets, because: a. The return will depend on the price of the U.S. government bond if it is held to maturity. b. The return is unknown if the bond is held for only one year. c. Changes in interest rates will affect the price of the bond. d. All of the above. e. None of the above.
B
Financial markets dealing with financial claims that are newly issued are called: a. Initial public offering market. b. Primary market. c. Secondary market. d. Seasoned market. e. None of the above.
B
Forward rates are also referred to as: a. Futures rates. b. Hedgeable rates. c. Implicit rates. d. Future oriented rates. e. None of the above.
B
Forward rates exclusively represent the expected future rates according to the: a. Market segmentation theory. b. Pure expectations theory. c. The liquidity theory. d. The preferred habitat theory. e. None of the above.
B
Historical return distributions for a portfolio of a large number of securities have shown that the distribution is: a. Perfect. b. Symmetric. c. Asymmetric. d. Skewed. e. None of the above.
B
If an investor has a six-month investment horizon, buying a 5-year, 10-year, or 20-year bond will produce the same six-month return. This interpretation of the pure expectations theory is referred to as the: a. Return-to-maturity expectation. b. Local expectations. c. Broadest interpretation. d. Liquidity theory. e. None of the above.
B
If interest rates in the economy increase because of Fed policy, the price of a bond will: a. Increase. b. Decrease. c. Remain unchanged. d. Change. e. None of the above.
B
If investors can obtain transaction services as cheaply as possible, the market is said to be: a. Price efficient. b. Operationally efficient. c. Weak form efficient. d. Strong form efficient. e. None of the above.
B
If it is not possible to reallocate inputs and outputs in such a way that some will be better off while nobody will lose, this property is referred to by economists as: a. Non-Pareto optimal. b. Pareto optimal. c. Efficient. d. Inefficient. e. None of the above.
B
Impact costs, timing costs, and opportunity costs are examples of: a. Explicit costs. b. Implicit costs. c. Soft dollars. d. Hard dollars. e. None of the above.
B
Market participants tend to construct yield curves from observations of prices and yields in the: a. Bond market. b. Treasury market. c. Agency securities market. d. Money market. e. None of the above.
B
Non-U.S. companies, which publicly offer a security in the U.S., must file financial statements based on: a. Their home country's GAAP. b. U.S. GAAP. c. International accounting standards. d. Foreign accounting rules. e. None of the above.
B
On June 5, 1997, the NYSE voted to adopt a system of trading in: a. Sixteenth. b. Decimals. c. Percent. d. Pennies. e. Tennies.
B
Price risk of a bond occurs when a bond must be sold prior to maturity at an uncertain price because the: a. Yield is determined by the Federal Reserve. b. Future return or yield is unknown. c. Future yield is expected to be less than the coupon rate. d. b and c only. e. None of the above.
B
Rule 415, which permits certain issuers to file a single registration document indicating that it intends to sell a certain amount of a certain class of securities at one or more times within the next two years, is popularly referred to as: a. Private placement. b. Shelf registration. c. Red herring. d. Security liquidity. e. None of the above.
B
The APT model postulates that a security's expected return is influenced by: a. A single market index. b. A variety of factors. c. Market and nonmarket risks. d. All of the above. e. None of the above.
B
The Third Market is the market for: a. Trading in the OTC market of stocks not listed on an exchange. b. Trading in the OTC market of stocks listed on an exchange. c. Trading on exchanges of stock listed on an exchange. d. Private transactions between institutional investors without an intermediary. e. None of the above.
B
The activities of underwriters are regulated by: a. The Securities Act of 1933. b. The Securities and Exchange Commission. c. The Securities Exchange Act of 1934. d. The Investment Bankers Association. e. None of the above.
B
The capital asset pricing model assumes that the expected return of a security is determined by: a. Multifactor risk. b. The asset's beta only. c. Arbitrage risk. d. Extra-market sources of risk. e. None of the above.
B
The capital asset pricing model states that the expected return of a security is equal to the riskfree rate of return plus: a. Beta. b. A risk premium. c. The market risk premium. d. The market price of risk. e. None of the above.
B
The capital market line represents: a. A combination of a various risky assets. b. A combination of a riskfree asset and the market portfolio. c. A combination of riskless assets. d. A combination common stock and corporate bonds. e. None of the above.
B
The convexity measure of a security refers to: a. Price volatility that relates maturity and coupon. b. The approximate change in price that is not explained by duration. c. The shape of the price/yield relationship. d. The approximate percentage price change of a bond for a 100 basis point change in interest rates. e. None of the above.
B
The difference between the execution price of a security and the price that would have existed in the absence of the trade is referred to as: a. The bid-ask spread. b. The execution cost. c. The market timing costs. d. Income spread. e. None of the above.
B
The financial reform, which occurred in England in 1986, is called: a. The Big Board. b. The Big Bang. c. Decimal Monday. d. The Black Monday. e. None of the above.
B
The interest rate that banks charge brokers for margin transactions is called: a. The prime rate. b. The call money rate. c. The federal funds rate. d. The discount rate. e. None of the above.
B
The largest membership category on the NYSE is that of: a. A specialist. b. Commission broker. c. Independent floor broker. d. Registered trader. e. Local.
B
The multifactor CAPM is attractive because: a. It is simple to use. b. It recognized nonmarket risks. c. It is easier to implement. d. All of the above. e. None of the above.
B
The preliminary prospectus, which may be distributed to the public during the waiting period for the registration of the security to become effective, is referred to as: a. Red warning. b. Red herring. c. Initial prospectus. d. Interim offering. e. None of the above.
B
The rate earned on federal government debt instruments is usually characterized as the: a. Nominal rate. b. Riskless rate. c. Real rate of interest. d. Gross rate. e. None of the above.
B
The relationship between price and yield for any option-free bond is: a. Linear. b. Convex. c. Concave. d. Curvilinear. e. None of the above.
B
The relationship between yield and maturity is referred to as: a. Yield curve. b. Term structure of interest rates. c. Term to maturity. d. Yield spread. e. None of the above.
B
The risk-return relationship for individual securities is called: a. The capital market line. b. The security market line. c. The market model. d. The fitted line. e. None of the above.
B
The security market line (SML) is a graphical depiction of: a. The market model. b. The capital asset pricing model. c. The capital market model. d. The market index. e. None of the above.
B
The slope of the SML is measured by: a. Beta. b. The market risk premium. c. The risk premium. d. The riskfree rate. e. None of the above.
B
The term structure of interest rates is the relationship between the yields on comparable securities but different: a. Spreads. b. Maturities. c. Credit ratings. d. Provisions. e. None of the above.
B
The term upstairs markets refers to: a. The markets located on the top floor of the NYSE. b. A network of trading desks of the major securities firms and other institutional investors that communicate electronically with each other. c. The market for trading listed stocks in the OTC market. d. The market for trading stocks not listed on a major stock exchange. e. None of the above.
B
Treasury securities are free of: a. Price risk. b. Default risk. c. Reinvestment risk. d. Yield variations. e. None of the above.
B
Using spot rates, the theoretical value of a bond is calculated: a. As the present value of all expected future cash flows. b. By discounting a cash flow for a given period by the corresponding spot rate for that period. c. By discounting all future cash flows at the riskfree rate. d. By compounding all expected future cash flows. e. None of the above.
B
When the entire principal can be repaid at the maturity date, the debt contract is said to have a: a. Maturity. b. Bullet maturity. c. Par value. d. Face value. e. None of the above.
B
Which of the following is false with respect to the regulatory changes in trading? a. The SEC cost study in 2001 indicated that for many types of orders, investors get worse prices when they trade on the NASDAQ than on the NYSE. b. Stocks are now traded with a spread of 1/16. c. Regulation FD requires that information be made available to all investors at the same time. d. Decimalization was adopted in 2001 with minimum price changes of one cent. e. Cost differences exist because of structural differences between the NYSE and NASDAQ.
B
Which of the following statements is false? a. For a given yield and coupon rate, the longer the maturity, the greater the price volatility. b. Fore a given yield and maturity, price volatility is greater, the higher the coupon rate. c. A bond's price volatility is affected by its maturity and coupon rate. d. There is an inverse relationship between the price and yield of a bond. e. None of the above.
B
A market is price efficient if: a. It is riskless. b. It offers investors reasonably priced services related to buying and selling c. At all times prices fully reflect all available information that is relevant to the valuation of securities. d. There are no transactions costs and taxes. e. None of the above.
C
A most important property resulting from the existence of a perfect loan market is that: a. It separates the current consumption decision from the current income position by opening the possibility to save and dissave. b. It frees the investment from the saving decision. c. a and b only. d. Borrowing and lending rates are equal. e. All of the above.
C
A stock issue, which is offered simultaneously in several countries by an international syndicate is called a(n): a. International equity. b. Foreign equity. c. Euroequity. d. ADR. e. GDR.
C
An underwriting arrangement in which the underwriter buys the firm's unsubscribed shares is known as: a. Firm commitment underwriting. b. Preemptive rights offering. c. Standby underwriting arrangement. d. Bought deal. e. None of the above.
C
Debt contracts with no periodic interest payments made to owners during the life of the contract are called: a. Fixed income bonds. b. Straight coupon bonds. c. Zero coupon bonds. d. Perpetual bonds. e. Discount bonds.
C
Exchanges impose restrictions as to when a short sale may be executed, which is referred to as: a. Trading halts. b. Circuit breakers. c. Tick-test rules. d. Price limits. e. None of the above.
C
If the Treasury rates does not change, but the yield spread between Treasury and non- Treasury securities changes, the price of a non-Treasury security will: a. Increase. b. Decrease. c. Change. d. Remain unchanged. e. None of the above.
C
If the price of a security reflects all information, whether or not it is publicly available, the market is said to be: a. Weak form efficient. b. Semi-strong form efficient. c. Strong form efficient. d. Operationally efficient. e. None of the above.
C
In Germany, the shares of smaller growth companies are traded: a. In the official market. b. In the regulated market. c. In the Neuer Market. d. a and b only. e. None of the above.
C
SEC regulation, which exempts some issues from registration, is the: a. Regulation Q. b. Regulation M. c. Regulation D. d. Regulation A. e. None of the above.
C
The "Big Board" is the name commonly used for: a. The American Stock Exchange. b. The Philadelphia Stock Exchange. c. The New York Stock Exchange. d. The London Stock Exchange. e. None of the above.
C
The Nikkei 225 Stock Average and the TOPIX are the indexes for the stocks of established and large companies traded on the: a. Frankfurt Stock Exchange. b. London Stock Exchange. c. Tokyo Stock Exchange. d. Toronto Stock Exchange. e. Paris Bourse.
C
The initial margin requirement is set by: a. The broker. b. The NASD. c. The Federal Reserve. d. The Commodity Futures Trading Commission. e. None of the above.
C
The marginal rate of substitution between current and future consumption is the slope of the: a. Security market line. b. Capital market line. c. Indifference curve. d. Efficient frontier. e. None of the above.
C
The portfolio, which consists of all assets, is called: a. The efficient portfolio. b. The optimal portfolio. c. The market portfolio. d. The efficient frontier. e. None of the above.
C
The standard deviation of portfolio return is a measure of: a. Systematic risk. b. Unsystematic risk. c. Total risk. d. Statistical risk. e. None of the above.
C
The theory which adopts the view that the term structure reflects the future path of interest rates as well as a risk premium is the: a. The liquidity theory. b. The pure expectations theory. c. The preferred habitat theory. d. The market segmentation theory. e. None of the above.
C
The yield to maturity is the discount rate that makes the present value of the cash flows of a bond equal to its: a. Par value. b. Redeemable value. c. Market value. d. Coupon rate. e. None of the above.
C
To construct an efficient portfolio of risky assets, it is assumed that investors are: a. Risk lovers. b. Risk neutral. c. Risk averse. d. Riskless. e. None of the above.
C
When prices of securities are determined continuously throughout the trading day as buyers and sellers submit orders, the market is called: a. A call market. b. A bid market. c. A continuous market. d. An auction market. e. None of the above.
C
Which of the following is most correct? a. Stock trading by individuals has increased significantly during the last decade. b. Stock trading commissions have increased both for institutions and individuals. c. Discount brokers and online brokers offer less service to retail investors and consequently stock trading commissions have decreased significantly. d. Because individuals usually transact smaller orders, they will incur higher impact costs. e. None of the above.
C
A block trade is defined by the NYSE as an order of: a. 10,000 shares of a given stock. b. Less than a round lot. c. Shares with a total market value of $200,000 or more. d. a and c only. e. All of the above.
D
A bond investor will realize the yield to maturity at the time of purchase only if: a. The bond is held to maturity. b. All coupon payments are reinvested at the yield to maturity. c. The bond is sold prior to maturity. d. a and b only. d. All of the above.
D
A future interest rate calculated from either the spot rates or the yield curve is called: a. An implicit forward rate. b. A forward rate. c. A theoretical future rate. d. a and b only. e. All of the above.
D
A large endowment of the current commodity relative to the future will make people: a. More eager to lend. b. Raise the supply curve for loans. c. Reduce R. d. All of the above. e. a and b only.
D
A security's return can be decomposed into the following two parts: a. Systematic return. b. Unsystematic return. c. Historical return. d. a and b only. e. b and c only.
D
A statistical index of the sensitivity of an asset's price change to changes in the value of the overall market or of assets in general is the: a. Variance. b. Standard deviation. c. Correlation coefficient. d. Beta. e. None of the above.
D
According to Fisher's Law, the nominal gross rate is equal to: a. The product of the gross real rate and one plus the inflation rate. b. The sum of the gross real rate and the inflation rate. c. The difference between the real gross rate and the inflation rate. d. a and b only. e. None of the above.
D
An important structural difference between exchanges and the OTC market with respect to the activities of dealers is that: a. On exchanges, there is only one market maker or dealer per stock called the specialist. b. In the OTC market, there may be many dealers for a stock depending on the trading volume. c. There is not competition among specialists. d. a and b only. d. All of the above.
D
An investor receives a margin call from the broker when: a. The investor's margin account falls below the initial margin but is still above the maintenance margin.. b. The investor's margin account falls below the minimum maintenance margin. c. The investor's margin account reaches zero. d. b and c. e. All of the above.
D
Assumptions about capital markets include: a. Perfectly competitive capital markets. b. The absence of frictions. c. Investors can borrow and lend at some riskfree rate. d. All of the above. e. a and b only.
D
Capital market theory assumes that: a. Investors have homogeneous expectations. b. Investors make decisions over a multiple-period investment horizon. c. Investors are risk averse. d. a and c only. e. All of the above.
D
Capital market theory makes assumptions about: a. Investor behavior. b. Capital markets. c. Historical returns. d. a and b only. e. All of the above.
D
Competitive bidding underwriting is mandated for certain securities of: a. Regulated public utilities. b. Industrials. c. Municipal debt obligations. d. a and c only. e. All of the above.
D
Conditional orders include: a. Market orders. b. Limit orders. c. Stop orders. d. b and c only. e. All of the above.
D
Examples of conditional orders include: a. Limit order. b. Stop order. c. Market order. d. a and b only. e. All of the above.
D
In a completely integrated capital market: a. There are no restrictions to prevent investors from investing in securities issued in any capital market throughout the world. b. The required return on securities of comparable risk will be the same in all capital markets before adjusting for risk. c. The required return on securities of comparable risk will be the same in all capital markets after adjusting for taxes and foreign exchange rates. d. a and c only. e. All of the above.
D
The minimum yield sought on an investment as measured by the yield on an on-the-run Treasury security with comparable maturity is referred to as the: a. Base interest rate. b. Benchmark interest rate. c. Bond-equivalent interest rate. d. a and b only. e. B and c only.
D
The risk that the issuer of a bond may not be able to make timely interest and principal payments is called: a. Credit risk. b. Default risk. c. Market risk. d. a and b only. e. All of the above.
D
The risks that cause uncertainty about the return over some investment horizon are: a. The uncertainty about the price of a bond at the end of the investment horizon. b. The uncertainty about the rate at which the proceeds from a bond that matures prior to the maturity date can be reinvested until the maturity date. c. The uncertainty about the movement of equity prices relative to debt instruments. d. a and b only. e. All of the above.
D
The secondary market is the market for the trading of: a. Newly issued securities. b. Previously issued securities. c. Seasoned securities. d. b and c only. e. None of the above.
D
The total risk of a portfolio consists of: a. Diversifiable risk. b. Nondiversifiable risk. c. Statistical risk. d. a and b only. e. All of the above.
D
The two elements of a forward rate are: a. The length of time for the rate. b. The implicit rate. c. When in the future the rate begins. d. a and c only. e. a and b only.
D
The yield to maturity takes into account: a. The coupon income. b. Any cash dividends. c. Any capital gains or losses. d. a and c only. e. All of the above.
D
Trading costs can be decomposed into: a. Explicit costs. b. Implicit costs. c. Soft dollars. d. a and b only. e. All of the above.
D
Trading differences exist between retail investors and institutional investors based on: a. Size of trade. b. Commission. c. Method of order execution. d. All of the above. e. a and b only.
D
When all bidders pay the highest winning yield bid in a competitive bidding underwriting, this type of auction is referred to as: a. Single price auction. b. Dutch auction. c. Multiple price auction. d. a and b only. e. None of the above.
D
When the yield rises steadily as the maturity increases, the yield curve is said to be: a. Positive. b. Upward sloping. c. Normal. d. All of the above. e. None of the above.
D
Which of the following statements is most correct? a. The largest single-day decline in the history of the U.S. stock market occurred in October 1987. b. Rule 80A and 80B are examples of price limits. c. The S&P 500 is the most comprehensive stock index. d. a and b only. e. All of the above.
D
Which of the following statements is most correct? a. The price of a bond will approach its par value as it moves toward its maturity. b. Over time, the price of a discount bond will rise if interest rate do not change. c. The price of a bond will rise if the perceived credit quality of the issuer deteriorates. d. a and b only. e. All of the above.
D
A firm may seek to raise funds outside its domestic capital market for one or more of the following reasons: a. The amount of capital sought cannot be raised in its local market. b. There is an opportunity to raise funds at a lower cost. c. Funds denominated in another currency are sought. d. The firm seeks to diversify funding costs. e. All of the above.
E
A perfect market results when: a. The number of buyers and seller is sufficiently large. b. All buyers and sellers are price takers. c. No transactions costs. d. No taxes. e. All of the above.
E
Financial markets are not frictionless because of: a. Commissions charged by brokers. b. Bid-ask spreads charged by dealers. c. Trading restrictions. d. Costs of acquiring information about financial assets. e. All of the above.
E
Firms seek to list their shares on the exchanges of several countries because: a. They seek to diversify their sources of capital across national boundaries. b. It diminishes the prospect of takeover by other domestic concerns. c. It boosts their name awareness. d. It helps increase their sales revenues. e. All of the above.
E
If a bond will have to be sold at a loss, it is said to have: a. Reinvestment risk. b. Interest rate risk. c. Price risk. d. a and c only. e. b and b only.
E
Which of the following statements is most correct? a. The NYSE is called a membership organization. b. NYSE's owners are its seat holders. c. NASDAQ is owned by the NASD. d. NASDAQ is a for-profit organization. e. All of the above.
E
In constructing Markowitz efficient portfolios it is assumed that: a. An investor's decision is affected by the expected return and risk. b. Investors are risk averse. c. Investors seek to achieve the highest expected return for a given level of risk. d. a and b only. e. All of the above.
E
In estimating beta, practical problems arise, which are a function of: a. The length of time over which the return is calculated. b. The market index selected. c. The specific time period used. d. The number of observations. e. All of the above.
E
Investors in financial assets receive several benefits from a secondary market including: a. Liquidity of their assets. b. Information about the assets' fair values. c. Lower search and transactions costs. d. a and b only. e. All of the above.
E
Market risk is: a. The risk that remains in a well-diversified portfolio. b. Also called systematic risk. c. Nondiversifiable. d. The risk that affects all securities. e. All of the above.
E
On the Tokyo Stock Exchange, a satori: a. Functions as an intermediary between the dealers and the brokers who are members of the exchange. b. Cannot buy or sell for their own accounts. c. Arrange transactions among dealers. d. Conduct auctions during the trading day. e. All of the above.
E
Rule 144A will contribute to the growth of the private placement market by: a. Improving the liquidity of securities issued. b. Reducing the cost of raising funds. c. Attracting new large institutional investors into the market. d. a and b only. e. All of the above.
E
Secondary markets outside the U.S. are located in: a. London. b. Paris. c. Frankfurt. d. Osaka. e. All of the above.
E
Systematic risk is: a. The risk that can be eliminated through diversification. b. The risk that affects all securities. c. The total risk of a well-diversified portfolio. d. The risk that cannot be diversified by portfolio combination. e. b and d only.
E
The consumer has several decisions to make regarding: a. How much to invest. b. How much to lend. c. How much to consume now and later. d. a and b only. e. All of the above.
E
The difference between the expected return in the market and the riskfree rate is called: a. The market risk premium. b. The market price of risk. c. The risk premium. d. The market sensitivity index. e. a and b.
E
The factors that affect the yield spread between a non-Treasury security and a comparable Treasury security are: a. The type of issuer. b. The issuer's perceived creditworthiness. c. The maturity of the instrument. d. The expected liquidity of the issue. e. All of the above.
E
The goals of the Big Bang reforms for the Japanese financial markets were to develop a: a. Free market, which employs market principles. b. Fair and transparent market. c. Global market. d. A market, which is less susceptible to domestic political pressures. e. All of the above.
E
The lower the correlation between assets: a. The lower the portfolio variance. b. The higher the expected return for a given level of risk. c. The greater the diversification benefits. d. a and b only. e. All of the above.
E
The risk of a portfolio can be quantified by: a. Specifying the probability associated with each possible future outcome. b. The dispersion of the possible returns below the expected value. c. The variance of the portfolio returns. d. The standard deviation of portfolio returns. e. All of the above.
E
The secondary market for common stock has undergone significant changes since the 1960s as a result of: a. The institutionalization of the stock market. b. Changes in government regulation of the market. c. Advances in computer technology. d. A and b only. e. All of the above.
E
The shape of the yield curve can be explained by: a. The expectations theory. b. The liquidity theory. c. The preferred habitat theory. d. The market segmentation theory. e. All of the above.
E
The spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality is referred to as: a. Risk premium. b. Quality spread. c. Income spread. d. Credit spread. e. b and d only.
E
The transformation curve or production function: a. Rises from the left to the right. b. Assumes that the more is invested, the more will be the resulting future output. c. Assumes decreasing returns to scale. d. Has a slope, which measures the marginal productivity of capital. e. All of the above.
E
The value of a bond depends on: a. The issuer. b. The coupon rate. c. The maturity of the bond. d. Market interest rates. e. b, c, and d only.
E
Together, portfolio and capital market theories provide a framework to: a. Specify and measure the investment risk. b. Quantify the expected return on a portfolio. c. Develop relationships between risk and expected return. d. Quantify the cost of capital. e. All of the above.
E
When the yield declines as maturity increases, the yield curve is said to be: a. Inverted. b. Downward sloping. c. Positive. d. Negative. e. a, b, and d only.
E
Which of the following economic factors have been identified to explain security returns according to the APT? a. Unanticipated changes in industrial production. b. Unanticipated changes in inflation. c. Unanticipated changes in interest rates. d. Unanticipated changes in the shape of the yield curve. e. All of the above.
E
Which of the following is not a market index? a. DAX. b. FTSE 100. c. EAFE. d. CAC 40. e. All of the above are stock market indexes.
E
Which of the following statements about duration is most correct? a. Duration for a coupon bond is greater than its maturity. b. For a zero-coupon bond, the duration is equal to its maturity. c. For bonds with the same maturity and selling at the same yield, the lower the coupon rate, the greater a bond's duration and volatility. d. For bonds with the same coupon rate and selling at the same yield, the longer the maturity, the larger the duration and price sensitivity. e. b, c, and d only.
E
