ECON 1710 Midterm #1 Multiple Choice Questions

In 2011 the proportion of mutual funds (based on total assets) specializing in bonds was A. 25.0% B. 28.0% C. 54.1% D. 73.4% E. 63.5%

A. 25.0%

The maximum maturity of commercial paper that can be issued without SEC registration is ____________. A. 270 days B. 180 days C. 90 days D. 30 days E. 15 days

A. 270 days

Despite large first-day IPO returns, average first-year returns in the US are approximately ____________ percent. A. 7.2 B. 18.2 C. 26.4 D. 4.8 E. 9.1

A. 7.2

________ are in essence an insurance contract against the default of one or more borrowers. A. Credit default swaps B. CMOsC. ETFs D. Collateralized debt obligations E. Collars

A. Credit default swaps

The ____ index represents the performance of the German stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng E. CAC

A. DAX

A US dollar denominated bond that is sold in Singapore is a ____________. A. Eurobond B. Yankee bond C. Samurai bond D. Bulldog bond E. Singapore Sling

A. Eurobond

In a typical underwriting arrangement the investment banking firm I) sells shares to the public via an underwriting syndicate .II) purchases the securities from the issuing company. III) assumes the full risk that the shares may not be sold at the offering price. IV) agrees to help the firm sell the issue to the public but does not actually purchase the securities. A. I, II, and III B. I, III, and IV C. I and IV D. II and III E. I and II

A. I, II, and III

The securities act of 1933 ____________. I) requires full disclosure of relevant information relating to the issue of new securities II) requires registration of new securities III) requires issuance of a prospectus detailing financial prospects of the firm IV) established the SEC V) requires periodic disclosure of relevant financial informationVI) empowers SEC to regulate exchanges, OTC trading, brokers, and dealers A. I, II, and III B. I, II, III, IV, V, and VI C. I, II, and V D. I, II, and IV E. IV only

A. I, II, and III

Which of the following statement(s) is (are) false regarding the selection of a portfolio from those that lie on the Capital Allocation Line? A. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors. B. More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. C. Investors choose the portfolio that maximizes their expected utility. D. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors and more risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. E. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors and investors choose the portfolio that maximizes their expected utility.

A. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors.

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the S&P 500 should choose A. SPY. B. DIA. C. QQQQ. D. IWM. E. VTI.

A. SPY.

What does the term "negotiable" mean with regard to negotiable certificates of deposit? A. The CD can be sold to another investor if the owner needs to cash it in before its maturity date. B. The rate of interest on the CD is subject to negotiation. C. The CD is automatically reinvested at its maturity date. D. The CD has staggered maturity dates built in. E. The interest rate paid on the CD will vary with a designated market rate.

A. The CD can be sold to another investor if the owner needs to cash it in before its maturity date.

The individual investor's optimal portfolio is designated by: A. The point of tangency with the indifference curve and the capital allocation line. B. The point of highest reward to variability ratio in the opportunity set. C. The point of tangency with the opportunity set and the capital allocation line. D. The point of the highest reward to variability ratio in the indifference curve.E. None of these is correct.

A. The point of tangency with the indifference curve and the capital allocation line.

If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA? A. The stock trading at the highest dollar price per share. B. The stock having the greatest amount of debt in its capital structure. C. The stock having the greatest amount of equity in its capital structure. D. The stock having the lowest volatility. E. None of the above.

A. The stock trading at the highest dollar price per share.

Which of the following portfolio construction methods starts with asset allocation? A. Top-down B. Bottom-up C. Middle-out D. Buy and hold E. Asset allocation

A. Top-down

The ultimate stock index in the U.S. is the A. Wilshire 5000. B. DJIA.C. S&P 500. D. Russell 2000. E. TSX.

A. Wilshire 5000.

The ____________ refers to the potential conflict between management and shareholders. A. agency problem B. diversification problem C. liquidity problem D. solvency problem E. regulatory problem

A. agency problem

The first major step in asset allocation is: A. assessing risk tolerance. B. analyzing financial statements. C. estimating security betas. D. identifying market anomalies. E. determining how much money a client needs to make.

A. assessing risk tolerance.

Security selection refers to ____________. A. choosing which securities to hold based on their valuation B. investing only in "safe" securities C. the allocation of assets into broad asset classes D. top-down analysis E. moving assets between stocks and bonds

A. choosing which securities to hold based on their valuation

The value of a derivative security _______. A. depends on the value of the related security B. is unable to be calculated C. is unrelated to the value of the related security D. has been enhanced due to the recent misuse and negative publicity regarding these instruments E. is worthless today

A. depends on the value of the related security

Ceteris paribus, a decrease in the demand for loanable funds A. drives the interest rate down. B. drives the interest rate up. C. might not have any effect on interest rates. D. results from an increase in business prospects and a decrease in the level of savings E. results from an increase in business prospects and a increase in the level of savings.

A. drives the interest rate down.

The risk that can be diversified away is A. firm-specific risk. B. beta. C. systematic risk. D. market risk. E. non-systematic risk.

A. firm-specific risk.

The trading of stock that was previously issued takes place A. in the secondary market. B. in the primary market. C. usually with the assistance of an investment banker. D. A and B. E. B and C.

A. in the secondary market.

Of the following types of mutual funds, an investor that wishes to invest in a diversified portfolio of foreign stocks (excluding the U.S.) should choose A. international funds. B. global funds. C. regional funds. D. emerging market funds. E. ETFs because mutual funds do not exist that will provide the desired objective.

A. international funds.

The Capital Allocation Line can be described as the A. investment opportunity set formed with a risky asset and a risk-free asset. B. investment opportunity set formed with two risky assets. C. line on which lie all portfolios that offer the same utility to a particular investor. D. line on which lie all portfolios with the same expected rate of return and different standard deviations. E. investment opportunity set formed with multiple risky assets.

A. investment opportunity set formed with a risky asset and a risk-free asset.

The expected return of a portfolio of risky securities A. is a weighted average of the securities' returns. B. is the sum of the securities' returns. C. is the weighted sum of the securities' variances and covariances. D. is both a weighted average of the securities' returns and a weighted sum of the securities' variances and covariances. E. is the weighted sum of the securities' covariances.

A. is a weighted average of the securities' returns.

Systematic risk is also referred to as A. market risk, nondiversifiable risk. B. market risk, diversifiable risk. C. unique risk, nondiversifiable risk. D. unique risk, diversifiable risk. E. firm-specific risk.

A. market risk, nondiversifiable risk.

New issues of securities are sold in the ________ market(s). A. primary B. secondary C. over the counter D. primary and secondary E. primary and over the counter

A. primary

The preliminary prospectus is referred to as a ____________. A. red herring B. indenture C. green mail D. tombstone E. headstone

A. red herring

A municipal bond issued to finance an airport, hospital, turnpike, or port authority is typically a ____________. A. revenue bond B. general obligation bond C. industrial development bond D. needed services bond E. health and trade bond

A. revenue bond

Investors in closed-end funds who wish to liquidate their positions must A. sell their shares through a broker. B. sell their shares to the issuer at a discount to Net Asset Value. C. sell their shares to the issuer at a premium to Net Asset Value. D. sell their shares to the issuer for Net Asset Value. E. hold their shares to maturity.

A. sell their shares through a broker.

Annual Percentage Rates (APRs) are computed using A. simple interest. B. compound interest. C. either simple interest or compound interest can be used. D. best estimates of expected real costs. E. real interest.

A. simple interest.

When a distribution is positively skewed, ____________. A. standard deviation overestimates risk B. standard deviation correctly estimates risk C. standard deviation underestimates risk D. the tails are fatter than in a normal distribution E. the tails are skinnier than in a normal distribution

A. standard deviation overestimates risk

Historical records regarding return on stocks, Treasury bonds, and Treasury bills between 1926 and 2009 show that A. stocks offered investors greater rates of return than bonds and bills. B. stock returns were less volatile than those of bonds and bills. C. bonds offered investors greater rates of return than stocks and bills. D. bills outperformed stocks and bonds. E. treasury bills always offered a rate of return greater than inflation.

A. stocks offered investors greater rates of return than bonds and bills.

The separation property refers to the conclusion that A. the determination of the best risky portfolio is objective and the choice of the best complete portfolio is subjective. B. the choice of the best complete portfolio is objective and the determination of the best risky portfolio is objective. C. the choice of inputs to be used to determine the efficient frontier is objective and the choice of the best CAL is subjective. D. the determination of the best CAL is objective and the choice of the inputs to be used to determine the efficient frontier is subjective. E. investors are separate beings and will therefore have different preferences regarding the risk-return tradeoff.

A. the determination of the best risky portfolio is objective and the choice of the best complete portfolio is subjective.

According to the CFA Institute Standards of Professional Conduct, CFA Institute members have responsibilities to all of the following except: A. the government. B. the profession. C. the public. D. the employer. E. clients and prospective clients.

A. the government.

In a "firm commitment" A. the investment banker buys the stock from the company and resells the issue to the public. B. the investment banker agrees to help the firm sell the stock at a favorable price. C. the investment banker finds the best marketing arrangement for the investment banking firm. D. B and C. E. A and B.

A. the investment banker buys the stock from the company and resells the issue to the public.

In words, the real rate of interest is approximately equal to A. the nominal rate minus the inflation rate. B. the inflation rate minus the nominal rate. C. the nominal rate times the inflation rate. D. the inflation rate divided by the nominal rate. E. the nominal rate plus the inflation rate.

A. the nominal rate minus the inflation rate.

The efficient frontier of risky assets is A. the portion of the investment opportunity set that lies above the global minimum variance portfolio. B. the portion of the investment opportunity set that represents the highest standard deviations. C. the portion of the investment opportunity set which includes the portfolios with the lowest standard deviation. D. the set of portfolios that have zero standard deviation. E. both the portion of the investment opportunity set that lies above the global minimum variance portfolio and the portion of the investment opportunity set that represents the highest standard deviations.

A. the portion of the investment opportunity set that lies above the global minimum variance portfolio.

The certainty equivalent rate of a portfolio is A. the rate that a risk-free investment would need to offer with certainty to be considered equally attractive as the risky portfolio. B. the rate that the investor must earn for certain to give up the use of his money. C. the minimum rate guaranteed by institutions such as banks. D. the rate that equates "A" in the utility function with the average risk aversion coefficient for all risk-averse investors.E. represented by the scaling factor "−.005" in the utility function.

A. the rate that a risk-free investment would need to offer with certainty to be considered equally attractive as the risky portfolio.

Corporations can exclude ____________ percent of the dividends received from preferred stock from taxes. A. 50 B. 70 C. 20 D. 15 E. 62

B. 70

Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner? A. Repos B. Bankers' acceptances C. Eurodollars D. Federal funds E. Reverse repos

B. Bankers' acceptances

Which of the following portfolio construction methods starts with security analysis? A. Top-down B. Bottom-up C. Middle-out D. Buy and hold E. Asset allocation

B. Bottom-up

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the Dow Jones Industrials should choose A. SPY. B. DIA. C. QQQQ. D. IWM. E. VTI.

B. DIA.

The ____ is an example of a U.S. index of large firms. A. Wilshire 5000 B. DJIA C. DAX D. Russell 2000 E. FTSE

B. DJIA

Which of the following is not required under the CFA Institute Standards of Professional Conduct? A. Knowledge of all applicable laws, rules and regulations. B. Disclosure of all personal investments whether or not they may conflict with a client's investments. C. Disclosure of all conflicts to clients and prospects. D. Reasonable inquiry into a client's financial situation. E. All of the above are required under the CFA Institute standards.

B. Disclosure of all personal investments whether or not they may conflict with a client's investments.

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the MSCI Japan Index should choose A. SPY. B. EWJ. C. QQQQ. D. IWM. E. VTI.

B. EWJ.

The ____ index represents the performance of the U.K. stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng E. CAC

B. FTSE

Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting deposits and underwriting securities. A. Sarbanes-Oxley B. Glass-Steagall C. SECD. Sarbanes-Oxley and SEC E. Fair Credit

B. Glass-Steagall

Which of the following indices is (are) market-value weighted? I) The New York Stock Exchange Composite Index II) The Standard and Poor's 500 Stock Index III) The Dow Jones Industrial Average A. I only B. I and II only C. I and III only D. I, II, and III E. II and III only

B. I and II only

Steve is more risk-averse than Edie. On a graph that shows Steve and Edie's indifference curves, which of the following is true? Assume that the graph shows expected return on the vertical axis and standard deviation on the horizontal axis. I) Steve and Edie's indifference curves might intersect. II) Steve's indifference curves will have flatter slopes than Edie's. III) Steve's indifference curves will have steeper slopes than Edie's. IV) Steve and Edie's indifference curves will not intersect. V) Steve's indifference curves will be downward sloping and Edie's will be upward sloping. A. I and V B. I and III C. III and IV D. I and II E. II and IV

B. I and III

Which of the following statement(s) is (are) true? I) The real rate of interest is determined by the supply and demand for funds II) The real rate of interest is determined by the expected rate of inflation. III) The real rate of interest can be affected by actions of the Fed. IV) The real rate of interest is equal to the nominal interest rate plus the expected rate of inflation. A. I and II only. B. I and III only. C. III and IV only. D. II and III only. E. I, II, III, and IV only.

B. I and III only.

Jargon Rapid Growth is a mutual fund that has traditionally accepted funds from new investors and issued new shares at net asset value. Jeremy Jargon manages the fund himself and has become concerned that its level of assets has become too high for his management abilities. He issues a statement that Jargon will no longer accept funds from new investors, but will continue to accept additional investments from current shareholders. Which of the following is true about Jargon Rapid Growth fund? A. Jargon used to be an open-end fund but has now become a closed-end fund. B. Jargon has always been an open-end fund and will remain an open-end fund. C. Jargon has always been a closed-end fund and will remain a closed-end fund. D. Jargon is an open-end fund but would change to a closed-end fund if it wouldn't accept additional funds from current investors. E. Jargon is violating SEC policy by refusing to accept new investors.

B. Jargon has always been an open-end fund and will remain an open-end fund.

Which of the following orders instructs the broker to sell at or below a specified price? A. Limit-sell order B. Stop-loss C. Limit-buy order D. Stop-buy order E. Market order

B. Stop-loss

A fixed-income security pays ____________. A. a fixed level of income for the life of the owner B. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security C. a variable level of income for owners on a fixed income D. a fixed or variable income stream at the option of the owner E. a riskless return that is fixed for life

B. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security

The material wealth of a society is a function of _________. A. all financial assets B. all real assets C. all financial and real assets D. all physical assets E. all commodities

B. all real assets

Shares for short transactions A. are usually borrowed from other brokers. B. are typically shares held by the short seller's broker in street name. C. are borrowed from commercial banks. D. B and C. E. None of the above.

B. are typically shares held by the short seller's broker in street name.

In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs: A. by adjusting the divisor. B. automatically. C. by adjusting the numerator. D. quarterly, on the last trading day of each quarter. E. None of the above.

B. automatically.

Bond market indexes can be difficult to construct because A. they cannot be based on firms' market values. B. bonds tend to trade infrequently, making price information difficult to obtain. C. there are so many different kinds of bonds. D. prices cannot be obtained for companies that operate in emerging markets. E. corporations are not required to disclose the details of their bond issues.

B. bonds tend to trade infrequently, making price information difficult to obtain.

The change from a straight to a kinked capital allocation line is a result of: A. reward-to-volatility ratio increasing. B. borrowing rate exceeding lending rate. C. an investor's risk tolerance decreasing. D. increase in the portfolio proportion of the risk-free asset. E. a flawed theory.

B. borrowing rate exceeding lending rate.

Other things equal, an increase in the government budget deficit A. drives the interest rate down. B. drives the interest rate up. C. might not have any effect on interest rates. D. always increases business prospects. E. never increases business prospects.

B. drives the interest rate up.

When comparing investments with different horizons the ____________ provides the more accurate comparison. A. arithmetic average B. effective annual rate C. average annual return D. historical annual average E. geometric return

B. effective annual rate

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated. The global minimum variance portfolio has a standard deviation that is always A. greater than zero. B. equal to zero. C. equal to the sum of the securities' standard deviations. D. equal to −1. E. between zero and −1.

B. equal to zero.

Commercial banks differ from other businesses in that both their assets and their liabilities are mostly ________. A. illiquid B. financial C. real D. owned by the government E. regulated

B. financial

Of the following types of mutual funds, an investor that wishes to invest in a diversified portfolio of stocks worldwide (including the U.S.) should choose A. international funds. B. global funds. C. regional funds. D. emerging market funds. E. ETFs because mutual funds do not exist that will provide the desired objective.

B. global funds.

At issue, offering prices of open-end funds will often be A. less than NAV due to loads and commissions. B. greater than NAV due to loads and commissions. C. less than NAV due to limited demand. D. greater than NAV due to excess demand. E. less than or greater than NAV with no apparent pattern.

B. greater than NAV due to loads and commissions.

Efficient portfolios of N risky securities are portfolios that A. are formed with the securities that have the highest rates of return regardless of their standard deviations. B. have the highest rates of return for a given level of risk. C. are selected from those securities with the lowest standard deviations regardless of their returns. D. have the highest risk and rates of return and the highest standard deviations. E. have the lowest standard deviations and the lowest rates of return.

B. have the highest rates of return for a given level of risk.

Firms raise capital by issuing stock A. in the secondary market. B. in the primary market. C. to unwary investors. D. only on days when the market is up. E. C and D.

B. in the primary market.

If the Federal Reserve lowers the discount rate, ceteris paribus, the equilibrium levels of funds lent will __________ and the equilibrium level of real interest rates will ___________. A. increase; increase B. increase; decrease C. decrease; increase D. decrease; decrease E. reverse direction from their previous trends

B. increase; decrease

Financial assets ______. A. directly contribute to the country's productive capacity B. indirectly contribute to the country's productive capacity C. contribute to the country's productive capacity both directly and indirectly D. do not contribute to the country's productive capacity either directly or indirectly E. are of no value to anyone

B. indirectly contribute to the country's productive capacity

________ specialize in helping companies raise capital by selling securities. A. commercial bankers B. investment bankers C. investment issuers D. credit raters E. commercial bankers, investment bankers, investment issuers, and credit raters

B. investment bankers

The variable (A) in the utility function represents the: A. investor's return requirement. B. investor's aversion to risk. C. certainty-equivalent rate of the portfolio. D. minimum required utility of the portfolio. E. the security's variance.

B. investor's aversion to risk.

Freddie Mac and Ginnie Mae were organized to provide A. a primary market for mortgage transactions .B. liquidity for the mortgage market. C. a primary market for farm loan transactions. D. liquidity for the farm loan market. E. a source of funds for government agencies.

B. liquidity for the mortgage market.

The presence of risk means that A. investors will lose money. B. more than one outcome is possible. C. the standard deviation of the payoff is larger than its expected value. D. final wealth will be greater than initial wealth. E. terminal wealth will be less than initial wealth.

B. more than one outcome is possible.

The smallest component of the bond market is __________. A. Treasury B. other asset-backed C. corporate D. tax-exempt E. mortgage-backed

B. other asset-backed

A form of short-term borrowing by dealers in government securities is A. reserve requirements. B. repurchase agreements. C. banker's acceptances. D. commercial paper. E. brokers' calls.

B. repurchase agreements.

The unsystematic risk of a specific security A. is likely to be higher in an increasing market. B. results from factors unique to the firm. C. depends on market volatility .D. cannot be diversified away. E. is likely to be lower in a decreasing market.

B. results from factors unique to the firm.

A sale by IBM of new stock to the public would be a(n) A. short sale. B. seasoned equity offering. C. private placement. D. secondary market transaction. E. initial public offering.

B. seasoned equity offering.

Investors trade previously issued securities in the ________ market(s). A. primary B. secondary C. primary and secondary D. derivatives E. primary and derivatives

B. secondary

In words, the covariance considers the probability of each scenario happening and the interaction between A. securities' returns relative to their variances. B. securities' returns relative to their mean returns. C. securities' returns relative to other securities' returns. D. the level of return a security has in that scenario and the overall portfolio return. E. the variance of the security's return in that scenario and the overall portfolio variance.

B. securities' returns relative to their mean returns.

The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________. A. credit enhancement B. securitization C. unbundling D. derivatives E. a Ponzi scheme

B. securitization

The smallest component of the money market is __________. A. repurchase agreements B. small-denomination time deposits C. savings deposits D. money market mutual funds E. commercial paper

B. small-denomination time deposits

The measure of risk in a Markowitz efficient frontier is: A. specific risk. B. standard deviation of returns. C. reinvestment risk. D. beta. E. unique risk.

B. standard deviation of returns.

Nondiversifiable risk is also referred to as A. systematic risk, unique risk. B. systematic risk, market risk. C. unique risk, market risk. D. unique risk, firm-specific risk. E. systematic risk, firm-specific risk.

B. systematic risk, market risk.

1. Market risk is also referred to as A. systematic risk, diversifiable risk. B. systematic risk, nondiversifiable risk. C. unique risk, nondiversifiable risk. D. unique risk, diversifiable risk. E. firm-specific risk.

B. systematic risk, nondiversifiable risk.

In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called ______________. A. the Security Market Line B. the Capital Allocation Line C. the Indifference Curve D. the investor's utility lineE. skewness

B. the Capital Allocation Line

Initial margin requirements in the U.S. are determined by A. the Securities and Exchange Commission. B. the Federal Reserve System. C. the New York Stock Exchange. D. B and C. E. A and B.

B. the Federal Reserve System.

When a firm markets new securities, a preliminary registration statement must be filed with A. the exchange on which the security will be listed. B. the Securities and Exchange Commission. C. the Federal Reserve. D. all other companies in the same line of business. E. the Federal Deposit Insurance Corporation.

B. the Securities and Exchange Commission.

T-bills are financial instruments initially sold by ________ to raise funds. A. commercial banks B. the U.S. government C. state and local governments D. agencies of the federal government E. the U.S. government and agencies of the federal government

B. the U.S. government

The holding-period return (HPR) on a share of stock is equal to A. the capital gain yield during the period, plus the inflation rate. B. the capital gain yield during the period, plus the dividend yield. C. the current yield, plus the dividend yield. D. the dividend yield, plus the risk premium.E. the change in stock price.

B. the capital gain yield during the period, plus the dividend yield.

Portfolio theory as described by Markowitz is most concerned with: A. the elimination of systematic risk. B. the effect of diversification on portfolio risk. C. the identification of unsystematic risk. D. active portfolio management to enhance returns. E. the elimination of unsystematic risk.

B. the effect of diversification on portfolio risk.

When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio, A. the portfolio standard deviation will be greater than the weighted average of the individual security standard deviations. B. the portfolio standard deviation will be less than the weighted average of the individual security standard deviations. C. the portfolio standard deviation will be equal to the weighted average of the individual security standard deviations. D. the portfolio standard deviation will always be equal to the securities' covariance. E. both the portfolio standard deviation will be greater than the weighted average of the individual security standard deviations and it will always be equal to the securities' covariance.

B. the portfolio standard deviation will be less than the weighted average of the individual security standard deviations.

The bid price of a T-bill in the secondary market is A. the price at which the dealer in T-bills is willing to sell the bill. B. the price at which the dealer in T-bills is willing to buy the bill. C. greater than the asked price of the T-bill. D. the price at which the investor can buy the T-bill. E. never quoted in the financial press.

B. the price at which the dealer in T-bills is willing to buy the bill.

In a two-security minimum variance portfolio where the correlation between securities is greater than -1.0 A. the security with the higher standard deviation will be weighted more heavily. B. the security with the higher standard deviation will be weighted less heavily. C. the two securities will be equally weighted. D. the risk will be zero. E. the return will be zero.

B. the security with the higher standard deviation will be weighted less heavily

A reward-to-volatility ratio is useful in: A. measuring the standard deviation of returns. B. understanding how returns increase relative to risk increases. C. analyzing returns on variable rate bonds. D. assessing the effects of inflation. E. None of these is correct.

B. understanding how returns increase relative to risk increases.

You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is A. $4500. B. unlimited. C. zero.D. $9000. E. Cannot tell from the information given.

B. unlimited.

.The most common measure of loss associated with extremely negative returns is ________. A. lower partial standard deviation B. value at risk C. expected shortfall D. standard deviation E. Variance

B. value at risk

In 2011 the proportion of mutual funds (based on total assets) specializing in common stocks was A. 21.7% B. 28.0% C. 45.0% D. 73.4% E. 63.5%

C. 45.0%

Which one of the following terms best describes Eurodollars? A. Dollar-denominated deposits in European banks. B. Dollar-denominated deposits at branches of foreign banks in the U.S. C. Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S. D. Dollar-denominated deposits at American banks in the U.S. E. Dollars that have been exchanged for European currency.

C. Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S.

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the MSCI France Index should choose A. SPY. B. EWJ. C. EWQ D. IWM. E. VTI.

C. EWQ

Which of the following statements is (are) true? I) Risk-averse investors reject investments that are fair games. II) Risk-neutral investors judge risky investments only by the expected returns. III) Risk-averse investors judge investments only by their riskiness. IV) Risk-loving investors will not engage in fair games. A. I only B. II only C. I and II only D. II and III only E. II, III, and IV only

C. I and II only

Which of the following are characteristics of preferred stock? I) It pays its holder a fixed amount of income each year, at the discretion of its managers. II) It gives its holder voting power in the firm. III) Its dividends are usually cumulative. IV) Failure to pay dividends may result in bankruptcy proceedings. A. I, III, and IV B. I, II, and III C. I and III D. I, II, and IV E. I, II, III, and IV

C. I and III

Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Compensation in the form of the firm's stock options II) Hiring bickering family members as corporate spies III) Underperforming management teams being forced out by boards of directors IV) Security analysts monitoring the firm closely V) Takeover threats A. II and V B. I, III, and IV C. I, III, IV, and V D. III, IV, and V E. I, III, and V

C. I, III, IV, and V

Which of the following characteristics apply to unit investment trusts? I) Most are invested in fixed-income portfolios. II) They are actively managed portfolios. III) The sponsor pools securities, then sells public shares in the trust. IV) The portfolio is fixed for the life of the fund. A. I and IV B. I and II C. I, III, and IV D. I, II, and III E. I, II, III, and IV

C. I, III, and IV

In the mean-standard deviation graph, which one of the following statements is true regarding the indifference curve of a risk-averse investor? A. It is the locus of portfolios that have the same expected rates of return and different standard deviations. B. It is the locus of portfolios that have the same standard deviations and different rates of return. C. It is the locus of portfolios that offer the same utility according to returns and standard deviations. D. It connects portfolios that offer increasing utilities according to returns and standard deviations.E. It is irrelevant to making a decision of what portfolio would best suit the investor.

C. It is the locus of portfolios that offer the same utility according to returns and standard deviations.

Which of the following orders instructs the broker to buy at or below a specified price? A. Limit-loss order B. Discretionary order C. Limit-buy order D. Stop-buy order E. Market order

C. Limit-buy order

Which of the following orders instructs the broker to sell at or above a specified price? A. Limit-buy order B. Discretionary order C. Limit-sell order D. Stop-buy order E. Market order

C. Limit-sell order

The ____ index represents the performance of the Japanese stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng E. CAC

C. Nikkei

Which of the following is not a source of systematic risk? A. The business cycle. B. Interest rates. C. Personnel changes. D. The inflation rate. E. Exchange rates.

C. Personnel changes.

Which of the following is true regarding a firm's securities? A. Common dividends are paid before preferred dividends. B. Preferred stockholders have voting rights. C. Preferred dividends are usually cumulative. D. Preferred dividends are contractual obligations. E. Common dividends usually can be paid if preferred dividends have been skipped.

C. Preferred dividends are usually cumulative.

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the Nasdaq 100 should choose A. SPY. B. DIA. C. QQQQ. D. IWM. E. VTI.

C. QQQQ.

Which of the following is not a component of the money market? A. Repurchase agreements B. Eurodollars C. Real estate investment trusts D. Money market mutual funds E. Commercial paper

C. Real estate investment trusts

The ____ index represents the performance of the Canadian stock market. A. DAX B. FTSE C. TSX D. Hang Seng E. CAC

C. TSX

Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false? A. The DJIA is not very representative of the market as a whole. B. The DJIA consists of 30 blue chip stocks. C. The DJIA is affected equally by changes in low and high priced stocks. D. The DJIA divisor needs to be adjusted for stock splits. E. The value of the DJIA is much higher than individual stock prices.

C. The DJIA is affected equally by changes in low and high priced stocks.

Which of the following is not a mortgage-related government or government sponsored agency? A. The Federal Home Loan Bank B. The Federal National Mortgage Association C. The U.S. Treasury D. Freddie Mac E. Ginnie Mae

C. The U.S. Treasury

Which of the following factors would not be expected to affect the nominal interest rate? A. The supply of loanable funds B. The demand for loanable funds C. The coupon rate on previously issued government bonds D. The expected rate of inflation E. Government spending and borrowing

C. The coupon rate on previously issued government bonds

Which of the following statements is (are) true regarding the variance of a portfolio of two risky securities? A. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. B. There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. C. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. D. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance and there is a linear relationship between the securities' coefficient of correlation and the portfolio variance. E. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance and the degree to which the portfolio variance is reduced depends on the degree of correlation between securities.

C. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities.

Which one of the following statements regarding open-end mutual funds is false? A. The funds redeem shares at net asset value. B. The funds offer investors professional management. C. The funds offer investors a guaranteed rate of return. D. The funds offer investors professional management and a guaranteed rate of return. E. The funds redeem shares at net asset value and offer investors professional management.

C. The funds offer investors a guaranteed rate of return.

Which of the following statements regarding risk-averse investors is true? A. They only care about the rate of return. B. They accept investments that are fair games. C. They only accept risky investments that offer risk premiums over the risk-free rate. D. They are willing to accept lower returns and high risk. E. They only care about the rate of return and accept investments that are fair games.

C. They only accept risky investments that offer risk premiums over the risk-free rate.

Which of the following is not an advantage of mutual funds? A. They offer a variety of investment styles. B. They offer small investors the benefits of diversification. C. They treat income as "passed through" to the investor for tax purposes. D. They offer a variety of investment styles, offer small investors the benefits of diversification, and treat income as "passed through" to the investor for tax purposes and all are advantages of mutual funds. E. They offer a variety of investment styles, offer small investors the benefits of diversification, and treat income as "passed through" to the investor for tax purposes and all are advantages of mutual fund but none of these are advantages of mutual funds.

C. They treat income as "passed through" to the investor for tax purposes.

An example of a derivative security is/are ______. A. a common share of Microsoft B. an Intel bond C. a commodity futures contract and a call option on Intel stock D. a call option on Intel stock and an Intel bond E. a common share of Intel stock

C. a commodity futures contract and a call option on Intel stock

The Dow Jones Industrial Average (DJIA) is computed by: A. adding the prices of 30 large "blue-chip" stocks and dividing by 30. B. calculating the total market value of the 30 firms in the index and dividing by 30. C. adding the prices of the 30 stocks in the index and dividing by a divisor. D. adding the prices of the 500 stocks in the index and dividing by a divisor. E. adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base date period.

C. adding the prices of the 30 stocks in the index and dividing by a divisor.

The stocks on the Dow Jones Industrial Average A. have remained unchanged since the creation of the index. B. include most of the stocks traded on the NYSE. C. are changed occasionally as circumstances dictate. D. consist of stocks on which the investor cannot lose money. E. are relatively small stocks.

C. are changed occasionally as circumstances dictate.

The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet reserve requirements is called the _________. A. prime rate B. discount rate C. federal funds rate D. call money rate E. money market rate

C. federal funds rate

The variance of a portfolio of risky securities A. is a weighted sum of the securities' variances. B. is the sum of the securities' variances. C. is the weighted sum of the securities' variances and covariances D. is the sum of the securities' covariances. E. is the weighted sum of the securities' covariances.

C. is the weighted sum of the securities' variances and covariances

A disadvantage of using stock options to compensate managers is that A. it encourages mangers to undertake projects that will increase stock price. B. it encourages managers to engage in empire building. C. it can create an incentive for mangers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects. D. it causes managers to take undue risks. E. it causes managers to be too conservative.

C. it can create an incentive for mangers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.

Commercial paper is a short-term security issued by ________ to raise funds. A. the Federal Reserve Bank B. commercial banks C. large, well-known companies D. the New York Stock Exchange E. state and local governments

C. large, well-known companies

You want to buy 100 shares of Hotstock Inc. at the best possible price as quickly as possible. You would most likely place a A. stop-loss order. B. stop-buy order. C. market order. D. limit-sell order. E. limit-buy order.

C. market order.

In the mean-standard deviation graph an indifference curve has a ________ slope. A. negative B. zero C. positive D. northeast E. cannot be determined

C. positive

When a distribution is negatively skewed, ____________. A. standard deviation overestimates risk B. standard deviation correctly estimates risk C. standard deviation underestimates risk D. the tails are fatter than in a normal distribution E. the tails are skinnier than in a normal distribution

C. standard deviation underestimates risk

You sold JCP stock short at $80 per share. Your losses could be minimized by placing a __________. A. limit-sell order B. limit-buy order C. stop-buy order D. day-order E. None of the above.

C. stop-buy order

The index that includes the largest number of actively traded stock is: A. the NASDAQ Composite Index. B. the NYSE Composite Index. C. the Wilshire 5000 Index. D. the Value Line Composite Index. E. the Russell Index.

C. the Wilshire 5000 Index.

Asset allocation refers to ____________. A. choosing which securities to hold based on their valuation B. investing only in "safe" securities C. the allocation of assets into broad asset classes D. bottom-up analysis E. top-down analysis

C. the allocation of assets into broad asset classes

The Capital Allocation Line provided by a risk-free security and N risky securities is A. the line that connects the risk-free rate and the global minimum-variance portfolio of the risky securities. B. the line that connects the risk-free rate and the portfolio of the risky securities that has the highest expected return on the efficient frontier. C. the line tangent to the efficient frontier of risky securities drawn from the risk-free rate. D. the horizontal line drawn from the risk-free rate. E. the line that connects the risk-free rate and the global maximum-variance portfolio of the risky securities.

C. the line tangent to the efficient frontier of risky securities drawn from the risk-free rate.

Skewness is a measure of ____________. A. how fat the tails of a distribution are B. the downside risk of a distribution C. the normality of a distribution D. the dividend yield of the distribution E. the average of the distribution

C. the normality of a distribution

The finalized registration statement for new securities approved by the SEC is called A. a red herring. B. the preliminary statement. C. the prospectus .D. a best-efforts agreement. E. a firm commitment.

C. the prospectus

The standard deviation of a portfolio of risky securities is A. the square root of the weighted sum of the securities' variances. B. the square root of the sum of the securities' variances. C. the square root of the weighted sum of the securities' variances and covariances. D. the square root of the sum of the securities' covariances. E. is the weighted sum of the securities' covariances.

C. the square root of the weighted sum of the securities' variances and covariances.

Pools of money invested in a portfolio that is fixed for the life of the fund are called A. closed-end funds. B. open-end funds. C. unit investment trusts. D. REITS. E. redeemable trust certificates.

C. unit investment trusts.

For a two-stock portfolio, what would be the preferred correlation coefficient between the two stocks? A. +1.00. B. +0.50. C. 0.00. D. -1.00. E. -0.65.

D. -1.00.

The fee that mutual funds use to help pay for advertising and promotional literature is called a A. front-end load fee. B. back-end load fee. C. operating expense fee. D. 12b-1 fee. E. structured fee.

D. 12b-1 fee.

The historical arithmetic rate of return on U.S. small stocks over the 1926-2009 period has been _______. The standard deviation of small stocks' returns has been ________ than the standard deviation of large stocks' returns. A. 12.43%; lower B. 13.11%; lower C. 16.24%; higher D. 17.43%; higher E. 21.53%; higher

D. 17.43%; higher

An investment provides a 2% return semi-annually, its effective annual rate is A. 2%. B. 4%. C. 4.02%. D. 4.04%. E. 4.53%.

D. 4.04%.

Average second-year IPO returns in the US are approximately ____________ percent. A. 6.7 B. 18.2 C. 26.4 D. 7.0 E. 9.1

D. 7.0

In 2011, the proportion of hybrid (bond and stock) mutual funds (based on total assets) was A. 21.7% B. 28.0% C. 54.1% D. 7.0% E. 22.6%

D. 7.0%

Which one of the following is not a money market instrument? A. A Treasury bill B. A negotiable certificate of deposit C. Commercial paper D. A Treasury bond E. A Eurodollar account

D. A Treasury bond

Investment bankers A. act as intermediaries between issuers of stocks and investors. B. act as advisors to companies in helping them analyze their financial needs and find buyers for newly issued securities. C. accept deposits from savers and lend them out to companies. D. A and B. E. A, B, and C.

D. A and B.

Shelf registration A. is a way of placing issues in the primary market. B. allows firms to register securities for sale over a two-year period. C. increases transaction costs to the issuing firm. D. A and B. E. A and C.

D. A and B.

The secondary market consists of A. transactions on the stock exchange. B. transactions in the OTC market. C. transactions through the investment banker. D. A and B. E. A, B, and C.

D. A and B.

Which of the following statements is true regarding a corporate bond? A. A corporate callable bond gives the holder the right to exchange it for a specified number of the company's common shares. B. A corporate debenture is a secured bond. C. A corporate indenture is a secured bond. D. A corporate convertible bond gives the holder the right to exchange the bond for a specified number of the company's common shares. E. Holders of corporate bonds have voting rights in the company.

D. A corporate convertible bond gives the holder the right to exchange the bond for a specified number of the company's common shares.

Which one of the following statements regarding orders is false? A. A market order is simply an order to buy or sell a stock immediately at the prevailing market price. B. A limit sell order is where investors specify prices at which they are willing to sell a security. C. If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45. D. A market order is an order to buy or sell a stock on a specific exchange (market). E. None of the above.

D. A market order is an order to buy or sell a stock on a specific exchange (market).

Restrictions on trading involving insider information apply to the following except A. corporate officers. B. corporate directors. C. major stockholders. D. All of the above are subject to insider trading restrictions. E. None of the above is subject to insider trading restrictions.

D. All of the above are subject to insider trading restrictions.

Which of the following would increase the net asset value of a mutual fund share, assuming all other things remain unchanged? A. An increase in the number of fund shares outstanding. B. An increase in the fund's accounts payable. C. A change in the fund's management. D. An increase in the value of one of the fund's stocks. E. A decrease in the value of one of the fund's stocks.

D. An increase in the value of one of the fund's stocks.

Which of the following statements is true? A. Inflation has no effect on the nominal rate of interest. B. The realized nominal rate of interest is always greater than the real rate of interest. C. Certificates of deposit offer a guaranteed real rate of interest. D. Certificates of deposit offer a guaranteed nominal rate of interest. E. Inflation has no effect on the nominal rate of interest, the realized nominal rate of interest is always greater than the real rate of interest, and certificates of deposit offer a guaranteed real rate of interest.

D. Certificates of deposit offer a guaranteed nominal rate of interest.

________ were designed to concentrate the credit risk of a bundle of loans on one class of investor, leaving the other investors in the pool relatively protected from that risk. A. Stocks B. Bonds C. Derivatives D. Collateralized debt obligations E. TIPS

D. Collateralized debt obligations

Which of the following securities is a money market instrument? A. Treasury note B. Treasury bond C. Municipal bond D. Commercial paper E. Mortgage security

D. Commercial paper

As of 2011, which class of mutual funds had the largest amount of assets invested? A. Money market funds B. Bond funds C. Mixed asset classes such as asset allocation funds D. Equity funds E. Global funds

D. Equity funds

Certificates of deposit are insured by the ____________. A. SPIC B. CFTC C. Lloyds of London D. FDIC E. AIG

D. FDIC

Mortgage-backed securities were created when ________ began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset. A. GNMA B. FNMA C. FHLMC D. FNMA and FHLMC E. GNMA and FNMA

D. FNMA and FHLMC

The ____ index represents the performance of the Hong Kong stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng E. TSX

D. Hang Seng

Which of the following determine(s) the level of real interest rates? I) The supply of savings by households and business firms. II) The demand for investment funds. III) The government's net supply and/or demand for funds. A. I only B. II only. C. I and II only. D. I, II, and III. E. III only.

D. I, II, and III.

The risk that can be diversified away in a portfolio is referred to as ___________. I) diversifiable risk II) unique risk III) systematic risk IV) firm-specific risk A. I, III, and IV B. II, III, and IV C. III and IV D. I, II, and IV E. I, II, III, and IV

D. I, II, and IV

Which of the following statements is (are) true regarding municipal bonds? I) A municipal bond is a debt obligation issued by state or local governments. II) A municipal bond is a debt obligation issued by the federal government. III) The interest income from a municipal bond is exempt from federal income taxation. IV) The interest income from a municipal bond is exempt from state and local taxation in the issuing state. A. I and II only B. I and III only C. I, II, and III only D. I, III, and IV only E. I and IV only

D. I, III, and IV only

In a return-standard deviation space, which of the following statements is (are) true for risk-averse investors? (The vertical and horizontal lines are referred to as the expected return-axis and the standard deviation-axis, respectively.) I) An investor's own indifference curves might intersect. II) Indifference curves have negative slopes. III) In a set of indifference curves, the highest offers the greatest utility. IV) Indifference curves of two investors might intersect. A. I and II only B. II and III only C. I and IV only D. III and IV only E. II and IV only

D. III and IV only

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the Russell 2000 should choose A. SPY. B. DIA. C. QQQQ. D. IWM. E. VTI.

D. IWM.

As the number of securities in a portfolio is increased, what happens to the average portfolio standard deviation? A. It increases at an increasing rate. B. It increases at a decreasing rate. C. It decreases at an increasing rate. D. It decreases at a decreasing rate. E. It first decreases, then starts to increase as more securities are added.

D. It decreases at a decreasing rate.

Which of the following statements about Real Estate Investment Trusts is true? A. REITs may be equity trusts or mortgage trusts. B. REITs are usually highly leveraged. C. REITs are similar to closed-end funds. D. REITs may be equity trusts or mortgage trusts, are usually highly leveraged, and are similar to closed-end funds. E. REITs may be equity trusts or mortgage trusts and are similar to closed-end funds.

D. REITs may be equity trusts or mortgage trusts, are usually highly leveraged, and are similar to closed-end funds.

The ____ is an example of a U.S. index of small firms. A. S&P 500 B. DJIA C. DAX D. Russell 2000 E. FTSE

D. Russell 2000

_______ is/are financial assets. A. Only bonds B. Only machines C. Only stocks D. Stocks and bonds E. Knowledge

D. Stocks and bonds

Which of the following orders instructs the broker to buy at or above a specified price? A. Limit-buy order B. Discretionary order C. Limit-sell order D. Stop-buy order E. Market order

D. Stop-buy order

Which of the following orders is most useful to short sellers who want to limit their potential losses? A. Limit order B. Discretionary order C. Limit-loss order D. Stop-buy order E. None of the above.

D. Stop-buy order

The spread between the LIBOR and the Treasury-bill rate is called the ________. A. term spread B. T-bill spread C. LIBOR spread D. TED spread E. FRED spread

D. TED spread

Which of the following statements regarding the Capital Allocation Line (CAL) is false? A. The CAL shows risk-return combinations. B. The slope of the CAL equals the increase in the expected return of the complete portfolio per unit of additional standard deviation. C. The slope of the CAL is also called the reward-to-volatility ratio. D. The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset. E. The CAL shows risk-return combinations and is also called the efficient frontier of risky assets in the absence of a risk-free asset.

D. The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset.

What has been the relationship between T-Bill rates and inflation rates since the 1980s? A. The T-Bill rate was sometimes higher than and sometimes lower than the inflation rate. B. The T-Bill rate has equaled the inflation rate plus a constant percentage. C. The inflation rate has equaled the T-Bill rate plus a constant percentage. D. The T-Bill rate has been higher than the inflation rate almost the entire period. E. The T-Bill rate has been lower than the inflation rate almost the entire period.

D. The T-Bill rate has been higher than the inflation rate almost the entire period.

Which one of the following statements regarding closed-end mutual funds is false? A. The funds sometimes trade at a discount from NAV. B. The funds are sold at the prevailing market price. C. The funds offer investors professional management. D. The funds redeem shares at their NAV. E. The funds sometimes trade at a premium to NAV.

D. The funds redeem shares at their NAV.

Which of the following statements is (are) false regarding the variance of a portfolio of two risky securities? A. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. B. There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. C. The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. D. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance and there is a linear relationship between the securities' coefficient of correlation and the portfolio variance. E. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance and the degree to which the portfolio variance is reduced depends on the degree of correlation between securities.

D. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance and there is a linear relationship between the securities' coefficient of correlation and the portfolio variance.

When an investment advisor attempts to determine an investor's risk tolerance, which factor would they be least likely to assess? A. The investor's prior investing experience B. The investor's degree of financial security C. The investor's tendency to make risky or conservative choices D. The level of return the investor prefers E. The investor's feelings about loss

D. The level of return the investor prefers

Which of the following is true regarding private placements of primary security offerings? A. Extensive and costly registration statements are required by the SEC. B. For very large issues, they are better suited than public offerings. C. They trade in secondary markets. D. The shares are sold directly to a small group of institutional or wealthy investors. E. They have greater liquidity than public offerings.

D. The shares are sold directly to a small group of institutional or wealthy investors.

Which statement about portfolio diversification is correct? A. Proper diversification can eliminate systematic risk. B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased. C. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return. D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate. E. Proper diversification can eliminate systematic risk and increases return.

D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.

Which of the following measures of risk best highlights the potential loss from extreme negative returns? A. Standard deviation B. Variance C. Upper partial standard deviation D. Value at Risk (VaR) E. Sharpe measure

D. Value at Risk (VaR)

A debt security pays ____________. A. a fixed level of income for the life of the owner B. a variable level of income for owners on a fixed income C. a fixed or variable income stream at the option of the owner D. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security E. a riskless return that is fixed for life

D. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security

Brokers' calls A. are funds used by individuals who wish to buy stocks on margin. B. are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. C. carry a rate that is usually about one percentage point lower than the rate on U.S. T-bills. D. are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. E. are funds used by individuals who wish to buy stocks on margin and carry a rate that is usually about one percentage point lower than the rate on U.S. T-bills.

D. are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so.

Money market securities ____________. A. are short term B. are highly marketable C. are generally very low risk D. are short-term, highly marketable, and generally very low risk E. highly marketable and generally very low risk

D. are short term, highly marketable, and generally very low risk

Treasury bills are commonly viewed as risk-free assets because A. their short-term nature makes their values insensitive to interest rate fluctuations. B. the inflation uncertainty over their time to maturity is negligible. C. their term to maturity is identical to most investors' desired holding periods D. both their short-term nature makes their values insensitive to interest rate fluctuations and the inflation uncertainty over their time to maturity is negligible. E. both the inflation uncertainty over their time to maturity is negligible and their term to maturity is identical to most investors' desired holding periods.

D. both their short-term nature makes their values insensitive to interest rate fluctuations and the inflation uncertainty over their time to maturity is negligible.

A bond that can be retired prior to maturity by the issuer is a ____________ bond. A. convertible B. secured C. unsecured D. callable E. Yankee

D. callable

The exact indifference curves of different investors A. cannot be known with perfect certainty. B. can be calculated precisely with the use of advanced calculus. C. allow the advisor to create more suitable portfolios for the client. D. cannot be known with perfect certainty but they do allow the advisor to create more suitable portfolios for the client. E. None of these is correct.

D. cannot be known with perfect certainty but they do allow the advisor to create more suitable portfolios for the client.

The risk premium for common stocks A. cannot be zero, for investors would be unwilling to invest in common stocks. B. must always be positive, in theory. C. is negative, as common stocks are risky. D. cannot be zero, for investors would be unwilling to invest in common stocks and must always be positive, in theory. E. cannot be zero, for investors would be unwilling to invest in common stocks and is negative, as common stocks are risky.

D. cannot be zero, for investors would be unwilling to invest in common stocks and must always be positive, in theory.

To build an indifference curve we can first find the utility of a portfolio with 100% in the risk-free asset, then A. find the utility of a portfolio with 0% in the risk-free asset. B. change the expected return of the portfolio and equate the utility to the standard deviation. C. find another utility level with 0% risk. D. change the standard deviation of the portfolio and find the expected return the investor would require to maintain the same utility level. E. change the risk-free rate and find the utility level that results in the same standard deviation.

D. change the standard deviation of the portfolio and find the expected return the investor would require to maintain the same utility level.

Unique risk is also referred to as A. systematic risk, diversifiable risk. B. systematic risk, market risk. C. diversifiable risk, market risk. D. diversifiable risk, firm-specific risk. E. market risk.

D. diversifiable risk, firm-specific risk.

Firm-specific risk is also referred to as A. systematic risk, diversifiable risk. B. systematic risk, market risk. C. diversifiable risk, market risk. D. diversifiable risk, unique risk. E. nondiversifiable, market risk.

D. diversifiable risk, unique risk.

Non-systematic risk is also referred to as A. market risk, diversifiable risk. B. firm-specific risk, market risk. C. diversifiable risk, market risk. D. diversifiable risk, unique risk. E. nondiversifiable risk, unique risk.

D. diversifiable risk, unique risk.

Financial intermediaries exist because small investors cannot efficiently ________. A. diversify their portfolios B. assess credit risk of borrowers C. advertise for needed investments D. diversify their portfolios, assess credit risk of borrowers, or advertise for needed investments E. diversify their portfolios or assess credit risk of borrowers

D. diversify their portfolios, assess credit risk of borrowers, or advertise for needed investments

Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000, A. beat the market return in all years. B. beat the market return in most years. C. exceed the return on index funds. D. do not generally outperform the market. E. always underperform the market.

D. do not generally outperform the market.

Financial assets can permit all of the following except ____________. A. consumption timing B. allocation of risk C. separation of ownership and control D. elimination of risk E. easy transfer of ownership

D. elimination of risk

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

D. federal funds

The means by which individuals hold their claims on real assets in a well-developed economy are A. investment assets. B. depository assets. C. derivative assets. D. financial assets. E. exchange-driven assets.

D. financial assets.

Elias is a risk-averse investor. David is a less risk-averse investor than Elias. Therefore, A. for the same risk, David requires a higher rate of return than Elias. B. for the same return, Elias tolerates higher risk than David. C. for the same risk, Elias requires a lower rate of return than David. D. for the same return, David tolerates higher risk than Elias. E. cannot be determined.

D. for the same return, David tolerates higher risk than Elias.

Although derivatives can be used as speculative instruments, businesses most often use them to ____________. A. attract customers B. appease stockholders C. offset debt D. hedge risks E. enhance their balance sheets

D. hedge risks

Theoretically, takeovers should result in ___________. A. improved management B. increased stock price C. increased benefits to existing management of taken over firm D. improved management and increased stock price E. worse management and decreased stock price

D. improved management and increased stock price

Based on their relative degrees of risk tolerance A. investors will hold varying amounts of the risky asset in their portfolios. B. all investors will have the same portfolio asset allocations. C. investors will hold varying amounts of the risk-free asset in their portfolios. D. investors will hold varying amounts of the risky asset and the risk-free asset in their portfolios. E. investors would perform vastly different levels of security analysis.

D. investors will hold varying amounts of the risky asset and the risk-free asset in their portfolios.

If a distribution has "fat tails" it exhibits A. positive skewness. B. negative skewness. C. a kurtosis of zero. D. kurtosis. E. positive skewness and kurtosis.

D. kurtosis.

You purchased JNJ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a __________. A. stop-buy order B. limit-buy order C. market order D. limit-sell order E. none of the above

D. limit-sell order

The risk that cannot be diversified away is A. firm-specific risk. B. unique. C. non-systematic risk. D. market risk. E. unique risk and non-systematic risk.

D. market risk.

Given the capital allocation line, an investor's optimal portfolio is the portfolio that A. maximizes her expected profit. B. maximizes her risk. C. minimizes both her risk and return. D. maximizes her expected utility. E. minimizes her risk.

D. maximizes her expected utility.

Asset allocation A. may involve the decision as to the allocation between a risk-free asset and a risky asset only. B. may involve the decision as to the allocation among different risky assets only. C. may involve considerable security analysis. D. may involve the decision as to the allocation between a risk-free asset and a risky asset and may involve the decision as to the allocation among different risky assets. E. may involve the decision as to the allocation between a risk-free asset and a risky asset and may involve considerable security analysis.

D. may involve the decision as to the allocation between a risk-free asset and a risky asset and may involve the decision as to the allocation among different risky assets.

When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the ________. A. most realistic as it is the most complete measure of risk B. most pessimistic as it is the most complete measure of risk C. most optimistic as it is the most complete measure of risk D. most optimistic as it takes the highest return (smallest loss) of all the cases E. most unrealistic as it is the least complete measure of risk

D. most optimistic as it takes the highest return (smallest loss) of all the cases

If the interest rate paid by borrowers and the interest rate received by savers accurately reflect the realized rate of inflation: A. borrowers gain and savers lose. B. savers gain and borrowers lose. C. both borrowers and savers lose. D. neither borrowers nor savers gain or lose. E. both borrowers and savers gain.

D. neither borrowers nor savers gain or lose.

The line representing all combinations of portfolio expected returns and standard deviations that can be constructed from two available assets is called the A. risk/reward tradeoff line. B. Capital Allocation Line. C. efficient frontier. D. portfolio opportunity set. E. Security Market Line.

D. portfolio opportunity set.

Closed end funds are frequently issued at a ______ to NAV and subsequently trade at a __________ to NAV. A. discount, discount B. discount, premium C. premium, premium D. premium, discount E. No consistent relationship has been observed.

D. premium, discount

Other things equal, diversification is most effective when A. securities' returns are uncorrelated. B. securities' returns are positively correlated. C. securities' returns are high D. securities' returns are negatively correlated. E. both securities' returns are positively correlated and securities' returns are high.

D. securities' returns are negatively correlated.

A put option allows the holder to A. buy the underlying asset at the strike price on or before the expiration date. B. sell the underlying asset at the strike price on or before the expiration date. C. sell the option in the open market prior to expiration D. sell the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration. E. buy the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration.

D. sell the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration.

The riskiness of individual assets A. should be considered for the asset in isolation. B. should be considered in the context of the effect on overall portfolio volatility. C. should be combined with the riskiness of other individual assets in the proportions these assets constitute the entire portfolio. D. should be considered in the context of the effect on overall portfolio volatility and should be combined with the riskiness of other individual assets in the proportions these assets constitute the entire portfolio. E. is irrelevant to the portfolio decision.

D. should be considered in the context of the effect on overall portfolio volatility and should be combined with the riskiness of other individual assets in the proportions these assets constitute the entire portfolio.

"Bracket Creep" happens when A. tax liabilities are based on real income and there is a negative inflation rate. B. tax liabilities are based on real income and there is a positive inflation rate. C. tax liabilities are based on nominal income and there is a negative inflation rate. D. tax liabilities are based on nominal income and there is a positive inflation rate. E. too many peculiar people make their way into the highest tax bracket.

D. tax liabilities are based on nominal income and there is a positive inflation rate.

The standard deviation of a two-asset portfolio is a linear function of the assets' weights when A. the assets have a correlation coefficient less than zero. B. the assets have a correlation coefficient equal to zero. C. the assets have a correlation coefficient greater than zero. D. the assets have a correlation coefficient equal to one. E. the assets have a correlation coefficient less than one.

D. the assets have a correlation coefficient equal to one.

Corporate shareholders are best protected from incompetent management decisions by A. the ability to engage in proxy fights. B. management's control of pecuniary rewards. C. the ability to call shareholder meetings. D. the threat of takeover by other firms. E. one-share/one-vote election rules.

D. the threat of takeover by other firms.

With regard to a futures contract, the long position is held by A. the trader who bought the contract at the largest discount. B. the trader who has to travel the farthest distance to deliver the commodity. C. the trader who plans to hold the contract open for the lengthiest time period. D. the trader who commits to purchasing the commodity on the delivery date. E. the trader who commits to delivering the commodity on the delivery date.

D. the trader who commits to purchasing the commodity on the delivery date.

Diversifiable risk is also referred to as A. systematic risk, unique risk. B. systematic risk, market risk. C. unique risk, market risk. D. unique risk, firm-specific risk. E. systematic risk, firm-specific risk.

D. unique risk, firm-specific risk.

A fair game A. will not be undertaken by a risk-averse investor. B. is a risky investment with a zero risk premium. C. is a riskless investment. D. will not be undertaken by a risk-averse investor and is a risky investment with a zero risk premium. E. will not be undertaken by a risk-averse investor and is a riskless investment.

D. will not be undertaken by a risk-averse investor and is a risky investment with a zero risk premium.

Federally sponsored agency debt A. is legally insured by the U.S. Treasury. B. would probably be backed by the U.S. Treasury in the event of a near-default. C. has a small positive yield spread relative to U.S. Treasuries. D. would probably be backed by the U.S. Treasury in the event of a near-default and has a small positive yield spread relative to U.S. Treasuries. E. is legally insured by the U.S. Treasury and has a small positive yield spread relative to U.S. Treasuries.

D. would probably be backed by the U.S. Treasury in the event of a near-default and has a small positive yield spread relative to U.S. Treasuries.

Average third-year IPO returns in the US are approximately ____________ percent. A. 6.7 B. 18.2 C. 26.4 D. 5.3 E. 10.4

E. 10.4

In 2011 the proportion of mutual funds (based on total assets) specializing in money market securities was A. 21.7% B. 28.0% C. 54.1% D. 73.4% E. 23.0%

E. 23.0%

Specialists on stock exchanges perform the following functions A. Act as dealers in their own accounts. B. Analyze the securities in which they specialize. C. Provide liquidity to the market. D. A and B. E. A and C.

E. A and C.

The cost of buying and selling a stock consists of __________. A. broker's commissions B. dealer's bid-asked spread C. a price concession an investor may be forced to make D. A and B E. A, B, and C

E. A, B, and C

The following statements regarding the specialist are true: A. Specialists maintain a book listing outstanding unexecuted limit orders. B. Specialists earn income from commissions and spreads in stock prices. C. Specialists stand ready to trade at quoted bid and ask prices. D. Specialists cannot trade in their own accounts. E. A, B, and C are all true.

E. A, B, and C are all true.

A purchase of a new issue of stock takes place A. in the secondary market. B. in the primary market. C. usually with the assistance of an investment banker. D. A and B. E. B and C.

E. B and C.

_______ are examples of financial intermediaries. A. Commercial banks B. Insurance companies C. Investment companies D. Credit unions E. Commercial banks, insurance companies, investment companies, and credit unions

E. Commercial banks, insurance companies, investment companies, and credit unions

_________ financial asset(s). A. Buildings are B. Land is a C. Derivatives are D. U.S. Agency bonds are E. Derivatives and U.S. Agency bonds are

E. Derivatives and U.S. Agency bonds are

The Capital Market Line I) is a special case of the Capital Allocation Line. II) represents the opportunity set of a passive investment strategy. III) has the one-month T-Bill rate as its intercept. IV) uses a broad index of common stocks as its risky portfolio. A. I, III, and IV B. II, III, and IV C. III and IV D. I, II, and III E. I, II, III, and IV

E. I, II, III, and IV

Which of the following is true regarding equity mutual funds? I) They invest primarily in stock II) They may hold fixed-income securities as well as stock. III) Most hold money market securities as well as stock. IV) Two types of equity funds are income funds and growth funds. A. I and IV B. I, III, and IV C. I, II, and IV D. I, II, and III E. I, II, III, and IV

E. I, II, III, and IV

When borrowing and lending at a risk-free rate are allowed, which Capital Allocation Line (CAL) should the investor choose to combine with the efficient frontier? I) The one with the highest reward-to-variability ratio. II) The one that will maximize his utility. III) The one with the steepest slope. IV) The one with the lowest slope. A. I and III B. I and IV C. II and IV D. I only E. I, II, and III

E. I, II, and III

Which of the following statements is (are) false? I) Risk-averse investors reject investments that are fair games. II) Risk-neutral investors judge risky investments only by the expected returns. III) Risk-averse investors judge investments only by their riskiness. IV) Risk-loving investors will not engage in fair games. A. I only B. II only C. I and II only D. II and III only E. III, and IV only

E. III, and IV only

The securities act of 1934 ____________.I) requires full disclosure of relevant information relating to the issue of new securitiesII) requires registration of new securitiesIII) requires issuance of a prospectus detailing financial prospects of the firmIV) established the SECV) requires periodic disclosure of relevant financial informationVI) empowers SEC to regulate exchanges, OTC trading, brokers, and dealers A. I, II, and III B. I, II, III, IV, V, and VI C. I, II, and VD. I, II, and IV E. IV, V, and VI

E. IV, V, and VI

Which of the following is true of the Dow Jones Industrial Average? A. It is a value-weighted average of 30 large industrial stocks. B. It is a price-weighted average of 30 large industrial stocks. C. The divisor must be adjusted for stock splits. D. It is a value-weighted average of 30 large industrial stocks and The divisor must be adjusted for stock splits. E. It is a price-weighted average of 30 large industrial stocks and The divisor must be adjusted for stock splits.

E. It is a price-weighted average of 30 large industrial stocks and The divisor must be adjusted for stock splits.

_______ is/are a real asset(s). A. Only land B. Only machines C. Only stocks and bonds D. Only knowledge E. Land, machines, and knowledge are real assets

E. Land, machines, and knowledge are real assets

Which of the following is/are not characteristic of a money market instrument? A. Liquidity B. Marketability C. Long maturity D. Liquidity premium E. Long maturity and liquidity premium

E. Long maturity and liquidity premium

Which of the following orders instructs the broker to buy at the current market price? A. Limit order B. Discretionary order C. Limit-loss order D. Stop-buy order E. Market order

E. Market order

Which of the following statement(s) is (are) true regarding the selection of a portfolio from those that lie on the Capital Allocation Line? A. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors. B. More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. C. Investors choose the portfolio that maximizes their expected utility. D. Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors and investors will choose the portfolio that maximizes their expected utility. E. More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors and investors will choose the portfolio that maximizes their expected utility.

E. More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors and investors will choose the portfolio that maximizes their expected utility.

Which of the following statements about Real Estate Investment Trusts is true? A. REITs invest in real estate or loans secured by real estate. B. REITs raise capital by borrowing from banks and issuing mortgages. C. REITs are similar to open-end funds, with shares redeemable at NAV. D. All of the above are true. E. REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages.

E. REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages.

Which of the following functions do investment companies perform for their investors? A. Record keeping and administration B. Diversification and divisibility C. Professional management D. Lower transaction costs E. Record keeping and administration, diversification and divisibility, professional management, and lower transaction costs

E. Record keeping and administration, diversification and divisibility, professional management, and lower transaction costs

Which of the following statements about Money Market Mutual Funds is true? A. They invest in commercial paper, CDs, and repurchase agreements. B. They usually offer check-writing privileges. C. They are highly leveraged and risky. D. All of the above are true. E. They invest in commercial paper, CDs, and repurchase agreements and usually offer check-writing privileges.

E. They invest in commercial paper, CDs, and repurchase agreements and usually offer check-writing privileges.

Of the following types of ETFs, an investor that wishes to invest in a diversified portfolio that tracks the Wilshire 5000 should choose A. SPY. B. DIA .C. QQQQ. D. IWM. E. VTI.

E. VTI.

________ is/are a risk measure that indicate(s) vulnerability to extreme negative returns. A. Value at risk B. Lower partial standard deviation C. Standard deviation D. Variance E. Value at risk and lower partial standard deviation

E. Value at risk and lower partial standard deviation

________ is/are a risk measure(s) that indicates vulnerability to extreme negative returns. A. Value at risk B. Lower partial standard deviation C. Expected shortfall D. Variance E. Value at risk, lower partial standard deviation, and expected shortfall

E. Value at risk, lower partial standard deviation, and expected shortfall

The type of municipal bond that is used to finance commercial enterprises such as the construction of a new building for a corporation is called A. a corporate courtesy bond. B. a revenue bond. C. a general obligation bond. D. a tax anticipation note. E. an industrial development bond.

E. an industrial development bond.

An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Allocation Line must: A. lend some of her money at the risk-free rate and invest the remainder in the optimal risky portfolio. B. borrow some money at the risk-free rate and invest in the optimal risky portfolio. C. invest only in risky securities. D. such a portfolio cannot be formed. E. both borrow some money at the risk-free rate and invest in the optimal risky portfolio and invest only in risky securities.

E. both borrow some money at the risk-free rate and invest in the optimal risky portfolio and invest only in risky securities.

A statistic(s) that measures how the returns of two risky assets move together is: A. variance. B. standard deviation. C. covariance. D. correlation. E. both covariance and correlation.

E. both covariance and correlation.

A call option allows the buyer to A. sell the underlying asset at the exercise price on or before the expiration date. B. buy the underlying asset at the exercise price on or before the expiration date. C. sell the option in the open market prior to expiration. D. sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. E. buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

E. buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

If the nominal return is constant, the after-tax real rate of return A. declines as the inflation rate increases. B. increases as the inflation rate increases. C. declines as the inflation rate declines. D. increases as the inflation rate decreases. E. declines as the inflation rate increases and increases as the inflation rate decreases.

E. declines as the inflation rate increases and increases as the inflation rate decreases.

Unsecured bonds are called ____________. A. junk bonds B. debentures C. indentures D. subordinated debentures E. either debentures or subordinated debentures

E. either debentures or subordinated debentures

When assessing tail risk by looking at the 5% worst-case scenario, the most realistic view of downside exposure would be ________. A. expected shortfall B. value at risk C. conditional tail expectation D. expected shortfall and value at risk E. expected shortfall and conditional tail expectation

E. expected shortfall and conditional tail expectation

Management fees and other expenses of mutual funds may include A. front-end loads. B. back-end loads. C. 12b-1 charges. D. front-end loads and back-end loads. E. front-end loads, back-end loads, and 12b-1 charges.

E. front-end loads, back-end loads, and 12b-1 charges.

Differences between hedge funds and mutual funds are that A. hedge funds are only subject to minimal SEC regulation. B. hedge funds are typically open only to wealthy or institutional investors. C. hedge fund managers can pursue strategies not available to mutual funds such as short selling, heavy use of derivatives, and leverage. D. hedge funds are commonly structured as private partnerships. E. hedge funds are only subject to minimal SEC regulation, are typically open only to wealthy or institutional investors, fund managers can pursue strategies not available to mutual funds such as short selling, heavy use of derivatives, and leverage, and are commonly structured as private partnerships.

E. hedge funds are only subject to minimal SEC regulation, are typically open only to wealthy or institutional investors, fund managers can pursue strategies not available to mutual funds such as short selling, heavy use of derivatives, and leverage, and are commonly structured as private partnerships.

Kurtosis is a measure of ____________. A. how fat the tails of a distribution are B. the downside risk of a distribution C. the normality of a distribution D. the dividend yield of the distribution E. how fat the tails of a distribution are and the normality of a distribution

E. how fat the tails of a distribution are and the normality of a distribution

The yield to maturity reported in the financial pages for Treasury securities A. is calculated by compounding the semiannual yield. B. is calculated by doubling the semiannual yield. C. is also called the bond equivalent yield. D. is calculated as the yield-to-call for premium bonds. E. is calculated by doubling the semiannual yield and is also called the bond equivalent yield.

E. is calculated by doubling the semiannual yield and is also called the bond equivalent yield.

Investment bankers perform the following role(s) ___________. A. market new stock and bond issues for firms B. provide advice to the firms as to market conditions, price, etc C. design securities with desirable properties D. make trades for small investors E. market new stock and bond issues for firms, provide advice to the firms as to market conditions, price, etc, and design securities with desirable properties

E. market new stock and bond issues for firms, provide advice to the firms as to market conditions, price, etc, and design securities with desirable properties

The largest component of the bond market is __________. A. Treasury B. asset-backed C. corporate D. tax-exempt E. mortgage-backed

E. mortgage-backed

Commingled funds are A. amounts invested in equity and fixed-income mutual funds. B. funds that may be purchased at intervals of 3, 6, or 12 months at the discretion of management. C. amounts invested in domestic and global equities. D. closed-end funds that may be repurchased only once every two years at the discretion of mutual fund management. E. partnerships of investors that pool their funds, which are then managed for a fee.

E. partnerships of investors that pool their funds, which are then managed for a fee.

Treasury Inflation-Protected Securities (TIPS) A. pay a fixed interest rate for life. B. pay a variable interest rate that is indexed to inflation. C. provide a constant stream of income in real (inflation-adjusted) dollars. D. have their principal adjusted in proportion to the Consumer Price Index. E. provide a constant stream of income in real (inflation-adjusted) dollars and D have their principal adjusted in proportion to the Consumer Price Index.

E. provide a constant stream of income in real (inflation-adjusted) dollars and D have their principal adjusted in proportion to the Consumer Price Index.

The Sarbanes-Oxley Act ____________. A. requires corporations to have more independent directors B. requires the firm's CFO to personally vouch for the firm's accounting statements C. prohibits auditing firms from providing other services to clients D. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements E. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements, prohibits auditing firms from providing other services to clients, and requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements

E. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements, prohibits auditing firms from providing other services to clients, and requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements

The largest component of the money market is ____________. A. repurchase agreements B. money market mutual funds C. T-bills D. Eurodollars E. savings deposits

E. savings deposits

A two-asset portfolio with a standard deviation of zero can be formed when A. the assets have a correlation coefficient less than zero. B. the assets have a correlation coefficient equal to zero. C. the assets have a correlation coefficient greater than zero. D. the assets have a correlation coefficient equal to one. E. the assets have a correlation coefficient equal to negative one.

E. the assets have a correlation coefficient equal to negative one.

The holding-period return (HPR) for a stock is equal to A. the real yield minus the inflation rate. B. the nominal yield minus the real yield. C. the capital gains yield minus the tax rate. D. the capital gains yield minus the dividend yield. E. the dividend yield plus the capital gains yield.

E. the dividend yield plus the capital gains yield.

In the event of the firm's bankruptcy, A. the most shareholders can lose is their original investment in the firm's stock. B. common shareholders are the first in line to receive their claims on the firm's assets. C. bondholders have claim to what is left from the liquidation of the firm's assets after paying the shareholders. D. the claims of preferred shareholders are honored before those of the common shareholders. E. the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.

E. the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.

With regard to a futures contract, the short position is held by A. the trader who bought the contract at the largest discount. B. the trader who has to travel the farthest distance to deliver the commodity. C. the trader who plans to hold the contract open for the lengthiest time period. D. the trader who commits to purchasing the commodity on the delivery date. E. the trader who commits to delivering the commodity on the delivery date.

E. the trader who commits to delivering the commodity on the delivery date.

The utility score an investor assigns to a particular portfolio, other things equal, A. will decrease as the rate of return increases. B. will decrease as the standard deviation decreases. C. will decrease as the variance decreases. D. will increase as the variance increases. E. will increase as the rate of return increases.

E. will increase as the rate of return increases.