FIN 355- Investments Final Conceptual Questions

LIBOR is the interest rate that international banks charge one another for overnight ____ loans. Select one: A. US Dollar B. Eurodollar C. GBP D. Euro

Eurodollar

Futures contracts exist for which of the following? I. pork bellies II. S&P 500 index III. Eurodollars IV. cocoa Select one: A. I, IV B. I, II, III, IV C. II, III D. I, III, IV E. I, II, IV

I, II, III, IV

Which of the following is not a property of duration? Select one: A. A longer maturity generally yields a longer duration. B. A higher yield to maturity generally yields a shorter duration. C. A bigger coupon generally yields a longer duration. D. A lower yield to maturity generally yields a longer duration.

A bigger coupon generally yields a longer duration.

Which of the following statements related to future contracts is correct? Select one: A. The buyer of the contract has the right to either accept delivery or cancel the contract B. Futures contracts can be cancelled by either the buyer or the seller with 10 days notice to the other party. C. Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract. D. The buyer of the contract must deliver the underlying asset on the settlement date E. The buyer of the contract has a short position

Both the buyer and the seller of the contract are obligated to fulfill their duties as outlined in the futures contract.

Another term for bond duration is Select one: A. Actual maturity B. Effective maturity C. Near-term maturity D. Calculated maturity

Effective maturity

Which of the following is not a common characteristic of preferred stocks? Select one: A. Dividends must be paid before any dividends can be paid to common shareholders. B. Usually have a fixed dividend payment and a fixed liquidation value (but no fixed maturity date). C. Do not have voting rights D. In liquidation, preferred shares must be paid before both creditors and common shareholders

In liquidation, preferred shares must be paid before both creditors and common shareholders. Priority: creditors > preferred shares > common shares.

Which of the following is the least likely advantage of mutual fund investing? Select one: A. Mutual fund returns are normally higher than market average returns B. Professional Management C. Convenience D. Diversification

Mutual fund returns are normally higher than market average returns

The systematic risk principle states that Select one: A. The reward for bearing risk is independent of the systematic risk of an investment. B. Systematic risk can be essentially eliminated by diversifcation. C. The reward of bearing risk depends only on the systematic risk of an investment. D. Systematic risk doesn't matter investors.

The reward of bearing risk depends only on the systematic risk of an investment.

Which one of the following statements is correct concerning large-denomination certificates of deposit? Select one: A. The face amount is equal to $10,000 or more. B. The security is a form of a commercial check. C. The security is issued by the U.S. Treasury. D. The security can be sold to another investor. E. The security is a bank time deposit.

The security can be sold to another investor.

What type of risk is essentially eliminated by diversification? Select one: A. Systematic risk B. Unsystematic risk C. Perceived risk D. Market risk

Unsystematic risk

Which one of the following measures a bond's sensitivity to changes in market interest rates? Select one: A. yield to call B. duration C. immunization D. yield to market E. target date valuation

duration

Which one of the following risks is associated with investing a coupon payment at a rate that is lower than the bond's yield-to-maturity? Select one: A. current rate risk B. reinvestment rate risk C. current yield risk D. payment risk E. maturity risk

reinvestment rate risk

The rate of return earned on a U.S. Treasury bill is frequently used as a proxy for the: Select one: A. market rate of return B. expected rate of return C. risk premium D. deflated rate of return E. risk-free rate

risk-free rate

This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to as a: Select one: A. wrap trade B. short sale C. margin sale D. long position E. hypothecated sale

short sale

You want to purchase shares in a fund and also ensure that your money does not support firms that harm the environment. Which type of fund should you purchase? Select one: A. international fund B. index fund C. income fund D. social conscience fund E. tax-managed fund

social conscience fund

What is the beta of an average asset? Select one: A. 1 B. 0 C. > 0 but < 1 D. < 1 E. -1

1

Which one of the following betas represents the greatest level of systematic risk? Select one: A. 0.68 B. 1.27 C. 0.05 D. 1.00 E. 1.19

1.27

Which of the following mutual fund fees is assessed on an annual basis? Select one: A. Back-end load B. Front-end load C. Contingent deferred sales charge (CDSC) D. 12b-1 fee

12b-1 fee

Which of the following mutual fund fees will most likely be the biggest expense for a long-term fund investor? Select one: A. Back-end load B. Contingent deferred sales charge (CDSC) C. 12b-1 fee D. Front-end load

12b-1 fee

Between 1926 and 2009, the US equity risk premium was? Select one: A. 5.41% B. 6.41% C. 7.41% D. 8.41% E. 9.41%

7.41%

Which of the following bonds has the shortest duration? Select one: A. Zero Coupon, 10-year maturity B. Zero Coupon, 13-year maturity C. 8 percent coupon, 10-year maturity D. 8 percent coupon, 13-year maturity

8 percent coupon, 10-year maturity

Which of the following is most important to long term successful investing? Select one: A. Market Timing B. Security Selection C. Asset Allocation D. Investment Management by Professionals

Asset Allocation

On the maturity date, stock index futures contracts require delivery of Select one: A. Treasury bills B. Common stock plus accrued dividends C. Common Stock D. Cash

Cash

Among the following interest rates, which is normally the highest rate? Select one: A. Federal Reserve discount rate B. Commercial paper rate C. U.S. Treasury bill rate D. Federal funds rate

Commercial paper rate

Which measure of return is appropriate when the investment involves not only the initial investment? Select one: A. Total dollar return B. Arithmetic Average C. Geometric Average D. Dollar weighted average

Dollar weighted average

Which of the following strategies is most likely to yield the interest rate risk immunization results for a bond portfolio? Select one: A. Duration matching B. Buy and hold C. Maturity matching D. Investing in interest rate sensitive stocks

Duration matching

Which of the following statement regarding Exchange-traded Funds (ETFs) is false? Select one: A. ETFs are funds that can be traded on a stock market B. ETF investors own shares of the underlying fund sponsor C. ETF shares can be bought on margin D. ETF shares can be sold short

ETF investors own shares of the underlying fund sponsor

hich one of the following is defined as U.S. dollar-denominated deposits held in a foreign bank? Select one: A. Eurodollars B. T-bills C. certificates of deposits D. banker's acceptances E. foreign funds

Eurodollars

Which of the following is most true of a closed-end investment company? Select one: A. The fund's share price is set equal to net asset value B. The fund's share price is usually greater than net asset value C. Fund shares outstanding vary with purchases and redemptions by shareholders. D. Fund shares outstanding are fixed at issue date

Fund shares outstanding are fixed at issue date

The compensation constraint that requires private equity fund managers to meet a particular target before performance fees can be taken is a ____ provision. Select one: A. Zenith B. Clawback C. Index D. High-Water-Mark

High-Water-Mark

Assume all investors want to hold a portfolio that, for a given level of volatility, has the maximum possible expected return. Explain why, when a risk-free asset exists, all investors will choose to hold exactly the same portfolio of risky stocks. Select one: A. Investors who want to maximize their expected return for a given level of volatility will pick portfolios that maximize their Sharpe ratio. The set of portfolios that does this is a combination of a risk-free asset and the tangent portfolio. B. When a risk-free asset exists, it provides a safe investment opportunity. Given this safe investment opportunity, investor who maximize their expected returns for a given level of volatility will pick the same expected return and hence the same portfolio. C. All investors will do the same thing - that is, they will minimize their volatilities - so they will all hold the same portfolio. D. All investors will do the same thing - that is, they will maximize their expected returns - so they will all hold the same portfolio.

Investors who want to maximize their expected return for a given level of volatility will pick portfolios that maximize their Sharpe ratio. The set of portfolios that does this is a combination of a risk-free asset and the tangent portfolio.

Which of the following is true about standard deviation? Standard deviation Select one: A. Is the square of the variance B. Is the arithmetic mean of the squared deviation from the mean C. Is denominated in the same units as the original data D. Can be a positive or negative number

Is denominated in the same units as the original data

Which statement is true for the Macauley duration of a zero coupon bond? Select one: A. It is equal to the bond's maturity in years divided by its yield to maturity. B. It cannot be calculated because of the lack of coupons. C. It is equal to one-half the bond's maturity in years. D. It is equal to the bond's maturity in years

It is equal to the bond's maturity in years

Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation? Select one: A. asset allocation relationship B. diversified portfolio line C. minimum variance portfolio D. Markowitz efficient frontier E. correlated market frontier

Markowitz efficient frontier

Private equity funds that concentrate in smaller, family owned companies with established cash flows are typically referred to as: Select one: A. Venture Capital B. Middle Market C. Distressed Assets D. Leverage Buyouts

Middle Market

The constant growth dividend discount model would typically be most appropriate for valuing the stock of which of the following? Select one: A. Rapidly growing company B. New venture expected to retain all earnings for several years. C. Moderate growth, mature company D. Company with valuable assets not yet generating profits.

Moderate growth, mature company

Beta and standard deviation differ as risk measures, because beta measures Select one: A. Both systematic and unsystematic risk, whereas standard deviation measures only systematic risk. B. Only unsystematic risk, whereas standard deviation measures total risk C. Only systematic risk, whereas standard deviation measures total risk D. Both systematic and unsystematic risk, whereas standard deviation measures only unsystematic

Only systematic risk, whereas standard deviation measures total risk

Which of the following portfolios cannot lie on the efficient frontier as described by Markowitz? Select one: A. Portfolio X: A portfolio with 5% expected return and 7% standard deviation B. Portfolio Z: A portfolio with 12% expected return and 15% standard deviation C. Portfolio Y: A portfolio with 15% expected return and 36% standard deviation D. Portfolio W: A portfolio with 9% expected return and 21% standard deviation

Portfolio W: A portfolio with 9% expected return and 21% standard deviation

Which of the following interest rates is a bellwether (leading indicator) rate of bank lending to business? Select one: A. Unsecured business loan rate B. Banker's acceptance rate C. Prime rate D. Commercial paper rate

Prime rate

Without receiving employer sponsors, young investors in a low tax bracket would favor? Select one: A. Roth IRA B. Individual IRA C. 403(b) D. 401(k)

Roth IRA

Which one of the following is most commonly used as the measure of the overall market rate of return? Select one: A. S&P500 B. DJIA C. Wilshire 5000 D. Wilshire 3000 E. NASDAQ 100

S&P500

Closed-end funds and exchange-traded funds (ETFs) have which of the following characteristics in common? Select one: A. Shares of both closed-end funds and ETFs trade in the secondary market. B. Neither ETF nor closed-end fund managers receive a management fee. C. Both closed-end funds and ETFs stand ready to redeem shares. D. The structure of closed-end funds and ETFs prevent shares from trading at a significant discount.

Shares of both closed-end funds and ETFs trade in the secondary market.

Which one of the following statements correctly relates to closed-end funds? Select one: A. Shares of closed-end funds trade just like stocks B. Shares in closed-end funds must be held until the funds mature C. The number of shares outstanding changes on a daily basis as shares are sold and repurchased D. Closed-end funds must sell at the NAV or above E. Once a fund closes, a new investor is unable to purchase shares in that fund

Shares of closed-end funds trade just like stocks

Which of the following investments has the highest historical average return? Select one: A. Treasury Bills B. Large Stocks C. Small Stocks Correct D. Long Term Corporate Bonds E. Long Term Government Bond

Small Stocks

Which of the following investments has the highest historical volatility? Select one: a. T Bills b. Small Stocks c. Large Stocks d. Long Term Corporate Bonds e. Long Term Govt Bonds

Small Stocks

Growth, value, large-cap, and small-cap investing are all examples of: Select one: A. Sector investment strategies B. Lifestyle investment strategies C. Index investment strategies D. Style investment strategies

Style investment strategies

Which of the following is an advantage of enterprise value ratio as compared to price ratios? Select one: A. The EV ratio controls for the market risk premium while price ratios do not. B. The EV ratio adds the value of the firm's cash holding C. The EV ratio excludes interest expense. D. The EV ratio captures the value of both firm debt and equity.

The EV ratio captures the value of both firm debt and equity.

Which of the following statements regarding short sale and risk-free security is NOT correct? Select one: A. Short selling the risk free investment is equivalent to borrowing money at the risk-free interest rate through a loan. B. A short sale is a transaction in which you sell a stock that you do not own and then buy that stock back in the future. C. A portfolio that consists of a short position in the risk-free investment is known as a levered portfolio. D. The correlation between the risk-free investment and a risky portfolio is always equal to one.

The correlation between the risk-free investment and a risky portfolio is always equal to one.

Which one of the following statements concerning beta is correct? Select one: A. A stock with a beta of 1.2 earns a higher risk premium than a stock with a beta of 1.3 B. A stock with a beta of .5 has 50 percent more risk than the overall market C. The higher the beta, the higher the discount rate used for the dividend discount models D. The beta assigned to the overall market is zero E. Beta is applied to the T-bill rate when computing the discount rate used for the dividend discount models

The higher the beta, the higher the discount rate used for the dividend discount models

The yield to maturity on a bond is Select one: A. The interest rate (discount rate) that makes the present value of the payments equal to bond price B. Below the coupon rate when the bond sells at a discount and above the coupon rate when bonds sells at a premium C. Based on the assumption that all future payments received are reinvested at the coupon rate. D. Based on the assumption that all future payments received are received at future market rates.

The interest rate (discount rate) that makes the present value of the payments equal to bond price

Which of the following is not a common characteristic of money market instruments Select one: A. Sold on a discount basis. B. The market is illiquid. C. Mature in less than one year. D. Have lower yields relative to fixed income securities.

The market is illiquid.

According to the CAPM, what is the rate of return of a portfolio with a beta of 1? Select one: A. The risk free rate, Rf B. Beta × (RM - Rf) C. The return on the market, RM D. Difference between RM and Rf.

The return on the market, RM

Which of the following mutual fund fees and expenses is the most difficult for investors to assess? Select one: A. Trading costs B. 12b-1 fees C. Management fees D. Sales charges or "loads"

Trading costs

Which of the following asset categories has an annual returns history most closely linked to historical annual rates of inflation? Select one: A. Large Company Stocks B. Small-Company Stocks C. U.S. Treasury Bills D. Corporate Bonds

U.S. Treasury Bills

According to the put-call parity condition, a risk free portfolio can be created by buying 100 shares of stock and Select one: A. Writing one call option contract and buying one put option contract B. Buying one call option contract and buying one put option contract C. Buying one call option contract and writing one put option contract D. Writing one call option contract and writing one put option contract

Writing one call option contract and buying one put option contract

The primary difference between an international fund and a global fund is the fact that Select one: A. a global fund invests in U.S. stocks while an international fund does not B. all international funds are country specific while global funds are not C. global funds may opt to be country or region specific while international funds may not D. an international fund invests in U.S. stocks while a global fund does not E. international funds tend to be more geographically diversified than global funds

a global fund invests in U.S. stocks while an international fund does not

A callable bond: Select one: A. is a bond that pays a variable interest payment. B. can be redeemed by the issuer prior to maturity. C. can be redeemed early if the bondholder so requests. D. can be paid off early at either the issuer's or the bondholder's request. E. can have its maturity date extended by the issuer.

an be redeemed by the issuer prior to maturity.

Market timing is the Select one: A. staggering of either buy or sell orders to mask the total size of a large transaction. B. buying and selling of securities in anticipation of the overall direction of the market. C. placing of trades within the last half-hour prior to the commencement of daily trading. D. period of time between the placement of a short sale and the covering of that sale. E. placing of an order within the last half-hour of trading for a day.

buying and selling of securities in anticipation of the overall direction of the market.

Which one of the following rates is used by brokerage firms as the basis for determining margin loan rates? Select one: A. Fed funds B. brokerage C. discount D. prime E. call money

call money

First Bank needs to borrow money overnight from the Federal Reserve in order to meet its reserve requirements. Which one of the following interest rates will be charged on this loan? Select one: A. Federal funds B. money market C. prime D. Treasury E. discount

discount

Asset allocation is the: Select one: A. dividing of assets into those that are hypothecated and those that are not. B. distribution of investment funds among various broad asset classes. C. division of a purchase price between a cash payment and a margin loan D. division of a portfolio into short and long positions E. selection of specific securities within a particular class or industry.

distribution of investment funds among various broad asset classes

Correlation is the: Select one: A. extent to which the returns on two assets move together. B. spreading of an investment across a number of assets. C. daily return on an asset compared to its previous daily return. D. measurement of the systematic risk contained in an asset. E. squared measure of a security's total risk.

extent to which the returns on two assets move together.

A fee that is charged at the time mutual fund shares are purchased by an investor is called a Select one: A. 12b-1 fee B. back-end load C. contingent deferred sales charge D. issuance charge E. front-end load

front-end load

Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information? Select one: A. prediction valuation B. technical analysis C. conceptual analysis D. discounted valuation E. fundamental analysis

fundamental analysis

Which one of the following describes an investment company that generally has an unrestricted investment strategy and is not accessible to the general public? Select one: A. hedge fund B. exchange traded fund C. mutual fund D. closed end fund E. open end fund

hedge fund

Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n): Select one: A. break-out issue B. open-end sale C. initial public offering D. initial trial issue E. public service offering

initial public offering

Which one of the following is the risk that market interest rates may increase causing the price of a bond to decline? Select one: A. reinvestment risk B. yield risk C. default risk D. inflation risk E. interest rate risk

interest rate risk

A firm that specializes in arranging financing for companies is called a(n): Select one: A. investment banking firm B. investment dealer C. floor broker D. marketing firm E. private broker

investment banking firm

To immunize your portfolio, you should: Select one: A. match bond maturity dates to your target dates. B. match bond durations to your target dates. C. avoid callable bonds. D. purchase only par value bonds. E. purchase only high-coupon bonds.

match bond durations to your target dates.

An open-end fund which invests solely in short-term debt obligations is called a(n) _____ mutual fund Select one: A. stock B. growth C. balanced D. asset allocation E. money market

money market

An efficient portfolio is a portfolio that does which one of the following? Select one: A. eliminates all risk while providing an expected positive rate of return B. offers the highest return for the lowest possible cost C. offers the highest return for a given level of risk D. lies on the vertical axis when graphing expected returns against standard deviation E. provides an evenly weighted portfolio of diverse assets

offers the highest return for a given level of risk

An agreement that grants the owner the right, but not the obligation, to buy or sell a specific asset at a specified price during a specified time period is called a(n) _____ contract. Select one: A. option B. quoted C. obligatory D. futures E. fixed

option

he price paid to purchase an option contract is called the Select one: A. future premium B. current yield C. strike price D. exercise price E. option premium

option premium

High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets? Select one: A. over the counter B. fourth C. second D. third E. primary

primary

A contract that grants its buyer the right, but not the obligation, to sell an asset at a specified price is called a: Select one: A. primary contract B. futures contract C. call option D. preset contract E. put option

put option

Diversification is investing in a variety of assets with which one of the following as the primary goal? Select one: A. increasing returns B. increasing the variance C. eliminating all risks D. reducing some risks E. minimizing taxes

reducing some risks

Marco Painting Supplies is a publicly-traded firm with 250,000 shares of stock outstanding. If the firm issues an additional 10,000 shares, those shares will be referred to as a(n): Select one: A. seasoned equity offering B. after-market underwriting C. initial public offering D. supplemental offering E. market expansion offer

seasoned equity offering

You have 50,000 pounds of cotton in storage. You don't want to sell the cotton today as you believe the price of cotton will be higher six months from now than what the markets currently predict. However, you also realize that the price could decline. Which one of the following would hedge your risk of owning the cotton for the next few months? Select one: A. short spot position B. short futures position C. long spot position D. long futures position

short futures position

You own 450,000 bushels of wheat. If you decide to add a short futures position in wheat you will be taking which one of the following positions? Select one: A. long arbitrage B. short hedge C. short arbitrage D. long hedge

short hedge

To reduce risk as much as possible, you should combine assets which have one of the following correlation relationships? Select one: A. slightly positive B. strongly negative C. strong positive D. zero E. slightly negative

strongly negative

A futures contract is an agreement: Select one: A. to exchange financial assets on a specified date in the future with the price determined on that date B. to deliver goods today in exchange for an agreed upon payment to be paid on a specified date in the future C. that obligates a corporation to issue additional securities at a specified date in the future D. to exchange goods on a specified date in the future at a price that is agreed upon today E. to exchange a specified quantity of goods on a specified date in the future at the current market price

to exchange goods on a specified date in the future at a price that is agreed upon today

The standard deviation is a measure of: Select one: A. capital gains B. changes in dividend yields C. changes in the capital gains rate D. volatility E. total return

volatility

The value of an individual security divided by the portfolio value is referred to as the portfolio: Select one: A. balance. B. variance. C. standard deviation. D. beta. E. weight.

weight

Which mutual fund type will most likely incur the smallest tax liability for its investors? Select one: A. Municipal bond fund B. Income fund C. Index fund D. Growth fund

Municipal bond fund

Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as: Select one: A. Asset allocation B. Security selection C. Market timing D. Marketing research E. Purchase shorting

Security selection

Private equity funds that concentrate in early stage financing would likely to be what type of fund? Select one: A. Middle Market B. Distressed Assets C. Leveraged Buyouts D. Venture Capital

Venture Capital

The risk premium is defined as the rate of return on Select one: A. a U.S. Treasury bill B. a risky asset minus the risk-free rate C. a riskless investment D. a risky asset minus the inflation rate E. the overall market

a risky asset minus the risk-free rate

Which one of the following measures systematic risk? Select one: A. alpha B. standard deviation C. correlation coefficient D. variance E. beta

beta

Which mutual fund type is most likely to own stocks paying the highest dividend yields? Select one: a. equity income fund b. Capital appreciation fund c. growth fund d. growth and income fund

equity income fund

Rose wants to invest in a bond fund. She is a very conservative investor with a high marginal tax rate. Which one of the following types of bond funds might be most suited for her situation? Select one: A. mortgage B. single-state corporate C. long-term world D. short-term municipal E. high-yield corporate

short-term municipal

The risk-free rate is: Select one: A. defined as the increase in the value of a share of stock over time. B. the rate of return on a riskless investment. C. defined as the total of the capital gains yield plus the dividend yield. D. the rate of return earned on an investment in a firm that you personally own. E. another term for the dividend yield.

the rate of return on a riskless investment.

Sugar is currently selling for $0.201 a pound while the 6-month futures price is $0.208. You take a long position in the 6-month sugar futures. Which one of the following prices would cause you the greatest loss if that price turns out to be the actual price of sugar per pound 6 months from now? Select one: A. $0.205 B. $0.198 C. $0.201 D. $0.211 E. $0.208

$0.198

An investor is considering adding another investment to a portfolio. To achieve the maximum diversification benefits, the investor should add an investment that has a correlation coefficient with the existing portfolio closest to: Select one: A. 0 B. -0.5 C. 1 D. -1

-1

What is the correlation coefficient of two assets that are uncorrelated? Select one: A. 0 B. 1 C. -1 D. -100 E. 100

0

What is the beta of a risk-free security? Select one: A. 1.00 B. 0.00 C. 2.00 D. 0.50 E. 1.50

0.00

The probability that a standard normal random variable is either less than -1 or greater than +1 is: Select one: a. 31.8 percent b. 2 percent c. 5 percent d. 10 percent

1 - 68.2% The correct answer is: 31.8 percent

The probability that a standard normal random variable is either less than -2 or greater than +2 is approximately: Select one: a. 4.6 percent b. 2 percent c. 10 percent d. 31.74 percent

1 - 95.4% The correct answer is: 4.6 percent

Which bond has the longest duration? Select one: A. 15 year maturity, 11 percent coupon B. 8 year maturity, 6 percent coupon C. 8 year maturity, 11 percent coupon D. 15 year maturity, 6 percent coupon

6 percent coupon, 15 year maturity

Two similar companies acquire substantial new production facilities, which they both will depreciate over a 10-year period. However, Company A uses accelerated depreciation while Company B uses straight-line depreciation. In the first year that the assets are depreciated, which of the following is most likely to occur? Select one: A. A's P/E will be lower than B's B. A's P/E will be higher than B's C. A's P/CF will be higher than B's D. A's P/CF will be lower than B's

A's P/E will be higher than B's

An American option can be exercised Select one: A. Anytime up to and including the expiration date B. Only on the day before expiration date C. Only after American options D. Only on a European exchange

Anytime up to and including the expiration date

Which measure of return is our best guess of a stock's return in a future year? Select one: A. Arithmetic average B. Geometric average C. Dollar weighted average D. Total dollar return

Arithmetic average

The systematic risk of a security is also called its Select one: A. Unique or firm-specific risk B. Fundamental Risk C. Perceived risk D. Market risk

Market risk

Which mutual fund type will most likely incur the greatest overall risk levels for its investors? Select one: A. Large-cap index fund B. Insured municipal bond fund C. Small-cap growth fund D. Money market mutual fund

Small-cap growth fund

Which of the following is NOT specified by a stock option contract? Select one: A. The price of the underlying stock B. Strike Price C. Exercise Style - European or American D. The identity of the underlying stock E. Settlement Procedure - Cash or Delivery

The price of the underlying stock

The Value-at-Risk statistic for an investment portfolio states: Select one: A. The value of the risky portion of an investment portfolio B. The largest investment loss expected with a specified probability. C. The smallest investment loss expected with a specified probability. D. The probability of an investment loss exceeding a certain percentage

The probability of an investment loss exceeding a certain percentage

A financial market's security market line (SML) describes Select one: A. The relationship between unsystematic risk and unexpected return B. The relationship between systematic risk and unexpected return C. The relationship between unsystematic risk and expected return D. The relationship between systematic risk and expected return

The relationship between systematic risk and expected return

A company announces that its earnings have increased 25 percent from the previous year, but analyst actually expected a 50 percent increase. What is the likely effect on stock price? Select one: A. The stock price will not be affected. B. The stock price will rise and then fall after an overreaction. C. The stock price will decrease. D. The stock price will increase.

The stock price will decrease.

Which one of the following statements is correct concerning premium bonds? Select one: A. The coupon rate is less than the current yield. B. The yield to maturity is less than the coupon rate. C. The premium increases when interest rates increase. D. The par value exceeds the face value. E. As the time to maturity decreases, the premium increases.

The yield to maturity is less than the coupon rate.

Which of the following statements is false? Select one: A. A portfolio weight is the fraction of the total investment in the portfolio held in an individual investment in the portfolio. B. Without trading, the portfolio weights will decrease for the stocks in the portfolio whose returns are above the overall portfolio return. C. Portfolio weights add up to 1 so that they represent the way we have divided our money between the different individual investments in the portfolio. D. The expected return of a portfolio is simply the weighted average of the expected returns of the investments within the portfolio.

Without trading, the portfolio weights will decrease for the stocks in the portfolio whose returns are above the overall portfolio return.

Which one of the following types of funds is most apt to invest in preferred stocks? Select one: A. world B. insured C. income D. index E. balanced

income

A Roth IRA: Select one: A. is the type of account offered by most employers B. are well-suited to investors nearing retirement C. is a form of "tax-deferred" account D. funds are taxed at the time you begin withdrawals E. invests after-tax dollars

invests after-tax dollars

Preferred stock: Select one: A. is listed in the liabilities section of a balance sheet B. is treated like debt for tax purposes C. is treated like equity for both tax and accounting purposes D. is a type of corporate debt E. has a stated dividend but no stated liquidation value

is treated like equity for both tax and accounting purposes

The Treasury yield curve is a graph which plots Treasury yields against which one of the following? Select one: A. inflation rates B. Fed funds rate C. maturities D. corporate bond yields E. S&P 500 yield

maturities

A firm's current stock price divided by the firm's revenue per share is referred to as which one of the following ratios? Select one: A. price-book B. price-earnings C. price-sales D. price-cash flow E. price-income

price-cash flow

The additional return earned for accepting risk is called the Select one: A. riskless rate B. inflated return C. capital gains yield D. real return E. risk premium

risk premium