final review

a trader buys a stock at $64 on margin with a leverage ratio of 2.5 and a maintenance margin of 30%. At what price will a margin call most likely occur at ? A.) $36.57 B.) $54.86 C.) $44.80

(((1- (1/ leverage ratio) / 1- maintenance margin)) *( stock price B is correct

An example of a relative value hedge fund strategy is :A)convertible arbitrage. B)market neutral. C)merger arbitrage.

A is correct

Published ratings on stocks ranging from 1 (strong sell) to 5 (strong buy) are examples of which measurement scale? A.) Ordinal B.) Interval C.) Nominal

A is correct

The slope of the security characteristic line is an asset's: A.) beta. B.) excess return. C.) risk premium.

A is correct

In a net present value (NPV) profile, the internal rate of return is represented as the: A)intersection of the NPV profile with the horizontal axis. B)point where two NPV profiles intersect. C)intersection of the NPV profile with the vertical axis.

A is correct the internal rate of return is the rate of discount at which the NPV of a project is zero. On an NPV profile, this is the point where the profile intersects the horizontal axis.

Fund ----time since inception---- return 1 ----- ---146 days-------4.61 2---------5 weeks -------1.10 3--------15 months ----14.35 which fund has the highest annualized return?

2------> (1.110^52/5) -1 = 12.05% 1 --> (1.0461^365/146) - 1 = 11.93% 3 ---> C1.1435^12/15) -1 = 11.32%

With respect to the mean-variance portfolio theory, the capital allocation line, CAL, is the combination of the risk-free asset and a portfolio of all: A.) risky assets. B.) equity securities. C.) feasible investments.

A is correct. The CAL is the combination of the risk-free asset with zero risk and the portfolio of all risky assets that provides for the set of feasible investments.

Which of the following performance measures is most appropriate for an investor who is not fully diversified? A.) M-squared. B.) Treynor ratio. C.) Jensen's alpha.

A is the correct. M-squared adjusts for risk using standard deviation (i.e., total risk).

Which of the following return calculating methods is best for evaluating the annualized returns of a buy-and-hold strategy of an investor who has made annual deposits to an account for each of the last five years? A.) Geometric mean return. B.) Arithmetic mean return. C.) Money-weighted return.

A The geometric mean return compounds the returns instead of the amount invested.

assume the yields to maturity of a four year and five year zero coupon bond are 4.67% and 5.35%. respectively stated on a semiannual bond basis. the 4y1y implied forward rate is closest to? A.) 8.092% B.) 8.114% C.) 4.046%

A IS CORRECT {(1 + 0.0467/2) ^ (4*2)} / {1+0.0535/2 ^(5*2)} 1.2028 / 1.302108

According to the Fundamentals of Compliance—Requirements section of the GIPS standards, a firm must: A.) include in total firm assets those assigned to a sub-advisor selected by the firm. B.) alter historical composite performance after a significant change in the firm's organization occurs. C.) represent that the calculation methodology used by the firm is "in accordance with the Global Investment Performance Standards" when presenting performance.

A is correct B is incorrect because changes in a firm's organization must not lead to alteration of historical composite performance

A parking lot has 100 red and blue cars in it.40% of the cars are red.70% of the red cars have radios.80% of the blue cars have radios.What is the probability that the car is red given that it has a radio? A)37%. B)28%. C)47%.

A is correct In this case, P(red car has a radio) = 0.70 is divided by 0.76 (which is the Unconditional Probability of a car having a radio (40% are red of which 70% have radios) plus (60% are blue of which 80% have radios) or ((0.40) × (0.70)) + ((0.60) × (0.80)) = 0.76.) This result is then multiplied by the Prior Probability of a car being red, 0.40. The result is (0.70 / 0.76) × (0.40) = 0.37 or 37%.

A 90-day commercial paper issue is quoted at a discount rate of 4.75% for a 365-day year. The bond equivalent yield for this instrument is closest to: A.) 4.87%. B.) 4.81%. C.) 4.75%.

A is correct PV = FV * (1- days/ days in year * Discount rate) PV = 100 * (1 - 90/365 * 0.0475) PV = 98.8125 365/95 * 100-98.8125/98.8125 = 0.0487

When claiming GIPS compliance, a firm will least likely have to apply all of the required provisions in the first five major sections of the GIPS standards when investing in: A.) separately managed accounts. B.) equity mutual funds or unit trusts. C.) commodity related portfolios.

A is correct. Certain provisions of Sections 0-5 do not apply to real estate investments, private equity investments and/or separately managed accounts. Private equity, real estate, and separately managed accounts have their own sections within the GIPS standards specific to each respective asset class (Sections 6-8).

A hedge fund with $225 million of initial capital charges a management fee of 1% and an incentive fee of 10%. The management fee is based on assets under management at year-end, and the incentive fee is calculated independently from the management fee. Assuming the fund earns a 15% return at year-end, total fees earned by the hedge fund during the year are closest to: $5.96 million. $5.70 million. $5.63 million.

A is correct. Total fees earned by the hedge fund are closest to $5.96 million: Year-end value = $225 million × 1.15 = $258.75 million Management fee = Year-end value × Management fee % = $258.75 million × 1% = $2.5875 million Incentive fee = (Year-end value - Beginning value) × Incentive fee % = ($258.75 million - $225 million) × 10% = $3.375 million Total fees = Management fee + Incentive fee = $2.5875 million + $3.375 million = $5.9625 million = $5.96 million

The line depicting the total risk and expected return of portfolio combinations of a risk-free asset and any risky asset is the: A.) security market line. B.) capital allocation line. C.) security characteristic line.

B

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Firms claiming GIPS compliance must make every reasonable effort to provide a compliant presentation to which of the following? A.) Existing clients B.) Prospective clients C.) Both existing and prospective clients !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

B IS CORRECT A is incorrect because firms are not required to provide a complaint presentation to existing clients, only prospective clients. However, it is a recommendation that existing clients receive at least annually a compliant presentation.

The daily intraday price performance of a security over a specified period could best be analyzed with which type of chart? A.) Line B.) Candlestick C.) Point and figure

B is correct

The optimal capital budget is the amount of capital determined by the: A)point of tangency between the marginal cost of capital curve and the investment opportunity schedule. B)upward sloping marginal cost of capital curve's intersection with a downward sloping investment opportunity schedule. C)downward sloping marginal cost of capital curve's intersection with a upward sloping investment opportunity schedule.

B is correct

The slope of the security market line (SML) represents the portion of an asset's expected return attributable to: A.) diversifiable risk. B.) market risk (Risk Premium) C.) total risk.

B is correct

Equities --> 8.0 Corporate Bonds --> 6.5 Treasury bills --> 2.5 Inflation --> 2.1 The *real rate of return* for equities is closest to: A.) 5.4%. B.) 5.8%. C.) 5.9%.

B is correct (1.08/1.021) - 1 = 0.058

When household incomes go down and the quantity of a product demanded goes up, the product is: A)a Veblen good. B)an inferior good. C)a normal good.

B is correct When household incomes go down and the quantity demanded of a product goes up, the product is an inferior good. Inferior goods include things like bus travel and butter.

a trader buys a stock at $85 on margin with a leverage ratio of 3.4 and a maintenance margin of 25%. what price is a margin call likely to occur at? A.) $80 B.) $69.37 C.) $84.24

B is correct stock price * (1-1/leverage ratio/ 1- maintenance margin) .7058 / .75 * 85 =

*know for the exam **Statement #1 - Each line item is expressed as a percentage of its base-year amount.Statement #2 - Each line item of the income statement is expressed as a percentage of revenue and each line item of the balance sheet is expressed as a percentage of ending total assets.Statement #1 is a example of A.) Vertical analysis B.) Horizontal analysis

B is correct 1 = Horizontal analysis 2 = vertical analysis

What is the minimum period of compliant performance that a 12-year-old firm must present to comply with the GIPS standards? A.) Five years B.) Ten years C.) Twelve years

B is correct B is correct. After a firm presents a minimum of 5 years of GIPS-compliant performance, the firm must present an additional year of performance for each year since its inception, building up to a minimum of 10 years of GIPS-compliant performance. Accordingly, a firm in existence for 12 years must present, at a minimum, 10 years of compliant performance to comply with the GIPS standards.

Equities -- 8.0 Corporate Bonds -- 6.5 Treasury bills -- 2.5 Inflation -- 2.1 What is the *risk premium* of corporate bond? A.) 3.5 B.) 3.9 C.) 4.1

B is correct. (1 + 0.0650)/(1 + 0.0250) - 1 = 3.9%

A portfolio on the capital market line with returns greater than the returns on the market portfolio represents a(n): A.) lending portfolio. B.) borrowing portfolio. C.) unachievable portfolio.

B is correct. As one moves further to the right of point M on the capital market line, an increasing amount of borrowed money is being invested in the market portfolio. This means that there is negative investment in the risk-free asset, which is referred to as a leveraged position in the risky portfolio. L(eft LEND --- Capital market line ---- bo(right)row Borrow

The capital market line (CML) is the graph of the risk and return of portfolio combinations consisting of the risk-free asset and: A.) any risky portfolio. B.) the market portfolio. C.) the leveraged portfolio.

B is correct. Although the capital allocation line includes all possible combinations of the risk-free asset and any risky portfolio, the capital market line is a special case of the capital allocation line, which uses the market portfolio as the optimal risky portfolio.

Which of the following pooled investments is most likely characterized by a few large investments? A.) Hedge funds. B.) Buyout funds. C.) Venture capital funds.

B is correct. Buyout funds or private equity firms make only a few large investments in private companies with the intent of selling the restructured companies in three to five years. Venture capital funds also have a short time horizon; however, these funds consist of many small investments in companies with the expectation that only a few will have a large payoff (and that most will fail).

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Which of the following investment products is most likely to trade at their net asset value per share? A.) Exchange traded funds. B.) Open-end mutual funds. C.) Closed-end mutual funds. !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

B is correct. Open-end funds trade at their net asset value per share, whereas closed-end funds and exchange traded funds can trade at a premium or a discount.

Beginning Interest Payable in 2016 is 74 and the interest payable decreases by 12 during the year. if the interest expense is 246, how much cash was paid for interest?

BB interest payable --> 74 + interest expense -->246 - cash paid for interest ? = EB interest payable --> 62 cash paid = 258 or interest expense = 246 Plus: decrease in interest payable + 12 = cash paid for interest = 258

According the GIPS standards, for periods beginning on or after 1 January 2011, the aggregate fair value of total firm assets most likely includes all: A.) fee-paying discretionary accounts. B.) fee- and non-fee-paying discretionary accounts. C.) fee- and non-fee-paying discretionary and non-discretionary accounts.

C is correct

Component depreciation is required under: A)both IFRS and U.S. GAAP. B)U.S. GAAP, but not IFRS .C)IFRS, but not U.S. GAAP.

C is correct

Under which approach to valuing real estate properties is an analyst most likely to estimate a capitalization rate? A)Cost approach. B)Comparable sales approach. C)Income approach.

C is correct

Which of the following types of risk is most likely avoided by forming a diversified portfolio? A.) Total risk. B.) Systematic risk. C.) Nonsystematic risk.

C is correct

Julie purchased US government bonds through the Bloomberg fixed-income electronic trading platform. This transaction is most likely known as: A.) exchange traded. B.) private placement. C.) over-the-counter.

C is correct C is correct. In the over-the-counter market, buy and sell orders initiated from various locations are matched through a communication network, such as the Bloomberg fixed-income electronic trading platform.

Investment ----- ExpectedReturn (%)--- ExpectedStandard Deviation 1 --18 ---- 2 2--> 19 ---- 8 3-->20 -----15 4 -->18 ----30 A risk-neutral investor is most likely to choose: A.) Investment 1. B.) Investment 2. C.) Investment 3.

C is correct Investment 3 has the highest rate of return. Risk is irrelevant to a risk-neutral investor, who would have a measure of risk aversion equal to 0.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! a company entered int a 3 year construction project with a total contract price of 10.6 million and expected total cost of 8.8 million ---------------------------------------------Year1 --- Year 2 -- Year 3 costs incurred and paid ------------------$1.2-------$6.0-----$1.6 Amounts billed & payments received ---$2.4-------$5.6----$2.6 if the company uses the percentage of completion method, the amount of revenue recognized (in millions) in year two is closest to? A.) $3.5 B.) $5.6 C.) $7.2

C is correct the revenue reported is equal to the percentage of completed in the period in year 2 = (6/8.8) * 10.6 = 7.2

Which of the following performance measures is consistent with the CAPM? A.) M-squared. B.) Sharpe ratio. C.) Jensen's alpha.

C is correct. Jensen's alpha adjusts for systematic risk, and M-squared and the Sharpe Ratio adjust for total risk.

With respect to utility theory, the most risk-averse investor will have an indifference curve with the: A.) most convexity. B.) smallest intercept value. C.) greatest slope coefficient.

C is correct. The most risk-averse investor has the indifference curve with the greatest slope.

Relative to portfolios on the CML, any portfolio that plots above the CML is considered: A.) inferior. B.) inefficient. C.) unachievable.

C is correct. Theoretically, any point above the CML is not achievable and any point below the CML is dominated by and inferior to any point on the CML.

Which of the following statements concerning the Global Investment Performance Standards (GIPS) is most likely correct? A.) Clients or prospective clients benefit from the Standards because the historical track record of compliant firms is accurate and precise. B.) The Standards eliminate the need for in-depth due diligence by investors. C.) Compliance with the Standards enhances the credibility of investment management firms.

C is correct. Compliance with the GIPS standards enhances the credibility of investment management firms. A is incorrect because the GIPS standards do not ensure that the historical track record of compliant firms is accurate and precise, only that the record is complete and fairly presented.

Which of the following performance measures does not require the measure to be compared to another value? A.) Sharpe ratio. B.) Treynor ratio. C.) Jensen's alpha.

C is correct. The sign of Jensen's alpha indicates whether or not the \portfolio has outperformed the market. If alpha is positive, the portfolio has outperformed the market; if alpha is negative, the portfolio has underperformed the market.

in a point and figure chart X denotes a price ____ and O denotes a price _____

increase ----- decrease