Investment Analysis Quizzes

The current stock price of IBM is $64 and the stock does not pay dividends. The instantaneous riskfree rate of return is 5%. The instantaneous standard deviation of IBM's stock is 20%. You wish to purchase a put option on this stock with an exercise price of $55 and an expiration date 73 days from now. Using the Black-Scholes OPM, the put option should be worth ________ today. $.01 $.07 $9.26 $9.62

$.07

The price quotations of treasury bonds in the Wall Street Journal show an ask price of 104.5 and a bid price of 104.25. As a buyer of the bond you expect to pay ________ $1,040.80 $1,045.00 $1,040.70 $1,041.60

$1,045.00

A stock is trading at $50. You expect the stock price will be $45 in 3 months. At the money 3 month puts are available at a cost of $650 per contract. What is the expected dollar profit for a writer of a naked put at the end of three months? $150 $300 $200 $0

$150

Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note the firm is reporting $225 million in assets, $30 million in liabilities, and 10 million shares outstanding. What is the Net Asset Value (NAV) of these shares? $25.50 $1.95 $19.50 $22.50

$19.50

You purchase one IBM July 120 call contract for a premium of $5. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realize a _______ on the investment. $200 profit $300 loss $300 profit $200 loss

$200 loss

You write one IBM July 120 call contract for a premium of $4. You hold the option until the expiration date when IBM stock sells for $126 per share. You will realize a _______ on the investment. $200 loss $200 profit $600 loss $300 profit

$200 loss

You are considering purchasing a put option on a stock with a current price of $33. The exercise price is $35, and the price of the corresponding call option is $2.25. According to the put-call parity theorem, if the risk free rate of interest is 4%, and there are 90 days until expiration, the value of the put should be ________ $2.25 $3.91 $4.05 $5.52

$3.91

The current stock price of IBM is $64 and the stock price does not pay dividends. The instantaneous riskfree rate return is 5%. The instantaneous standard deviation of IBM's stock is 20%. You wish to purchase a call option on this stock with an exercise price of $55 and an expiration date 73 days from now. Using the Black-Scholes OPM, the call option should be worth _____ $.01 $.07 $9.26 $9.62

$9.62

Management fees for open-end and closed-end funds, typically range between ______ and _______ 2%; 8% .2%; 1.5% .2%; .5% 2%; 5%

.2%; 1.5%

Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses, directly from the fund assets rather than billing investors. These fees are known as _______ 12b-1 charges Direct operating expenses Back-end loads None of the above

12b-1 charges

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10% respectively. If the investor is in the 15% tax bracket, his after tax rates of return on the municipal and corporate bonds would be respectively 6.8% and 10% 6.4% and 8% 8% and 10% 8% and 8.5%

8% and 8.5%

A _______ is an example of an exchange-traded fund Viper Diamond Spider All of the above

All of the above

___________ market-value weighted The Standard & Poor's Composite 500 Stock index is The Wilshire 5000 index is The New York Stock Exchange Composite index is All of the above are

All of the above are

A contingent deferred sales charge is commonly called a _______ Front-end load Back-end load 12b-1 charge None of the above

Back-end load

A _________ is an option valuation model based on the assumption that stock prices can move to only two values over any short time period Black-Scholes model Nominal model Binomial model Time model

Binomial model

According to the put-call parity theorem, the payoffs associated with ownership of a call option can be replicated by ____________ Buying the underlying stock, borrowing the present value of the exercise price, and buying a put on the same underlying stock with the same exercise price Buying the underlying stock, borowing the present value of the exercise price, and writing a put on the same underlying stock and with the same exercise price Shorting the underlying stock, borrowing the present value of the exercise price, and writing a put on the same underlying stock and with the same exercise price Shorting the underlying stock, lending the present value of the exercise price and buying a put on the same underlying stock and with the same exercise price

Buying the underlying stock, borrowing the present value of the exercise price, and buying a put on the same underlying stock with the same exercise price

The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B with a 12b-1 fees of 1% annual. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses. There is no difference There is insufficient information Class B Class A

Class B

A writer of a call option will want the value of the underlying asset to _______ and a buyer of a put option will want the value of the underlying asset to ______ Decrease, increase Increase, decrease Increase, increase Decrease, decrease

Decrease, decrease

A high dividend payout will _______ the value of a call option and _______ the value of a put option Decrease, decrease Increase, increase Increase, decrease Decrease, increase

Decrease, increase

The value of a call option increases with all of the following except _________ Time to maturity Stock price Volatility Dividend yield

Dividend yield

_________ would best describe Eurodollars. Dollar-denominated deposits at foreign banks and branches of American banks outside the US Dollar-denominated deposits at American banks in the U.S Dollar-denominated deposits at branches of foreign banks in the U.S. Dollar-denominated deposits in Europe

Dollar-denominated deposits at foreign banks and branches of American banks outside the US

A dollar denominated deposit at a London bank is called ______ LIBOR Fed funds Eurodollars Banker's acceptance

Eurodollars

You own a stock portfolio worth $50,000. You are worried that stock prices may take a dip before you are ready to sell so you are considering purchasing either at the money or out of the money puts. If you decide to purchase the out of the money puts your maximum loss is _______ than if you buy at the money puts and your maximum gain is __________ Lower, lower Greater, greater Lower, greater Greater, lower

Greater, greater

A ______ is a private investment pool, open to wealthy or institutional investors, that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds Unit trust Hedge fund Commingled pool None of the above

Hedge fund

If the Black-Scholes formula is solved to find the standard deviation consistent with the current market call premium, that standard deviation would be called the ________ Deviance Variability Implied variability Volatility

Implied variability

______ is a true statement regarding the Dow Jones Industrial Average It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange It is a price-weighted average of 30 large industrial stocks It is a value-weighted average of 30 large industrial stocks It is a value-weighted average of all stocks traded on the New York Stock Exchange

It is a price-weighted average of 30 large industrial stocks

Commercial paper is a short term security issued by ______ to raise funds The federal reserve Local government The New York Stock Exchange Large well-known companies

Large well-known companies

What combination of puts and calls can simulate a long stock investment? Long call and long put Short call and long put Long call and short put Short call and short put

Long call and short put

________ funds stand ready to redeem or issue shares at their net asset value Close-end Open-end Index All of the above

Open-end

Which of the following is not a money market instrument Commercial paper Preferred stock Treasury bill Banker's acceptance

Preferred stock

You invest in the stock of Valleyview Corp. and purchase a put option on Valleyview Corp. This strategy is called a _______ Naked Put Short stroll Protective Put Long straddle

Protective Put

Which of the following strategies makes a profit if the stock price stays stable? Short call and short put Short call and long put Long call and long put Long call and short put

Short call and short put

The value of a put option increases with all of the following except ______ Time to maturity Stock price Dividend yield Volatility

Stock price

The most important feature of municipal bonds is their ______ Liquidity Tax-exempt status Convertibility Safety

Tax-exempt status

The bid price of a treasury bill is ________ The price at which the investor can buy the treasury bill The price at which th dealer in treasury bills is willing to buy the bill The price at which the dealer in treasury bills is willing to sell the bill Greater than the ask price of the treasury bill expressed in dollar terms

The price at which the dealer in treasury bills is willing to buy the bill

Investment companies can provide investor's with access to the market at lower transaction costs because ______ They trade large blocks of securities Under SEC rule 17a-2 domestic exchanges must process trades placed by qualifying investment companies at lower commission rates The managers are usually stockbrokers All of the above are true

They trade large blocks of securities

Exchange traded stock options expire on the ________ of the expiration month Third Wednesday Second Thursday Second Monday Third Friday

Third Friday

A ________ invests in a portfolio that is fixed for the life of the fund Mutual fund Managed investment company Unit investment trust Money market fund

Unit investment company

The potential loss for a writer of a naked call option on a stock is ________ Unlimited Limited Equal to the call premium Larger the lower the stock price

Unlimited