INVESTMENT COMP FINAL

You place a stop-limit order on Microsoft stock with a $25 stop price and a $20 limit price. At which of the following prices is it possible for your order to be processed? (Select any and all that apply.) $25.00 $26.00 $20.00 $19.00 $22.50

(NO) $25.00 (NO) $26.00 (NO) $20.00 (YES) $19.00 (NO) $22.50

You place a limit buy order on Microsoft stock at $30 per share. At which of the following prices is it possible for your order to be processed? (Select any and all that apply.) $29.95 $30.00 $30.05 $25.00

(NO) $29.95 (NO) $30.00 (YES) $30.05 (NO) $25.00

Which of the following mutual fund fees is assessed on an annual basis? (Select any and all that apply.) Management fee Back-end load Front-end load 12b-1 fee

(NO) Management fee (YES) Back-end load (YES) Front-end load (NO) 12b-1 fee

You place a limit sell order on Microsoft stock at $30 per share. At which of the following prices is it possible for your order to be processed? (Select any and all that apply.) $29.95 $30.05 $30.00 $25.00

(YES) $29.95 (NO) $30.05 (NO) $30.00 (YES) $25.00

A municipal bond which is secured by the receipts from a specific project is a called a(n) _____ bond. Agency General obligagion Development Hybrid Revenue

...

It is impossible to say without more information. Question 7 Mortgage-backed securities are securities whose investment returns are based on he lease payments from the tenants of financed property. loan payoffs oan refinancings. condominium fees. a pool of mortgages

...

Walker Corporation is planning to issue new 20-year bonds. Initially, the plan was to make the bond non-callable. If the bond were instead made callable after 5 years with a 5% call premium, how would this affect the bond's required rate of return? The required rate of return would increase because the bond would then be more risky to a bondholder. The required rate of return would decline because the bond would then be less risky to a bondholder. Because of the call premium, the required rate of return would decline. There is no reason to expect a change in the required rate of return. It is impossible to say without more information

...

When all the bonds in a bond issue mature on the same date, the bonds are called _____ bonds. sinking fund singular annual serial term

...

When payments are made into an account on a scheduled basis for the purpose of redeeming outstanding bonds, the account is called a: redemption fund. sinking fund liquidation account. serial account. callable account

...

If the market is efficient, then the cumulative abnormal return should remain close to _____ percent. 10 -10 50 0 100

0

The retention ratio is equal to: net income divided by total equity. the annual dividend amount divided by the net income. net income divided by the number of shares outstanding. 1 − dividend payout ratio. 1 + dividend payout ratio.

1 − dividend payout ratio.

How many companies are included in the Dow Jones Industrial Average? 100 500 30 5,000

30

Assuming a normal distribution, what is the approximate probability of getting a value less than the mean? 16% 50% 68% 95% 99.7%

50%

Brown Enterprises' bonds currently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. What is their yield to maturity? 6.87% 7.03% 7.21% 7.45% 7.61%

7.61%

Brown Enterprises' bonds currently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. What is their current yield? 7.80% 7.90% 9.00% 9.10% 9.20%

7.80%

What are the trading hours of the NYSE? 9:30 to 4:00 Central Time 8:00 to 5:00 Central Time 8:30 to 3:00 Central Time 9:00 to 5:00 Central Time

8:30 to 3:00 Central Time

A stock's total return includes which of the following? (Include any and all that apply.) Correct Response Earnings yield Correct Answer Incorrect Response Dividend yield Correct Response Percentage yield Correct Answer Incorrect Response Capital gains yield Correct Response Cash flow yield

A

If the yield to maturity decreased 1%, which of the following bonds would have the largest percentage increase in value? A 10-year zero coupon bond. A 10-year bond with a 12% coupon. A 10-year bond with an 8% coupon. A 1-year zero coupon bond. A 1-year bond with an 8% coupon.

A 10-year zero coupon bond.

Which one of the following statements concerning beta is correct? The higher the beta, the lower the degree of risk. A stock with a beta of 1.1 has a risk premium that is greater than the market's risk premium. The beta assigned to the overall market is zero. A stock with a beta of .5 has 50 percent more risk than the overall market. A stock with a beta of 1.2 earns a lower risk premium than does the overall market.

A stock with a beta of 1.1 has a risk premium that is greater than the market's risk premium.

Which of the following would be most likely to increase the coupon rate that is required to enable a bond to be issued at par? Adding additional restrictive covenants that limit management's actions. Adding a call provision. Making the bond a first mortgage bond rather than a debenture. Adding a sinking fund. The rating agencies change the bond's rating from Baa to Aaa.

Adding a call provision.

You convinced your best friend to purchase stock in Dell Computer for $29 a share, and he sold the stock 7 months later for $21 a share. The initial margin requirement was 60 percent. He didn't get any dividend income. What was his holding period return (over the 7 months) taking into account his margin investment? Ignore margin interest and trading costs. (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (-46.0)

You are considering purchasing a $1,000 face value bond with an 5.8% annual coupon that matures in 12 years. The yield to maturity on the bond is 5.6%. U.S. T-bills are yielding 5.2%. What is the current price of the bond? (The next bond payment will be made in one year.) Round your answer to the nearest $1. Do not include any commas or the $ sign. For example, $1,111.11 would be shown as 1111.

Answer: (1017)

Question 13 0 / 1 point Hewlett-Packard bonds currently sell for $1006. They have a 17-year maturity, an annual coupon of $69, and a par value of $1,000. What is their current yield? Round your answer to the nearest 0.1%. Do not include the % sign in your answer. For example, 0.0723 or 7.23% would be shown as 7.2.

Answer: (6.9)

After receiving a small inheritance, you purchased 400 shares of General Electric stock at $69 per share. GE is currently selling for $78 per share. The initial margin requirement was 60%, and the maintenance margin level is 35%. What is the required minimum dollar amount which you must have as equity in this stock today? In other words, if you had less than this amount, you would be getting a margin call. (Show your answer to the nearest $1. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000 as -10000.)

Answer: (10920)

The Carter Company's $1,000 par value bonds mature in 7 years, and they have an annual coupon payment of $61. (The next bond payment will be made in one year.) The market interest rate for the bonds is 4.0%. What is the current price of these bonds? Round your answer to the nearest $1. Do not include any commas or the $ sign. For example, $1,111.11 would be shown as 1111.

Answer: (1126)

A municipal bond is yielding 9.5 percent. Jessica has a marginal tax rate of 24%. What is her equivalent taxable yield? Round your answer to the nearest 0.1%. Do not include the % sign in your answer. For example, 0.0723 or 7.23% would be shown as 7.2.

Answer: (12.5)

You bought Ford stock 5 years ago for $30 per share. Today you sold the stock for $57 per share. What was your annualized rate of return? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (13.7

Beachfront Properties has a net income of $371000, total assets of $1743000, and total liabilities of $446000. The company paid $155000 in dividends. What is your best estimate of the firm's sustainable rate of growth in earnings? (Your answer will be a %, but just enter the number rounded to two decimal places and assuming the % sign. In other words, if you come up with an answer of 10.12%, just enter 10.12.)

Answer: (16.65)

Pelican Corporation's last annual dividend was $1.60 a share. The firm expects that it will increase the dividend by 8.4% for the next 2 years; and, thereafter, it will increase the dividend by 3.3% annually. What is this stock worth today if the required return is 13.0%? (Show your answer to the nearest $.01. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000.11 as -10000.11)

Answer: (18.69)

Your firm has paid annual dividends of $1.12, $1.43, $1.68, and $1.89 per share over the past 4 years, respectively. What was the geometric average growth rate for these dividends? You might also be interested to know that the company's bonds earned 6.1% during this time. (Your answer will be a %, but just enter the number rounded to two decimal places and assuming the % sign. In other words, if you come up with an answer of 10.12%, just enter 10.12.)

Answer: (19.06)

Michael's Enterprises plans to pay a $2.00 a share dividend at the end of each of the next three years. Also, at the end of year 3, Michael's will pay a final liquidating dividend of $26 a share. After that, the company will close its doors permanently. What is the current value of this stock if the appropriate discount rate is 13% and the standard deviation of the company's returns is 22%? (Show your answer to the nearest $.01. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000.11 as -10000.11)

Answer: (22.74)

The Whirlwind Co. just paid an annual dividend of $3.00 a share. The firm expects to pay dividends forever and to increase the dividend by 2.5% annually. The standard deviation of their returns has been 18.5%, and their bonds are earning 7.4%. What is the current value of this stock if the required return is 13.0%? (Show your answer to the nearest $.01. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000.23 as -10000.23 .)

Answer: (29.29)

You just purchased 100 shares of IBM stock for $30 a share and sold them 9 months later for $34 a share. The initial margin requirement was 40%. You received no dividend income. What was your holding period return (over the 9 months) taking into account his margin investment? Ignore margin interest and trading costs. (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (33.3)

Catch Up, Inc., is planning on paying an annual dividend of $5.75 per share next year. The company has a policy of increasing the dividend by 1.1% annually. As far as they know, Catch Up will pay dividends for the foreseeable future. What is the current value of this stock at a discount rate of 16.2%? (Show your answer to the nearest $.01. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000.23 as -10000.23 .)

Answer: (38.08)

Your mother-in-law just opened a margin account with $10000 in cash, and she wants to purchase shares in Yum Brands. Her broker's initial margin requirement for Yum is 60%, and the maintenance margin level is 35%. What is the maximum number of shares she can purchase of the stock given its current price of $39 share? (Round your answer down to the nearest share since you can't purchase fractional shares. Leave the commas, if any, out of your answer.)

Answer: (427)

You are considering the purchase of zero-coupon bonds. They are currently priced to yield 7.3%. Their total maturity value is $1,000, and they mature in 9 years. What is their total cost (price) today? (The next bond payment will be made in one year.) Round your answer to the nearest $1. Do not include any commas or the $ sign. For example, $1,111.11 would be shown as 1111.

Answer: (530)

Jay Peanut Growers has historically had a P/E ratio of 15.1. This ratio is considered a good estimate of the future ratio. The firm currently has earnings per share (EPS) of $3.65. These earnings are expected to increase by 3.2 percent next year. What is the expected price of this stock one year from now? (Show your answer to the nearest $.01. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000.11 as -10000.11)

Answer: (56.88)

Modern Designs has net income of $440000. The firm has decided to pay $170000 of that income out to the shareholders as dividends. Their company stock is expected to earn 12.2%. What is the firm's retention ratio for this year? (Your answer will be a %, but just enter the number rounded to two decimal place and assuming the % sign. In other words, if you come up with an answer of 10.12%, just enter 10.12.)

Answer: (61.36)

Your father has a brokerage account with a 55% initial margin requirement and a 40% maintenance margin level. What is the maximum amount that he can invest to purchase shares of stock if his cash balance in the account is $47000? This is also know as his "buying power," and it includes his investment and any money the broker is willing to lend him. (Show your answer to the nearest $1. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000 as -10000.)

Answer: (85455).

You convinced your parents to purchase 700 shares of Walt Disney stock on margin when the stock was selling for $22 a share. The stock is currently selling for $35 per share. What is the minimum $ amount of equity that your parents must currently have in this security to avoid a margin call if the maintenance margin level is 35%? We will assume this is the only stock they own just to simplify things. (Show your answer to the nearest $1. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000 as -10000.)

Answer: (8575)

Vulture Corp. recently issued bonds that mature in 8 years. They have a par value of $1,000 and an annual coupon of 4.9%. If the current market interest rate is 6.8%, at what price should the bonds sell? (The next bond payment will be made in one year.) Round your answer to the nearest $1. Do not include any commas or the $ sign. For example, $1,111.11 would be shown as 1111.

Answer: (886)

Barnacle Inc's stock has an arithmetic average return of 10.2%, and a standard deviation of 11.4%. There is roughly a 16% chance that the stock will produce a return less than ______ % in any one year. Assume a normal probability distribution and that roughly 68% of all possible outcomes are within plus or minus one standard deviation of the mean. (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (-1.2)

You just bought a stock. The historical arithmetic average return of the stock was 16 percent. The geometric average return was 11.1 percent, and it had a standard deviation of 16.1 percent. Assuming a normal distribution, what range of returns would you expect to see 95 percent of the time? -- Just give the floor or lower number in the range. (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (-16.2)

You bought stock in Facebook when it was selling for $33.40 and bailed out after it dropped to $25.00. The dividend yield during your holding period was 1.0%. What was your total return? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (-24.1)

You invested $9000 in Walt Disney stock 14 years ago. The arithmetic average return on your investment was 5.3%, and the geometric average return was 5%. What is the value of your portfolio today? (Round your answer to the nearest $ and leave off the $ sign.)

Answer: (17819)

One year ago, your best friend purchased 200 shares of Microsoft at 22 a share. The stock paid a total of $260.00 in dividends during the year. Today, you sold your shares for $25 share. What is your total return on this investment? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (19.5)

You just purchased 500 shares of Darden Restaurant stock at a price of $34 per share. (Darden is the owner of Olive Garden and other chains.) You fully utilized your margin account capacity. The initial margin requirement was 50%, and the maintenance margin level is 30%. What is the lowest that Darden's stock price can go before you get a margin call? (Show your answer to the nearest $.01. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000 as -10000.)

Answer: (24.29)

Barnacle Bill Inc's stock had returns of 9, 11, 3, -2, and -4 percent over the past five years, respectively. What was the geometric average return? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (3.2)

Sally bought a stock which has an arithmetic average return of 8.2 percent, and a standard deviation of 12.5 percent. There is only a 2.5 percent chance that the stock will produce a return greater than ______ percent in any one year. Assume a normal probability distribution. (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (33.2)

You bought Amazon stock for $27 and later sold it for $26. You also received a dividend of $2.50. What was the total return on your investment? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (5.6)

Your mother just sold her stock in Hewlett Packard which returned 3.1% over a 6 month period. The stock's standard deviation was 13.1%. What was her annualized rate of return? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (6.3)

Your investment in Clean Energy stock has an average historical risk premium of 5.9%. The standard deviation of your stock is 16.4%. The risk-free rate next year is expected to be 2.6%. What rate of return should you expect on your stock for next year? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (8.5)

Your best friend bought a stock that had returns of 1, 14, 13, and 8 percent over the past four years, respectively. What was the geometric average return? (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (8.9)

You just bought stock in a new high tech company. It has an arithmetic average return of 9.9%, and a standard deviation of 11.3%. There is a 50% chance that the stock will produce a return less than ______ % in any one year. Assume a normal probability distribution. (Your answer will be a %, but just enter the number rounded to one decimal place and assuming the % sign. In other words, if you come up with an answer of 10.1%, just enter 10.1.)

Answer: (9.9)

U.S. Treasury bills are currently yielding 2.2% and the S&P 500 Index has an expected return of 9.1%. What is your best estimate of the Sharpe ratio of a portfolio that has a beta of 1.6 and a standard deviation of 24.6%? (Calculate the Sharpe ratio based on the portfolio's required return per the CAPM.) Note: Instead of using decimal values such as .045 for 4.5%, just use the 4.5 in your calculations. Round to the nearest 0.1.

Answer: Incorrect Response (0.4)

U.S. Treasury bills are currently yielding 3.8% and the S&P 500 Index has an expected return of 12.0%. What is your best estimate of the Sharpe ratio of a portfolio that has a beta of 1.5 and a variance of 300? (Calculate the Sharpe ratio based on the portfolio's reuired return per the CAPM.) Note: Instead of using decimal values such as .045 for 4.5%, just use the 4.5 in your calculations. Round to the nearest 0.1.

Answer: Incorrect Response (0.7)

Question 1 0 / 1 point What is the beta of a portfolio which consists of the following? Security Amount Invested Beta A $1000 0.6 B 13000 1.0 C 14000 1.7 D 6000 2.0 Show your answer to one decimal place.

Answer: Incorrect Response (1.5)

Question 13 0 / 1 point What is the expected return on this stock given the following information? State of Probability of State Rate of Return Economy of Economy if State Occurs Boom 0.80 17% Recession 1 - 0.80 -7% Show your answer to two decimal places and do not include the % sign. (For example, if your answer was .1525 or 15.25%, just enter 15.25).

Answer: Incorrect Response (12.20)

You decided that Hewlett Packard stock was overpriced, so you sold short 200 shares of stock at $27 a share. Three months later, you covered the short position at a price of $20. What was your total dollar gain or loss on this investment? Ignore margin interest, trading costs, and taxes. We are usually interested in % returns, but not in this particular case. (Show your answer to the nearest $1. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000 as -10000.)

Answer: Incorrect Response (1400)

Your portfolio, which included stocks such as Walmart and Dollar General, actually earned 13.5% for the year. Based on the CAPM, you expected that your porfolio should have earned 10.9%. Your portfolio has a standard deviation of 19.6% and a beta of 1.7. What was your portfolio's Jensen's alpha? Note: Instead of using decimal values such as .045 for 4.5%, just use the 4.5 in your calculations. Round to the nearest 0.1.

Answer: Incorrect Response (2.6)

Michele has a portfolio consisting of two stocks, A and B, that is valued at $30000. Stock A is worth $19000. What is the portfolio weight of Stock B? We do not want a $ amount. What you need is a % weight. Show your answer to two decimal places and do not include the % sign. (For example, if your answer was .1525 or 15.25%, just enter 15.25).

Answer: Incorrect Response (36.67)

Your portfolio actually earned 14.2% for the year. Your portfolio has a standard deviation of 17.8% and a beta of 1.3. You also know that U.S. Treasury bills and the S&P 500 Index earned 4.9% and 8.1% over the past year, respectively. What is your portfolio's Jensen's alpha? Note: Instead of using decimal values such as .045 for 4.5%, just use the 4.5 in your calculations. Round to the nearest 0.1.

Answer: Incorrect Response (5.1)

What is the Standard Deviaion of this stock given the following information? State of Probability of State Rate of Return Economy of Economy if State Occurs Boom 0.65 9% Recession 1 - 0.65 -3% Show your answer to two decimal places and do not include the % sign. (For example, if your answer was .1525 or 15.25%, just enter 15.25).

Answer: Incorrect Response (5.72)

The stock of Magellen Industries has a beta of 0.9. The risk-free rate is 3.1 percent and the market return is 8.0 percent. What is the expected return on Magellen stock? Show your answer to one decimal place and do not include the % sign. (For example, if your answer was .1525 or 15.25%, just enter 15.25).

Answer: Incorrect Response (7.5)

U.S. Treasury bills are currently yielding 4.9%. What is your best estimate of the Treynor ratio of a portfolio that has an expected return of 11.9%, a standard deviation of 10.3%, and a beta 0.9? Note: Instead of using decimal values such as .045 for 4.5%, just use the 4.5 in your calculations. Round to the nearest 0.1.

Answer: Incorrect Response (7.8)

Stock A has a standard deviation of 17 percent per year and stock B has a standard deviation of 14 percent per year. The correlation between stock A and stock B is -0.5. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 0.5. What is your portfolio standard deviation? Show your answer to two decimal places and do not include the % sign. (For example, if your answer was .1525 or 15.25%, just enter 15.25).

Answer: Incorrect Response (7.86)

After considerable research, you decided that Hewlett Packard's stock was was overpriced. You sold short 300 shares at $23 per share, while taking full advantage of your margin account. The initial margin requirement was 50%, and the maintenance margin level is 35%. Hewlett Packard is currently selling for $11 per share. What is the current $ amount of your account equity? (Show your answer to the nearest $1. When you input your answer, do not include the $ sign or any commas. If your answer is negative, do include the "-" immediately in front of your value. For example, you would input a value of -$10,000 as -10000.)

Answer: Incorrect Response (7050)

_____ finance is the area of study which addresses issues such as how reasoning errors affect investment decisions and market prices. Logical Economic Behavioral Personal Rational

Behavioral

Which type of fund is most likely to own stocks paying the lowest dividend yields? Equity income fund Growth fund Growth and income fund Capital appreciation fund

Capital appreciation fund

By definition, systematic risk ... a) is expected. b) is diversifiable. c) relates only to a specific firm. d) is asset-specific. e) affects a large number of assets.

Correct Answer e) affects a large number of assets.

Assume that the up-tick rule is in place. You want to sell short 100 shares of Walmart. If the last two transactions were at $34.12 followed by $34.25, you can sell short on the next transaction only at a price of ________. $34.12 or higher something higher than $34.25 $34.25 or lower $34.25 or higher

Correct Answer $34.25 or higher...

You place a stop-loss order to sell 100 shares of stock at $55 when the current price is $62. The price immediately plummets to $50 per share. What price would you expect to get for your shares? Nothing. The sale would not be processed. $55 or higher $62 $50 $55

Correct Answer $50

Assuming a normal distribution, what is the approximate probability of being within plus or minus one standard deviation of the mean? 16% 50% 68% 95% 99.7%

Correct Answer 68%

Assuming a normal distribution, what is the approximate probability of being within plus or minus three standard deviations of the mean? 16% 50% 68% 95% 99.7%

Correct Answer 99.7%

A zero-investment portfolio with a positive alpha could arise if: The capital market line is tangent to the opportunity set A risk-free arbitrage opportunity exists The law of one price remains unviolated The expected return of the portfolio equals zero

Correct Answer A risk-free arbitrage opportunity exists

Beta and standard deviation differ as risk measures in that beta measures: Only systematic risk, while standard deviation measures total risk Only unsystematic risk, while standard deviation measures total risk Both systematic and unsystematic risk, while standard deviation measures only unsystematic risk Both systematic and unsystematic risk, while standard deviation measures only systematic risk

Correct Answer Only systematic risk, while standard deviation measures total risk

What is the expected return of a zero-beta security? Risk-free rate of return Market rate of return Zero rate of return Negative rate of return

Correct Answer Risk-free rate of return

In which of these cases do you first borrow shares? Short sale Margin purchase Long position Cash account

Correct Answer Short sale

Capital asset pricing theory asserts that portfolio returns are best explained by: Specific risk Diversification Systematic risk Economic factors

Correct Answer Systematic risk

What is the maintenance margin level? The amount that your percentage equity investment is not supposed to go above. If account earns this percentage return, there will be a brief maintenance period. The amount that your percentage equity investment is not supposed to drop below. The amount of equity you must have when you first purchase securities.

Correct Answer The amount that your percentage equity investment is not supposed to drop below.

According to CAPM, the expected rate of return of a portfolio with a beta of 1.0: The expected return on the market, rM beta x (rM - rf) The risk-free rate, rf Between rM and rf

Correct Answer The expected return on the market, rM

Which of the following statements is true regarding buying stock on margin? The margin purchase will increase both your potential percentage gain and your potential loss. The margin purchase will increase your potential gain without impacting your potential loss. The margin purchase will decrease both your potential percentage return and loss. The margin purchase will have no impact on your percentage gains or losses.

Correct Answer The margin purchase will increase both your potential percentage gain and your potential loss.

Based on the annual history since 1926, which asset category has, on average, proven to be the least risky? Small-Company Stocks Large-Company Stocks Corporate Bonds U.S. Treasury Bills

Correct Answer U.S. Treasury Bills

Within the context of the capital asset pricing model (CAPM), assume: - Expected return on the market = 15% - Risk-free rate = 8% - Expected rate of return on XYZ security = 17% - Beta of XYZ security = 1.25 Which one of the following is correct? XYZ is fairly priced XYZ's alpha is -.25% XYZ's alpha is .25% XYZ is overpriced

Correct Answer XYZ's alpha is .25%

What does it mean to have your margin loan "called?" Your broker is increasing the interest rate on your margin loan. Your broker is selling some of the securities in your account. You must put up additional collateral in the form of cash or securities to bring your account equity level up. Your broker is requiring payment in full of your loan.

Correct Answer You must put up additional collateral in the form of cash or securities to bring your account equity level up.

Which of the following measures is best applied only to diversified portfolios? I. Sharpe ratio II. Treynor ratio III. Jensen's alpha IV. Jensen-Treynor alpha a) I only b) II only c) III only d) II and IV only e) II, III, and IV only

Correct Answer a) I only

A portfolio which generates the highest possible return for a given level of risk is called a (an): a) efficient portfolio. b) variance. c) diversified portfolio. d) financial frontier. e) investment opportunity set.

Correct Answer a) efficient portfolio.

Risk which affects a small number of firms is called _____ risk. a) unsystematic b) expected c) announced d) systematic e) market

Correct Answer a) unsystematic

Some of the assets in your diversified portfolio went down today, but others went up. The fact that all of your assets didn't go down is one of the benefits of _______. a) frontier adjustment. b) diversification. c) efficiency improvement. d) risk realization. e) expected return.

Correct Answer b) diversification.

If the returns of two securities do not tend to move together at all, they have a correlation coefficient of: a) 100. b) 0. c) 1. d) -100. e) -1.

Correct Answer b) 0.

The Treynor ratio is a measure of the _____ per unit of _____ risk. a) excess return; unique b) excess return; systematic c) excess return; total d) raw return; systematic e) raw return; total

Correct Answer b) excess return; systematic

Correlation is the: a) measurement of the systematic risk contained in an asset. b) extent to which the returns on two assets move together. c) risk of an asset measured in percentage terms. d) realized return expressed as a percentage of the expected return. e) daily return on an asset compared to its previous daily return

Correct Answer b) extent to which the returns on two assets move together.

Jensen's alpha is a useful measure of portfolio performance because it measures ___________. a) the risk premium in relation to the market risk assumed. b) the excess return given a particular level of systematic risk. c) total return in relation to total risk. d) performance in relation to the overall market. e) the total possible return given a particular level of systematic risk

Correct Answer b) the excess return given a particular level of systematic risk.

If a stock is "beating the market", it will have a _________. a) high variance. b) high correlation to the market. c) high alpha. d) low correlation to the market. e) high beta.

Correct Answer c) high alpha.

A stock's capital gain (loss) is the ________. dividends plus earnings earnings less dividends total return change in stock price

Correct Answer change in stock price

Correlation coefficients range from: a) -10 to 10. b) -1 to 0. c) -100 to 100. d) -1 to 1. e) 0 to 1.

Correct Answer d) -1 to 1.

The returns on Dell Computer sometimes go up, sometimes go down, and sometimes don't move at all when the return on Dollar General goes up. Given this, which one of the following is most likely to be the correlation coefficient between Dell and Dollar General? a) -0.5 b) 0.5 c) 1.0 d) 0.0 e) -1.0

Correct Answer d) 0.0

You are comparing three different stocks and you note that they all have the same Treynor ratio. Based on this, you can say that they ___________. a) all are priced equally. b) are earning identical rates of return. c) all possess equal amounts of total risk. d) are earning the same reward per unit of systematic risk. e) all have the same beta.

Correct Answer d) are earning the same reward per unit of systematic risk.

Question 6 0 / 1 point The best use of the Sharpe ratio is for evaluating __________. a) low-risk stocks. b) bonds. c) government securities. d) diversified portfolios. e) high-risk stocks.

Correct Answer d) diversified portfolios.

If your goal was to reduce risk as much as possible, you should look for assets which are ___________. a) perfectly positively correlated. b) uncorrelated. c) positively correlated. d) perfectly negatively correlated. e) negatively correlated.

Correct Answer d) perfectly negatively correlated.

The extra return you expect to get when you invest in a risky asset rather than in a risk-free asset is called the: a) expected return. b) inefficient premium. c) portfolio adjustment. d) risk premium. e) diversification benefit

Correct Answer d) risk premium.

If your goal was to increase risk as much as possible, you should form a portfolio of assets which have _____ correlation coefficients. a) strongly negative b) zero c) slightly positive d) strong positive e) slightly negative

Correct Answer d) strong positive

You are trying to choose an ETF. You have narrowed your selection down to three different ETFs. You should select the ETF that has _____ alpha. a) a zero b) the lowest positive c) the least negative d) the highest positive e) the most negative

Correct Answer d) the highest positive

You combine a set of assets using different weights such that you produce the following results. Portfolio Expected Return Standard deviation A 13% 20% B 16% 29% C 17% 32% D 11% 18% E 12% 22% Which one of these portfolios can NOT be a Markowitz efficient portfolio? a) A b) B c) C d) D e) E

Correct Answer e) E

Choosing how to weight your portfolio between securities such as stocks, bonds, and bills is an example of _______. a) minimization. b) the efficient frontier. c) the investment opportunity set. d) correlation. e) asset allocation.

Correct Answer e) asset allocation.

Based on your readings, you know that if you want securities that are underpriced, you should choose ones with _________. a) low betas. b) low standard deviations. c) high betas. d) low alphas. e) high alphas.

Correct Answer e) high alphas.

If we are interested in what we earned on a compound basis over time, which of the following should we use? standard deviation squared deviations arithmetic average geometric average

Correct Answer geometric average

If you own stock, you have a ____ position. hypothecation short long margin

Correct Answer long

You have an account which allows you to borrow money from your broker to buy shares. This is an example of a ______ account. cash money market debit margin

Correct Answer margin

You believe that the shares of Amazon are going to drop soon. The most profitable of these alternatives would be to _______. make a margin call. Correct Answer sell the shares short sell your shares. buy the shares.

Correct Answer sell the shares short

The beta of a portfolio is _____ the betas of the individual securities held in the portfolio. an arithmetic average of the summation of computed independently of a geometric average of a weighted average of

Correct Answer a weighted average of

If a stock is overvalued, it will plot _____ the security market line. on or above above on on or below below

Correct Answer below

The portfolio risk that decreases as the number of securities in the portfolio increases is referred to as _____ risk. nondiversifiable market diversifiable efficient inefficient

Correct Answer diversifiable

The term E(RM) − Rf is called the: pure time value of money. security's risk premium. expected return on the market. expected return on a security. market risk premium.

Correct Answer market risk premium.

Market risk is also called _____ risk. company systematic unique diversifiable asset-specific

Correct Answer systematic

What is the single biggest advantage of investing in mutual funds for the typical investor? Guaranteed protection against losses High returns Diversification Numerous choices are available

Diversification

Which type of fund is most likely to own stocks paying the highest dividend yields? Growth fund Growth and income fund Equity income fund Capital appreciation fund

Equity income fund

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

Fund shares outstanding are fixed at the issue date.

You have a stop-loss order on Microsoft stock at $20. What does this mean? The lowest price you will collect on the sale of your stock is $20 per share. You will lose no more than $20 per share. If the price drops below $20 per share, you will buy it. If the stock drops to $20 or lower, your order becomes a market order.

If the stock drops to $20 or lower, your order becomes a market order.

Rank the following asset categories in order or average risk since 1926, with "1" being the highest return and "5" being the lowest. Incorrect Response _____ Small-Company Stock Incorrect Response _____ Long-Term U.S. Treasury Bonds Incorrect Response _____ U.S. Treasury Bills Incorrect Response _____ Long-Term Corporate Bonds Incorrect Response _____ Large-Company Stock

Incorrect Response _____ (1) Small-Company Stock Incorrect Response _____ (4) Long-Term U.S. Treasury Bonds Incorrect Response _____ (5) U.S. Treasury Bills Incorrect Response _____ (3) Long-Term Corporate Bonds Incorrect Response _____ (2) Large-Company Stock

Rank the following asset categories in order or average annual returns since 1926, with "1" being the highest return and "5" being the lowest. Incorrect Response _____ U.S. Treasury Bills Incorrect Response _____ Large-Company Stock Incorrect Response _____ Long-Term U.S. Treasury Bonds Incorrect Response _____ Small-Company Stock Incorrect Response _____ Long-Term Corporate Bonds

Incorrect Response _____ (5) U.S. Treasury Bills Incorrect Response _____ (2) Large-Company Stock Incorrect Response _____ (4) Long-Term U.S. Treasury Bonds Incorrect Response _____ (1) Small-Company Stock Incorrect Response _____ (3) Long-Term Corporate Bonds

Which of the following would you find in the primary market? Sale of Microsoft stcok on NASDAQ Initial public offering of a hot technology stock Sale of Walt Disney stock on the NYSE The Dow Jones Industrial Average

Initial public offering of a hot technology stock

Which of the following fund types invests only in countries outside the U.S.? International fund Index fund Sector fund Global fund

International fund

The _____ effect states that small company stocks tend to have large returns in one specific month. April July October March January

January

With what type of order can you set the maximum that you want to pay or the minimum amount you will sell for? Immediate or cancel Limit Market Stop-loss

Limit

What type of order is executed at the best available price as soon as it reaches the trading floor? Stop-loss Immediate or cancel Limit Market

Market

Which of the following is the least likely advantage of mutual fund investing? Professional management Convenience Diversification Mutual fund returns are normally higher than market average returns.

Mutual fund returns are normally higher than market average returns.

What should you generally do if you get a call out of the blue from a broker offering you the chance to get in on a hot, new IPO? Invest. It is a rare opportunity. Pass on the investment. Wait and buy the stock after it starts trading on the secondary market. Take at least a small stake in the IPO to get in with the broker.

Pass on the investment.

Which type of mutual fund will most likely to incur the greatest overall risk level for its investors? Large-cap index fund Money market mutual fund Small-cap growth fund Municipal bond fund

Small-cap growth fund

Which type of fund is designed to provide an asset allocation that changes over the life of the investor? Mutual fund Balanced fund Index fund Target retirement date fund Sector fund

Target retirement date fund

What industry makes up the biggest percentage of the NASDQ Composite Index? Retail Financial Pharmaceutical Technology

Technology

A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? The bond's yield to maturity is greater than its coupon rate. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850. The bond's coupon rate exceeds its current yield. The bond's current yield is equal to its coupon rate. The bond's current yield exceeds its yield to maturity.

The bond's yield to maturity is greater than its coupon rate.

What generally happens to Initial Public Offerings on the first day they trade in the secondary market? There is no expectation one way or another about the direction of prices from the IPO price. The prices go down. The prices end up right near the IPO prices. The prices go up.

The prices go up.

Which of the following fees and expenses is the most difficult for investors to assess? 12b-1 fees Trading costs Sales charges or "loads" Management fees

Trading costs

How many shares can a mutual fund issue? 10 million No more than the amount detailed in the fund's charter. The quantity is fixed at issuance. Unlimited

Unlimited

The price that the dealer will buy shares from you at is the _____. spread market price bid price ask price

bid price

Which of the following is true of an ETF, but not a mutual fund? There are no management fees. You can buy or sell any time the market is open. They provide diversification benefits. You can find one to track an index.

You can buy or sell any time the market is open.

Which one of the following is considered the best indicator of a bull market according to technical analysts? a breakout of a resistance level prices falling below the support level prices remaining between the resistance and support levels a breakout of a support level market prices remaining above the support level

a breakout of a resistance level

"Mutual fund" is the common name for _______. a money market account an open-end investment company a closed-end investment company any stock investment

an open-end investment company

The current yield on a bond is computed as the ____________ annual interest divided by the face value. annual interest divided by the call value. semiannual interest payment divided by the par value. annual interest divided by the market value. semiannual interest payment divided by the market value.

annual interest divided by the market value.

If you prefer to buy stocks at prices which are considered relatively low, you should buy a stock when its price: approaches the support level, given that you expect the price to rebound. exceeds the support level by a relatively good margin. breaks through the resistance level. is just short of the resistance level. is relatively in the middle between the resistance and the support prices.

approaches the support level, given that you expect the price to rebound.

The term "independent deviations from rationality" implies that irrational investors: behave differently from one another. dominate the market place. guarantee an inefficient market. independently offset the actions of rational investors. act together to offset the actions of rational investors

behave differently from one another.

Strong-form market efficiency implies that _____ information is reflected in market prices. public, but not private, both private and public all past, present, and future financial, but not economic, only past price

both private and public

A callable bond ______________ can be redeemed by the issuer prior to maturity. can be exchanged for shares of common stock. is a bond which pays no regular interest payments. can be redeemed at the whim of the bondholder. can have its maturity date extended by the issuer.

can be redeemed by the issuer prior to maturity.

If the market is semi-strong form efficient, then technical analysts _____ earn excess returns and fundamental analysts _____ earn excess returns. can; can not Answers can not be determined based on the information provided. can not; can not can not; can can; can

can not; can not

An evaluation of the likelihood of repayment of the bond principal plus any interest is based on the financial status of the issuer and is called a(n): sinking fund assessment. seniority assessment. serial evaluation. indenture. credit rating.

credit rating.

The yield to maturity is the __________ rate you will earn if your bond is called at a premium. rate computed as the annual interest divided by the market value. discount rate that equates a bond's price to the present value of its future cash flows. rate used to compute the amount of each interest payment. rate computed by dividing the annual interest by the par value.

discount rate that equates a bond's price to the present value of its future cash flows.

If you know for sure what an investment will earn, then the return on that investmetn should be equal to _______. a) zero. b) the market rate. c) the correlation coefficient. d) the market rate minus the risk-free rate. e) the risk-free rate.

e) the risk-free rate

The Wayward Co. announced last week that their unpopular CEO resigned. In response to this announcement, Wayward's stock price increased from $18 a share to $23 a share and has remained constant at that level. This is an example of a(n): efficient market reaction. delayed reaction. pre-activity action. over-reaction and correction. inefficient market.

efficient market reaction.

The yield to maturity of a par bond (a bond trading at its face value) is ___________ less than the current yield. greater than the current yield. greater than the coupon rate. less than the coupon rate. equal to the coupon rate.

equal to the coupon rate.

A(n) _____ is a method of research which studies the effect that news announcements have on stock prices. random walk market watch efficient hypothesis initial play event study

event study

Municipal bonds are usually ______ for all bondholders. triple-tax free exempt from federal income tax tax-exempt at the local level taxable at the state level double-tax free

exempt from federal income tax

Stocks with high price-earnings ratios are most like to be considered as _____ stocks. low beta geometric income value growth

growth

If the financial markets are efficient, then: having a professional manager who actively trades your portfolio is most likely your best investment strategy. your investment return is highly dependent upon your security selection. holding a diversified, low-cost, passively-managed portfolio is probably your best investment strategy. you should adopt an investment strategy based on market timing. you should hire a professional money manager, regardless of the cost to do so.

holding a diversified, low-cost, passively-managed portfolio is probably your best investment strategy.

An increase in the dividend growth rate (assuming everything else unchanged) for a firm which is expected to pay dividends forever will _____ the price of that firm's stock. decrease not affect increase either increase or not affect either decrease or not affect

increase

If your goal was to simply track a particular market or segment of the market, you would be advised to buy a / (an) _______. index fund tracking fund balanced fund money market fund

index fund

The possibility that interest rates will increase and lower bond prices is referred to as _____ risk discount rate reinvestment compounding coupon interest rate

interest rate

Bond prices and bond yields are __________ unrelated. inversely related. independent of each other. directly related. uncorrelated.

inversely related.

According to the idea of "hot-hand" fallacy, investors are most apt to: sell their winners and keep their losers. invest most heavily in their big losers. invest more in recent winners than in recent losers. get in and back out of the market quickly. quickly sell any loser.

invest more in recent winners than in recent losers.

A premium bond is a bond that ____________ has a high credit rating. is guaranteed by the federal government. is selling above par. has a face value that exceeds its market value. is callable.

is selling above par.

A _____ bond is another name for a high-yield bond. convertible Treasury junk sub-ordinated default

junk

The term house money refers to the concept that investors react differently to: losing their profits as compared to losing their initial investment. losses than they do to gains. losing their savings to buy a home as compared to their other savings. money they manage individually versus the money they have placed under the control of a professional money manager. money that is jointly owned with a spouse than that which is their personal asset.

losing their profits as compared to losing their initial investment.

Moving money in and out of the market based on your market expectations is called _____ and tends to lead to returns that are _____ than the overall market return, assuming that the market is efficient. market timing; higher asset allocation; lower market timing; lower security selection; higher asset allocation; higher

market timing; lower

If you know information about a company which will have a significant effect on the company's stock price once that information is released, you have knowledge that is referred to as _____ information. material non-public excess profit public abnormal market effect

material non-public

An investor who trades without good information or any worthwhile financial analysis is referred as a(n): market timer. sentiment trader. noise trader. arbiter. market maker.

noise trader.

Studies indicate that the Vanguard 500 Index fund tends to: produce a return equal to that of professional managers. support the argument that the stock market is inefficient. underperform most professional money managers. outperform the average professional money manager, but only over the short-term. outperform most professional money managers especially over longer-periods of time.

outperform most professional money managers especially over longer-periods of time.

The percentage of a firm's net income which is distributed to shareholders as dividends is called the _____ ratio. capital retention equity payout distribution

payout

When a stock price fluctuates, but follows no discernable pattern of movement over time, the stock price is said to be a(n): overreaction and correction. random walk. deviated pattern. dispersed flow. efficient movement.

random walk.

The net profit of a firm which is held within the firm to support future growth is called _____ earnings. capital retained supportive sustainable tangible

retained

Beta is a measure of a stock's: dividend growth rate. return relative to the overall market. dividend as a percentage of net income. rate of return. risk relative to the overall market.

risk relative to the overall market.

A discount bond _________________ sells for less than face value. has a current value that equals the maturity value. has a market price that exceeds par value. only pays a fraction of each coupon payment. has a face value that equals the market value.

sells for less than face value.

The January effect has often been attributed to: the feeling associated with a new calendar year. earnings announcements. corporate tax years. New Year's resolutions. tax loss selling in December.

tax loss selling in December.

Market capitalization, or simply market cap, is _________. the limit on the number of shares that the company can issue in the market. total dividends paid divided by the number of shares outstanding in the market. net income times the number of shares outstanding in the market. the number of shares outstanding times market price per share.

the number of shares outstanding times market price per share.

Which of the following statements about callable bonds is true? Callable bonds _______ usually are sold at lower prices than comparable noncallable bonds. are almost always called at par value. generally sell for more than the call price during a call period. are usually called after an increase in market interest rates. can normally be called at any time after issue.

usually are sold at lower prices than comparable noncallable bonds.

If the market is efficient only in regard to past prices, the market is said to be _____ efficient. mild-form semi-strong form strong-form weak-form historical-form

weak-form