Final Exam Review

Question 1

When An Investor Must Buy To Receive The Dividend

Answer 1

Two days before record date, one day before ex-dividend date

Question 2

Odd lot

Answer 2

Any amount not in 100 shares

Question 3

Round lot

Answer 3

100 shares

Question 4

Used to track performance of large and mid-cap securities from 21 developed countries

Answer 4

MSCI EAFE Index

Question 5

Stock Split

Answer 5

Increase in the number of shares outstanding by reducing par value of stock

Question 6

To increase interest rates, the Fed

Answer 6

Sells govt securities (Must decrease money supply)

Question 7

Fed Reserve’s Primary Responsibilities

Answer 7

Maintain price levels, long term-econ growth, full employment

Question 8

Required Return Equation

Answer 8

D1/P + g

Question 9

Growth Rate Equation

Answer 9

ROE x Retention

Question 10

Retention Ratio

Answer 10

1 - Payout Ratio

Question 11

Characteristics of closed-end companies

Answer 11

Shares sold in market, capitalization fixed, may employ leverage, fund can trade at premium or discount to NAV

Question 12

What money market funds invest in

Answer 12

Short term debt securities

Question 13

Fund with lowest management fee

Answer 13

Index fund

Question 14

12b-1 fee

Answer 14

Used for advertising and marketing expenses

Question 15

Time Horizon Equation

Answer 15

Amt Invested * (1+Rate)^N

Question 16

Alpha Equation

Answer 16

Actual Return - [Risk-free Rate + Beta(Market Rate - Risk Free Rate)]

Question 17

Treynor Ratio

Answer 17

Actual Return - Risk-Free Rate / Beta

Question 18

Sharpe Ratio

Answer 18

Actual Return - Risk-Free Rate / Standard Deviation

Question 19

Use of Standard Deviation

Answer 19

Discern between diversifiable and undiversifiable risk

Question 20

Difference between futures and forward contract

Answer 20

Futures are traded on organized exchanges, forward ones are not

Question 21

Process of Mark-to-Market

Answer 21

Posting gains or losses to each account daily, which may result in margin calls

Question 22

What Mark-to-Market Does

Answer 22

Minimizes default risk

Question 23

Intrinsic Value

Answer 23

Minimum value an option will trade for (Does not include price of option)

Question 24

Time Premium

Answer 24

Premium - Intrinsic Value

Question 25

Conversion Value

Answer 25

Conversion Ratio x Value of Common Stock

Question 26

Conversion Ratio Can Also Be

Answer 26

of Shares Exchanged

Question 27

When Investor In A Call Option Has Right To Buy Shares

Answer 27

At maturity

Question 28

Expansion Stage of a Venture

Answer 28

Increase in demand for product

Question 29

An individual seeking diversification benefits by including alternative investments in her portfolio is most likely to benefit if

Answer 29

There are low correlations between her portfolio and alternative investment

Question 30

When property is valued during inheritance process

Answer 30

Value when individual who os passing it on dies

Question 31

If stock is gifted to a person, what is that person’s basis in it

Answer 31

Basis when gifter bought it

Question 32

The max amount someone can claim as loss if capital loss occurs

Answer 32

$3000

Question 33

Not allowed in an IRA

Answer 33

Margin accounts and life insurance

Question 34

Willingness vs Ability to Take Risk

Question 35

Duty of Fiduciary

Answer 35

Act in good faith, and with care, candor, and loyalty

Question 36

Margin Call Equation

Answer 36

Debt / 1 - Maintenance Margin