Multiple Choice Flashcards
1
Q
Which of the following asset categories has an annual returns history most closely linked to historical annual rates of inflation? A. U.s. Treasury bills B. Corporate bonds C. Large company stocks D. Small company stocks
A
A. U.s. Treasury bills
2
Q
Based on the annual returns history since 1926, which asset category, on avergae, has yielded the highest risk premium? A. U.s. Government bonds B. Corporate bonds C. Large company stocks D. Small company stocks
A
D. Small company stocks
3
Q
An individual investors investment objectives should be expressed in terms of
A. Risk and return
B. Capital market expectations
C. Liquidity needs and time horizon
D. Tax factors and legal and regulatory constraints
A
A. Risk and return
4
Q
Which of the following best reflects the importance of the asset allocation decision to the investment process? The asset allocation decision
A. Helps the investor decide on realistic investment goals
B. Identifies the specific securities to include a portfolio
C. Determines most of the portfolios returns and volatility over time
D. Creates a standard by which to establish an appropriate investment horizon
A
C. Determines the most of the portfolios returns and volatility over time
5
Q
Which of the following investment factors, strategies, or tactics is the least relevant to a passive incest,not policy? A. Market timing B. Asset allocation C. Political environment D. Tax status
A
A. Market timing
6
Q
Which of the following investment factors, strategies, or tactics is most associated with an active investment policy? A. Market timing B. Asset allocation C. Security selection D. Tax status
A
A. Market timing
7
Q
Which of the following investment strategies or tactics will likely consume the greatest amount of resources, time, effort, and so on, when implementing an active investment policy? A. Market timing B. Asset allocation C. Security selection D. Tax strategy
A
C. Security selection
8
Q
Which of the following investment strategies or tactics is likely the most relevant in the decision to short sell a particular stock? A. Market timing B. Asset allocation C. Security selection D. Tax strategy
A
C. Security selection
9
Q
Which of the following investment constraints is expected to have the most fundamental impact on the investment decision process for a typical investor? A. Investors tax status B. Investors time horizon C. Investors need for liquidity D. Investors attitude towards risk
A
D. Investors attitude towards risk
10
Q
Which of the following is not a common characteristic of money market securities? A. Sold on a discount basis B. Mature in less than one year C. Most important risk is default risk D. All of the above are characteristics
A
D. All of the above are characteristics
11
Q
Which of the following money market securities is the most liquid? A. U.s. Treasury bills B. Bank certificates of deposit C. Corporate money market debt D. Municipality money market debt
A
A. U.s. Treasury bills
12
Q
A corporation with common stock issued to the public pay dividends
A. At the discretion of management, who are elected by the shareholders
B. At the discretion of shareholders, since the own the corporation
C. At the discretion of the company’s board of directors, who are elected by shareholders
D. At the discretion of the company’s board of directors, who are appointed by management
A
C. At the discretion of the company’s board of directors, who are elected by shareholders
13
Q
Which of the following statements about short selling is true?
A. A short position may be hedged by writing call options
B. A short position may be hedged by purchasing put options
C. Short sellers may be subject to margin calls if the stock price increases
D. Stock that pay large dividends should be sold short before the ex dividend fat and bought afterward to take advantage of the large price declines in a short period of time
A
C. Short sellers may be subject to margin calls if ten stock price increase
14
Q
Which of the following statements typically does not characterize the structure of an investment company?
A. An Investment company adopts a corporate form of organization
B. An investment company invests a pool of funds belonging to many investors in a portfolio of individual investments
C. An investment company receives an annual management fee ranging from 3 to 5 percent of the total value of the fund
D. The board of directors of an investment company hires a separate investment management company to manage the portfolio of securities and handle other administrative duties
A
C. An investment company receives an annual management fee ranging from 3 to 5 percent of the total value of the fund
15
Q
Which of the following is not part of the expense statement? A. Shareholder transaction expenses B. Shareholder demographic profile C. Annual operating expenses D. A hypothetical example of expenses
A
B. Shareholder demographic profile
16
Q
Which of the following is th last likely advantage of mutual fund investing?
A. Diversification
B. Professional management
C. Convenience
D. Mutual fund returns are normally higher than market average returns
A
D. Mutual fund returns are normally higher than market average returns
17
Q
An open end mutual fund is owned by which of the following?
A. An investment company
B. An investment advisory firm
C. A family of funds mutual fund company
D. It’s shareholders
A
D. It shareholders
18
Q
Which of the following is most true of a closed end investment company?
A. The funds share price is usually greater than net asset value
B. The funds share price is set equal to net asset value
C. Fund shares outstanding vary with PrurchAses and redemptions by shareholders
D. Fund shares outstanding are fixed at the issue date
A
D. Fund shares outstanding are fixed at the issue date
19
Q
A closed end fund is owned by which of the following?
A. An investment company
B. An investment advisory firm
C. A family of funds mutual fund company
D. It’s shareholders
A
D. It’s shareholders
20
Q
Which of the following statements regarding exchange traded funds is false?
A. ETFs are funds that can be traded on a stock market
B. ETFs investors own shares of the underlying fund sponsor
C. ETFs shares can be sold short
D. Etf shares can be bought on margin
A
B. Etf investors own shares of the underlying fund sponsor
21
Q
Closed end funds and exchange traded funds have which of the following characteristics in common?
A. Shares of both closed end funds and etfs trade in the secondary market
B. Both closed end funds and eggs stand ready to redeem shares
C. The structures of closed end funds and etfs prevent shares from trading at a significant premium or discount to nav
D. Neither etf nor closed end fund managers receive a management fee
A
A. Shares o Fenton closed end funds and etfs trade in the secondary market
22
Q
Growth, value, large cap, and small cap investing are all examples of A. Style investment strategies B. Sector investment strategies C. Index investment strategies D. Lifestyle investment strategies
A
A. Style investment strategies
23
Q
One of the main advantages to investing in a fund of funds is that fofs provide A. Improved diversification of assets B. Higher expects returns C. Lower management fees D. Higher volatility of returns
A
A. Improved diversification of assets
24
Q
What mutual fund type will most likely incur the smallest tax liability for its investors? A. Index fund B. Municipal bond fund C. Income fund D. Growth fund
A
B. Municipal bond fund
25
```
Which mutual fund type will most likely incur th greatest overall risk levels for its investors?
A. Large cap index fund
B. Insured municipal bond fund
C. Money market mutual fund
D. Small cap growth fund
```
D. Small cap growth fund
26
```
Which of the following mutual fund fees is assessed in an annual basis?
A. 12b-1 fees
B. Front end load
C. Back end load
D. Contingent deferred sales charge
```
A. 12b-1 fees
27
```
Which of the following mutual fund fees will most likely be the biggest expense for a long term fund investor?
A. 12b-1 fees
B. Front end load
C. Back end load
D. Contingent deferred sales charge
```
A. 12b-1 fees
28
```
Which of the following mutual fund fees and expenses is the most difficult for investors to assess?
A. Sales charges or loads
B. 12b-1 fees
C. Management fees
D. Trading costs
```
D. Trading costs
29
```
The compensation constraint that requires probate equity fund managers to give back performance fees when subsequent losses occur is a _____ provision
A. High water mark
B. Clawback
C. Zenith
D. Index
```
B. Clawback
30
```
The divisor for the Dow jones industrial average is most likely to decrease when a stock in the djia
A. Has a stock split
B. Has as a reverse sploit
C. Pays a cash dividend
D. Is removed and replaced
```
A. Has a stock split
31
Which of the following activities are not conducted by dmms on the nyse?
A. Acting as dealers for their own accounts
B. Monitoring compliance with margin requirements
C. Providing liquidity to the market
D. Posting bid and ask prices
B. Monitoring compliance with margin requirement s
32
```
What is a securities market characterized by dealers who buy and sell securities for their own inventories called?
A. A primary market
B. A secondary market
C. An over the counter market
D. An institutional market
```
C. An over the counter market
33
```
What is the over the counter. Arlen for exchange listed securities called?
A. Third market
B. Fourth market
C. After market
D. Block market
```
A. Third market
34
If the market price of each of the 30 stocks in the Dow jones industrial average changes by three says error percentage amount during a given day, which stock will have the greatest impact on the djia?
A. The one whose stock trades at the highest dollar price per share
B. The one whose total equity has the highest market value
C. The one having the greatest amount of equity in its capital structure
D. The having the lowest volatility
A. The one whose stock traded at the highest dollar price per share
35
In calculating the standard and poors stock price indexes, how are adjustments for stock splits made?
A. By adjusting the divisor
B automatically, due to the manner in which the index is calculated
C. By adjusting the numerator
D. Quarterly, on the last trading dat of each quarter
B. Automatically, due to the manner in which the index is calculated
36
```
Which of the following indexes includes the largest number of actively traded stocks?
A. The Nasdaq composite index
B. The nyse composite index
C. The Wilshire 5000 index
D. The value line composite index
```
C. The Wilshire 5000 index
37
```
Pro at equity funds that concentrate in smaller, family owned companies with established cash flows are typically referred to as
A. Venture capital
B. Middle market
C. Leveraged buyouts
D. Distressed assets
```
B. Middle market
38
```
The compensation constraint that rewrites private equity fund managers to meet a particular return target before performance fees can be taken is a _____ provision
A. High water mark
B. Clawback
C. Zenith
D. Index
```
A. High water mark
39
Private equity funds will often use convertible preferred stock or bonds with attached call options. These types of securities are used because they
A. Increase the risk of the transaction
B. Shorten the life of the investment
C. Allow upside potential associated with a successful venture
D. Meet sec regulations for such investment
C. Allow upside potential associated with a successful venture
40
Which one of the following statements regarding the Dow jones industrial average is false
A. The djia contains 39 well known large company stocks
B. The djia is affected equally by dollar changes in low and high priced stocks
C. The djia is affected equally by percentage changes in low and high priced stocks
D. The djia divisor must be adjusted for stock splits
C. The djia is affected equally by percentage changes in low and high priced stocks
41
In applying the constant growth dividend discount model, a stocks intrinsic value will do which of the following when the required rate of return is lowered?
A. Decrease
B. Increase
C. Remain unchanged
D. Decrease or increase, depending on other factors
B. Increase
42
The constant growth dividend discount model would typically be most appropriate for valuing the stock of which of the following?
A. New venture expected to retain all earnings for several years
B. Rapidly growing company
C. Moderate growth mature company
D. Company with valuable assets not yet generating profits
C. Moderate growth, mature company
43
Which of the following assumptions does the constant growth dividend discount model require
I. Dividends grow at a constant rate
II. The dividend growth rate continues indefinitely
III. The required rate of return is less than the dividend growth rate
A. I only
B. III only
C. I and II only
D. I, II, and III
C. I and II only
44
```
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?
A. As p/cf ratio will be higher than Bs
B. As p/cf ratio will be lower than Bs
C. As o/e ratio will be higher than Bs
D. As P/E ratio will be lower than Bs
```
C. As P/E ratio will be higher than Bs
45
A company's return on equity is greater than its required return on equity. The earnings multiplier (p/e) for that company's stock is most likely to be positively related to
A. Risk free rate
B. Market risk premium
C. earnings retention ratio
D. Stocks capital asset pricing model beta
C. Earnings retention ratio
46
```
Stocks, bonds, options, and futures are the four major types of
A. Debt
B. Real assets
C. Equity
D. Financial assets
```
D. Financial assets
47
A market anomaly refers to
A. An exogenous suck to the market that is sharp but not persistent
B. A price or volume event that is inconsistent with historical price or volume trends
C. A trading or pricing structure that interferes with efficient buying and selling of securities
D. Price behavior that differs from the behavior predicted by the fficient markets hypothesis
D. . Price behavior that differs from the behavior predicted by the efficient markets hypothesis
48
```
After lengthy trial and error, you discover a trading system that would have late of your investment every six months of applied over the last three years. Which of the following problems makes it difficult to conclude that this is an example of market inefficiency
A. Risk adjustment problem
B. Reluctant information problem.
C. Dumb luck problem
D. Data snooping problem
```
D. Data snooping problem
49
```
In discussions of financial market efficiency, which of the following is not one of the stylized forms of market efficiency
A. Strong form
B. Semi strong form
C. Weak form
D. Economic form
```
D. Economic form
50
```
Which month of the year, on average, has had the highest stock market reeve turns as measured by a small stock portfolio
A. January
B. March
C. June
D. December
```
A. January
51
```
Which of the following intraday changes in the Dow jones Industrial average will trigger a circuit be halting nyse trading for one hour?
A. 10 percent drop before 2 pm
B. 10 percent drop after 2 pm
C. 10 percent rise before 2 pm
D. 10 percent rise after 2 pm
```
A. 10 percent drop before 2 pm
52
```
The sec has regulations that prohibit trading on inside information. If the market is ____ form efficient, such regulation is not needed
A. Weak
B. Semi strong
C. Technical
D. Strong
```
D. Strong
53
```
Which of the following is a possible explanation of the January effect?
I. Institutional window dressing
II. Bonus demand
III. Tax loss selling
A. I only
B. I and II only
C. I and III only
D. I, II, and III
```
D. I and III only
54
Circuit breakers implemented by the nyse were designed to
A. Reduce the January effect
B. Reduce the effect of technical trading
c. Eliminate program trading
D. Slow a market decline
D. Slow a market decline
55
Assume the market is semi strong for efficient. The best investment strategy is to
A. Examine the past prices of a stock to determine the trend
B. Invest in and actively managed mutual fund whose manager searches for underpriced stocks
C. Invest in an index fund
D. Examine the financial statements for a company to find stocks that are not selling as intrinsic value
C. Invest in an index fund
56
```
Assume the market is weak form efficient. If this is true, technical analysis _____ earn excess returns and fundamental analysis ______ earn excess returns
A. Could, could
B. Could, could not
C. Could not, could not
D. could not, could
```
D. Could not, could
57
You purchase a stock that you expect to increase in volume over the next year. One year later, after the discovery that the ceo embezzled funds and the company is close to bankruptcy, the stock has fallen in price. Which of the following statements is tru?
A. This is a violation of weak form efficiency
B. This is a violation of semi strong form efficiency
C. This is a violation of all forms of market efficiency
D. This is not a violation of market efficiency
D. This is not a violation of market efficiency
58
Which of the following statements concerning market efficiency is true?
A. If the market is weak form efficient, it is also semi strong form efficient
B. If the market is semistrong form efficient, it is also strong firm efficient
C. If the market is weak form efficient, it is also strong form efficient
D. Is the market is semi strong form efficient, it is also weak form efficient
D. If the market is semistrong form efficient, it is also weak form efficient
59
Which of the following is a basic assumption of technical in contrast to fundamental analysis?
A. Financial statements provide information crucial in valuing a stock
B. A stocks market price will approach its intrinsic value over time
C. Aggregate supply and demand for goods and services are key determinants of stock value
D. Security prices move in patterns, which repeat over long periods
D. Security prices move in patterns, which repeat over long periods
60
Which of the following is least likely to be of interest to a technical analyst?
A. A 15 day moving average of trading volume
B. A relative strength analysis of stock price momentum
C. Company earnings and cash flow growth
D. A daily history of the ratio of advancing stock over declining stocks
C. Company earnings and cash flow growth
61
```
Dow theory asserts that three forces are at work in the stock market at any time. Which of the following is not one of these Dow theory forces?
A. Daily price fluctuations
B. A secondary ration or trend
C. Primary direction or trend
D. Reversals or over reactions
```
D. Reversals or overreactions
62
```
The advance/ decline line is typically used to
A. Measure psychological barriers
B. Measure market breadth
C. Assess bull market sentiment
D. Assess Bear market sentiment
```
B. Measure market breadth
63
The closing arms (trin) ratio is the ratio of
A. Average trading volume in declining stocks to advancing stocks
B. Average trading volume in nyse stocks to Nasdaq stocks
C. The number of advancing stocks to the number of declining stocks
D. The number of declining stocks to the number of advancing stocks
A. Average trading volume in declining stocks to advancing stocks
64
```
Resistance and support areas for a stock market index are viewed as technical indicators of
A. Economic barriers
B. Psychological barriers
C. Circuit breakers
D. Holding patterns
```
B. Psychological barriers
65
```
When companies changed the structure of 401k plans to allow employees to opt out rather than in, the participation rates significantly increased. This is an example of
A. Representativeness
B. The house money effect
C. Frame dependence
D. A heuristic
```
C. fame dependence
66
```
When someone who wins money is more willing to lose the gains, this is referred to as
A. Representativeness
B. The house money effect
C. Frame dependence
D. A heuristic
```
B. The house money effect
67
```
Investors are generally more likely to choose a well known company when faced with a choice between two firms. This is an example of
A. Representativeness
B. The house money effect
C. Frame dependence
D. A heuristic
```
A. Representativeness
68
```
Many investors try to simplify the investment process by using rules of thumb to make decisions. This is an example of
A. Representativeness
B. The house money effect
C. Frame dependence
D. A heuristic
```
D. A heuristic
69
All of the following are ways to help reduce behavioral biases except
A. Learning about the biases
B. Diversifying your portfolio
C. Watching more financial news programs
D. Creating objective investment criteria
C. Watching more financial news programs
70
```
Which of the following techniques deals with the breadth of the market
A. Price channels
B. Advance/decline lines
C. Bollinger bands
D. Support and resistance lines
```
Advance/decline lines
71
```
Which of the following techniques does not assume there are psychologically important barriers in stock prices
A. Price channels
B. Advance/decline lines
C. Bollinger bands
D. Support and resistance lines
```
D. Support and resistance lines
72
```
Which of the following interest rates is a bell weather (leading indicator) rate of bank lending to businesses?
A. Insecure business loan rate
B. Prime rate
C. Commercial paper rate
D. Bankers acceptance rate
```
B. Prime rate
73
```
Among the following interest rates, which is normally the highest rate?
A. Commercial paper rate
B. U.s. Treasury bill rate
C. Federal funds rate
D. federal reserve discount rate
```
A. Commercial paper rate
74
An analyst funds that the semiannual interest rate that equates the present value of the bonds cash flow to its current. Arlen price is 3.85 percent. Consider the following possible alternatives
I. The bonds equivalent yield on this security is 7.70 percent
II. The effective annual yield on the bond is 7.85 percent
III. The bonds yield to maturity is 7.70 percent
IV. The bonds horizon return is 8.35 percent
A. I and II only
B. II, III, and IV only
C. I, II, and III only
D. III only
C. I, II, and III only
75
The Fischer hypothesis essentially asserts which of the following?
A. Nominal interest rates follow inflation
B. Real interest rates follow inflation
C. Inflation follows real interest rates
D. Inflation follows nominal interest rates
A. Nominal interest rates follow inflation
76
Which one of the following statements about the term structure of interest rates is true
A. Ten expectation hypothesis indicates a flat yield curve is anticipated future short terms rates exceed current short term rates
B. The expectations hypothesis contends that the long term rate is equal to the anticipated short term rate
C. The liquidity premium theory indicates that, all else being equal, longer maturities will have lower yields
D. The market segmentation theory contends that borrowers and lenders prefer particular segments of the yield curve
D.The market segmentation theory contends that borrowers and lenders prefer particular segments of the yield curve
77
```
Which one of the following is not an explanation of the relationship between a bonds interest rate and its term to maturity
A. Default (credit) risk hypothesis
B. Expectations hypothesis
C. Liquidity preference hypothesis
D. Segmentation hypothesis
```
A. Default (credit) risk hypothesis
78
```
Which theory explains the shape of the yield curve by considering the relative demands for various maturities
A. Relative strength theory
B. Segmentation theory
C unbiased expectations theory
D liquidity premium theory
```
B. Segmentation theory
79
The yield to maturity on a bond is
A. Below the coupon rate when the box sells at a discount and above the coupon rate when the bond sells at a premium
B. The interest rate that makes the present value of the payments equal to the bond price
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 reinvested at future market rates
B. The interest rate that makes the present value of the payments equal to the bond price
80
On which one of the following cases is the bond selling at a discount
A. Coupon rate is greater than current yield, which is greater than yield to maturity
B. Coupon rate, current yield, and yield to maturity are all the same
C. Coupon rate is less than currently yield, which is less than yield to maturity
D. Coupon rate is less than current yield, which is greater than yield to maturity
C. Coupon rate is less than current yield, which is less than yield to maturity
81
When are yield to maturity and current yield on a broad equal
A. When market interest rates being to level off
B. If the bond sells at a price in excess of its par value
C. When the expected holding period is greater than one year
D. If the coupon and market interest rates are equal
D. If the coupon and market interest rates are equal
82
Which of the following states the correct relationship amount yield measures for discount bonds
A. Coupon rate
A. Coupon rate
83
```
Consider a five year old bond with a 10 percent coupon that is presently trading at a yield to maturity of 8 percent. Of market interest takes do not change, one year from now the price of this bond
A. Will be higher
B. Will be lower
C. Will be the same
D. Cannot be determine
```
B. Will be lower
84
Which of the following sated the correct relationship a,omg yield measured for premium bonds
A. Coupon rate > current yield > yield to maturity
B. Current yield > coupon rate > yield to maturity
C. Coupon rate > yield to maturity > current yield
D. Yield to maturity > coupon rate > current yield
A. Coupon rate > current yield > yield to maturity
85
```
Another term for bond duration is
A. Actual maturity
B. Effective maturity
c. Calculated maturity
D. Near term maturity
```
B. Effective maturity
86
```
The interest rate risk of a noncallable bond is most likely to be positively related to the
A. Risk free rate
B. Bonds coupon rate
C. Bonds time to maturity
D. Bonds yield to maturity
```
C. Bonds time to maturity
87
Starcents has an expected return of 25 percent and jpod has an expected return of 20 percent. What is the likely investment decision for a risk averse investor
A. Invest all funds in Starcents
B. Invest all funds in jpod
C. Do not invest any funds in Starcents and jpod
D. Invest funds partly in Starcents and partly in jpod
D. Invest funds partly in Starcents and partly in jpod
88
Which of the following statements best reflects the inproance of the asset allocation decision to the investment process? The asset allocation decision
A. Helps the investor decide on realistic investment goals
B. Identifies the specific securities to include in a portfolio
C. Determine most of the portfolios returns and volatility over time
D. Creates a standard by which to establish the appropriate investment time horizon
C. Determine most of the portfolios returns and volatility over time
89
```
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
A. -1.0
B -.5
C. .0
D. +1.0
```
A. -1.0
90
```
According to the capm, what is the rate of return of a portfolio with a beta of 1?
A. Between rm and rf
B. The risk free rate, rf
C. Beta x (rm-rf)
D. The return on the market, rm
```
D. The return on the market rm
91
The return on a stock is said to have which two of the following basic parts
A. An expected return and an unexpected return
B. A measurable return and an unmeasurable return
C. A predicted return and a forecast return
D. A total return and a partial return
A. Am expected return and an unexpected return
92
A news announcement about a stock is said to have whichtwo of the following parts
A. An expected part and a surprise
B. Public information and private information
C. Financial information and product information
D. A good part and a bad part
A. An expected part and a surprise
93
A company announces that its earnings have increased 50 percent over the previous year, which matches analysts expectations. What is the likely effect on the stock price?
A. The stock price will increase
B. The stock price will decrease
c. The stock price will rise and then fall after and overreaction
D. The stock price will not be affected
D. The stock price will not be affected
94
A company announces that its earnings have decreased 25 percent from the previous year, but analysts expected a small increase. What is the likely effect on the stock price??
A. The stock price will increase
B. The stock price will decrease
C. The stock price will rise and then fall after an overreaction
D. The stock price will not be affected
B. The stock price will decrease
95
A company announces that its earnings have increased 25 percent from the previous year, but analysts actually expected a 50 percent increase. What is the likely effect on the stock price
A. The stock price will increase
B. The stock price will decrease
C. The stock price will rise and then fall after an overreaction
D. The stock price will not be affected
B. The stock price will decrease
96
A company announces that its earnings have decreased 50 percent from the previous year, but analysts only expected a 25 percent decrease. What is the likely effects on the stock price
A. The stock price will increase
B. The stock price will decrease
C. The stock price will rise and then fall after an overreaction
D. The stock price will not be effects
B. The stock price will decrease
97
```
The systematic risk of a security is also called its
A. Perceived risk
B. Unique or asset specific risk
C. Market risk
D. Fundamental risk
```
C. Market risk
98
```
Which type of risk is essentially eliminated by diversification?
A. Perceived risk
B. Market risk
C. Systematic risk
D. Unsystematic risk
```
D. Unsystematic risk
99
The systematic risk principle states that
A. Systematic risk doesn't matter to investors
B. Systematic risk can be essentially eliminated by diversification
C. The reward for bearing risk is independent of the systematic risk of an investment
D. The reward for bearing risk depends only on the systematic risk of an investment
D. The reward for bearing risk depends only on the systematic risk of an investment
100
The systematic risk principle has an important implication, which is
A. Systematic risk is preferred to unsystematic risk
B. Systematic risk is the only risk that can be reduced by diversification
C. The expected return on an asset is independent of its systematic risk
D. The expected return on an asset depends only on its systematic risk
D. The expected return on an asset depends only on its systematic risk
101
A financial markets security market line describes
A. The relationship between systematic risk and expected returns
B. The relationship between unsystematic risk and expected returns
C. The relationship between systematic risk and unexpected returns
D. The relationship between unsystematic risk and unexpected returns
A. The relationship between systematic risk and expected returns
102
In the context of capital market theory, unsystematic risk
A. Is described as unique risk
B. Refers to nondiversifiable risk
C. Remains in the market portfolio
D. Reared to the variability in all risk assets caused by macroeconomic factors and other portfolios with equal rates of return
A. Is described as unique risk
103
Which of the following statements about the security market line is false
A. Properly valued assets plot exactly on the sml
B. The sml leads all investors to invest in the same portfolio of risk assets
C. The sml provided a benchmark for evaluating expected investment performance
D. The sml is a graphic representation of the relationship between expected return and beta
B. The sml leads all investors to invest in the same portfolio of risky assets
104
Beta and standard deviations differ as risk measured in that beta measures
A. Only unsystematic risk, whereas standard eviction measures total risk
B. Only systematic risk, whereas standard deviation measures total risk
C. Both systematic and unsystematic risk, whereas standard deviation measures only unsystematic risk
D. Both systematic and unsystematic risk, whereas standard fiat ion measures only systematic risk
B. Only systematic risk, whereas standard deviation measures total risk
105
Which of the following statements is true regarding the distinction between futures contracts and forward contracts
A. Futures contracts are exchange traded, whereas forward contracts are Otc traded
B. All else equal, forward prices are higher than futures prices
C. Forward contracts are created from baskets of futures contracts
D. Futures contracts are cash settled at maturity, whereas forward contracts result in delivery
A. Futures contracts are exchange traded, whereas forward contracts are Orc traded
106
In which of the following ways do futures contracts differ from forward contracts
I. Futures contracts are standardized
II. For futures, performance of each party is guaranteed by a clearinghouse
III. Futures contracts require a daily settling of any gains or losses
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
D. I, II, and III
107
```
The open interest on a futures contract at any given time is the total number of outstanding
A. Contracts
B. Unhedged positions
C. Clearinghouse positions
D. Long and short positions
```
A contracts
108
Initial margin for a futures contract is usually
A. Regulated by the federal reserve
B. Less than 2 percent of contract value
C. In the range between 2 percent and 5 percent of contract value
D. In the range between 5 percent and 15 percent of contract value
D. In the range between 5 percent and 15 percent of contract value
109
```
In futures trading, the minimum level to which an equity position may fall before requiring additional margin is most accurately termed the
A. Initial margin
B. Variation margin
C. Cash flow margin
D. Maintenance margin
```
D. Maintenance margin
110
```
A silver futures contract requires the seller to deliver 5,000 Troy ounces of silver. An investor sells one July silver futures contract at a price of $28 per ounce, posting an $8,400 initial margin. If the required maintenance margin is $6,900, the price per ounce at which the investor would first receive a maintenance margin call is closest to
A. $26.62
B. $27.70
C. $28.30
D. $29.38
```
C. $28.30
111
Which of the following statements is false about futures account margin
A. Initial margin is higher than maintenance margin
B. A margin call results when account margin falls below maintenance margin
C. Marking to market of account margin occurs at least daily
D. A margin call results when account margin falls below initial margin
D. A margin call results when account margin falls below initial margin
112
```
Which of the following contract terms changes daily during the life of a futures contract
A. Futures price
B. Futures contract size
C. Futures maturity date
D. Underlying commodity
```
A. Futures price
113
Cash flow per share is calculated as
A. Net cash flow/ shares outstanding
B. Operating cash flow/shares outstanding
C. Investing cash flow/ shares outstanding
D. Financing cash flow/ shares outstanding
B. Operating cash flow/ shares outstanding
114
```
The difference between net income and operating cash flow is at least partially accounted for by which of the following items
A. Required earnings
B. Cash and cash equivalents
C. Depreciation
D. Dividends paid
```
C. Depreciation
115
Which of the following profitability ratios is incorrect
A. Gross margin = gross profit/cost of goods sold
B. Operating margin = operating income/ net sales
C. Return on assets = net income/ total assets
D. Return on equity = net income/ shareholder equity
A. Gross margin = gross profit/ cost of goods sold
116
Which of the following per share ratios is incorrect
A. Book value per share = total assets/ shares outstanding
B. Earnings per share = net income/ shares outstanding
C. Cash flow per share = operating cash flow/ shares outstanding
D. Dividends per share = dividends paid / shares outstanding
A. Book value per share = total assets / shares outstanding
117
```
A dividend payment has which of the following effects on the balance sheet
A. An increase in shares outstanding
B. A decrease in shareholder equity
C. A decrease in paid in capital
D. An increase in retained earnings
```
B. A decrease in shareholder equity
118
A particular firm is operating at less than full capacity. If sales are expected to grow at only a modest rate next year, which of the following is true
A. Assets will likely increase faster than sales in the short term future
B. Dividends should be reduced to conserve cash
C. No further financial planning should be performed until the sales growth rate increases
D. External financing will likely not be needed next year
D. External financing will likely not be needed next year
119
Which of the following is true regarding the full capacity sales level of a firm
A. A firm that is operating at less than full capacity will never need external financing
B. For a firm that is operating at less than full capacity, fixed assets will typically increase at the same rate as sales
C. A firm with excess capacity has the room to expand without increasing its investment in fixed assets
D. Only for,s operating at full capacity can grow rapidly
C. A firm with excess capacity has the room to expand without increasing its investment in fixed assets
120
What does the call feature of a bond mean
A. Investor can call for payment on demand
B. Investor can only call if the firm defaults on an interest payments
C. Issuer can call the bond issue prior to the maturity date
D. Issuer can call t issue during the first three years
C. Issuer can call the bond issue prior to the maturity date
121
```
Who primarily benefits from a call provision on a corporate bond
A. The issuer
B. The bond holders
c. The trustee
D. The government Regulators
```
A. The issuer
122
Which of the following described a bond with a call feature
A. It is attractive, because the immediate receipt of principal plus premium produces a high return
B. It is more likely to be called when interest rates are high, because the interest savings will be greater
C. It would usually have a higher yield than a similar noncallable bond
D. It generally has a higher credit rating than a similar noncallable bond
C. It would usually have a higher yield than a similar noncallable bond
123
```
Two bonds are identical, except one is callable and the other is noncallable. Compared to the noncallable bond, the callable bond has
A. Negative convexity and a lower price
B. Negative convexity and a higher price
C. Positive convexity and a lower price
D. Positive convexity and a higher price
```
A. Negative convexity and a lower price
124
What does positive convexity on a bond imply
A. The direction of change in yield is directly related to the change in price
B. Prices increase at a faster rate as yields drop than they decrease as yields rise
C. Price changes are the same for both increase and decreases in yields
D. Prices increase and decrease at a faster rate than the change in yield
B. Prices increase at a faster rate as yields drop than they decrease as yields rise
125
Which of the following investors is most likely to invest in locally issued municipal bonds
A. High income individual with a need for liquidity
B. High income individual living in a triple income tax municipality
C. Commercial bank
D. Life insurance company
B. High income individual living in a triple income tax municipality
126
Which of the following statements about single price treasury auctions is true
A. Competitive bidders pay their bid prices
B. No competitive bidders pay the stop out bid plus a 10% premium
C. No competitive bidders pay the stop out bid
D. all of the above are true
C. No competitive bidders pay the stop out bid
127
Treasury bills are discount basis, meaning that the difference between their issue price and their redemption value is
A. The same for all t bill issues
B. The imputed interest on the t bill
C. Never less than the issue price
D. The bond equivalent yield for the t bill
D. The bond equivalent yield for the t bill
128
```
When Originally issued, a 10 year maturity treasury note can be stripped into how many seperate components
A. 10
B. 11
C. 20
D. 21
```
B. 11
129
```
A convertible bond has a par value of 1,000 and a conversion ratio of 20. The price of the underlying stock is $40. What is the conversion value
A. $20
B. $800
C. $1000
D. 25
```
B. $800
130
```
The following are quotes for a u.s. Treasury bond
Bid Ask
102:02 102:05
If the face value of the bond is $1000 , the price an investor should pay for the bond is closest to
A. $1020.63
B. $1021.56
C. $1025.00
D. $1026.25
```
B. $1021.56
131
```
A convertible bond sells at $1000 with a conversion ratio of 40 and an accompanying stock price of $20 per share. The conversion price and conversion value are, respectively
A. $20 and $1000
B. $20 and $800
C. $25 and $1000
D. $25 and $890
```
D. $25 and $800
132
```
Which of the following industries would be considered rather most defensive
A. Consumer directory
B. Industrials
C. Technology
D. Consumer staples
```
D. Consumer staples
133
```
which of the following is not considered a leading economic indicator
A. Stock prices, 500 common stocks
B. Money supply (m2) growth rate
C. Average duration of unemployment
D. Index of consumer expectations
```
C. Average duration of unemployment
134
```
Which of the following is not one of the four stages of the business cycle
A. Peak
B. Contracting
C. Trough
D. Cliff
```
D. Cliff
135
```
All of the following are ways the federal reserve changes the money supply except
A. The discount rate
B. Open market operation
C. The prime rate
D. All of the above are used by the fed
```
C. The prime rate
