1-Abby buys a position in a closed-end mutual fund that is selling at an 8% discount. The fund earns 12%, but the discount decreases to 5%. What is Abby's return on this investment?
A: 8.5%
B: 12.0%
C: 12.4%
D: 14.2%
E: 15.7%
2-Skewness measures
A: the coefficient of asymmetry of a distribution.
B: the point where there is a 50% probability that realized returns will fall below a given value.
C: the point where there is a 50% probability that realized returns will fall above a given value.
D: what proportion of a security's or portfolio's total variability is explained by its relationship to a benchmark or index.
E: the volatility, or risk, of a security or fund in relation to that of its index or benchmark.
3-The basic concepts of time value analysis must
A: account for all anticipated cash flows.
B: account for all anticipated benefits and costs.
C: evaluate all cash flows, benefits, and costs at the same point in time.
D: account for differences in the timing of cash flows, benefits, and costs by applying a risk-adjusted discount rate.
E:all of these are true.
4-The simple annual return
A: is the same as the geometric average.
B: assumes interest and principal are not reinvested.
C: incorporates compounding in the analysis.
D: is appropriate only for short-term investments.
E: is the difference between the present value of all future benefits of an investment and the present value of all capital contributions.
5-The return necessary to compensate an investor before the risk of the project is taken into account is the
A: required return.
B:risk-free rate.
C: risk premium.
D: yield to maturity.
E: current yield.
6- Which of the following is not one of the market multiples that are commonly used for comparing peer companies?
A: Price/Earnings
B: Price/Sales
C: Dividend/Price
D: Earnings/Dividend
E: Price/Free Cash Flow
7-What is the beta for the market portfolio?
A: negative
B: 0.0
C: 0.5
D: 1.0
E: It varies with economic conditions.
8- A negative information ratio implies
A: the standard deviation of the index is less than the standard deviation of the benchmark.
B: the return of the benchmark is less than the return of the portfolio.
C: the standard deviation of the benchmark is less than the standard deviation of the portfolio.
D: the return of the portfolio is less than the return of the benchmark.
E: the information ratio cannot have a negative value.
9- What is the correlation with the greatest potential for diversification?
A:-1.0-
B: -0.5
C: 0.0
D: +1.0
E: +2.0
10- An immunization strategy protects a portfolio from
A: interest rate risk.
B: default risk.
C: liquidity risk.
D: prepayment risk.
E: event risk.
11-Sources of up-front tax incentives come from
A: tax credits and subsidies.
B: postponing the tax.
C: margin requirements.
D: all of the these are up-front incentives.
E: B and C are up-front incentives, but A is not
12-Combining uncorrelated assets will
A) increase the overall risk level of a portfolio.
B) decrease the overall risk level of a portfolio.
C) not change the overall risk level of a portfolio.
D) cause the other assets in the portfolio to become positively related.
13-Over the long term, a portfolio consisting of an S&P 500 index and an EAFE index will generally produce ________ returns and have ________ risk than a portfolio comprised solely of the S&P 500 index.
A) higher; more
B) higher; less
C) lower; more
D) lower; less
14-Systematic risks
A) can be eliminated by investing in a variety of economic sectors.
B) are forces that affect all investment categories.
C) result from random firm-specific events.
D) are unique to certain types of investment.
15-Long-term bonds are ________ than short-term bonds.
A) less risky
B) more liquid
C) subject to more uncertainty
D) less sensitive to interest rate changes
16-To operate as a regulated investment company and enjoy the related tax benefits, a mutual fund must annually distribute to its shareholders
A) half of its realized capital gains, and interest and dividend income.
B) none of its realized capital gains, but all of its interest and dividend income.
C) all of its realized capital gains, and at least 90 percent of its interest and dividend income.
D) all of its realized capital gains and interest and dividend income.
17-Which type of fund is always passively managed?
A) a closed-end fund
B) a growth fund
C) a value fund
D) an index fund
18-Investors in hedge funds have the legal status of
A) shareholders.
B) limited partners.
C) general partners.
D) trustees.
19-An aggressive growth mutual fund is least likely to purchase a stock
A) with a high P/E ratio.
B) with a high anticipated rate of growth.
C) of an unseasoned firm.
D) with a high dividend yield.
20-Socially responsible funds are distinguished from other mutual funds because they
A) invest only in over-the-counter stocks.
B) do not charge any sales commission or management fees.
C) invest only in companies that meet specified moral, ethical, or environmental standards.
D) will sell their shares only to investors who sign a statement saying they do not smoke tobacco or use alcohol.
21-Which of the following is a default option for most mutual funds?
A) Automatic reinvestment of dividends and interest income.
B) Automatic investment of a fixed sum each month.
C) Automatic conversion from aggressive to conservative funds as clients approach retirement.
D) Automatic withdrawal of a fixed amount each month.
22-Mutual funds often report returns as the growth of $10,000 over a period of time. These returns assume that
A) all dividends and capital gains are reinvested.
B) all dividends and capital gains are withdrawn.
C) all dividends and capital gains are reinvested after deductions for income taxes.
D) the investor contributes money to the fund on a regular basis through an automatic investment plan.
23-The process of selling certain issues in a portfolio and purchasing new ones to replace them is known as
A) portfoliorevision.
B) markettiming.
C) red herring baiting.
D) dollar cost averaging.
24- An American call option gives the owner
A) the right to buy or sell the stock at the strike price on or before the expiration date.
B) the right but not the obligation to buy the stock at the strike price on or before the expiration date.
C) the right and the obligation to buy the stock at the strike price on or before the expiration date.
D) the right but not the obligation to sell the stock at the strike price on or before the expiration date.
25- One reason that writing options can be a viable and profitable investment strategy is that
A) the option writer collects the quarterly dividends.
B) most options expire unexercised.
C) an option writer determines when the option is exercised.
D) an option writer can exercise the option to avoid a potential loss.
26) The writer of a put
A) accepts the obligation to sell a predetermined number of shares at a predetermined price.
B) is betting the price of the underlying security will increase in value.
C) is hoping that the put will be in-the-money prior to expiration.
D) will pay the premium whether or not the option is exercised.
27- In the accumulation phase of the investor life cycle
A: investors with long -term time horizons should accept only low risk
B: Investors have high net worth
C: investors are saving for retirement only
D: investors may seek to accumulate wealth through higher risk investments
.E: none of these choices apply.
28- A group of securities with similar characteristics is called a(n)
A: portfolio.
B: industry.
C: asset class.
D: sector.
E: market.
29) In nearly all cases, the purpose of a hedge is to
A) reduce or eliminate risk.
B) make a very high profit in an extremely short time frame.
C) speculate on a downward drop in a general market index.
D) speculate on an upward movement in a given currency.
30) ETF options are settled in
A) cash.
B) ETF shares.
C) share of the companies in the index.
D) The writer has the choice of settling in either cash or ETF shares.
31) The seller of a futures contract
A) has the option of canceling the contract the following day if the price is not acceptable to him/her.
B) is legally bound to make delivery of the specified item on the specified day.
C) receives the entire contract amount at the time the contract is made.
D) must make delivery before receiving any monies on the contract.
32) With futures contracts, the price at which the commodity must be delivered is
A) set when the futures contract is sold.
B) set when the contract expires.
C) is equivalent to the strike price for an options contract.
D) changes frequently during the life of the contract.
33)A farmer who grows soy beans can hedge against the risk that bad weather will damage her crop by
A) buying soy bean futures for delivery near the time of harvest.
B) selling soy bean futures for delivery near the time of harvest.
C) buying contracts in alternative crops for delivery near the time of harvest.
D) buying contracts in unrelated commodities for delivery near the time of harvest.
34) In the futures markets, gains and losses in a contract's value are calculated every day and added to or subtracted from the trader's account. This procedure is called
A) checking the maintenance margin.
B) checking the maintenance deposit.
C) settling.
D) mark-to-the-market.
35) The maximum amount that the price of a futures contract can change during the day is referred to as
A) the swing limit.
B) the maximum daily range.
C) the daily margin limit.
D) the leverage restriction.
36) Hedging in the commodities market is a strategy primarily used by
A) individual investors with high risk tolerance levels for commodities.
B) institutional investors on behalf of their conservative investors.
C) by producers and processors of commodities.
D) investors looking for short-term capital gains.
37) The value of an interest-rate futures contract will go up when
A) interest rates go up.
B) interest rates go down.
C) gold prices rise.
D) gold prices fall.
38) The value of a futures option is defined as
A) the difference between the option's strike price and its original purchase price.
B) the difference between the option's strike price and the market price of the underlying futures contract.
C) the strike price of the option multiplied by the mark-to-the-market value.
D) the mark-to-the-market value divided by the strike price.
39) Risk factors faced by corporate bond investors include all of the following EXCEPT
A: purchasing power (inflation) risk.
B: liquidity risk.
C: interest rate risk.
D: default risk.
E: derivative risk.
40-Option strategies include which of the following?
A: short call
B: bull spread
C: long call
D: protective put
E: all of these are option strategies