1. Consider the following statements:

Statement 1: The Sharpe ratio for commodities as an asset class has historically been higher than bonds but lower than stocks.

Statement 2: The volatility of commodity prices tends to be higher than the volatility for reported price inflation.

A. Only Statement 1 is incorrect.

B. Only Statement 2 is incorrect.

C. Both statements are correct.

2.

An analyst collects the following information about an investment's return over the last 24 months:

• Mean return = 18%
• Standard deviation of returns = 12%

Given a risk-free rate of 5%, the Sharpe ratio for this investment is closest to

A. 2.6

B. 0.92

C. 1.083

3. A drag on liquidity is most likely to occur when:

A. There is a delay in cash coming into the company.

B. Cash leaves the company too quickly.

C. The company loses creditworthiness.

4. Henry sold a call option with an exercise price of $75 for $4. Henry's profit if the stock trades at $81 at option expiration is closest to:

A. $6 loss.

B. $10 profit

C. $2 loss

5. If economic data suggest that the economy is undergoing an expansion by an increase in aggregate demand, investors should least likely increase their investments in:

A. Cyclical companies

B. Commodity companies.

C. Defensive companies.

6. A corporate insider is consistently able to earn abnormal returns. This fact most likely:

A. Supports the case for weak-form efficiency of markets. B. Weakens the case for strong-form efficiency of markets. C. Weakens the case for semi-strong-form efficiency of markets.

7. Which of the following ratios is most likely lower in the early years of an asset's like if the company uses the straight-line method instead of the double declining balance method for depreciations?

A. Operating profit margin. B. Operating return on assets. C. Asset turnover.

8. Consider the following statements:

Statement 1: The drawback of credit-linked bonds is that they can contribute to further downgrades or eventual default of the issuer.

Statement 2: TIPS offer investors a fixed real return that is protected from inflation risk.

Which of the following is most likely?

A. Only Statement 1 is correct.

B. Only Statement 2 is correct.

C. Both statements are correct.