1. Equity markets involve:

a.A permanent transfer of funds

b. A temporary transfer of funds

c. A predetermined return to investors

d. Both B and D

2. Which of the following statements is incorrect?

a. Arbitrageurs are motivated to earn a profit

b. Arbitrageurs are motivated to reduce the risk of an existing exposure

c. Arbitrageurs aim for a risk-free position

d. Arbitrageurs profit from inconsistent pricing

3. The maintenance margin for a futures contract refers to:

a. The level to which a margin deposit must be returned after a margin call has been made

b. The level to which a margin deposit is set when an investor enters a long futures position

c. The difference between the futures market price and the contract price

d. The level of the margin deposit that would trigger a margin call

4. Which of the following statements is the most accurate?

a. Stock markets facilitate the flow of funds from saving-deficit units to savings-surplus units

b. Stock markets facilitate the trading of shares of all companies

c. An equally weighted portfolio consisting of all shares traded on the Australian Stock Exchange would represent the market portfolio

d. Stock markets provide liquidity for share trading.

5.Which of the following statements is the most accurate?

a. Stock markets facilitate the flow of funds from saving-deficit units to savings-surplus units

b. Stock markets facilitate the trading of shares of all companies

c. An equally weighted portfolio consisting of all shares traded on the Australian Stock Exchange would represent the market portfolio

d. Stock markets provide liquidity for share trading.

6. An over-the-counter forward contract:

a. Is marked-to-market daily

b. Will be closed-out by the clearing house if a margin call is ignored

c. Is not subject to daily settlement

d. Rarely involves physical delivery

7. Relative to the maturity of a bond, the duration is:

a. longer when interest rates exceed the coupon rate

b. longer when interest rates are less than the coupon rate

c. shorter when the bond does not pay coupon interest

d. shorter when the bond does pay coupon interest

8.Australian stock brokers differ from dealers in that:

a. dealers buy and sell from their own portfolio whereas brokers only act on behalf of clients

b. brokers buy and sell from their own portfolio whereas dealers only act on behalf of clients

c. dealers only execute market orders while brokers only execute limit orders

d. brokers only execute market orders while only execute limit orders

9.One or more of the financial instruments in the table below are misprices. Complete columns 5, 6, and 7 of the table, indicating which instruments would be bought and which would be sold to exploit the arbitrage opportunity. Assuming a 360-day year, with no transaction costs associated with buying or issuing bills and bonds, calculate the single round-trip profit based on 1 bond.

Column	1	2	3	4	5	6	7
Instrument	Maturity (day)	Coupon (% p.a.)	Coupon frequency	Yield (% p.a.)	Price ($)	Face value	Buy or sell?
Bill	180	-	-	6.50
Bill	360	-	-	7.00
Bond	360	8.0	Semi-annual	7.78	1,002.08	1000