1. How are warrants used by corporations?

Select one:

A. To decrease the volatility of their common stock

B. To allow for insurance of debt at rates lower than would otherwise be required

C. To decrease the dilution of earnings per share

D. More than one of the above

2. Which of the following statements about convertible securities is true?

Select one:

A. They provide a guaranteed income stream, minimum value, and conversion

B. The conversion premium is influenced by the volatility of the underlying common stock, term to maturity, and dividend payment relative to interest rate

C. They are potentially dilutive to earnings and must be taken into consideration in the calculation of both primary and fully diluted earnings per share

D. All of the above are true

3. A firm has warrants outstanding for investors to purchase 50,000 shares at $25 per share. The current stock price is $40. The firm has l million shares outstanding and earnings per share of $1.50. What are earnings per share when all these warrants are exercised?

Select one:

A. $1.43

B. $1.47

C. $1.45

D. None of the above

4.

All of the following are characteristics of LEAPS, except:

Select one:

A. Leaps have up to two years of expiration

B. Leaps have generally been limited to "blue chip" stocks such as Coca-Cola, Dow Chemical, General Electric, IBM, and others

C. Leaps have the same characteristics as the short-term options, in general

D. Leaps generally have lower premiums because of their length

5.

If you have a put option on a stock index you hope the market will:

Select one:

A. Go up

B. Go down

C. Remain unchanged

D. None of the above

6.

Under what circumstances can the writer of a call option expect to profit?

Select one:

A. Stock price declines

B. Stock prices remain the same

C. The increase in stock price is less than the speculative premium

D. All of the above

7.

Options may have advantages over futures for some investors because

Select one:

A. Options have a lower margin requirement

B. Options provide more efficient hedging

C. Some investors are prohibited by law from participating in the futures market

D. None of the above

8.

The primary use of stock index futures by the portfolio manager is

Select one:

A. To offset the loss on the portfolio in a declining market

B. To profit from major market movements

C. To increase the profit potential on the portfolio

D. All of the above

9.

From the corporate financial officer's viewpoint, which of the following is not an advantage of issuing convertible debentures?

Select one:

A. The market value of the firm's common stock may rise dramatically

B. Interest rates are generally lower than on straight debt instruments

C. Conversion may enhance the firm's stock price

D. None of the above are advantages

10.

The settle price is the same as the

Select one:

A. Opening price

B. Closing price

C. Intraday high price

D. None of the above

11.

A farmer is likely to use futures contracts as a hedge by taking a _____ position in a contract related to the crop that he/she raises

Select one:

A. Long

B. Short

C. Stop

D. Limit

12.

The recent proiferation of standardized derivative products has been made possible by

Select one:

A. New laws

B. New technology

C. New ideas

D. New exchanges

13.

Which of the following does NOT have futures contracts associated with it?

Select one:

A. Commodities

B. Bonds

C. Currencies

D. Interest rates

14.

Derivatives lay claim to _____ assets

Select one:

A. Real

B. Financial

C. Fake

D. Governmental

15.

A put option where the FMV of the stock is greater than the strike price is

Select one:

A. In the money

B. At the money

C. Out of the money

16.

Sector funds offer

Select one:

A. Good diversification

B. High loss/reward potential

C. Stable returns

D. None of the above

17.

The correlation coefficient:

Select one:

A. Measures the amount of risk associated with a given security at a given moment in time

B. Measures the joint movement between two variables

C. Measures the expected value of a security at a specified moment in time

D. All of the above

18.

Real estate investment trusts are similar to mutual funds or investment companies because:

Select one:

A. They do not trade on organized exchanges, but do trade over-the-counter

B. They pool investors' funds

C. They are both limited partnerships

D. All of the above

19.

Two investments that have a correlation coefficient of -1 will have a portfolio standard deviation of _____________.

Select one:

A. -1

B. 0

C. +.5

D. +1

20.

One way to express the trade-off between risk and return for an individual security is through:

Select one:

A. The security market line

B. The beta coefficient

C. The correlation coefficient

D. Arbitrage pricing theory

21.

Fund managers normally compare their performance to:

Select one:

A. A benchmark portfolio

B. Moody's Bond ratings

C. The Barron's Confidence Index

D. None of the above

22.

The risk that is assumed to be rewarded for an individual stock under the capital asset pricing model is measured by the

Select one:

A. Portfolio standard deviation

B. Portfolio beta

C. Individual stock's standard deviation

D. Individual stock's beta

23.

Emerging markets have the following characteristics:

Select one:

A. The combined market capitalization of Exxon, General Electric and Microsoft is bigger than any emerging market's capitalization including China

B. The International Monetary Fund separates developed and emerging markets by the market capitalization of the respective markets

C. Liquidity would be the same as a small company traded on the NASDAQ stock market

D. Continuous auction markets

24.

A closed end fund might trade at a premium due to

Select one:

A. The quality of fund management

B. An upcoming dividend payable to the portfolio

C. An impending stock split in the portfolio

D. A closed end fund would never trade at a premium

25.

Which of the following is not a disadvantage of investing in mutual funds?

Select one:

A. They do not outperform the market as a group

B. Some mutual funds may be expensive to purchase

C. Sector funds are riskier than diversified funds

D. With 5000 funds to choose from, the selection of a fund is just as difficult as selecting an individual stock

26.

If the market rate of return is 10 percent and the beta on a particular stock is .78, the return on the stock will be

Select one:

A. Greater than 10 percent

B. Greater or less than 10 percent, depending on the risk free rate of return

C. Less than 10 percent

D. Dependent on some other factor

27.

The second largest equity market in the world at the end of 2005 is that of

Select one:

A. Japan

B. The United Kingdom

C. The United States

D. Germany

28.

Countercyclical investments are more likely to have

Select one:

A. High positive correlation with a normal portfolio

B. Slight positive correlation with a normal portfolio

C. No correlation with a normal portfolio

D. High negative correlation with a normal portfolio

29.

The preiodic review and adjustment (if needed) of a portfolio is known as

Select one:

A. Reshuffling

B. Reviewing

C. Rebalancing

30.

Investment goals are

Select one:

A. Objective

B. Not relevant

C. Subjective

31.

Long Terrm Capital Management was a _____

Select one:

A. Mutual Fund

B. Hedge Fund

C. Index Fund

D. Bank

32.

Which of the folowing was not a derivatives scandal?

Select one:

A. Wachovia

B. Societe Generale

C. Orange County

D. Barings Bank

33.

Which of the following LTCM partners did not win a Nobel prize in economics?

Select one:

A. Myron Scholes

B. John Meriwether

C. Robert Merton

34.

Which of the following is not an advantage of mutual funds?

Select one:

A. Professional management

B. Ease of entry

C. Transaction costs

D. Diversification

35.

Which of the following is not part of commercial real estate?

Select one:

A. Retail

B. Office

C. Industrial

D. Residential homes