1) The market for short-term debt is known as A) the money market. C) the notes market.

B) the bond market. D) the capital market.

1)

2) A commercial bank will loan you $7,500 for two years to buy a car. The loan must be repaid in 24 2) equal monthly payments. The annual interest rate on the loan is 12% of the unpaid balance. What is the amount of the monthly payments?

A) $282.43 B) $390.52 C) $369.82 D) $353.05

3) Stewie bought 200 shares of stock at a price of $10 a share. He used his 70% margin account to 3) make the purchase. He sold his stock after a year for $12 a share. Ignoring margin interest and trading costs, what is Stewie's return on investor's equity for this investment?

A) 29% B) 10% C) 14% D) 67%

4) Kenny plans to buy a Chef Inc. stock today. His analyst informs him that Chef Inc. plans to pay 4) $2.00 dividends for the next 2 years and also, Chef Inc. plans to buyback the stock at a fixed price of 25$, 2 years from now. The analyst also tell Kenny that the CAPM required rate of return for Chef Inc. stock is 10%. What is a fair price for Kenny to buy the stock today?

A) $24.33 B) $24.13 C) $24.73 D) $25.03

5) The liquidity preference theory supports ________ yield curves. A) downward sloping B) flat C) humped D) upward sloping

5)

6) Yield to call on a bond with a coupon rate of 8% paid semi-annually, 10 years to maturity, a par 6) value of $1,000 and a selling price of $1,071, callable after 5 years at $1,010 is

A) 7.0%. B) 8.16%. C) 3.5%. D) 6.49%.

7) What is the annual compounded interest rate of an investment with a stated interest rate of 6% 7) compounded quarterly for seven years (round to the nearest .1%)?

A) 10.9% B) 6.7% C) 6.1% D) 51.7%

8) You are planning to buy a call option on the Archer Inc. stock. This stock is currently selling in the 8) market at $75. You plan to buy this stock 4 years from now and you wish to pay no more than $100 to buy this stock at that time. The volatility or risk of this stock (sigma) is 20% and the risk free rate is 10%.

What is 'd1'? A) -0.4808 B) -0.6808 C) 0.6808 D) 0.4808

9) Using the information in the question above, if N(d1)=0.6847 and N(d2)=0.5322, then the call option 9) premium for a call option with a time to expiration of 4 years for Archer Inc. stock is?

A) $11.96 B) $5.98

C) $7.71 D) $15.68

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10) The ability to obtain a given equity position at a reduced capital investment, and therefore magnify 10) returns, is known as

A) hedging. B) straddling. C) leverage. D) triple witching.

11) It is January 01, 2017. Tweak Coffee Inc. just announced an EPS of $2.25/share for the financial year 11) that just ended. Tweak Coffee's stock has a P/E of 13. Analyst Stan thinks that Tweak's EPS will

grow by 4% this year. What is Tweak Coffee's stock price, using P/E method

A) $29.25 B) $81.25

12) The risk-free rate of return is equal to the A) required return minus the real rate.

B) required return minus the inflation premium. C) real rate plus the inflation premium. D) real rate plus a risk premium.

C) $30.42

D) $28.08

13) What is the present value of $150 received at the beginning of each year for 16 years? The first 13) payment is received today. Use a discount rate of 9%, and round your answer to the nearest $10.

12)

A) $1,250 B) $1,480 C) $1,210 D) $1,360

14) The decision of how much money to pay out in dividends is made by the A) chief financial officer. B) board of directors. C) chief executive officer. D) company shareholders.

14)

15) What is the current price of a 9%, $1,000 annual coupon bond that has eighteen years to maturity 15) and a yield to maturity of 9.631%?

A) $898 B) $935 C) $947 D) $942

16) Wendy invests $25 in Stock A and $75 in stock B. The expected returns of stock A and B are 10% 16) and 4%, respectively. What is the expected return of Wendy's portfolio?

A) 8.50% B) 5.50% C) 6.40% D) 7.60%

17) Use the information in the question above. Stock A and stock B have sigmas of 50% and 10% 17) respectively. The two stocks have a correlation of 0. What is Wendy's portfolio risk (sigma)?

A) 17.38% B) 14.58% C) 10.48% D) 15.38%

18) Two well-diversified portfolios, A and B, have expected returns of 16% and 8%., respectively and 18) portfolio betas of 1.5 and -0.5 [negative* 0.5], respectively. Another well diversified portfolio, portfolio C, has an expected return of 24%. What is the beta of portfolio C?

A) 3.50 B) 4.50 C) 2.00 D) 1.00

19) Which one of the following statements about common stock is correct? A) Each share of common stock of a given class entitles the holder to an equal ownership

position and an equal vote in the corporation.

B) Each share of stock has a specified maturity date.

C) Common stock typically provides higher levels of current income than do similar grade

corporate bonds.

D) Common stock gives stockholders first title to a share of the company's earnings, prior to

other corporate obligations.

19)

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20) Which one of the following combination of features causes bond prices to be the most volatile? 20)

A) low coupon, long maturity B) high coupon, long maturity C) high coupon, short maturity D) low coupon, short maturity

21) Craig Corp. just paid dividends of $1.00/share. Analyst Victoria thinks that Craig Corp.'s dividends 21) will grow by 5% for the next three years and then flatten out. She also notices that Craig Corp. is a heavy industries company and has a beta of 1.5. The general estimates for the economy indicate that the expected return from the market is about 8% and the yield on a Treasury bond is 1%. Using CAPM and the dividend discount model, what is Victoria's investment value for Craig Corp.?

A) $9.93 B) $10.13 C) $9.73 D) $10.00

22) Which one of the following statements concerning interest rates is correct? A) A federal budget surplus will cause interest rates to decline.

B) Rising interest rates in foreign countries will cause U.S. interest rates to decline. C) A decrease in the money supply will cause interest rates to decline. D) Economic expansions will cause interest rates to decline.

22)

23) In a severe recession, the major source of risk faced by investors who purchase corporate bonds is 23)

A) interest rate risk. C) liquidity risk.

B) default risk. D) purchasing power risk.

24) Crossing markets are those that A) fill only the orders which have opposing orders at identical prices.

B) conduct transactions between institutional and individual traders. C) trade foreign securities. D) conduct business at locations in varying time zones.

24)

25) Debentures are secured by 25) A) earnings from the project the debentures were issued to finance.

B) financial assets held in trust by a third party. C) the issuer's good name. D) physical assets like real estate.

26) You possess a perpetuity whose first payment is $1.00. The payments decline at a rate of 50%. If the 26) discount rate is 50%, what is the PV of your perpetuity?

A) not defined B) $0.67 C) $2.00 D) $1.00

27) The price an individual investor will pay to purchase a stock in a delaer market is the 27) A) broker price. B) bid price. C) spread. D) ask price.

28) What is the coupon rate of an annual bond that has a yield to maturity of 8.5%, a current price of 28) $942.32, a par value of $1,000 and matures in thirteen years?

A) 8.33% B) 8.50% C) 7.75% D) 7.67%

29) You have just purchased a share of preferred stock for $50.00. The preferred stock pays an annual 29) dividend of $5.50 per share forever. What is the rate of return on your investment?

A) .010 B) .055

C) .110 D) .220

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30) Behavioral finance would explain many market anomalies to 30)

A) random price movements that only appear to have a rational explanation. B) poorly understood aspects of market efficiency. C) illegal manipulation of securities prices.

D) the influence of human emotions and biases on securities markets.

31) Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated as 31) A) investment grade bonds. B) high-yield bonds. C) illiquid bonds. D) split bonds.

32) You joined the work-force on Jan 01, 1991. The American economy was booming and you saved 32) $50,000 at the end of each year, for 10 years. Then, the tech crash happened and you saved only $5,000 at the end of each year for 5 years. Then, the financial crisis happened and you saved nothing for the next ten years. On December 31, 2015, what does your bank account state if the

interest rates have been a steady 1% for all these years?

A) $500,489.31 B) $641,843.50

33) If a bond rating moves from a BB to a BBB rating A) the bond will still be classified as junk.

B) the market price of the bond will rise. C) it must also move from a Ba to a Baa rating. D) the market yield on the bond will rise.

C) $635,488.61

D) $495,533.97

34) The option premium is A) the fee charged by the options exchanges for executing transactions.

33)

34)

B) the amount by which the stock price is expected to move before the option expires. C) the difference between the strike price and the underlying price of the security. D) the market price of the option.

35) In an efficient market, prices appear to move randomly because 35) A) insider trading has an unpredictable effect on stock prices.

B) the number of investors who can forecast prices correctly is too small to have any effect. C) onlynewinformationaffectsstockprices. D) investors do not process new information correctly.

36) The tendency to hold onto losing stocks in the hope that they will recoup is called 36) A) representativeness. B) biased self-attribution. C) loss aversion. D) narrow framing.

37) Which one of the following actions would be the most appropriate hedge to a short sale of common 37) stock? [HINT: To hedge means to protect oneself from the adverse effects of a trade. In a short sale, the investor is adversely affected if prices go up. So, an appropriate hedge would be something that pays off proportionally when the price of the underlying goes up]

A) sale of a put B) sale of a call C) purchase of a put D) purchase of a call

38) Even after adjusting for risk, the firm-size anomaly shows that ________ firms have, over long 38) periods of time, earned higher returns than ________ firms.

A) new, old B) old, new

C) large, small D) small, large