1. The Securities Exchange Act of 1934

(a) requires full disclosure of information on all new security issues.

(b) authorized the SEC to regulate mutual funds.

(c) established trade associations such as the NASD.

(d) created the SEC as the regulator of the securities exchanges.

2. Nancy sells short 100 shares of XYZ stock at $31.25 per share and six months later purchases the shares at $29.00 each. Ignoring brokerage fees, Nancy will

(a) earn a total profit of $225.00.

(b) lose a total of $225.00.

(c) earn a total profit of $2,225.00.

(d) lose a total of $202.50.

3. When calculating the present value of either a future single sum or a future annuity, the applicable interest rate is usually called the

(a) yield to maturity.

(b) compound interest rate.

(c) internal rate of return.

(d) discount rate.

4. Stocks are a(n) ______ investment representing ______ of a business.

(a) direct; ownership

(b) direct; debt

(c) indirect; ownership

(d) indirect; debt

5. Assume the foreign exchange rate for the euro was US $1.00 1.13 last month. This month, the exchange rate is US $1.00 1.09. This information indicates that over the past month the

(a) US dollar remained unchanged relative to the euro.

(b) US dollar appreciated relative to all foreign currencies.

(c) euro appreciated relative to the dollar.

(d) euro depreciated relative to the dollar.

6. Debt represents funds loaned in exchange for

(a) dividend income and the repayment of the loan principal.

(b) dividend income and an ownership interest in the firm.

(c) interest income and a partial ownership interest in the firm.

(d) interest income and the repayment of the loan principal.

7. Which one of the following is NOT published by the U.S. Government?

(a) Federal Reserve Bulletin

(b) Survey of Current Business

(c) Kiplinger Washington Letter

(d) Economic Report of the President

8. Risk can be defined as the possibility that

(a) a negative return can be expected.

(b) actual returns can vary from expected returns.

(c) expected returns will vary from past returns.

(d) actual returns will exceed past returns.

9. Including foreign investments in a portfolio

(a) decreases the overall diversification of the portfolio.

(b) reduces the potential rate of return.

(c) provides potential benefits from changes in currency values.

(d) limits the diversification amongst industries.

10. A $5,000 ten-year 8% coupon bond which pays interest semi-annually will

(a) pay the bondholder $400 in interest every six months.

(b) repay the $5,000 to the bondholder at the end of eight years.

(c) pay the bondholder $200 in interest every six months.

(d) pay the bondholder $200 in interest every three months.

11. Bond yields are

(a) quoted as the average monthly rate of return and assume the bond is purchased today at the quoted price and held for twelve months.

(b) quoted as annual rates of return and assume the bond is purchased today at the stated price and sold one year from today.

(c) stated as a percentage of the maturity value and assume the bond is held to maturity.

(d) stated as an annual rate of return and assume the bond is purchased today and held until maturity.

12. The law that requires investment advisers to register with the SEC is the

(a) Investment Company Act of 1940.

(b) Investment Advisers Act of 1940.

(c) Maloney Act of 1938.

(d) Securities Act of 1933.

13. Susie purchased a stock one year ago at a price of $24 a share. In the past year, she has received four quarterly dividends of $0.50 each. Today she sold the stock for $27 a share. The amount of capital gain per share is

(a) $3.00.

(b) $3.50.

(c) $4.00.

(d) $5.00.

14. Stock market averages and indexes are commonly used to measure the

(a) specific behavior of companies.

(b) general behavior of stock prices.

(c) specific behavior of alternative investments.

(d) specific behavior of the economy.

15. Roy is going to receive a payment of $5,000 one year from today. He earns an average of 6% on his investments. What is the present value of this payment?

(a) $4,717

(b) $4,821

(c) $5,000

(d) $5,300

16. Short-term securities are bought and sold in the

(a) capital market.

(b) primary market.

(c) money market.

(d) stock market.

17. Which one of the following statements concerning the primary market is correct?

(a) A transaction in the primary market is between two private stockholders.

(b) The first public sale of a company's stock in the primary market is called a seasoned new issue.

(c) A private placement occurs in the primary market.

(d) A rights offering is a direct sale of stock to an institution that participates in the primary market.

18. The governmental agency that oversees the capital markets is the

(a) Federal Trade Commission.

(b) Federal Reserve.

(c) Securities and Exchange Commission.

(d) Fair Trade and Banking Agency.

19. Which of the following are functions of the secondary market?

I. Provide liquidity for current stockholders

II. Equate the demand and supply of securities

III. Provide a market for seasoned new issues

IV. Provide continuous pricing of securities

(a) I and II only

(b) II and IV only

(c) I and III only

(d) I, II and IV only

20. Regulation FD requires

(a) company executives to report critical information simultaneously to securities professionals and the general public.

(b) all news media to simultaneously broadcast analysts forecasts on individual stocks.

(c) penalties for committing fraud if the regulations are violated by any news media broadcaster.

(d) all communications with rating agencies, such as Standard & Poor's to be immediately communicated to the general public.

21. Which one of the following web sites should you utilize to review the financial information in a company's 10-K report?

(a) freeedgar.com

(b) valueline.com

(c) news.com

(d) newsalert.com

22. Assume that the S&P 500 composite stock index is 995.50. This means that

(a) the average stock in the index is selling for $99.55.

(b) an investor would have to pay $995.50 to purchase one share of each of the stocks represented in the index.

(c) the market values of the stocks in the index increased by a factor of 99.55 since the 1941-1943 base period.

(d) the share prices of the stocks in the index have risen 995.50 times since 1941.

23. Robin purchased a stock at a price of $18 a share. She received quarterly dividends of $0.50 per share. After one year, Robin sold the stock at a price of $19.50 a share. What is her percentage total return on this investment?

(a) 10.3%

(b) 11.1%

(c) 17.9%

(d) 19.4%

24. Which one of the following statements concerning interest is correct?

(a) A five-year investment paying 6% simple interest will provide a higher total return than a comparable investment paying 6% compound interest.

(b) A $100 investment paying 5% interest compounded annually will have a total value of $115 at the end of three years.

(c) The less frequently interest is compounded, the higher the true rate of interest.

(d) An investment paying 7% compounded quarterly will have a larger value at the end of one year than a comparable investment paying 7% compounded annually.

25. Ted invests $400 today at a 7% rate of return which is compounded annually. What is the future value of this investment after five years?

(a) $428

(b) $500

(c) $540

(d) $561

26. The risk-free rate is equal to the real rate of return plus

(a) an expected inflation premium.

(b) a risk premium.

(c) both an inflation and a risk premium.

(d) the prevailing prime rate.

27. Which of the following represent unsystematic risks?

I. the president of a company suddenly resigns

II. the economy goes into a recessionary period

III. a company's product is recalled for defects

IV. the Federal Reserve unexpectedly changes interest rates

(a) I, II and IV only

(b) II and IV only

(c) I and III only

(d) I, II and III only

28. A stock's beta value is a measure of

(a) interest rate risk.

(b) total risk.

(c) systematic risk.

(d) diversifiable risk.

29. The beta of the market is

(a) -1.0.

(b) 0.0.

(c) 1.0.

(d) undefined.

30. The following data has been gathered concerning a particular investment and conditions in the market.

Risk-free rate

4.5%

Market return

11.0%

Beta of investment

1.35

According to the Capital Asset Pricing Model, the required return for this investment is

(a) 8.8%.

(b) 12.9%.

(c) 13.3%.

(d) 14.9%.

31. The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the

(a) positive relationship between risk and return.

(b) standard deviation between a risk premium and an investment's expected return.

(c) exact price that an investor should be willing to pay for any given investment.

(d) difference between a risk-free return and the expected rate of inflation.

32. When the Capital Asset Pricing Model is depicted graphically, the result is the

(a) standard deviation line.

(b) coefficient of variation line.

(c) security market line.

(d) alpha-beta line.

33. Beta can be defined as the slope of the line that explains the relationship between

(a) the return on a security and the return on the market.

(b) the returns on a security and various points in time.

(c) the return on stocks and the returns on bonds.

(d) the risk free rate of return versus the market rate of return.

34. The efficient frontier

(a) is represented by the rightmost boundary of the feasible set of portfolios.

(b) represents the best attainable tradeoff between risk and return.

(c) includes all feasible sets of portfolios based on risk and return characteristics.

(d) provides the highest level of risk for the lowest level of return.

35. The risk-free rate of return is 4% while the market rate of return is 11%. Delta Company has a historical beta of 1.25. Today, the beta for Delta Company was adjusted to reflect internal changes in the structure of the company. The new beta is 1.38. What is the amount of the change in the expected rate of return for Delta Company based on this revision to beta?

(a) 0.4%

(b) 0.9%

(c) 9.7%

(d) 13.7%

You are an analyst at Dewey, Cheatum, and Howe. A mutual fund manager presents the following free cash flow data for XYZ Corp (in millions of $).

Year Cash Flow

2011 300

2012 500

2013 600

2014 700

2015 500

She asks you to please calculate the:

Geometric Total Return

Annualized Rate of Growth in cash flow

Then, the mutual fund manager asks you to make a 10 year forecast based upon the annualized rate of growth.

Finally, she asks you to calculate the present value of the forecasted cash flows assuming a weighted average cost of capital of 8%.