1. Which of the following is TRUE in regards to hedge funds? A) Hedge funds are very liquid. B) Hedge funds are taxed as ordinary income. C) Hedge funds are good investments for the average investor. D) Hedge fund fees are much lower than mutual fund fees. E) Hedge funds are largely unregulated. 2. Which of the following is true concerning the difference between simple and compound interest? A) With compound interest, interest is earned only on the original investment whereas with simple interest, interest is earned on interest. B) With compound interest, the assumption is that interest earned on the original investment is not reinvested. With simple interest, interest is reinvested. C) Simple interest always leads to a higher ending investment value when compared to compound interest. D) Simple interest and compound interest always lead to the same ending investment value so there is no difference between the two methods. E) With simple interest, interest is earned only on the original investment whereas with compound interest, interest is earned on both the original investment and the accumulated interest. 3. If you are buying a stock, which of the following ask prices is the most attractive? A) 85.72-86.87 B) 85.75-86.90 C) 85.70-85.83 D) 85.77-86.91 E) 85.71-86.86 4. Your uncle needs $3,000,000 upon retirement in 22 years to live comfortably. He can invest $50,000 a year to his retirement. What interest rate would his investment need to earn in order for him to meet his goals? A) 4.7% B) 20.5% C) 8.6% D) 9.9% E) 13.3% 5. Suppose your investment returns are taxed at a 40% rate. If you invest $19,000 today and expect to earn a rate of return of 9%, what will your investment be worth in 25 years? A) $70,756.91 B) $63,396.85 C) $52,369.96 D) $45,998.90 E) $163,838.53 6. What interest rate would you have to earn if you wanted to double an investment in 12 years? A) 8.6% B) 10.3% C) 3.0% D) 16.7% E) 6.0% 7. Which of the following is true regarding the financing lifecycle? A) Security offerings are typically the first source of OUTSIDE capital for a business B) Owners typically invest after receiving bank loans C) Private Equity financing is not available until after a company has issued security offerings D) Venture Capitalists typically make equity investments in private companies E) Mergers & Acquisitions primarily occur before a company receives Bank Financing 8. What is the following is true about the Dow Jones Industrial Average (DJIA)? A) The DJIA is a market-value weighted index B) The DJIA is a broad measure of the performance of U.S. stocks C) The DJIA includes 500 stocks D) Apple is the biggest stock in the DJIA E) The DJIA weights stocks by their market price 9. Which of the following transactions would take place in the secondary securities market? A) An investor buys a stock from another investor. B) Profits from newly issued securities benefit the issuing company, not the investors. C) An investor buys an IPO stock through an investment bank. D) An investor buys a secondary offering stock from the issuing company. E) The Federal government issues treasury securities 10. Barney and Betty both invested $7,500 three years ago. They both earned a 9% return, however Barney earned a simple return of 9% and Betty earned a compounded return of 9%. How did this difference in compounding affect their investments value today? A) Barney will have $187.72 more than Betty B) Betty will have $1,964.25 more than Barney C) Barney will have $1,964.25 more than Betty D) Their investments will be worth the same E) Betty will have $187.72 more than Barney 11. What is one of the primary roles of the SEC? A) To facilitate operational inefficiency in the markets B) To provide investors with disclosure of material information about private companies C) To eliminate pricing efficiency in the markets D) To protect publicly traded companies from securities fraud E) To ensure fair and orderly markets 12. A Red Herring is ______________ A) the date that the registration period with the SEC ends B) the preliminary prospectus provided to the SEC before the IPO C) an advertisement about an upcoming IPO D) the underwriters option to sell 15% more shares at offering price E) the underwriters option to sell 25% more shares at 10% above the offer price 13. Which of the following is TRUE regarding financial institutions? A) Mutual Funds intermediate between Investors and Markets B) Commercial banks intermediate between Investors and Markets C) Investment banks intermediate between Investors and Companies D) Insurance Companies can be both buy side and sell side institutions E) Investment banks have higher assets under management than Mutual Funds 14. In the case of Frank Curzio versus the Chimp, the Chimp was able to outperform Curzio because: A) Curzio was running a Ponzi Scheme B) the chimp chose lower risk stock than Curzio C) Curzio charged higher fees which reduced returns D) Curzios analysis was based on fraudulent data E) the data Curzio used in his analysis was already reflected in stock prices 15. Which of the following actions is illegal insider trading? A) The CFO of a pharmaceutical firm finds out her companys newest drug was not approved by the FDA. B) An employee buys stock in his company one week after the company releases its quarterly earnings. C) Clients makes a profit based on good investment strategies from their broker. D) A day trader sells his shares a few days before the price decreases. E) Friends of a CEO sell stock in the company after the CEO tells them material information unavailable to others. 16. An Insurance Companys primary source of funds is ______________ and its primary use of funds is ______________. A) Bonds, Debt B) Securities, Debt C) Debt, Reserves D) Shares, Loans E) Reserves, Bonds 17. If you plan to save $12,500 every year for retirement for 30 years. Assuming that you earn a 9% return on your investment, compounded annually, how much money will you have when you retire? A) $128,421 B) $1,012,500 C) $1,703,844 D) $408,750 E) $165,846 18. What is true about the designated market maker? A) The primary role of the designated market maker is due diligence prior to the IPO B) Designated market makers exist only for the NASDAQ exchange C) The designated market maker primarily regulates insider trading D) The designated market maker reports to the specialist on the trading floor E) The primary role of the designated market maker is to hold inventory and to buy and sell shares of a given stock 19. Which of the following is true about Initial Public Offerings (IPOs)? A) IPOs of internet companies have seen the lowest first day stock returns B) IPO is a type of secondary offering in the capital markets C) Venture backed IPOs perform worse than general IPOs D) Investment banks are never involved in the IPO process E) The long-term adjusted performance of IPOs is negative 20. If an investments interest is compounded annually rather than semi-annually, what will be the result on the interest earned from the investment? A) The annual compounding investment will earn half as much interest as the semi-annual compounding investment B) The annual compounding investment will earn less interest because interest will be earned on previous interest payments less often C) The annual compounding investment will earn more interest because interest will be earned on previous interest payments more often D) The annual compounding investment will earn twice as much interest as the semi-annual compounding investment E) There will be no difference in the interest earned, only in the timing of interest payments. 21. Which of the following is a consequence of well-functioning financial markets? A) Firms are more innovative B) Investments tend to be less liquid C) Managers are less accountable for their actions D) Investors have greater risk aversion. E) Valuation of firms is difficult 22. Which of the following is TRUE about Venture Capital Financing? A) VC firms generally invest in well-established multinational companies B) IPOs backed by Venture Capital have higher long-term returns C) VC firms get positive returns from all their investments D) Upon successful IPO, first round VC gets lower return than later stage VC E) VC financing is available when a company issues its secondary offering 23. Which of the following statements about the Financial Life Cycle is true? A) The Long-Term (3-year) adjusted performance of IPOs is positive B) Stock prices always increase at the announcement of a secondary stock offering C) Early stage VC investors (A-round) typically expect lower returns than later VC investors (C-Round) D) Access to capital markets is one of the primary reasons for a company to issue an IPO E) IPOs are generally overpriced as first day returns are typically negative 24. Ana has a goal to buy a $1 million beach house in 10 years. If she expects to make 5% in the market, how much does she need to invest today to buy her beach house in 10 years? A) $95,000.00 B) $79,504.57 C) $613,913.25 D) $620,921.32 E) $762,523.94 25. Which of the following is true regarding the stock and debt markets? A) The stock market is larger than the bond market B) Investors seeking higher returns invest in stocks C) The debt market is used to measure the health of the economy D) The stock market represents the base cost of capital E) Investors seeking more risk invest in debt 26. Which will be worth more in 15 years: $250 invested today at a rate of 11% $20 invested every year at a rate of 13% A) The $20 invested every year will be worth $387.80 more in 15 years B) The $250 invested today will be worth $476.06 more in 15 years C) Both will be worth the same in 15 years D) The $20 invested every year will be worth $476.06 more in 15 years E) The $250 invested today will be worth $387.80 more in 15 years 27. What is your ending balance using compound interest of an investment of $3,000 with an interest rate of 4.5% after 12 years? A) $4,426.09 B) $36,000.00 C) $46,392.10 D) $28,300.00 E) $5,087.64 28. For the past 12 years, Andrew has been investing $300 into the stock market at the end of every year. The value of his previous investments now is $6,000. What was the annual rate of return on Andrews investments? A) 8.9% B) -26.5% C) 5.0% D) 5.6% E) 6.8% 29. For the past 20 years, Jen has been investing $200 into the stock market at the end of every year. The value of her previous investments now is $8,000. What was the annual rate of return on Jens investments? A) 5.0% B) 8.9% C) 38.3% D) 6.8% E) 2.5%