1.In the event of the firm's bankruptcy,

A)The most shareholders can lose is their original investment in the firm's stock

B)Common shareholders are the first in line to receive their claims on the firm's assets

C)Bondholders have claim to what is left from the liquidation of the firm's assets after paying the shareholders

D)The claims of preferred shareholders are honored before those of the common shareholders

E)The most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders

2.If the economy were to enter a steep recession, spreads between yields on commercial paper and Treasury bills would _______

A)Become inverted

B)Narrow

C)Widen

D)Remain the same

E)None of the above

3._______ are real assets.

A)Land

B)Machines

C)Stocks and bonds

D)Knowledge

E)Land, machines, and knowledge

4.You bought 100 shares of Alibaba Group Holding Ltd. (ticker: BABA) when it traded at $150 per share with $7,500 of your own funds plus a $7,500 margin loan from your broker at an annual interest rate of 10%. One year later, you sold the stock at $200 per share. Your rate of return is about:

A)33%

B)57%

C)67%

D)78%

E)83%

5.You enter a commission-free market order to buy the stock of Walmart Inc. (ticker: WMT) when it trades at a bid price of $119.78 and an offered price of $119.80 per share. The trade will be executed:

A)Immediately at $119.78 per share

B)When a seller will be offering the stock at $119.78 per share

C)When the market moves to your desired price

D)Immediately at $119.80 per share

E)None of the above

7.You would have enough money today to pay your next year's tuition at Stevens if it stayed the same as this year, but you know that college tuition increases in line with inflation. The best annual interest rate you can get today for cash is 2.5% on a conventional 1-year bank CD, and 0.5% on an "inflation-plus" 1-year bank CD. Inflation has ranged between 1.5% and 2.0% in recent years, and the S&P 500 stock index has returned more than 8% annually since 2007.What would be the best way to invest your money today to ensure you can pay for your next year at Stevens?

A)A conventional 1-year bank CD

B)An "inflation-plus" 1-year bank CD

C)An S&P 500 Exchange-Traded Fund (ETF)

D)A no-interest checking account

E)A 5-year Treasury-Inflation Protected Security (TIPS) bond

8.Youinvest 30% of your savings in a risky asset with an annual expected rate of return of 15% and a variance of 0.04, and the remaining 70% in a 1-year Treasury bill yielding 6%. Your portfolio's expected return and standard deviation are __________ and __________, respectively.

A)11.4%; 12.0%

B)8.7%; 6%

C)29.5%; 6%

D)8.7%; 12.0%

E)None of the above

9.The first major step in asset allocation is:

A)Assessing the investor's risk tolerance

B)Constructing the mean-variance efficient frontier

C)Analyzing financial statements

D)Estimating security betas

E)Identifying market anomalies

10.Systematic risk is also referred to as:

A)market risk or non-diversifiable risk

B)market risk or diversifiable risk

C)unique risk or non-diversifiable risk

D)unique risk or diversifiable risk

E)None of the above