1.Which of the following are barriers to entry?

I. Large economies of scale required to be profitable

II. Established brand loyalty

III. Patent protection for the firm's product

IV. Rapid industry growth

A.I and II only

B.I, II, and III only

C.II, III, and IV only

D. III and IV Only

2. Which of the following statements regarding dividends is most correct?

A.Dividends are always paid in cash

B.Dividend yield refers to the % of net income that is paid out in dividend

C.Preferred stock dividends are guaranteed, meaning it must be paid on time every time it is due

D.If A sells his stock to B on ex-dividend date, then A will get paid the dividend that was announced

3.Which of the following statements regarding ETFs is not correct?

A.ETFs are debt securities issued by sponsoring broker/dealers who acquired shares to track a market index

B.ETFs are generally more tax efficient than mutual funds

C.ETFs can be traded any time the market is open, while mutual funds must be bought at end of day prices

D.ETFs are not actively managed like mutual funds, so they are less expensive to investors

4. Which of the following statements is most correct?

A. A good candidate to rotate stock portfolios into as the economy enters a recession would be consumer durables such as refrigerators or home improvement supplies manufacturers

B. In an efficient market, if a company announces good earnings that surprised the market, the stock should have immediate but not prolonged positive reactions if there are no more good news

C. Historically major stock market upswings were driven more by fiscal policy than monetary policy stimulus

D. A sudden spike in volatility depresses stock prices and is therefore never a good time to invest

5. What is the % of investment in risky assets A and B which will optimize your portfolio (maximize your utility) consisting of A and B (no risk free asset) if A, B has expected return of 15% and 12%, respectively, standard deviation of 22%, 16%, respectively, and the correlation coefficient of their returns is 0.5. Assume your risk aversion index is 3.

A. w_a = 105%, w_b = -5%

B. w_a = 48.1%, w_b = 51.9%

C. w_a = 46.4%, w_b = 53.6%

D. w_a = 53,6%, w_b = 46.4%

6. as a mean-variance optimizing investor which of the following portfolios would you choose:

A. A portfolio consisting of risky assets A, B, and a risk-free asset F that lies on the (CAL)

B.A portfolio consisting of risky assets A and B only that would maximize your utility given your risk aversion index

C.A minimum variance portfolio consisting of risky assets A and B only

D.A portfolio consisting of risky assets A and B only that lies on the Capital Allocation Line (CAL)

7.Which one of the following is a true statement?

A.A bond selling at a discount to par will experience capital loss as time passes if interest rates stay the same

B.An IBM bond with 6.5% Yield-to-Maturity is a better investment than a State of Texas general obligation bond (which is exempted from Federal tax) that yields 4.5% for an investor with a marginal tax rate of 28%

C.A 6% semi-annual bond will pay $60 in interest every time it issues an interest payment to holders

D.The Yield-to-Maturity of a bond is the same as its coupon rate at the time the bond is issued

8. Which one of the following is a true statement in fundamental analysis?

A.A strategy that seeks out stocks with relatively high P/E ratios is a value investment strategy

B.A stock that has a P/E ratio of 12 and projected earnings growth rate of 6% can be considered undervalued (i.e., a strong buy)

C.A strategy that seeks out stocks with relatively low P/E ratios is a growth investment strategy

D.If the current 10-year T-bond yields 3% and the market risk premium (MRP) is 7%, then a stock with beta equal 2 would be considered undervalued according to CAPM If the market expects the stock to return 15%.

9. If historically gold and silver prices show a very close positive correlation in price movements, then which of the following investments is an example of arbitrage trading?

A.Buying gold when silver price starts to rise or selling gold when silver price starts to fall

B. Selling gold and buying silver when gold is undervalued and silver is overvalued in equal $ amounts

C.Buying gold and selling silver when gold is undervalued and silver is overvalued in equal $ amounts

D.Buying gold and selling silver when gold is undervalued and silver is overvalued in equal physical quantities

10. Which of the following reasons is NOT one that will make investors less inclined to invest in stocks in times of rising inflation?

A. Expected increase in interest rates due to rising inflation expectation

B.Federal Reserve may react with expansionary monetary policy

C.Corporate earnings could be overstated due to understated depreciation charges on older assets

D.Cashflow impairment due to overstated capital gains taxes

11. A bond fund manager owns an equal amount of the following 3 bonds in her portfolio:

Bond A

Bond B

Bond C

Coupon %

4%

6%

5%

Par Value

$1,000

$1,000

$1,000

Yield to Maturity

4.32%

5.26%

8.1%

Years to Maturity

10

13

11

Frequency of Payment

Semi-annual

Quarterly

Semi-annual

If interest rate is expected to rise, which of the following strategies makes most sense in order to minimize the adverse impact of the interest rate movement on the value of the portfolio? [Hint: find the duration of each bond]

A.Put most weight into A, then B, then C

B. Put most weight into C, then A, then B

C.Put most weight into B, then C, then A

D. Put most weight into C, then B, then A