9. Of the investments listed below, which security is generally expected to provide the highest level of return in the future over the long term?

a. Common Stock

b. Subordinate Debt

c. Senior Debt

d. Preferred Stock

10. Thinking about the "Present Value of Cash Flows" valuation model, holding everything else constant what policy initiative(s) taken by the Federal Reserve would be more likely to cause a security's price to decline?

a. Fed Easing Policy

b. Decrease in Discount Rate

c. Quantitative Tightening

d. Open Market Operations that reduce the Fed Funds rate

11. A graphic depiction of the ex-ante risk-reward tradeoff for investments with risk on the X-axis and expected return on the Y-axis. a. can be inverted sloping showing rationale investors do not always expect higher return for higher risk because returns don't always follow expectations

b. should always be upward sloping for rationale investors who expect higher return for higher risk

c. is based on the pure expectations theory which shows that investors will predict future rates in determining return

d. is inconsistent with long term historical returns.

12. Indirect investing involves

a. mutual funds and ETFS

b. mutual funds but not

c. ETFs ETFs but not mutual funds

d. none of the above

13. You have the option purchase two bonds with the same maturity date, annual coupon rate, credit rating and price. The only difference is Bond ABC compounds monthly and Bond XYZ compounds quarterly. Which bond is a better deal for you as an investor?

a. They are the same.

b. Bond XYZ

c. Bond ABC

d. Not enough information to decide.

14. The maximum loss of a long call position is equal to

a. the exercise price

b. the strike price

c. market-strike price

d. call premium

15. The maximum gain of a short call position is equal to

a. the exercise price

b. the strike price

c. market price-strike price

d. call premium

16. Considering the "Present Value of Future Cash Flows" valuation model, what explains lower returns of growth stocks (vs. value stocks) in an environment of rising interest rates?

a. Value stocks have greater uncertainty of future cash flows

b. Growth stocks are discounted using a lower required rate of return

c. A greater proportion of cash flows of value stocks are front loaded (come in earlier years) than growth stock whose cash flows come in later years.

d. Inflation affects the margins of growth stocks more than those of value stocks

17. In 2020, the total market value of global equity markets was _____ the total market value of global fixed income markets.

a. larger than

b. smaller than

c. about the same size as

18. Equity factors are ______ that have historically provided additional _______.

a. bond features | return risks

b. stock characteristics | risk premium

c. risk entitlements | risk ingredients

d. risks | refunds