Question 1

A bank pays 6% interest per year, compounded quarterly. What is the effective annual rate?

a. 5.76%

b. 6.00%

c. 6.14%

d. 6.23%

4 points

Question 2

Jones bought stock for $5000, sold it for $6500, and received no dividends. His holding period return is

a. 0%

b. 23.08%

c. 30.00%

d. 41.15%

4 points

Question 3

A stock rises 2.5% in one week. What is the annualized return?

a. 13%

b. 25%

c. 89%

d. 130%

4 points

Question 4

Which one of the following statements is true?

a. Sample variance is greater than population variance.

b. Sample variance is twice population variance.

c. Sample variance is the square root of population variance.

d. Population variance is twice sample variance.

4 points

Question 5

There is a(n) _____ relationship between risk and expected return.

a. direct

b. inverse

c. exponential

d. logarithmic

4 points

Question 6

To find details about a specific bond, one would refer to a legal document known as the

a. debenture.

b. trust certificate.

c. financial newspaper.

d. indenture.

4 points

Question 7

A sinking fund is

a. setting aside a portion of the principal each year.

b. money invested poorly.

c. a low-interest investment.

d. a bond that decreases in value until maturity.

4 points

Question 8

Upon maturity of a zero coupon bond, the owner receives

a. the entire interest amount.

b. the principal.

c. the interest earned over its life.

d. nothing; payments for a zero coupon bond are periodic.

4 points

Question 9

A $1,000 par bond with a closing price of 107 in the financial press has a dollar price of

a. $107.00.

b. $1,070.00.

c. $1,700.00.

d. $10,700.

4 points

Question 10

Which is better to own during a period of declining interest rates in terms of reinvestment rate risk?

a. a zero coupon bond

b. a bond with a 13% coupon

c. a bond with a variable interest rate

d. a municipal bond

4 points

Question 11

When receiving a 10% stock dividend, the owner of 427 shares of stock will receive

a. 4.27 shares.

b. 42.7 shares.

c. 43 shares.

d. 42 shares plus cash.

4 points

Question 12

A company splits its stock 3 for 2. You owned 500 shares before the split. How many do you have after the split?

a. 550

b. 350

c. 750

d. 500

4 points

Question 13

The ratio of dividends to stock price is called the

a. price/earnings ratio.

b. dividend yield.

c. dividend ratio.

d. PE turnover.

4 points

Question 14

ABC Corp. earned $4.20/share last year and paid $1.20 in dividends on an average price of $50/share. The dividend yield on the stock was _______ and the payout ratio was _________.

a. 2.4%; 29%

b. 2.4%; 71%

c. $1.20/year; 29%

d. 8.4%; $1.20/share

4 points

Question 15

Sam is a 50 share shareholder in MOP Inc. that earned $2 million, had 100,000 shares outstanding and a price-earnings ratio of 18. What is the current market value of Sam s investment in MOP Inc.?

a. $1800

b. $360

c. $18,000

d. $15,000

4 points

Question 16

A firm s _____ added to its _____ equals 1.0.

a. earnings per share, PE ratio

b. ROA, ROE

c. growth rate, net income

d. payout ratio, plowback ratio

4 points

Question 17

Cash flow from _____ is a firm s lifeblood.

a. sales

b. investing

c. financing

d. operations

4 points

Question 18

The shareholders required rate of return is the sum of the expected dividend yield and the expected

a. prime interest rate.

b. PE ratio.

c. stock price appreciation.

d. option premium.

4 points

Question 19

Atol Corp. has a price/book ratio of 1.3, a P/E ratio of 18, and current earnings of $2.00/share. Its current book value/share is:

a. $36.00

b. $27.69

c. $23.40

d. $11.70

4 points

Question 20

Amuzon Corp. is currently selling for $30/share and recently reported annual earnings of $2 million, 1 million shares outstanding, and forecasted earnings/share of $2.50 next year. Amuzon Corp.'s trailing P/E ratio is:

a. 15

b. 12

c. 30

d. 6.67%

4 points

Question 21

The earnings yield is the:

a. reciprocal of the P/E ratio.

b. expected return on the present assets of the company.

c. assumes no earnings growth and a 100% payout ratio.

d. all of the above are correct.

4 points

Question 22

If the PE of a broad market index is below the historical average PE, an investor might expect:

a. the earnings yield ratio to increase in the future.

b. the value of stocks in the index to decrease in the future.

c. the PE s of the index to fall in the future.

d. the earnings/price ratio to decrease in the future as stock values increase.

4 points

Question 23

The Greenspan Model attempts to estimate the relative valuation of the stock market by:

a. subtracting the 10-year Treasury bond yield from the S&P 500 earnings yield.

b. comparing the U.S. T-Bill rate with the E/P ratio of the broad market.

c. subtracting the S&P earnings yield from the yield on a long-term U.S. Treasury bond.

d. subtracting the S&P dividend yield from the 10-year Treasury yield.

4 points

Question 24

A negative value on the Greenspan model tends to indicate that the general market is:

a. performing as well as can be expected.

b. is undervalued.

c. is overvalued.

d. an indicator that the Federal Reserve System will tighten or slow the growth of the money supply.

4 points

Question 25

A $40 stock with a 4% dividend yield and an anticipated growth rate of 6%, what is the estimated shareholder expected rate of return if the U.S. T-bill rate is 2%?

a. 12%

b. 10%

c. 8%

d. 4%

4 points

Question 26

Which of the following is most accurate?

a. If correlation is positive, covariance is positive.

b. If correlation is positive, covariance may be positive or negative.

c. If correlation is positive, covariance is negative.

d. If correlation is positive, covariance will be smaller than correlation.

4 points

Question 27

Portfolio variance is also called

a. market risk.

b. total risk.

c. business risk.

d. diversifiable risk.

4 points

Question 28

The equation for the variance of a five-security portfolio has _____ correlation terms.

a. 5

b. 10

c. 15

d. 20

4 points

Question 29

The equation for the variance of a five-security portfolio has _____ variance terms.

a. 5

b. 10

c. 15

d. 20

4 points

Question 30

The efficient frontier contains portfolios that

a. have the least total risk.

b. are not dominated.

c. have the highest expected return.

d. have the highest realized return.

4 points

Question 31

A person owns $10,000 face value of XYZ bonds. These bonds have a conversion price of $45. The bond owner may exchange them for _____ shares of stock.

a. 22.222

b. 45.000

c. 222.222

d. 450.00

4 points

Question 32

Which of the following is the correct calculation of the conversion value?

a. par value/market value

b. conversion price x stock price

c. conversion ratio x conversion price

d. conversion ratio x stock price

4 points

Question 33

Which of the following is the correct calculation of the premium over conversion value?

a. market price minus par value

b. market price minus conversion ratio

c. market price minus conversion value

d. market price minus stock price

4 points

Question 34

A bond has a par value of $1,000, a market value of $1,100, a conversion price of $50, and an associated stock price of $51. The premium over conversion value is

a. $0.

b. $50.

c. $80.

d. $100.

4 points

Question 35

A bond has a par value of $1,000, a market value of $900, a conversion price of $45, and an associated stock price of $40. The premium over conversion value is

a. $0.

b. $5.00.

c. $11.11.

d. $100.00.

4 points

Question 36

A put option gives its owner

a. the right to buy.

b. the right to sell.

c. the right to buy or sell.

d. the right to buy back shares previously sold.

4 points

Question 37

A football ticket is most similar to

a. a share of stock.

b. a bond.

c. a put option.

d. a call option.

4 points

Question 38

An option premium equals

a. intrinsic value minus time value.

b. time value minus intrinsic value.

c. time value plus intrinsic value.

d. time value.

4 points

Question 39

An option that is in-the-money

a. must have intrinsic value.

b. must have time value.

c. must have a negative premium.

d. must have time value greater than its premium.

4 points

Question 40

A put is in-the-money if

a. its strike price equals the stock price.

b. its strike price is greater than the stock price.

c. its strike price is less than the stock price.

d. it is guaranteed by the OCC.

4 points

Question 41

Mutual funds must register with the Securities and Exchange Commission because of the

a. Investment Company Act of 1940.

b. Mutual Fund Omnibus Resolution of 1966.

c. NASDAQ Commission on Investment Pools.

d. 1933 and 1934 Securities Acts.

4 points

Question 42

Laws governing the sale of mutual funds within a state are

a. blue moon laws.

b. blue ocean laws.

c. blue book laws.

d. blue sky laws.

4 points

Question 43

A no-load fund

a. generates tax-free returns.

b. has no sales commission.

c. has an expense ratio of zero.

d. has no management fee.

4 points

Question 44

The effective fee on a fund with a 6% front-end load is

a. 5.67%

b. 6.38%

c. 7.88%

d. 9.4%

4 points

Question 45

A back-end load is also called a

a. 12b-1 fee.

b. nominal expense charge.

c. superannuity.

d. contingent deferred sales charge.

4 points

Question 46

Over the past 4 years an investment returned 8%, 25%, 10%, and 15%. The compound annual return was

a. 14.3%

b. 14.5%

c. 15.1%

d. 15.5%

4 points

Question 47

Over the past 4 years an investment returned 8%, -25%, 10%, and -15%. The compound annual return was

a. 9.1%

b. 7.3%

c. 3.5%

d. 5.6%

4 points

Question 48

The geometric mean is

a. always greater than the arithmetic mean.

b. Always greater than or equal to the arithmetic mean.

c. Always less than the arithmetic mean.

d. Always less than or equal to the arithmetic mean.

4 points

Question 49

The Sharpe measure related return to _____ risk.

a. market

b. total

c. unsystematic

d. business

4 points

Question 50

The denominator of the Treynor performance measure is

a. sigma.

b. delta.

c. the variance.

d. beta.