Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page

break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. You purchased 12 option contracts with a strike price of $55.00 and a premium of $1.25. At expiration,

the stock was selling for $55.24 per share. What's the total profit or loss on your option position if you

didn't exercise it prior to the expiration date?

A. -$1,424

B. -$2,424

C. -$1,212

D. -$876

2. You purchase 2,400 shares of a stock for $25.22 per share. The initial margin requirement is 65 percent

and the maintenance margin is 50 percent. What's the maximum amount the stock price can decline before

you receive a margin call?

A. $14.32

B. $12.45

C. $8.83

D. $17.65

3. Over the past six years, a stock produced returns of 5.2, 18.1, 6.4, 10.2, 8.2, and 1.9 percent,

respectively. For these same six years, the risk-free rate has been 2.4, 3.2, 1.8, 2.2, 4.8, and 1.8 percent,

respectively. What's the arithmetic average risk premium on the stock for this time period?

A. 3.23%

B. 6.21%

C. 5.63%

D. 4.85%

4. You invested $25,000 in a mutual fund three years ago when the NAV of the fund was $38. Today, the

NAV has appreciated to $40.22. You've gained an additional 89.32 shares by reinvesting fund distributions.

The fund levies a contingent deferred sales charge of 5 percent the first year with the charge decreasing by

1 percent each year. How much money will you receive if you redeem your shares today?

A. $28.872.41

B. $29,451.73

C. $30,883.98

D. $27,652.12

5. If you purchase $28,000 of stock by paying $21,000 in cash and borrowing the remaining $7,000, how

much would the total assets be if you constructed a balance sheet to reflect this transaction?

A. $9,000

B. $12,000

C. $21,000

D. $28,000

6. What's a closed-end fund?

A. A fund that directly sells and redeems shares

B. A hedge fund

C. A fund that can only be resold in the stock market

D. A special form of joint-stock company

7. What's the maintenance margin?

A. The minimum equity required to be kept at all times in a margin account

B. The minimum margin required to open a position in a stock

C. The margin which must be satisfied to meet a margin call

D. The maximum margin that can be used to purchase a stock

8. You own one futures contract on gold that you bought at a quoted price of 954.2. The current price

quote is 989.3. The contract size is 100 ounces, and the quotes take the form of dollars and cents per

ounce. What's your current profit or loss on this investment?

A. ($2,462)

B. $3,510

C. $2,824

D. ($3,120)

9. The capital gains yield is equal to

A. (Pt - Pt + 1 + Dt + 1)/Pt + 1.

B. Dt + 1/Pt.

C. (Pt + 1 - Pt)/Pt.

D. (Pt + 1 - Pt + Dt)/Pt.

10. Which asset class category delivered the highest average return

for the period 1926-2012?

A. U.S. Treasury bills

B. Large-company stocks

C. Small-company stocks

D. Long-term government bonds

11. Which one of the following has a maturity of one year or less?

A. U.S government note

B. Stock

C. Money market instrument

D. U.S. government bond

12. A closed-end fund has total assets of $589 million and liabilities of $948,00. There are 43 million shares

outstanding. What is the premium or discount if the shares are currently selling for $15.22?

A. -12.45% discount

B. 8.54% premium

C. -8.35% discount

D. 11.26% premium

13. You own 800 shares of XYZ Travel Tours which you purchased for $52.40 a share. Puts on the

company's stock sell for $1.85 for a strike price of $55. What will be the cost to obtain this strike price?

A. $850

B. $1,620

C. $1,480

D. $1,850

14. Which of the following is a commonly used measure of volatility?

A. Standard deviation

B. The risk premium

C. Dividend yield

D. Total return

15. A company's stock had the following returns over the past five years: 12.1, 15, 7.2, 9, and 5 percent.

What's the geometric average return?

A. 10.45%

B. 9.60%

C. 7.14%

D. 8.23%

16. You own 600 shares of stock that you would like to have the right to sell at $50 a share. The $50 put is

quoted at $.70 bid, $.75 ask. How much will it cost you to obtain the right to sell off your shares at $50 per

share?

A. $900

B. $580

C. $325

D. $450

17. If you held a portfolio of 60 percent large-company stocks and 40 percent U.S. government bonds,

which of the following actions could you take to increase the potential annual return on the portfolio?

A. Replace the U.S. government bonds with U.S. government notes

B. Increase the portfolio's standard deviation

C. Replace the U.S. government bonds with U.S. Treasury bills

D. Reduce the portfolio's expected volatility

End of exam