Q&A Hero

Q: A __________ bond gives the issuer an option to retire the bond before maturity at a specific price after a specific date. A. callable B. coupon C. puttable D. Treasury

Q: Which one of the following statements is correct? A. Invoice price = Flat price - Accrued interest B. Invoice price = Flat price + Accrued interest C. Flat price = Invoice price + Accrued interest D. Invoice price = Settlement price - Accrued interest

Q: Everything else equal, the __________ the maturity of a bond and the __________ the coupon, the greater the sensitivity of the bond's price to interest rate changes. A. longer; higher B. longer; lower C. shorter; higher D. shorter; lower

Q: The issuer of ________ bond may choose to pay interest either in cash or in additional bonds. A. an asset-backed B. a TIPS C. a catastrophe D. a pay-in-kind

Q: _______ bonds represent a novel way of obtaining insurance from capital markets against specified disasters. A. Asset-backed bonds B. TIPS C. Catastrophe D. Pay-in-kind

Q: Bonds with coupon rates that fall when the general level of interest rates rise are called _____________. A. asset-backed bonds B. convertible bonds C. inverse floaters D. index bonds

Q: You hold a subordinated debenture in a firm. In the event of bankruptcy you will be paid off before which one of the following? A. Mortgage bonds B. Senior debentures C. Preferred stock D. Equipment obligation bonds

Q: Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years, while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, _________. A. both bonds will increase in value but bond A will increase more than bond B B. both bonds will increase in value but bond B will increase more than bond A C. both bonds will decrease in value but bond A will decrease more than bond B D. both bonds will decrease in value but bond B will decrease more than bond A

Q: Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require _________. A. a higher yield on short-term bonds than on long-term bonds B. a higher yield on long-term bonds than on short-term bonds C. the same yield on both short-term bonds and long-term bonds D. none of these options (The liquidity preference theory cannot be used to make any of the other statements.)

Q: Bonds rated _____ or better by Standard & Poor's are considered investment grade. A. AA B. BBB C. BB D. CCC

Q: The bonds of Elbow Grease Dishwashing Company have received a rating of C by Moody's. The C rating indicates that the bonds are _________. A. high grade B. intermediate grade C. investment grade D. junk bonds

Q: You buy a TIPS at issue at par for $1,000. The bond has a 3% coupon. Inflation turns out to be 2%, 3%, and 4% over the next 3 years. The total annual coupon income you will receive in year 3 is _________. A. $30 B. $33 C. $32.78 D. $30.90

Q: Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________. A. Eurobonds B. Yankee bonds C. Samurai bonds D. foreign bonds

Q: TIPS are an example of _______________. A. Eurobonds B. convertible bonds C. indexed bonds D. catastrophe bonds

Q: A __________ bond gives the bondholder the right to cash in the bond before maturity at a specific price after a specific date. A. callable B. coupon C. puttable D. Treasury

Q: __________ are examples of synthetically created zero-coupon bonds. A. COLTS B. OPOSSMS C. STRIPS D. ARMs

Q: According to the liquidity preference theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to _______. A. declining liquidity premiums B. an expectation of an upcoming recession C. a decline in future inflation expectations D. an increase in expected interest rate volatility

Q: To earn a high rating from the bond rating agencies, a company would want to have: I. A low times-interest-earned ratio II. A low debt-to-equity ratio III. A high quick ratio A. I only B. II and III only C. I and III only D. I, II, and III

Q: You would typically find all but which one of the following in a bond contract? A. A dividend restriction clause B. A sinking fund clause C. A requirement to subordinate any new debt issued D. A price-earnings ratio

Q: TIPS offer investors inflation protection by ______________ by the inflation rate each year. A. increasing only the coupon rate B. increasing only the par value C. increasing both the par value and the coupon payment D. increasing the promised yield to maturity

Q: The primary difference between Treasury notes and bonds is ________. A. maturity at issue B. default risk C. coupon rate D. tax status

Q: A Japanese firm issued and sold a pound-denominated bond in the United Kingdom. A U.S. firm issued bonds denominated in dollars but sold the bonds in Japan. Which one of the following statements is correct? A. Both bonds are examples of Eurobonds. B. The Japanese bond is a Eurobond, and the U.S. bond is termed a foreign bond. C. The U.S. bond is a Eurobond, and the Japanese bond is termed a foreign bond. D. Neither bond is a Eurobond.

Q: In regard to bonds, convexity relates to the _______. A. shape of the bond price curve with respect to interest rates B. shape of the yield curve with respect to maturity C. slope of the yield curve with respect to liquidity premiums D. size of the bid-ask spread

Q: Inflation-indexed Treasury securities are commonly called ____. A. PIKs B. CARs C. TIPS D. STRIPS

Q: You find that the trin ratio is up, the market breadth is down, and the market has closed below its 50-day moving average. In total, how many bearish signs do you have? A. 0 B. 1 C. 2 D. 3

Q: You find that the confidence index is down, the market breadth is up, and the trin ratio is down. In total, how many bullish signs do you have? A. 0 B. 1 C. 2 D. 3

Q: Trend analysts who follow bonds are most likely to monitor the ____________. A. confidence index B. odd-lot trading C. short interest D. trin statistic

Q: The price of a stock fluctuates over a period of 10 days. The movement of the stock price below the 10-day minimum price of $25 triggers a rash of selling. The $25 price might now be considered the _______________. A. congestion area B. penetration point C. resistance level D. support level

Q: The moving average generates sell signals _____. A. on days 3, 11, and 15B. on days 7, 15, and 18C. on days 5, 9, and 13D. on day 16

Q: The moving average generates buy signal(s) _____. A. on days 3, 11, and 15B. on days 2 and 16C. on days 5, 9, and 13D. on no days

Q: The price of a stock fluctuates between $43 and $60. If the time frame referenced encompasses the primary trend, the $43 price may be considered the ___________. A. intermediate trend level B. minor trend level C. resistance level D. support level

Q: An investor purchases shares of an index fund. The investor could take on the same level of risk by taking out a loan and purchasing a higher-risk specialty fund. The Sharpe ratio on this complete portfolio is higher than her existing investment. What behavioral concept prevents the investor from taking out the loan and investing in the index fund? A. Framing bias B. Excessive volatility C. Loss aversion D. Mental accounting

Q: During a period when prices have been rising, the _________ will be _______ the current price. A. relative strength index; declining with B. relative strength index; declining faster than C. moving average; above D. moving average; below

Q: Investors gravitate toward the latest hot stock even though it has never paid a dividend. Even though net income is projected to fall over the current and next several years, the price of the stock continues to rise. What behavioral concept may explain this price pattern? A. Overconfidence B. Loss aversion C. Mental accounting D. Calendar bias

Q: Identify the support level stock price. A. $40B. $42C. $44D. $46

Q: Identify the resistance-level stock price. A. $40B. $42C. $44D. $46

Q: An investor has her money segregated into checking, savings, and investments. The allocation among the categories is subjective, yet the investor spends freely from the checking account and not the others. This behavior can be explained as _______________. A. loss aversion B. mental accounting C. overreaction D. winner's curse

Q: In 1997 CSX successfully purchased a significant share of Conrail. Immediately after the first offer was announced and the acquisition eventually consummated, the price of CSX fell below preacquisition levels and took many years to recover. This may be an example of ________________. A. loss aversion B. mental accounting C. overreaction D. managerial overconfidence

Q: The Elliott wave theory gives a buy signal when you can identify a primary bull trend by identifying _________. A. when the long-term direction of the market is positive B. when the long-term direction of the market is negative C. when the long-term direction of the market is stable D. good stocks without regard to the long-term direction of the market

Q: A major problem with technical trading strategies is that ________. A. it is very difficult to identify a true trend before the fact B. it is very difficult to identify the correct trend after the fact C. it is so easy to identify trends that all investors quickly do so D. Kondratieff showed that you can't identify trends without 48 to 60 years of data

Q: Problems with behavioral finance include: I. The behavioralists tell us nothing about how to exploit any irrationality. II. The implications of behavioral patterns are inconsistent from case to case, sometimes suggesting overreaction, sometimes underreaction. III. As with technical trading rules, behavioralists can always find some pattern in past data that supports a behavioralist trait. A. I only B. II only C. I and III only D. I, II, and III

Q: From day 1 to day 4, the confidence index has _____. This is _____. A. increased; bullishB. decreased; bullishC. increased; bearishD. decreased; bearish

Q: From day 1 to day 4, the trin has ___ and is ___. A. increased; bullishB. increased; bearishC. decreased; bullishD. decreased; bearish

Q: Cumulative breadth for the 4 days is ___, which is ___. A. -140; bullishB. -140; bearishC. -300; bullishD. -300; bearish

Q: The cumulative breadth for the first 2 days is ___. A. -240B. -50C. 110D. 250

Q: The breadth on day 3 is _______. A. -70B. 10C. 90D. 170

Q: The confidence index on day 1 is _____. A. .82B. .89C. .92D. 1.09

Q: The trin on day 2 is ___. A. .72B. 1.04C. .92D. .55

Q: Which one of the following best describes fundamental risk? A. A stock is overpriced, but your fund does not allow you to engage in short sales. B. Your models indicate a stock is mispriced, but you are not sure if this is a real profit opportunity or a model input error. C. You buy a stock that you believe is underpriced, and the underpricing persists for a long time, hurting your short-term results. D. A stock is trading in two different markets at two different prices.

Q: The tendency of investors to hold on to losing investments is called the ________. A. overweighting effect B. head-in-the-sand effect C. disposition effect D. prospector effect

Q: If the put/call ratio increases, market contrarians may interpret this as what kind of signal? A. Buy signal B. Sell signal C. Hold signal D. This is not interpreted as a signal

Q: An important assumption underlying the use of technical analysis techniques is that ___________________. A. security prices adjust rapidly to new information B. security prices adjust gradually to new information C. security dealers will provide enough liquidity to keep price changes relatively small D. all investors have immediate and costless access to information

Q: Technical traders view mutual fund investors as _________ market timers. A. excellent B. frequent C. neutral D. poor

Q: When technical analysts say a stock has good "relative strength," they mean that in the recent past __________. A. it has performed well compared to its closest competitors B. it has exceeded its own historical high C. trading volume in the stock has exceeded the normal trading volume D. it has outperformed the market index

Q: A point and figure chart: I. Gives a sell signal when the stock price penetrates previous lows II. Tracks significant upward or downward movements III. Has no time dimension IV. Indicates congestion areas A. I and II only B. II and III only C. I, III, and IV only D. I, II, III, and IV

Q: An accumulation of cash by mutual funds may be viewed by technical traders as a __________ indicator. A. bullish B. neutral C. bearish D. trend reversal

Q: On a particular day, there were 920 stocks that advanced on the NYSE and 723 that declined. The volume in advancing issues was 80,846,000, and the volume in declining issues was 70,397,000. The trin ratio is __________, and technical analysts are likely to be __________. A. .90; bullish B. .90; bearish C. 1.11; bullish D. 1.11; bearish

Q: On a particular day, there were 890 stocks that advanced on the NYSE and 723 that declined. The volume in advancing issues was 80,846,000, and the volume in declining issues was 70,397,000. The common measure of market breadth is __________. A. -10,449,000 B. -167 C. 167 D. 10,449,000

Q: At the end of July, the average yields on 10 top-rated corporate bonds and 10 intermediate-grade bonds were 7.65% and 8.42%, respectively. At the end of August, the average yields on 10 top-rated corporate bonds and 10 intermediate-grade bonds were 6% and 6.71%, respectively. The confidence index _________ during August, and bond technical analysts are likely to be ________. A. increased; bullish B. increased; bearish C. decreased; bullish D. decreased; bearish

Q: On day 1, the stock price of Ford was $12 and the automotive stock index was 127. On day 2, the stock price of Ford was $15 and the automotive stock index was 139. Consider the ratio of Ford to the automotive stock index at day 1 and day 2. Ford is __________ the automotive industry, and technical analysts who follow relative strength would advise __________ the stock. A. outperforming; buying B. outperforming; selling C. underperforming; buying D. underperforming; selling

Q: If you are not a contrarian, you consider a high put/call ratio to be a __________. A. bearish signal B. bullish signal C. trend confirmation signal D. signal to enter the options market

Q: A possible limit on arbitrage activity that may allow behavioral biases to persist is _______. A. technical trends in prices B. momentum effects C. fundamental risk D. trend reversals

Q: In technical analysis, __________ is a value below which the market is relatively unlikely to fall. A. book value B. resistance level C. support level D. the Dow line

Q: If the utility you derive from your next dollar of wealth increases by less than a loss of a dollar reduces it, you are exhibiting __________. A. loss aversion B. regret avoidance C. mental accounting D. framing bias

Q: _____________ is a tool that can help identify the direction of a stock's price. A. Prospect theory B. Framing C. A moving average D. Conservatism

Q: A _________ is a value above which it is difficult for the market to rise. A. book value B. resistance level C. support level D. confidence level

Q: It is difficult to test the Kondratieff wave theory because _________. A. it applies to only Russian stocks B. its main proponent found contrary research results C. only two independent data points are generated each century D. the stock market is too volatile to generate smooth waves

Q: According to market technicians, a trin statistic of less than 1 is considered a __________. A. bearish signal B. bullish signal C. volume decline D. signal reversal

Q: According to technical analysts, a shift in market fundamentals will __________. A. be reflected in stock prices immediately B. lead to a gradual price change that can be recognized as a trend C. lead to high volatility in stock market prices D. leave prices unchanged

Q: If you believed in the reversal effect, you should __________. A. buy bonds this period if you held stocks last period B. buy stocks this period that performed poorly last period C. buy stocks this period that performed well last period D. do nothing if you held the stock last period

Q: When the market breaks through the moving average line from below, a technical analyst would probably suggest that it is a good time to ___________. A. buy the stock B. hold the stock C. sell the stock D. short the stock

Q: Jill is offered a choice between receiving $50 with certainty or possibly receiving the proceeds from a gamble. In the gamble a fair coin is tossed, and if it comes up heads, Jill will receive $100; if the coin comes up tails, she will receive nothing. Jill chooses the $50 instead of the gamble. Jill's behavior indicates __________________. A. regret avoidance B. overconfidence C. that she has a diminishing marginal utility of wealth D. prospect theory loss aversion

Q: The most common measure of __________ is the spread between the number of stocks that advance in price and the number of stocks that decline in price. A. market breadth B. market volume C. odd-lot trading D. short interest

Q: Bill and Shelly are friends. Bill invests in a portfolio of hot stocks that almost all his friends are invested in. Shelly invests in a portfolio that is totally different from the portfolios of all her friends. Both Bill's and Shelly's stocks fall 15%. According to regret theory, _________________________________________. A. Bill will have more regret over the loss than Shelly B. Shelly will have more regret over the loss than Bill C. Bill and Shelly will have equal regret over their losses D. Bill's and Shelly's risk aversion will increase in the future

Q: An investor needs cash to pay some hospital bills. He is willing to use his dividend income to pay the bills, but he will not sell any stock to do so. He is engaging in ___________. A. overconfidence B. representativeness C. forecast errors D. mental accounting

Q: The ratio of the average yield on 10 top-rated corporate bonds to the average yield on 10 intermediate-grade bonds is called the __________. A. bond price index B. confidence index C. relative strength index D. trin ratio

Q: Contrarian investors consider a high put/call ratio a __________. A. bearish signal B. bullish signal C. trend confirmation signal D. signal to enter the options market

Q: A trin ratio of greater than 1 is considered a __________. A. bearish signal B. bullish signal C. bearish signal by some technical analysts and a bullish signal by other technical analysts D. trend reversal signal

Q: Which of the following analysts focus more on past price movements of a firm's stock than on the underlying determinants of its future profitability? A. Credit analysts B. Fundamental analysts C. Systems analysts D. Technical analysts

Q: An investor holds a very conservative portfolio invested for retirement, but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in ___________. A. overconfidence B. representativeness C. forecast errors D. mental accounting