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Q:
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?
A. $50
B. $150
C. $10,000
D. Unlimited
Q:
You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.
A. $4,500
B. $6,000
C. $9,000
D. $10,000
Q:
Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.
A. $20,000
B. $12,000
C. $8,000
D. $15,000
Q:
In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs _________.
A. automatically
B. by adjusting the divisor
C. by adjusting the numerator
D. by adjusting the market value weights
Q:
Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?
A. An equally weighted index
B. A price-weighted index
C. A value-weighted index
D. All of these options (Weights are not a factor in this situation.)
Q:
Preferred stock is like long-term debt in that ___________.
A. it gives the holder voting power regarding the firm's management
B. it promises to pay to its holder a fixed stream of income each year
C. the preferred dividend is a tax-deductible expense for the firm
D. in the event of bankruptcy preferred stock has equal status with debt
Q:
Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if _______________.
A. inflation is lower than anticipated over the investment period
B. inflation is higher than anticipated over the investment period
C. the U.S. dollar increases in value against the euro
D. the spread between commercial paper and Treasury securities remains low
Q:
The Dow Jones Industrial Average is _________.
A. a price-weighted average
B. a value weight and average
C. an equally weighted average
D. an unweighted average
Q:
The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 102:12 and an ask price of 102:14. If you sell a Treasury bond, you expect to receive _________.
A. $1,024.75
B. $1,024.38
C. $1,023.75
D. $1,022.50
Q:
TIPS are ______.
A. Treasury bonds that pay no interest and are sold at a discount
B. U.K. bonds that protect investors from default risk
C. securities that trade on the Toronto stock index
D. Treasury bonds that protect investors from inflation
Q:
If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be _________.
A. 99:25
B. 99:63
C. 99:20
D. 99:08
Q:
An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, _____.
A. 5% and 6.4%
B. 5% and 5.44%
C. 4.25% and 6.4%
D. 5.75% and 5.44%
Q:
Currently, the Dow Jones Industrial Average is computed by _________.
A. adding the prices of 30 large "blue-chip" stocks and dividing by 30
B. calculating the total market value of the 30 firms in the index and dividing by 30
C. measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day
D. adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends
Q:
A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?
A. Reverse repurchase agreement
B. Bankers' acceptance
C. Commercial paper
D. Repurchase agreement
Q:
Assume the real rate of return in the economy is 4.25%, the expected rate of inflation is 3.5%, and the risk premium is 6.75%. Compute the risk-free rate and required rate of return.Risk free rate = .079 or 7.9%orRf = 7.75%Required Rate of Return =.1518 or 15.18%orRequired Rate of Return = 14.50%
Q:
(a) The stock of Furniture Unlimited went from $90 to $99 last year. The firm also paid 80 cents in dividends. Compute the rate of return.(b) During the next year, the dividend paid was $1.60 per share and the stock closed at $93 per share, down from $99 per share at the beginning of the year. Compute the annual gain or loss for the second year holding period.(a) 10.9%(b) (4.4%) loss
Q:
For which year were estate taxes eliminated under the Economic Growth and Tax Reconciliation Act of 2001?A.2008B.2009C.2010D.2019E.The estate tax will not be eliminated.
Q:
Which of the following is not a form of real asset?
A.Rare paintings
B.Baseball cards
C.Diamonds
D.Real estate
E.Commodity futures
Q:
Historically, the real rate of return in the U.S. economy has been:
A.1-2%.
B.2-3%.
C.3-4%.
D.4-5%.
E.5-6%.
Q:
Which of the following is not a form of a financial asset?
A.Commercial paper
B.Commodity futures
C.Warrants
D.Personal residence
E.Money market fund
Q:
The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are:
A.large company stocks and U.S. treasury bills.
B.large company stocks and long-term government bonds.
C.small company stocks and U.S. treasury bills.
D.small company stocks and preferred stock.
E.U.S. treasury bills and small company stocks.
Q:
Because most investors are risk averse,
A.the riskier the investment, the more the investor will pay for it.
B.the riskier the investment, the less compensation the investor requires.
C.only financial institutions invest in risky assets.
D.they will require a higher rate of return for a riskier investment.
Q:
An investor in Duke Energy can expect:
A.low dividends.
B.high dividends.
C.low inflation.
D.fast stock price growth.
E.None of the above
Q:
An investment requires a total return that comprises:
A.a real rate of return and compensation for inflation.
B.a real rate of return, compensation for inflation, and a risk premium.
C.compensation for inflation and a risk premium.
D.a real rate of return, compensation for inflation, a risk premium, and compensation for time and effort devoted to researching alternative investments.
E.None of the above
Q:
Deposits in an IRA are:
A.allowed to grow tax free until withdrawal.
B.deducted from current income tax due.
C.deducted from current income to reduce income tax due.
D.A and C
Q:
The difference between the cash market and the futures market is:
A.that commodity prices cannot be negotiated in the futures market, while they can be in the cash market.
B.that larger margins are used in the cash market.
C.that in the cash market, there must be a transfer of the physical possession of the goods.
D.that the commodities are usually less expensive in the futures market.
Q:
Commodity trading is based on the use of:
A.actual dollars.
B.a margin.
C.a hedge.
D.fictitious money.
Q:
Margin requirements on commodities contracts:
A.are much higher than those on common stock transactions.
B.vary over time, and even among exchanges, for a given commodity.
C.typically are 2-10% of the value of the contract.
D.None of the above are true
Q:
Which of the following exchanges is more important within the financial futures market?
A.AMEX Commodity Exchange
B.New York Futures Exchange
C.IMM of the Chicago Mercantile Exchange
D.May be either A or B
Q:
The difference between speculators and hedgers is that speculators are ______, while hedgers are _____.
A.risk-takers; risk-averters
B.individual investors; financial managers
C.short term; long-term
D.None of the above
Q:
The primary difference between options and futures is that:
A.the option premium is the full liability of the purchaser, while a futures contract may call for additional margin to hold the position.
B.options are more speculative than futures.
C.futures require the physical transfer of goods, while options do not.
D.More than one of the above
Q:
While hedging through interest rate futures reduces or eliminates the risk of loss, it also:
A.is illegal in some cases.
B.has not been accepted by most corporate financial managers.
C.eliminates the possibility of an abnormal gain.
D.None of the above
Q:
The settle price is the same as the:
A.opening price.
B.closing price.
C.intraday high price.
D.None of the above
Q:
Corn futures are traded on the:
A.New York Futures Exchange.
B.Chicago Board of Trade.
C.International Money Market of the CME.
D.All of the above
Q:
The interest rate futures market includes all of the following except:
A.Treasury bonds, notes and bills.
B.Eurodollars.
C.GNMA certificates and bank CDs.
D.All of the above are traded in the interest rate futures market
Q:
Assume you have purchased a contract for 25,000 British pounds for $35,000. Your margin requirement is $2,000. If the value of a pound increases .01, what is your percentage profit?
A.10.0%
B.12.5%
C.15.0%
D.8.0%
E.None of the above
Q:
If the market price is above the strike price, a call is "in-the-money."
Q:
All option contracts are adjusted for stock splits, stock dividends, or other distributions.
Q:
If an option is traded on more than one exchange, it may be bought, sold, or closed out on any exchange.
Q:
Long-term equity anticipation securities (LEAPS) are nothing more than a long-term option.
Q:
A call option with a speculative premium of $3 and a strike price of $55 with an intrinsic value of $3 may be related to a stock that is selling for $58 per share.
Q:
A call option selling for $8 with a $45 strike price on stock with a market price of $40 has a speculative premium of $3.
Q:
Option contracts expire on the last Friday of the month.
Q:
A put or call cannot be purchased for a life of more than the standardized periods of 3, 6, or 9 months.
Q:
A put is an option to buy 100 shares of common stock at a specified price for a given period of time.
Q:
The maximum possible loss on a strategy of buying put options is limited to the options premium under all circumstances.
Q:
Option writers must own common stock in order to write call options on that particular stock.
Q:
The semistrong form of the efficient market hypothesis maintains all of the following, except that:
A.there is no learning lag in the distribution of public information.
B.all public information is immediately impounded into the value of a security.
C.technical analysis is helpful in determining whether a stock is overvalued or undervalued.
D.fundamental analysis cannot outperform the market.
Q:
Research on the weak form of the efficient market hypothesis suggests that:
A.stock prices are independent over time.
B.past trends cannot be used to predict the future.
C.charting and technical analysis have limited value.
D.More than one of the above
Q:
The _________ of the efficient market hypothesis suggests that there is little or nothing to be gained from studying past stock price trends.
A.weak form
B.semi-strong form
C.strong form
D.semi-weak form
Q:
The weak form of the efficient market hypothesis can be tested by utilizing
A.tests of independence.
B.regression analysis.
C.trading rule tests.
D.A and C
Q:
The basic premise of ________________ is that past trends in market movements can be used to forecast or understand the future.
A.the Efficient Market Hypothesis
B.fundamental analysis
C.technical analysis
D.None of the above
Q:
The week-end effect indicates that stocks tend to ___________ on Friday and ___________ on Monday.
A.decline; peak
B.decline; decline
C.peak; peak
D.peak; decline
Q:
The January upward stock movement effect is often linked to:
A.surprise earnings.
B.tax considerations.
C.early in the year enthusiasm.
D.the neglect effect.
Q:
An unexpected earnings surprise refers to the situation where:
A.announced earnings were in line with analysts' favorable earnings expectations.
B.announced earnings were better or worse than the analysts' forecast number.
C.announced earnings were significantly below last year's earnings.
D.the operating and financial leverage caused earnings to accelerate coming out of the trough of a business cycle.
Q:
Value Line's Ranking System, covering 1,700 companies, has demonstrated:
A.that stocks ranked one under-perform the market.
B.that stocks ranked five perform about at the market average.
C.that stocks ranked one outperform the market.
D.that stocks ranked five outperform the market.
Q:
The study by Fama and French maintains that the lower the ratio of market value to book value, the:
A.more overvalued the stock price.
B.higher the potential return on the stock.
C.higher the expected growth in earnings.
D.lower the expected growth in earnings.
Q:
Studies of the small-firm effect indicate that there may be superior return potential in investing in smaller-capitalization firms, because:
A.the high P/E ratios of many of these firms eventually lead to superior returns.
B.smaller firms have fewer expenses, therefore, making more money for their investors.
C.there is less efficiency in this segment of the market, due to minimal institutional participation.
D.smaller firms are always growing, along with the returns that their investors receive.
Q:
Which of the following is not a goal of the federal government economic policy as established by the Employment Act of 1946?
A.Low inflation
B.High levels of employment
C.Balanced federal budgets
D.Economic growth
Q:
The first step in any stock valuation is
A.economic analysis.
B.an accurate stock market prediction.
C.financial analysis.
D.industry analysis.
E.technical analysis.
Q:
The difference between GNP and GDP is that GDP only measures output from U.S. factories and consumption in the U.S.
Q:
If the Fed buys securities, the money supply goes down, along with interest rates.
Q:
The Federal Reserve Bank's buying and selling of securities for its own portfolio is known as open-market operations.
Q:
The quantity theory of money states that as the supply of money increases relative to the demand for money, people will make adjustments in their portfolios of assets. First, they will buy bonds, stocks, and then real assets.
Q:
It is estimated that manufacturing accounts for about than 20% of the GDP.
Q:
Expansions of economic activity during the nine peace time business cycles from 1945 to 2009 have averaged approximately 55 months.
Q:
Based on all recessions since 1945, contractions of economic cycles lasted an average of two years.
Q:
Gross Domestic Product (GDP) measures the worldwide production of all U.S. companies, firms, and enterprises.
Q:
Gross Domestic Product (GDP) measures only output from U.S. factories and consumption within the United States.
Q:
Yields on money market funds are closely associated with:
A.short-term interest rates.
B.the prime rate.
C.long-term interest rates.
D.None of the above
Q:
Reliable sources of information about mutual funds include all of the following, except:
A.Forbes.
B.Lipper.
C.Morningstar.
D.All of the above are good sources
Q:
A back-end load fund has:
A.no charge upon purchase, but a fixed charge upon sale.
B.a smaller charge on purchase, and another small charge again on sale.
C.no charge upon purchase, and a declining charge, based on time owned, on sale.
D.Two of the above
Q:
A closed-end fund might trade at a premium due to:
A.the quality of fund management.
B.an upcoming dividend payable to the portfolio.
C.an impending stock split in the portfolio.
D.a closed-end fund would never trade at a premium.
Q:
One can purchase shares in a closed-end mutual fund
A.from shareholders.
B.directly from the fund at all times.
C.directly from the fund at inception.
D.A and C
Q:
Mutual funds which provide tax-free income are ________ and certain types of ________________.
A.stock funds; bond funds
B.money market funds; balanced funds
C.municipal bond funds; money market funds
D.none of the above
Q:
___________ invest entirely in short-term securities, and are particularly popular during periods of high short-term interest rates.
A.Index funds
B.Balanced funds
C.Mutual stock funds
D.Money market funds
Q:
A mutual fund in which the portfolio is weighted exactly like the Standard and Poor's 500 Index, or any other market measure is called:
A.a stock fund.
B.a balanced fund.
C.an index fund.
D.a market fund.
Q:
________ have a fixed supply of shares, which often trade at a discount from the market value of assets held.
A.Stock funds
B.Bond funds
C.Closed-end funds
D.Open-end funds
Q:
In a closed-end mutual fund, shares are traded:
A.through brokers.
B.on an exchange.
C.between shareholders.
D.B and C
Q:
Investment company shares that trade on stock exchanges just like common stock and are essentially funds that mimic some index are:
A.open-end mutual funds.
B.exchange-traded funds.
C.money market funds.
D.load funds traded on stock exchanges.
E.index mutual funds.