Q&A Hero

Q: A coupon bond that pays semiannual interest is reported in the Wall Street Journal as having an ask price of 117% of its $1,000 par value. If the last interest payment was made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be ________. A) $1,140 B) $1,170 C) $1,180 D) $1,200

Q: A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at a $75.25 discount from par value. The current yield on this bond is ________. A) 6% B) 6.49% C) 6.73% D) 7%

Q: A coupon bond that pays interest of $60 annually has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. The yield to maturity on this bond is ________. A) 6% B) 7.23% C) 8.12% D) 9.45%

Q: A convertible bond has a par value of $1,000, but its current market price is $950. The current price of the issuing company's stock is $19, and the conversion ratio is 40 shares. The bond's conversion premium is ________. A) $50 B) $190 C) $200 D) $240

Q: A convertible bond has a par value of $1,000, but its current market price is $975. The current price of the issuing company's stock is $26, and the conversion ratio is 34 shares. The bond's market conversion value is ________. A) $1,000 B) $884 C) $933 D) $980

Q: Consider the expectations theory of the term structure of interest rates. If the yield curve is downward-sloping, this indicates that investors expect short-term interest rates to ________ in the future. A) increase B) decrease C) not change D) change in an unpredictable manner

Q: In an era of particularly low interest rates, which of the following bonds is most likely to be called? A) zero-coupon bonds B) coupon bonds selling at a discount C) coupon bonds selling at a premium D) floating-rate bonds

Q: Serial bonds are associated with ________. A) staggered maturity dates B) collateral C) coupon payment dates D) conversion features

Q: Which of the following possible provisions of a bond indenture is designed to ease the burden of principal repayment by spreading it out over several years? A) callable feature B) convertible feature C) subordination clause D) sinking fund

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: Floating-rate bonds have a ________ that is adjusted with current market interest rates. A) maturity date B) coupon payment date C) coupon rate D) dividend yield

Q: A debenture is ________. A) secured by other securities held by the firm B) secured by equipment owned by the firm C) secured by property owned by the firm D) unsecured

Q: A mortgage bond is ________. A) secured by other securities held by the firm B) secured by equipment owned by the firm C) secured by property owned by the firm D) unsecured

Q: A collateral trust bond is ________. A) secured by other securities held by the firm B) secured by equipment owned by the firm C) secured by property owned by the firm D) unsecured

Q: Sinking funds are commonly viewed as protecting the ________ of the bond. A) issuer B) underwriter C) holder D) dealer

Q: The invoice price of a bond is the ________. A) stated or flat price in a quote sheet plus accrued interest B) stated or flat price in a quote sheet minus accrued interest C) bid price D) average of the bid and ask price

Q: If you are not a contrarian, you consider a high put/call ratio to be a ________. A) bearish signal B) trend confirmation signal C) 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

Q: Which of the following is considered a sentiment indicator? A) a 200-day moving average B) short interest C) credit balances in brokerage accounts D) relative strength

Q: Which of the following is not a sentiment indicator? A) confidence index B) short interest C) relative strength D) put/call ratio

Q: Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide; if they can do it, so can you. This is an example of ________. A) mental accounting B) framing bias C) conservatism D) representativeness bias

Q: Trading activity and average returns in brokerage accounts tend to be ________. A) uncorrelated B) negatively correlated C) positively correlated D) positively correlated for women and negatively correlated for men

Q: If investors overweight recent performance in forecasting the future, they are exhibiting ________. A) representativeness bias B) framing error C) memory bias D) overconfidence

Q: If investors are too slow to update their beliefs about a stock's future performance when new evidence arises, they are exhibiting ________. A) representativeness bias B) framing error C) conservatism D) memory bias

Q: Even though indexing is growing in popularity, only about ________ of equity in the mutual fund industry is held in indexed funds. This may be a sign that investors and managers ________. A) 5%; are excessively conservative B) 25%; overestimate their ability C) 15%; suffer from framing biases D) 25%; engage in mental accounting

Q: In the context of a point and figure chart, a horizontal band of Xs and Os is a ________. A) buy signal B) sell signal C) congestion area D) trend reversal

Q: The only way for behavioral patterns to persist in prices is if ________. A) markets are not weak-form efficient B) there are limits to arbitrage activity C) there are no significant trading costs D) market psychology is inconsistent over time

Q: Conventional finance theory assumes investors are ________, and behavioral finance assumes investors are ________. A) rational; irrational B) irrational; rational C) greedy; philanthropic D) philanthropic; greedy

Q: According to Elliot's wave theory, stock market behavior can be explained as ________. A) a series of medium-term wave cycles with no short-term trend B) a series of long-term wave cycles with no short-term trend C) a series of superimposed long-term and short-term wave cycles D) sine and cosine functions

Q: According to Kondratieff, the macro economy moves in a series of waves that recur at intervals of approximately ________. A) 18 months B) 4 years C) 8 years D) 50 years

Q: A support level is ________. A) a level beyond which the market is unlikely to rise B) a level below which the market is unlikely to fall C) an equilibrium price level justified by characteristics such as earnings and cash flows D) the peak of a market wave or cycle

Q: When the housing bubble burst in 2007, it set off the worst financial crisis ________. A) in 25 years. B) in 40 years. C) in 50 years. D) in 75 years.

Q: A moving average of stock prices ________. A) always lies above the most recent price B) always lies below the most recent price C) is less volatile than the actual prices D) is more volatile than the actual prices

Q: Following a period of falling prices, the moving average will ________. A) be below the current price B) be above the current price C) be equal to the current price D) become more volatile than it had been before prices fell

Q: When the stock price falls below a moving average, a possible conclusion is that ________. A) market momentum has become positive B) market momentum has become negative C) there is no regular pattern for this stock's market momentum D) professional analysts' opinions are invalid until the stock price rises again

Q: When a stock price breaks through the moving average from below, this is considered to be ________. A) the starting point for a new moving average B) a bearish signal C) a bullish signal D) none of these options

Q: According to market technicians, it is time to sell stock in a head-and-shoulders formation when ________. A) the price index pierces the left shoulder B) the price index pierces the right shoulder C) the price index pierces the head D) none of these options takes place

Q: Behaviorists point out that even if market prices are ________, there may be ________. A) distorted; limited arbitrage opportunities B) distorted; fundamental efficiency C) allocationally efficient; limitless arbitrage opportunities D) distorted; allocational efficiency

Q: Technical analysis focuses on ________. A) finding opportunities for risk-free investing B) finding repeating trends and patterns in prices C) changing prospects for earnings growth of particular firms or industries D) forecasting technical regulatory changes

Q: The cumulative tally of the number of advancing stocks minus declining stocks is called the ________. A) market breadth B) market volume C) trin ratio D) relative strength ratio