Q&A Hero

Q: Given an optimal risky portfolio with expected return of 13%, standard deviation of 26%, and a risk free rate of 5%, what is the slope of the best feasible CAL? A. 0.60 B. 0.14 C. 0.08 D. 0.36 E. 0.31

Q: When a distribution is negatively skewed, A. standard deviation overestimates risk. B. standard deviation correctly estimates risk. C. standard deviation underestimates risk. D. the tails are fatter than in a normal distribution.

Q: When a distribution is positively skewed, A. standard deviation overestimates risk. B. standard deviation correctly estimates risk. C. standard deviation underestimates risk. D. the tails are fatter than in a normal distribution.

Q: Kurtosis is a measure of A. how fat the tails of a distribution are. B. the downside risk of a distribution. C. the normality of a distribution. D. the dividend yield of the distribution. E. how fat the tails of a distribution are.

Q: Skewness is a measure of A. how fat the tails of a distribution are. B. the downside risk of a distribution. C. the symmetry of a distribution. D. the dividend yield of the distribution. E. None of the options are correct.

Q: If an investment provides a 2.1% return quarterly, its effective annual rate is A. 2.1%. B. 8.4%. C. 8.56%. D. 8.67%.

Q: If an investment provides a 3% return semi-annually, its effective annual rate is A. 3%. B. 6%. C. 6.06%. D. 6.09%.

Q: If an investment provides a 0.78% return monthly, its effective annual rate is A. 9.36%. B. 9.63%. C. 10.02%. D. 9.77%.

Q: If an investment provides a 1.25% return quarterly, its effective annual rate is A. 5.23%. B. 5.09%. C. 4.02%. D. 4.04%.

Q: If an investment provides a 2% return semi-annually, its effective annual rate is A. 2%. B. 4%. C. 4.02%. D. 4.04%. E. None of the options are correct.

Q: Annual percentage rates (APRs) are computed using A. simple interest. B. compound interest. C. either simple interest or compound interest. D. best estimates of expected real costs. E. None of the options are correct.

Q: When comparing investments with different horizons, the ____________ provides the more accurate comparison. A. arithmetic average B. effective annual rate C. average annual return D. historical annual average

Q: You purchased 1000 shares of CSCO common stock on margin at $19 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. A. $12.86 B. $15.75 C. $19.67 D. $13.57

Q: You purchased 100 shares of XON common stock on margin at $60 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. A. $42.86 B. $50.75 C. $49.67 D. $80.34

Q: You sold short 150 shares of common stock at $27 per share. The initial margin is 45%. Your initial investment was A. $4,800.60. B. $12,000.25. C. $2,250.75. D. $1,822.50.

Q: You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. Your initial investment was A. $4,800. B. $12,000. C. $2,250. D. $7,200.

Q: Which of the following is true regarding private placements of primary security offerings? A. Extensive and costly registration statements are required by the SEC. B. For very large issues, they are better suited than public offerings. C. They trade in secondary markets. D. The shares are sold directly to a small group of institutional or wealthy investors. E. They have greater liquidity than public offerings.

Q: In a typical underwriting arrangement, the investment-banking firm I) sells shares to the public via an underwriting syndicate. II) purchases the securities from the issuing company. III) assumes the full risk that the shares may not be sold at the offering price. IV) agrees to help the firm sell the issue to the public but does not actually purchase the securities. A. I, II, and III B. I, III, and IV C. I and IV D. II and III E. I and II

Q: When a firm markets new securities, a preliminary registration statement must be filed with A. the exchange on which the security will be listed. B. the Securities and Exchange Commission. C. the Federal Reserve. D. all other companies in the same line of business. E. the Federal Deposit Insurance Corporation.

Q: You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%. The next day, Qualitycorp's price drops to $25 per share. What is your actual margin? A. 50% B. 40% C. 33% D. 60% E. 25%

Q: You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is A. $4,500. B. unlimited. C. zero. D. $9,000. E. Cannot be determined from the information given.

Q: All of the following are considered new trading strategies, except A. high frequency trading. B. algorithmic trading. C. dark pools. D. short selling.

Q: One outcome from the SEC investigation of the "Flash Crash of 2010" was A. a prohibition of short selling. B. higher margin requirements. C. approval of new circuit breakers. D. establishment of electronic communications networks (ECNs). E. passage of the Sarbanes-Oxley Act.

Q: Which of the following orders instructs the broker to sell at or below a specified price? A. Limit-sell order B. Stop-loss C. Limit-buy order D. Stop-buy order E. Market order

Q: Which of the following orders instructs the broker to buy at or below a specified price? A. Limit-loss order B. Discretionary order C. Limit-buy order D. Stop-buy order E. Market order

Q: Which of the following orders instructs the broker to buy at the current market price? A. Limit order B. Discretionary order C. Limit-loss order D. Stop-buy order E. Market order

Q: Which of the following orders is most useful to short sellers who want to limit their potential losses? A. Limit order B. Discretionary order C. Limit-loss order D. Stop-buy order

Q: Shares for short transactions A. are usually borrowed from other brokers. B. are typically shares held by the short seller's broker in street name. C. are borrowed from commercial banks. D. are typically shares held by the short seller's broker in street name and are borrowed from commercial banks.

Q: Specialists on stock exchanges perform which of the following functions? A. Act as dealers in their own accounts B. Analyze the securities in which they specialize C. Provide liquidity to the market D. Act as dealers in their own accounts and analyze the securities in which they specialize E. Act as dealers in their own accounts and provide liquidity to the market

Q: Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60? A. 40% B. 33% C. 35% D. 25%

Q: You sold short 300 shares of common stock at $55 per share. The initial margin is 60%. At what stock price would you receive a margin call if the maintenance margin is 35%? A. $51.00 B. $65.19 C. $35.22 D. $40.36

Q: Assume you sell short 100 shares of common stock at $45 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $40 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction. A. 20.03% B. 25.67% C. 22.22% D. 77.46%

Q: You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin. A. 25.00% B. 33.33% C. 44.31% D. 41.67% E. 54.22%

Q: You purchased 100 shares of common stock on margin at $45 per share. Assume the initial margin is 50%, and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $30? Ignore interest on margin. A. 0.33 B. 0.55 C. 0.43 D. 0.23 E. 0.25

Q: Corporations can exclude ____________% of the dividends received from preferred stock from taxes. A. 50 B. 70 C. 20 D. 15 E. 62

Q: A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond. A. convertible B. secured C. unsecured D. callable E. Yankee

Q: Unsecured bonds are called A. junk bonds. B. debentures. C. indentures. D. subordinated debentures. E. either debentures or subordinated debentures. Debentures are unsecured bonds.

Q: A municipal bond issued to finance an airport, hospital, turnpike, or port authority is typically a A. revenue bond. B. general-obligation bond. C. industrial-development bond. D. revenue bond or general-obligation bond.

Q: A U.S. dollar-denominated bond that is sold in Singapore is a(n) A. Eurobond. B. Yankee bond. C. Samurai bond. D. Bulldog bond.

Q: Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner? A. Repos B. Bankers'acceptances C. Eurodollars D. Federal funds

Q: The maximum maturity of commercial paper that can be issued without SEC registration is A. 270 days. B. 180 days. C. 90 days. D. 30 days.

Q: Certificates of deposit are insured for up to ____________ in the event of bank insolvency. A. $10,000 B. $100,000 C. $250,000 D. $500,000

Q: Certificates of deposit are insured by the A. SPIC. B. CFTC. C. Lloyds of London. D. FDIC. E. All of the options are correct.

Q: The largest component of the money market is/are A. repurchase agreements. B. money market mutual funds. C. T-bills. D. Eurodollars. E. savings deposits.

Q: The ____ is an example of a U.S. index of small firms. A. S&P 500 B. DJIA C. DAX D. Russell 2000 E. All of the options are correct.

Q: Which of the following portfolio construction methods starts with security analysis? A. Top-down B. Bottom-up C. Middle-out D. Buy and hold E. Asset allocation

Q: Security selection refers to A. choosing which securities to hold based on their valuation. B. investing only in "safe" securities. C. the allocation of assets into broad asset classes. D. top-down analysis.

Q: Asset allocation refers to A. choosing which securities to hold based on their valuation. B. investing only in "safe" securities. C. the allocation of assets into broad asset classes. D. bottom-up analysis.

Q: The Sarbanes-Oxley Act A. requires corporations to have more independent directors. B. requires the firm's CFO to personally vouch for the firm's accounting statements. C. prohibits auditing firms from providing other services to clients. D. requires corporations to have more independent directors and requires the firm's CFO to personally vouch for the firm's accounting statements. E. All of the above.

Q: During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to I) manipulation of financial data to misrepresent the actual condition of the firm. II) misleading and overly optimistic research reports produced by analysts. III) allocating IPOs to executives as a quid pro quo for personal favors. IV) greenmail. A. II, III, and IV B. I, II, and IV C. II and IV D. I, III, and IV E. I, II, and III

Q: Theoretically, takeovers should result in A. improved management. B. increased stock price. C. increased benefits to existing management of the taken-over firm. D. improved management and increased stock price. E. All of the options.

Q: Corporate shareholders are best protected from incompetent management decisions by A. the ability to engage in proxy fights. B. management's control of pecuniary rewards. C. the ability to call shareholder meetings. D. the threat of takeover by other firms. E. one-share/one-vote election rules.

Q: Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Using the firm's stock options for compensation II) Hiring bickering family members as corporate spies III) Boards of directors forcing out underperforming management IV) Security analysts monitoring the firm closely V) Takeover threats A. II and V B. I, III, and IV C. I, III, IV, and V D. III, IV, and V E. I, III, and V

Q: A disadvantage of using stock options to compensate managers is that A. it encourages managers to undertake projects that will increase stock price. B. it encourages managers to engage in empire building. C. it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects. D. All of the above.

Q: The ____________ refers to the potential conflict between management and shareholders. A. agency problem B. diversification problem C. liquidity problem D. solvency problem E. regulatory problem

Q: Financial assets permit all of the following except A. consumption timing. B. allocation of risk. C. separation of ownership and control. D. elimination of risk.

Q: Although derivatives can be used as speculative instruments, businesses most often use them to A. attract customers. B. appease stockholders. C. offset debt. D. hedge risks. E. enhance their balance sheets.

Q: The value of a derivative security A. depends on the value of the related security. B. is unable to be calculated. C. is unrelated to the value of the related security. D. has been enhanced due to the recent misuse and negative publicity regarding these instruments. E. is worthless today.

Q: An example of a derivative security is A. a common share of Microsoft. B. a call option on Intel stock. C. a commodity futures contract. D. a call option on Intel stock and a commodity futures contract. E. a common share of Microsoft and a call option on Intel stock.

Q: Money market securities A. are short term. B. are highly marketable. C. are generally very low risk. D. are highly marketable and are generally very low risk. E. All of the options.

Q: A debt security pays A. a fixed level of income for the life of the owner. B. a variable level of income for owners on a fixed income. C. a fixed or variable income stream at the option of the owner. D. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.

Q: A fixed-income security pays A. a fixed level of income for the life of the owner. B. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security. C. a variable level of income for owners on a fixed income. D. a fixed or variable income stream at the option of the owner.

Q: The domestic net worth of the U.S. in 2016 was A. $15.411 trillion. B. $26.431 trillion. C. $42.669 trillion. D. $64.747 trillion. E. $70.983 trillion.

Q: The smallest component of domestic net worth in 2016 was A. nonresidential real estate. B. residential real estate. C. inventories. D. consumer durables. E. equipment and software.

Q: The largest component of domestic net worth in 2016 was A. nonresidential real estate. B. residential real estate. C. inventories. D. consumer durables. E. equipment and software.

Q: In 2016, _______ of the assets of U.S. households were financial assets as opposed to tangible assets. A. 20.4% B. 34.2% C. 69.4% D. 71.7% E. 82.5%

Q: In 2016, which of the following financial assets make up the greatest proportion of the financial assets held by U.S. households? A. Pension reserves B. Life insurance reserves C. Mutual fund shares D. Debt securities E. Personal trusts

Q: Alex Goh is 39 years old and has accumulated $128,000 in his self directed defined contribution pension plan. Each year he contributes $2,500 to the plan, and his employer contributes an equal amount. Alex thinks he will retire at age 62 and figures he will live to age 86. The plan allows for two types of investments. One offers a 4% risk free real rate of return. The other offers an expected return of 11% and has a standard deviation of 37%. Alex now has 25% of his money in the risk free investment and 75% in the risky investment. He plans to continue saving at the same rate and keep the same proportions invested in each of the investments. His salary will grow at the same rate as inflation. How much does Alex currently have in the safe account; how much in the risky account? A. $31,200; $46,800 B. $39,000; $39,000 C. $32,000; $96,000 D. $45,300; $32,700 E. $64,000; $14,000

Q: Genny Webb is 27 years old and has accumulated $7,500 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk free investment and 80% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much can Genny expect to have in her risky account at retirement? A. $1,800,326 B. $1,905,095 C. $1,743,781 D. $1,224,651 E. $345,886

Q: Genny Webb is 27 years old and has accumulated $7,500 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk free investment and 80% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much can Genny be sure of having in the safe account at retirement? A. $45,473 B. $62,557 C. $78,943 D. $54,968 E. $74,643

Q: Genny Webb is 27 years old and has accumulated $7,500 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk free investment and 80% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. Of the total amount of new funds that will be invested by Genny and by her employer on her behalf, how much will Genny put into the safe account each year; how much into the risky account? A. $1,500; $2,500 B. $1,200; $1,800 C. $800; $3,200 D. $1,250; $2,750 E. $1,400; $1,600

Q: Genny Webb is 27 years old and has accumulated $7,500 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Genny thinks she will retire at age 63 and figures she will live to age 90. The plan allows for two types of investments. One offers a 3% risk free real rate of return. The other offers an expected return of 12% and has a standard deviation of 39%. Genny now has 20% of her money in the risk free investment and 80% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much does Genny currently have in the safe account; how much in the risky account? A. $1,500; $6,000 B. $3,000; $4,500 C. $2,000; $5,500 D. $4,800; $2,700 E. $3,500; $3,500

Q: Stephanie Watson is 23 years old and has accumulated $4,000 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Stephanie thinks she will retire at age 67 and figures she will live to age 81. The plan allows for two types of investments. One offers a 3.5% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 23%. Stephanie now has 5% of her money in the risk free investment and 95% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much can Stephanie expect to have in her risky account at retirement? A. $2,731,838 B. $2,915,415 C. $1,425,316 D. $224,651 E. $3,545,886

Q: Stephanie Watson is 23 years old and has accumulated $4,000 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Stephanie thinks she will retire at age 67 and figures she will live to age 81. The plan allows for two types of investments. One offers a 3.5% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 23%. Stephanie now has 5% of her money in the risk free investment and 95% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much can Stephanie be sure of having in the safe account at retirement? A. $37,221 B. $16,423 C. $11,856 D. $21,156. E. $49,219

Q: Stephanie Watson is 23 years old and has accumulated $4,000 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Stephanie thinks she will retire at age 67 and figures she will live to age 81. The plan allows for two types of investments. One offers a 3.5% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 23%. Stephanie now has 5% of her money in the risk free investment and 95% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. Of the total amount of new funds that will be invested by Stephanie and by her employer on her behalf, how much will she put into the safe account each year; how much into the risky account? A. $3,800; $200 B. $2,000; $2,000 C. $200; $3,800 D. $2,500; $1,500 E. $1,500; $2,500

Q: Stephanie Watson is 23 years old and has accumulated $4,000 in her self directed defined contribution pension plan. Each year she contributes $2,000 to the plan, and her employer contributes an equal amount. Stephanie thinks she will retire at age 67 and figures she will live to age 81. The plan allows for two types of investments. One offers a 3.5% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 23%. Stephanie now has 5% of her money in the risk free investment and 95% in the risky investment. She plans to continue saving at the same rate and keep the same proportions invested in each of the investments. Her salary will grow at the same rate as inflation. How much does Stephanie currently have in the safe account; how much in the risky account? A. $3,800; $200 B. $2,000; $2,000 C. $200; $3,800 D. $2,500; $1,500 E. $1,500; $2,500

Q: Pension funds do not I) accept contributions from employers, which are tax deductible. II) pay distributions that are taxed as ordinary income. III) pay benefits only from the income component of the fund. IV) accept contributions from employees, which are not tax deductible. A. III and IV B. II and III C. I and II D. I, II, and IV E. I, II, III, and IV

Q: Pension funds I) accept contributions from employers, which are tax deductible. II) pay distributions that are taxed as ordinary income. III) pay benefits only from the income component of the fund. IV) accept contributions from employees, which are not tax deductible. A. I and IV B. II and III C. I and II D. I, II, and IV E. I, II, III, and IV

Q: Which of the following investments allows the investor to choose how to allocate assets? A. Variable Life insurance policies B. Keogh plans C. Personal funds D. Tax qualified defined contribution plans E. All of the options are correct.

Q: Which of the following investments does not allow the investor to choose how to allocate assets? A. Variable Life insurance policies B. Keogh plans C. Personal funds D. Tax qualified defined contribution plans E. Universal Life policies