Question 1

Which of the following is not a component of the money market?

Accepted Answer

A)  Repurchase agreements 
B)  Eurodollars 
C)  Real estate investment trusts 
D)  Money market mutual funds 
E)  Commercial paper 
A)  Repurchase agreements 
B)  Eurodollars 
C)  Real estate investment trusts 
D)  Money market mutual funds 
E)  Commercial paper

Question 2

Consider the following three stocks: $\begin{array}{lll}
\text { Stock } & \text { Price Number of shares}&  \text { outstanding } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$
 The value-weighted index constructed with the three stocks using a divisor of 100 is

Accepted Answer

A)  1.2. 
B)  1200. 
C)  490. 
D)  4900. 
E)  49. 
A)  1.2. 
B)  1200. 
C)  490. 
D)  4900. 
E)  49.

Question 3

In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs

Accepted Answer

A)  by adjusting the divisor. 
B)  automatically. 
C)  by adjusting the numerator. 
D)  quarterly on the last trading day of each quarter. 
A)  by adjusting the divisor. 
B)  automatically. 
C)  by adjusting the numerator. 
D)  quarterly on the last trading day of each quarter.

Question 4

Bond market indexes can be difficult to construct because

Accepted Answer

A)  they cannot be based on firms' market values. 
B)  bonds tend to trade infrequently, making price information difficult to obtain. 
C)  there are so many different kinds of bonds. 
D)  prices cannot be obtained for companies that operate in emerging markets. 
E)  corporations are not required to disclose the details of their bond issues. 
A)  they cannot be based on firms' market values. 
B)  bonds tend to trade infrequently, making price information difficult to obtain. 
C)  there are so many different kinds of bonds. 
D)  prices cannot be obtained for companies that operate in emerging markets. 
E)  corporations are not required to disclose the details of their bond issues.

Question 5

What interest rate have British regulators proposed be the new short term benchmark rate?

Accepted Answer

A)  SONIA 
B)  LIBOR 
C)  Tokyo Interbank rate 
D)  Euribor 
E)  US Treasury Repo 
A)  SONIA 
B)  LIBOR 
C)  Tokyo Interbank rate 
D)  Euribor 
E)  US Treasury Repo

Question 6

Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner?

Accepted Answer

A)  Repos 
B)  Bankers' acceptances 
C)  Eurodollars 
D)  Federal funds 
A)  Repos 
B)  Bankers' acceptances 
C)  Eurodollars 
D)  Federal funds

Question 7

What does the term negotiable mean, with regard to negotiable certificates of deposit?

Accepted Answer

A)  The CD can be sold to another investor if the owner needs to cash it in before its maturity date. 
B)  The rate of interest on the CD is subject to negotiation. 
C)  The CD is automatically reinvested at its maturity date. 
D)  The CD has staggered maturity dates built in. 
E)  The interest rate paid on the CD will vary with a designated market rate. 
A)  The CD can be sold to another investor if the owner needs to cash it in before its maturity date. 
B)  The rate of interest on the CD is subject to negotiation. 
C)  The CD is automatically reinvested at its maturity date. 
D)  The CD has staggered maturity dates built in. 
E)  The interest rate paid on the CD will vary with a designated market rate.

Question 8

You sold a futures contract on oats at a futures price of 233.75, and at the time of expiration, the price was 261.25. What was your profit or loss?

Accepted Answer

A)  $1375.00 
B)  −$1375.00 
C)  −$27.50 
D)  $27.50 
A)  $1375.00 
B)  −$1375.00 
C)  −$27.50 
D)  $27.50

Question 9

You purchased a futures contract on corn at a futures price of 350, and at the time of expiration, the price was 352. What was your profit or loss?

Accepted Answer

A)  $2.00 
B)  −$2.00 
C)  $100 
D)  −$100 
A)  $2.00 
B)  −$2.00 
C)  $100 
D)  −$100

Question 10

The ____ is an example of a U.S. index of small firms.

Accepted Answer

A)  S&P 500 
B)  DJIA 
C)  DAX 
D)  Russell 2000 
E)  All of the options are correct. 
A)  S&P 500 
B)  DJIA 
C)  DAX 
D)  Russell 2000 
E)  All of the options are correct.

Question 11

You sold a futures contract on corn at a futures price of 350, and at the time of expiration, the price was 352. What was your profit or loss?

Accepted Answer

A)  $2.00 
B)  −$2.00 
C)  $100 
D)  −$100 
A)  $2.00 
B)  −$2.00 
C)  $100 
D)  −$100

Question 12

The largest component of the money market is/are

Accepted Answer

A)  repurchase agreements. 
B)  money market mutual funds. 
C)  T-bills. 
D)  Eurodollars. 
E)  savings deposits. 
A)  repurchase agreements. 
B)  money market mutual funds. 
C)  T-bills. 
D)  Eurodollars. 
E)  savings deposits.

Question 13

Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?

Accepted Answer

A)  15.4% 
B)  23.7% 
C)  39.5% 
D)  17.3% 
E)  12.4% 
A)  15.4% 
B)  23.7% 
C)  39.5% 
D)  17.3% 
E)  12.4%

Question 14

A put option allows the holder to

Accepted Answer

A)  buy the underlying asset at the strike price on or before the expiration date. 
B)  sell the underlying asset at the strike price on or before the expiration date. 
C)  sell the option in the open market prior to expiration. 
D)  sell the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration. 
E)  buy the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration. 
A)  buy the underlying asset at the strike price on or before the expiration date. 
B)  sell the underlying asset at the strike price on or before the expiration date. 
C)  sell the option in the open market prior to expiration. 
D)  sell the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration. 
E)  buy the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration.

Question 15

Which of the following are characteristics of preferred stock?I) It pays its holder a fixed amount of income each year at the discretion of its managers.II) It gives its holder voting power in the firm.III) Its dividends are usually cumulative.IV) Failure to pay dividends may result in bankruptcy proceedings.

Accepted Answer

A)  I, III, and IV 
B)  I, II, and III 
C)  I and III 
D)  I, II, and IV 
E)  I, II, III, and IV 
A)  I, III, and IV 
B)  I, II, and III 
C)  I and III 
D)  I, II, and IV 
E)  I, II, III, and IV

Question 16

Which of the following indices is (are) market-value weighted?I) The New York Stock Exchange Composite IndexII) The Standard and Poor's 500 Stock IndexIII) The Dow Jones Industrial Average

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III 
E)  II and III only 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III 
E)  II and III only

Question 17

The ____ index represents the performance of the U.K. stock market.

Accepted Answer

A)  DAX 
B)  FTSE 
C)  Nikkei 
D)  Hang Seng 
A)  DAX 
B)  FTSE 
C)  Nikkei 
D)  Hang Seng

Question 18

The ____ index represents the performance of the Japanese stock market.

Accepted Answer

A)  DAX 
B)  FTSE 
C)  Nikkei 
D)  Hang Seng 
A)  DAX 
B)  FTSE 
C)  Nikkei 
D)  Hang Seng

Question 19

In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?

Accepted Answer

A)  17.6% 
B)  27% 
C)  22.2% 
D)  19.8% 
E)  Cannot be determined from the information given. 
A)  17.6% 
B)  27% 
C)  22.2% 
D)  19.8% 
E)  Cannot be determined from the information given.

Question 20

In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

Accepted Answer

A)  33% 
B)  72% 
C)  15% 
D)  28% 
E)  Cannot be determined from the information given. 
A)  33% 
B)  72% 
C)  15% 
D)  28% 
E)  Cannot be determined from the information given.

Exam 2: Asset Classes and Financial Instruments

Which of the following is not a component of the money market?

Consider the following three stocks: Stock Price Number of shares outstanding Stock A \ 40 200 Stock B \ 70 500 Stock C \ 10 600 The value-weighted index constructed with the three stocks using a divisor of 100 is

In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs

Bond market indexes can be difficult to construct because

What interest rate have British regulators proposed be the new short term benchmark rate?

Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner?

What does the term negotiable mean, with regard to negotiable certificates of deposit?

You sold a futures contract on oats at a futures price of 233.75, and at the time of expiration, the price was 261.25. What was your profit or loss?

You purchased a futures contract on corn at a futures price of 350, and at the time of expiration, the price was 352. What was your profit or loss?

The ____ is an example of a U.S. index of small firms.

You sold a futures contract on corn at a futures price of 350, and at the time of expiration, the price was 352. What was your profit or loss?

The largest component of the money market is/are

Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?

A put option allows the holder to

Which of the following indices is (are) market-value weighted?I) The New York Stock Exchange Composite IndexII) The Standard and Poor's 500 Stock IndexIII) The Dow Jones Industrial Average

The ____ index represents the performance of the U.K. stock market.

The ____ index represents the performance of the Japanese stock market.

In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?

In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

The Investment Environment

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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