Question 1

The decrease in the standard deviation of returns after adding 40 to 50 securities within a country is known as domestic diversification.

Accepted Answer

A) True 
 B)False

Question 2

The purchase and sale of commodities for current delivery and consumption is known as dealing in the ____ market.

Accepted Answer

A) Futures 
B) Spot 
C) Money 
D) Capital 
E) Options 
A) Futures 
B) Spot 
C) Money 
D) Capital 
E) Options

Question 3

A mutual fund:

Accepted Answer

A) Is priced once a day at the opening of trading. 
B) Is priced once a day at the close of trading. 
C) Is priced continuously during the trading day. 
D) Is priced at the open and close of trading. 
E) None of the above. 
A) Is priced once a day at the opening of trading. 
B) Is priced once a day at the close of trading. 
C) Is priced continuously during the trading day. 
D) Is priced at the open and close of trading. 
E) None of the above.

Question 4

If this year is consistent with historical trends you would expect the return for small capitalization stocks to be

Accepted Answer

A) Below common stocks and above long-term government bonds. 
B) Below common stocks and below long-term government bonds. 
C) Above last year's return on the same stocks. 
D) Above common stock, long-term government, and corporate bonds. 
E) The least variable among long-term bonds and common stocks. 
A) Below common stocks and above long-term government bonds. 
B) Below common stocks and below long-term government bonds. 
C) Above last year's return on the same stocks. 
D) Above common stock, long-term government, and corporate bonds. 
E) The least variable among long-term bonds and common stocks.

Question 5

If the exchange rate effect for Japanese bonds is negative, it means that the domestic rate of return will be greater than the U.S. dollar return.

Accepted Answer

A) True 
 B)False

Question 6

A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%. Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 90% of the time?

Accepted Answer

A) 12.8% to 20.6% 
B) -10.6% to 36.2% 
C) -2.8% to 28.4% 
D) -12.8% to 20.6% 
E) 10.6% to 36.2% 
A) 12.8% to 20.6% 
B) -10.6% to 36.2% 
C) -2.8% to 28.4% 
D) -12.8% to 20.6% 
E) 10.6% to 36.2%

Question 7

A call option is usually issued in conjunction with convertible bonds.

Accepted Answer

A) True 
 B)False

Question 8

Adding international investments to an all U.S. portfolio will most likely:

Accepted Answer

A) Increase the overall risk of the portfolio 
B) Decrease the overall risk of the portfolio 
C) Increase the expected return of the portfolio 
D) Decrease the expected return of the portfolio 
E) None of the above 
A) Increase the overall risk of the portfolio 
B) Decrease the overall risk of the portfolio 
C) Increase the expected return of the portfolio 
D) Decrease the expected return of the portfolio 
E) None of the above

Question 9

For a U.S. based investor, a weaker dollar means that overall dollar based returns on overseas security investment will be higher because

Accepted Answer

A) A weaker dollar means that exports will rise. 
B) A weaker dollar means that more foreign investors will by U.S. securities. 
C) A weaker dollar means that the foreign currency will convert to more dollars. 
D) A weaker dollar means that more investors will purchase the foreign security. 
E) None of the above. 
A) A weaker dollar means that exports will rise. 
B) A weaker dollar means that more foreign investors will by U.S. securities. 
C) A weaker dollar means that the foreign currency will convert to more dollars. 
D) A weaker dollar means that more investors will purchase the foreign security. 
E) None of the above.

Question 10

The correlation of returns between a single pair of countries remains constant over time.

Accepted Answer

A) True 
 B)False

Question 11

Investments with predetermined contractual payments are known as:

Accepted Answer

A) Fixed-income 
B) Real estate 
C) Real assets 
D) Equities 
E) Low liquidity investments 
A) Fixed-income 
B) Real estate 
C) Real assets 
D) Equities 
E) Low liquidity investments

Question 12

Exhibit 3.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array}{l}
\text { Real Returns }\
\begin{array} { l c } 
\text { Investment } & \text { Real Annual Return } \
\hline \text { Large company stock } & 6.50 \% \
\text { Small capitalization stock } & 8.60 \% \
\text { Long-term corporate bonds } & 3.60 \% \
\text { Long-term government bonds } & 2.80 \% \
\text { U.S. Treasury bills } & 1.03 \%
\end{array}
\end{array}$$ The annual rate of inflation is 2.5%
-Refer to Exhibit 3.2. What is the large company stock nominal return?

Accepted Answer

A) 3.56% 
B) 5.37% 
C) 6.19% 
D) 9.16% 
E) 11.32% 
A) 3.56% 
B) 5.37% 
C) 6.19% 
D) 9.16% 
E) 11.32%

Question 13

Treasury bills are long-term investments that make regular interest and principal payments.

Accepted Answer

A) True 
 B)False

Question 14

A Eurobond is an international bond

Accepted Answer

A) Sold by an issuer within its own country in that country's currency. 
B) Denominated in a currency not native to where it is issued. 
C) Also known as a Yankee Bond. 
D) Denominated in U.S. dollars but issued by a foreign company. 
E) That is sold only to European investors. 
A) Sold by an issuer within its own country in that country's currency. 
B) Denominated in a currency not native to where it is issued. 
C) Also known as a Yankee Bond. 
D) Denominated in U.S. dollars but issued by a foreign company. 
E) That is sold only to European investors.

Question 15

It is very important when diversifying that the correlation between rates of return for various countries be high and very stable over time.

Accepted Answer

A) True 
 B)False

Question 16

A bond provision that specifies payments the issuer must make to redeem a given percentage of the outstanding issue prior to maturity is known as

Accepted Answer

A) Call provision 
B) Indenture 
C) Collateralization 
D) Sinking fund 
E) Collateral trust bond 
A) Call provision 
B) Indenture 
C) Collateralization 
D) Sinking fund 
E) Collateral trust bond

Question 17

REITS are investment companies that invest in high-quality money market instruments such as Treasury bills, high-grade commercial paper, and large CD's.

Accepted Answer

A) True 
 B)False

Question 18

Exhibit 3.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array}{l}
\text { Real Returns }\
\begin{array} { l c } 
\text { Investment } & \text { Real Annual Return } \
\hline \text { Large company stock } & 6.50 \% \
\text { Small capitalization stock } & 8.60 \% \
\text { Long-term corporate bonds } & 3.60 \% \
\text { Long-term government bonds } & 2.80 \% \
\text { U.S. Treasury bills } & 1.03 \%
\end{array}
\end{array}$$ The annual rate of inflation is 2.5%
-Refer to Exhibit 3.2. What is the T-bill nominal return?

Accepted Answer

A) 3.56% 
B) 5.37% 
C) 6.19% 
D) 9.16% 
E) 11.32% 
A) 3.56% 
B) 5.37% 
C) 6.19% 
D) 9.16% 
E) 11.32%

Question 19

An investor who purchases a call option:

Accepted Answer

A) Has the right to buy a given stock at a specified price during a designated time period. 
B) Has the right to sell a given stock at a specified price during a designated time period. 
C) Has the obligation to buy a given stock at a specified price during a designated time period. 
D) Has the obligation to sell a given stock at a specified price during a designated time period. 
E) None of the above. 
A) Has the right to buy a given stock at a specified price during a designated time period. 
B) Has the right to sell a given stock at a specified price during a designated time period. 
C) Has the obligation to buy a given stock at a specified price during a designated time period. 
D) Has the obligation to sell a given stock at a specified price during a designated time period. 
E) None of the above.

Question 20

A return series has an arithmetic mean of 10.5% and standard deviation of 13%. Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 95% of the time?

Accepted Answer

A) 10.5% to 13% 
B) -2.5% to 23.5% 
C) -28.5% to 49.5% 
D) -15.5% to 36.5% 
E) 0% to 36.5% 
A) 10.5% to 13% 
B) -2.5% to 23.5% 
C) -28.5% to 49.5% 
D) -15.5% to 36.5% 
E) 0% to 36.5%

Exam 3: Selecting Investments in a Global Market

The decrease in the standard deviation of returns after adding 40 to 50 securities within a country is known as domestic diversification.

The purchase and sale of commodities for current delivery and consumption is known as dealing in the ____ market.

A mutual fund:

If this year is consistent with historical trends you would expect the return for small capitalization stocks to be

If the exchange rate effect for Japanese bonds is negative, it means that the domestic rate of return will be greater than the U.S. dollar return.

A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%. Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 90% of the time?

A call option is usually issued in conjunction with convertible bonds.

Adding international investments to an all U.S. portfolio will most likely:

For a U.S. based investor, a weaker dollar means that overall dollar based returns on overseas security investment will be higher because

The correlation of returns between a single pair of countries remains constant over time.

Investments with predetermined contractual payments are known as:

Treasury bills are long-term investments that make regular interest and principal payments.

A Eurobond is an international bond

It is very important when diversifying that the correlation between rates of return for various countries be high and very stable over time.

A bond provision that specifies payments the issuer must make to redeem a given percentage of the outstanding issue prior to maturity is known as

REITS are investment companies that invest in high-quality money market instruments such as Treasury bills, high-grade commercial paper, and large CD's.

An investor who purchases a call option:

A return series has an arithmetic mean of 10.5% and standard deviation of 13%. Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 95% of the time?

The Investment Setting

The Asset Allocation Decision

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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