Question 1

The total domestic return on German bonds is the return that would be experienced by an U.S. investor who owned German bonds.

Accepted Answer

A) True 
 B)False

Question 2

The original maturity of a United States Treasury note is

Accepted Answer

A) Zero years to five years. 
B) Six months to ten years. 
C) One year or less. 
D) One year to ten years. 
E) Over ten years. 
A) Zero years to five years. 
B) Six months to ten years. 
C) One year or less. 
D) One year to ten years. 
E) Over ten years.

Question 3

All of the following are considered fixed income securities except

Accepted Answer

A) Debentures. 
B) Eurobonds. 
C) Preferred stock. 
D) Mutual funds. 
E) Yankee bonds. 
A) Debentures. 
B) Eurobonds. 
C) Preferred stock. 
D) Mutual funds. 
E) Yankee bonds.

Question 4

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 small capitalization 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 5

Exhibit 3A.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following annual returns for both Alpine Corporation and Tauber Industries: $\begin{array}{ccc}
&\text { Alpine's } & \text { Tauber's }\
\text { Year } & \text { Rate of Return } & \text { Rate of Return } \
\hline 1995 & 5 & 9 \
1996 & 9 & 16 \
1997 & 11 & -16 \
1998 & -10 & 12 \
1999 & 12 & 9
\end{array}$
-Refer to Exhibit 3A.1. Calculate the covariance.

Accepted Answer

A) -32.20 
B) -23.32 
C) 1.00 
D) 23.32 
E) 32.20 
A) -32.20 
B) -23.32 
C) 1.00 
D) 23.32 
E) 32.20

Question 6

Which of the following are reasons that U.S. investors should consider foreign markets when constructing global portfolios.

Accepted Answer

A) Ignoring foreign markets reduced their choices of investment opportunities. 
B) Foreign markets have low correlations with U.S. markets. 
C) Returns on non-U.S. stocks can substantially exceed returns for U.S securities. 
D) All of the above. 
E) None of the above. 
A) Ignoring foreign markets reduced their choices of investment opportunities. 
B) Foreign markets have low correlations with U.S. markets. 
C) Returns on non-U.S. stocks can substantially exceed returns for U.S securities. 
D) All of the above. 
E) None of the above.

Question 7

An individual with only $10,000 to invest is most likely better off investing in:

Accepted Answer

A) Mutual funds to increase the expected return 
B) ETFs to increase the diversification 
C) Individual equities to increase portfolio efficiency 
D) Individual bonds and individual equities to increase efficiency 
E) All of the above are rational choices 
A) Mutual funds to increase the expected return 
B) ETFs to increase the diversification 
C) Individual equities to increase portfolio efficiency 
D) Individual bonds and individual equities to increase efficiency 
E) All of the above are rational choices

Question 8

Exhibit 3.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $\begin{array}{lr} \text {Security }& \text {Annual Percentage Return }\
\hline \text { U.S. government T-bills } & 3.04 \
\text { Long-term government bonds } & 5.75 \
\text { Long-term corporate bonds } & 6.80 \
\text { Large capitalization common stocks } & 13.50 \
\text { Small capitalization common stocks } & 15.60
\end{array}$ The annual rate of inflation is 2%.
-Refer to Exhibit 3.1. What is the real return on large capitalization stocks?

Accepted Answer

A) 1.02% 
B) 3.68% 
C) 4.71% 
D) 11.27% 
E) 13.33% 
A) 1.02% 
B) 3.68% 
C) 4.71% 
D) 11.27% 
E) 13.33%

Question 9

Antiques, art, coins, stamps, jewelry, etc., are not included in the investment portfolios of financial institutions because

Accepted Answer

A) Prices vary substantially. 
B) Transaction costs are relatively high. 
C) They are illiquid. 
D) All of the above. 
E) None of the above. 
A) Prices vary substantially. 
B) Transaction costs are relatively high. 
C) They are illiquid. 
D) All of the above. 
E) None of the above.

Question 10

Which of the following statements regarding real estate investments is false?

Accepted Answer

A) The large number of transactions and national data sources provide accurate readily available estimates of historical returns. 
B) Real Estate Investment Trusts (REITs) had higher returns than common stocks from 1972 to 1987. 
C) Real Estate Investment Trusts (REITs) had lower volatility than common stocks from 1972 to 1987. 
D) All of the above statements are true. 
E) All of the above statements are false. 
A) The large number of transactions and national data sources provide accurate readily available estimates of historical returns. 
B) Real Estate Investment Trusts (REITs) had higher returns than common stocks from 1972 to 1987. 
C) Real Estate Investment Trusts (REITs) had lower volatility than common stocks from 1972 to 1987. 
D) All of the above statements are true. 
E) All of the above statements are false.

Question 11

An investor who purchases a put 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 12

What is the correlation coefficient for two assets with a covariance of .0032, if asset 1 has a standard deviation of 12 percent and asset 2 has a standard deviation of 9 percent?

Accepted Answer

A) 0.2963 
B) 0.3456 
C) 0.8721 
D) 1.5980 
A) 0.2963 
B) 0.3456 
C) 0.8721 
D) 1.5980

Question 13

Exhibit 3A.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following annual returns for both Alpine Corporation and Tauber Industries: $\begin{array}{ccc}
&\text { Alpine's } & \text { Tauber's }\
\text { Year } & \text { Rate of Return } & \text { Rate of Return } \
\hline 1995 & 5 & 9 \
1996 & 9 & 16 \
1997 & 11 & -16 \
1998 & -10 & 12 \
1999 & 12 & 9
\end{array}$
-Refer to Exhibit 3A.1. Calculate the coefficient of correlation.

Accepted Answer

A) -0.456 
B) -0.354 
C) 0.000 
D) 0.456 
E) 3.538 
A) -0.456 
B) -0.354 
C) 0.000 
D) 0.456 
E) 3.538

Question 14

A debenture is an option issued by a corporation that gives the holder the right to acquire common stock from the issuing firm at a specified price within a designated period of time.

Accepted Answer

A) True 
 B)False

Question 15

Correlations between bond markets in different countries have been changing over time because

Accepted Answer

A) Countries are developing closer trade and economic links. 
B) Countries are becoming more segmented. 
C) There are fewer barriers to travel. 
D) U.S. investors are purchasing more foreign securities. 
E) Correlations between bond markets of different countries have been rising. 
A) Countries are developing closer trade and economic links. 
B) Countries are becoming more segmented. 
C) There are fewer barriers to travel. 
D) U.S. investors are purchasing more foreign securities. 
E) Correlations between bond markets of different countries have been rising.

Question 16

Which of the following investments can be purchased with future contracts?

Accepted Answer

A) Commodities 
B) T-bills 
C) Treasury bonds 
D) Eurobonds 
E) All of the above 
A) Commodities 
B) T-bills 
C) Treasury bonds 
D) Eurobonds 
E) All of the above

Question 17

All of the following are ways to invest in real estate except

Accepted Answer

A) Real Estate Investment Trusts (REITs) 
B) Raw Land 
C) Land Development 
D) Rental Properties 
E) All of the above are ways to invest in real estate. 
A) Real Estate Investment Trusts (REITs) 
B) Raw Land 
C) Land Development 
D) Rental Properties 
E) All of the above are ways to invest in real estate.

Question 18

The U.S. equity and bond markets have grown in terms of their relative size of the world equity and bond market.

Accepted Answer

A) True 
 B)False

Question 19

In order to diversify risk an investor must have investments that have correlations with other investments in the portfolio that are

Accepted Answer

A) low positive 
B) zero 
C) negative 
D) any of the above 
E) none of the above 
A) low positive 
B) zero 
C) negative 
D) any of the above 
E) none of the above

Question 20

If the nominal return on an investment of common stocks was 11% and inflation was 2.5% annually, what was the real return on common stock?

Accepted Answer

A) 8.3% 
B) 8.5% 
C) 9.7% 
D) 11.0% 
E) 12.6% 
A) 8.3% 
B) 8.5% 
C) 9.7% 
D) 11.0% 
E) 12.6%

Exam 3: Selecting Investments in a Global Market

The total domestic return on German bonds is the return that would be experienced by an U.S. investor who owned German bonds.

The original maturity of a United States Treasury note is

All of the following are considered fixed income securities except

Which of the following are reasons that U.S. investors should consider foreign markets when constructing global portfolios.

An individual with only $10,000 to invest is most likely better off investing in:

Antiques, art, coins, stamps, jewelry, etc., are not included in the investment portfolios of financial institutions because

Which of the following statements regarding real estate investments is false?

An investor who purchases a put option:

What is the correlation coefficient for two assets with a covariance of .0032, if asset 1 has a standard deviation of 12 percent and asset 2 has a standard deviation of 9 percent?

A debenture is an option issued by a corporation that gives the holder the right to acquire common stock from the issuing firm at a specified price within a designated period of time.

Correlations between bond markets in different countries have been changing over time because

Which of the following investments can be purchased with future contracts?

All of the following are ways to invest in real estate except

The U.S. equity and bond markets have grown in terms of their relative size of the world equity and bond market.

In order to diversify risk an investor must have investments that have correlations with other investments in the portfolio that are

If the nominal return on an investment of common stocks was 11% and inflation was 2.5% annually, what was the real return on common stock?

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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