Question 1

Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false

Accepted Answer

A) The DJIA is not very representative of the market as a whole. 
B) The DJIA consists of 30 blue chip stocks. 
C) The DJIA is affected equally by changes in low- and high-priced stocks. 
D) The DJIA divisor needs to be adjusted for stock splits. 
E) The value of the DJIA is much higher than individual stock prices. 
A) The DJIA is not very representative of the market as a whole. 
B) The DJIA consists of 30 blue chip stocks. 
C) The DJIA is affected equally by changes in low- and high-priced stocks. 
D) The DJIA divisor needs to be adjusted for stock splits. 
E) The value of the DJIA is much higher than individual stock prices. C

Question 2

Which of the following is not a characteristic of a money market instrument

Accepted Answer

A) Liquidity 
B) Marketability 
C) Long maturity 
D) Liquidity premium 
E) Long maturity and liquidity premium 
A) Liquidity 
B) Marketability 
C) Long maturity 
D) Liquidity premium 
E) Long maturity and liquidity premium E

Question 3

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 B

Question 4

The stocks on the Dow Jones Industrial Average

Accepted Answer

A) have remained unchanged since the creation of the index. 
B) include most of the stocks traded on the NYSE. 
C) are changed occasionally as circumstances dictate. 
D) consist of stocks on which the investor cannot lose money. 
E) include most of the stocks traded on the NYSE and are changed occasionally as circumstances dictate. 
A) have remained unchanged since the creation of the index. 
B) include most of the stocks traded on the NYSE. 
C) are changed occasionally as circumstances dictate. 
D) consist of stocks on which the investor cannot lose money. 
E) include most of the stocks traded on the NYSE and are changed occasionally as circumstances dictate.

Question 5

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 6

Which of the following is not a mortgage-related government or government-sponsored agency

Accepted Answer

A) The Federal Home Loan Bank 
B) The Federal National Mortgage Association 
C) The U.S.Treasury 
D) Freddie Mac 
E) Ginnie Mae 
A) The Federal Home Loan Bank 
B) The Federal National Mortgage Association 
C) The U.S.Treasury 
D) Freddie Mac 
E) Ginnie Mae

Question 7

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 8

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04.As a buyer of the bond, what is the dollar price you expect to pay

Accepted Answer

A) $1,048.00 
B) $1,042.50 
C) $1,044.00 
D) $1,041.25 
E) $1,040.40 
A) $1,048.00 
B) $1,042.50 
C) $1,044.00 
D) $1,041.25 
E) $1,040.40

Question 9

The ultimate stock index in the U.S.is the

Accepted Answer

A) Wilshire 5000. 
B) DJIA. 
C) S&P 500. 
D) Russell 2000. 
A) Wilshire 5000. 
B) DJIA. 
C) S&P 500. 
D) Russell 2000.

Question 10

Consider the following three stocks:   The price-weighted index constructed with the three stocks is

Accepted Answer

A) 30. 
B) 40. 
C) 50. 
D) 60. 
A) 30. 
B) 40. 
C) 50. 
D) 60.

Question 11

For a taxpayer in the 15% marginal tax bracket, a 15-year municipal bond currently yielding 6.2% would offer an equivalent taxable yield of

Accepted Answer

A) 6.2%. 
B) 5.27%. 
C) 8.32%. 
D) 7.29%. 
A) 6.2%. 
B) 5.27%. 
C) 8.32%. 
D) 7.29%.

Question 12

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04.As a seller of the bond what is the dollar price you expect to pay

Accepted Answer

A) $1,048.00 
B) $1,042.50 
C) $1,041.25 
D) $1,041.75 
E) $1,040.40 
A) $1,048.00 
B) $1,042.50 
C) $1,041.25 
D) $1,041.75 
E) $1,040.40

Question 13

An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A) 7.5% and 10.3% 
B) 7.5% and 7.73% 
C) 5.63% and 7.73% 
D) 5.63% and 10.3% 
E) 10% and 10% 
A) 7.5% and 10.3% 
B) 7.5% and 7.73% 
C) 5.63% and 7.73% 
D) 5.63% and 10.3% 
E) 10% and 10%

Question 14

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 15

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 16

Which one of the following terms best describes Eurodollars

Accepted Answer

A) Dollar-denominated deposits only in European banks. 
B) Dollar-denominated deposits at branches of foreign banks in the U.S. 
C) Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S. 
D) Dollar-denominated deposits at American banks in the U.S. 
E) Dollars that have been exchanged for European currency. 
A) Dollar-denominated deposits only in European banks. 
B) Dollar-denominated deposits at branches of foreign banks in the U.S. 
C) Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S. 
D) Dollar-denominated deposits at American banks in the U.S. 
E) Dollars that have been exchanged for European currency.

Question 17

Brokers' calls

Accepted Answer

A) are funds used by individuals who wish to buy stocks on margin. 
B) are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
C) carry a rate that is usually about one percentage point lower than the rate on U.S.T-bills. 
D) are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
E) are funds used by individuals who wish to buy stocks on margin and carry a rate that is usually about one percentage point lower than the rate on U.S.T-bills. 
A) are funds used by individuals who wish to buy stocks on margin. 
B) are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
C) carry a rate that is usually about one percentage point lower than the rate on U.S.T-bills. 
D) are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
E) are funds used by individuals who wish to buy stocks on margin and carry a rate that is usually about one percentage point lower than the rate on U.S.T-bills.

Question 18

The Dow Jones Industrial Average (DJIA) is computed by

Accepted Answer

A) adding the prices of 30 large "blue-chip" stocks and dividing by 30. 
B) calculating the total market value of the 30 firms in the index and dividing by 30. 
C) adding the prices of the 30 stocks in the index and dividing by a divisor. 
D) adding the prices of the 500 stocks in the index and dividing by a divisor. 
E) adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base date period. 
A) adding the prices of 30 large "blue-chip" stocks and dividing by 30. 
B) calculating the total market value of the 30 firms in the index and dividing by 30. 
C) adding the prices of the 30 stocks in the index and dividing by a divisor. 
D) adding the prices of the 500 stocks in the index and dividing by a divisor. 
E) adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base date period.

Question 19

With regard to a futures contract, the short position is held by

Accepted Answer

A) the trader who bought the contract at the largest discount. 
B) the trader who has to travel the farthest distance to deliver the commodity. 
C) the trader who plans to hold the contract open for the lengthiest time period. 
D) the trader who commits to purchasing the commodity on the delivery date. 
E) the trader who commits to delivering the commodity on the delivery date. 
A) the trader who bought the contract at the largest discount. 
B) the trader who has to travel the farthest distance to deliver the commodity. 
C) the trader who plans to hold the contract open for the lengthiest time period. 
D) the trader who commits to purchasing the commodity on the delivery date. 
E) the trader who commits to delivering the commodity on the delivery date.

Question 20

The index that includes the largest number of actively traded stocks is

Accepted Answer

A) the NASDAQ Composite Index. 
B) the NYSE Composite Index. 
C) the Wilshire 5000 Index. 
D) the Value Line Composite Index. 
E) the Russell Index. 
A) the NASDAQ Composite Index. 
B) the NYSE Composite Index. 
C) the Wilshire 5000 Index. 
D) the Value Line Composite Index. 
E) the Russell Index.

Exam 2: Asset Classes and Financial Instruments

Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false

Which of the following is not a characteristic of a money market instrument

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

The stocks on the Dow Jones Industrial Average

Which of the following is not a mortgage-related government or government-sponsored agency

A put option allows the holder to

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04.As a buyer of the bond, what is the dollar price you expect to pay

The ultimate stock index in the U.S.is the

Consider the following three stocks: The price-weighted index constructed with the three stocks is

For a taxpayer in the 15% marginal tax bracket, a 15-year municipal bond currently yielding 6.2% would offer an equivalent taxable yield of

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04.As a seller of the bond what is the dollar price you expect to pay

An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

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

Bond market indexes can be difficult to construct because

Which one of the following terms best describes Eurodollars

Brokers' calls

The Dow Jones Industrial Average (DJIA) is computed by

With regard to a futures contract, the short position is held by

The index that includes the largest number of actively traded stocks is

The Investment Environment

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

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

Filters

An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.