Question 1

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. D

Question 2

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. The stocks on the DJIA are only a small sample of the entire market and have been changed occasionally since the creation of the index; one can lose money on any stock. 
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. The stocks on the DJIA are only a small sample of the entire market and have been changed occasionally since the creation of the index; one can lose money on any stock. C

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

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

Question 5

You purchased 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 6

Which of the following securities is a money market instrument?

Accepted Answer

A)  Treasury note 
B)  Treasury bond 
C)  Municipal bond 
D)  Commercial paper 
E)  Mortgage security 
A)  Treasury note 
B)  Treasury bond 
C)  Municipal bond 
D)  Commercial paper 
E)  Mortgage security

Question 7

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. As a seller of the bond, what is the dollar price you expect to receive?

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 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

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.

Question 10

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. As a buyer of the bond, what is the dollar price you expect to pay?
A. $1,048.00
B. $1,042.50
C. $1,044.00
D. $1,041.25
E. $1,040.40

Accepted Answer

A. $1,048.00
B. $1,042.50
C. $1,044.00
D

Question 11

A 5.5%, 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

Accepted Answer

A)  8.20%. 
B)  10.75%. 
C)  11.40%. 
D)  4.82%. 
A)  8.20%. 
B)  10.75%. 
C)  11.40%. 
D)  4.82%.

Question 12

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 13

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 14

Consider the following three stocks: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600 \
\hline
\end{array}$$ Assume at these prices that the value-weighted index constructed with the three stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?

Accepted Answer

A)  265 
B)  430 
C)  355 
D)  490 
E)  1000 
A)  265 
B)  430 
C)  355 
D)  490 
E)  1000

Question 15

In the event of the firm's bankruptcy,

Accepted Answer

A)  the most shareholders can lose is their original investment in the firm's stock. 
B)  common shareholders are the first in line to receive their claims on the firm's assets. 
C)  bondholders have claim to what is left from the liquidation of the firm's assets after paying the shareholders. 
D)  the claims of preferred shareholders are honored before those of the common shareholders. 
E) the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders. 
A)  the most shareholders can lose is their original investment in the firm's stock. 
B)  common shareholders are the first in line to receive their claims on the firm's assets. 
C)  bondholders have claim to what is left from the liquidation of the firm's assets after paying the shareholders. 
D)  the claims of preferred shareholders are honored before those of the common shareholders. 
E) the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.

Question 16

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

Accepted Answer

A)  97:50. 
B)  97:16. 
C)  97:80. 
D)  94:24. 
E)  97:75. 
A)  97:50. 
B)  97:16. 
C)  97:80. 
D)  94:24. 
E)  97:75.

Question 17

The type of municipal bond that is used to finance commercial enterprises, such as the construction of a new building for a corporation, is called

Accepted Answer

A)  a corporate courtesy bond. 
B)  a revenue bond. 
C)  a general-obligation bond. 
D)  a tax-anticipation note. 
E)  an industrial-development bond. 
A)  a corporate courtesy bond. 
B)  a revenue bond. 
C)  a general-obligation bond. 
D)  a tax-anticipation note. 
E)  an industrial-development bond.

Question 18

Corporations can exclude ____________% of the dividends received from preferred stock from taxes.

Accepted Answer

A)  50 
B)  70 
C)  20 
D)  15 
E)  62 
A)  50 
B)  70 
C)  20 
D)  15 
E)  62

Question 19

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 20

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.

Exam 2: Asset Classes and Financial Instruments

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

The stocks on the Dow Jones Industrial Average

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

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

You purchased 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?

Which of the following securities is a money market instrument?

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. As a seller of the bond, what is the dollar price you expect to receive?

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?

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

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. As a buyer of the bond, what is the dollar price you expect to pay? A. $1,048.00 B. $1,042.50 C. $1,044.00 D. $1,041.25 E. $1,040.40

A 5.5%, 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

Brokers'calls

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

Consider the following three stocks: Stock Price Number of shares Stock A \ 40 200 Stock B \ 70 500 Stock C \ 10 600 Assume at these prices that the value-weighted index constructed with the three stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?

In the event of the firm's bankruptcy,

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

The type of municipal bond that is used to finance commercial enterprises, such as the construction of a new building for a corporation, is called

Corporations can exclude ____________% of the dividends received from preferred stock from taxes.

Which one of the following terms best describes Eurodollars?

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?

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

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