Question 1

Which of the following is not a characteristic of a warrant?

Accepted Answer

A)  The right to buy common stock in a corporation. 
B)  Issued by the corporation or an individual. 
C)  Typically valid for longer time periods than options. 
D)  Similar to a call option with respect to a striking price. 
E)  All of the above are characteristics of a warrant. 
A)  The right to buy common stock in a corporation. 
B)  Issued by the corporation or an individual. 
C)  Typically valid for longer time periods than options. 
D)  Similar to a call option with respect to a striking price. 
E)  All of the above are characteristics of a warrant. B

Question 2

Exhibit 3-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{lc}
 \text {Security  } & \text { Annual Percentage Return } \
\hline \text { Canadian government T-bills } & 3.04 \
\text { Long-term government bonds } & 5.75 \
\text { Long-term corporate bonds } & 6.80 \
\text { Large capitalization common stocks } & 13.50 \
\text { Small capitalization common stocks } & 15.60
\end{array}$ 
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% D

Question 3

Foreign equities can be acquired by purchasing all of the following

Accepted Answer

A)  American Depository Receipts (ADRs) 
B)  American shares 
C)  Foreign shares listed on foreign stock exchange 
D)  Global Exchange-Traded Funds (GETFs) 
E)  All of the above. 
A)  American Depository Receipts (ADRs) 
B)  American shares 
C)  Foreign shares listed on foreign stock exchange 
D)  Global Exchange-Traded Funds (GETFs) 
E)  All of the above. E

Question 4

What is the original maturity of a Canadian Treasury bond?

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 5

Which of the following are ways to invest in real estate?

Accepted Answer

A)  Real Estate Investment Trusts (REITs) 
B)  Raw Land purchase 
C)  Land Development 
D)  Rental Properties 
E)  All of the above. 
A)  Real Estate Investment Trusts (REITs) 
B)  Raw Land purchase 
C)  Land Development 
D)  Rental Properties 
E)  All of the above.

Question 6

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 7

Yields on money market funds are often lower than yields available to individuals investing in guaranteed investment securities because of the fees involved.

Accepted Answer

A) True 
 B)False

Question 8

You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are the same and you are in the 28% tax bracket, which bond should you choose and why?

Accepted Answer

A)  Corporate bond because the after tax yield is 6.25%. 
B)  Corporate bond because the after tax yield is 4.5%. 
C)  Municipal bond because the equivalent taxable yield is 6.3%. 
D)  Municipal bond because the equivalent taxable yield is 6.6%. 
E)  You will be indifferent between the two because the after tax yields are the same. 
A)  Corporate bond because the after tax yield is 6.25%. 
B)  Corporate bond because the after tax yield is 4.5%. 
C)  Municipal bond because the equivalent taxable yield is 6.3%. 
D)  Municipal bond because the equivalent taxable yield is 6.6%. 
E)  You will be indifferent between the two because the after tax yields are the same.

Question 9

A Eurobond is an international bond denominated in a currency other than that of Canada.

Accepted Answer

A) True 
 B)False

Question 10

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 11

The performance of the Canadian bond market ranked higher than the U.S. bond market.

Accepted Answer

A) True 
 B)False

Question 12

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)  Canadian 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)  Canadian investors are purchasing more foreign securities. 
E)  Correlations between bond markets of different countries have been rising.

Question 13

The decrease in the standard deviation of returns after adding 30 to 40 securities within a country is known as domestic diversification.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Which of the following would be considered a low liquidity investment?

Accepted Answer

A)  Warrants 
B)  Call options 
C)  Zero coupon bonds 
D)  Balanced mutual funds 
E)  Diamonds 
A)  Warrants 
B)  Call options 
C)  Zero coupon bonds 
D)  Balanced mutual funds 
E)  Diamonds

Question 16

Which of the following is not considered a capital market instrument?

Accepted Answer

A)  Canadian Treasury notes and bonds. 
B)  Canadian Treasury bills. 
C)  Canadian government agency securities. 
D)  Municipal bonds. 
E)  Corporate bonds. 
A)  Canadian Treasury notes and bonds. 
B)  Canadian Treasury bills. 
C)  Canadian government agency securities. 
D)  Municipal bonds. 
E)  Corporate bonds.

Question 17

REITS are investment companies that invest in high-quality money market instruments such as Treasury bills, high-grade commercial paper, and guaranteed investment securities.

Accepted Answer

A) True 
 B)False

Question 18

Rank the following four investments in increasing order of historical risk.

Accepted Answer

A)  Art, T-bills, corporate bonds, and common stock 
B)  T-bills, common stock, corporate bonds, art 
C)  Corporate bonds, T-bills, common stock, art 
D)  Common stock, corporate bonds, T-bills, art 
E)  T-bills, corporate bonds, common stock, art 
A)  Art, T-bills, corporate bonds, and common stock 
B)  T-bills, common stock, corporate bonds, art 
C)  Corporate bonds, T-bills, common stock, art 
D)  Common stock, corporate bonds, T-bills, art 
E)  T-bills, corporate bonds, common stock, art

Question 19

A statistic that measures how two variables tend to move together is the

Accepted Answer

A)  Coefficient of variation 
B)  Correlation coefficient 
C)  Standard deviation 
D)  Mean 
E)  Variance 
A)  Coefficient of variation 
B)  Correlation coefficient 
C)  Standard deviation 
D)  Mean 
E)  Variance

Question 20

How often is a mutual fund priced?

Accepted Answer

A)  Once a day at the opening of trading. 
B)  Once a day at the close of trading. 
C)  Continuously during the trading day. 
D)  At the open and close of trading. 
E)  None of the above. 
A)  Once a day at the opening of trading. 
B)  Once a day at the close of trading. 
C)  Continuously during the trading day. 
D)  At the open and close of trading. 
E)  None of the above.

Exam 3: Selecting Investments in a Global Market

Which of the following is not a characteristic of a warrant?

Foreign equities can be acquired by purchasing all of the following

What is the original maturity of a Canadian Treasury bond?

Which of the following are ways to invest in real estate?

An investor who purchases a put option:

Yields on money market funds are often lower than yields available to individuals investing in guaranteed investment securities because of the fees involved.

You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are the same and you are in the 28% tax bracket, which bond should you choose and why?

A Eurobond is an international bond denominated in a currency other than that of Canada.

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

The performance of the Canadian bond market ranked higher than the U.S. bond market.

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

The decrease in the standard deviation of returns after adding 30 to 40 securities within a country is known as domestic diversification.

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

Which of the following would be considered a low liquidity investment?

Which of the following is not considered a capital market instrument?

REITS are investment companies that invest in high-quality money market instruments such as Treasury bills, high-grade commercial paper, and guaranteed investment securities.

Rank the following four investments in increasing order of historical risk.

A statistic that measures how two variables tend to move together is the

How often is a mutual fund priced?

The Investment Setting

The Asset Allocation Decision

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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