Question 1

The best way to directly acquire the shares of a foreign company is through

Accepted Answer

A)  International mutual funds.
B)  Global mutual funds.
C)  American Depository Receipts.
D)  Investment in U.S. companies operating internationally.
E)  Eurobonds. C

Question 2

Yields on money market funds are often lower than yields available to individuals investing in CD's because of the fees involved.

Accepted Answer

A) True 
 B)False  False

Question 3

A Eurobond is an international bond denominated in a currency other than that of the United States.

Accepted Answer

A) True 
 B)False  False

Question 4

Municipal bond nominal yields are generally below comparable taxable bond yields.

Accepted Answer

A) True 
 B)False

Question 5

What range of returns would an investor expect to achieve 99% of the time on an investment with an expected return of 11% and a standard deviation of 16%?

Accepted Answer

A)  5% to 27%
B)  -5% to 27%
C)  -21% to 43%
D)  -37% to 59%
E)  5% to 21%

Question 6

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 T-bills?

Accepted Answer

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

Question 7

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 95% 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%

Question 8

Government agency securities are issued by local government entities as either general obligation or revenue bonds.

Accepted Answer

A) True 
 B)False

Question 9

The legal document setting forth the obligations of a bond's issuer is called

Accepted Answer

A)  A debenture.
B)  A warrant.
C)  An indenture.
D)  The preemptive right.
E)  A trustee deed.

Question 10

Capital market instruments include all of the following except

Accepted Answer

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

Question 11

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 long-term corporate bonds?

Accepted Answer

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

Question 12

Which of the following is not a U.S. government agency?

Accepted Answer

A)  Federal National Mortgage Association
B)  Federal Home Loan Bank
C)  Government National Mortgage Association
D)  Government Employees Insurance Company
E)  Federal Housing Administration

Question 13

The relative size of U.S. financial markets to the total investable assets in the global capital markets has grown considerably over the last three decades.

Accepted Answer

A) True 
 B)False

Question 14

The correlation between U.S. equities and U.S. government bonds is

Accepted Answer

A)  Strongly positive.
B)  Weakly Positive.
C)  Strongly Negative.
D)  Weakly Negative.
E)  Indeterminate.

Question 15

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 long term Treasury bond nominal return?

Accepted Answer

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

Question 16

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.

Question 17

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

Question 18

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 small capitalization stocks?

Accepted Answer

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

Question 19

The original maturity of a United States Treasury bond 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.

Question 20

If the real return for corporate bonds was 4% and the inflation rate was 2%, what is the nominal return for corporate bonds?

Accepted Answer

A)  1.96%
B)  2.00%
C)  4.00%
D)  6.08%
E)  6.42%

Exam 3: Selecting Investments in a Global Market

The best way to directly acquire the shares of a foreign company is through

Yields on money market funds are often lower than yields available to individuals investing in CD's because of the fees involved.

A Eurobond is an international bond denominated in a currency other than that of the United States.

Municipal bond nominal yields are generally below comparable taxable bond yields.

What range of returns would an investor expect to achieve 99% of the time on an investment with an expected return of 11% and a standard deviation of 16%?

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 95% of the time?

Government agency securities are issued by local government entities as either general obligation or revenue bonds.

The legal document setting forth the obligations of a bond's issuer is called

Capital market instruments include all of the following except

Which of the following is not a U.S. government agency?

The relative size of U.S. financial markets to the total investable assets in the global capital markets has grown considerably over the last three decades.

The correlation between U.S. equities and U.S. government bonds is

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

The original maturity of a United States Treasury bond is

If the real return for corporate bonds was 4% and the inflation rate was 2%, what is the nominal return for corporate bonds?