Question 1

Diversification with foreign securities can help reduce portfolio risk.

Accepted Answer

A) True 
 B)False

Question 2

What is a bond provision that specifies payments the issuer must make to redeem a given percentage of the outstanding issue prior to maturity known as?

Accepted Answer

A)  Call provision 
B)  Indenture 
C)  Collateralization 
D)  Sinking fund 
E)  Collateral trust bond

Question 3

It is very important when diversifying that the correlation between rates of return for various countries be high and very stable over time.

Accepted Answer

A) True 
 B)False

Question 4

Antiques, art, coins, stamps, jewellery, 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)  None of the above. 
E)  All of the above.

Question 5

The total domestic return on German bonds is the return that would be experienced by a Canadian investor who owned German bonds.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements concerning historical investment risk and return is false?

Accepted Answer

A)  The geometric mean of the rates of return was always lower than the arithmetic mean of the rates of return. 
B)  The rates of return on long-term Canadian government bonds were lower than on stocks. 
C)  Real estate investments consistently provide higher rates of return than those provided by common stock. 
D)  Stocks and bonds experienced results in the middle of the art and antiques series. 
E)  None of the above statements are false.

Question 7

Agency securities that are issued by Crown corporations and various agencies, are direct obligation of the government.

Accepted Answer

A) True 
 B)False

Question 8

A Eurobond is an international bond

Accepted Answer

A)  Sold by an issuer within its own country in that country's currency. 
B)  Denominated in a currency not native to where it is issued. 
C)  Also known as a Maple bond. 
D)  Is a bond denominated in Canadian dollars but issued by a foreign company. 
E)  That is sold only to European investors.

Question 9

Exhibit 3-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}
 \text { Real Returns } \
\begin{array}{lc}
 \text {INVESTMENT  } & \text { REAL ANNUAL RETURN } \
\hline\text { Large company stock } & 6.50 \% \
\text { Small capitalization stock } & 8.60 \% \
\text { Long-term corporate bonds } & 3.60 \% \
\text { Long-term government bonds } & 2.80 \% \
\text { Canadian Treasury bills } & 1.03 \%
\end{array}\end{array}$ 
The annual rate of inflation is 2.5%
-Refer to Exhibit 3-2. What is the T-bill nominal return?

Accepted Answer

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

Question 10

What is the original maturity of a Canadian Treasury bill?

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 11

An investor who purchases a call 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.

Question 12

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 T-bills?

Accepted Answer

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

Question 13

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 small capitalization stocks?

Accepted Answer

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

Question 14

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 15

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)  S&P/TSX had higher returns than 90-day Treasury-bill from 1993 to 2009. 
C)  S&P/TSX had lower returns than 90-day Treasury-bill from 1993 to 2009. 
D)  S&P/TSX had higher volatility than 90-day Treasury-bill from 1993 to 2009. 
E)  All of the above are false.

Question 16

An agreement that provides for the future delivery or receipt of an asset at a specified date for a specified price is a

Accepted Answer

A)  Eurobonds contract. 
B)  Futures contract. 
C)  Put option contract. 
D)  Call option contract. 
E)  Warrant contract.

Question 17

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%

Question 18

A return series has an arithmetic mean of 10.5% and standard deviation of 13%. Assuming the returns are normally distributed, what is the range of returns that an investor would expect to receive 90% of the time?

Accepted Answer

A)  10.5% to 13% 
B)  -2.5% to 23.5% 
C)  -28.5 to 49.5% 
D)  -15.5% to 36.5% 
E)  0% to 10.5%

Question 19

The correlation between Canadian government bonds and U.K. government bonds is

Accepted Answer

A)  Strongly positive. 
B)  Weakly positive. 
C)  Strongly negative. 
D)  Weakly negative. 
E)  Indeterminate.

Question 20

The purchase and sale of commodities for current delivery and consumption is known as dealing in the _________________ market.

Accepted Answer

A)  Futures 
B)  Spot 
C)  Money 
D)  Capital 
E)  Options

Exam 3: Selecting Investments in a Global Market

Diversification with foreign securities can help reduce portfolio risk.

What is a bond provision that specifies payments the issuer must make to redeem a given percentage of the outstanding issue prior to maturity known as?

It is very important when diversifying that the correlation between rates of return for various countries be high and very stable over time.

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

The total domestic return on German bonds is the return that would be experienced by a Canadian investor who owned German bonds.

Which of the following statements concerning historical investment risk and return is false?

Agency securities that are issued by Crown corporations and various agencies, are direct obligation of the government.

A Eurobond is an international bond

What is the original maturity of a Canadian Treasury bill?

An investor who purchases a call option:

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?

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

An agreement that provides for the future delivery or receipt of an asset at a specified date for a specified price is a

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

A return series has an arithmetic mean of 10.5% and standard deviation of 13%. Assuming the returns are normally distributed, what is the range of returns that an investor would expect to receive 90% of the time?

The correlation between Canadian government bonds and U.K. government bonds is

The purchase and sale of commodities for current delivery and consumption is known as dealing in the _________________ market.