Question 1

A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

Accepted Answer

A)  call option 
B)  futures contract 
C)  put option 
D)  interest rate swap 
A)  call option 
B)  futures contract 
C)  put option 
D)  interest rate swap

Question 2

Which of the following is not a nickname for an agency associated with the mortgage markets?

Accepted Answer

A)  Fannie Mae 
B)  Freddie Mac 
C)  Sallie Mae 
D)  Ginnie Mae 
A)  Fannie Mae 
B)  Freddie Mac 
C)  Sallie Mae 
D)  Ginnie Mae

Question 3

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs ________.

Accepted Answer

A)  automatically 
B)  by adjusting the divisor 
C)  by adjusting the numerator 
D)  by adjusting the market value weights 
A)  automatically 
B)  by adjusting the divisor 
C)  by adjusting the numerator 
D)  by adjusting the market value weights

Question 4

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?

Accepted Answer

A)  an equally weighted index 
B)  a price-weighted index 
C)  a value-weighted index 
D)  all of these options (Weights are not a factor in this situation.) 
A)  an equally weighted index 
B)  a price-weighted index 
C)  a value-weighted index 
D)  all of these options (Weights are not a factor in this situation.)

Question 5

Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value?

Accepted Answer

A)  300 
B)  39 
C)  43 
D)  30 
A)  300 
B)  39 
C)  43 
D)  30

Question 6

The rate of interest on short-term loans among financial institutions is ________.

Accepted Answer

A)  bankers' acceptances 
B)  brokers' calls 
C)  federal funds rate 
D)  LIBOR 
A)  bankers' acceptances 
B)  brokers' calls 
C)  federal funds rate 
D)  LIBOR

Question 7

A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58 today, what is the new index value?

Accepted Answer

A)  960 
B)  970 
C)  975 
D)  985 
A)  960 
B)  970 
C)  975 
D)  985

Question 8

All but which one of the following indices is value weighted?

Accepted Answer

A)  NASDAQ Composite 
B)  S&P 500 
C)  Wilshire 5000 
D)  DJIA 
A)  NASDAQ Composite 
B)  S&P 500 
C)  Wilshire 5000 
D)  DJIA

Question 9

Which of the following is most like a short-term collateralized loan?

Accepted Answer

A)  certificate of deposit 
B)  repurchase agreement 
C)  bankers' acceptance 
D)  commercial paper 
A)  certificate of deposit 
B)  repurchase agreement 
C)  bankers' acceptance 
D)  commercial paper

Question 10

You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ________.

Accepted Answer

A)  a value-weighted index 
B)  an equally weighted index 
C)  a price-weighted index 
D)  a bond price index 
A)  a value-weighted index 
B)  an equally weighted index 
C)  a price-weighted index 
D)  a bond price index

Question 11

The maximum maturity on commercial paper is ________.

Accepted Answer

A)  270 days 
B)  180 days 
C)  90 days 
D)  30 days 
A)  270 days 
B)  180 days 
C)  90 days 
D)  30 days

Question 12

Which of the following is not considered a money market investment?

Accepted Answer

A)  bankers' acceptance 
B)  eurodollar 
C)  repurchase agreement 
D)  Treasury note 
A)  bankers' acceptance 
B)  eurodollar 
C)  repurchase agreement 
D)  Treasury note

Question 13

June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value.

Accepted Answer

A)  $40; $30 
B)  $30; $40 
C)  $35; $35 
D)  $40; $40 
A)  $40; $30 
B)  $30; $40 
C)  $35; $35 
D)  $40; $40

Question 14

A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

Accepted Answer

A)  call option 
B)  futures contract 
C)  put option 
D)  interest rate swap 
A)  call option 
B)  futures contract 
C)  put option 
D)  interest rate swap

Question 15

Which one of the following is a true statement regarding the Dow Jones Industrial Average?

Accepted Answer

A)  It is a value-weighted average of 30 large industrial stocks. 
B)  It is a price-weighted average of 30 large industrial stocks. 
C)  It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. 
D)  It is a value-weighted average of all stocks traded on the New York Stock Exchange. 
A)  It is a value-weighted average of 30 large industrial stocks. 
B)  It is a price-weighted average of 30 large industrial stocks. 
C)  It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. 
D)  It is a value-weighted average of all stocks traded on the New York Stock Exchange.

Question 16

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, ________.

Accepted Answer

A)  5% and 6.4% 
B)  5% and 5.44% 
C)  4.25% and 6.4% 
D)  5.75% and 5.44% 
A)  5% and 6.4% 
B)  5% and 5.44% 
C)  4.25% and 6.4% 
D)  5.75% and 5.44%

Question 17

________ is considered to be an emerging market country.

Accepted Answer

A)  France 
B)  Norway 
C)  Brazil 
D)  Canada 
A)  France 
B)  Norway 
C)  Brazil 
D)  Canada

Question 18

________ would not be included in the EAFE index.

Accepted Answer

A)  Australia 
B)  Canada 
C)  France 
D)  Japan 
A)  Australia 
B)  Canada 
C)  France 
D)  Japan

Question 19

LIBOR is a key reference rate in the money markets. Many ________ of dollars of loans and derivative assets are tied to it.

Accepted Answer

A)  thousands 
B)  millions 
C)  billions 
D)  trillions 
A)  thousands 
B)  millions 
C)  billions 
D)  trillions

Question 20

Eurodollars are ________.

Accepted Answer

A)  dollar-denominated deposits at any foreign bank or foreign branch of an American bank 
B)  dollar-denominated bonds issued by firms outside their home market 
C)  currency issued by Euro Disney and traded in France 
D)  dollars that wind up in banks as a result of money-laundering activities 
A)  dollar-denominated deposits at any foreign bank or foreign branch of an American bank 
B)  dollar-denominated bonds issued by firms outside their home market 
C)  currency issued by Euro Disney and traded in France 
D)  dollars that wind up in banks as a result of money-laundering activities

Exam 2: Asset Classes and Financial Instruments

A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

Which of the following is not a nickname for an agency associated with the mortgage markets?

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs ________.

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?

Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value?

The rate of interest on short-term loans among financial institutions is ________.

All but which one of the following indices is value weighted?

Which of the following is most like a short-term collateralized loan?

You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ________.

The maximum maturity on commercial paper is ________.

Which of the following is not considered a money market investment?

June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value.

A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

Which one of the following is a true statement regarding the Dow Jones Industrial Average?

An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, ________.

________ is considered to be an emerging market country.

________ would not be included in the EAFE index.

LIBOR is a key reference rate in the money markets. Many ________ of dollars of loans and derivative assets are tied to it.

Eurodollars are ________.

Investments: Background and Issues

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Filters

June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the exercise price and the put option with the exercise price will have the greatest value.