Question 1

Which of the following (if any) are not financial intermediaries?

Accepted Answer

A) commercial bank 
B) thrift institution 
C) securities broker 
D) all are financial intermediaries

Question 2

markets deal in long-term securities having maturities greater than one year.

Accepted Answer

A) Credit 
B) Money 
C) Commodity futures 
D) Capital

Question 3

Although there was a financial crisis in 2007-2010, some firms were able to weather the crisis.These firms had all of the following characteristics which were directly responsible for their ability to survive the crisis EXCEPT:

Accepted Answer

A) Tight control over fixed and variable costs 
B) Low business risk 
C) A business model which encouraged risk taking by management that paid off 
D) Low product pricing

Question 4

In an efficient capital market, all security investments will have:

Accepted Answer

A) a required rate of return that exceeds the cost of capital 
B) a positive NPV 
C) a required rate of return that is zero 
D) a NPV of zero

Question 5

Financial middlemen include

Accepted Answer

A) securities brokers 
B) securities dealers 
C) investment bankers 
D) all of these

Question 6

Securities not listed on exchanges are said to be traded

Accepted Answer

A) on the AMEX 
B) as composite transactions 
C) over the counter 
D) on the regional exchanges

Question 7

Two years ago you bought 100 shares of Big Bubba convertible preferred stock at $25 per share.The preferred stock had an annual dividend of $2.125 per share, and a total of $3.19 in dividends per share have been paid so far.Today the company announced that the stock is redeemable for $26.70 plus accrued and unpaid dividends, for a total of $27.76.Alternatively, holders may convert their shares of preferred stock at a conversion rate of 1.6393 shares of Big Bubba common stock for each share of preferred stock.If the closing price of Big Bubba common stock is $27.50, what is your holding period return?

Accepted Answer

A) 93.08% 
B) 23.80% 
C) 80.32% 
D) 64.60%

Question 8

The following are listed security exchanges in the United Sates:

Accepted Answer

A) New York Stock Exchange 
B) Pacific Exchange 
C) Cincinnati Exchange 
D) All of these are listed exchanges

Question 9

Finance companies obtain a significant amount of their funds by

Accepted Answer

A) issuing their own equity securities 
B) accepting both demand and time deposits 
C) issuing their own debt securities 
D) pooling funds

Question 10

There are highly publicized hedge fund problems, for example Julian Robertson's Tiger fund or Long Term Capital Management.The impact that this has had on hedge funds is:

Accepted Answer

A) minimal.They have continued to grow in size and number. 
B) huge.Hedge funds are being discontinued. 
C) being felt in the overall reallocation of hedge funds into bonds. 
D) inconsequential and irrelevant.Investors may rely on the due diligence of the fund managers for safe investing.

Question 11

A savings and loan association is an example of which type of financial intermediary?

Accepted Answer

A) commercial bank 
B) investment company 
C) finance company 
D) thrift institution

Question 12

In an efficient capital market

Accepted Answer

A) required returns equal expected returns 
B) investors will have holding period returns equal to zero 
C) purchase of any security yields zero profit 
D) purchasing stocks is no better than gambling

Question 13

You bought 100 shares of Risky Venture stock six months ago for $14 per share and sold it yesterday for $12.The company paid a total of $0.24 per share in dividends to you during the time you held the stock.What was your holding period return?

Accepted Answer

A) -25.14% 
B) -16.67% 
C) -12.57% 
D) 16.00%

Question 14

Which of the following is correct regarding the forms of market efficiency?
I. In an efficient capital market stock prices provide an unbiased estimate of the true value of an enterprise.

Accepted Answer

A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct

Question 15

What is the holding period return to an investor who bought 100 shares of Oil Slick stock nine months ago for $36 per share, received two $50 dividend checks, and sold the stock today at $38 a share.

Accepted Answer

A) 5.56% 
B) 8.33% 
C) 11.11% 
D) 6.94%

Question 16

An investor decides to sell his stock based on information he received about some internal audit revealing that the company has severe financial problems. Trading on this information is called:

Accepted Answer

A) private trading 
B) insider trading 
C) options trading 
D) information trading

Question 17

In any economy as a whole, the actual savings for a given period of time must the actual investments.

Accepted Answer

A) be greater than 
B) be unrelated to 
C) equal 
D) be less than

Question 18

In an efficient capital market, corporate diversification is .

Accepted Answer

A) unnecessary 
B) inexpensive 
C) of benefit to corporate managers 
D) of great benefit

Question 19

If a treasury bond can be purchased for $9,450 today and the bond holder will receive $850 in interest and the $10,000 face value at maturity, what is the percentage holding period return?

Accepted Answer

A) 14.8% 
B) 5.8% 
C) 6.7% 
D) 12.6%

Question 20

An example of a financial middleman is a:

Accepted Answer

A) commercial bank 
B) stock broker 
C) insurance company 
D) thrift institution

Exam 2: The Domestic and International Financial Marketplace