Question 1

Foreign equities can be acquired by purchasing all of the following except

Accepted Answer

A)   American Depository Receipts (ADRs) 
B)   American shares
C)   Foreign shares listed on a U.S. or foreign stock exchange
D)   Global Exchange-Traded Funds (GETFs) 
E)   All of the above are ways to purchase foreign equities. E

Question 2

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% D

Question 3

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 U.S. 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 (that is, all are true statements)  C

Question 4

If you are considering investing in German stocks as a means to reduce the risk of your portfolio,the initial factor that you should examine is:

Accepted Answer

A)   The average rate of return of the portfolio when you combine U.S. and German stocks.
B)   The standard deviation of the German stocks.
C)   The standard deviation of the German stocks compared to the standard deviation of U.S. stocks.
D)   The correlation between the rates of return for German stocks and U.S. stocks.
E)   The coefficient of variation (CV)  of rates of return for German stocks versus the CV of rates of return for U.S. stocks.

Question 5

The total domestic return on German bonds is the return that would be experienced by an U.S.investor who owned German bonds.

Accepted Answer

A) True 
 B)False

Question 6

Treasury bills are long-term investments that make regular interest and principal payments.

Accepted Answer

A) True 
 B)False

Question 7

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 8

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

Accepted Answer

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

Question 9

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 10

For a U.S.based investor,a weaker dollar means that overall dollar based returns on overseas security investment will be higher because

Accepted Answer

A)   A weaker dollar means that exports will rise.
B)   A weaker dollar means that more foreign investors will by U.S. securities.
C)   A weaker dollar means that the foreign currency will convert to more dollars.
D)   A weaker dollar means that more investors will purchase the foreign security.
E)   None of the above.

Question 11

Warrants are options often issued in connection with the sale of fixed income securities.

Accepted Answer

A) True 
 B)False

Question 12

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

Question 13

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

Question 14

All of the following are considered fixed income investments except

Accepted Answer

A)   Corporate bonds.
B)   Preferred stock.
C)   Treasury bills, notes, and bonds.
D)   Money market mutual funds.
E)   Certificates of deposit (CDs) .

Question 15

Exhibit 3.1
Use the Information Below for the Following Problem(S)
 $\begin{array}{lc}
\text { Security } & \text { Annual Percentage Return } \
\hline \text { U.S. government T-bills } & 3.04 \
\text { Long-term government bonds } & 5.75 \
\text { Long-term corporate bonds } & 6.80 \
\text { Large capitalization common stocks } & 13.50 \
\text { Small canitalization common stocks } & 15.60
\end{array}$
 
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 16

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 17

Exhibit 3.1
Use the Information Below for the Following Problem(S)
 $\begin{array}{lc}
\text { Security } & \text { Annual Percentage Return } \
\hline \text { U.S. government T-bills } & 3.04 \
\text { Long-term government bonds } & 5.75 \
\text { Long-term corporate bonds } & 6.80 \
\text { Large capitalization common stocks } & 13.50 \
\text { Small canitalization common stocks } & 15.60
\end{array}$
 
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%

Question 18

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

Question 19

The correlation of returns between a single pair of countries remains constant over time.

Accepted Answer

A) True 
 B)False

Question 20

Subordinated bondholders have claim to the assets of the firm only after the firm has satisfied the claims of all senior secured and debenture bondholders.

Accepted Answer

A) True 
 B)False

Exam 3: The Global Market Investment Decision

Foreign equities can be acquired by purchasing all of the following except

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

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

If you are considering investing in German stocks as a means to reduce the risk of your portfolio,the initial factor that you should examine is:

The total domestic return on German bonds is the return that would be experienced by an U.S.investor who owned German bonds.

Treasury bills are long-term investments that make regular interest and principal payments.

Capital market instruments include all of the following except

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

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

For a U.S.based investor,a weaker dollar means that overall dollar based returns on overseas security investment will be higher because

Warrants are options often issued in connection with the sale of fixed income securities.

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

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

All of the following are considered fixed income investments except

An investor who purchases a call option:

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

The correlation of returns between a single pair of countries remains constant over time.

Subordinated bondholders have claim to the assets of the firm only after the firm has satisfied the claims of all senior secured and debenture bondholders.