1. Which of the following investments would theoretically always carry the highest risk premium?

• A U.S. treasury bill
• Common stock
• Preferred stock
• Corporate bond

Question 2. In order to be listed on an exchange, a firm must meet minimum standards pertaining to which of the following criteria?

• The number of common shares publicly held
• The net income of the firm
• The number of stockholders owning a minimum of 100 shares
• All of the above

Question 3. A _____ order sets the price at which an investor is willing to buy or sell, and assures the investor that he or she will pay no more and receive no less than the agreed-upon price.

• limit
• stop
• good 'til canceled
• market

Question 4. The composite index of leading indicators, made up of 10 leading indicators, historically has _____.

• not always preceded changes in the business cycle
• given roughly the same notice at peaks as at troughs
• varied widely in its timing of notice at peaks and troughs
• More than one of the above

Question 5. Which of the following competitive forces is not one of the five mentioned in the textbook?

• Threat of market entry by new competitors
• Threat of substitute goods
• Bargaining power of customers
• Intensity of rivalry among competitors

Question 6. If the equity risk premium (ERP) expands, Ke will _____.

• increase by beta times the equity risk premium
• not be affected
• go down
• decrease by beta times the equity risk premium

Question 7. _____ analysis is the process of studying a series of ratios for a company and/or industry over time.

• DuPont
• Trend
• Common size
• Critical

Question 8. good reasons for a stock repurchase are _____.

• that management believes that the stock is undervalued in the market
• so the company can escape the threat of a future merger or acquisition
• to avoid obligations under an employee stock ownership plan
• None of the above

Question 9. A ratio of the total short sales positions on an exchange to average daily exchange volume for the month is normally _____.

• between 0 and .5
• between 1.0 and 2.0
• between 2.0 and 3.0
• over 3.0

Question 10. Which of the following is NOT a characteristic of preferred stock as an investment?

• Preferred stockholders are entitled to receive their dividend prior to payment of dividends to common stockholders.
• Preferred stock dividends are taxed at the capital gains rate for individual investors.
• Preferred stock dividends may be omitted by the corporation under certain circumstances.
• It is a hybrid security of common stock and debt.

Part 2:

Question 1. The impact of interest rate changes on bond prices can be magnified by _____.

• investing in speculative high-risk, high-yield bonds
• investing in higher-quality corporate bonds
• investing in short-term bonds
• More than one of the above

Question 2. Duration is used primarily as a measure of _____.

• the relationship between coupon rate and bond rating
• bond price-sensitivity to interest rate changes
• the present value of investment inflows
• None of the above

Question 3. What factor(s) would cause the pure bond value to go up?

• A decrease in the market interest rate
• An increase in stock price
• A change in the conversion ratio
• More than one of the above

Question 4. _____ is a factor that causes the speculative premium to increase.

• Volatility of the underlying stock as measured by beta
• Low dividend yield
• A long exercise period
• All of the above

Question 5. The settle price is the same as the _____.

• opening price
• closing price
• intraday high price
• None of the above

Question 6. In order to effectively hedge a stock portfolio, the portfolio manager must know the total dollar value of the portfolio, the current index futures price, and _____.

• the number of contracts available in the market
• the portfolio P/E ratio
• the relative volatility of the portfolio to the market
• More than one of the above

Question 7. The difference between a load fund and a no-load fund is that _____.

• no-load funds do not charge commissions and are sold directly by the investment company
• load funds do not charge commissions and are sold directly by the investment company
• no-load funds charge higher commissions than load funds
• no-load funds charge lower commissions than load funds

Question 8. The investor can maximize risk reduction benefits by combining U.S. securities with those of countries that are _____.

• oil-exporting nations
• negatively (or least positively) correlated with the United States
• correlated with the United States
• None of the above

Question 9. Historically, the best time to buy gold and silver is _____.

• when the stock market is declining
• when there is significant political instability or anticipation of war
• during periods of high inflation
• All of the above

Question 10. The investor wants to achieve the _____ risk-return indifference curve.

• lowest
• highest
• median
• mean

1. What is the approximate yield to call of a 10% coupon rate, $1,000 par value bond, currently priced at $1200, if the call can be made in seven years at a price of $1,025?

2. An investment has the following range of outcomes and probabilities.

Outcomes (Percent) Probabilities of Outcomes

5% .30
7% .25
12% .45
3

Calculate the expected value and the standard deviation (round to two places after the decimal point where necessary).

A.
Expected value = 8.65
Standard deviation = 3.12
Refer to Equation 17-1
Ki Pi ∑KiPi
5% .30 1.50
7% .25 1.75
12% .45 5.40
∑KiPi 8.65