投资学选择题及答案英文版

INVESTMENT

TUTORIAL 1

SUMISSION DEADLINE: OCT 22

1. Primary market refers to the market ____________.

A. that attempts to identify mispriced securities and arbitrage opportunities. B. in which investors trade already issued securities. C. where new issues of securities are offered.

D. in which securities with custom-tailored characteristics are designed.

2. Asset allocation refers to the _________.

A. allocation of the investment portfolio across broad asset classes B. analysis of the value of securities

C. choice of specific assets within each asset class D. none of the answers define asset allocation

3. An example of a derivative security is _________. A. a common share of General Motors B. a call option on Intel stock C. a Ford bond

D. a U.S. Treasury bond

4. Money Market securities are characterized by ________. I. maturity less than one year

II. safety of the principal investment III. low rates of return A. I only

B. I and II only C. I and III only D. I, II and III

5. __________ assets generate net income to the economy and __________ assets define allocation of income among investors.

A. Financial, financial B. Financial, real C. Real, financial D. Real, real

6. An important trend that has changed the contemporary investment market is _________. A. financial engineering B. globalization C. securitization

D. all three of the other answers

7. Securitization refers to the creation of new securities by _________. A. selling individual cash flows of a security or loan

B. repackaging individual cash flows of a security or loan into a new payment pattern C. taking an illiquid asset and converting it into a marketable security D. selling financial services overseas as well as in the U.S.

8. Individuals may find it more advantageous to purchase claims from a financial intermediary rather than directly purchasing claims in capital markets because

I. intermediaries are better diversified than most individuals

II. intermediaries can exploit economies of scale in investing that individual investors cannot

III. intermediated investments usually offer higher rates of return than direct capital market claims A. I only

B. I and II only C. II and III only D. I, II and III

9. Stone Harbor Products takes out a bank loan. It receives $100,000 and signs a promissory note to pay back the loan over 5 years.

A. A new financial asset was created in this transaction.

B. A financial asset was traded for a real asset in this transaction. C. A financial asset was destroyed in this transaction. D. A real asset was created in this transaction.

10. In recent years the greatest dollar amount of securitization occurred for which type loan? A. Home mortgages B. Credit card debt C. Automobile loans D. Equipment leasing

11. An investment advisor has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment process? A. Asset allocation B. Investment analysis C. Portfolio analysis D. Security selection

12. A dollar denominated deposit at a London bank is called _____. A. eurodollars B. LIBOR C. fed funds

D. banker's acceptance

13. The German stock market is measured by which market index? A. FTSE

B. Dow Jones 30 C. DAX D. Nikkei

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

15. Preferred stock is like long-term debt in that ___________. A. it gives the holder voting power regarding the firm's management

B. it promises to pay to its holder a fixed stream of income each year C. the preferred dividend is a tax-deductible expense for the firm

D. in the event of bankruptcy preferred stock has equal status with debt

16. 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? A. 300 B. 39 C. 43 D. 30

17. In a ___________ index changes in the value of the stock with the greatest market value will move the index value the most everything else equal. A. value weighted index B. equal weighted index C. price weighted index D. bond price index

18. 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, what is the new index value? A. 960 B. 970 C. 975 D. 985

19. Under firm commitment underwriting the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price. A. red herring

B. issuing company C. initial stockholder D. underwriter

20. Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit fees were $90,000. The offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the equity issue? A. $90,000 B. $1,290,000 C. $2,390,000 D. $1,690,000

21. Which one of the following statements about IPOs is not true? A. IPOs generally underperform in the short run.

B. IPOs often provide very good initial returns to investors.

C. IPOs generally provide superior long-term performance as compared to other stocks. D. Shares in IPOs are often primarily allocated to institutional investors.

22. The NYSE recently acquired the ECN _______ and NASDAQ recently acquired the ECN ________. A. Archipelago; Instinet B. Instinet; Archipelago

C. Island; Instinet D. LSE; Euronext

23. Which one of the following is not an example of a brokered market? A. Residential real estate market

B. Market for large block security transactions C. Primary market for securities D. NASDAQ

24. An order to buy or sell a security at the current price is a ______________. A. limit order B. market order C. stop loss order D. stop buy order

25. If an investor places a _________ order the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order the stock will be bought if its price rises above the stipulated level. A. stop-buy; stop-loss B. market; limit

C. stop-loss; stop-buy D. limit; market

26. On a given day a stock dealer maintains a bid price of $1000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades which totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security? A. $1,375 B. $500 C. $275 D. $1,450

27. The bulk of most initial public offerings (IPOs) of equity securities go to ___________. A. institutional investors B. individual investors

C. the firm's current shareholders D. day traders

28. The _________ price is the price at which a dealer is willing to purchase a security. A. bid B. ask C. clearing D. settlement

29. The bid-ask spread exists because of _______________. A. market inefficiencies

B. discontinuities in the markets

C. the need for dealers to cover expenses and make a profit D. lack of trading in thin markets

30. Both the NYSE and Nasdaq have lost market share to ECNs in recent years. Part of Nasdaq's response to the growth of ECNs has been to _______. I. Purchase Instinet, a major ECN

II. Enable automatic trade execution through its new Market Center III. Switch from stock ownership to mutual ownership A. I only

B. II and III only C. I and II only D. I, II and III

31. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a _________. A. limit-buy order B. limit-sell order C. market order D. stop-loss order

32. You find that the bid and ask prices for a stock are $10.25 and $10.30 respectively. If you purchase or sell the stock you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars? A. $50 B. $25 C. $30 D. $55

33. Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________. A. $20,000 B. $12,000 C. $8,000 D. $15,000

34. You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain ignoring transactions cost? A. $50 B. $150 C. $10,000 D. unlimited

35. You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you wish to limit your loss to $2,500, you should place a stop-buy order at ____. A. $37.50 B. $62.50 C. $56.25 D. $59.75

36. You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends and ignore interest on the margin loan.) A. $26.55 B. $35.71 C. $28.95 D. $30.77

37. You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin. A. 35% B. 39% C. 43% D. 28%

38. Which one of the following invests in a portfolio that is fixed for the life of the fund? A. Mutual fund

B. Money market fund

C. Managed investment company D. Unit investment trust

39. A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds. A. commingled pool B. unit trust C. hedge fund

D. money market fund

40. A contingent deferred sales charge is commonly called a ____. A. front-end load B. back-end load C. 12b-1 charge

D. top end sales commission

41. Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the Net Asset Value (NAV) of these shares? A. $12.00 B. $9.00 C. $10.00 D. $1.00

42. The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so the fund buys shares in each S&P 500 company __________.

A. in proportion to the market value weight of the firm's equity in the S&P500 B. in proportion to the price weight of the stock in the S&P500

C. by purchasing an equal number of shares of each stock in the S&P 500

D. by purchasing an equal dollar amount of shares of each stock in the S&P500

43.Investors who wish to liquidate their holdings in a closed-end fund may ___________________. A. sell their shares back to the fund at a discount if they wish B. sell their shares back to the fund at net asset value C. sell their shares on the open market

D. sell their shares at a premium to net asset value if they wish

44. __________ funds stand ready to redeem or issue shares at their net asset value. A. Closed-end

B. Index C. Open-end D. Hedge

45. Consider a mutual fund with $300 million in assets at the start of the year, and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year end value, what is the rate of return on the fund? A. 15.64% B. 16.00% C. 17.25% D. 17.50%

46. A/an _____ is an example of an exchange-traded fund. A. SPDR or spider B. samurai C. Vanguard

D. open-end fund

47. The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B Shares with a 12b-1 fees of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses. A. Class A B. Class B

C. There is no difference.

D. There is insufficient information given.

48. Advantages of ETFs over mutual funds include all but which one of the following? A. ETFs trade continuously so investors can trade throughout the day B. ETFs can be sold short or purchased on margin, unlike fund shares C. ETF providers do not have to sell holdings to fund redemptions D. ETF values can diverge from NAV

49. A mutual fund has $50 million in assets at the beginning of the year and 1 million shares outstanding throughout the year. Throughout the year assets grow at 12%. The fund imposes a 12b-1 fee on all shares equal to 1%. The fee is imposed on year end asset values. If there are no distributions what is the end of year NAV for the fund? A. $50.00 B. $55.44 C. $56.12 D. $54.55

50. You pay $21,600 to the Laramie Fund which has a NAV of $18.00 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.3% and is deducted from year end asset values. What is your rate of return on the fund if you sell your shares at the end of the year? A. 4.35% B. 4.23% C. 6.45% D. 5.63%

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