FIN360_Exam1_SP 2013

Name__________Renzo Marsano_________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following represent investment goals? I. setting aside enough money to meet emergencies and basic needs II. sheltering income from taxes III. increasing current income IV. saving funds for retirement D) II, III and IV A) I and IV only B) III and IV only C) I, III and IV only 2) American depositary shares (ADS) are A) shares of American companies traded on foreign markets. B) foreign currency deposits in American banks. C) shares of foreign companies traded on the U.S. markets. D) American currency deposits in foreign banks 3) Christopher purchased 200 shares of ABC stock at $21.25 per share. After nine months, he sold all of his shares at a price of $19.88 a share. Jake received a total of $0.55 per share in dividends during the time he owned the shares. Jake's holding period return is B) -3.9%. A) 2.6%. C) -6.4%. D) 9.7%. 4) Which one of the following statements concerning the primary market is correct? A) A transaction in the primary market is between two private stockholders. B) The first public sale of a company's stock in the primary market is called a seasoned new issue. C) A rights offering is a direct sale of stock to an institution that participates in the primary market. D) The first public sale of a company's stock is called an IPO. 5) Investment bankers who join together to share the financial risk associated with buying an entire issue of new securities and reselling them to the public is called a(n) A) underwriting syndicate. B) primary market group. C) selling group. D) tombstone group. 6) Six years ago, Miguel invested $3,500. Today his investment is worth $5659. The yield on this investment is D) 8.3%. A) 1.4%. B) 4.2%. C) 9.7%. 7) The price an individual investor will pay to purchase a stock in the OTC market is the C) bid price. A) ask price. B) spread. D) broker price. 8) Which of the following are associated with bear markets? I. investor pessimism II. rising profits III. economic slowdown IV. rising security prices C) I and III only A) I, II and III only B) II and III only 9) An order to sell 300 shares of ABC stock at the best available price is called a A) limit order. B) stop loss order. C) fill-or-kill order. 10) Stocks are a(n) ________ investment representing ________ of a business. A) direct; debt B) indirect; debt C) direct; ownership D) indirect; ownership

D) II, III and IV only

D) market order.

11) The purchase of stock with cash in the hope of earning a capital gain is known as taking a A) long, margined position in the stock. B) short, margined position in the stock. C) long position in the stock. D) short position in the stock. 12) Which one of the following is a major advantage of margin trading? A) interest free loans B) increase in potential diversification C) increase in potential profits on a percentage basis D) possibility of increased gains on a dollar basis 13) Most investors are risk-averse, which means they A) refuse to accept any financial risk. B) gain satisfaction from the excitement of risk. C) require an increase in return for any increase in risk. D) invest only in government insured securities. 14) Which of the following statements about short selling is (are) true? I. Short selling requires an initial margin deposit. II. Short sellers begin a transaction with a sale and end it with a purchase. III. Short sellers profit when the stock prices rises. IV. Short selling can be a risky strategy. B) I, II and IV only A) I and II only C) IV only 15) Debt represents funds loaned in exchange for A) dividend income and the repayment of the loan principal. B) dividend income and an ownership interest in the firm. C) interest income and the repayment of the loan principal . D) interest income and a partial ownership interest in the firm. 16) Sarah purchased a stock one year ago at a price of $32 a share. In the past year, she has received four quarterly dividends of $0.75 each. Today she sold the stock for $38 a share. Her capital gain per share is D) $9.00. A) $6.00. B) $3.00. C) $(6.00). 17) Assume the foreign exchange rate for the euro was US $1.00 = .70 euro last month. This month, the exchange rate is US $1.00 = .72 euro. All things equal, the dollar value of European stocks A) stayed the same. B) decreased. C) increased. D) would vary depending on the country. 18) The market rate of return increased by 8% while the rate of return on XYZ stock increased by 4%. The beta of XYZ stock is C) 2.0. A) 0.50. B) -2.0. D) -0.40. 19) Which of the following factors will increase the risk level of an investment? I. a firm's decision to use a high percentage of debt financing II. an economic situation in which consumer prices are rising at a rapid rate III. the ability to trade the investment in a broad market rather than in a thin market IV. unstable currency values B) I, III and IV only A) I and II only C) I, II and IV only D) II and IV only 20) Jonathan has the following portfolio of assets.

D) I, II, III and IV

What is the beta of Jonathan's portfolio? A) 1.13 B) 1.15 C) 1.08 D) 1.11

21) Angela placed a stop-limit order to sell 100 shares of RST stock at $28 when the market price of RST was $31. Shortly after Angela placed her order, trading on RST was halted due to a pending news announcement. When trading re-opens RST is priced at $24 a share. Within minutes the price of RST began to drop further until it reached $19 a share. Which one of the following statements is correct concerning Angela's stop-limit order to sell? A) Angela's stock was sold for $28 a share. B) Angela still owns her 100 shares of stock. C) Angela's stock was sold for $24 a share. D) Angela's stock was sold at a price between $19 and $24 a share. 22) Which of the following can be encountered when investing in foreign markets? I. Foreign taxation of dividends II. Different accounting standards for financial disclosure III. Restrictions on types of investments IV. Illiquid markets A) I, II, III and IV B) I, II and IV only C) II and IV only

D) II and III only

23) The governmental agency that oversees the capital markets is the B) Securities and Exchange Commission. A) Federal Trade Commission. C) Federal Reserve. D) Fair Trade and Banking Agency. 24) Excessively trading a customers account to increase a stockbrokers commission income is A) permitted provided that the customer does not object. B) an acceptable method of timing the market to increase rates of return. C) probably unethical but yet is acceptable by the securities industry. D) called churning which is an illegal practice . 25) An investment costs $3,500 today. This investment is expected to produce annual cash flows of $1,200, $1,400, $1,300 and $1,100, respectively, over the next four years. What is the internal rate of return on this investment? B) 16.2% A) 12.4% C) 14.6% D) 8.1% 26) The risk of a portfolio consisting of two uncorrelated assets will be A) greater than zero but less than the risk of the more risky asset. B) equal to the average of the risk level of the two assets. C) equal to zero. D) greater than the risk of the least risky asset but less than the risk level of the more risky asset. 27) Marco owns the following portfolio of stocks. What is the expected return on his portfolio?

A) 8.4%

B) 4.7%

C) 6.6%

D) 8.7%

28) Which of the following measures or concepts are used by modern portfolio theory? I. beta II. inter industry diversification III. efficient frontier IV. correlation A) I and IV only B) I, III and IV only C) II and III only

D) I, II, III and IV

29) The required rate of return on the Daisy Corporation's common stock is 11%, the current real rate of return in the market is 1%, and the market's risk-free rate of return is 4%. In this case, the risk premium associated with Daisy's stock is D) 7%. A) 8%. B) 6%. C) 5%. 30) Which one of the following statements about foreign investments is true? A) Investing in foreign markets will always produce higher returns because of exchange rate fluctuations. B) Investing in foreign markets may involve specific risks not encountered with domestic securities. C) In general, major foreign markets always tend to underperform the US market. D) Foreign markets include equity securities only. 31) Which of the following is an indirect investment? A) Stocks in foreign companies C) U.S. savings bonds 32) The government is generally A) not involved in the financial markets. C) a supplier of funds to the financial market. 33) A measure of systematic risk A) variance C) standard deviation

B) Mutual funds D) Real estate

B) a demander of funds in the financial market. D) the owner of the financial market.

B) beta D) historical average rate of return

34) Over the long term, which one of the following has historically had the lowest average annual rate of return? A) long-term government bonds B) small-company stocks C) long-term corporate bonds D) large-company stocks 35) Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0. This information indicates that A) security B has 20% more systematic risk than the market. B) security C has the highest degree of market risk. C) security A has the highest degree of market risk. D) security C would be the best investment if a strong bull market is expected. 36) Which of the following represent systematic risks? I. the president of a company suddenly resigns II. the economy goes into a recessionary period III. a company's product is recalled for defects IV. the Federal Reserve unexpectedly changes interest rates B) I and III only A) I, II and III only C) I, II and IV only

D) II and IV only

37) Justin just made a margin purchase of 100 shares of DEF Corp. for $22.50 per share. The initial margin is 70%.

The nce margin is 30%. How low can the price of each share of DEF be before Justin will have to add equity to his maintena account? A) $6.75 B) $4.73 C) $9.64 D) $5.25 38) Andrew and Jennifer are in the 25% marginal tax bracket. Three years ago they purchased 100 shares of stock at $20 a share. Today they sold the 100 shares for $29 a share. What is the amount of federal income tax they owe as a result of this sale? A) $435 B) $135 C) $165 D) $225 39) Which of the following statements about the Dow Jones Industrial Average are correct? I. Higher-priced stocks tend to affect the average more than lower-priced stocks. II. A one-point change in the DJIA correlates to a $1 change in average share value. III. Changes in the DJIA are made to reflect company mergers and acquisitions. IV. The DJIA divisor was determined when the average was created and remains constant. D) I and III only A) I, II, III and IV B) II and IV only C) I, III and IV only 40) The expected rate of return and standard deviations, respectively for four stocks are given below: ABC 9%, 3% CDE 11%, 9% FGH 12%, 8% IJK 14%, 10% Which stock is clearly least desirable? A) CDE B) FGH C) IJK D) ABC 41) Heather places an order to buy 525 shares of stock. This is an order for A) 21 round lots of 25. B) five round lots and one odd lot. C) one odd lot. D) five hundred round lots and twenty-five odd lots. 42) Stocks and bonds are traded in A) securities and exchange commissions. C) money markets.

B) capital markets. D) federal trade commissions.

43) Which one of the following is the LEAST important when selecting a stockbroker? A) getting referrals from personal acquaintances with similar investment objectives B) selecting a stockbroker who best understands your investment goals C) knowing the stockbroker personally D) considering the services offered and the related costs 44) Which of the following investments represents partial ownership of a corporation? A) mutual funds B) bonds C) common stock D) commercial paper 45) Which is the correct order of events when an individual buys a stock through a brokerage firm? I. The order is transmitted to the main office of the brokerage firm. II. The customer places the order with their local stockbroker. III. The confirmation of the order is sent to the broker placing the order. IV. The order is sent to the floor of the exchange. C) II, I, IV, III A) I, II, III, IV B) II, I, III, IV D) II, IV, I, III