FIN 330 Test 1
Fall 2014
Dr. Moffett
Student: _______________________________________
1. The dividend yield is defined as the annual dividend expressed as a percentage of the:
A. average stock price.
B. initial stock price.
C. ending stock price.
D. total annual return.
E. capital gain..
2. The capital gains yield is equal to:
A. (Pt - Pt + 1 + Dt + 1)/Pt + 1.
B. (Pt + 1 - Pt + Dt)/Pt.
C. Dt + 1/Pt.
D. (Pt + 1 - Pt)/Pt.
E. (Pt + 1 - Pt)/Pt + 1.
3. The risk-free rate is:
A. another term for the dividend yield.
B. defined as the increase in the value of a share of stock over time.
C. the rate of return earned on an investment in a firm that you personally own.
D. defined as the total of the capital gains yield plus the dividend yield.
E. the rate of return on a default risk free investment.
4. The risk premium is defined as the rate of return on:
A. a risky asset minus the risk-free rate.
B. the overall market.
C. a U.S. Treasury bill.
D. a risky asset minus the inflation rate.
E. a riskless investment.
5. The standard deviation is a measure of:
A. volatility.
B. total return.
C. capital gains.
D. changes in dividend yields.
E. changes in the capital gains rate.
6. The arithmetic average return is the:
A. summation of the returns for a number of years, t, divided by (t - 1).
B. compound total return for a period of years, t, divided by t.
C. average compound return earned per year over a multiyear period.
D. average squared return earned in a single year.
E. return earned in an average year over a multiyear period.
7. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:
A. equity ratio.
B. total book value.
C. market share.
D. market capitalization.
E. time value.
8. Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when
computing the effective annualized return on this investment?
A. .25
B. .33
C. .40
D. 3.00
E. 4.00
9. Which one of the following had the greatest volatility of returns for the period 1926-2009?
A. large-company stocks
B. U.S. Treasury bills
C. long-term government bonds
D. small-company stocks
E. long-term corporate bonds
10. The mean plus or minus two standard deviations defines the _____ percent probability range of a normal distribution.
A. 50
B. 68
C. 82
D. 90
E. 95
11. A Roth IRA:
A. is a form of "tax-deferred" account
B. funds are taxed at the time you begin withdrawals
C. are well-suited to investors nearing retirement
D. invests after-tax dollars
E. is the type of account offered by most employers
12. An asset has an arithmetic average return of 12 percent, a geometric average return of 9.6 percent, and a standard deviation of 22
percent. What range of returns would you expect to see 95 percent of the time?
A. -54.0 to +78.0 percent
B. -34.4 to +53.6 percent
C. -32.0 to +56.0 percent
D. -12.4 to +31.6 percent
E. -10.0 to +34.0 percent
13. When your equity position in a security is less than the required amount, your brokerage firm will issue a:
A. margin call.
B. margin certificate.
C. cash certificate.
D. limit order.
E. leverage call
14. An asset had annual returns of 14, 11, -15, 2, and 37 percent, respectively, for the past five years.
What is the standard deviation of these returns?
A. 8.96 percent
B. 16.05 percent
C. 17.92 percent
D. 18.91 percent
E. 20.03 percent
15. Black Stone Mines stock returned 8, 16, -8, and 12 percent over the past four years, respectively. What is the geometric average
return?
A. 6.59 percent
B. 7.36 percent
C. 7.75 percent
D. 9.94 percent
E. 10.33 percent
16. Stuart purchased 300 shares of Microsoft stock which he has pledged to his broker as collateral
for the loan in his margin account. This process of pledging securities is called (or date topic):
A. margin calling.
B. hypothecation.
C. leveraging.
D. maintaining the margin.
E. street securitization.
17. To be considered liquid, an asset (Wrightsville homes included) must:
A. be held in a cash account.
B. pay dividends.
C. be able to be sold on short notice.
D. be held for less than one year.
E. be able to be sold quickly with little, if any, price concession.
18. The primary difference between an international fund and a global fund is the fact that:
A. a global fund invests in U.S. stocks while an international fund does not.
B. an international fund invests in U.S. stocks while a global fund does not.
C. all international funds are country specific while global funds are not.
D. global funds may opt to be country or region specific while international funds may not.
E. international funds tend to be more geographically diversified than global funds.
19. Stuart purchased 300 shares of Microsoft stock which he has pledged to his broker as collateral
for the loan in his margin account. This process of pledging securities is called (or a great date topic):
A. margin calling.
B. hypothecation.
C. leveraging.
D. maintaining the margin.
E. street securitization.
20. The SIPC:
A. guarantees investors against any loss related to an investment account held at a brokerage firm.
B. guarantees cash balances held in brokerage accounts up to $500,000.
C. is an agency of the federal government.
D. protects private brokerage firms from bankruptcy.
E. protects investors from missing assets when a brokerage firm closes.
21. A discretionary account:
A. authorizes a broker to trade securities on your behalf.
B. charges an annual fee to cover all trading and management services.
C. is the term applied to brokerage accounts with check-writing and credit card services.
D. is the same as a wrap account.
E. is the account used to pledge securities as collateral for a margin loan
22. Preferred stock:
A. represents the residual ownership of a corporation.
B. is generally issued only by new firms that are small in size.
C. has a fixed maturity date similar to a bond.
D. dividends can be skipped at the discretion of the company president.
E. may or may not be cumulative.
23. At the time a futures contract is written:
A. the underlying asset is specifically identified.
B. the buyer pays a good faith deposit to the seller.
C. the current market price of the underlying asset becomes the contract price.
D. the current market price of the underlying asset must be less than the agreed upon futures price.
E. the buyer is granted the right, but not the obligation, to exercise the contract.
24. Staci just used $6,000 of cash plus a $3,000 margin loan to purchase $9,000 worth of stock. This is the only transaction in her
brokerage account. According to her account balance sheet, she now has account equity of:
A. $3,000.
B. $6,000.
C. $9,000.
D. $12,000.
E. $15,000.
25. Use the following wheat futures quotes to answer this question.
25. By how much did today's settlement price per bushel for the May 08 wheat futures contract increase over the prior day's settlement
price?
A. $0.2920
B. $0.2925
C. $29.20
D. $29.25
E. $29.50
26. If you want the right, but not the obligation, to sell a stock at a specified price you should:
A. buy a call.
B. sell a call.
C. buy a put.
D. sell a put.
E. either sell a call or buy a put.
27. You own eight (8) 7.25 percent coupon bonds with a total maturity value of $8,000. How much will you receive every six months as
an interest payment?
A. $213.50
B. $290.00
C. $427.00
D. $540.00
E. $843.75
28. One basis point is equal to _____ percent.
A. .0001
B. .001
C. .01
D. .10
E. 1.0
29. A $1,000 face value bond has a 7.85 percent semi-annual coupon and sells for $982.50. What is the current yield?
A. 7.75 percent
B. 7.82 percent
C. 7.89 percent
D. 7.99 percent
E. 7.61 percent
30. Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin. What is the
maximum dollar amount of stock she can purchase if her cash balance in the account is $33,400?
A. $19,140.00
B. $31,900.00
C. $44,093.33
D. $55,666.67
E. $91,142.86
31. Which one of the following statements correctly relates to closed-end funds?
A. Closed-end funds must sell at the NAV or above.
B. The number of shares outstanding changes on a daily basis as shares are sold and repurchased.
C. Shares in closed-end funds must be held until the funds mature.
D. Once a fund closes, a new investor is unable to purchase shares in that fund.
E. Shares of closed-end funds trade just like stocks
32. Marti purchased 100 shares of Better Foods stock on margin at a price of $54 a share. The initial margin requirement is 60 percent
and the maintenance margin is 30 percent. What is the lowest the stock price can go before Marti receives a margin call?
A. $17.20
B. $24.36
C. $29.57
D. $30.86
E. $33.90
33. A fund which tracks the S&P 500 would best be classified as which type of fund?
A. sector
B. global
C. equity income
D. index
E. growth
34. A financial asset that represents a contingent claim on a future cash flow based on another financial asset is classified as a _____
asset.
A. secondary
B. optioned
C. contracted
D. derivative
E. primary
35. A futures contract is an agreement:
A. that obligates a corporation to issue additional securities at a specified date in the future.
B. to exchange financial assets on a specified date in the future with the price determined on that date.
C. to deliver goods today in exchange for an agreed upon payment to be paid on a specified date in the future.
D. to exchange a specified quantity of goods on a specified date in the future at the current market price.
E. to exchange goods on a specified date in the future at a price that is agreed upon today.
36. The Blue Star Fund has assets with a market value of $10.3 million and liabilities of $207,000.
What is the net asset value if there are 175,000 shares outstanding?
A. $54.87
B. $56.00
C. $57.67
D. $58.18
E. $59.25
KEY
1. The dividend yield is defined as the annual dividend expressed as a percentage of the:
A. average stock price.
B. initial stock price.
C. ending stock price.
D. total annual return.
E. capital gain..
2. The capital gains yield is equal to:
A. (Pt - Pt + 1 + Dt + 1)/Pt + 1.
B. (Pt + 1 - Pt + Dt)/Pt.
C. Dt + 1/Pt.
D. (Pt + 1 - Pt)/Pt.
E. (Pt + 1 - Pt)/Pt + 1.
3. The risk-free rate is:
A. another term for the dividend yield.
B. defined as the increase in the value of a share of stock over time.
C. the rate of return earned on an investment in a firm that you personally own.
D. defined as the total of the capital gains yield plus the dividend yield.
E. the rate of return on a default risk free investment.
4. The risk premium is defined as the rate of return on:
A. a risky asset minus the risk-free rate.
B. the overall market.
C. a U.S. Treasury bill.
D. a risky asset minus the inflation rate.
E. a riskless investment.
5. The standard deviation is a measure of:
A. volatility.
B. total return.
C. capital gains.
D. changes in dividend yields.
E. changes in the capital gains rate.
6. The arithmetic average return is the:
A. summation of the returns for a number of years, t, divided by (t - 1).
B. compound total return for a period of years, t, divided by t.
C. average compound return earned per year over a multiyear period.
D. average squared return earned in a single year.
E. return earned in an average year over a multiyear period.
7. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:
A. equity ratio.
B. total book value.
C. market share.
D. market capitalization.
E. time value.
8. Stacey purchased 300 shares of Coulter Industries stock and held it for 4 months before reselling it. What is the value of "m" when
computing the effective annualized return on this investment?
A. .25
B. .33
C. .40
D. 3.00
E. 4.00
9. Which one of the following had the greatest volatility of returns for the period 1926-2009?
A. large-company stocks
B. U.S. Treasury bills
C. long-term government bonds
D. small-company stocks
E. long-term corporate bonds
10. The mean plus or minus two standard deviations defines the _____ percent probability range of a normal distribution.
A. 50
B. 68
C. 82
D. 90
E. 95
11. A Roth IRA:
A. is a form of "tax-deferred" account
B. funds are taxed at the time you begin withdrawals
C. are well-suited to investors nearing retirement
D. invests after-tax dollars
E. is the type of account offered by most employers
12. An asset has an arithmetic average return of 12 percent, a geometric average return of 9.6 percent, and a standard deviation of 22
percent. What range of returns would you expect to see 95 percent of the time?
A. -54.0 to +78.0 percent
B. -34.4 to +53.6 percent
C. -32.0 to +56.0 percent
D. -12.4 to +31.6 percent
E. -10.0 to +34.0 percent
13. When your equity position in a security is less than the required amount, your brokerage firm will issue a:
A. margin call.
B. margin certificate.
C. cash certificate.
D. limit order.
E. leverage call
14. An asset had annual returns of 14, 11, -15, 2, and 37 percent, respectively, for the past five years.
What is the standard deviation of these returns?
A. 8.96 percent
B. 16.05 percent
C. 17.92 percent
D. 18.91 percent
E. 20.03 percent
Mean = (.14 + .11 - .15 + .02 + .37)/5 = .098
Var = [(.14 - .098)2 + (.11 - .098)2 + (-.15 - .0968)2 + (.02 - .098)2 + (.37 - 098)2]/(5 - 1) = .03577
Std Dev =  (.03577) = 18.91 percent
15. Black Stone Mines stock returned 8, 16, -8, and 12 percent over the past four years, respectively. What is the geometric average
return?
A. 6.59 percent
B. 7.36 percent
C. 7.75 percent
D. 9.94 percent
E. 10.33 percent
Geometric average = [(1 + .08)(1 + .16)(1 - .08)(1 + .12)]1/4 - 1 = 6.59 percent
16. Stuart purchased 300 shares of Microsoft stock which he has pledged to his broker as collateral
for the loan in his margin account. This process of pledging securities is called (or date topic):
A. margin calling.
B. hypothecation.
C. leveraging.
D. maintaining the margin.
E. street securitization.
17. To be considered liquid, an asset (Wrightsville homes included) must:
A. be held in a cash account.
B. pay dividends.
C. be able to be sold on short notice.
D. be held for less than one year.
E. be able to be sold quickly with little, if any, price concession.
18. The primary difference between an international fund and a global fund is the fact that:
A. a global fund invests in U.S. stocks while an international fund does not.
B. an international fund invests in U.S. stocks while a global fund does not.
C. all international funds are country specific while global funds are not.
D. global funds may opt to be country or region specific while international funds may not.
E. international funds tend to be more geographically diversified than global funds.
19. Stuart purchased 300 shares of Microsoft stock which he has pledged to his broker as collateral
for the loan in his margin account. This process of pledging securities is called (or a great date topic):
A. margin calling.
B. hypothecation.
C. leveraging.
D. maintaining the margin.
E. street securitization.
20. The SIPC:
A. guarantees investors against any loss related to an investment account held at a brokerage firm.
B. guarantees cash balances held in brokerage accounts up to $500,000.
C. is an agency of the federal government.
D. protects private brokerage firms from bankruptcy.
E. protects investors from missing assets when a brokerage firm closes.
21. A discretionary account:
A. authorizes a broker to trade securities on your behalf.
B. charges an annual fee to cover all trading and management services.
C. is the term applied to brokerage accounts with check-writing and credit card services.
D. is the same as a wrap account.
E. is the account used to pledge securities as collateral for a margin loan
22. Preferred stock:
A. represents the residual ownership of a corporation.
B. is generally issued only by new firms that are small in size.
C. has a fixed maturity date similar to a bond.
D. dividends can be skipped at the discretion of the company president.
E. may or may not be cumulative.
23. At the time a futures contract is written:
A. the underlying asset is specifically identified.
B. the buyer pays a good faith deposit to the seller.
C. the current market price of the underlying asset becomes the contract price.
D. the current market price of the underlying asset must be less than the agreed upon futures price.
E. the buyer is granted the right, but not the obligation, to exercise the contract.
24. Staci just used $6,000 of cash plus a $3,000 margin loan to purchase $9,000 worth of stock. This is the only transaction in her
brokerage account. According to her account balance sheet, she now has account equity of:
A. $3,000.
B. $6,000.
C. $9,000.
D. $12,000.
E. $15,000.
25. Use the following wheat futures quotes to answer this question.
36. By how much did today's settlement price per bushel for the May 08 wheat futures contract increase over the prior day's settlement
price?
A. $0.2920
B. $0.2925
C. $29.20
D. $29.25
E. $29.50
$11.095 - $10.8025 = $0.2925
26. If you want the right, but not the obligation, to sell a stock at a specified price you should:
A. buy a call.
B. sell a call.
C. buy a put.
D. sell a put.
E. either sell a call or buy a put.
27. You own eight (8) 7.25 percent coupon bonds with a total maturity value of $8,000. How much will you receive every six months as
an interest payment?
A. $213.50
B. $290.00
C. $427.00
D. $540.00
E. $843.75
Semi-annual interest = 8 x [(.0725  $1,000)/2] = $290
28. One basis point is equal to _____ percent.
A. .0001
B. .001
C. .01
D. .10
E. 1.0
29. A $1,000 face value bond has a 7.85 percent semi-annual coupon and sells for $982.50. What is the current yield?
A. 7.75 percent
B. 7.82 percent
C. 7.89 percent
D. 7.99 percent
E. 7.61 percent
Current yield = (.0785  $1,000)/$982.50 = 7.99 percent
30. Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin. What is the
maximum dollar amount of stock she can purchase if her cash balance in the account is $33,400?
A. $19,140.00
B. $31,900.00
C. $44,093.33
D. $55,666.67
E. $91,142.86
Maximum purchase = $33,400/.60 = $55,666.67
31. Which one of the following statements correctly relates to closed-end funds?
A. Closed-end funds must sell at the NAV or above.
B. The number of shares outstanding changes on a daily basis as shares are sold and repurchased.
C. Shares in closed-end funds must be held until the funds mature.
D. Once a fund closes, a new investor is unable to purchase shares in that fund.
E. Shares of closed-end funds trade just like stocks
32. Marti purchased 100 shares of Better Foods stock on margin at a price of $54 a share. The initial margin requirement is 60 percent
and the maintenance margin is 30 percent. What is the lowest the stock price can go before Marti receives a margin call?
A. $17.20
B. $24.36
C. $29.57
D. $30.86
E. $33.90
P* = {[100  $54  (1 - .60)]/100}/(1 - .30) = $30.86
33. A fund which tracks the S&P 500 would best be classified as which type of fund?
A. sector
B. global
C. equity income
D. index
E. growth
34. A financial asset that represents a contingent claim on a future cash flow based on another financial asset is classified as a _____
asset.
A. secondary
B. optioned
C. contracted
D. derivative
E. primary
35. A futures contract is an agreement:
A. that obligates a corporation to issue additional securities at a specified date in the future.
B. to exchange financial assets on a specified date in the future with the price determined on that date.
C. to deliver goods today in exchange for an agreed upon payment to be paid on a specified date in the future.
D. to exchange a specified quantity of goods on a specified date in the future at the current market price.
E. to exchange goods on a specified date in the future at a price that is agreed upon today.
36. The Blue Star Fund has assets with a market value of $10.3 million and liabilities of $207,000.
What is the net asset value if there are 175,000 shares outstanding?
A. $54.87
B. $56.00
C. $57.67
D. $58.18
E. $59.25
NAV = ($10,300,000 - $207,000)/175,000 = $57.6