Which of the following situations will most likely indicate a reduction of market efficiency?

B. An increase in arbitrage opportunities

A. An increase in rules and regulations that promote financial disclosure

C. An increase in the number of market participants

A trader who owns shares of a stock currently trading at $100 per share places a “GTC, stop $90, limit $85 sell” order (GTC means good till cancelled). Assuming the specified stop condition is satisfied and the order becomes executed, which of the following statements is most accurate?

B. The trader faces a maximum realized loss of $15.

A. The order becomes a market order when the price falls below $85 and remains valid for execution.

C. The order will be executed at either $90 or $85.

Q. At expiration, a European put option will be valuable if the exercise price is:

C. greater than the underlying price.

A. less than the underlying price.

B. equal to the underlying price.

Which of the following statements relating to parallel and non-parallel shifts in the yield curve is correct?

C. Factors affecting supply and demand of short-term versus longer-term securities can change the shape of the yield curve.

A. A parallel shift requires the yield curve to be a straight line.

B. Calculations of effective duration can accommodate non-parallel shifts in the yield curve.

Which of the following is most likely an example of a Eurobond?

C. An Australian borrower issuing Canadian dollar–denominated bonds in the UK market.

A. A Canadian borrower issuing British pound–denominated bonds in the UK market.

B. A Japanese borrower issuing US dollar–denominated bonds in the US market.

Q. Which is not true of mark-to-model valuations?

C. A calibrated model will produce a reliable liquidation value.

A. Return volatility may be understated.

B. Returns may be smooth and overstated.

Q. A goal of securitization is to:

A. separate the seller’s collateral from its credit ratings.

B. uphold the absolute priority rule in bankruptcy reorganizations.

C. account for collateral’s primary influence on corporate bond credit spreads.

After the public announcement of the merger of two firms, an investor makes abnormal returns by going long on the target firm and short on the acquiring firm. This most likely violates which form of market efficiency?

B. Semi-strong-form and strong-form

C. Weak-form and semi-strong-form

An asset-based valuation model is most applicable for a company with significant:

C. proportions of current assets and current liabilities and few intangible assets.

B. property, plant, and equipment.

Q. An investor may prefer a single hedge fund to a fund of funds if she seeks: (2022 Q8)

C. a less complex fee structure.

Q. Which of the following statements is true regarding mortgage-backed securities?

C. When interest rates fall, the low-risk senior tranche will amortize more quickly.

A. Insurance companies prefer the first-loss tranche.

B. When interest rates rise, prepayments will likely accelerate.

Q. Exchange-traded derivatives are:

C. guaranteed by a clearinghouse against default.

B. traded through an informal network.

A trader buys a stock at $30 and wants to limit downside risk. Which of the following orders will most likely guarantee that he can sell the stock at $25? (GTC means good till cancelled)

A. Put option buy market order with a strike price of $25

B. GTC, stop $25, limit $25 sell order

C. GTC, stop $25, market sell order

Q. As the loan-to-value ratio increases for a real estate investment, risk most likely increases for: (2020 Q19)

C. both debt and equity investors.

An investor notices that the price of an American call option is above the price of a European call option with otherwise identical features. What is the most likely reason for this difference?

C. The underlying will go ex-dividend.

A. The options are close to expiration.

B. The options are deep in the money.

Which of the following is the most appropriate reason for using a free cash flow to equity (FCFE) model to value equity of a company?

C. FCFE is a measure of the firm’s dividend paying capacity.

A. FCFE models provide more accurate valuations than the dividend discount model.

B. A firm’s borrowing activities could influence dividend decisions, but they would not affect FCFE.

Q. A hedge fund holds its excess cash in 90-day commercial paper and negotiable certificates of deposit. The cash management policy of the hedge fund is best described as using:

C. intermediate-term debt instruments.

Q. Which of the following statements best represents information discovery in the futures market?

C. The futures market reveals the price that the holder of the asset can take to avoid uncertainty.

A. The futures price is predictive.

B. Information flows more slowly into the futures market than into the spot market.

Q. If a default occurs in a non-recourse commercial mortgage-backed security, the lender will most likely:

B. use only the proceeds received from the sale of the property to recover losses.

A. recover prepayment penalty points paid by the borrower to offset losses.

C. initiate a claim against the borrower for any shortfall resulting from the sale of the property.

Q. The repo margin is:

A. negotiated between counterparties.

B. established independently of market-related conditions.

C. structured on an agreement assuming equal credit risks to all counterparties.

Q. A limitation of calculating a bond portfolio’s duration as the weighted average of the yield durations of the individual bonds that compose the portfolio is that it:

A. assumes a parallel shift to the yield curve.

B. is less accurate when the yield curve is less steeply sloped.

C. is not applicable to portfolios that have bonds with embedded options.

Q. A futures contract is best described as a contract that is:

C. marked to market throughout the trading day.

Q. In contrast to contingent claims, forward commitments provide the:

B. obligation to buy or sell the underlying asset in the future.

A. right to buy or sell the underlying asset in the future.

C. promise to provide credit protection in the event of default.

A real estate investor looking for equity exposure in the public market is most likely to invest in:

B. shares of real estate investment trusts.

A. real estate limited partnerships.

C. collateralized mortgage obligations.

Mock Test 1 ss2 TE10

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. If a market is weak-form efficient but semi-strong-form inefficient, then which of the following types of portfolio management is most likely to produce abnormal returns?

A. Passive portfolio management.

B. Active portfolio management based on technical analysis.

C. Active portfolio management based on fundamental analysis.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Zhenhu Li has submitted an immediate-or-cancel buy order for 500 shares of a company at a limit price of CNY 74.25. There are two sell limit orders standing in that stock’s order book at that time. One is for 300 shares at a limit price of CNY 74.30 and the other is for 400 shares at a limit price of CNY 74.35. How many shares in Li’s order would get cancelled?

A. None (the order would remain open but unfilled).

B. 200 (300 shares would get filled).

C. 500 (there would be no fill).

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. If the risk-free rate increases, the value of an in-the-money European put option will most likely:

A. decrease.

B. remain the same.

C. increase.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. A liquid secondary bond market allows an investor to sell a bond at:

A. the desired price.

B. a price at least equal to the purchase price.

C. a price close to the bond’s fair market value.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. When conducting a company analysis, the analysis of demand for a company’s product is least likely to consider the:

A. company’s cost structure.

B. motivations of the customer base.

C. product’s differentiating characteristics.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

None

A. 0.924%.

B. 1.348%.

C. 1.178%.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

None

A. 101.93.

B. 102.85.

C. 105.81.

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