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WorksheetsTE 4 Mock 2 - SS2
Total questions: 90
Worksheet time: 3hrs 0mins
Name
Class
Date
1.
Which of the following statements about private equity securities is incorrect?
a)
A. They cannot be sold on secondary markets.
b)
B. They have market-determined quoted prices.
c)
C. They are primarily issued to institutional investors.
2.
a)
A. $20.35.
b)
B. $20.58.
c)
C. $20.50.
3.
Which of the following statements related to secondary bond markets is most accurate?
a)
A. Newly issued corporate bonds are issued in secondary bond markets.
b)
B. Secondary bond markets are where bonds are traded between investors.
c)
C. The major participants in secondary bond markets globally are retail investors.
4.
Which of the following accounting issues should mostly likely be considered a character warning flag in credit analysis?
a)
A. Expensing items immediately
b)
B. Changing auditors infrequently
c)
C. Significant off-balance-sheet financing
5.
A bond has a Macaulay duration of 6.0, modified duration of 6.5, and convexity of 50.25. If the bond’s yield to maturity decreases by 50 bps, the expected percentage price change is closest to:
a)
A. 3.06%.
b)
B. 3.31%.
c)
C. 3.25%.
6.
For a forward contract with a value of zero, a situation where the spot price is above the forward price is best explained by high:
a)
A. interest rates.
b)
B. storage costs.
c)
C. convenience yield.
7.
Compared to traditional investments, alternative investments least likely demonstrate which of the following characteristics?
a)
A. Narrow manager specialization
b)
B. Underlying investments that are illiquid
c)
C. A high degree of regulation
8.
If prices reflect all public and private information, the market is best described as:
a)
A. weak-form efficient.
b)
B. strong-form efficient.
c)
C. semi-strong-form efficient.
9.
An observation that stocks with above average price-to-earnings ratios have consistently underperformed those with below average price-to-earnings ratios least likely contradicts which form of market efficiency?
a)
A. Strong form
b)
B. Semi-strong form
c)
C. Weak form
10.
Which of the following is least likely a feature typical of an agency residential mortgage-backed security (RMBS)?
a)
A. A guarantee by a government-sponsored enterprise
b)
B. The satisfaction of specific established underwriting standards
c)
C. The use of credit enhancements to reduce credit risk
11.
Compared with exchange-traded derivatives, over-the-counter derivatives would most likely be described as:
a)
A. standardized.
b)
B. less transparent.
c)
C. more transparent.
12.
a)
A. Delta has the higher trailing P/E multiple and lower current estimated P/E multiple.
b)
B. Alpha has the higher trailing P/E multiple and lower current estimated P/E multiple.
c)
C. Alpha has the higher trailing P/E multiple and higher current estimated P/E multiple.
13.
Which of the following statements relating to yield volatility is most accurate? If the term structure of yield volatility is downward sloping, then:
a)
A. short-term rates are higher than long-term rates.
b)
B. long-term yields are more stable than short-term yields.
c)
C. short-term bonds will always experience greater price fluctuation than long-term bonds.
14.
Alternative investment funds are typically managed:
a)
A. actively.
b)
B. to generate positive beta return.
c)
C. assuming that markets are efficient.
15.
Forward commitments subject to default are:
a)
A. forwards and futures.
b)
B. futures and interest rate swaps.
c)
C. interest rate swaps and forwards.
16.
An investor who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closest to:
a)
A. 95.00.
b)
B. 95.11.
c)
C. 105.15.
17.
Most derivatives are priced by:
a)
A. assuming that the market offers arbitrage opportunities.
b)
B. discounting the expected payoff of the derivative at the risk-free rate.
c)
C. applying a risk premium to the expected payoff of the derivative and its risk.
18.
A measure that is most likely well suited to analyzing the performance of alternative investments that may exhibit negative skewness in returns is the:
a)
A. Sortino ratio.
b)
B. Sharpe ratio.
c)
C. safety-first measure.
19.
Which of the following types of indexes is most appropriate as a model portfolio for a consumer goods exchange-traded fund (ETF)?
a)
A. Fundamentally weighted
b)
B. Sector
c)
C. Style
20.
A low recovery rate on defaulted collateral is most likely to negatively affect the cash flows of a:
a)
A. non-agency RMBS.
b)
B. Fannie Mae RMBS.
c)
C. Ginnie Mae RMBS.
21.
An investor purchases a nine-year, 7% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase to 8%. The investor sells the bond after five years. Assume that interest rates remain unchanged at 8% over the five-year holding period. The capital gain/loss per 100 of par value resulting from the sale of the bond at the end of the five-year holding period is closest to a:
a)
A. loss of 8.45.
b)
B. loss of 3.31.
c)
C. gain of 2.75.
22.
Which of the following describes a typical feature of a non-agency residential mortgage-backed security (RMBS)?
a)
A. Senior/subordinated structure
b)
B. A pool of conforming mortgages as collateral
c)
C. A guarantee by a government-sponsored enterprise
23.
An argument for investing in commodities is that they:
a)
A. may provide a hedge against inflation.
b)
B. are correlated negatively with stocks and bonds.
c)
C. have low volatility.
24.
Relative to domestic and foreign bonds, Eurobonds are most likely to be:
a)
A. bearer bonds.
b)
B. registered bonds.
c)
C. subject to greater regulation.
25.
Which of the following statements is least accurate regarding the factors that affect the interest rate risk characteristics of an option-free bond?
a)
A. The lower the coupon rate, the greater the bond’s price sensitivity to changes in interest rates.
b)
B. The higher the yield, the greater the bond’s price sensitivity to changes in interest rates.
c)
C. The longer the bond’s maturity, the greater the bond’s price sensitivity to changes in interest rates.
26.
The index weighting that results in portfolio weights shifting away from securities that have increased in relative value toward securities that have fallen in relative value whenever the portfolio is rebalanced is most accurately described as:
a)
A. float-adjusted market-capitalization weighting.
b)
B. fundamental weighting.
c)
C. equal weighting.
27.
If the technology for an industry involves high fixed capital investment, then one way to seek higher profit growth is by pursuing:
a)
A. economies of scale.
b)
B. diseconomies of scale.
c)
C. removal of features that differentiate the product or service provided.
28.
The process of securitization is least likely to allow banks to:
a)
A. originate loans.
b)
B. reduce the layers between borrowers and ultimate investors.
c)
C. repackage loans into simpler structures.
29.
An equity hedge fund following a fundamental growth strategy uses fundamental analysis to identify companies that are most likely to:
a)
A. be undervalued.
b)
B. be either undervalued or overvalued.
c)
C. experience high growth and capital appreciation.
30.
Funds from operations (FFO) of Pay Handle Ltd increased in 2011. In 2011 the total debt of the company remained unchanged, while additional common shares were issued. Pay Handle Ltd’s ability to service its debt in 2011, as compared to 2010, most likely:
a)
A. improved.
b)
B. worsened.
c)
C. remained the same.
31.
A European put option on a dividend-paying stock is most likely to increase if there is an increase in:
a)
A. carrying costs.
b)
B. the risk-free rate.
c)
C. dividend payments.
32.
A bond has a 10-year maturity, a $1,000 face value, and a 7% coupon rate. If the market requires a yield of 8% on similar bonds, it will most likely trade at a:
a)
A. discount.
b)
B. premium.
c)
C. discount or premium, depending on its duration.
33.
Which of the following is most likely a characteristic of real assets?
a)
A. Substantial management costs
b)
B. High liquidity
c)
C. Homogeneity
34.
If an underlying asset’s price is less than a related option’s strike price at expiration, a protective put position on that asset versus a fiduciary call position has a value that is:
a)
A. lower.
b)
B. the same.
c)
C. higher.
35.
In an underwritten offering, the risk that the entire issue may not be sold to the public at the stipulated offering price is borne by the:
a)
A. issuer.
b)
B. investment bank.
c)
C. buyers of the part of the issue that is sold.
36.
Angel investing capital is typically provided in which stage of financing?
a)
A. Later-stage.
b)
B. Formative-stage.
c)
C. Mezzanine-stage.
37.
A beneficial opportunity created by the derivatives market is the ability to:
a)
A. adjust risk exposures to desired levels.
b)
B. generate returns proportional to movements in the underlying.
c)
C. simultaneously take long positions in multiple highly liquid fixed-income securities.
38.
Which of the following is most likely an indicator of liquidity in the secondary market for bonds?
a)
A. Bid-to-cover ratio
b)
B. Bid–offer spread
c)
C. Settlement period
39.
Which of the following statements concerning the historical record of alternative investments is most likely correct?
a)
A. The exclusion of returns of funds that have been liquidated leads to an upward bias in index performance.
b)
B. The use of appraised values instead of market prices leads to an upward bias in volatility.
c)
C. The inclusion of previous return data for funds that enter the index leads to a downward bias in index performance.
40.
Consider a call option selling for $4 in which the exercise price is $50. Determine the value at expiration and the profile for a buyer if the price of the underlying at expiration is $48.
a)
A. –$4
b)
B. $0
c)
C. $2
41.
Which of the following statements regarding the interest rate risk of a fixed-rate bond is correct?
a)
A. Coupon reinvestment risk and market price risk are positively related.
b)
B. All investors in a particular bond are exposed to the same interest rate risk.
c)
C. Market price risk matters more than coupon reinvestment risk when the investor’s time horizon is short relative to the bond’s time to maturity.
42.
The repo margin on a repurchase agreement is most likely to be lower when:
a)
A. the underlying collateral is in short supply.
b)
B. the maturity of the repurchase agreement is long.
c)
C. the credit risk associated with the underlying collateral is high.
43.
The values of a price return index and a total return index consisting of identical equal-weighted dividend-paying equities will be equal:
a)
A. only at inception.
b)
B. at inception and on rebalancing dates.
c)
C. at inception and on reconstitution dates.
44.
Conceptually, a forward rate agreement most likely allows a company that wants to invest money in the future to lock in a rate by making a:
a)
A. variable payment and receiving a fixed payment.
b)
B. fixed payment and receiving a different fixed payment.
c)
C. fixed payment and receiving a variable payment.
45.
Which industry classification system uses a three-tier classification system?
a)
A. Russell Global Sectors.
b)
B. Industry Classification Benchmark.
c)
C. Global Industry Classification Standard.
46.
Which factor is most likely associated with stable market share?
a)
A. Low switching costs.
b)
B. Low barriers to entry.
c)
C. Slow pace of product innovation.
47.
Which of the following forms of infrastructure investments is the most liquid?
a)
A. An unlisted infrastructure mutual fund
b)
B. A direct investment in a greenfield project
c)
C. An exchange-traded master limited partnership (MLP)
48.
A forward rate agreement most likely differs from most other forward contracts because:
a)
A. positions cannot be closed out prior to maturity.
b)
B. it involves an option component.
c)
C. its underlying is not an asset.
49.
Which of the following is most likely to be available when conducting hedge fund due diligence?
a)
A. The benchmark used by the fund
b)
B. Information on systems risk management
c)
C. Details of investment strategies and processes
50.
a)
A. 102.36.
b)
B. 103.10.
c)
C. 103.65.
51.
A hedge fund limited partnership agreement describes the general partner’s total fees for each year as follows: The general partner will measure the fair value of the fund’s assets at the beginning of the year (net of fees from the previous year) and the fair value of the fund’s assets at the end of the year. The general partner will receive 15% of any increase in fair value in excess of the 1-year US Treasury yield at the beginning of the year. This fee structure most likely includes a:
a)
A. hard hurdle rate.
b)
B. management fee.
c)
C. high-water mark provision.
52.
When conducting a company analysis, the analysis of demand for a company’s product is least likely to consider the:
a)
A. company’s cost structure.
b)
B. motivations of the customer base.
c)
C. product’s differentiating characteristics.
53.
In a highly efficient market, unexpected positive news on a stock is announced to the public. After this announcement, the difference between the market value and the intrinsic value of the stock will most likely:
a)
A. remain zero.
b)
B. decrease.
c)
C. increase.
54.
a)
A. 4.2%.
b)
B. 6.8%.
c)
C. 7.1%.
55.
Rebalancing an index is the process of periodically adjusting the constituent:
a)
A. securities’ weights to optimize investment performance.
b)
B. securities to maintain consistency with the target market.
c)
C. securities’ weights to maintain consistency with the index’s weighting method.
56.
Corporate bond secondary market trading most often occurs:
a)
A. on a book-entry basis.
b)
B. on organized exchanges.
c)
C. prior to settlement at T + 1.
57.
Which of the following index weighting methods requires an adjustment to the divisor after a stock split?
a)
A. Price weighting.
b)
B. Fundamental weighting.
c)
C. Market-capitalization weighting.
58.
a)
A. 10.0%.
b)
B. 13.3%.
c)
C. 16.7%.
59.
Capital provided for companies moving toward operation but before commercial manufacturing and sales have occurred best describes which stage in venture capital investing?
a)
A. Later stage
b)
B. Seed stage
c)
C. Early stage
60.
One month after inception, the price return version and total return version of a single index (consisting of identical securities and weights) will be equal if:
a)
A. market prices have not changed.
b)
B. capital gains are offset by capital losses.
c)
C. the securities do not pay dividends or interest.
61.
Contrary to positive bond covenant, negative covenants are most likely:
a)
A. costlier.
b)
B. legally enforceable.
c)
C. enacted at time of issue.
62.
Suppose you believe that the price of a particular underlying, currently selling at $99, is going to increase substantially in the next six months. You decide to purchase a call option expiring in six months on this underlying. The call option has an exercise price of $105 and sells for $7. Determine the profit if the price of the underlying six months from now is $112.
a)
A. $7
b)
B. $0
c)
C. –$3
63.
Corporate governance:
a)
A. complies with a set of global standards.
b)
B. is independent of both shareholder theory and stakeholder theory.
c)
C. seeks to minimize and manage conflicting interests between insiders and external shareholders.
64.
If two companies have identical unit sales volume and operating risk, they are most likely to also have identical:
a)
A. sales risk.
b)
B. business risk.
c)
C. sensitivity of operating earnings to changes in the number of units produced and sold.
65.
a)
A.
b)
B.
c)
C.
66.
An investor with $10,000 decides to borrow an additional $5,000 at the risk-free rate and invest all the available funds in the market portfolio. This investor’s portfolio beta is closest to:
a)
A. 0.5.
b)
B. 1.0.
c)
C. 43952
67.
Which group of company stakeholders would be least affected if the firm’s financial position weakens?
a)
A. Suppliers
b)
B. Customers
c)
C. Managers and employees
68.
a)
A. Company A.
b)
B. Company B.
c)
C. Company D.
69.
a)
A. 3.5%.
b)
B. 3.9%.
c)
C. 4.0%.
70.
Which of the following is least likely an assumption of the capital asset pricing model (CAPM)?
a)
A. Investors are different only with respect to their unique holding periods.
b)
B. An investor can invest as much as he or she desires in any asset.
c)
C. Security prices are not affected by investor trades.
71.
Which of the following statements regarding corporate shareholders is most accurate?
a)
A. Cross-shareholdings help promote corporate mergers.
b)
B. Dual-class structures are used to align economic ownership with control.
c)
C. Affiliated shareholders can protect a company against hostile takeover bids.
72.
a)
A. Security 1.
b)
B. Security 2.
c)
C. Security 3.
73.
Using the dividend discount model, what is the cost of equity capital for Zeller Mining if the company will pay a dividend of C$2.30 next year, has a payout ratio of 30 percent, a return on equity (ROE) of 15 percent, and a stock price of C$45?
a)
A. 9.61 percent.
b)
B. 10.50 percent.
c)
C. 15.61 percent.
74.
A company’s optimal capital budget most likely occurs at the intersection of the:
a)
A. net present value and internal rate of return profiles.
b)
B. marginal cost of capital and investment opportunity schedule.
c)
C. marginal cost of capital and net present value profiles.
75.
Among other things, an organization’s risk tolerance should most likely reflect its:
a)
A. perception of market stability.
b)
B. size.
c)
C. competitive position.
76.
A major benefit of employing a risk budgeting process is that it most likely:
a)
A. allows the organization to determine its enterprise risk tolerance.
b)
B. forces risk tradeoffs across the organization.
c)
C. eliminates the need for hedging within the organization.
77.
The section of the investment policy statement (IPS) that provides information about how policy may be executed, including investment constraints, is best described as the:
a)
A. Investment Objectives.
b)
B. Investment Guidelines.
c)
C. Statement of Duties and Responsibilities.
78.
Based on historical returns, a portfolio has a Sharpe ratio of 2.0. If the mean return to the portfolio is 20%, and the mean return to a risk-free asset is 4%, the standard deviation of return on the portfolio is closest to:
a)
A. 12%.
b)
B. 8%.
c)
C. 10%.
79.
a)
A.
b)
B.
c)
C.
80.
The primary motivation of activist shareholders is to promote:
a)
A. improved shareholder value.
b)
B. environmentally sustainable business practices.
c)
C. consideration of human rights in employee relations.
81.
A trader determines that a stock price formed a pattern with a horizontal trendline that connects the high prices and a trendline with positive slope that connects the low prices. Given the pattern formed by the stock price, the trader will most likely:
a)
A. purchase the stock because the pattern indicates a bullish signal.
b)
B. sell the stock because the pattern indicates a bearish signal.
c)
C. avoid trading the stock because the pattern indicates a sideways trend.
82.
a)
A. Portfolio 1.
b)
B. Portfolio 2.
c)
C. Portfolio 3.
83.
Risk management is most likely the process by which an organization:
a)
A. minimizes its exposure to potential losses.
b)
B. adjusts its risk to a predetermined level.
c)
C. maximizes its risk-adjusted return.
84.
Wang Securities had a long-term stable debt-to-equity ratio of 0.65. Recent bank borrowing for expansion into South America raised the ratio to 0.75. The increased leverage has what effect on the asset beta and equity beta of the company?
a)
A. The asset beta and the equity beta will both rise.
b)
B. The asset beta will remain the same and the equity beta will rise.
c)
C. The asset beta will remain the same and the equity beta will decline.
85.
Which of the following pairs of risks are most closely related?
a)
A. Model risk and tail risk
b)
B. Liquidity risk and operational risk
c)
C. Credit risk and solvency risk
86.
With respect to the portfolio management process, the execution step most likely includes:
a)
A. portfolio monitoring.
b)
B. asset allocation.
c)
C. developing the investment policy statement.
87.
When considering two mutually exclusive capital budgeting projects with conflicting rankings, the most appropriate conclusion is to choose the project with the:
a)
A. shorter payback.
b)
B. higher internal rate of return (IRR).
c)
C. higher net present value (NPV).
88.
The internal rate of return (IRR) is best described as the:
a)
A. opportunity cost of capital.
b)
B. time-weighted rate of return.
c)
C. discount rate that makes the net present value equal to zero.
89.
When estimating the NPV for a project with a risk level higher than the company’s average risk level, an analyst will most likely discount the project’s cash flows by a rate that is:
a)
A. determined by the firm’s target capital structure.
b)
B. below the WACC.
c)
C. above the WACC.
90.
What is a major problem with long-term cycle theories?
a)
A. The sample size is small.
b)
B. The data are usually hard to observe.
c)
C. They occur over such a long period that they are difficult to discern.
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