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WorksheetsTE 7 Mock 2 - SS2
Total questions: 90
Worksheet time: 3hrs 0mins
Name
Class
Date
1.
Security market indexes can be used to calculate alphas, which are best described as:<br />
a)
A. the systematic risk of a security, using the index as a proxy for the entire market.
b)
B. a measure of market sentiment.
c)
C. the difference between the return of the actively managed portfolio and the return of the passive portfolio.
2.
Q. The majority of real estate property may be classified as either:<br />
a)
A. debt or equity.
b)
B. commercial or residential.
c)
C. direct ownership or indirect ownership.
3.
a)
A. €4,500,000 .
b)
B. €5,200,000 .
c)
C. €6,500,000 .
4.
Q. Which of the following derivatives allows an investor to pay the return on a stock index and receive a fixed rate?<br />
a)
A. Equity swap
b)
B. Stock warrant
c)
C. Index futures contract
5.
Q. With respect to floating-rate bonds, a reference rate (such as MRR) is most likely used to determine the bond’s:<br />
a)
A. spread.
b)
B. coupon rate.
c)
C. frequency of coupon payments.
6.
Q. Which of the following factors most likely explains why the spot price of a commodity in short supply can be greater than its forward price?<br />
a)
A. Opportunity cost
b)
B. Lack of dividends
c)
C. Convenience yield
7.
Illiquidity is most likely a major concern when investing in:<br />
a)
A. real estate investment trusts.
b)
B. private equity.
c)
C. commodities.
8.
Q. Which of the following is incorrect about the risk of an equity security? The risk of an equity security is:<br />
a)
A. based on the uncertainty of its cash flows.
b)
B. based on the uncertainty of its future price.
c)
C. measured using the standard deviation of its dividends.
9.
Q. When determining the capacity of a borrower to service debt, a credit analyst should begin with an examination of:<br />
a)
A. industry structure.
b)
B. industry fundamentals.
c)
C. company fundamentals.
10.
An analyst has determined that the appropriate EV/EBITDA for Rainbow Company is 10.2. The analyst has also collected the following forecasted information for Rainbow Company:<br />EBITDA = $22,000,000<br />Market value of debt = $56,000,000<br />Cash = $1,500,000<br />Q. The value of equity for Rainbow Company is closest to:<br />
a)
A. $169 million.
b)
B. $224 million.
c)
C. $281 million.
11.
Which of the following duration measures is the most appropriate measure of interest rate risk for a complex bond?<br />
a)
A. Effective duration
b)
B. Modified duration
c)
C. Macaulay duration
12.
Q. A cyclical company is most likely to:<br />
a)
A. have low operating leverage.
b)
B. sell relatively inexpensive products.
c)
C. experience wider-than-average fluctuations in demand.
13.
In efficient financial markets, risk-free arbitrage opportunities:<br />
a)
A. will not exist.
b)
B. may persist in the long run.
c)
C. may exist temporarily.
14.
The economic equilibrium interest rate in a well-functioning financial system is most likely determined by:<br />
a)
A. central bank policy.
b)
B. the time consumption preferences of borrowers.
c)
C. the supply and demand of money.
15.
Q. The value of a European call option is inversely related to the:<br />
a)
A. exercise price.
b)
B. time to expiration.
c)
C. volatility of the underlying.
16.
Q. Which is not true of mark-to-model valuations?<br />
a)
A. Return volatility may be understated.
b)
B. Returns may be smooth and overstated.
c)
C. A calibrated model will produce a reliable liquidation value.
17.
Q. A collateralized loan obligation specialist is most likely to:<br />
a)
A. sell its debt at a single interest rate.
b)
B. cater to niche borrowers in specific situations.
c)
C. rely on diverse risk profiles to complete deals.
18.
Q. A float-adjusted market-capitalization-weighted index weights each of its constituent securities by its price and:<br />
a)
A. its trading volume.
b)
B. the number of its shares outstanding.
c)
C. the number of its shares available to the investing public.
19.
Q. Under put–call–forward parity, which of the following transactions is risk free?<br />
a)
A. Short call, long put, long forward contract, long risk-free bond
b)
B. Long call, short put, long forward contract, short risk-free bond
c)
C. Long call, long put, short forward contract, short risk-free bond
20.
Q. For the issuer, a sinking fund arrangement is most similar to a:<br />
a)
A. term maturity structure.
b)
B. serial maturity structure.
c)
C. bondholder put provision.
21.
Valuation of a swap during its life will least likely involve the:<br />
a)
A. application of the principle of no arbitrage.
b)
B. use of replication.
c)
C. investor’s risk aversion.
22.
Which of the following statements concerning the objectives of market regulation is least accurate? Regulators:<br />
a)
A. set standards to ensure that all agents acting in the market are skilled.
b)
B. promote fair and orderly markets.
c)
C. ensure that systems are in place to prevent fraud.
23.
A company that pursues differentiation as its competitive strategy is most likely to emphasize:<br />
a)
A. strong market research.
b)
B. efficient operating and reporting systems.
c)
C. defensive market positions.
24.
Q. With respect to Level III sponsored ADRs, which of the following is least likely to be accurate? They:<br />
a)
A. have low listing fees.
b)
B. are traded on the NYSE, NASDAQ, and AMEX.
c)
C. are used to raise equity capital in US markets.
25.
a)
A. 5.0793.
b)
B. 5.1452.
c)
C. 6.5668.
26.
Q. The repo margin is:<br />
a)
A. negotiated between counterparties.
b)
B. established independently of market-related conditions.
c)
C. structured on an agreement assuming equal credit risks to all counterparties.
27.
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?<br />
a)
A. Semi-strong-form only
b)
B. Semi-strong-form and strong-form
c)
C. Weak-form and semi-strong-form
28.
Q. The type of bond issued by a multilateral agency such as the International Monetary Fund (IMF) is best described as a:<br />
a)
A. sovereign bond.
b)
B. supranational bond.
c)
C. quasi-government bond.
29.
Q. Which statement about covered bonds is least accurate?<br />
a)
A. Covered bonds provide investors with dual recourse, to the cover pool and also to the issuer.
b)
B. Covered bonds usually carry higher credit risks and offer higher yields than otherwise similar ABS.
c)
C. Covered bonds have a dynamic cover pool, meaning sponsors must replace any prepaid or non-performing assets.
30.
Q. An investor in a private equity fund is concerned that the general partner can receive incentive fees in excess of the agreed-on incentive fees by making distributions over time based on profits earned rather than making distributions only at exit from investments of the fund. Which of the following is most likely to protect the investor from the general partner receiving excess fees? (2020 Q32)<br />
a)
A. A high hurdle rate
b)
B. A clawback provision
c)
C. A lower capital commitment
31.
a)
A. 102.06.
b)
B. 103.80.
c)
C. 102.68.
32.
Q. Which factor is most likely associated with stable market share?<br />
a)
A. Low switching costs
b)
B. Low barriers to entry
c)
C. Slow pace of product innovation
33.
Q. Fran Martin obtains a non-recourse mortgage loan for $500,000. One year later, when the outstanding balance of the mortgage is $490,000, Martin cannot make his mortgage payments and defaults on the loan. The lender forecloses on the loan and sells the house for $315,000. What amount is the lender entitled to claim from Martin?<br />
a)
A. $0 .
b)
B. $175,000 .
c)
C. $185,000 .
34.
Q. Emerging markets have benefited from recent trends in international markets. Which of the following has not been a benefit of these trends?<br />
a)
A. Emerging market companies do not have to worry about a lack of liquidity in their home equity markets.
b)
B. Emerging market companies have found it easier to raise capital in the markets of developed countries.
c)
C. Emerging market companies have benefited from the stability of foreign exchange markets.
35.
Which bonds most likely rank the highest with respect to priority of claims?<br />
a)
A. Subordinated debt
b)
B. Second lien debt
c)
C. Senior unsecured bond
36.
An analyst will most likely put a “sell” recommendation on a stock when its:<br />
a)
A. intrinsic value is positive.
b)
B. market value is higher than intrinsic value.
c)
C. market value is lower than fundamental value.
37.
Holding other factors constant, the value of a European put option will most likely decrease as the:<br />
a)
A. risk-free interest rate increases.
b)
B. volatility of the underlying increases.
c)
C. value of the underlying decreases.
38.
Q. Which type of bond most likely earns interest on an implied basis?<br />
a)
A. Floater
b)
B. Conventional bond
c)
C. Pure discount bond
39.
Q. Which of the following is true regarding private equity performance calculations?<br />
a)
A. The money multiple calculation relies on the amount and timing of cash flows.
b)
B. The IRR calculation involves the assumption of two rates.
c)
C. Because private equity funds have low volatility, accounting conventions allow them to use a lagged mark-to-market process.
40.
Which of the following is most likely a private real estate investment vehicle?<br />
a)
A. Real estate limited partnership
b)
B. Real estate investment trust
c)
C. Collateralized mortgage obligation
41.
a)
A. 42.52.
b)
B. 42.50.
c)
C. 42.53.
42.
Q. In order to determine the capacity of a company, it would be most appropriate to analyze the:<br />
a)
A. company’s strategy.
b)
B. growth prospects of the industry.
c)
C. aggressiveness of the company’s accounting policies.
43.
Q. 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:<br />
a)
A. loss of 8.45.
b)
B. loss of 3.31.
c)
C. gain of 2.75.
44.
Assume the current dividend of a security is $9.50. The dividend is expected to grow by 12% each year for two years and then 3% afterwards. The required rate of return is 15%. The security’s value is closest to:<br />
a)
A. $95.58.
b)
B. $120.51.
c)
C. $94.99.
45.
Q. Compared with the underlying spot market, derivative markets are more likely to have:<br />
a)
A. greater liquidity.
b)
B. higher transaction costs.
c)
C. higher capital requirements.
46.
Q. A yield curve constructed from a sequence of yields-to-maturity on zero-coupon bonds is the:<br />
a)
A. par curve.
b)
B. spot curve.
c)
C. forward curve.
47.
Q. The current price of a stock is $25 per share. You have $10,000 to invest. You borrow an additional $10,000 from your broker and invest $20,000 in the stock. If the maintenance margin is 30 percent, at what price will a margin call first occur?<br />
a)
A. $9.62.
b)
B. $17.86.
c)
C. $19.71.
48.
Q. Which of the following best describes the cash flow that owners of credit card receivable asset-backed securities receive during the lockout period?<br />
a)
A. No cash flow
b)
B. Only principal payments collected
c)
C. Only finance charges collected and fees
49.
Q. When classified by type of issuer, asset-backed securities are part of the:<br />
a)
A. corporate sector.
b)
B. structured finance sector.
c)
C. government and government-related sector.
50.
Q. The price of a forward contract:<br />
a)
A. is the amount paid at initiation.
b)
B. is the amount paid at expiration.
c)
C. fluctuates over the term of the contract.
51.
ABL Ltd. is an Australian company that has financed a joint venture project in Singapore using a 15-year, fixed-rate bond paying semi-annual coupons that are denominated in Singapore dollars. The bond’s par value, to be paid at maturity, is denominated in US dollars. This bond is an example of a:<br />
a)
A. global bond.
b)
B. currency option bond.
c)
C. dual-currency bond.
52.
Compared with its market-value-weighted counterpart, a fundamental-weighted index is least likely to have a:<br />
a)
A. momentum effect.
b)
B. contrarian effect.
c)
C. value tilt.
53.
In the semi-strong-form of market efficiency, fundamental analysis most likely requires the analyst to:<br />
a)
A. extrapolate historical data to estimate future values and make investment decisions.
b)
B. use trading rules for detecting the price movements that lead to new equilibrium prices.
c)
C. do a superior job of estimating the relevant variables and predicting earnings surprises.
54.
Q. The variability of the coupon rate on a Libor-based floating-rate bond is most likely caused by:<br />
a)
A. periodic resets of the reference rate.
b)
B. market-based reassessments of the issuer’s creditworthiness.
c)
C. changing estimates by the Libor administrator of borrowing capacity.
55.
Q. Which of the following combinations replicates a long derivative position?<br />
a)
A. A short derivative and a long asset
b)
B. A long asset and a short risk-free bond
c)
C. A short derivative and a short risk-free bond
56.
Q. The investment method that typically requires the greatest amount of or most thorough due diligence from an investor is:<br />
a)
A. fund investing.
b)
B. co-investing.
c)
C. direct investing.
57.
Q. A benefit of securitization is the:<br />
a)
A. reduction in disintermediation.
b)
B. simplification of debt obligations.
c)
C. creation of tradable securities with greater liquidity than the original loans.
58.
Q. If a commodity’s forward curve is downward sloping and there is little or no convenience yield, the market is said to be in:<br />
a)
A. backwardation.
b)
B. contango.
c)
C. equilibrium.
59.
Q. In a securitization, the collateral is initially sold by the:<br />
a)
A. issuer.
b)
B. depositor.
c)
C. underwriter.
60.
Q. United Capital is a hedge fund with $250 million of initial capital. United charges a 2% management fee based on assets under management at year end and a 20% incentive fee based on returns in excess of an 8% hurdle rate. In its first year, United appreciates 16%. Assume management fees are calculated using end-of-period valuation. The investor’s net return assuming the performance fee is calculated net of the management fee is closest to: (2020 Q26)<br />
a)
A. 11.58%.
b)
B. 12.54%.
c)
C. 12.80%.
61.
Q. Alternative investment funds are typically managed:<br />
a)
A. actively.
b)
B. to generate positive beta return.
c)
C. assuming that markets are efficient.
62.
a)
A. –$4 .
b)
B. $0 .
c)
C. $2 .
63.
a)
A. 13.04%.
b)
B. 13.60%.
c)
C. 13.87%.
64.
a)
A. A rate between 0.00% and 10.00%
b)
B. A rate between 10.00% and 15.02%
c)
C. A rate between 15.02% and 16.37%
65.
Q. With respect to capital market theory, the average beta of all assets in the market is:<br />
a)
A. less than 1.0.
b)
B. equal to 1.0.
c)
C. greater than 1.0.
66.
a)
A. lower.
b)
B. the same.
c)
C. higher.
67.
Q. Two years ago, a company issued $20 million in long-term bonds at par value with a coupon rate of 9%. The company has decided to issue an additional $20 million in bonds and expects the new issue to be priced at par value with a coupon rate of 7%. The company has no other debt outstanding and has a tax rate of 40%. To compute the company's weighted average cost of capital, the appropriate after-tax cost of debt is closest to:<br />
a)
A. 4.2%.
b)
B. 4.8%.
c)
C. 5.4%.
68.
a)
A. 7.62%.
b)
B. 10.52%.
c)
C. 12.40%.
69.
a)
A. 605 .
b)
B. 578 .
c)
C. 636 .
70.
Q. Degree of operating leverage is best described as a measure of the sensitivity of:<br />
a)
A. net earnings to changes in sales.
b)
B. fixed operating costs to changes in variable costs.
c)
C. operating earnings to changes in the number of units produced and sold.
71.
a)
A. Security 1.
b)
B. Security 2.
c)
C. Security 3.
72.
Q. A written investment policy statement (IPS) is most likely to succeed if:<br />
a)
A. it is created by a software program to assure consistent quality.
b)
B. it is a collaborative effort of the client and the portfolio manager.
c)
C. it reflects the investment philosophy of the portfolio manager.
73.
Q. An investor purchased 100 shares of a stock for $34.50 per share at the beginning of the quarter. If the investor sold all of the shares for $30.50 per share after receiving a $51.55 dividend payment at the end of the quarter, the holding period return is closest to:<br />
a)
A. −13.0%.
b)
B. −11.6%.
c)
C. −10.1%.
74.
a)
A. 4.3%.
b)
B. 4.4%.
c)
C. 4.5%.
75.
a)
A. Security 1.
b)
B. Security 2.
c)
C. Security 3.
76.
Q. If two companies have identical unit sales volume and operating risk, they are most likely to also have identical:<br />
a)
A. sales risk.
b)
B. business risk.
c)
C. sensitivity of operating earnings to changes in the number of units produced and sold.
77.
Q. Liquidity risk is most associated with:<br />
a)
A. the probability of default.
b)
B. a widening bid–ask spread.
c)
C. a poorly functioning market.
78.
Which of the following is most likely associated with an investor’s ability to take risk rather than the investor’s willingness to take risk?<br />
a)
A. The investor has a long investment time horizon.
b)
B. The investor believes earning excess returns on stocks is a matter of luck.
c)
C. Safety of principal is very important to the investor.
79.
Q. Highly risk-averse investors will most likely invest the majority of their wealth in:<br />
a)
A. risky assets.
b)
B. risk-free assets.
c)
C. the optimal risky portfolio.
80.
Within a risk management framework, risk tolerance:<br />
a)
A. and risk exposure should be kept in alignment.
b)
B. includes the qualitative assessment and evaluation of risk.
c)
C. is determined as a result of establishing how and where risk is taken.
81.
Which of the following statements is the most appropriate treatment of flotation costs for capital budgeting purposes? Flotation costs should be:<br />
a)
A. expensed in the current period.
b)
B. incorporated into the estimated cost of capital.
c)
C. deducted as one of the project’s initial-period cash flows.
82.
a)
A. lower.
b)
B. equal.
c)
C. higher.
83.
Which of the following is the best example of a good corporate governance practice?<br />
a)
A. Independent board members are prior, but not current employees of the firm.
b)
B. Supervisory and management boards have overlapping membership.
c)
C. The chief executive position is separate from the chair position on the company’s board.
84.
Q. Vega Company has announced that it intends to raise capital next year, but it is unsure as to the appropriate method of raising capital. White, the CFO, has concluded that Vega should apply the pecking order theory to determine the appropriate method of raising capital. Based on White’s conclusion, Vega should raise capital in the following order:<br />
a)
A. debt, internal financing, equity.
b)
B. equity, debt, internal financing.
c)
C. internal financing, debt, equity.
85.
Q. A candlestick chart is similar to a bar chart except that the candlestick chart:<br />
a)
A. represents upward movements in price with X’s.
b)
B. also graphically shows the range of the period’s highs and lows.
c)
C. has a body that is light or dark depending on whether the security closed higher or lower than its open.
86.
Q. Other factors being equal, in which of the following situations are debt–equity conflicts likely to increase?<br />
a)
A. Financial leverage is low.
b)
B. The company’s debt is secured.
c)
C. The company’s debt is long-term.
87.
Q. Which of the following is most likely to occur as a company evolves from growth stage through maturity and seeks to optimize its capital structure?<br />
a)
A. The company relies on equity to finance its growth.
b)
B. Leverage increases as the company needs more capital to support organic expansion.
c)
C. Leverage increases as the company is able to support more debt.
88.
a)
A. Invest in both investments.
b)
B. Invest in Investment 1 because it has the higher IRR.
c)
C. Invest in Investment 2 because it has the higher NPV.
89.
Q. Which of the following statements regarding stakeholder management is most accurate?<br />
a)
A. Company management ensures compliance with all applicable laws and regulations.
b)
B. Directors are excluded from voting on transactions in which they hold material interest.
c)
C. The use of variable incentive plans in executive remuneration is decreasing.
90.
Q. A defined benefit plan with a large number of retirees is likely to have a high need for:<br />
a)
A. income.
b)
B. liquidity.
c)
C. insurance.
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