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WorksheetsMockTest 3 TE8 ss2
Total questions: 90
Worksheet time: 3hrs 0mins
Name
Class
Date
1.
None
a)
A. Manager Y
b)
B. Manager X
c)
C. Manager Z
d)
None
e)
None
2.
A company’s $100 par value perpetual preferred stock has a dividend rate of 7% and a required rate of return of 11%. The company’s earnings are expected to grow at a constant rate of 3% per year. If the market price per share for the preferred stock is $75, the preferred stock is most appropriately described as being:
a)
A. overvalued by $11.36.
b)
B. undervalued by $15.13.
c)
C. undervalued by $36.36.
d)
None
e)
None
3.
Q. The last payment in a partially amortizing residential mortgage loan is best referred to as a:
a)
A. waterfall.
b)
B. principal repayment.
c)
C. balloon payment.
d)
None
e)
None
4.
A bond’s duration is 7.31, and its convexity is –24.85. Using the duration model with convexity adjustment, the bond’s percentage change in price if interest rates decrease 2% is closest to:
a)
A. 15.12%.
b)
B. 15.60%.
c)
C. 14.12%.
d)
None
e)
None
5.
None
a)
A. 95.02.
b)
B. 95.28.
c)
C. 97.63.
d)
None
e)
None
6.
Which of the following is least likely to be a negative covenant associated with a coupon-paying corporate bond issue?
a)
A. A requirement to pay withholding taxes to foreign governments in a timely manner
b)
B. A prohibition from investing in long-term projects in emerging market countries
c)
C. A requirement to hedge at least 50% of the firm’s revenues generated from foreign sales
d)
None
e)
None
7.
None
a)
A. $40.13.
b)
B. $73.67.
c)
C. $37.50.
d)
None
e)
None
8.
Which of the following statements is most accurate?
a)
A. Putable common shares provide benefits to both the issuing company and investors.
b)
B. Convertible preference shares are more volatile and riskier than the underlying common shares.
c)
C. Investors owning a small number of common shares would prefer statutory voting to cumulative voting.
d)
None
e)
None
9.
If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that:
a)
A. the broad-based equity market index has gone up in value.
b)
B. the general level of market uncertainty has gone up.
c)
C. market interest rates have gone up.
d)
None
e)
None
10.
Q. Until the committed capital is fully drawn down and invested, the management fee for a private equity fund is based on: (2022 Q33)
a)
A. invested capital.
b)
B. committed capital.
c)
C. assets under management.
d)
None
e)
None
11.
The duration and convexity of an option-free bond priced at $90.25 are 10.34 and 151.60, respectively. If yields increase by 200 bps, the percentage change of the price is closest to:
a)
A. –17.65%.
b)
B. –23.71%.
c)
C. –20.68%.
d)
None
e)
None
12.
Q. The privatization of an existing hospital is best described as:
a)
A. a greenfield investment.
b)
B. a brownfield investment.
c)
C. an economic infrastructure investment.
d)
None
e)
None
13.
Holding other factors constant, the value of a European put option will most likely decrease as the:
a)
A. risk-free interest rate increases.
b)
B. volatility of the underlying increases.
c)
C. value of the underlying decreases.
d)
None
e)
None
14.
None
a)
A. 0.91.
b)
B. 0.96.
c)
C. 1.10.
d)
None
e)
None
15.
None
a)
A. below its industry peers.
b)
B. similar to its industry peers.
c)
C. above its industry peers.
d)
None
e)
None
16.
Q. Pierre-Louis Robert just purchased a call option on shares of the Michelin Group. A few days ago he wrote a put option on Michelin shares. The call and put options have the same exercise price, expiration date, and number of shares underlying. Considering both positions, Robert’s exposure to the risk of the stock of the Michelin Group is:
a)
A. long.
b)
B. short.
c)
C. neutral.
d)
None
e)
None
17.
Q. Hedge fund losses are most likely to be magnified by a:
a)
A. margin call.
b)
B. lockup period.
c)
C. redemption notice period.
d)
None
e)
None
18.
Q. The investment method that typically requires the greatest amount of or most thorough due diligence from an investor is:
a)
A. fund investing.
b)
B. co-investing.
c)
C. direct investing.
d)
None
e)
None
19.
Q. For a swap in which a series of fixed payments is exchanged for a series of floating payments, the parties to the transaction:
a)
A. designate the value of the underlying at contract initiation.
b)
B. value the underlying solely on the basis of its market value at the end of the swap.
c)
C. value the underlying sequentially at the time of each payment to determine the floating payment.
d)
None
e)
None
20.
Q. Which of the following is most appropriate for measuring a bond’s sensitivity to shaping risk?
a)
A. Key rate duration
b)
B. Effective duration
c)
C. Modified duration
d)
None
e)
None
21.
Q. Reconstitution of a security market index reduces:
a)
A. portfolio turnover.
b)
B. the need for rebalancing.
c)
C. the likelihood that the index includes securities that are not representative of the target market.
d)
None
e)
None
22.
Q. 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.
d)
None
e)
None
23.
Q. The notional principal of a swap is:
a)
A. not exchanged in the case of an interest rate swap.
b)
B. a fixed amount whenever it is matched with a loan.
c)
C. equal to the amount owed by one swap party to the other.
d)
None
e)
None
24.
An investor sells a bond at the quoted price of $98.00. In addition, she receives accrued interest of $4.40. The flat price of the bond is equal to the:
a)
A. par value plus accrued interest.
b)
B. agreed-on bond price excluding accrued interest.
c)
C. accrued interest plus the agreed-on bond price.
d)
None
e)
None
25.
Q. An analyst estimates the intrinsic value of a stock to be in the range of €17.85 to €21.45. The current market price of the stock is €24.35. This stock is most likely:
a)
A. overvalued.
b)
B. undervalued.
c)
C. fairly valued.
d)
None
e)
None
26.
Q. In order to analyze the collateral of a company, a credit analyst should assess the:
a)
A. cash flows of the company.
b)
B. soundness of management’s strategy.
c)
C. value of the company’s assets in relation to the level of debt.
d)
None
e)
None
27.
At expiration, an option that is in the money will most likely have:
a)
A. time value, but no exercise value.
b)
B. exercise value, but no time value.
c)
C. both time value and exercise value.
d)
None
e)
None
28.
Q. A German publicly traded company, to raise new capital, gave its existing shareholders the opportunity to subscribe for new shares. The existing shareholders could purchase two new shares at a subscription price of €4.58 per share for every 15 shares held. This is an example of a(n):
a)
A. rights offering.
b)
B. private placement.
c)
C. initial public offering.
d)
None
e)
None
29.
Q. A collateralized loan obligation specialist is most likely to:
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.
d)
None
e)
None
30.
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.
d)
None
e)
None
31.
Q. Which of the following statements is true regarding mortgage-backed securities?
a)
A. Insurance companies prefer the first-loss tranche.
b)
B. When interest rates rise, prepayments will likely accelerate.
c)
C. When interest rates fall, the low-risk senior tranche will amortize more quickly.
d)
None
e)
None
32.
Q. A company has issued a floating-rate note with a coupon rate equal to the three-month MRR + 65 bps. Interest payments are made quarterly on 31 March, 30 June, 30 September, and 31 December. On 31 March and 30 June, the three-month MRR is 1.55% and 1.35%, respectively. The coupon rate for the interest payment made on 30 June is:
a)
A. 2.00%.
b)
B. 2.10%.
c)
C. 2.20%.
d)
None
e)
None
33.
Q. Which of the following statements most likely contributes to the view that derivatives have some role in causing financial crashes?
a)
A. Derivatives are the primary means by which leverage and related excessive risk is brought into financial markets.
b)
B. Growth in the number of investors willing to speculate in derivatives markets leads to excessive speculative trading.
c)
C. Restrictions on derivatives, such as enhanced collateral requirements and credit mitigation measures, in the years leading up to crashes introduce market rigidity.
d)
None
e)
None
34.
Q. An investor purchases a bond at a price above par value. Two years later, the investor sells the bond. The resulting capital gain or loss is measured by comparing the price at which the bond is sold to the:
a)
A. carrying value.
b)
B. original purchase price.
c)
C. original purchase price value plus the amortized amount of the premium.
d)
None
e)
None
35.
Q. Consider a mutual fund that invests primarily in fixed-income securities that have been determined to be appropriate given the fund’s investment goal. Which of the following is least likely to be a part of this fund?
a)
A. Warrants.
b)
B. Commercial paper.
c)
C. Repurchase agreements.
d)
None
e)
None
36.
Q. Commodity index values are based on:
a)
A. futures contract prices.
b)
B. the market price of the specific commodity.
c)
C. the average market price of a basket of similar commodities.
d)
None
e)
None
37.
Valuation of a swap during its life will least likely involve the:
a)
A. application of the principle of no arbitrage.
b)
B. use of replication.
c)
C. investor’s risk aversion.
d)
None
e)
None
38.
The return on a commodity index is likely to be different from returns on the underlying commodities because:
a)
A. data are subject to survivorship bias.
b)
B. indices are constructed using futures contracts.
c)
C. assets are not marked to market.
d)
None
e)
None
39.
A trader buys 500 shares of a stock on margin at $36 a share using an initial leverage ratio of 1.66. The maintenance margin requirement for the position is 30%. The stock price at which the margin call will occur is closest to:
a)
A. $25.20.
b)
B. $30.86.
c)
C. $20.57.
d)
None
e)
None
40.
Which of the following statements concerning different valuation approaches is most accurate?
a)
A. One advantage of the three-stage dividend discount model (DDM) model is that it is equally appropriate to young companies entering the growth phase and those entering the maturity phase.
b)
B. It is advantageous to use asset-based valuation approaches rather than forward-looking cash flow models in the case of companies that have significant intangibles.
c)
C. The justified forward price-to-earnings ratio (P/E) approach offers the advantage of incorporating fundamentals and presenting intrinsic value estimations.
d)
None
e)
None
41.
Q. A bond with exactly nine years remaining until maturity offers a 3% coupon rate with annual coupons. The bond, with a yield-to-maturity of 5%, is priced at 85.784357 per 100 of par value. The estimated price value of a basis point for the bond is closest to:
a)
A. 0.0086.
b)
B. 0.0648.
c)
C. 0.1295.
d)
None
e)
None
42.
Q. At the initiation of a forward contract on an asset that neither receives benefits nor incurs carrying costs during the term of the contract, the forward price is equal to the:
a)
A. spot price.
b)
B. future value of the spot price.
c)
C. present value of the spot price.
d)
None
e)
None
43.
None
a)
A. $96.92.
b)
B. $54.78.
c)
C. $52.17.
d)
None
e)
None
44.
Q. Based on put–call parity, which of the following combinations results in a synthetic long asset position?
a)
A. A long call, a short put, and a long bond
b)
B. A short call, a long put, and a short bond
c)
C. A long call, a short asset, and a long bond
d)
None
e)
None
45.
Stellar Corp. recently issued $100 par value deferred coupon bonds, which will make no coupon payments in the next four years. Regular annual coupon payments at a rate of 8% will then be made until the bonds mature at the end of 10 years. If the bonds are currently priced at $87.00, their yield to maturity is closest to:
a)
A. 6.0%.
b)
B. 8.0%.
c)
C. 10.1%.
d)
None
e)
None
46.
Q. Which of the following relates to a benefit when owning real estate directly?
a)
A. Taxes
b)
B. Capital requirements
c)
C. Portfolio concentration
d)
None
e)
None
47.
None
a)
A. step-up coupon bond.
b)
B. deferred coupon bond.
c)
C. floating rate bond.
d)
None
e)
None
48.
Q. Assuming no change in the credit risk of a bond, the presence of an embedded put option:
a)
A. reduces the effective duration of the bond.
b)
B. increases the effective duration of the bond.
c)
C. does not change the effective duration of the bond.
d)
None
e)
None
49.
Q. Researchers have found that value stocks have consistently outperformed growth stocks. An investor wishing to exploit the value effect should purchase the stock of companies with above-average:
a)
A. dividend yields.
b)
B. market-to-book ratios.
c)
C. price-to-earnings ratios.
d)
None
e)
None
50.
None
a)
A. 101.58.
b)
B. 105.01.
c)
C. 105.82.
d)
None
e)
None
51.
None
a)
A. 102.18.
b)
B. 103.10.
c)
C. 104.02.
d)
None
e)
None
52.
Illiquidity is most likely a major concern when investing in:
a)
A. real estate investment trusts.
b)
B. private equity.
c)
C. commodities.
d)
None
e)
None
53.
Q. Jason Schmidt works for a hedge fund and he specializes in finding profit opportunities that are the result of inefficiencies in the market for convertible bonds—bonds that can be converted into a predetermined amount of a company’s common stock. Schmidt tries to find convertibles that are priced inefficiently relative to the underlying stock. The trading strategy involves the simultaneous purchase of the convertible bond and the short sale of the underlying common stock. The above process could best be described as:
a)
A. hedging.
b)
B. arbitrage.
c)
C. securitization.
d)
None
e)
None
54.
Q. Which statement about covered bonds is least accurate?
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.
d)
None
e)
None
55.
None
a)
A. take the market.
b)
B. make the market.
c)
C. make a new market.
d)
None
e)
None
56.
None
a)
A. $46 .
b)
B. $59 .
c)
C. $54 .
d)
None
e)
None
57.
Which of these is best classified as a forward commitment?
a)
A. A convertible bond
b)
B. A call option
c)
C. A swap agreement
d)
None
e)
None
58.
Q. Which of the following statements is true for REITs?
a)
A. According to GAAP, equity REITs are exempt from reporting earnings per share.
b)
B. Though equity REIT correlations with other asset classes are typically moderate, they are highest during steep market downturns.
c)
C. The REIT corporation pays taxes on income, and the REIT shareholder pays taxes on the REIT’s dividend distribution of after-tax earnings.
d)
None
e)
None
59.
Q. Alternative investment funds are typically managed:
a)
A. actively.
b)
B. to generate positive beta return.
c)
C. assuming that markets are efficient.
d)
None
e)
None
60.
None
a)
A. Order I (time of arrival of 9:52:01).
b)
B. Order II (time of arrival of 9:52:08).
c)
C. Order III (time of arrival of 9:53:04).
d)
None
e)
None
61.
Q. Which of the following factors would best justify a decision to avoid investing in a country’s sovereign debt?
a)
A. Freely floating currency
b)
B. A population that is not growing
c)
C. Suitable checks and balances in policymaking
d)
None
e)
None
62.
Q. If markets are efficient, the difference between the intrinsic value and market value of a company’s security is:
a)
A. negative.
b)
B. zero.
c)
C. positive.
d)
None
e)
None
63.
None
a)
A. 8% .
b)
B. 15% .
c)
C. 10% .
d)
None
e)
None
64.
None
a)
A. 1.67.
b)
B. 1.97.
c)
C. 2.27.
d)
None
e)
None
65.
Q. Which of these statements is most accurate with respect to the use of debt by a start-up fashion retailer with negative cash flow and uncertain revenue prospects?
a)
A. Debt financing will be unavailable or very costly.
b)
B. The company will prefer to use equity rather than debt given its uncertain cash flow outlook.
c)
C. Both A and B.
d)
None
e)
None
66.
None
a)
A. 1.029.
b)
B. 1.104.
c)
C. 1.877.
d)
None
e)
None
67.
Q. Which of the following performance measures is consistent with the CAPM?
a)
A. M-squared.
b)
B. Sharpe ratio.
c)
C. Jensen’s alpha.
d)
None
e)
None
68.
A good risk management framework:
a)
A. is a top-down process and guidance directing risk management activities.
b)
B. seeks to prioritize avoidance of financial loss over defining policies and processes.
c)
C. is typically a process that addresses a common set of factors within different organizations.
d)
None
e)
None
69.
John Smith is given two investment options. Option A is a payment with a 50% chance of getting $100 and a 50% chance of getting $0. Option B is a guaranteed payment of $50. If Smith chooses Option A over Option B, his risk preference is best described as risk:
a)
A. seeking.
b)
B. averse.
c)
C. neutral.
d)
None
e)
None
70.
None
a)
A. the percentage change in net income divided by the percentage change in units sold.
b)
B. the percentage change in operating income divided by the percentage change in units sold.
c)
C. the percentage change in net income divided by the percentage change in operating income.
d)
None
e)
None
71.
None
a)
A. undervalued.
b)
B. fairly valued.
c)
C. overvalued.
d)
None
e)
None
72.
Q. 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.
d)
None
e)
None
73.
Q. Status quo bias is least similar to which of the following behavioral biases?
a)
A. Endowment
b)
B. Regret aversion
c)
C. Confirmation
d)
None
e)
None
74.
Q. With respect to the mean–variance portfolio theory, the capital allocation line, CAL, is the combination of the risk-free asset and a portfolio of all:
a)
A. risky assets.
b)
B. equity securities.
c)
C. feasible investments.
d)
None
e)
None
75.
None
a)
A. Investment 2.
b)
B. Investment 3.
c)
C. Investment 4.
d)
None
e)
None
76.
None
a)
A. 0.75 million and 1.1 million units, respectively.
b)
B. 1 million and 1.5 million units, respectively.
c)
C. 1.5 million and 0.75 million units, respectively.
d)
None
e)
None
77.
Q. An investment policy statement that includes a return objective of outperforming the FTSE 100 by 120 basis points is best characterized as having a(n):
a)
A. relative return objective.
b)
B. absolute return objective.
c)
C. arbitrage-based return objective.
d)
None
e)
None
78.
Q. Which of the following financial products is least likely to have a capital gain distribution?
a)
A. Exchange traded funds.
b)
B. Open-end mutual funds.
c)
C. Closed-end mutual funds.
d)
None
e)
None
79.
The change in polarity principle most likely helps analysts determine a new:
a)
A. support level after a retracement to a lower high than a previous retracement.
b)
B. resistance level after an upward breakthrough of the trendline.
c)
C. support level after a resistance level is breached.
d)
None
e)
None
80.
None
a)
A. is shorter, but its cash conversion cycle is longer.
b)
B. and cash conversion cycle are both longer.
c)
C. is longer, but its cash conversion cycle is shorter.
d)
None
e)
None
81.
Based on best practices in corporate governance procedures, it is most appropriate for a company’s compensation committee to:
a)
A. link compensation with long-term objectives.
b)
B. include a retired executive from the firm.
c)
C. include a representative from the firm’s external auditor.
d)
None
e)
None
82.
A security has a beta of 1.30. If the risk-free rate of interest is 3% and the expected return of the market is 8%, based on the capital asset pricing model (CAPM), the expected return of the security is closest to:
a)
A. 6.5%.
b)
B. 13.4%.
c)
C. 9.5%.
d)
None
e)
None
83.
Which of the following conditions is most likely to facilitate shareholder activism?
a)
A. Cross-shareholdings
b)
B. Cumulative voting
c)
C. Staggered boards
d)
None
e)
None
84.
None
a)
A. 2.15%.
b)
B. 7.50%.
c)
C. 3.96%.
d)
None
e)
None
85.
None
a)
A. 1.70, 2.52, and 2.73.
b)
B. 1.70, 2.79, and 3.37.
c)
C. 1.70, 2.81, and 3.44.
d)
None
e)
None
86.
Q. Which of the following statements is correct?
a)
A. The appropriate tax rate to use in the adjustment of the before-tax cost of debt to determine the after-tax cost of debt is the average tax rate because interest is deductible against the company's entire taxable income.
b)
B. For a given company, the after-tax cost of debt is generally less than both the cost of preferred equity and the cost of common equity.
c)
C. For a given company, the after-tax cost of debt is generally higher than both the cost of preferred equity and the cost of common equity.
d)
None
e)
None
87.
None
a)
A. 7.65%.
b)
B. 9.23%.
c)
C. 10.17%.
d)
None
e)
None
88.
None
a)
A. 4.5%.
b)
B. 6.9%.
c)
C. 7.3%.
d)
None
e)
None
89.
None
a)
A. 20.5%.
b)
B. 21.0%.
c)
C. 21.5%.
d)
None
e)
None
90.
The stock of GBK Corporation has a beta of 0.65. If the risk-free rate of return is 3% and the expected market return is 9%, the expected return for GBK is closest to:
a)
A. 10.8%.
b)
B. 3.9%.
c)
C. 6.9%.
d)
None
e)
None
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