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WorksheetsMock Test 1 ss2 TE10
Total questions: 90
Worksheet time: 3hrs 0mins
Name
Class
Date
1.
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)
A. Passive portfolio management.
b)
B. Active portfolio management based on technical analysis.
c)
C. Active portfolio management based on fundamental analysis.
2.
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)
A. None (the order would remain open but unfilled).
b)
B. 200 (300 shares would get filled).
c)
C. 500 (there would be no fill).
3.
Q. If the risk-free rate increases, the value of an in-the-money European put option will most likely:
a)
A. decrease.
b)
B. remain the same.
c)
C. increase.
4.
Q. A liquid secondary bond market allows an investor to sell a bond at:
a)
A. the desired price.
b)
B. a price at least equal to the purchase price.
c)
C. a price close to the bond’s fair market value.
5.
Q. 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.
6.
None
a)
A. 0.924%.
b)
B. 1.348%.
c)
C. 1.178%.
7.
None
a)
A. 101.93.
b)
B. 102.85.
c)
C. 105.81.
8.
Which of the following situations will most likely indicate a reduction of market efficiency?
a)
A. An increase in rules and regulations that promote financial disclosure
b)
B. An increase in arbitrage opportunities
c)
C. An increase in the number of market participants
9.
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?
a)
A. The order becomes a market order when the price falls below $85 and remains valid for execution.
b)
B. The trader faces a maximum realized loss of $15.
c)
C. The order will be executed at either $90 or $85.
10.
Q. William Marolf obtains a EUR5 million mortgage loan from Bank Nederlandse. A year later, the principal on the loan is EUR4 million and Marolf defaults on the loan. Bank Nederlandse forecloses, sells the property for EUR2.5 million, and is entitled to collect the EUR1.5 million shortfall from Marolf. Marolf most likely had a:
a)
A. bullet loan.
b)
B. recourse loan.
c)
C. non-recourse loan.
11.
Which of the following hedge fund strategies emphasizes a top-down approach?
a)
A. Macro
b)
B. Equity hedge
c)
C. Event-driven
12.
Q. At expiration, a European put option will be valuable if the exercise price is:
a)
A. less than the underlying price.
b)
B. equal to the underlying price.
c)
C. greater than the underlying price.
13.
Q. A commercial mortgage-backed security does not meet the debt-to-service coverage at the loan level necessary to achieve a desired credit rating. Which of the following features would most likely improve the credit rating of the CMBS?
a)
A. Subordination
b)
B. Call protection
c)
C. Balloon payments
14.
Which of the following statements relating to parallel and non-parallel shifts in the yield curve is correct?
a)
A. A parallel shift requires the yield curve to be a straight line.
b)
B. Calculations of effective duration can accommodate non-parallel shifts in the yield curve.
c)
C. Factors affecting supply and demand of short-term versus longer-term securities can change the shape of the yield curve.
15.
Q. Which approach is most commonly used by equity hedge strategies?
a)
A. Top down
b)
B. Bottom up
c)
C. Market timing
16.
Which of the following is most likely an example of a Eurobond?
a)
A. A Canadian borrower issuing British pound–denominated bonds in the UK market.
b)
B. A Japanese borrower issuing US dollar–denominated bonds in the US market.
c)
C. An Australian borrower issuing Canadian dollar–denominated bonds in the UK market.
17.
Q. Which is not true of mark-to-model valuations?
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.
18.
Q. A plain vanilla interest rate swap is also known as:
a)
A. a basis swap.
b)
B. a fixed-for-floating swap.
c)
C. an overnight indexed swap.
19.
Q. Technical analysts assume that markets are:
a)
A. weak-form efficient.
b)
B. weak-form inefficient.
c)
C. semi-strong-form efficient.
20.
Q. A goal of securitization is to:
a)
A. separate the seller’s collateral from its credit ratings.
b)
B. uphold the absolute priority rule in bankruptcy reorganizations.
c)
C. account for collateral’s primary influence on corporate bond credit spreads.
21.
None
a)
A. 0.46.
b)
B. 0.73.
c)
C. 0.92.
22.
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?
a)
A. Semi-strong-form only
b)
B. Semi-strong-form and strong-form
c)
C. Weak-form and semi-strong-form
23.
None
a)
A. 10.7%.
b)
B. 6.7%.
c)
C. 9.5%.
24.
An asset-based valuation model is most applicable for a company with significant:
a)
A. intangible assets.
b)
B. property, plant, and equipment.
c)
C. proportions of current assets and current liabilities and few intangible assets.
25.
Q. An investor may prefer a single hedge fund to a fund of funds if she seeks: (2022 Q8)
a)
A. due diligence expertise.
b)
B. better redemption terms.
c)
C. a less complex fee structure.
26.
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.
27.
Q. Exchange-traded derivatives are:
a)
A. largely unregulated.
b)
B. traded through an informal network.
c)
C. guaranteed by a clearinghouse against default.
28.
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)
A. Put option buy market order with a strike price of $25
b)
B. GTC, stop $25, limit $25 sell order
c)
C. GTC, stop $25, market sell order
29.
Q. As the loan-to-value ratio increases for a real estate investment, risk most likely increases for: (2020 Q19)
a)
A. debt investors only.
b)
B. equity investors only.
c)
C. both debt and equity investors.
30.
Q. The type of bond issued by a multilateral agency such as the International Monetary Fund (IMF) is best described as a:
a)
A. sovereign bond.
b)
B. supranational bond.
c)
C. quasi-government bond.
31.
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?
a)
A. The options are close to expiration.
b)
B. The options are deep in the money.
c)
C. The underlying will go ex-dividend.
32.
An eight-year, 3.5% annual coupon bond is priced at 92.1492, with a yield to maturity of 4.7% and a Macaulay duration of 7.0705. If rates decrease by 75 bps, the percentage price change of the bond is closest to:
a)
A. –5.30%.
b)
B. 5.07%.
c)
C. 5.30%.
33.
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?
a)
A. FCFE models provide more accurate valuations than the dividend discount model.
b)
B. A firm’s borrowing activities could influence dividend decisions, but they would not affect FCFE.
c)
C. FCFE is a measure of the firm’s dividend paying capacity.
34.
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:
a)
A. capital market instruments.
b)
B. money market instruments.
c)
C. intermediate-term debt instruments.
35.
None
a)
A. First Bank.
b)
B. Prime Bank.
c)
C. Pioneer Trust.
36.
Q. Which of the following statements best represents information discovery in the futures market?
a)
A. The futures price is predictive.
b)
B. Information flows more slowly into the futures market than into the spot market.
c)
C. The futures market reveals the price that the holder of the asset can take to avoid uncertainty.
37.
Q. In the event of default, which of the following is most likely to have the highest recovery rate?
a)
A. Second lien
b)
B. Senior unsecured
c)
C. Senior subordinated
38.
An industry experiencing slow growth, high prices, and volumes insufficient to achieve economies of scale is most likely in the:
a)
A. shakeout stage.
b)
B. embryonic stage.
c)
C. mature stage.
39.
Q. If a default occurs in a non-recourse commercial mortgage-backed security, the lender will most likely:
a)
A. recover prepayment penalty points paid by the borrower to offset losses.
b)
B. use only the proceeds received from the sale of the property to recover losses.
c)
C. initiate a claim against the borrower for any shortfall resulting from the sale of the property.
40.
Which of the following duration measures is the most appropriate measure of interest rate risk for a complex bond?
a)
A. Effective duration
b)
B. Modified duration
c)
C. Macaulay duration
41.
Q. The repo margin is:
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.
42.
Q. An investor chooses to invest in a brownfield, rather than a greenfield, infrastructure project. The investor is most likely motivated by:
a)
A. growth opportunities.
b)
B. predictable cash flows.
c)
C. higher expected returns.
43.
Q. Which of the following market anomalies is inconsistent with weak-form market efficiency?
a)
A. Earnings surprise.
b)
B. Momentum pattern.
c)
C. Closed-end fund discount.
44.
Q. Like traditional finance models, the behavioral theory of loss aversion assumes that investors dislike risk; however, the dislike of risk in behavioral theory is assumed to be:
a)
A. leptokurtic.
b)
B. symmetrical.
c)
C. asymmetrical.
45.
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)
A. assumes a parallel shift to the yield curve.
b)
B. is less accurate when the yield curve is less steeply sloped.
c)
C. is not applicable to portfolios that have bonds with embedded options.
46.
Which of the following multiples is most useful when comparing companies with significant differences in capital structure?
a)
A. EV/EBITDA
b)
B. Price-to-book ratio
c)
C. Price-to-cash flow ratio
47.
Q. An investor seeks a current income stream as a component of total return and desires an investment that historically has low correlation with other asset classes. The investment most likely to achieve the investor’s goals is: (2020 Q10)
a)
A. timberland.
b)
B. collectibles.
c)
C. commodities.
48.
Q. The risk that the price at which investors can actually transact differs from the quoted price in the market is called:
a)
A. spread risk.
b)
B. credit migration risk.
c)
C. market liquidity risk.
49.
Q. A futures contract is best described as a contract that is:
a)
A. standardized.
b)
B. subject to credit risk.
c)
C. marked to market throughout the trading day.
50.
Q. In contrast to contingent claims, forward commitments provide the:
a)
A. right to buy or sell the underlying asset in the future.
b)
B. obligation to buy or sell the underlying asset in the future.
c)
C. promise to provide credit protection in the event of default.
51.
A real estate investor looking for equity exposure in the public market is most likely to invest in:
a)
A. real estate limited partnerships.
b)
B. shares of real estate investment trusts.
c)
C. collateralized mortgage obligations.
52.
A trader is able to obtain persistent abnormal returns by adopting an investment strategy that purchases stocks that have recently experienced high returns. This strategy exploits a market-pricing anomaly best described as:
a)
A. data mining.
b)
B. momentum.
c)
C. the overreaction effect.
53.
Q. The distinction between investment-grade debt and non-investment-grade debt is best described by differences in:
a)
A. tax status.
b)
B. credit quality.
c)
C. maturity dates.
54.
A trader buys a stock at $64 on margin with a leverage ratio of 2.5 and a maintenance margin of 30%. Below what price will a margin call most likely occur?
a)
A. $36.57.
b)
B. $54.86.
c)
C. $44.80.
55.
Which of the following events will most likely increase the short-term bond yield volatility?
a)
A. Slow economic growth expectation
b)
B. Central bank engaging in expansionary monetary policy
c)
C. High inflation expectation
56.
Q. When interest rates are constant, futures prices are most likely:
a)
A. less than forward prices.
b)
B. equal to forward prices.
c)
C. greater than forward prices.
57.
Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?
a)
A. Differences in the pattern of cash flows of forwards and futures can explain pricing differences.
b)
B. Pricing differences can arise if futures prices and interest rates are uncorrelated.
c)
C. Interest rate volatility can explain pricing differences.
58.
Q. The derivative markets tend to:
a)
A. transfer liquidity from the broader financial markets.
b)
B. not reflect fundamental value after it is restored in the underlying market.
c)
C. offer a less costly way to exploit mispricing in comparison to other free and competitive financial markets.
59.
Q. Caroline Rogers believes the price of Gamma Corp. stock will go down in the near future. She has decided to sell short 200 shares of Gamma Corp. at the current market price of €47. The initial margin requirement is 40 percent. Which of the following is an appropriate statement regarding the margin requirement that Rogers is subject to on this short sale?
a)
A. She will need to contribute €3,760 as margin.
b)
B. She will need to contribute €5,640 as margin.
c)
C. She will only need to leave the proceeds from the short sale as deposit and does not need to contribute any additional funds.
60.
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.
61.
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
62.
David Smith purchased a mortgage-backed security with a coupon rate of 8% and a par value of $1,000 for $960. Coupon payments are made monthly. The monthly interest payment is closest to:
a)
A. $6.67.
b)
B. $6.40.
c)
C. $6.94.
63.
None
a)
A. 1.70.
b)
B. 2.35.
c)
C. 0.43.
64.
None
a)
A. 2, 3, and 4.
b)
B. 1, 3, and 4.
c)
C. 1 and 2.
65.
Q. Which of the following chart patterns signals the end of an uptrend in price?
a)
A. Bearish rectangle
b)
B. Head and shoulders
c)
C. Symmetrical triangle
66.
Q. With respect to risk-averse investors, a risk-free asset will generate a numerical utility that is:
a)
A. the same for all individuals.
b)
B. positive for risk-averse investors.
c)
C. equal to zero for risk seeking investors.
67.
Q. A company has arranged a $20 million line of credit with a bank, allowing the company the flexibility to borrow and repay any amount of funds as long as the balance does not exceed the line of credit. These arrangements are called:
a)
A. convertibles.
b)
B. factoring.
c)
C. revolvers.
68.
Q. The portfolio on the minimum-variance frontier with the lowest standard deviation is:
a)
A. unattainable.
b)
B. the optimal risky portfolio.
c)
C. the global minimum-variance portfolio.
69.
None
a)
A. –C$6.34 million
b)
B. C$7.43 million
c)
C. C$31.03 million
70.
An analyst observes that the historic geometric nominal return for equities is 9%. Given a real return of 1% for riskless Treasury bills and annual inflation of 2%, the real rate of return and risk premium for equities are closest to:
a)
A. 7.9% and 5.8%.
b)
B. 6.9% and 7.9%.
c)
C. 6.9% and 5.8%.
71.
Q. The factors a risk management framework should address include all of the following except:
a)
A. communications.
b)
B. policies and processes.
c)
C. names of responsible individuals.
72.
Q. The capital market line (CML) is the graph of the risk and return of portfolio combinations consisting of the risk-free asset and:
a)
A. any risky portfolio.
b)
B. the market portfolio.
c)
C. the leveraged portfolio.
73.
None
a)
A. 437,500 units.
b)
B. 625,000 units.
c)
C. 875,000 units.
74.
None
a)
A. Asset 1 and Asset 2.
b)
B. Asset 1 and Asset 3.
c)
C. Asset 2 and Asset 3.
75.
Which of the following performance measures most likely relies on systematic risk as opposed to total risk when calculating a risk-adjusted return?
a)
A. Sharpe ratio
b)
B. M-squared
c)
C. Treynor ratio
76.
Q. Which of the following is least likely to affect the capital structure of Longdrive Trucking Company? Longdrive has moderate leverage today.
a)
A. The acquisition of a major competitor for shares
b)
B. A substantial increase in share price
c)
C. The payment of a stock dividend
77.
A company that wants to determine its cost of equity gathers the following information: Rate of return on 3-month Treasury bills 3.0%. Rate of return on 10-year Treasury bonds 3.5%. Market risk premium 6.0%. The company’s equity beta 1.6. Dividend growth rate 8.0%. Corporate tax rate 35%. Using the capital asset pricing model (CAPM) approach, the cost of equity (%) for the company is closest to:
a)
A. 12.6%.
b)
B. 7.5%.
c)
C. 13.1%.
78.
None
a)
A. High ability to take risk but a low willingness to take risk
b)
B. High ability to take risk and a high willingness to take risk
c)
C. Low ability to take risk but a high willingness to take risk
79.
Q. Returns on asset classes are best described as being a function of:
a)
A. the failure of arbitrage.
b)
B. exposure to the idiosyncratic risks of those asset classes.
c)
C. exposure to sets of systematic factors relevant to those asset classes.
80.
Q. Which of the following best describes the underlying rationale for a written investment policy statement (IPS)?
a)
A. A written IPS communicates a plan for trying to achieve investment success.
b)
B. A written IPS provides investment managers with a ready defense against client lawsuits.
c)
C. A written IPS allows investment managers to instruct clients about the proper use and purpose of investments.
81.
Q. 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
82.
An investment policy statement’s risk objective states that over a 12-month period, with a probability of 95%, the client’s portfolio must not lose more than 5% of its value. This statement is most likely a(n):
a)
A. total risk objective.
b)
B. relative risk objective.
c)
C. absolute risk objective.
83.
Which is most likely considered a secondary source of liquidity?
a)
A. Centralized cash management system
b)
B. Trade credit
c)
C. Liquidating long-term assets
84.
None
a)
A. 1.33.
b)
B. 2.67.
c)
C. 3.00.
85.
Which of the following conditions is most likely to facilitate shareholder activism?
a)
A. Cross-shareholdings
b)
B. Cumulative voting
c)
C. Staggered boards
86.
None
a)
A. wd = 0.200; we = 0.800.
b)
B. wd = 0.185; we = 0.815.
c)
C. wd = 0.223; we = 0.777.
87.
None
a)
A. 1.029.
b)
B. 1.104.
c)
C. 1.877.
88.
None
a)
A. 9.1%.
b)
B. 10.0%.
c)
C. 8.8%.
89.
An investment in 10,000 common shares of a company for one year earned a 15.5% return. The investor received a $2,500 dividend just prior to the sale of the shares at $24 per share. The price that the investor paid for each share one year earlier was closest to:
a)
A. $20.80.
b)
B. $20.50.
c)
C. $21.00.
90.
None
a)
A. 4.0.
b)
B. 2.5.
c)
C. 1.0.
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