1-Advantages of investing in money market funds include:
A:Liquidity
B:Personalized check writing services
C:Federally insured
D:All of the above are advantages to money market funds investing
E:A and B only are advantages; C is not an advantage
2- The “floor” for a convertible bond is
A:The par value of the convertible bond
B:The intrinsic value of the bond itself
C:The value of a straight bond
D:All of the above are true
E:B and C are true, but A is false
3-Disadvantages of investing in preferred stock include:
A: Dividends are fixed even if the financial condition
of the firm improves
B: No change in the share price if market interest rates change
C: Uncertain cash flows from dividends
D:Last to be paid in case of bankruptcy
E: Usually a lower dividend yield than common equity
4-A right gives the holder the option to purchase a specified number of a company’s share at the
A:Exercise price
B:Par value
C:Strike price
D:All of the above are correct
E:A and C are correct, but B is incorrect
5-Types of municipal bonds include all of the following
EXCEPT:
A:General obligation bonds
B:Treasury notes
C:Private purpose bonds
D:Revenue bonds
E:All of the above are types of municipal bonds
6-Users of strips as an investment alternative include all of the
following EXCEPT:
A:Investors who need a specified accumulation at the maturity date
B:Conservative investors
C:Children under the age of 14
D:Investors desiring steady cash inflows
E:All of the above are potential strip investors
7-Investors in corporate zero-coupon bonds include all of the following EXCEPT:
A:Tax-exempt retirement plans
B:Conservative investors who want to lock-in their returns
C:Investors who are saving for their children’s college education
D:Investors who do not need current cash flows
E:All of the above are potential zero-coupon investors
8- Information included in a promissory note includes all of the
following EXCEPT:
A:Identification of the parties
B:Coupon rate
C:Method used to calculate the interest
D:Current yield
E:Maturity date
9-U.S. Government securities include all of the following EXCEPT:
A:Treasury bills
B:Treasury notes
C:Federal Land Bank bonds
D:National Bank, Inc. bonds
E:Treasury bonds
10-A debenture
A:Is unsecured debt
B:Has priority over preferred stock if bankruptcy occurs
C:Is backed by the general credit of the issuing firm
D:All of the above are true
E:A and B are true, but C is false
11-Benefits of Guaranteed Investment Contracts (GICs) include all
of the following EXCEPT:
A:Higher rate of
return than CD accounts
B:Transferring the management of assets for a retirement
account to the insurance company
C:Federal insurance
D:Transferring the investing of assets for a retirement
account to the insurance company
E:All of the above are benefits of GICs
12-Advantages of investing in common stock include:
A:Assured regular cash flows through dividends
B:Guaranteed higher returns than money market funds
C:Low volatility of returns
D:Participation in the growth of the firm
E: Security of principal
13) The extraordinary run up in stock prices during the late 1990s primarily affected
A) energy stocks.
B) retail stocks.
C) pharmaceutical stocks.
D) technology stocks.
14) Inflation tends to have a particularly negative impact on the price of
A) real estate.
B) bonds.
C) gold.
D) crude oil.
15) Which of the following internal characteristics should cause investors to expect the highest rate of return?
A) a steady record of past dividends
B) interest and principal guaranteed by the U.S. government
C) a record of excellent management and consistent dividend payments
D) poor management and excessive use of debt financing
16) Assume the Plum Corporation has two different issues of common stock. One issue carries voting rights, and the other issue does not. In this situation, Plum is said to have issued
A) buy-back stock.
B) treasury stock.
C) OTC stock.
D) classified stock.
17) When calculating the present value of either a future single sum or a future annuity, the applicable interest rate is usually called the
A) yield to maturity.
B) compound interest rate.
C) internal rate of return.
D) discount rate.
18) Melissa owns the following portfolio of stocks. What is the return on her portfolio?
A) 8.0%
B) 9.0%
C) 9.8%
D) 10.9%
19) The statement “A portfolio is less than the sum of its parts.” means:
A) it is less expensive to buy a group of assets than to buy those assets individually.
B) portfolio returns will always be lower than the returns on individual stocks.
C) a diversified group of assets will be less volatile than the individual assets within the group.
D) for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components.
20) In the real world, most of the assets available to investors
A) tend to be somewhat positively correlated.
B) tend to be somewhat negatively correlated.
C) tend to be uncorrelated.
D) tend to be either perfectly positively or perfectly negatively correlated.
21) Which one of the following conditions can be effectively eliminated through portfolio diversification?
A) a general price increase nationwide
B) an interest rate reduction by the Federal Reserve
C) increased government regulation of auto emissions
D) change in the political party that controls Congress
22) Beta can be defined as the slope of the line that explains the relationship between
A) the return on a security and the return on the market.
B) the returns on a security and various points in time.
C) the return on stocks and the returns on bonds.
D) the risk free rate of return versus the market rate of return.
A-TRUE/FALSE- PLEASE ANSWER ANY 5 OF THE FOLLOWING- IT IS BASED ON YOUR GENERAL INFORMATION ABOUT INVESTMENTS (5 points-1 point each)
1) Investors can be confidently predict future returns on an investment by studying its past performance.
2) Meaningful measures of an investment’s return must consider both income and capital gains.
3) An investment that has earned a high rate of return over the last 5 years will not necessarily continue to perform well in the future.
4) An investor who requires a 7% rate of return should be willing to pay $934.58 now to receive $1,000 at the end of one year.
5) An efficient portfolio maximizes the rate of return without consideration of risk.
6) Every shareholder is a part owner of the firm and, as such, has a direct claim on a portion of the firm’s assets.
7) There is a stronger tendency for the stock market to increase in value rather than decrease in value over time.
8) For most stocks the returns from dividend income far exceed the return from capital gains.
9) A market correction is defined as a stock market decline of 10% or more.
10) Over the long term, the capital gain on most stocks will exceed the dividend income.
C-QUESTIONS/ANSWERS- PLEASE ANSWER ANY 2 OF THE FOLLOWING (9 points-3 points each)
In each of the following circumstances regarding the use of promissory notes, answer “Yes” or “No” and briefly explain the reasoning behind your answer:
A. Can a promissory note actually be sold?
B. Can a “note” agreement specify a minimum period for which the balance will be outstanding?
C. Are loan forms for promissory notes readily available or very sparse?
D- PORTFOLIO SITUATION AND RELATED QUESTIONS/ANSWERS- (20 points)
THE SITUATION: You are a Research Analyst working for a top portfolio management firm, “UMUC Portfolio Management” (in no way affiliated with the University of Maryland University College). A high-net-worth client has approached your firm with the objective of finding an analyst qualified to manage their large portfolio. Your firm has selected several of its analysts to develop test portfolios in order identify the best person to manage the portfolio of this rich client. You have been selected by your firm to develop a 2-week trial portfolio to present to the client. Because of the importance of this client (and their potentially large investment) your fee for demonstrating superior portfolio selection and management skill will be substantial. The analyst with the best report will become the portfolio manager for this high-net-worth client’s portfolio (valued at over $100 THOUSAND). Your portfolio management report and presentation will be submitted directly to your firm’s high-net-worth client with the approval of your firm’s Board of Directors. The success of your recommendations will determine the success of your firm in landing this large investor. (It is expected that your portfolio recommendations will not be the same as those reached by other analysts). You should do a market wide financial evaluation to determine the current situation, best investment course, appropriate asset allocation for this important client.
After you determine your initial TEST portfolio, you MAY buy the portfolio using the HYPERLINK “http://www.cboe.com/tradtool/virtualtrade.aspx” CBOE Virtual Trade Tool ( HYPERLINK”http://www.cboe.com/tradtool/virtualtrade.aspx” http://www.cboe.com/tradtool/virtualtrade.aspx). The commission costs per trade (using CBOE Virtual Trade) are $9.95/trade for stocks and ETFs and $14.95/trade for options.
OR
The securities you select for your portfolio can be selected from any traded securities that are available on CBOE Virtual Trading. (Exception! you may not invest in mutual funds or the S&P 500 market index)
Your option purchase strategy should be 1-2 pages (200- 300 words), with at least three references. (10 points)
PLEASE ANSWER THE FOLLOWING QUESTIONS: 10 points each (5 points each)
1-What did you purchase and how does it relate to the investment policies and strategies statement you developed? Did you modify the investment policies and strategies?
2-If you changed your investment policies and procedures what exactly did you update? If you revised your investment strategies did you inform the client (hypothetical)?
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