New Jersey City University

FINC 473 Portfolio Investment Mid Ter

Prof. Elliot Delgado
Name _______________________ Student ID ______________ Date ____________
Each question is worth 2.5 points
1.
In 2012, ____________ was the most significant asset of U.S. households in terms of
total value.
A.
real estate
B.
mutual fund shares
C.
debt securities
D.
life insurance reserves
E.
pension reserves
2.
A.
B.
C.
D.
E.

An example of a derivative security is

a common share of Microsoft.
a call option on Intel stock.
a commodity futures contract.
a call option on Intel stock and a commodity futures contract.
a common share of Microsoft and a call option on Intel stock.

3.
The Sarbanes-Oxley Act
A.
requires corporations to have more independent directors.
B.
requires the firm's CFO to personally vouch for the firm's accounting statements.
C.
prohibits auditing firms from providing other services to clients.
D.
requires corporations to have more independent directors and requires the firm's CFO
to personally vouch for the firm's accounting statements.
E.
All of the options
4.
A.
B.
C.
D.

The spread between the LIBOR and the Treasury-bill rate is called the
term spread.
T-bill spread.
LIBOR spread.
TED spread.

5.
A.
B.
C.
D.
E.

Which of the following is not a component of the money market?

Repurchase agreements
Eurodollars
Real estate investment trusts
Money market mutual funds
Commercial paper

6.

Which of the following indices is(are) market-value weighted?

I) The New York Stock Exchange Composite Index

II) The Standard and Poor's 500 Stock Index
III) The Dow Jones Industrial Average
A.
I only
B.
I and II only
C.
I and III only
D.
I, II, and III
E.
II and III only

7.
If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street
Journal would be
A.
99:50.
B.
99:16.
C.
99:80.
D.
99:24.
E.
99:32.
8.
A.
B.
C.
D.
E.

Which of the following securities is a money market instrument?

Treasury note
Treasury bond
Municipal bond
Commercial paper
Mortgage security

9.
A.
B.
C.
D.
E.

With regard to a futures contract, the long position is held by

the trader who bought the contract at the largest discount.
the trader who has to travel the farthest distance to deliver the commodity.
the trader who plans to hold the contract open for the lengthiest time period.
the trader who commits to purchasing the commodity on the delivery date.
the trader who commits to delivering the commodity on the delivery date.

10.
A.
B.
C.
D.

The ____ index represents the performance of the German stock market.
DAX
FTSE
Nikkei
Hang Seng

11.
Certificates of deposit are insured for up to ____________ in the event of bank
insolvency.
A.
$10,000
B.
$100,000
C.
$250,000
D.
$500,000
12.
You sold a futures contract on corn at a futures price of 350 and at the time of
expiration the price was 352. What was your profit or loss?
A.
$2.00
B.
-$2.00
C.
$100
D.
-$100
13.
a
A.
B.
C.
D.
E.

You sold JCP stock short at $80 per share. Your losses could be minimized by placing
limit-sell order.
limit-buy order.
stop-buy order.
day-order.
None of the options

14.
You sold short 300 shares of common stock at $55 per share. The initial margin is
60%. At what stock price would you receive a margin call if the maintenance margin is 35%?
A.
$51.00
B.
$65.18
C.
$35.22
D.
$40.36
15.
Shelf registration
A.
is a way of placing issues in the primary market.
B.
allows firms to register securities for sale over a two-year period.
C.
increases transaction costs to the issuing firm.
D.
is a way of placing issues in the primary market and allows firms to register securities
for sale over a two-year period.
E.
is a way of placing issues in the primary market and increases transaction costs to the
issuing firm.
16.
A.
B.
C.
D.

All of the following are considered new trading strategies except

high frequency trading.
algorithmic trading.
dark pools.
short selling.

17.
You purchased 1000 shares of CSCO common stock on margin at $19 per share.
Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price
level would you get a margin call? Assume the stock pays no dividend; ignore interest on
margin.
A.
$12.86
B.
$15.75
C.
$19.67
D.
$13.57
18.
Assume you sold short 100 shares of common stock at $70 per share. The initial
margin is 50%. What would be the maintenance margin if a margin call is made at a stock
price of $85?
A.
40.5%
B.
20.5%
C.
35.5%
D.
23.5%
19.
A.
B.
C.
D.
E.

Investors in closed-end funds who wish to liquidate their positions must

sell their shares through a broker.
sell their shares to the issuer at a discount to net asset value.
sell their shares to the issuer at a premium to net asset value.
sell their shares to the issuer for net asset value.
hold their shares to maturity.

20.
A.
B.
C.
D.
E.

Management fees and other expenses of mutual funds may include

front-end loads.
back-end loads.
12b-1 charges.
front-end and back-end loads.
front-end loads, back-end loads, and 12b-1 charges.

21.
Which of the following is true regarding equity mutual funds?
I) They invest primarily in stock.
II) They may hold fixed-income securities as well as stock.
III) Most hold money market securities as well as stock.
IV) Two types of equity funds are income funds and growth funds.
A.
I and IV
B.
I, III, and IV
C.
I, II, and IV
D.
I, II, and III
E.
I, II, III, and IV
22.
A mutual fund had year-end assets of $750,000,000 and liabilities of $7,500,000. There
were 40,000,000 shares in the fund at year-end. What was the mutual fund's net asset value?
A.
$9.63
B.
$18.56
C.
$16.42
D.
$17.87
E.
$17.26
23.
A mutual fund had NAV per share of $37.12 on January 1, 2012. On December 31 of
the same year the fund's rate of return for the year was 11.0%. Income distributions were
$2.26 and the fund had capital gain distributions of $1.64. Without considering taxes and
transactions costs, what ending NAV would you calculate?
A.
$37.93
B.
$34.52
C.
$37.30
D.
$47.25
E.
$36.28
24.
Of the following types of ETFs, an investor who wishes to invest in a diversified
portfolio that tracks the MSCI France Index should choose
A.
SPY.
B.
EWJ.
C.
EWQ.
D.
IWM.
E.
VTI.
25.
Which of the following statement(s) is(are) true?
I) The real rate of interest is determined by the supply and demand for funds.
II) The real rate of interest is determined by the expected rate of inflation.
III) The real rate of interest can be affected by actions of the Fed.
IV) The real rate of interest is equal to the nominal interest rate plus the expected rate of
inflation.
A.
I and II only.
B.
I and III only.
C.
III and IV only.
D.
II and III only.
E.
I, II, III, and IV only.

26.
A.
B.
C.
D.
E.

If the nominal return is constant, the after-tax real rate of return

declines as the inflation rate increases.
increases as the inflation rate increases.
declines as the inflation rate declines.
increases as the inflation rate decreases.
declines as the inflation rate increases and increases as the inflation rate decreases.

27.
A.
B.
C.
D.
E.

"Bracket Creep" happens when

tax liabilities are based on real income and there is a negative inflation rate.
tax liabilities are based on real income and there is a positive inflation rate.
tax liabilities are based on nominal income and there is a negative inflation rate.
tax liabilities are based on nominal income and there is a positive inflation rate.
too many peculiar people make their way into the highest tax bracket.

28.
A year ago, you invested $2,500 in a savings account that pays an annual interest rate
of 5.7%. What is your approximate annual real rate of return if the rate of inflation was 1.6%
over the year?
A.
4.1%
B.
2.5%
C.
2.9%
D.
1.6%
29.
You have been given this probability distribution for the holding-period return for a
stock:
What is the expected standard deviation for the stock?
A.
2.07%
B.
9.96%
C.
7.04%
D.
1.44%
E.
None of the options
30.
You purchase a share of CAT stock for $90. One year later, after receiving a dividend of
$4, you sell the stock for $97. What was your holding-period return?
A.
14.44%
B.
12.22%
C.
13.33%
D.
5.56%
31.
A.
B.
C.
D.

When a distribution is positively skewed,

standard deviation overestimates risk.
standard deviation correctly estimates risk.
standard deviation underestimates risk.
the tails are fatter than in a normal distribution.

32.
Practitioners often use a ________% VaR, meaning that ________% of returns will
exceed the VaR, and ________% will be worse.
A.
25, 75, 25
B.
75, 25, 75
C.
5, 95, 5
D.
95, 5, 95
E.
80, 80, 20

33.
A.
B.
C.
D.
E.

______ must periodically provide the public with information on portfolio composition.
Hedge funds
Mutual funds
ADRs
Hedge funds and ADRs
Hedge funds and mutual funds

34.
A hedge fund pursuing a ______ strategy is trying to exploit relative mispricing within a
market, but is hedged to avoid taking a stance on the direction of the broad market.
A.
B.
C.
D.
E.

directional
nondirectional
market neutral
arbitrage or speculation
nondirectional and market neutral

35.
Assume that you manage a $3 million portfolio that pays no dividends and has a beta
of 1.45 and an alpha of 1.5% per month. Also, assume that the risk-free rate is 0.025% (per
month) and the S&P 500 is at 1,220. If you expect the market to fall within the next 30 days
you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a
multiplier of $250).
A.
B.
C.
D.
E.

selling 1
selling 14
buying 1
buying 14
selling 6

36.
The typical hedge fund fee structure is
A.
a management fee of 1% to 2%.
B.
an annual incentive fee equal to 20% of investment profits beyond a stipulated
benchmark performance.
C.
a 12-b1 fee of 1%.
D.
a management fee of 1% to 2% and an annual incentive fee equal to 20% of
investment profits beyond a stipulated benchmark performance.
E.
a management fee of 1% to 2% and a 12-b1 fee of 1%.
37.
The Black-Litterman model is geared toward ____________ while the Treynor-Black
model is geared toward ____________.
A.
security analysis; security analysis
B.
asset allocation; asset allocation
C.
security analysis; asset allocation
D.
asset allocation; security analysis
E.
None of the options
38.
A.
B.
C.
D.

Active portfolio managers try to construct a risky portfolio with

a higher Sharpe measure than a passive strategy.
a lower Sharpe measure than a passive strategy.
the same Sharpe measure as a passive strategy.
very few securities.

39.
Consider these two investment strategies:
Strategy __________ is the dominant strategy because __________.
A.
1; it is riskless
B.
1; it has the highest reward/risk ratio
C.
2; its return is at least equal to Strategy 1 and sometimes greater
D.
2; it has the highest reward/risk ratio
E.
Both strategies are equally preferred.
40.

An active portfolio manager faces a trade-off between

I) using the Sharpe measure.

II) using mean-variance analysis.
III) exploiting perceived security mispricings.
IV) holding too much of the risk-free asset.
V) letting a few stocks dominate the portfolio.
A.
B.
C.
D.
E.

I and II
II and V
III and V
III and IV
II and III