Introduction to Investments
1. A mutual fund sells $25 million of assets over the course of the year and buys $33 million of new assets. The average daily assets of the fund were $152 million. What’s the turnover rate?
A. .38 B. .27 C. .16 D. 1.24
2. You purchased 1,500 shares of stock at $68 a share. The stock is currently selling for $72 a share. The initial margin was 60 percent and the maintenance margin is 40 percent. What’s your current margin equity?
A. 66.41% B. 61.82% C. 72.44% D. 62.22%
3. What is often used as a proxy for the risk-free rate?
A. Money market instruments B. U.S. Treasury bills
C. Large-cap stocks D. High quality corporate bonds
4. Nine months ago, you bought 500 shares of a mutual fund at an offering price of $28 per share. The fund charges a front-end load of 3.5 percent and has total annual expenses of 1.24 percent. The fund’s NAV today is $26.89. There were no fund distributions during these nine months. What’s your holding period return on this investment?
A. –4% B. 3.2% C. 4% D. –2%
5. A taxable money market fund has an annual return of 3.85 percent. What’s the equivalent after-tax yield if the tax rate is 32 percent?
A. 4.23% B. 4.51% C. 2.62% D. 2.87%
6. An asset had annual returns of 13, 12, 8, and –5 percent over the last four years. What’s the variance of these returns?
A. .01234 B. .00782 C. .00687 D. .02342
7. Which one of the following has a maturity of one year or less?
A. Stock B. Money market instrument C. U.S government note D. U.S. government bond
8. You purchased 1,200 shares of stock on margin for $53 per share and sold the shares 3 months later for $58.60 per share. The initial margin requirement was 55 percent and the maintenance margin was 35 percent. The interest rate on the margin loan was 8 percent. You received no dividend income. What was your holding period return?
A. 18.92% B. 17.62% C. 16.87% D. 15.48%
9. You invested $25,000 in a mutual fund three years ago when the NAV of the fund was $38. Today, the NAV has appreciated to $40.22. You’ve gained an additional 89.32 shares by reinvesting fund distributions. The fund levies a contingent deferred sales charge of 5 percent the first year with the charge decreasing by 1 percent each year. How much money will you receive if you redeem your shares today? A. $28.872.41 B. $30,883.98 C. $27,652.12 D. $29,451.73
10. The dividend yield is defined as the annual dividend expressed as a percentage of the
A. total annual return. B. average stock price. C. ending stock price. D. initial stock price
11. Of the decisions listed below, which would best be categorized as asset allocation?
A. Changing a portfolio so that it’s invested in 70 percent bonds and 30 percent stocks instead of 60 percent bonds and 40 percent stocks
B. Opening an account with a full service broker
C. Purchasing a stock of a company you’re familiar with over one that you know nothing about
D. Deciding to buy a stock on margin instead of using cash
12. What type of asset is an option?
A. Future B. Private equity C. Fixed-income D. Derivative
13. Over the past six years, a stock produced returns of 5.2, 18.1, 6.4, 10.2, 8.2, and 1.9 percent, respectively. For these same six years, the risk-free rate has been 2.4, 3.2, 1.8, 2.2, 4.8, and 1.8 percent, respectively. What’s the arithmetic average risk premium on the stock for this time period?
A. 4.85% B. 5.63% C. 6.21% D. 3.23%
14. You purchase 2,400 shares of a stock for $25.22 per share. The initial margin requirement is 65 percent and the maintenance margin is 50 percent. What’s the maximum amount the stock price can decline before you receive a margin call?
A. $14.32 B. $17.65 C. $12.45 D. $8.83
15. What do you call an agreement that grants the buyer the right, but not the obligation, to buy an asset at some point in the future?
A. Future B. Call C. Put D. Money market instrument
16. A stock has an average historical risk premium of 6.5 percent. The expected risk-free rate for next year is 3.2 percent. What’s the expected rate of return on the stock next year?
A. 9.7 percent B. 6.5 percent C. 8.4 percent D. 3.3 percent
17. Which of the following funds would most likely be characterized as a socially conscious fund?
A. A fund that avoids investing in any companies that harm the environment
B. A fund that invests in stocks globally, both in the U.S. and internationally
C. An index fund D. A tax-managed fund
18. Which of the following is a commonly used measure of volatility?
A. The risk premium B. Dividend yield C. Standard deviation D. Total return
19. A type of investment that allows an investor to speculate on the price of a financial index or commodity six months from now without making a payment today for that right is a
A. put option. B. fixed-income security. C. call option. D. futures contract.
20. How is a stock in a margin account typically held?
A. In the name of the client
B. In the name of the company whose stock was purchased
C. In the name of the account from which the stock was borrowed
D. In street name