80HExam1Spring07
Version #4

Student: ___________________________________________________________________________

1. If you benefit when a security in your account decreases in value, you have a _____ position in the security. 
A. wrapped
B. long
C. covered
D. margined
E. short

 

2. The absolute minimum initial margin requirement is set by the: 
A. SEC.
B. individual broker.
C. brokerage firm.
D. Federal Reserve.
E. individual investor.

 

3. Which one of the following describes a short position? 
A. selling a security which you do not own
B. having less equity than required in your margin account
C. purchasing a security on margin
D. selling a security which you originally purchased on margin
E. loaning a security to your broker so that it can be loaned to another brokerage client

 

4. Leo owns 500 shares of XYZ stock but his brokerage firm is listed as the registered owner of the securities. Under this arrangement, the securities are said to be held in: 
A. transit.
B. a wrap account.
C. record ownership status.
D. street name.
E. a discretionary account.

 

5. A tax-managed stock fund: 
A. produces income which is tax-exempt.
B. tends to lower turnover.
C. only sells securities if they will produce a loss.
D. invests only in tax-free securities.
E. concentrates on maximizing pre-tax income.

 

6. A 12b-1 fee is a(n) _____ fee which covers the cost of _____. 
A. one-time; opening a new account
B. annual; marketing and distribution
C. one-time; the commission paid to the broker
D. annual; maintaining a record of each shareholder's transactions
E. annual; taxes imposed on the realized investment income

 

7. An 8 percent coupon bond is currently quoted at 99.4 and has a face value of $1,000. What is the amount of each semi-annual coupon payment? 
A. $39.76
B. $80.00
C. $40.00
D. $79.52
E. $42.50

 

8. A closed-end fund is a fund which: 
A. trades only with a pre-selected group of investors.
B. will no longer issue new shares but will still redeem existing shares.
C. issues a fixed number of shares.
D. issues new shares only when old shares are redeemed by the fund.
E. has a fixed net asset value.

 

9. For the period 1801-2001, gold: 
A. outperformed bonds and underperformed stocks.
B. outperformed U.S. Treasury bills and underperformed bonds.
C. outperformed inflation and U.S. Treasury bills.
D. outperformed stocks, bonds, and inflation.
E. underperformed stocks, bonds, and U.S. Treasury bills.

 

10. You have an investment account with a brokerage firm that is SIPC insured. The account consists of $40,000 in cash and $170,000 in securities. Which one of the following statements is true about this account? 
A. Only $100,000 of the account is insured against fraud.
B. The $40,000 of cash and $60,000 of the securities are insured against loss from any source.
C. The entire account is guaranteed safe by the U.S. government agency issuing the SIPC insurance.
D. The entire account is protected by a private fund but only for losses resulting from fraud or other failures of the brokerage firm.
E. The $40,000 in cash plus the first $100,000 in securities is guaranteed by the private insurance fund backing the SIPC insurance.

 

11. The 95 percent probability range of a normal distribution is defined as the mean plus or minus _____ standard deviation(s). 
A. five
B. one
C. two
D. four
E. three

 

12. The wider the distribution of an investment's returns over time, the _____ the expected rate of return and the ______ the standard deviation of returns. 
A. lower; lower
B. higher; higher
C. The distribution of returns does not affect the expected rate of return.
D. higher; lower
E. lower; higher

 

13. The specified price which will be paid for one unit of the underlying asset when a call option is exercised is called the _____ price. 
A. obligated
B. market
C. stock
D. future
E. strike

 

14. A stock has varying annual rates of return over a 10-year period and a positive geometric average return for the period. Given this, you know the arithmetic average return will be: 
A. greater than the geometric average return.
B. less than the geometric return and could be negative, zero, or positive.
C. positive but less than the geometric average return.
D. equal to the geometric average return.
E. either equal to or greater than the geometric average return.

 

15. Which one of the following bond funds will tend to be the most volatile? 
A. intermediate-term government
B. high-yield
C. single-state municipal
D. short-term corporate
E. short-term government

 

16. The right, but not the obligation, to purchase an asset at a specified price is called a: 
A. fixed-income security.
B. primary contract.
C. call option.
D. put option.
E. futures contract.

 

17. Jamie agreed this morning to sell Steve 100 bushels of corn three months from now at a price of $5 a bushel. This is an example of a: 
A. fixed-income security.
B. call option.
C. money market security.
D. futures contract.
E. put option.

 

18. Jeff purchased a stock for $21 and later sold it for $27. He also received a dividend of $1.40. The total percentage return on his investment is computed as: 
A. $27 - $21.
B. $27 - $21 + $1.40.
C. ($27 - $21 + $1.40) / $27.
D. ($27 - $21 + $1.40) / $21.
E. ($27 - $21) / $27.

 

19. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's: 
A. equity ratio.
B. market share.
C. time value.
D. total book value.
E. market capitalization.

 

20. The rate of return earned on a U.S. Treasury bill is referred to as the: 
A. risk premium.
B. deflated rate of return.
C. market rate of return.
D. expected rate of return.
E. risk-free rate.

 

21. The 35 call on a stock is trading at .60 bid and .70 ask. To buy one option contract, you must pay _____ at the time the contract is purchased. 
A. $70
B. $60
C. $0
D. $.60
E. $.70

 

22. An investment company which issues shares to anyone wishing to buy and redeems shares from anyone wishing to sell is called a(n) _____ fund. 
A. exchange traded
B. public
C. closed-end
D. open-end
E. hedge

 

23. Which one of the following has historically produced a return which is closest to the inflation rate? 
A. U.S. Treasury bills
B. long-term corporate bonds
C. long-term government bonds
D. intermediate-term government bonds
E. large-company stocks

 

24. If you ignore a margin call, your broker: 
A. will create a loan on your behalf to cover the call amount.
B. will sell all of your securities and close your account.
C. may sell some of your securities.
D. may place a short sale on your behalf to cover the amount of the call.
E. will increase both your margin loan and the rate of interest on that loan.

 

25. The price received when an option is sold is called the: 
A. strike price.
B. exercise price.
C. option premium.
D. future premium.
E. current yield.

 

 


80HExam1Spring07 Key
Version #4

 

1. If you benefit when a security in your account decreases in value, you have a _____ position in the security. 
a. wrapped
b. long
c. covered
d. margined
E. 
short

 


Jordan - Chapter 02 #38
Topic: SHORT POSITION
Type: CONCEPTS
 

2. The absolute minimum initial margin requirement is set by the: 
a. SEC.
b. individual broker.
c. brokerage firm.
D. 
Federal Reserve.
e. individual investor.

 


Jordan - Chapter 02 #22
Topic: INITIAL MARGIN
Type: CONCEPTS
 

3. Which one of the following describes a short position? 
A. 
selling a security which you do not own
b. having less equity than required in your margin account
c. purchasing a security on margin
d. selling a security which you originally purchased on margin
e. loaning a security to your broker so that it can be loaned to another brokerage client

 


Jordan - Chapter 02 #35
Topic: SHORT POSITION
Type: CONCEPTS
 

4. Leo owns 500 shares of XYZ stock but his brokerage firm is listed as the registered owner of the securities. Under this arrangement, the securities are said to be held in: 
a. transit.
b. a wrap account.
c. record ownership status.
D. 
street name.
e. a discretionary account.

 


Jordan - Chapter 02 #9
Topic: STREET NAME
Type: DEFINITIONS
 

5. A tax-managed stock fund: 
a. produces income which is tax-exempt.
B. 
tends to lower turnover.
c. only sells securities if they will produce a loss.
d. invests only in tax-free securities.
e. concentrates on maximizing pre-tax income.

 


Jordan - Chapter 04 #37
Topic: STOCK FUNDS
Type: CONCEPTS
 

6. A 12b-1 fee is a(n) _____ fee which covers the cost of _____. 
a. one-time; opening a new account
B. 
annual; marketing and distribution
c. one-time; the commission paid to the broker
d. annual; maintaining a record of each shareholder's transactions
e. annual; taxes imposed on the realized investment income

 


Jordan - Chapter 04 #21
Topic: SHAREHOLDER FEES
Type: CONCEPTS
 

7. An 8 percent coupon bond is currently quoted at 99.4 and has a face value of $1,000. What is the amount of each semi-annual coupon payment? 
a. $39.76
b. $80.00
C. 
$40.00
d. $79.52
e. $42.50

Semi-annual interest = (.08 $1,000) / 2 = $40.00

 


Jordan - Chapter 03 #53
Topic: COUPON PAYMENT
Type: PROBLEMS
 

8. A closed-end fund is a fund which: 
a. trades only with a pre-selected group of investors.
b. will no longer issue new shares but will still redeem existing shares.
C. 
issues a fixed number of shares.
d. issues new shares only when old shares are redeemed by the fund.
e. has a fixed net asset value.

 


Jordan - Chapter 04 #3
Topic: CLOSED-END FUND
Type: DEFINITIONS
 

9. For the period 1801-2001, gold: 
a. outperformed bonds and underperformed stocks.
b. outperformed U.S. Treasury bills and underperformed bonds.
c. outperformed inflation and U.S. Treasury bills.
d. outperformed stocks, bonds, and inflation.
E. 
underperformed stocks, bonds, and U.S. Treasury bills.

 


Jordan - Chapter 01 #29
Topic: HISTORICAL RETURNS
Type: CONCEPTS
 

10. You have an investment account with a brokerage firm that is SIPC insured. The account consists of $40,000 in cash and $170,000 in securities. Which one of the following statements is true about this account? 
a. Only $100,000 of the account is insured against fraud.
b. The $40,000 of cash and $60,000 of the securities are insured against loss from any source.
c. The entire account is guaranteed safe by the U.S. government agency issuing the SIPC insurance.
D. 
The entire account is protected by a private fund but only for losses resulting from fraud or other failures of the brokerage firm.
e. The $40,000 in cash plus the first $100,000 in securities is guaranteed by the private insurance fund backing the SIPC insurance.

 


Jordan - Chapter 02 #18
Topic: SIPC
Type: CONCEPTS
 

11. The 95 percent probability range of a normal distribution is defined as the mean plus or minus _____ standard deviation(s). 
a. five
b. one
C. 
two
d. four
e. three

 


Jordan - Chapter 01 #33
Topic: PROBABILITY RANGES
Type: CONCEPTS
 

12. The wider the distribution of an investment's returns over time, the _____ the expected rate of return and the ______ the standard deviation of returns. 
a. lower; lower
B. 
higher; higher
c. The distribution of returns does not affect the expected rate of return.
d. higher; lower
e. lower; higher

 


Jordan - Chapter 01 #38
Topic: RISK AND RETURN
Type: CONCEPTS
 

13. The specified price which will be paid for one unit of the underlying asset when a call option is exercised is called the _____ price. 
a. obligated
b. market
c. stock
d. future
E. 
strike

 


Jordan - Chapter 03 #11
Topic: STRIKE PRICE
Type: DEFINITIONS
 

14. A stock has varying annual rates of return over a 10-year period and a positive geometric average return for the period. Given this, you know the arithmetic average return will be: 
A. 
greater than the geometric average return.
b. less than the geometric return and could be negative, zero, or positive.
c. positive but less than the geometric average return.
d. equal to the geometric average return.
e. either equal to or greater than the geometric average return.

 


Jordan - Chapter 01 #40
Topic: GEOMETRIC VERSUS ARITHMETIC AVERAGE
Type: CONCEPTS
 

15. Which one of the following bond funds will tend to be the most volatile? 
a. intermediate-term government
B. 
high-yield
c. single-state municipal
d. short-term corporate
e. short-term government

 


Jordan - Chapter 04 #39
Topic: BOND FUNDS
Type: CONCEPTS
 

16. The right, but not the obligation, to purchase an asset at a specified price is called a: 
a. fixed-income security.
b. primary contract.
C. 
call option.
d. put option.
e. futures contract.

 


Jordan - Chapter 03 #8
Topic: CALL OPTION
Type: DEFINITIONS
 

17. Jamie agreed this morning to sell Steve 100 bushels of corn three months from now at a price of $5 a bushel. This is an example of a: 
a. fixed-income security.
b. call option.
c. money market security.
D. 
futures contract.
e. put option.

 


Jordan - Chapter 03 #33
Topic: FUTURES CONTRACT
Type: CONCEPTS
 

18. Jeff purchased a stock for $21 and later sold it for $27. He also received a dividend of $1.40. The total percentage return on his investment is computed as: 
a. $27 - $21.
b. $27 - $21 + $1.40.
c. ($27 - $21 + $1.40) / $27.
D. 
($27 - $21 + $1.40) / $21.
e. ($27 - $21) / $27.

 


Jordan - Chapter 01 #17
Topic: TOTAL PERCENTAGE RETURN
Type: CONCEPTS
 

19. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's: 
a. equity ratio.
b. market share.
c. time value.
d. total book value.
E. 
market capitalization.

 


Jordan - Chapter 01 #20
Topic: MARKET CAPITALIZATION
Type: CONCEPTS
 

20. The rate of return earned on a U.S. Treasury bill is referred to as the: 
a. risk premium.
b. deflated rate of return.
c. market rate of return.
d. expected rate of return.
E. 
risk-free rate.

 


Jordan - Chapter 01 #8
Topic: RISK-FREE RATE
Type: Definitions
 

21. The 35 call on a stock is trading at .60 bid and .70 ask. To buy one option contract, you must pay _____ at the time the contract is purchased. 
A. 
$70
b. $60
c. $0
d. $.60
e. $.70

 


Jordan - Chapter 03 #46
Topic: OPTION CONTRACT
Type: CONCEPTS
 

22. An investment company which issues shares to anyone wishing to buy and redeems shares from anyone wishing to sell is called a(n) _____ fund. 
a. exchange traded
b. public
c. closed-end
D. 
open-end
e. hedge

 


Jordan - Chapter 04 #2
Topic: OPEN-END FUND
Type: DEFINITIONS
 

23. Which one of the following has historically produced a return which is closest to the inflation rate? 
A. 
U.S. Treasury bills
b. long-term corporate bonds
c. long-term government bonds
d. intermediate-term government bonds
e. large-company stocks

 


Jordan - Chapter 01 #25
Topic: HISTORICAL RETURNS
Type: CONCEPTS
 

24. If you ignore a margin call, your broker: 
a. will create a loan on your behalf to cover the call amount.
b. will sell all of your securities and close your account.
C. 
may sell some of your securities.
d. may place a short sale on your behalf to cover the amount of the call.
e. will increase both your margin loan and the rate of interest on that loan.

 


Jordan - Chapter 02 #27
Topic: MARGIN CALL
Type: CONCEPTS
 

25. The price received when an option is sold is called the: 
a. strike price.
b. exercise price.
C. 
option premium.
d. future premium.
e. current yield.

 


Jordan - Chapter 03 #10
Topic: OPTION PREMIUM
Type: DEFINITIONS