Finance 355: Investments

QUIZ 1

Quiz Paper A 1, Quiz Paper B 16

Black Stone Mines stock returned 8, 16, -8, and 12 percent over the past four years,

respectively. What is the geometric average return?

a. 6.59 percent

b. 7.36 percent

c. 7.75 percent

d. 9.94 percent

e. 10.33 percent

Quiz Paper A 2, Quiz Paper B 17

Asset allocation is the:

a. selection of specific securities within a particular class or industry.

b. division of a purchase price between a cash payment and a margin loan.

c. division of a portfolio into short and long positions.

d. distribution of investment funds among various broad asset classes.

e. dividing of assets into those that are hypothecated and those that are not.

Quiz Paper A 3, Quiz Paper B 18

Marti purchased 100 shares of Better Foods stock on margin at a price of $43 a

share. The initial margin requirement is 60 percent and the maintenance margin is 30

percent. What is the lowest the stock price can go before Marti receives a margin

call?

a. $17.20

b. $22.36

c. $24.57

d. $26.18

e. $29.90

Quiz Paper A 4, Quiz Paper B 19

A stock has an average historical risk premium of 6.4 percent. The expected risk-free

rate for next year is 2.6 percent. What is the expected rate of return on this stock for

next year?

a. 6.50 percent

b. 8.86 percent

c. 9.00 percent

d. 9.34 percent

e. 11.70 percent

Quiz Paper A 5, Quiz Paper B 20

You purchase a stock at the beginning of the year for $76.20 a share. Your total

return for the year was 12.6 percent and the dividend yield was 3.2 percent. What

was the price of the stock at the end of the year?

a. $69.65

b. $74.07

c. $83.36

d. $85.80

e. $89.22

Quiz Paper A 6, Quiz Paper B 11

Stacy purchased 500 shares of stock for $48 a share. She sold those shares six

months later for $44 a share. The initial margin requirement is 80 percent and the

maintenance margin is 40 percent. Ignore margin interest and trading costs. If she

purchased the shares for cash her holding period return would be _____ percent as

compared to _____ percent if she had used margin.

a. -8.33; -10.34

b. -8.33; -10.42

c. -9.63; -11.30

d. -9.63; -12.54

e. -10.27; -12.82

Quiz Paper A 7, Quiz Paper B 12

Riverside Metals recently issued some debt that had an original maturity of nine

months. This debt is best classified as a(n):

a. option contract.

b. money market instrument.

c. fixed-income security.

d. derivative security.

e. futures contract.

Quiz Paper A 8, Quiz Paper B 13

You short sold 500 shares of Jasper stock at $41 a share at an initial margin of 60

percent. What is the highest the stock price can go before you receive a margin call if

the maintenance margin is 40 percent?

a. $46.86

b. $47.08

c. $55.50

d. $56.90

e. $57.40

Quiz Paper A 9, Quiz Paper B 14

The variance measures the:

a. total difference between the actual returns and the average return.

b. average squared difference between the actual returns and the average return.

c. total difference between the average squared returns and the risk-free return.

d. average squared difference between the actual returns and the risk-free return.

e. average difference between the actual squared returns and the risk-free return.

Quiz Paper A 10, Quiz Paper B 15

A security originally sold by a business or government to raise money is called a(n):

a. derivative.

b. primary asset.

c. primary debt.

d. futures contract.

e. option contract.

Quiz Paper A 11, Quiz Paper B 6

The Latest Trend Fund has $2,648,900 in assets, and $1,878,400 in liabilities. How

many shares are outstanding if the NAV is $10.07?

a. 75,481

b. 76,514

c. 77,089

d. 79,142

e. 79,638

Quiz Paper A 12, Quiz Paper B 7

Suppose you have $10,000 to invest. You’re considering stock A, which is currently

selling for $50 per share. You also notice that a call option with a $50 strike price

and 3 months to maturity is available. The premium is $4. Stock A pays no

dividends. What is your annualized return if you invest all your money in the call

option if, in 3 months, stock A is selling for $55 per share?

a. 73.33%

b. 25.00%

c. 2.44%

d. 100.00%

e. 144.14%

Quiz Paper A 13, Quiz Paper B 8

Which of the following is the least likely advantage of mutual fund investing?

a. Diversification

b. Professional management

c. Convenience

d. Mutual fund returns are normally higher than market average returns.

Quiz Paper A 14, Quiz Paper B 9

Matt short sold 900 shares of stock at $11.50 a share. The initial margin is 80 percent

and the maintenance margin is 50 percent. The stock is currently selling for $6.80 a

share. What is Matt’s account equity at this time? Ignore margin interest.

a. $2,070

b. $3,590

c. $10,350

d. $11,950

e. $12,510

Quiz Paper A 15, Quiz Paper B 10

Which one of the following statements is correct concerning common stock?

a. Common stock pays a fixed dividend.

b. Dividends on common stock are paid prior to dividends on preferred stock.

c. Once a dividend is paid by a corporation, that corporation is obligated to

continue paying dividends on a regular basis.

d. A firm’s board of directors determines if and when a dividend will be paid on

common stock.

e. Common stock has a defined liquidation value.

Quiz Paper A 16, Quiz Paper B 1

A fee that is charged at the time mutual fund shares are purchased by an investor is

called a:

a. contingent deferred sales charge.

b. 12b-1 fee.

c. back-end load.

d. front-end load.

e. issuance charge.

Quiz Paper A 17, Quiz Paper B 2

Suppose the call money rate is 6.8%, and you pay a spread of 1.9% over that. You

buy 1,000 shares at $51 per share with an initial margin of 40%. One year later, the

stock is selling for $57 per share, and you close out your position. What is your

return assuming no dividends are paid?

a. 20.62 percent

b. 27.46 percent

c. 16.36 percent

d. 54.20 percent

e. 25.41 percent

Quiz Paper A 18, Quiz Paper B 3

The High Growth Technology Fund has an NAV of $54.08 and a 5.5 percent frontend

load. What is the offering price?

a. $50.84

b. $51.36

c. $57.23

d. $57.53

e. $57.81

Quiz Paper A 19, Quiz Paper B 4

You own one futures contract on gold that you purchased at a quoted price of $1,820

per ounce. The current price quote is $1,830. The contract size is 100 ounces. What

is your current profit or loss on this investment?

a. $10

b. –$10

c. $1,000

d. –$1,000

e. $100

Quiz Paper A 20, Quiz Paper B 5

Eight months ago, you purchased 300 shares of a non-dividend paying stock for $27

a share. Today, you sold those shares for $31.59 a share. What was your annualized

rate of return on this investment?

a. 17.00 percent

b. 21.45 percent

c. 25.50 percent

d. 26.55 percent

e. 28.00 percent