sapm mcq chapter wise

SAPM MCQ CHAPTER WISE: BODIE KANE MARCUS BOOK

CHAP: 1

1The net wealth of the aggregate economy is equal to the sum of

A)all real assets.

B)all financial assets.

C)all physical assets.

D)all real and financial assets.

E)none of the above

2Asset allocation refers to ____________.

A)choosing which securities to hold based on their valuation

B)investing only in "safe" securities

C)the allocation of assets into broad asset classes

D)bottom-up analysis

E)all of the above

3The 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)A and B are correct.

E)A, B, and C are correct.

4Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly

A)illiquid.

B)owned by government.

C)real.

D)financial.

E)regulated.

5Although derivatives can be used as speculative instruments, businesses most often use them to

A)hedge.

B)offset debt.

C)appease stockholders.

D)attract customers.

E)enhance their balance sheets.

6During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to1) Manipulation of financial data to misrepresent the actual condition of the firm.II) Misleading and overly optimistic research reports produced by analysts.III) Allocating IPOs to executives as a quid pro quo for personal favors.IV) Greenmail.

A)II, III, and IV

B)I, II, and IV

C)II and IV

D)I, III, and IV

E)I, II, and III

7Financial assets

A)contribute to the country's productive capacity both directly and indirectly.

B)do not contribute to the country's productive capacity either directly or indirectly.

C)directly contribute to the country's productive capacity.

D)indirectly contribute to the country's productive capacity.

E)are of no value to anyone.

8In what roles do investment bankers perform?

A)design securities with desirable properties

B)market new stock and bond issues for firms

C)provide advice to the firms as to market conditions, price, etc.

D)none of the above

E)A, B, and C

9A WEBS security

A)limits the diversification potential of investors who hold it.

B)may be traded only in the primary market.

C)tracks the performance of an index of share returns for a particular country.

D)is linked directly to the value of a composite index of futures contracts.

E)must be earned as a performance bonus within a corporation rather than purchased.

10Which of the following is true about GNMA pass-throughs?I) They separate individual home mortgages into heterogeneous pools.II) The purchaser of a GNMA receives monthly interest and principal payments received from payments made on the pool.III) The banks that originated the mortgages continue to service them.IV) The banks that originated the mortgages maintain ownership of them.

A)II, III, and IV

B)II and III

C)I, II, and IV

D)I, III, and IV

E)I, II, III, and IV

CHAPTER: 2

1Which one of the following is not a money market instrument?

A)a Treasury bond

B)a negotiable certificate of deposit

C)a Eurodollar account

D)a Treasury bill

E)commercial paper

2The bid price of a T-bill in the secondary market is

A)the price at which the dealer in T-bills is willing to sell the bill.

B)the price at which the dealer in T-bills is willing to buy the bill.

C)greater than the asked price of the T-bill.

D)the price at which the investor can buy the T-bill.

E)never quoted in the financial press.

3Which of the following is true of the Dow Jones Industrial Average?

A)The divisor must be adjusted for stock splits.

B)It is a price-weighted average of 30 large industrial firms.

C)It is a value-weighted average of 30 large industrial firms.

D)It is an equally weighted average of 30 large industrial firms.

E)A and B

4Which of the following statements is (are) true regarding municipal bonds?

I) A municipal bond is a debt obligation issued by state or local governments.II) A municipal bond is a debt obligation issued by the federal government.III) The interest income from a municipal bond is exempt from federal income taxation.IV) The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

A)I and II only

B)I and III only

C)I, II, and III only

D)I, III, and IV only

E)I and IV only

5The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04. As a buyer of the bond what is the dollar price you expect to pay?

A)$1,048.00

B)$1,042.50

C)$1,044.00

D)$1,041.20

E)$1,040.40

6A 5.5% 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of:

A)8.20%.

B)10.75%.

C)11.40%.

D)4.82%.

E)none of the above.

7Federally sponsored agency debt

A)has a small positive yield spread relative to U.S. Treasuries.

B)is legally insured by the U.S. Treasury.

C)probably would be backed by the U.S. Treasury in the event of a near-default.

D)A and C

E)B and C

8Freddie Mac and Ginnie Mae were organized to provide

A)a primary market for mortgage transactions.

B)liquidity for the mortgage market.

C)a primary market for farm loan transactions.

D)liquidity for the farm loan market.

E)a source of funds for government agencies.

9Which of the following are characteristics of preferred stock?I) It pays its holder a fixed amount of income each year, at the discretion of its managers.II) It gives its holder voting power in the firm.III) Its dividends are usually cumulative.IV) Failure to pay dividends may result in bankruptcy proceedings.

A)I, III, and IV

B)I, II, and III

C)I and III

D)I, II, and IV

E)I, II, III, and IV

10With regard to a futures contract, the long position is held by

A)the trader who bought the contract at the largest discount.

B)the trader who has to travel the farthest distance to deliver the commodity.

C)the trader who plans to hold the contract open for the lengthiest time period.

D)the trader who commits to purchasing the commodity on the delivery date.

E)the trader who commits to delivering the commodity on the delivery date.

CHAPTER : 3

1Which one of the following statements regarding orders is false?

A)A market order is simply an order to buy or sell a stock immediately at the prevailing market price.

B)A limit sell order is where investors specify prices at which they are willing to sell a security.

C)

If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45.

D)A day order expires at the close of the trading day.

E)None of the above.

2The use of the Internet to trade and underwrite securities

A)is illegal under SEC regulations.

B)is regulated by the New York Stock Exchange.

C)decreases underwriting costs for a new security issue.

D)increases underwriting costs for a new security issue.

E)is regulated by the National Association of Securities Dealers.

3Assume you purchased 500 shares of CSCO at $20 per share. The initial margin is 40%. Your investment was

A)$3,000

B)$5,000

C)$4,000

D)$9,000

E)$7,800

4Assume you sold short 200 shares of common stock at $60 per share. The initial margin is 50%. What would be the maintenance margin if a margin call was made at a stock price of $70?

A)29%

B)40%

C)25%

D)33%

E)none of the above

5Assume you sell short 100 shares of Citibank common stock at $45 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $40 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.

A)25%

B)22%

C)20%

D)77%

E)none of the above

6Shelf registration

A)increases transaction costs to the issuing firm.

B)allows firms to register securities for sale for a two-year period.

C)is a way of placing issues in the primary market.

D)A and C

E)B and C

7A sale by Wal-Mart of new stock to the public would be a(n)

A)short sale.

B)initial public offering.

C)secondary market transaction.

D)seasoned new issue offering.


8You sell short 200 shares of Bad Co. at a market price of $55 per share. Your maximum possible loss is

A)$11,000.

B)zero.

C)unlimited.

D)$22,000.

E)cannot tell from the given information.

9Shares for short transactions

A)are usually borrowed from other brokers.

B)are typically shares held by the short seller's broker in street name.

C)are borrowed from commercial banks.

D)B and C.


10Assume you purchased 100 shares of common stock at $50 per share using 2,500 of your own money. The initial margin requirement is 50%. If the maintenance margin is 30%, at what prince would you get a margin call?

A)$26.14

B)$50.00

C)$35.71

D)$77.12

E)$78.00

CHAPTER: 4

1Which one of the following statements regarding open-end mutual funds is false?

A)The funds redeem shares at net asset value.

B)The funds offer investors professional management.

C)The funds offer investors a guaranteed rate of return.

D)B and C.

E)A and B.

2Which one of the following statements regarding closed-end mutual funds is false?

A)The funds always trade at a discount from NAV.

B)The funds redeem shares at their net asset value.

C)The funds offer investors diversification.

D)A and B.


3Century fund had average daily assets of $3.0 billion in 2007. The fund sold $750 million worth of stock and purchased $850 million worth of stock during the year. Century fund's turnover ratio is

A)27.5%.

B)12%.

C)15%.

D)25%.

E)20%.

4Which of the following functions do mutual fund companies perform for their investors?

A)Record keeping and administration

B)Professional management

C)Diversification and divisibility

D)Lower transaction costs

E)All of the above

5Large amounts of money invested in a portfolio that is fixed for the life of the fund are called

A)closed-end funds.

B)unit investment trusts.

C)REITS.

D)open-end funds.

redeemable trust certificates.

E)

6At issue, offering prices of open-end funds will typically be

A)less than NAV due to limited demand.

B)greater than NAV due to greater demand.

C)less than NAV due to loads and commissions.

D)NAV or greater due to loads and commissions.

E)less than or greater than NAV with no apparent pattern.

7Ultra Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254 shares in the fund at year-end. What was Ultra Fund's Net Asset Value?

A)$28.17

B)$25.24

C)$19.62

D)$26.01

E)$21.56

8Premier Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Premier's NAV was $32.18, how many shares must have been held in the fund?

A)21,619,346,92

B)22,930,546.28

C)24,860,161.59

D)25,693,645.25


9Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000,

A)beat the market return in all years.

B)beat the market return in most years.

exceed the return on index funds.

C)

D)do not outperform the market.

E)None of the above is a correct statement.

10You purchased shares of a mutual fund at a price of $17 per share at the beginning of the year and paid a front-end load of 5.0%. If the securities in which the find invested increased in value by 12% during the year, and the funds expense ratio was 1.0%, your return if you sold the fund at the end of the year would be ____________.

A)4.75

B)5.45

C)5.65

D)4.39

E)None of the above

CHAPTER: 5

1Skewness is a measure of ____________.

A)how fat the tails of a distribution are

B)the downside risk of a distribution

C)the normality of a distribution

D)the dividend yield of the distribution

E)A and C

2When a distribution is positively skewed, ____________.

A)standard deviation overestimates risk

B)standard deviation correctly estimates risk

C)standard deviation underestimates risk

D)the tails are fatter than in a normal distribution

E)none of the above

3A year ago, you invested $2,000 in a savings account that pays an annual interest rate of 6%. What is your approximate annual real rate of return if the rate of inflation was 3% over the year?

A)4%

B)10%

C)7%

D)3%

E)none of the above

4You purchased a share of stock for $20. One year later you received $1 as dividend and sold the share for $29. What was your holding period return?

A)45%

B)5%

C)50%

D)40%

E)none of the above

5A risk-free intermediate or long-term investment

A)is free of all types of risk.

B)does guarantee the future purchasing power of its cash flows.

C)does not guarantee the future purchasing power of its cash flows as it is insured by the U.S. Treasury.

D)A and B.

E)B and C.

6In words, the real rate of interest is approximately equal to

A)the nominal rate times the inflation rate.

B)the inflation rate minus the nominal rate.

C)the nominal rate minus the inflation rate.

D)the inflation rate divided by the nominal rate.

E)the nominal rate plus the inflation rate.

7An investor purchased a bond 45 days ago for $895. He received $12 in interest and sold the bond for $893. What is the holding period return on his investment?

A)1.52%

B)0.50%

C)1.12%

D)0.08%

E)0.01%

8DFI, Inc. has the following probability distribution of holding period returns on its stock.State of Economy Probability HPR

Boom .25 25%

Normal Growth .45 15%Recession .30 9%

The expected return on DFI's stock is

A)15.7%.

B)12.4%.

C)16.5%.

D)17.8%.

E)11.6%.

9DFI, Inc. has the following probability distribution of holding period returns on its stock.State of Economy Probability HPR

Boom .25 25%

Normal Growth .45 15%Recession .30 9%

The expected variance of these returns is

A)66.6.

B)35.5.

C)29.4.

D)40.5.

E)none of the above

10An investment provides a 3% return semi-annually, its effective annual rate is

A)3%.

B)6%.

C)6.06%

D)6.09%

E)none of the above