FINA 3313 Midterm 2 Exam Questions with Correct Answers Latest Update 2025/2026
One characteristic of bond funds is the - Answers fluctuation in value in response to changing
interest rates
The open interest at the end of the trading day indicates the number of contracts that are open
and have not been settled by delivery or by an offsetting transaction - Answers True
In a semi strong efficient market, traders with non public information would have no advantage
over those who had only public information. - Answers False
Which type of fund is always passively managed? - Answers an index fund
One characteristic of most index funds is that such funds typically - Answers have a very low-
cost structure with respect to management fees and transaction fees.
Madison believes that the leisure industry (resorts, travel, restaurants, etc.) is about to
experience extraordinary growth because baby boomers are entering their retirement years. She
should invest in - Answers a sector fund
A bond with 14 years to maturity and a coupon rate of 6.375% has a yield-to-maturity (YTM) of
4.5%. Assuming the bond's YTM remains constant, the bond's value as it approaches maturity
will most likely: - Answers decrease
Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated
as - Answers investment grade bonds
Which one of the following best describes "semi strong" market efficiency? - Answers All public
information is quickly reflected in security prices.
The odd lot trading indicator assumes that - Answers odd-lot traders are unsophisticated and
time their decisions poorly.
Trading in closed end investment companies takes place between investors in the open market.
- Answers True
Which one of the following statements is correct? - Answers Low P/E stocks tend to outperform
high P/E stocks on a risk-adjusted basis.
The Jefferson Company issued a 5% coupon bond four years ago at par value. The market
interest rate on comparable bonds today is 6%. The Jefferson Company bond currently pays
________ a year in interest and the bond sells at a ________. - Answers $50; discount
The purchase price of a closed end mutual fund is equivalent to the net asset value of the fund.
- Answers False
Which one of the following statements concerning mutual funds is correct? - Answers The
, mutual fund industry is the largest financial intermediary in the United States.
Mutual funds often report returns as the growth of $10,000 over a period of time. These returns
assume that - Answers all dividends and capital gains are reinvested.
What do the mutual fund cash ratio and short interest have in common. - Answers Both A and B
are correct.
They both indicate demand for stocks will be higher in the future when the cash must be
invested and the shorts covered.
They are both bearish in the short-term because mutual fund managers and short sellers expect
prices to fall.
Covered call writers have unlimited loss exposure as well as unlimited profit potential. -
Answers False
Writers of option contracts - Answers earn a profit when the option expires without being
exercised.
The value of a euro futures contract will go up when - Answers the dollar weakens against the
euro
All trading in the futures market is done on a margin basis. - Answers True
There is strong evidence that investors who trade frequently outperform the market. - Answers
False
The portfolio of a growth and income fund is likely to contain - Answers a high percentage of
stocks in established companies and a small amount of fixed income securities
Under normal economic conditions, the major source of risk faced by investors who purchase
investment grade bonds is - Answers interest rate risk.
Which one of the following statements concerning options is correct? - Answers Option holders
can profit on movements of the price of the underlying security.
Sinking funds are most likely to: - Answers reduce credit risk (default risk)
Advantages of agency bonds include - Answers a slightly higher rate of return than Treasury
securities and an implicit guarantee by the U.S. government.
Returns on exchange traded funds may come from:
One characteristic of bond funds is the - Answers fluctuation in value in response to changing
interest rates
The open interest at the end of the trading day indicates the number of contracts that are open
and have not been settled by delivery or by an offsetting transaction - Answers True
In a semi strong efficient market, traders with non public information would have no advantage
over those who had only public information. - Answers False
Which type of fund is always passively managed? - Answers an index fund
One characteristic of most index funds is that such funds typically - Answers have a very low-
cost structure with respect to management fees and transaction fees.
Madison believes that the leisure industry (resorts, travel, restaurants, etc.) is about to
experience extraordinary growth because baby boomers are entering their retirement years. She
should invest in - Answers a sector fund
A bond with 14 years to maturity and a coupon rate of 6.375% has a yield-to-maturity (YTM) of
4.5%. Assuming the bond's YTM remains constant, the bond's value as it approaches maturity
will most likely: - Answers decrease
Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated
as - Answers investment grade bonds
Which one of the following best describes "semi strong" market efficiency? - Answers All public
information is quickly reflected in security prices.
The odd lot trading indicator assumes that - Answers odd-lot traders are unsophisticated and
time their decisions poorly.
Trading in closed end investment companies takes place between investors in the open market.
- Answers True
Which one of the following statements is correct? - Answers Low P/E stocks tend to outperform
high P/E stocks on a risk-adjusted basis.
The Jefferson Company issued a 5% coupon bond four years ago at par value. The market
interest rate on comparable bonds today is 6%. The Jefferson Company bond currently pays
________ a year in interest and the bond sells at a ________. - Answers $50; discount
The purchase price of a closed end mutual fund is equivalent to the net asset value of the fund.
- Answers False
Which one of the following statements concerning mutual funds is correct? - Answers The
, mutual fund industry is the largest financial intermediary in the United States.
Mutual funds often report returns as the growth of $10,000 over a period of time. These returns
assume that - Answers all dividends and capital gains are reinvested.
What do the mutual fund cash ratio and short interest have in common. - Answers Both A and B
are correct.
They both indicate demand for stocks will be higher in the future when the cash must be
invested and the shorts covered.
They are both bearish in the short-term because mutual fund managers and short sellers expect
prices to fall.
Covered call writers have unlimited loss exposure as well as unlimited profit potential. -
Answers False
Writers of option contracts - Answers earn a profit when the option expires without being
exercised.
The value of a euro futures contract will go up when - Answers the dollar weakens against the
euro
All trading in the futures market is done on a margin basis. - Answers True
There is strong evidence that investors who trade frequently outperform the market. - Answers
False
The portfolio of a growth and income fund is likely to contain - Answers a high percentage of
stocks in established companies and a small amount of fixed income securities
Under normal economic conditions, the major source of risk faced by investors who purchase
investment grade bonds is - Answers interest rate risk.
Which one of the following statements concerning options is correct? - Answers Option holders
can profit on movements of the price of the underlying security.
Sinking funds are most likely to: - Answers reduce credit risk (default risk)
Advantages of agency bonds include - Answers a slightly higher rate of return than Treasury
securities and an implicit guarantee by the U.S. government.
Returns on exchange traded funds may come from:
