FIN 420 EXAM 1 QUESTIONS AND ANSWERS
Winnie owns physical stock certificates that were destroyed in a house fire. Which of the
following will handle the recovery and replacement of the certificates?
The transfer agent
The most likely ranking from lowest to highest expected yield is:
1. General obligation bonds
2. Treasury Bills
3. Corporate Bonds
2, 1, 3
The piece of legislation whose purpose is to reduce the volatility in financial markets is
most likely the:
Dodd Frank Act of 2010
The primary use of secondary equity markets is most likely to:
Provide marketability for investors
A firm has $5 billion outstanding in long-term bonds. The firm currently has sufficient
cash flow to make the scheduled coupon payments but would struggle to make those
payments in the future if a substantial weakening of the economy occurs. The most
likely rating on these bonds is:
CCC
A municipal bond would least likely be classified as a revenue bond if it were issued for:
An upgrade to fire prevention facilities
An investor purchases a Treasury Inflation Protected Security with a coupon rate of
3.8% and a face value of $800,000. The maturity date is ten years and the rate of
inflation for the first payment is 2.6%. The investor will expect a coupon payment closest
to:
face val. x 1 + infl. x [coupon rate / 2] =
, $15,595
Security A has the following returns over 4 years: 4%, 7%, 0%, and -1%. The mean
return and the Standard Deviation (sample) for Security A is closest to:
FORMULA?????
Mean of 2.5% and standard deviation of 3.7%
Which of the following is most accurate regarding risk measures?
Standard deviation and beta should provide the same conclusions for questions that
involve risk when a portfolio is fully diversified.
Michela, who is in the 30% tax bracket, bought 1,000 shares of Ruby at $40 per share.
Six months later, she sold the stock for $58 per share. Michela's after-tax holding period
return is closest to:
(net proceeds + dividend - interest) / equity invested = HPR%
31.5%
Denny's investment in Hyper Growth mutual fund grew by 25% over the last three
years. During this period, Denny invested one-third of the investment at the beginning of
each of the three years (dollar cost averaging). The fund reported a 3-year average
return of 18.5%. Denny's return is higher than the fund's return most likely because:
Denny's return was higher than the fund because the fund declined in value at the point
he made his second and/or third investments into the fund.
Which of the following is most likely measured by the beta of a security?
Systematic risk
The correlation coefficient between a security and the market portfolio is 0.7. The
standard deviation of the security is 30% while the market portfolio has a standard
deviation of 15%. The beta of the security is closest to:
B = +0.7 x 0..15 =
1.4
Which of the following would a financial adviser most likely identify as having the
highest risk using the coefficient of variation?
CV = Omega / avg. return
Winnie owns physical stock certificates that were destroyed in a house fire. Which of the
following will handle the recovery and replacement of the certificates?
The transfer agent
The most likely ranking from lowest to highest expected yield is:
1. General obligation bonds
2. Treasury Bills
3. Corporate Bonds
2, 1, 3
The piece of legislation whose purpose is to reduce the volatility in financial markets is
most likely the:
Dodd Frank Act of 2010
The primary use of secondary equity markets is most likely to:
Provide marketability for investors
A firm has $5 billion outstanding in long-term bonds. The firm currently has sufficient
cash flow to make the scheduled coupon payments but would struggle to make those
payments in the future if a substantial weakening of the economy occurs. The most
likely rating on these bonds is:
CCC
A municipal bond would least likely be classified as a revenue bond if it were issued for:
An upgrade to fire prevention facilities
An investor purchases a Treasury Inflation Protected Security with a coupon rate of
3.8% and a face value of $800,000. The maturity date is ten years and the rate of
inflation for the first payment is 2.6%. The investor will expect a coupon payment closest
to:
face val. x 1 + infl. x [coupon rate / 2] =
, $15,595
Security A has the following returns over 4 years: 4%, 7%, 0%, and -1%. The mean
return and the Standard Deviation (sample) for Security A is closest to:
FORMULA?????
Mean of 2.5% and standard deviation of 3.7%
Which of the following is most accurate regarding risk measures?
Standard deviation and beta should provide the same conclusions for questions that
involve risk when a portfolio is fully diversified.
Michela, who is in the 30% tax bracket, bought 1,000 shares of Ruby at $40 per share.
Six months later, she sold the stock for $58 per share. Michela's after-tax holding period
return is closest to:
(net proceeds + dividend - interest) / equity invested = HPR%
31.5%
Denny's investment in Hyper Growth mutual fund grew by 25% over the last three
years. During this period, Denny invested one-third of the investment at the beginning of
each of the three years (dollar cost averaging). The fund reported a 3-year average
return of 18.5%. Denny's return is higher than the fund's return most likely because:
Denny's return was higher than the fund because the fund declined in value at the point
he made his second and/or third investments into the fund.
Which of the following is most likely measured by the beta of a security?
Systematic risk
The correlation coefficient between a security and the market portfolio is 0.7. The
standard deviation of the security is 30% while the market portfolio has a standard
deviation of 15%. The beta of the security is closest to:
B = +0.7 x 0..15 =
1.4
Which of the following would a financial adviser most likely identify as having the
highest risk using the coefficient of variation?
CV = Omega / avg. return
