FINA 3315 MID-TERM REVIEW
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Which of the following statements is(are) correct concerning hedge funds?
I. They are highly regulated.
II. They hedge all positions to limit risks.
III. Management and other fees are extremely low compared to other types of funds.
IV. Access is limited to institutions and high net worth or high income individuals. - CORRECT
ANSWER - IV only
Most bonds pay interest quarterly. - CORRECT ANSWER - FALSE
A cyclical company tends to: - CORRECT ANSWER - have earnings that track the overall
economy.
In an inflationary environment, the interest payments on Treasury inflation − indexed obligations
increase over time. - CORRECT ANSWER - TRUE
Investors who buy mutual funds that have had large gains over the last few years are exhibiting a
tendency known as - CORRECT ANSWER - representativeness
The bond market is considered bearish when - CORRECT ANSWER - market interest
rates are high or rising.
Behavioral finance suggests that investors react to new information in an efficient manner such
that security prices accurately reflect the new information. - CORRECT ANSWER -
FALSE
,Eurodollar bonds are - CORRECT ANSWER - purchased and redeemed in dollars but
issued by entities outside the U.S.
Socially responsible funds are distinguished from other mutual funds because they - CORRECT
ANSWER - invest only in companies that meet specified moral, ethical, or environmental
standards.
Yield curves for corporate and government securities have similar shapes, but the corporate rates
track below the government rates. - CORRECT ANSWER - FALSE
Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated
as - CORRECT ANSWER - investment grade bonds.
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: - CORRECT ANSWER - decrease
Most exchange − traded funds are index funds - CORRECT ANSWER - TRUE
Which of the following statements is(are) correct concerning exchange − traded funds (ETFs)?
I. You can buy and sell ETFs any time during trading hours.
II. ETFs are actively managed.
III. ETFs have high portfolio turnover rates.
IV. ETFs rarely distribute any capital gains. - CORRECT ANSWER - I and IV only
Changes in the inflation rate have a direct and pronounced effect on market interest rates. -
CORRECT ANSWER - TRUE
An efficient market reflects - CORRECT ANSWER - all information including predictions
about future information.
, The confidence index indicates - CORRECT ANSWER - bond investors ' perceptions of
risk in the economy
Which one of the following statements concerning mutual funds is correct? - CORRECT
ANSWER - The mutual fund industry is the largest financial intermediary in the United
States.
Debt securities issued by the Federal Home Loan Bank, the Student Loan Marketing Association
and the Government National Mortgage Association are known as - CORRECT
ANSWER - agency bonds.
Trading in closed − end investment companies takes place between investors in the open market
- CORRECT ANSWER - TRUE
The yield curve depicts the relationship between a bond's yield to maturity and its - CORRECT
ANSWER - term to maturity
Government securities money funds are structured to eliminate - CORRECT ANSWER -
default risk
Investors are generally well advised to avoid mutual funds with - CORRECT ANSWER -
consistently poor historical performance
One characteristic of bond funds is the - CORRECT ANSWER - fluctuation in value in
response to changing interest rates
Investors who seek triple (federal, state, and local) tax − free income should invest in ________
bond funds - CORRECT ANSWER - single − state municipal
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Which of the following statements is(are) correct concerning hedge funds?
I. They are highly regulated.
II. They hedge all positions to limit risks.
III. Management and other fees are extremely low compared to other types of funds.
IV. Access is limited to institutions and high net worth or high income individuals. - CORRECT
ANSWER - IV only
Most bonds pay interest quarterly. - CORRECT ANSWER - FALSE
A cyclical company tends to: - CORRECT ANSWER - have earnings that track the overall
economy.
In an inflationary environment, the interest payments on Treasury inflation − indexed obligations
increase over time. - CORRECT ANSWER - TRUE
Investors who buy mutual funds that have had large gains over the last few years are exhibiting a
tendency known as - CORRECT ANSWER - representativeness
The bond market is considered bearish when - CORRECT ANSWER - market interest
rates are high or rising.
Behavioral finance suggests that investors react to new information in an efficient manner such
that security prices accurately reflect the new information. - CORRECT ANSWER -
FALSE
,Eurodollar bonds are - CORRECT ANSWER - purchased and redeemed in dollars but
issued by entities outside the U.S.
Socially responsible funds are distinguished from other mutual funds because they - CORRECT
ANSWER - invest only in companies that meet specified moral, ethical, or environmental
standards.
Yield curves for corporate and government securities have similar shapes, but the corporate rates
track below the government rates. - CORRECT ANSWER - FALSE
Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated
as - CORRECT ANSWER - investment grade bonds.
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: - CORRECT ANSWER - decrease
Most exchange − traded funds are index funds - CORRECT ANSWER - TRUE
Which of the following statements is(are) correct concerning exchange − traded funds (ETFs)?
I. You can buy and sell ETFs any time during trading hours.
II. ETFs are actively managed.
III. ETFs have high portfolio turnover rates.
IV. ETFs rarely distribute any capital gains. - CORRECT ANSWER - I and IV only
Changes in the inflation rate have a direct and pronounced effect on market interest rates. -
CORRECT ANSWER - TRUE
An efficient market reflects - CORRECT ANSWER - all information including predictions
about future information.
, The confidence index indicates - CORRECT ANSWER - bond investors ' perceptions of
risk in the economy
Which one of the following statements concerning mutual funds is correct? - CORRECT
ANSWER - The mutual fund industry is the largest financial intermediary in the United
States.
Debt securities issued by the Federal Home Loan Bank, the Student Loan Marketing Association
and the Government National Mortgage Association are known as - CORRECT
ANSWER - agency bonds.
Trading in closed − end investment companies takes place between investors in the open market
- CORRECT ANSWER - TRUE
The yield curve depicts the relationship between a bond's yield to maturity and its - CORRECT
ANSWER - term to maturity
Government securities money funds are structured to eliminate - CORRECT ANSWER -
default risk
Investors are generally well advised to avoid mutual funds with - CORRECT ANSWER -
consistently poor historical performance
One characteristic of bond funds is the - CORRECT ANSWER - fluctuation in value in
response to changing interest rates
Investors who seek triple (federal, state, and local) tax − free income should invest in ________
bond funds - CORRECT ANSWER - single − state municipal
