FINA 3315 INVESTMENTS MIDTERM 1 EXAM PRACTICE
QUESTIONS AND CORRECT DETAILED ANSWERS
(VERIFIED ANSWERS) ALREADY GRADED A+
The writer of a covered call has taken a(n)
A. aggressive position with limited losses and unlimited potential
profits.
B. aggressive position with potentially unlimited profits or losses.
C. conservative investment position with unlimited potential profits.
D. conservative investment position with limited profits. Ans✓✓✓D.
conservative investment position with limited profits.
Writers of option contracts
A. hope to exercise the option on favorable terms.
B. earn a profit when the option expires without being exercised.
C. have a limited liability specified in the contract.
D. earn a commission no matter what subsequently happens to the
contract. Ans✓✓✓B. earn a profit when the option expires without
being exercised.
If the purchaser of a futures contract fails to meet a margin call,
A. their local broker can decide to waive the call.
B. they will be given a 30 − day grace period before payment is
required.
C. his/her contract will be sold at the current market price.
,D. his/her contract will automatically be executed along with immediate
delivery. Ans✓✓✓C. his/her contract will be sold at the current market
price.
Which type of fund is unsuitable for tax sheltered retirement accounts?
A. municipal bond funds
B. money market funds
C. government bond funds
D. index funds Ans✓✓✓A. municipal bond funds
municipal bond funds are exempted from Federal tax
Yield curves for corporate and government securities have similar
shapes, but the corporate rates track below the government rates.
True
False Ans✓✓✓False
The required return on a bond is equal to
A. the real rate of return plus a risk premium plus an expected inflation
premium.
B. the real rate plus a risk premium.
C. the risk − free rate plus a risk premium plus an expected inflation
premium.
,D. the real rate of return plus the coupon rate plus an inflation rate.
Ans✓✓✓A. the real rate of return plus a risk premium plus an expected
inflation premium.
Every commodity contract specifies all the following EXCEPT
A. the delivery month.
B. the unit size of the contract.
C. the product.
D. All of these are specified in a commodity contract. Ans✓✓✓D. All of
these are specified in a commodity contract.
Risk − seeking investors seeking maximum capital appreciation with
little, if any current income, should invest in
A. equity − income funds.
B. growth funds.
C. aggressive growth funds.
D. value funds. Ans✓✓✓C. aggressive growth funds.
With futures contracts, the price at which the commodity must be
delivered is
A. is equivalent to the strike price for an options contract.
B. changes frequently during the life of the contract.
C. set when the futures contract is sold.
, D. set when the contract expires. Ans✓✓✓C. set when the futures
contract is sold.
Bonds with one of the top four ratings (Aaa through Baa, or AAA
through BBB) are designated as
A. illiquid bonds.
B. high − yield bonds.
C. investment grade bonds.
D. split bonds. Ans✓✓✓C. investment grade bonds.
At any given time, the yield curve is affected by
I. lender preferences.
II. inflationary expectations.
III. liquidity preferences.
IV. short − and long − term supply and demand conditions.
A. I and IV only
B. II, III and IV only
C. I, II and III only
D. I, II, III and IV Ans✓✓✓D. I, II, III and IV
The portfolio of a growth and income fund is likely to contain
A. an equal mix of stocks and fixed income securities.
QUESTIONS AND CORRECT DETAILED ANSWERS
(VERIFIED ANSWERS) ALREADY GRADED A+
The writer of a covered call has taken a(n)
A. aggressive position with limited losses and unlimited potential
profits.
B. aggressive position with potentially unlimited profits or losses.
C. conservative investment position with unlimited potential profits.
D. conservative investment position with limited profits. Ans✓✓✓D.
conservative investment position with limited profits.
Writers of option contracts
A. hope to exercise the option on favorable terms.
B. earn a profit when the option expires without being exercised.
C. have a limited liability specified in the contract.
D. earn a commission no matter what subsequently happens to the
contract. Ans✓✓✓B. earn a profit when the option expires without
being exercised.
If the purchaser of a futures contract fails to meet a margin call,
A. their local broker can decide to waive the call.
B. they will be given a 30 − day grace period before payment is
required.
C. his/her contract will be sold at the current market price.
,D. his/her contract will automatically be executed along with immediate
delivery. Ans✓✓✓C. his/her contract will be sold at the current market
price.
Which type of fund is unsuitable for tax sheltered retirement accounts?
A. municipal bond funds
B. money market funds
C. government bond funds
D. index funds Ans✓✓✓A. municipal bond funds
municipal bond funds are exempted from Federal tax
Yield curves for corporate and government securities have similar
shapes, but the corporate rates track below the government rates.
True
False Ans✓✓✓False
The required return on a bond is equal to
A. the real rate of return plus a risk premium plus an expected inflation
premium.
B. the real rate plus a risk premium.
C. the risk − free rate plus a risk premium plus an expected inflation
premium.
,D. the real rate of return plus the coupon rate plus an inflation rate.
Ans✓✓✓A. the real rate of return plus a risk premium plus an expected
inflation premium.
Every commodity contract specifies all the following EXCEPT
A. the delivery month.
B. the unit size of the contract.
C. the product.
D. All of these are specified in a commodity contract. Ans✓✓✓D. All of
these are specified in a commodity contract.
Risk − seeking investors seeking maximum capital appreciation with
little, if any current income, should invest in
A. equity − income funds.
B. growth funds.
C. aggressive growth funds.
D. value funds. Ans✓✓✓C. aggressive growth funds.
With futures contracts, the price at which the commodity must be
delivered is
A. is equivalent to the strike price for an options contract.
B. changes frequently during the life of the contract.
C. set when the futures contract is sold.
, D. set when the contract expires. Ans✓✓✓C. set when the futures
contract is sold.
Bonds with one of the top four ratings (Aaa through Baa, or AAA
through BBB) are designated as
A. illiquid bonds.
B. high − yield bonds.
C. investment grade bonds.
D. split bonds. Ans✓✓✓C. investment grade bonds.
At any given time, the yield curve is affected by
I. lender preferences.
II. inflationary expectations.
III. liquidity preferences.
IV. short − and long − term supply and demand conditions.
A. I and IV only
B. II, III and IV only
C. I, II and III only
D. I, II, III and IV Ans✓✓✓D. I, II, III and IV
The portfolio of a growth and income fund is likely to contain
A. an equal mix of stocks and fixed income securities.
