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If the yield curve is inverted which of the following trades at the highest yield?
A T bills
B T notes
C T bonds
D intermediate term municipal bonds
A. T bills are short term debt securities
The consumer price index is used to
A predict the direction of long term interest rates
B measure inflation
C determine short term financing rates
D establish intermediate term rates on international business loans
B the CPI measures inflation/deflation
(this multiple choice question has been scrambled)
Which of the following best expresses the Federal Reserve boards role in shaping economic policy ?
A they establish long term interest rates used by mortgage lenders
B they negotiate more attractive interest rates for low income home purchasers
C through monetary policy they raise and lower short term interest rates
D they write tax policy
See. The Fed can control short term rates, but has little control over long time rate such as mortgage rates .
All of the following are lagging economic indicators except for:
B corporate profits
C average weekly hours worked by manufacturing employees
D prime rate
C. Average weekly hours work by manufacturing employees
An economic slump would be associated with which of the following?
A rising unemployment, inflation, rising interest rates
B falling unemployment, inflation, rising interest rates
C rising unemployment, falling GDP, falling interest rates
D falling unemployment, deflation, rising GDP
C. In a textbook perfect economic slump interest rates would drop as people are being laid off and the economy is stagnating.
All of the following are considered leading indicators except for:
A S&P 500 index
B building permits
C claims for unemployment
D inventory levels
D. Inventory levels
Which of the following equals a company's working capital?
A total liabilities divided by total assets
B current assets divided by current liabilities
C current liabilities subtracted from current asset
D long term assets minus net debt
C. Current liabilities subtracted from current assets.
Which of the following would increase a company's net profit margin?
A increase in cost of good sold
B increase in interest expense
C decrease in depreciation
D increase in depreciation
C. Depreciation is a subtraction that lowers reported net income.
Which of the following best describes the price to earnings ratio?
A it is a tool for credit analysis
B it reflects how richly investors value a company's profitability as reflected in the market price for the stock
C it is the inverse of dividend yield
D give me flex the rate of increase in the stock's market price
B. Growth stocks trade at a high price to earnings ratio while value stocks trade at low ratios. Growth stocks, in other words, reflect more enthusiasm for the company's earnings /profit than value stocks.
A head and shoulders bottom formation is a :
1 bearish indicator
2 bullish indicator
3 reversal of an uptrend
4 reversal of a downtrend
A 1, 4
B 2, 4
C 1, 3
D 2, 3
B. The head and Shoulders pattern is always a reversal on the exam. If the reversal is at the bottom, the downtrend must be ending, with the bull market up ahead.
The 200 day moving average is:
A a contrarian indicator
B helpful in spotting trends
C a primary tool of fundamental analysis
D use primarily in interest rate analysis
B. Associate the moving average with "trends" and "technical analyst."
And investments market value decreases from 10 dollars to 8 dollars and 50 cents over 1 quarter. The investment's analyzed rate of return is what?
Negative 60 percent.
XYZ common stock pays a quarterly dividend of 75 cents. One of your investors purchased the stock at $50 at the beginning of Q3. If the stock trades for $49 at the end of Q3, what is your investor's annualized rate of return?
One of your clients purchased a GE %s debenture of '17 @96.375. What is the current yield?
The "5s" means that the coupon rate is 5% or $50 per year. Divide that $50 of annual interest by the market price of $963.75, and you get the current yield of about 2.5%.
Dale's investment depreciates 2% during a period in which the CPI decreases 3%. What is Dale's real rate of return?
Investment drops 2% but prices are dropping even faster than that. Yhe real rate of return is a positive 1%.
An incestor purchasing a corporate bond yielding 9.5% would find that a tax-free bond yielding ______ would be equivalent? The investor is in the 25% marginal tax bracket.
9.5% x 75%=7.125%
An investor in a 30% marginal tax bracket would find that a General Obligation bond of the State of New York paying 4% would be equivalent to a taxable debenture paying...?
4% divided by 70% (100% minus tax bracket) = 5.7%.
A portfolios's expected return is 6%, with a standard deviation of 4. Therefore, the portfolio will most likely show returns between...?
10%. (subtract and add 4 to 6%.)
If ABC common stock has a beta coefficient of .5, what would occur if the S&P dropped by 10%?
The stock would drop by 5%.
PDQ common stock has a 40% chance of appreciation 10% and a 60% chance of apprecieatin 8%. Therefor, its expected return is...?
8.8%. 40% x 10 +60%x8= 8.8%
Disney and Microsoft common stock show a correlation of -.4. Therefore if Disney rises 10%, Microsoft would be expected to...
Fall by 4%. (Fall bay 40% as much.)
Which bond has the highest duration: a 10-year T-note, a 30-year T-bond, or a 30-year STRIP?
The STRIP which is a zero coupon bond, provides no cash flow over 30 years, so its duration has to be much higher than the T-bond, which does provide interest payments every six months.
XYZ common stock currently pays a dividend of 44 cents annually. If the dividend is increased by 6% per year for five years, what will the dividend be at the end of this period?
59 cents. (take 44 cents and multiply by 1.06 five times in a row.)
One of your clients requires $200,000 in 7 years. If your client invest the money at 4% compounded, how much needs to be invested to achieve the goal?
$151,983. ($200k divided by 1.04 seven times.)
A 10-year zero-coupon Treasury bond is most susceptible to which of the following?
A) credit risk
B) reinvestment risk
C) liquidity risk
D) purchasing power risk
D. purchasing power risk
Which of the following investments is generally the most volatile?
A) growth mutual funds
B) equity income mutual funds
C) value mutual funds
D) balanced mutual funds
A. growth mutual funds
Non-systematic risk is best reduced through
A) hedging strategies
C) buy and hold
D) equity options
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