Multiple Choice (1 Point each) The Securities Exchange Act of 1934

| September 28, 2018

Multiple Choice (1
Point each)

1. The Securities Exchange Act of 1934
(a) requires full disclosure of information on all
new security issues.
(b) authorized the SEC to regulate mutual funds.
(c) established trade associations such as the
NASD.
(d) created the SEC as the regulator of the
securities exchanges.
2.
Nancy sells short 100 shares of
XYZ stock at $31.25 per share and six months later purchases the shares at
$29.00 each. Ignoring brokerage fees, Nancy will
(a) earn a total profit of $225.00.
(b) lose a total of $225.00.
(c) earn a total profit of $2,225.00.
(d) lose
a total of $202.50.
3.
When calculating the present
value of either a future single sum or a future annuity, the applicable
interest rate is usually called the
(a) yield
to maturity.
(b) compound
interest rate.
(c) internal
rate of return.
(d) discount
rate.
4.
Stocks are a(n) ______
investment representing ______ of a business.
(a) direct;
ownership
(b) direct;
debt
(c) indirect;
ownership
(d) indirect;
debt
5.
Assume the foreign exchange
rate for the euro was US $1.00=€1.13 last month. This month, the exchange
rate is US $1.00=€1.09. This information indicates that over the past month the
(a) US dollar remained unchanged relative to the
euro.
(b) US dollar appreciated relative to all foreign
currencies.
(c) euro appreciated relative to the dollar.
(d) euro depreciated relative to the dollar.

6.
Debt represents funds loaned in
exchange for
(a) dividend
income and the repayment of the loan principal.
(b) dividend
income and an ownership interest in the firm.
(c) interest
income and a partial ownership interest in the firm.
(d) interest
income and the repayment of the loan principal.

7.
Which one of the following is
NOT published by the U.S. Government?
(a) Federal
Reserve Bulletin
(b) Survey
of Current Business
(c) Kiplinger
Washington Letter
(d) Economic
Report of the President
8.
Risk can be defined as the
possibility that
(a) a
negative return can be expected.
(b) actual
returns can vary from expected returns.
(c) expected
returns will vary from past returns.
(d) actual
returns will exceed past returns.
9.
Including foreign investments
in a portfolio
(a) decreases the overall diversification of the
portfolio.
(b) reduces the potential rate of return.
(c) provides potential benefits from changes in
currency values.
(d) limits
the diversification amongst industries.
10.
A $5,000 ten-year 8% coupon
bond which pays interest semi-annually will
(a) pay
the bondholder $400 in interest every six months.
(b) repay
the $5,000 to the bondholder at the end of eight years.
(c) pay
the bondholder $200 in interest every six months.
(d) pay
the bondholder $200 in interest every three months.
11.
Bond yields are
(a) quoted
as the average monthly rate of return and assume the bond is purchased today at
the quoted price and held for twelve months.
(b) quoted
as annual rates of return and assume the bond is purchased today at the stated
price and sold one year from today.
(c) stated
as a percentage of the maturity value and assume the bond is held to maturity.
(d) stated
as an annual rate of return and assume the bond is purchased today and held
until maturity.
12.
The law that requires
investment advisers to register with the SEC is the
(a) Investment Company Act of 1940.
(b) Investment Advisers Act of 1940.
(c) Maloney Act of 1938.
(d) Securities Act of 1933.

13. Susie purchased a stock one year ago at a price of $24 a share. In
the past year, she has received four quarterly dividends of $0.50 each. Today
she sold the stock for $27 a share. The amount of capital gain per share is
(a) $3.00.
(b) $3.50.
(c) $4.00.
(d) $5.00.

14.
Stock market averages and
indexes are commonly used to measure the
(a) specific
behavior of companies.
(b) general
behavior of stock prices.
(c) specific
behavior of alternative investments.
(d) specific
behavior of the economy.

15.
Roy is going to receive a
payment of $5,000 one year from today. He earns an average of 6% on his
investments. What is the present value of this payment?
(a) $4,717
(b) $4,821
(c) $5,000
(d) $5,300

16.
Short-term securities are
bought and sold in the
(a) capital
market.
(b) primary market.
(c) money market.
(d) stock market.

17.
Which one of the following
statements concerning the primary market is correct?
(a) A transaction in the primary market is between
two private stockholders.
(b) The
first public sale of a company’s stock in the primary market is called a
seasoned new issue.
(c) A private placement occurs in the primary
market.
(d) A
rights offering is a direct sale of stock to an institution that participates
in the primary market.

18.
The governmental agency that
oversees the capital markets is the
(a) Federal Trade Commission.
(b) Federal Reserve.
(c) Securities and Exchange Commission.
(d) Fair Trade and Banking Agency.
19.
Which of the following are
functions of the secondary market?
I. Provide
liquidity for current stockholders
II. Equate
the demand and supply of securities
III. Provide
a market for seasoned new issues
IV. Provide continuous pricing of securities
(a) I
and II only
(b) II
and IV only
(c) I
and III only
(d) I,
II and IV only
20.
Regulation FD requires
(a) company
executives to report critical information simultaneously to securities
professionals and the general public.
(b) all
news media to simultaneously broadcast analysts forecasts on individual stocks.
(c) penalties
for committing fraud if the regulations are violated by any news media
broadcaster.
(d) all
communications with rating agencies, such as Standard & Poor’s to be
immediately communicated to the general public.

21.
Which one of the following web
sites should you utilize to review the financial information in a company’s
10-K report?
(a) freeedgar.com
(b) valueline.com
(c) news.com
(d) newsalert.com

22.
Assume that the S&P 500
composite stock index is 995.50. This means that
(a) the
average stock in the index is selling for $99.55.
(b) an
investor would have to pay $995.50 to purchase one share of each of the stocks
represented in the index.
(c) the
market values of the stocks in the index increased by a factor of 99.55 since
the 1941–1943 base period.
(d) the
share prices of the stocks in the index have risen 995.50 times since 1941.

23.
Robin purchased a stock at a
price of $18 a share. She received quarterly dividends of $0.50 per share.
After one year, Robin sold the stock at a price of $19.50 a share. What is her
percentage total return on this investment?
(a) 10.3%
(b) 11.1%
(c) 17.9%
(d) 19.4%

24.
Which one of the following
statements concerning interest is correct?
(a) A
five-year investment paying 6% simple interest will provide a higher total
return than a comparable investment paying 6% compound interest.
(b) A
$100 investment paying 5% interest compounded annually will have a total value
of $115 at the end of three years.
(c) The
less frequently interest is compounded, the higher the true rate of interest.
(d) An
investment paying 7% compounded quarterly will have a larger value at the end
of one year than a comparable investment paying 7% compounded annually.

25.
Ted invests $400 today at a 7%
rate of return which is compounded annually. What is the future value of this
investment after five years?
(a) $428
(b) $500
(c) $540
(d) $561

26.
The risk-free rate is equal to
the real rate of return plus
(a) an
expected inflation premium.
(b) a
risk premium.
(c) both
an inflation and a risk premium.
(d) the
prevailing prime rate.

27.
Which of the following
represent unsystematic risks?
I. the
president of a company suddenly resigns
II. the
economy goes into a recessionary period
III. a
company’s product is recalled for defects
IV. the Federal Reserve unexpectedly changes
interest rates
(a) I,
II and IV only
(b) II
and IV only
(c) I
and III only
(d) I,
II and III only

28.
A stock’s beta value is a
measure of
(a) interest
rate risk.
(b) total
risk.
(c) systematic
risk.
(d) diversifiable
risk.
29.
The beta of the market is
(a) –1.0.
(b) 0.0.
(c) 1.0.
(d) undefined.

30. The following data has been gathered concerning a particular
investment and conditions in the market.

Risk-free
rate

4.5%

Market
return

11.0%

Beta
of investment

1.35

According to the
Capital Asset Pricing Model, the required return for this investment is
(a) 8.8%.
(b) 12.9%.
(c) 13.3%.
(d) 14.9%.
31.
The Capital Asset Pricing Model
(CAPM) is a mathematical model that depicts the
(a) positive
relationship between risk and return.
(b) standard
deviation between a risk premium and an investment’s expected return.
(c) exact
price that an investor should be willing to pay for any given investment.
(d) difference
between a risk-free return and the expected rate of inflation.
32.
When the Capital Asset Pricing
Model is depicted graphically, the result is the
(a) standard
deviation line.
(b) coefficient
of variation line.
(c) security
market line.
(d) alpha-beta
line.
33.
Beta can be defined as the
slope of the line that explains the relationship between
(a) the
return on a security and the return on the market.
(b) the
returns on a security and various points in time.
(c) the
return on stocks and the returns on bonds.
(d) the
risk free rate of return versus the market rate of return.

34.
The efficient frontier
(a) is
represented by the rightmost boundary of the feasible set of portfolios.
(b) represents
the best attainable tradeoff between risk and return.
(c) includes
all feasible sets of portfolios based on risk and return characteristics.
(d) provides
the highest level of risk for the lowest level of return.

35.
The risk-free rate of return is
4% while the market rate of return is 11%. Delta Company has a historical beta
of 1.25. Today, the beta for Delta Company was adjusted to reflect internal
changes in the structure of the company. The new beta is 1.38. What is the amount
of the change in the expected rate of return for Delta Company based on this
revision to beta?
(a) 0.4%
(b) 0.9%
(c) 9.7%
(d) 13.7%

(15 Points)
You are an analyst at Dewey, Cheatum, and
Howe. A mutual fund manager presents the
following free cash flow data for XYZ Corp (in millions of $).

Year Cash Flow
2007
300
2008
500
2009
600
2010
700
2011
500

She asks you to please calculate the:

Geometric
Total Return
Geometric
Annualized Return

Then, the mutual fund manager asks you to
make a 10 year forecast based upon the geometric annualized return.

Finally, she asks you to calculate the
present value of the forecasted cash flows assuming a weighted average cost of
capital of 8%.

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