1.

Money market securities

A.are generally very low risk.
B.are short term.
C.are highly marketable and are generally very low risk.
D.are highly marketable.
E.All of the options

2. Which of the following functions do investment companies perform for their investors?
A.Professional management B.Diversification and divisibility
C.Record keeping and administration D.Lower transaction costs
E.All of the options

3. A debt security pays

A.a variable level of income for owners on a fixed income.
B.a fixed or variable income stream at the option of the owner.
C.a fixed stream of income or a stream of income that is determined according to a specified formula for
the life of the security.
D.a fixed level of income for the life of the owner.

4. A portfolio has an expected rate of return of 12.75% and a standard deviation of 15% The risk-free rate is 6%.
An investor has the following utility function: U = E(r) - (A/2)s2. Which value of A makes this investor indifferent
between the risky portfolio and the risk-free asset?
A.5 B.6 C.7 D.8
12.75%- 1/2* A* (15%)^2 = 6% => A= 6
5. Which of the following statements regarding risk-averse investors is true?
A.They are willing to accept lower returns and high risk.
B.They only care about the rate of return.
C.They accept investments that are fair games.
D.They only accept risky investments that offer risk premiums over the risk-free rate.
E.They only care about the rate of return, and they accept investments that are fair games.
6. In the event of the firm's bankruptcy
A.the most shareholders can lose is their original investment in the firm's stock and the claims of preferred
shareholders are honored before those of the common shareholders.
B.the claims of common shareholders are honored before those of the preferred shareholders.
C.bondholders have claim to what is left from the liquidation of the firm's assets after paying the
shareholders.
D.common shareholders are the first in line to receive their claims on the firm's assets.

7. Investors in closed-end funds who wish to liquidate their positions must

A.sell their shares to the issuer for net asset value.
B.hold their shares to maturity.
C.sell their shares to the issuer at a premium to net asset value.
D.sell their shares to the issuer at a discount to net asset value.
E.sell their shares through a broker.

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8. Multiple Mutual Funds had year-end assets of $507,000,000 and liabilities of $17,000,000. There were
70,000,000 shares in the fund at year-end. What was Multiple Mutual's net asset value?
A.$18.11 B.$181.07 C.$18.81 D.$7.00 E.$69.96
nav= mv of asset - liability /
shareoutstanding
9. In the mean-standard deviation graph, which one of the following statements is true regarding the
indifference curve of a risk-averse investor?
A.It is the locus of portfolios that have the same standard deviations and different rates of return.
B.It is the locus of portfolios that have the same expected rates of return and different standard deviations.
C.It is the locus of portfolios that offer the same utility according to returns and standard deviations.
D.It connects portfolios that offer increasing utilities according to returns and standard deviations.
E.None of the options

10. Which of the following portfolio construction methods starts with security analysis?
A.Middle-out B.Top-down C.Buy and hold
asset allocation
D.Asset allocation E.Bottom-up
security analysis
11. The Profitability Fund had NAV per share of $17.50 on January 1, 2012. On December 31 of the same year,
the fund's NAV was $19.47. Income distributions were $0.50, and the fund had capital gain distributions of
$0.50. Without considering taxes and transactions costs, what rate of return did an investor receive on the
Profitability Fund last year?
A.11.26% B.21.26% C.9.83% D.16.97% E.15.54%
r = nav1-nav0 + income + capital /
12. The bid price of a T-bill in the secondary market is nav0
A.never quoted in the financial press.
B.the price at which the dealer in T-bills is willing to sell the bill.
C.the price at which the investor can buy the T-bill.
D.greater than the asked price of the T-bill.
E.the price at which the dealer in T-bills is willing to buy the bill.

13. The presence of risk means that

A.final wealth will be greater than initial wealth.
B.investors will lose money.
C.the standard deviation of the payoff is larger than its expected value.
D.terminal wealth will be less than initial wealth.
E.more than one outcome is possible.

14. Elias is a risk-averse investor. David is a less risk-averse investor than Elias. Therefore,
A.for the same return, David tolerates higher risk than Elias.
B.for the same risk, David requires a higher rate of return than Elias.
C.for the same return, Elias tolerates higher risk than David.
D.for the same risk, Elias requires a lower rate of return than David.
E.Cannot be determined

15. According to the mean-variance criterion, which one of the following investments dominates all others?
A.E(r) = 0.15; Variance = 0.25
B.E(r) = 0.10; Variance = 0.20
C.E(r) = 0.11; Variance = 0.20
D.E(r) = 0.10; Variance = 0.25
E.None of these options dominates the other alternatives.
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16. Which of the following would increase the net asset value of a mutual fund share, assuming all other things
remain unchanged?
A.An increase in the number of fund shares outstanding
B.A change in the fund's management
C.An increase in the fund's accounts payable
D.An increase in the value of one of the fund's stocks

17. Jargon Rapid Growth is a mutual fund that has traditionally accepted funds from new investors and issued
new shares at net asset value. Jeremy Jargon manages the fund himself and has become concerned that its
level of assets has become too high for his management abilities. He issues a statement that Jargon will no
longer accept funds from new investors, but will continue to accept additional investments from current
shareholders. Which of the following is true about Jargon Rapid Growth fund?
A.Jargon used to be an open-end fund but has now become a closed-end fund.
B.Jargon is violating SEC policy by refusing to accept new investors.
C.Jargon has always been a closed-end fund and will remain a closed-end fund.
D.Jargon has always been an open-end fund and will remain an open-end fund.

18. Assume that you purchased shares of a mutual fund at a net asset value of $14.50 per share. During the
year you received dividend income distributions of $0.27 per share and capital gains distributions of $0.95 per
share. At the end of the year the shares had a net asset value of $13.74 per share. What was your rate of return
on this investment?
A.1.10% B.2.91% C.3.17% D.-1.18% E.1.78%

19. Investors trade previously issued securities in the ________ market(s).

A.primary and secondary B.primary C.derivatives D.secondary

20. Steve is more risk-averse than Edie. On a graph that shows Steve and Edie's indifference curves, which of
the following is true? Assume that the graph shows expected return on the vertical axis and standard deviation
on the horizontal axis.
I) Steve and Edie's indifference curves might intersect.
II) Steve's indifference curves will have flatter slopes than Edie's.
III) Steve's indifference curves will have steeper slopes than Edie's.
IV) Steve and Edie's indifference curves will not intersect.
V) Steve's indifference curves will be downward sloping and Edie's will be upward sloping.
A.II and IV B.I and II C.I and V D.I and III E.III and IV