Investment Exam Questions Practice Guide Correct Verified Answers Guaranteed Solution.
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Course
INV.
Institution
INV.
Specific companies are researched and chosen as investments based on their outstanding investment possibilities by analysts who practice: - correct answer Bottom up analysts are looking for the next big, but as yet, undiscovered stock that will break on...
Specific companies are researched and chosen as investments based on their outstanding investment
possibilities by analysts who practice: - correct answer Bottom up analysts are
looking for the next big, but as yet, undiscovered stock that will break onto the scene. Bottom up
analysts start with the company, then the industry and finally the economic climate. Top-down starts
with the economic climate, moves to the industry and then the company.
Your clients, Dan & Mary both work for Terra Corporation. They have asked you, as their personal
financial planner, to explain to them exactly what their human resources department was referring to in
a session last week when they discussed "out-of-the-money" positions in the stock option investment
plan they have at work. Of the following, which would meet that description given the current $51 per
share market price of the stock?
A) Dan holds 100 shares of company stock which he purchased through his broker at $56 per share.
B) A portion of Mary Jo's shares were given to her at the program's inception 18 months ago and are
currently exercisable at $47 per share.
C) Dan's most recent award has an exercise price of $55 per share.
D) Mary Jo has 225 shares of Terra, awarded with an exercise price of $51 per share. - correct answer
Option "A" is out-of-the-money but has nothing to do with his option through his work. Option "B" is in-
the-money. Option "D" is at-the-money, meaning price of exercise and stock price are the same. Only
Option "C" is out-of-the-money and addresses our client's concerns.
What is one reason a company may call bonds that were previously issued? - correct answer
The bonds are currently selling at a premium.
If the bonds are selling at a premium, then interest rates have decreased since the bonds were issued.
The company would be motivated to retire the higher yield bonds and issue new bonds at lower market
interest rates. A discount bond would indicate that interest rates increased and the bond is paying a
lower rate than current market interest rates.
Companies do not make changes on expectations, but in actual rate changes.
Which of the following statements most adequately describes a debenture? - correct answer
Debentures are unsecured corporate debt.
, short-term promissory notes would be "commercial paper.
A long-term corporate debt obligation with a claim against securities rather than against physical assets.
(is a repurchase agreement.)
The theory of the Yield Curve that attempts to explain the yield curve based upon future rates of
inflation is the: - correct answer Expectations Theory.
Liquidity preference states that investors prefer liquidity, therefore, short-term money pays less. The
market segmentation theory states that supply and demand explain at various maturities the shape of
the yield curve.
Lisa invested $5,000 in a mutual fund three years ago. The mutual fund paid the following total
dividends:
Year 1: $350
Year 2: $0
Year 3: $400
At the end of the third year, she sold the fund for $5,750. What was her compounded rate of return? -
correct answer CF0=<5,000>
CF1=350
CF2=0
CF3=400 + 5,750
IRR=9.53
If the risk/return performance of a stock lies above the Security Market Line, the stock is said to have a: -
correct answer Positive alpha.
Performance of a stock below the SML is a negative alpha. Again, the Jensen formula can be used for
this calculation.
What is the weighted beta coefficient of this portfolio? - correct answer Total
Portfolio Value = (10,000 + 15,000 + 11,000) = 36,000
A(10,000 ÷ 36,000) × 1.4 = .3889
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