# Finance 261 Mock Test

Topics: Stock market, Stock, Modern portfolio theory Pages: 12 (2276 words) Published: September 8, 2013
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FINANCE 261

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FINANCE 261

THE UNIVERSITY OF AUCKLAND Department of Accounting and Finance

FINANCE 261 Introduction to Investments

MID-SEMESTER TEST Semester 1 - 2013

INSTRUCTIONS Time allowed: 60 minutes (includes reading time) Total Marks: 20

a. b. c. d. e. f.

Answer ALL questions. There are 20 questions each worth 1 mark. All questions carry equal marks. Formulae are included in Appendix 1. Calculators are permitted. Detach the answer sheet and fill in YOUR NAME and ID number Ensure that you hand in the answer sheet before you leave the room

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Version 1 Question 1

FINANCE 261

Compared to other types of marketable securities, money market securities are characterized by ________. I. maturity less than one year II. low risk III. low rates of return A. I only B. I and II only C. I and III only D. I, II and III D Question 2 A T-bill quote sheet has 90-day US T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a \$10,000 face value an investor could buy this bill for A. \$10,000.00 B. \$9,878.50 C. \$9,877.00 D. \$9,880.16 B Investor can buy at the ask price. 10,000 × (1 – 0.0486 × 90 / 360) = 9,878.50

Question 3 The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are \$10, \$20, \$80, \$50 and \$40. The price of the last stock was just split 2 for 1 and the stock price was halved from \$40 to \$20 as a result. Initially the divisor was set at 5 before the stock split. What is the new divisor for a price weighted index? A. 5.00 B. 4.85 C. 4.50 D. 4.75 C Before the split Index = (10 + 20 + 80 + 50 + 40 ) / 5 = 40 The devisor, x, needs to be set: (10 + 20 + 80 + 50 + 20) / x = 40. x = 4.5

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Version 1 Question 4

FINANCE 261

You just short-sold 200 shares of Rock Creek Fly Fishing Co., at \$50 per share. If you wish to limit your loss to \$2,500, you should place a stop-loss ____________. A. buy order at \$37.50 B. buy order at \$62.50 C. sell order at \$37.50 D. sell order at \$62.50 B Since you short-sold you need to buy back the shares. To limit your loss to \$2,500, you should place a stop loss buy order at 50 + 2500 / 200 = 62.50

Question 5 You purchased 987 shares of ABC common stock on margin at \$56 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends and ignore interest on the margin loan.) A. \$40 B. \$41 C. \$42 D. \$43 A (p – 28) / p = 0.3. p = 40 Question 6 Investors who wish to liquidate their holdings in a closed-end fund may ___________________. A. sell their shares back to the fund at a discount if they wish B. sell their shares back to the fund at net asset value C. sell their shares on the open market D. sell their shares at a premium to net asset value if they wish C

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FINANCE 261

Question 7 If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with? Do NOT use an approximation. A. 4.85% B. 5.00% C. 11.06% D. 11.24% D Nominal rate = (1 + 0.08) ×(1 + 0.03) – 1 = 11.24% Question 8 On a standard expected return vs. standard deviation graph investors will prefer portfolios that lie to the _____________ of the current investment opportunity set. A. left and above B. left and below C. right and above D. right and below A

Question 9 You are considering investing \$1,000 in an efficient portfolio...