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Multiple Choice - Financial Markets

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Multiple Choice Questions:

1. Bob sold short 300 shares of a stock at $55 per share. The initial margin is 60%, which was met exactly. At what (closest) stock price will he receive a margin call if the maintenance margin is 35%?

A)$51
B)$69
C)$62
D)$45

2.Which of the following countries has an equity index that lies on the efficient frontier generated by allowing international diversification?

A)United States
B)United Kingdom
C)Japan
D)Norway
E)none of the above as each of these countries' indexes fall inside the efficient
frontier.

3.An open-end mutual fund had year-end assets of $279,000,000 and liabilities of
$43,000,000. If the fund's NAV was $42.13, how many shares must have been held in
the fund?

A)43,000,000
B)6,488,372
C)5,601,709
D)1,182,203
E)None of the above.

4.The straightforward generalization of the simple CAPM to international
stocks is problematic because __________.

A) inflation risk perceptions by different investors in different countries will differ as
consumption baskets differ
B) investors in different countries view exchange rate risk from the perspective of
different domestic currencies
C) taxes, transaction costs and capital barriers across countries make it difficult for
investor to hold a world index portfolio
D) all of the above
E) none of the above.

5. Consider the multifactor model APT with two factors. Portfolio A has a beta of
0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and
factor 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The
expected return on portfolio A is __________if no arbitrage opportunities exist.

A)13.5%
B)15.0%
C)16.5%
D)23.0%
E)none of the above

6.Consider the multifactor APT. The risk premiums on the factor 1 and factor 2
portfolios are 5% and 3%, respectively. The risk-free rate of return is 10%. Stock A has
an expected return of 19% and a beta on factor 1 of 0.8. Stock A has a beta on factor 2 of
________.

A)1.33
B)1.50
C)1.67
D)2.00
E)none of the above

7.The potential loss for a writer of a naked call option on a stock is

A)limited
B)unlimited
C)larger the lower the stock price.
D)equal to the call premium.
E)none of the above.

8. According to the put-call parity theorem, the value of a European put option on
a non-dividend paying stock is equal to:

A)the call value plus the present value of the exercise price plus the stock price.
B)the call value plus the present value of the exercise price minus the stock price.
C)the present value of the stock price minus the exercise price minus the call price.
D)the present value of the stock price plus the exercise price minus the call price.
E)none of the above.

9. If John purchases one IBM May 100 call contract at $5 and writes one IBM
May 105 call contract at $2. The maximum potential profit of his strategy is

A)$600.
B)$500.
C)$200.
D)$300.
E)$100

10. If John purchases one IBM May 100 call contract at $5 and writes one IBM
May 105 call contract at $2, his strategy is called-

A) a short straddle.
B) a money spread
C) a horizontal straddle.
D) a covered call.
E) none of the above.

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Solution Summary

This posting gives the solution key for a set of Multiple Choice Questions based on the Financial Markets.

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Accounting/Financial Markets Multiple Choice

1).Which of the following is not considered an acceptable inventory cost method according to GAAP?
A) First in , First out (B) First in Last out (C) Last in Fist out (D) Average cost

2) The cost flow assumption selected by a company need not correspond to the actual physical movement of the company's merchandise
A) True (B) False

3)Which of the following results in the inventory being stated at the most current acquisition costs
A) Specific identification (B) Lifo (C) Fifo (D) average cost

4) The write- down of inventory:
A) only affects the balance sheet and not the income statement(B) Only affects the income statement and not the balance sheet(C) Affects both the income statement and the balance sheet(D) Affects neither the income statement nor the balance sheet.

Use the following to answer question :
At the end of last year, Tech Toys had merchandise costing $120,000in inventory. During January of the current year, the company purchase merchandise costing $82,000, and sold merchandise that it had purchased at a total cost of $64,000. Tech Toys uses a perpetual inventory system.

5) Refer to the above data. The total amount debited to the Inventory account during January was:
A) $0 (B) $64,000 (C) $82,000 (D) $120,000.

6) Refer to the above data: The balance in the inventory account at January 31 was:
A) $82,000 (B) $120,000 (C) $138,000 (D) $202,000

7)Refer to the above data: The amount of goods transferred from the inventory accounts to the cost of goods sold account during January was
A) $0 (B) $64,000 (C) $82,000 (D) $56,000

8) During a period of rising prices,a company might report higher profits by using
A) Average cost (B) LIFO (C) Just In Time (D) FIFO

Use the following question to answer the question
During the current year, Little John Store had net sales of $800 million a cost of goods sold of $600 million, average accounts receivable of $80 million and average inventory of 60 million.

9) Refer to the above data Little John's inventory turnover rate is:
A) 5 times (B) 10 times (C) 15 times (D) some other amount

10)Refer to the above data Assuming a 365 day year, the number of days require for little John to convert its average inventory into cash is:
36.5 (B) 73.0 (C) 24.3 (D) some other price

11) An asset which costs $7,200 and has accumulated depreciation of $1,800 is sold for $4,500. What amount will be recognized when the asset is sold
A) a gain of $900(B) Loss of $900 (C) loss of $2,700 gain of (D) $2,700

12)Carlson Imports sold a depreciable plant asset of $35,000. The accumulated depreciation amounted to $70,000, and a loss of $5,000 was recognized on the sale. Under these circumstances the original cost of the asset must have been
A) $65,000 (B) $75,000 (C) $100,000 (D) 110,000

Use the following to answer the question
On April 2,2005 Empress,Inc acquire a new piece of filtering equipment The cost of the equipment was $110,000 with a residual value of $20,000 at the end of its estimated useful lifetime of 6 years
13) Refer to the above information. Assume that in its financial statement, empress uses straight -line depreciation and rounds depreciation for a fractional years to the nearest month. Depreciation recognized on this equipment in 2005 qnd 2006 will be
A)$12,500 in 2005 and $16,667 in 2006 (B) $4,160 in 2005 and $16,667 in 2006 (C) $3,750 in 2005 and $15,000 in 2006 (D) $11,250 in 2005 and $15,000 in 2006

14)Refer to the above information. Assume that in its financial statement, Empress uses straight-line depreciation and the half-year convention. Depreciation recognized on this equipment in 2005 and 2006 will be
A) $4,167 in 2005 and $16,667 IN 2006(B) $8,333 in 2005 and $16,667 in 2006 (C) $7,500 in 2005 and $15,000 in 2006 (D) $3,750 in 2005 and $15,000 in 2006

15) Refer to the above information. If Empress uses straight line depreciation with the half-year convention the book value of the equipment at December 31,2006 will be:
A) $83,750 (B) $87,500 (C) $73,750 (D)$84,250

16) Most companies benefits by using accelerated depreciation method for income tax purpose
A) True (B) False

17) A $1,000 bond that sells for 102 has a cost of
A)$1002 (B) $1020 (C) $1200 (D) $1,000

Use the following to answer the question
On September 1, 2005, Jack Company purchase a building from Jill Corporation by paying $100,000 cash and issuing a one year note payable for the balance of the purchase price interest on the note is stated at an annual rate of 9% and is paid at maturity. In its December 31, 2005, balance sheet, Jack correctly presented the note and Interest payable as the follows:

Interest payable................................................$15,000
Note payable,9%, due September 1, 2006 ............$500,000

18) Refer to the above data, how much must jack pay Jill corporation on September 1, 2006, when the note matures?
A) $500,000(B) $530,000 (C)$545,000 (D) some of amount.

19) Refer to the above data , What is the amount of interest expense Jack will recognize on this note in 2006?
A) $15,000 (B) $45,000 (C) $30,000 (D) some other amount

20) Refer to the above data, What is the total cash paid for the building purchase by Jack?
A) $600,000 (B)$630,000 (C) $645,000 (D) $615,000

21) Unearned revenue:
A) Appears on the income statement as income (B) Appears on the income statement as are reduction to income (C) appears on the income statement as a liability (D) Appears on the balance sheet as a liability.

Use the following to answer the question
Sunrise Corporation issues $3000,000 of 12%, 10 year bond dated December 31, year 1. the bond are issued on April 30, year 2, at the price of 100 plus accrued interest. Interest on bond is payable semiannually each June 30 and December 31.

22)Refer to the above data, The total amount of cash received by Sunrise Corporation upon issuance of the bonds on April 30, year 2, is
A)$3,000,000 (B) $3,120,000 (C) $3,060,000 (D) $3,180,000

23) Refer to the above data. The journal entry made sunshine Corporation to record the first semiannual interest payment on the bond includes
A) debit to bond interest expense of $180,000 (B) Debit to bond interest payable of $60,000 (C) debit to bond interest expense of $60,000 (D) debit to bond interest expense of $120,000
24) Refer to the above data , The amount of Sunrise's interest expense on this bond issue during year 2 amount to:
A) $240,000 (B)$ 320,000 (C) $180,000 (D) $270,000

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