Ming Chuan University

International College
IBT Program

1) B 6)C 11)D 16)C 26)C

2) C 7) A 12) B 17) A 27) D
3) C 8) B 13) A 18) B 28) B
4) B 9) D 14) B 19) B 29) B
5) D 10) D 15) A 20) C 30) A

MULTIPLE CHOICE. (90%, 3% each) Choose the one alternative that best
completes the statement or answers the question.
1) Which one of the following can be considered a pitfall for investors new to on-line
trading?
A) On-line trading is fast and efficient.
B) On-line investors tend to trade too frequently.
C) On-line investors pay lower costs per trade than investors using a broker.

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D) On-line trading is available to the average investor.

2) Three years ago, Emily bought 200 shares of HQ at $27.00 per share. HQ shares
have risen to $57.50 per share. If the stock continues to rise, she wants to hold it, but
she fears that the price could fall quickly and she will lose most of her profit. Which
of the following decisions would be best?

A) Place a stop-limit order at $55.00. B) Place a stop-loss order at $27.00.

C) Place a stop-loss order at $55.00. D) Place a limit order to sell at $60.00.

3) Which one of the following statements about limit orders is correct?

A) The trade will be executed at the market price at the end of the third business day,
if not executed previously at the limit price.
B) The execution of the trade will occur prior to the close of trading on the day the
trade is placed.
C) The trade may be executed only at the limit price or better at any time prior to
expiration or cancellation of the order.
D) The execution will occur at the regular open on the day following the day the
trade is placed.

4) On March 15, Marcos placed a good-'til-canceled order to buy 200 shares of ABC
at $10 a share. ABC sold between $10.50 and $11.00 on that day. Over the following
two months the stock price continued to rise and Marcos forgot about the order. After
the markets closed on June 6, some bad news concerning ABC was released. The
stock opened on June 7 at a price of $8.00 a share. Which one of the following
statements is correct concerning Marcos' order?

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A) The order was executed on March 15 at $10.50 a share since that was the best
available price of the day.
B) The order was executed on June 7 at a price of $8.00 a share.
C) The order was cancelled on May 15 because it had not been executed within the
allowable two-month time period.
D) The order was executed on June 7 at a price of $10.00 a share.

5) Which of the following types of information will NOT be found in major urban
newspapers?
A) interest rates offered by local and national banks
B) price quotations for stocks of local interest
C) stories concerning local business leaders
D) real time price quotes for widely held stocks and exchange traded funds

6) Which of the following is required by the Investment Advisers Act to disclose

their background and any conflicts of interest?
A) accountants and lawyers B) stockbrokers
C) professional investment advisers D) all of the above

7) Stock market averages and indexes are commonly used to measure the
A) general behavior of stock prices.
B) specific behavior of the economy.
C) specific behavior of companies.
D) specific behavior of alternative investments.

8) Which one of the following is the LEAST important when selecting a

stockbroker?
A) selecting a stockbroker who best understands your investment goals
B) knowing the stockbroker personally
C) getting referrals from personal acquaintances with similar investment objectives
D) considering the services offered and the related costs

9) Which is the correct order of events when an individual buys a stock through a
brokerage firm?
I. The order is transmitted to the main office of the brokerage firm.
II. The customer places the order with their local stockbroker.
III. The confirmation of the order is sent to the broker placing the order.
IV. The order is sent to the floor of the exchange.
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A) I, II, III, IV B) II, I, IV, III C) II, IV, I, III D) II, I, III, IV

10) Which of the following sites is especially valuable for information concerning
mutual funds?
A) [Link] B) [Link]'[Link]
C) [Link] D) [Link]

11) Individuals can now use the Internet to buy and sell
I. stocks.
II. bonds.
III. mutual funds.
IV. stock options.
A) I and IV only C) I, II and III only
B) II and III only D) I, II, III and IV

12) Which one of the following web sites should you utilize to review the financial
information in a company's 10-K report?
A) [Link] C) [Link]
B) [Link] D) [Link]

13) Which of the following will lower the rate of return on a stock whose price has
doubled since you bought it?
A) an increase in the capital gains tax from 15% to 20%
B) the Federal Reserve acts to lower interest rates
C) an increase in the tax rate on dividend income from 15% to 20%
D) persistently low inflation rates

14) Samantha bought a stock one year ago for $66 a share. She received a total of
$2.00 in dividends. Today she sold the stock for $70 a share. Which one of the
following statements is correct concerning this investment?
A) Samantha has unrealized income of $4 a share.
B) Samantha has a total return of 9.1%. C) Samantha has a capital gain of $2.00.
D) Samantha has current income of $6.00.
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15) The present value of $10,000 discounted at 5% per year and received at the end
of 5 years is
A) $10,000/(1.05)5. C) $10,000/1.25.
B) $10,000 (1.05)1/5. D) $10,000(1.05)5.

16) Which one of the following is an example of an annuity?

A) the receipt of $50 in January, March, April, June, August, September and
December
B) the payment of $389 in January, $200 in February, and $200 in March
C) the payment of $259 a month for three consecutive years
D) the receipt of $100 a month for three months and then $150 a month for two
months

17) The stock of Plomb Co. falls sharply on news that its CEO has drowned in a
boating accident while on vacation. This is an example of
A) event risk. B) flotation risk. C) liquidity risk. D) accidental risk.

18) Which of the following statements are correct concerning the present value of
$1.00 five years from today discounted at 5%?
I. The present value is equal to $1.00 divided by 1.05 to the 5th power.
II. If the discount rate were less than 5%, the present value would be smaller.
III. If the discount rate were more than 5%, the present value would be smaller.
IV. If the $1.00 were to be received 6 years from today, the present value would be
larger.
A) I and II only C) II and III only
B) I and III only D) I, III and IV only

19) The expected rate of return and standard deviations, respectively for four stocks
are given below:
Return Standard Deviation
ABC 9%, 3%
CDE 11%, 9%
FGH 12%, 8%
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IJK 14%, 10%
Which stock is clearly least desirable?
A) FGH B) IJK C) CDE D) ABC

20) The expected rate of return and standard deviations, respectively for four stocks
are given below:
Return Standard Deviation
OPQ 11%, 8%
RST 11%, 9%
UVW 12%, 10%
XYZ 12%, 8%

Which stock is clearly most desirable?

A) OPQ B) UVW C) XYZ D) RST

21) The risk-free rate is equal to the real rate of return plus
A) a risk premium. B) the prevailing prime rate.
C) both an inflation and a risk premium. D) an expected inflation premium.

22) Over the long term, which one of the following has historically had the lowest
risk and lowest average annual rate of return?
A) common stock B) corporate bonds
C) real-estate D) long-term government bonds

23) Jason purchased ABC stock at $40 per share and DEF stock at $35 per share on
the same day in 2015. Exactly 6 months later, the ABC stock is worth $42.00 per
share and has not paid a dividend while the DEF stock is worth $36 per share and has
paid 2 quarterly dividends of $0.50 each. The holding period returns are
A) ABC 5% and DEF 2.9%. B) ABC 5% and DEF 5.7%.
C) ABC, $2.00 and DEF $2.00.
D) The holding period return cannot be determined because we do not know the
discount rate.
24) Which of the following investments may be impacted by government actions?
A) stocks C) corporate bonds
B) government bonds D) all of the above

25) Marco owns the following portfolio of stocks. What is the expected return on his
portfolio?
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Table

A) 8.0% B) 4.7% C) 6.6% D) 5.5%

26) A portfolio consisting of four stocks is expected to produce returns of -9%, 11%,
13% and 17%, respectively, over the next four years. What is the standard deviation
of these expected returns?
A) 8.00% B) 33.42% C) 10.05% D) 11.60%

27) A portfolio consisting of four stocks is expected to produce returns of -9%, 11%,
13% and 17%, respectively, over the next four years. What is the standard deviation
of these expected returns?
A) 8.00% B) 11.60% C) 33.42% D) 10.05%

28) The statement "A portfolio is less than the sum of its parts." means
A) portfolio returns will always be lower than the returns on individual stocks.
B) a diversified group of assets will be less volatile than the individual assets within
the group.
C) it is less expensive to buy a group of assets than to buy those assets individually.
D) for reasons that are not well understood, the value of a portfolio is less than the
sum of the values of its components.

29) Marco owns the following portfolio of stocks. What is the expected return on his
portfolio?

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A) 8.0% B) 5.5% C) 4.7% D) 6.6%

30) Which of the following represent systematic 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) II and IV only C) I, II and III only
B) I and III only D) I, II and IV only