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12 questions: 18 minutes

1. An investor purchased 550 shares of Akley common stock for $38,500 in a margin account and posted initial margin of 50%. The maintenance margin requirement is 35%. The price of Akley, below which the investor would get a margin call, is closest to:

2. Adams owns 100 shares of Brikley stock, which is trading at $86 per share, and Brown is short 200 shares of Brikley. Adams wants to buy 100 more shares if the price rises to $90, and Brown wants to cover his short position and take profits if the price falls to $75. The orders Adams and Brown should enter to accomplish their stated objectives are:

Adams Brown

3. The minimum legal initial margin requirement for stocks is least likely.

A. the greatest percentage of initial value that a brokerage house can require on stock purchases.

B. set by the Federal Reserve in the United States.

C. independent of a stock's expected price volatility.

4. Price-to-book value ratios are most appropriate for measuring the relative value of a:

B. manufacturing company.

C. mature technology company.

5. The table below lists information on price per share and shares outstanding for three stocks: Rocking, Payton, and Strand.

January 1, 20X7 December 31, 20X8


Price per Share

# Shares Outstanding

Price per Share

# Shares Outstanding
















Which of the following statements is least accurate?

A. An investor portfolio with 1,000 shares of each stock would track an unweighted index.

B. An unweighted index computed as an arithmetic mean would show higher returns than if it was calculated as a geometric mean.

C. Returns on Payton would have the largest influence of the three on a market value-weighted index.

6. When ranking stocks based on their relative values, the earnings yield most likely.

A. should not be used to rank stocks of companies with negative earnings.

B. will identify the stock with the greatest earnings per share as the most undervalued stock.

C. produces the same value rankings as the price/earnings ratio for companies with positive earnings.

7. Which of the following statements about the ability of markets to achieve perfectly efficient prices is least accurate?

A. Restrictions on short sales cause overvalued stocks to be relatively more common than undervalued stocks.

B. Arbitrage trading is characterized by too much capital chasing too few pricing inefficiencies, limiting the ability of arbitrage to bring about fully efficient prices.

C. The returns to trading strategies based on analysis of new information must be sufficient to compensate for the time and effort required to analyze new information.

8. Joseph Globe is estimating the equity risk premium for equity investments in a foreign country. He would be least likely to consider the:

A. transactions costs of trading in the foreign securities.

B. volatility of the country's currency exchange rates.

C. liquidity of the country's equity markets.

9. Rogers Partners values stocks using a dividend discount model and the CAPM. Holding all other factors constant, which of the following is least likely to increase the estimated value of a stock?

A. An increase in the next period's expected dividend.

B. A decrease in the stock's systematic risk.

C. A decrease in the expected growth rate of dividends.

10. Brandy Clark, CFA, has forecast that Aceler, Inc. will pay its first dividend two years from now in the amount of $1.25. For the following year she forecasts a dividend of $2.00 and expects dividends to increase at an average rate of 7% for the foreseeable future after that. If the risk-free rate is 4.5%, the market risk premium is 7.5%, and Aceler's beta is 0.9, Clark would estimate the current value of Aceler shares as being closest to:

11. Monfort, Inc., had EPS of $1.20 over its most recent period on sales of $50 per share. Its asset turnover is typically 3 and its debt to equity ratio is 2. Based on only this information and the fact that Monfort paid a dividend of $0.30 for the most recent period, the estimated growth rate of Monfort's dividends is closest to:

12. Jay Rybold bought 500 shares of Genoa Corp at $42 on July 1. The price of Genoa shares declined to $40 on August 1. Rybold bought additional shares. The behavioral characteristic most closely associated with Rybold's actions is:

A. escalation bias.

B. confirmation bias.

C. overconfidence bias.

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