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LEG 320 Week 9 Quiz – Strayer

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CHAPTER 16

DRUG ABUSE AND ALCOHOL-RELATED CRIMES

MULTIPLE CHOICE

1. Which of the following is NOT generally one of the elements of the crime of possession with intent to deliver?

the accused possessed a large amount of an illegal drug

the accused possessed scales

the accused possessed a cellular phone

the accused possessed a counterfeit credit card

432

2. In Gonzales v. Raich, the court reasoned that the private use of marijuana might have

an adverse impact on federal drug laws

a positive impact on federal drug laws

an adverse impact on state drug laws

a positive impact on state drug laws

443

3. In Gonzales v. Raich, the court reasoned Congress had the power under the Commerce Clause to regulate

even purely intra-sate use of marijuana

only purely intra-sate use of marijuana

even purely inter-sate use of marijuana

only purely inter-sate use of marijuana

443

4. All of the following are crimes under the Uniform Controlled Substances Act EXCEPT

manufacture or delivery of an illegal drug

possession with intent to deliver an illegal drug

delivery or possession with intent to deliver a counterfeit substance

possession of alcohol by a minor

428

5. Medical use of marijuana is permitted in some states. Although medical users can be prosecuted under federal laws,

in 2010 the Justice Department said it would not prosecute medical users

in 2010 the Justice Department said it would prosecute medical users

in 2010 the U.S. Supreme Court said it would not prosecute medical users

in 2010 the U.S. Supreme Court said it would prosecute medical users

433

6. What is the most widely abused and misused drug in America and in many other countries?

alcohol

meth

marijuana

cocaine

438

7. The 2002 National Institutes of Health study surveyed drinking among the 8 million college and university students in the United States. What percentage of students were shown to drink in binges?

44%

55%

40%

30%

438

8. How many alcohol-related student deaths are there each year?

1,445

2,545

3,645

4,745

438

9. The federal government and all states have enacted some form of the Uniform

Narcotics Act

Illegal Drug Act

Dangerous Drug Act

Controlled Substances Act

428

10. The most common illegal drug charge is some form of

selling

buying

possession

trafficking

428

11. How many states currently have a “Compassionate Use Medical Marijuana” statute?

433

12. The Uniform Controlled Substances Act divides drugs into how many schedules?

428

13. A minority of states require that the defendant have possessed what minimum amount of the illegal substance to sustain a conviction?

a trace amount

a usable amount

a gram

a bindle

430

14. What is the minimum amount of the illegal substance required to sustain a drug conviction by a majority of states?

usable amount

trace amount

any amount

a gram

430

15. In fourteen states, doctors may prescribe the personal use of what drug for pain management for people with serious illnesses?

cocaine

marijuana

heroin

methamphetamine

433

16. Challengers of the Federal Controlled Substances Act alleged Congress has no constitutional authority to prohibit the medical use of marijuana based on the

due process clause

equal protection clause

interstate commerce clause

none of these answers are correct

433

17. A defendant arrested in possession of a large amount of an illegal drug would most likely have been charged with the offense of

possession of a controlled substance

delivery of a controlled substance

possession with intent to deliver

possession of stolen property

432

18. In New Jersey an individual who provides an illegal drug to another, and that person dies as a result of ingesting the drug,

cannot be held liable for the death

may be held strictly liable for the death

will be found guilty of premeditated murder

will be charged with a misdemeanor drug offense

435

19. Approximately what number of people are killed every day in the United States because of driving under the influence?

100

150

438

20. The National Highway Traffic Safety Administration estimates the yearly costs of drunk driving to be

$45 billion

$35 billion

$25 billion

$15 billion

438

21. Which of the following is a violation of the Uniform Controlled Substances Act?

possession of a controlled substance

deliver a counterfeit substance

manufacture a controlled substance

all of these answers are correct

428

22. What are the two types of possession?

actual and constructive

real and actual

real and constructive

actual and contractual

430

23. The “usable quantity” rule holds that a useless trace amount is not

a usable amount

a sufficient amount

a chargeable amount

a sufficient quantity

430

24. Delivery of an illegal drug can be either an actual delivery, or it could be the crime of possession of a controlled substance with

intent to deliver

sufficient amount to deliver

quantity of delivery

delivery potential

432

25. What drug is particularly dangerous because it is an unpredictable killer that can cause life-threatening complications that are not related to the dose taken, the length of use, or the manner in which the drug is taken?

cocaine

heroin

marijuana

meth

435

26. Laws that make people who illegally manufacture, distribute, or dispense illegal drugs strictly liable for a death that results from the using such drugs are often called

Len Bias laws

Terrance Bianchi laws

Lawrence Brewer laws

Stephen Breyer laws

435

27. Which of the following may qualify as delivery of an illegal drug?

all of these may qualify as delivery of an illegal drug

possession of a controlled substance with intent to deliver

possession of a controlled substance with intent to sell

possession of a controlled substance with intent to transfer

432

28. British and U.S. studies of accidental deaths in the 1980s and a National Institutes of Health study in 2002 showed that alcohol has a high relationship to deaths caused by which of the following?

drowning

choking

burns

all of these answers are correct

438

29. What percent of state prisoners were convicted of a violent crime while under the influence of alcohol alone?

21%

31%

41%

51%

438

30. Which of the following is NOT a field sobriety test?

the walk-and-turn test

the HGB test

the one-leg-stand test

all of these are field sobriety tests

439

TRUE/FALSE

1. A suspect cannot be found to have been operating a motor vehicle by being behind the wheel of a car with the keys in the ignition.

2. The Uniform Controlled Substances Act lists marijuana as a Schedule I drug with the highest abuse potential.

3. In a majority of states, even a “trace” amount of an illegal drug will sustain a conviction for possession of that drug.

4. All states have a uniform charge of possession of a small amount of marijuana.

5. Possession of marijuana for personal use is illegal throughout the U.S.

6. A defendant arrested in possession of a large amount of an illegal drug may be charged with possession with intent to deliver.

7. A person who claims to be selling cocaine, but delivers baking soda, cannot be charged with a drug crime.

8. People who illegally dispense illegal drugs will be held strictly liable in many states for a death that results from the ingestion of such a drug.

9. Criminal liability for drug induced death requires that the state must show only that the defendant provided the drugs to the victim, and that the victim died as a proximate result of the defendant’s actions.

10. Victims of drunk driving may be able to sue bars or individuals who furnished the alcoholic drinks.

COMPLETION

1. Intent to deliver illegal drugs can be proved by showing a “ connection” between the facts of possession, such as the large quantity of the drug, and an intent to sell the drugs.

2. The most common criminal illegal drug charge is that of _____________ of a controlled substance.

3. Two types of drug possession are “actual” and “___________.”

4. An amount of an illegal drug that is so small that it is unusable is referred to as a “________” amount.

5. Depending upon the jurisdiction, possession of a small amount of marijuana may be charged as either a criminal or a _________ offense.

6. In Gonzales v. the court reasoned that private use of marijuana might have an adverse impact on federal drug laws.

7. In a number of states, a person who dispenses an illegal drug will be held ________ liable for a death that results from ingestion of such drug.

8. Most students drink or not at all, but 44 percent of students drink in binges.

9. The most widely abused and misused drug in America is _________.

10. Nystagmus is a persistent, rapid, , side-to-side eye movement.

CHAPTER 17

TERRORISM

MULTIPLE CHOICE

1. Terrorists are willing to take innocent lives to

make money

make a political statement

satisfy their bloodlust

stimulate reprisals

450

2. Congress was required to clearly define the acts that constituted terrorism and condemned under the conventions because of the

vagueness limitation on statutes

void limitation on statutes

definition limitation on statutes

discreet

451

3. People who believe that organized government is evil may be referred to as

anarchists

agnostics

advocates

agents

451

4. Generally, terrorists differ from other criminals on the basis of their

psychological characteristics

mental illness

motive

physical characteristics

451

5. Which of the following statements regarding terrorism is FALSE?

Acts of terrorism may be sponsored by a nation or a group.

Terrorism is not a form of warfare.

Terrorism is a global problem.

The U.S. is a stated target of the terrorist group Al Qaeda.

451

6. Who is authorized to identify groups or organizations as terrorist organizations?

the State Department

the President

the Congress

the House of Representatives

452

7. The Alabama Criminal Code, Section 13-A-10-151, defines the crime of terrorism as an act or acts intended to

Intimidate or coerce a civilian population.

Influence the policy of a unit of government by intimidation or coercion.

Affect the conduct of a unit of government by murder, assassination, or kidnapping.

all of these

454

8. Most state statutes also make it a crime for a person to support a terrorist act or organization. Actions that could constitute support include which of the following?

providing financial support

providing lodging

providing training

all of these

454

9. Which of the following is the definition of a terrorist threat under state laws?

threatened violence against another

terrorizing a person

threatened violence against another with the purpose of terrorizing

none of these

454

10. Most of the money used to finance the 9/11 terrorist attack came from which of the following?

charitable organizations

private donors

foreign governments

drug dealers

461

11. Which of the following crimes are favored by terrorists to finance their terrorist activities?

theft

fraud

drug trafficking

all of these

461

12. According to the text, terrorists sometimes use which of the following to move funds in and out of the United States?

electronic wire transfers

television commercials

radio advertisements

none of these

462

13. One way in which terrorists move funds in and out of the United States is through the use of IVTS. What does IVTS stand for?

informal value transfer systems

international value transfer systems

informal value terrorist systems

international value terrorist systems

462

14. One example of a kind of IVTS is

Hawala

Farouq

Mandamus

Baksheesh

462

15. What is one advantage of using an IVTS?

no paper trail

it is faster than wire transfers

more money is available through IVTS

none of these answers is correct

462

16. An extraordinary rendition occurs when a person is seized in one country and then transported to another country for

interrogation

extradition

repatriation

mediation

462

17. Customs and practices followed by most nations in wartime and now the subject of international conventions are known as

rules of war

degrees of war

peace negotiations

contracts

460

18. Advocating the forceful overthrow of the U.S. government is the crime of

sedition

sabotage

terrorism

treason

454

19. Which of the following is NOT one of the classes of crimes created by rules of war?

government crimes

crimes against peace

crimes against humanity

traditional war crimes

460

20. The use of unlawful force to coerce or intimidate persons or governments in the pursuit of political, social, or religious goals is known as

terrorism

genocide

humanism

feticide

450

21. Many states have adopted a definition of the crime of terrorism closely modeled after the

federal definition

international definition

Supreme Court definition

Hague definition

454

22. Damaging or injuring national defense material or national defense utilities with the intent to obstruct the national defense is the crime of

sedition

sabotage

treason

aiding a terrorist

457

23. Customs, practices, treaties, and agreements that most nations subscribe to for the conduct of wars openly declared against sovereign nations are called

international conventions

treaties

international agreements concerning waging war

rules of war

460

24. Funds for terrorist activities are often transferred through

informal value transfer systems

human couriers

high-tech electronic wire transfers

all of these

462

25. A program whereby suspected terrorists are seized by U.S. agents and transported to another country for interrogation is known as

secret abduction

extraordinary rendition

international detention

terrorist detention

462

26. Which of the following are possible charges against terrorists?

treason

sedition

sabotage

all of these

453-457

27. Which of the following statements regarding the rules of war is FALSE?

President Lincoln began the codification of these rules in 1864.

Most nations subscribe to the rules of war.

Combatants in a war are liable for the violation of ordinary criminal laws.

President Eisenhower began the codification of these rules in 1953.

460

28. Which of the following laws forbids the planning, commencement, and conduct of an aggressive war?

Crimes Against Peace

Crimes Against Humanity

Traditional War Crimes

Antiterrorism Act of 1996

460

29. Which of the following laws forbids deportation based on race, religion or ethnic origin?

Crimes Against Peace

Crimes Against Humanity

Traditional War Crimes

Antiterrorism Act of 1996

460

30. Which of the following laws addresses conduct of combatants towards prisoners of war?

Crimes Against Peace

Crimes Against Humanity

Traditional War Crimes

Antiterrorism Act of 1996

460

TRUE/FALSE

1. Not all terrorists are sponsored or protected by a nation or a group.

2. Acts of terrorism may be considered a form of warfare.

3. The term “terrorist” is reserved for those who believe organized government is evil.

4. The State Department is authorized to identify groups or organizations as terrorist organizations.

5. Congress enacted the Federal Antiterrorism Law following the 1995 bombing of the Oklahoma City federal building.

6. The intention to intimidate or coerce a civilian population is one of the elements of the crime of terrorism.

7. A terrorist threat is a threat to commit a violent felony that is a danger to human life, and is made to intimidate only a military group.

8. Rules of war are customs and practices followed by most nations in wartime and now the subject of international conventions.

9. No countries contribute directly to terrorists organizations.

10. An extraordinary rendition occurs when a person is seized in one country and then transported to another country for torture.

COMPLETION

1. Terrorists are criminals who use force and violence in the pursuit of _________, ideological, or religiousgoals.

2. People who believe organized government is evil are called _________.

3. The State Department is authorized to groups or organizations as terrorist organizations.

4. One of the elements of the crime of terrorism under most state laws is to

or coerce a civilian population.

5. The Antiterrorism and Effective ________ Penalty Act makes it a crime to aid a terrorist organization in the U.S.

6. A terrorist threat is a threat to commit a violent felony that is a danger to human life, and is made to intimidate or coerce a civilian group or a .

7. Rules of are customs and practices followed by most nations in wartime.

8. The shortage of financial support can affect the scope of a terrorist .

9. Individuals contribute indirectly to terrorist organizations by giving money and support to phony “ ” groups that support terrorists.

10. An “extraordinary “ occurs when a person is seized in one country and then transported to another country for interrogation.

#LEG 320 Week 9 Quiz – Strayer

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HSA 525 Week 9 Assignment 3 – Strayer NEW

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Assignment 3: Post-Merger Analysis

Due Week 9 and worth 280 points

In today’s uncertain economic and regulatory environment for the health services industry, many organizations may be presented with merger and acquisition opportunities to gain market share and drive financial and operational efficiencies. Given the current state of this market segment:

Write a five to six (5-6) page paper in which you:

1. Suggest the key financial drivers that most likely will cause health care organizations to merge. Provide support for your rationale.

2. Assuming that two (2) health care organizations have merged. Determine the evaluation criteria that a financial analyst would use to evaluate the financial performance of the organization post- merger, and identify the determinants that the analyst would use to decide whether or not the merger generated favorable financial results for the organization. Provide support for your evaluation.

3. Determine the key factors that will drive the financial planning process for most organizations in the post-merger phase, and examine the related impact to the organization process. Provide support for your rationale.

4. Create an argument to assert that the financial planning process is of high value to a health care organization. Provide support for your argument.

5. Predict the financial stability of the health care industry over the next five (5) years. Provide support for your prediction.

6. Use at least three (3) quality academic resources. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

 Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

 Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.  The specific course learning outcomes associated with this assignment are:

 Evaluate the financial statements and the financial position of health care institutions.

 Describe the overall planning process and the key components of the financial plan.

 Use technology and information resources to research issues in health financial management.

 Write clearly and concisely about health financial management using proper writing mechanics.

#HSA 525 Week 9 Assignment 3 – Strayer NEW

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HRM 500 Week 9 Discussion Questions - Strayer

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Week 9 D1

From the e-Activity, examine two factors that HR managers would need to consider when teaching employees about the culture in Mexico. Recommend two actions that HR managers can take in order to prepare their employees for the culture shift.

Week 9 D2

In America today, education is increasingly the key to individual success in the workplace. Determine two benefits to hiring someone who has an education gap, as opposed to merely hiring someone who has the requisite knowledge and skills. Recommend two actions that organizations can take to overcome the education gap when hiring new employees.

#HRM 500 Week 9 Discussion Questions - Strayer

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FIN 540 Week 9 Homework Problems – Strayer NEW

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Week 9

Homework Problems Chapter 29

1. Which of the following statements about pension plans if any, is incorrect?

a. Under a defined benefit plan, the employer agrees to give retirees a specifically defined benefit.

b. If assets exceed the present value of benefits, the pension plan is fully funded.

c. Such as $500 per month or 50 percent of the employee’s final salary.

d. A portable pension plan is one that an employee can carry from one employer to another

e. An employer’s obligation is satisfied under a defined contribution plan when it makes the required contributions to the plan. The risk of inadequate investment returns is borne by the employee.

f. A defined contribution plan is, in effect, a savings plan that is funded by employers, although many plans also permit additional contributions by employees.

2. Which of the following statements about defined contribution plans is incorrect?

a. In general, employees can choose the investment vehicle under a defined contribution plan. Thus, highly risk-averse employees can choose low-risk investments, while more risk-tolerant employees can choose high-risk investments.

b. In a defined contribution plan, the employer must make larger-than-average contributions to the pension plan when investment returns have been below expectations.

c. Defined benefit plans are used more often by large corporations than by small companies.

d. The PBGC insures a portion of pension benefits.

e. A defined contribution plan places the risk of poor pension portfolio performance on the employee.

3. Which of the following statements about pension plan portfolio performance is incorrect?

a. Alpha analysis, which relies on the Capital Asset Pricing Model, considers the risk of the portfolio when measuring performance.

b. Peer comparison examines the relative performance of portfolio managers with similar investment objectives.

c. A portfolio annual return of 12 percent from one investment advisor is not necessarily better than a return of 10 percent from another advisor.

d. In managing the retiree portfolio, fund managers often use immunization techniques such as alpha analysis to eliminate, or at least significantly reduce, the risk associated with changing interest rates.

e. Pension fund sponsors must evaluate the performance of their portfolio managers periodically as a basis for future asset allocations.

4. Ms. Lloyd, who is 25 and expects to retire at age 60, has just been hired by the Chambers Corporation. Ms. Lloyd's current salary is $30,000 per year, but her wages are expected to increase by 5 percent annually over the next 35 years. Chambers has a defined benefit pension plan in which workers receive 2 percent of their final year's wages for each year of employment. Assume a world of certainty. Further, assume that all payments occur at year-end. What is Ms. Lloyd's expected annual retirement benefit, rounded to the nearest thousands of dollars?  

a. $35,000

b. $57,000

c. $89,000

d. $116,000

e. $132,000

5. Kumar Consulting operates several stock investment portfolios that are used by firms for investment of pension plan assets. Last year, one portfolio had a realized return of 12.6 percent and a beta coefficient of 1.15. The average T-bond rate was 7 percent and the realized rate of return on the S&P 500 was 12 percent. What was the portfolio's alpha?  

a. −0.75%

b. −0.15%

c. 0% 

d. 0.15%

e. 0.75%

#FIN 540 Week 9 Homework Problems – Strayer NEW

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FIN 534 Week 9 Assignment 1 – Strayer

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Assignment 1: Financial Research Report Due Week 9 and worth 300 points

Imagine that you are a financial manager researching investments for your client that align with its investment goals. Use the Internet or the Strayer Library to research any U.S. publicly traded company that you may consider as an investment opportunity for your client. (Note: Please ensure that you are able to find enough information about this company in order to complete this assignment. You will create an appendix, in which you will insert related information.)

The assignment covers the following topics:

· Rationale for choosing the company for which to invest

· Ratio analysis

· Stock price analysis

· Recommendations

Write a ten to fifteen (10-15) page paper in which you:

1. Provide a rationale for the U.S. publicly traded company that you selected, indicating the significant factors driving your decision as a financial manager.

2. Determine the profile of the investor for which this company may be a fit, relative to that potential investor’s investment strategy. Provide support for your rationale.

3. Select any five (5) financial ratios that you have learned about in the text. Analyze the past three (3) years of the company’s financial data, which you may obtain from the company’s financial statements. Determine the company’s financial health. (Note: Suggested ratios include, but are not limited to, current ratio, quick ratio, earnings per share, and price earnings ratio.)

4. Based on your financial review, determine the risk level of the company from your investor’s point of view. Indicate key strategies that you may use in order to minimize these perceived risks.

5. Provide your recommendations of this stock as an investment opportunity. Support your rationale with resources, such as peer-reviewed articles or material from the Strayer Library.

6. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

· Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

· Critique financial management strategies that support business operations in various market environments.

· Analyze financial statements for key ratios, cash flow positions, and taxation effects.

· Review fixed income strategies using time value of money concept, bond valuation methods, and interest rate calculations.

· Estimate the risk and return on financial investments.

· Apply financial management options to corporate finance.

· Determine the cost of capital and how to maximize returns.

· Formulate cash flow analysis for capital projects including project risks and returns.

· Evaluate how corporate valuation and forecasting affect financial management.

· Analyze how capital structure decision-making practices impact financial management.

· Use technology and information resources to research issues in financial management.

· Write clearly and concisely about financial management using proper writing mechanics.

#FIN 534 Week 9 Assignment 1 – Strayer

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FIN 350 Week 9 Quiz – Strayer

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Quiz 8 Chapter 18 and 19

Bank Regulation

1. Deposit insurance has a limit of:

$10,000.

$25,000.

$100,000.

$250,000.

2. The opening of a commercial bank in the United States

does not require a charter.

always requires a charter from a state government.

always requires a charter from the federal government.

requires a charter from a state or the federal government.

requires a charter from both the state and federal government.

3. Commercial banks that are not members of the Federal Reserve System ____ borrow from the Fed, and ____ subject to the Fed's reserve requirements.

may; are

may; are not

may not; are not

may not; are

4. National banks are regulated by ____, and state banks are regulated by ____.

the Comptroller of the Currency; their state agency

the Comptroller of the Currency; the Comptroller of the Currency

their state agency; their state agency

their state agency; the Comptroller of the Currency

5. All Fed member banks must hold

private insurance on deposits.

FDIC insurance on deposits.

both FDIC and private insurance on deposits.

none of the above

6. Commercial banks ____ restricted to a maximum percentage of their capital to loan to a single customer, and ____ allowed to use borrowed or deposited funds to purchase common stock.

are; are

are; are not

are not; are

are not; are not

7. Banks commonly use depositor funds to invest in stocks.

a. True

b. False

8. An "off-balance-sheet commitment" that provides the bank's guarantee on the financial obligations of a borrower to a specific party is a

standby letter of credit.

federal funds agreement.

repurchase agreement.

discount window agreement.

9. The Depository Institutions Deregulation and Monetary Control Act of 1980 allowed banks to set their own

reserve requirements.

capital ratios.

interest rates on savings deposits.

corporate loan interest rates.

10. The Glass-Steagall Act of 1933 prevented

any firm that accepts deposits from underwriting stocks and bonds of corporations.

any firm that accepts deposits from underwriting general obligation bonds of states and municipalities.

any firm that accepts deposits from holding any corporate bonds in its asset portfolio.

state-chartered banks from offering commercial loans.

11. Which of the following is not a main deregulatory provision of Depository Institutions Deregulation and Monetary Control Act of 1980?

phase-out of deposit rate ceilings

allowance of checkable deposits for all depository institutions

new lending flexibility of depository institutions

allowance of interstate banking for depository institutions in most states

12. The Financial Reform Act was intended to:

prevent another credit crisis.

reduce capital ratios.

impose interest rate ceilings on deposits.

prevent banks from offering securities services.

13. The Garn-St. Germain Act of 1982

permitted depository institutions to offer money market deposit accounts.

prevented depository institutions from acquiring problem institutions across geographical boundaries.

required the Fed to explicitly charge depository institutions for its services.

allowed the Fed to provide check clearing to depository institutions at no charge.

14. Which of the following is not a specific criterion the FDIC uses to monitor banks?

capital adequacy

dollar value of fixed assets

asset quality

earnings

sensitivity to financial market conditions

15. The potential risk that financial problems can spread through financial institutions and the financial system is referred to as:

systemic

systematic

unsystematic

market

16. The Basel framework recommends capital requirements in proportion to:

mortgages

commercial paper

liabilities

risk-weighted assets

17. The Basel Accord

forces banks with greater risk to maintain more deposits.

forces banks with greater risk to maintain more capital.

forces banks with greater risk to maintain less capital.

none of the above

18. In general, a bank defines its value-at-risk as the estimated potential loss from its traditional businesses that could result from adverse movements in market prices.

a. True

b. False

19. Which of the following statements is incorrect?

The validity of a bank's estimated VAR is assessed with backtests in which the actual daily trading gains or losses are compared to the estimated VAR over a particular period.

Some banks supplement the VAR estimate with stress tests.

In general, the VAR model does not lend itself to determine capital requirements.

All of the statements above are correct.

20. Which of the following is an "off-balance-sheet commitment?"

long-term debt

additional paid-in capital

notes payable

guarantees backing commercial paper issued by firms

21. The liquidity component of the CAMELS rating refers to

regulators' concern about how a bank's earnings would change if economic conditions change.

how well the bank's management would detect its own financial problems.

a bank's sensitivity to financial market conditions.

monitoring the type of loans that are given, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases.

excessive borrowing by banks from outside sources, such as the discount window.

22. Which of the following is not a corrective action taken by regulators when a bank is identified as a problem bank?

Regulators may examine such banks frequently and thoroughly.

Regulators may request that a bank boost its capital level or delay its plans to expand.

Regulators can require that additional financial information be periodically updated to allow continued monitoring.

Regulators have the authority to take legal action against a problem bank if the bank does not comply with their suggested remedies.

All of the above are possible corrective actions taken by bank regulators.

23. The fee banks pay to the FDIC for deposit insurance is now

a fixed dollar amount for all banks.

a fixed percentage of the bank's deposit level for all banks.

a fixed percentage of the bank's loan volume for all banks.

based on the risk of the bank.

24. Generally, the failure of small banks

causes more widespread concern about the safety of the banking system than the failure of large banks.

causes equal concern about the safety of the banking system as the failure of large banks.

causes less concern about the safety of the banking system than the failure of large banks.

Either A or B can be true, depending on the type of business cycle that exists while the failures occur.

25. The Sarbanes-Oxley Act was enacted to make corporate managers, board members, and auditors more accountable for the accuracy of the financial statements that their respective firms provide.

a. True

b. False

26. Bank A has a 10 percent capital ratio and uses a significant proportion of its assets to invest in very highly-rated bonds. Bank B has an 12 percent capital ratio and uses a significant proportion of its assets to invest in highly leveraged transactions. How would Bank A rate versus Bank B using the capital and asset quality criteria?

Bank A is perceived as safer by both criteria.

Bank B is perceived as safer by both criteria.

Bank A is perceived as safer according to capital, but more risky according to asset quality.

Bank B is perceived as safer according to capital, but more risky according to asset quality.

27. The key reason for regulatory examinations (such as CAMELS ratings) is to

rate past performance.

detect problems of a bank in time to correct them.

check for embezzlement.

monitor reserve requirements.

28. Deposit insurance now covers all bank deposits without imposing any limit.

a. True

b. False

29. Which banking act allowed banks to cross state lines in order to acquire a failing institution?

McFadden Act

Glass-Steagall Act

DIDMCA

Garn-St. Germain Act

30. Which banking act allowed for the creation of NOW accounts?

McFadden Act

Glass-Steagall Act

DIDMCA

Garn-St. Germain Act

31. Which banking act allowed interstate banking?

Reigle-Neal Interstate Banking and Branching Efficiency Act

Glass-Steagall Act

DIDMCA

Sarbanes-Oxley Act

32. Which banking act permanently increased FDIC insurance up to $250,000?

DIDMCA

Sarbanes-Oxley Act

Financial Reform Act

Garn-St. Germain Act

33. Which banking act removed deposit rate ceilings?

McFadden Act

Glass-Steagall Act

DIDMCA

Garn-St. Germain Act

34. The argument that interstate banking would allow banks to grow and more fully achieve a reduction in operating costs per unit of output as output increases is based on

economies of scale.

financial leverage.

diseconomies of scale.

capital adequacy theory.

35. Federal deposit insurance

existed since the 1800s.

was created in 1933.

was created after World War II.

was created in 1960.

36. ____ is not a characteristics used by the Federal Deposit Insurance Corporation (FDIC) to rate banks.

Capital adequacy

Current stock price

Asset quality

Management

All of the above are used by the FDIC to rate banks.

37. The moral hazard problem is minimized when deposit insurance premiums are

zero (not imposed by the FDIC).

the same percentage of assets for all banks.

set at a fixed percentage of assets for large banks, and is zero for small banks.

set at a percentage of assets that is based on the bank's risk level.

38. Which of the following statements is incorrect with respect to the Financial Services Modernization Act of 1999?

It complemented the Glass-Steagall Act.

It enabled commercial banks to more easily pursue securities and insurance activities.

It gave securities firms and insurance companies the right to acquire banks.

The Act requires that commercial banks must have a strong rating in community lending in order to pursue additional expansion in securities and other nonbank activities.

All of the above are true.

39. The ____ is the fund used to cover insured depositors.

Bank Insurance Fund

Federal Deposit Insurance Corporation (FDIC)

money market mutual fund

growth fund

none of the above

40. ____ is not a rating criterion used by the FDIC.

Capital adequacy

Off-balance sheet financing

Asset quality

Management

Liquidity

41. The uniform global capital requirements mandated a minimum level of Tier 1 capital, which primarily consists of funds obtained from

issuing commercial paper and bonds.

retaining earnings and issuing commercial paper.

retaining earnings and issuing common stock.

issuing bonds and common stock.

42. During the 2008-2010 period, the ____ was implemented to alleviate the financial problems experienced by banks and other financial institutions with excessive exposure to mortgages or mortgage-backed securities.

Riegle Program

Sarbanes-Oxley Program

FDIC Program

Troubled Asset Relief Program (TARP)

43. The act of taking a risk because of protection from adverse consequences due to the risk is referred to as a moral hazard problem.

a. True

b. False

44. The Sarbanes-Oxley Act (SOX) was enacted in 2002 in order to ensure a more transparent process for reporting on productivity and the financial condition of the firm.

a. True

b. False

45. The Sarbanes-Oxley Act (2002) was enacted in response to some banks taking too much risk.

a. True

b. False

46. Publicly-traded banks have incurred larger reporting expenses to comply with the Sarbanes-Oxley Act.

a. True

b. False

47. The Financial Services Modernization Act of 1999

gave banks and other financial service firms less freedom to merge.

allowed financial institutions to offer a diversified set of financial services without being subjected to stringent constraints.

offers very few benefits to a financial institution's clients.

increased the reliance of financial institutions on the demand for the single service they offer.

48. Which of the following is not true regarding the Financial Services Modernization Act of 1999?

It provided more momentum for the consolidation of financial services.

Financial institutions were finally able to offer a diversified set of financial services without being subjected to stringent constraints on the form or amount of financial services that they could offer.

Banks and other financial service firms were given more freedom to merge, but were forced to divest some of the financial services that they acquired.

Financial institutions no longer had to search for loopholes or monitor their business to ensure that the degree of financial services offered remained within the regulatory constraints that were previously imposed.

all of the above are true

49. All state banks are required to be members of the Federal Reserve System.

a. True

b. False

50. State banks are regulated by the Comptroller of the Currency.

a. True

b. False

51. Banks that are insured by the Federal Deposit Insurance Corporation (FDIC) are also regulated by the FDIC.

a. True

b. False

52. Commercial banks are allowed to invest in junk bonds.

a. True

b. False

53. In general, banks would prefer to maintain a high amount of capital to boost their return on equity ratio, yet regulators have argued that banks need only a sufficient amount of capital to absorb potential operating losses.

a. True

b. False

54. The provision of a letter of credit by a bank to issue commercial paper issued by a corporation is an example of an off-balance sheet commitment.

a. True

b. False

55. As a result of the Reigle-Neal Act, bank customers have benefited because of lower costs to banks and because of convenience.

a. True

b. False

56. There is much emphasis by regulators on the bank's sensitivity to interest rate movements, since many banks have liabilities that are repriced more frequently than their assets and are adversely affected by rising interest rates.

a. True

b. False

57. If regulators reduce bank failures by imposing regulations that reduce competition, bank efficiency will be increased.

a. True

b. False

58. An ideal solution to react to a large failing bank would prevent a run on deposits of other large banks, yet not reward a poorly performing bank with a bailout.

a. True

b. False

59. ____ is not a rating criterion used by the Federal Deposit Insurance Corporation (FDIC).

Capital adequacy

Off-balance sheet financing

Asset quality

Management

Liquidity

60. A federal bank charter is issued by the

Comptroller of the Currency.

Securities and Exchange Commission.

U.S. Treasury.

Federal Reserve.

none of the above

61. Bank regulations typically:

involve a tradeoff between the safety of the banking system and the efficiency of bank operations.

impose restrictions on the types of assets in which banks can invest.

set requirements for the minimum amount of capital that banks must hold.

all of the above

62. When a bank holds a lower level of capital, a given dollar level of profits represents a lower return on equity.

a. True

b. False

63. Shareholders and managers of banks may prefer that banks be required to hold higher levels of capital because this would allow for higher share prices for the banks and larger bonuses for bank managers.

a. True

b. False

64. A bank can increase its capital ratio by:

buying back shares of its stock from shareholders.

selling assets.

increasing its dividend to encourage more investors to purchase its stock.

increasing its off-balance sheet activities.

65. The Basel III framework proposes:

lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis.

relying on the rating agencies to assess the risk of bank assets.

increased capital requirements and liquidity requirements for banks.

using the gap ratio to set the capital ratio.

66. During the credit crisis, all of the following occurred except:

some securities firms were allowed to become bank holding companies.

the Federal Reserve rescued American International Group, an insurance company.

the Treasury injected funds into financial institutions.

the Supreme Court ruled that the Federal Reserve had exceeded its authority by assisting Bear Stearns because Bear was a securities firm and not a commercial bank.

67. The Volcker rule, named for a former Fed chair:

is intended to increase the powers of the Fed.

states that the U.S. government will rescue certain large banks if necessary to reduce systemic risk in the financial system.

sets limits on banks’ proprietary trading.

requires all banks to undergo annual stress tests.

68. The Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010:

ended the system of risk-based insurance premiums.

set requirements for the Deposit Insurance Fund’s reserves.

raised the limit for insured deposits to $750,000 per depositor.

allowed large insurance companies such as American International Group to compete with the FDIC to insure bank deposits.

Chapter 19—Bank Management

1. Which of the following statements is incorrect?

Managers may be tempted to make decisions that are in their own best interests rather than shareholder interests.

Directors are responsible for making most of the bank's decisions regarding loans to customers, which encourages a loan department to extend loans with a very high concern for risk.

To prevent agency problems, some banks provide stock as compensation to managers.

The underlying goal behind the managerial policies of a bank is to maximize the wealth of the bank's shareholders.

2. When cash outflows temporarily exceed cash inflows, banks are most likely to experience

higher dividend payments.

illiquidity.

a negative duration on its assets.

an excess of capital.

3. Banks can resolve cash deficiencies by

creating additional liabilities.

selling assets.

buying back common stock.

increasing dividend payouts.

A or B

4. As the secondary market for loans has become active, banks are more able to satisfy their liquidity needs with a ____ proportion of loans while achieving ____ profitability.

higher; higher

lower; lower

higher; lower

lower; higher

5. Banks are more liquid as a result of securitization because it allows them to request repayment of the loan principal from the borrower upon demand.

a. True

b. False

6. If a bank that relies heavily on short-term deposits expects interest rates to consistently decrease over time, it would allocate most of its loans with ____ rates if it desires to maximize its expected returns. It could reduce its exposure to interest rate risk by setting ____ rates on its loans.

fixed; fixed

variable; fixed

variable; variable

fixed; variable

7. During a period of rising interest rates, a bank's net interest margin will likely ____ if its liabilities are ____ its assets.

increase; more rate-sensitive than

decrease; more rate-sensitive than

increase; equally rate-sensitive as

decrease; equally rate-sensitive as

8. If a bank expected interest rates to consistently ____ over time, it will consider allocating most funds to rate-____ assets.

decrease; sensitive

decrease; insensitive

increase; insensitive

none of the above

9. Petri Bank had interest revenues of $70 million last year and $30 million in interest expenses. About $300 million of Petri's $800 million in assets are rate-sensitive, while $600 million of its liabilities are rate-sensitive. Petri Bank's net interest margin is ____ percent.

4.0

3.6

6.7

5.0

10. Petri Bank had interest revenues of $70 million last year and $30 million in interest expenses. About $300 million of Petri's $800 million in assets are rate-sensitive, while $600 million of its liabilities are rate-sensitive. Petri Bank's gap is $____.

−300 million

300 million

−500 million

500 million

11. Petri Bank had interest revenues of $70 million last year and $30 million in interest expenses. About $300 million of Petri's $800 million in assets are rate-sensitive, while $600 million of its liabilities are rate-sensitive. Petri Bank's gap ratio is ____ percent.

37.5

50.0

100.0

40.0

12. The measure of interest rate risk that uses the difference between rate-sensitive assets and rate-sensitive liabilities is called

gap measurement.

duration measurement.

duration ratio.

gap ratio.

13. A gap ratio of less than one suggests that

rate-sensitive assets exceed rate-sensitive liabilities.

an increase in interest rates would increase the bank's net interest margin.

rate-sensitive liabilities exceed rate-sensitive assets.

a decrease in interest rates would decrease the bank's net interest margin.

B and D

14. Each bank may have its own classification system of interest rate sensitivity, because there is no perfect measurement of the gap.

a. True

b. False

15. The duration of zero-coupon bonds will be ____ the duration of coupon bonds with the same maturity.

lower than

higher than

the same as

A or B, depending on the size of the coupon payment

16. In general, the duration of zero-coupon securities with short maturities is ____ than the duration of zero-coupon securities with long maturities.

higher than

lower than

equal to

A or B, depending on the issuer of the securities

17. Other things equal, assets with shorter maturities have ____ durations. Assets that generate more frequent coupon payments have ____ durations.

shorter; longer

shorter; shorter

longer; shorter

longer; longer

18. For most banks, the average duration of assets ____ the average duration of liabilities, so the duration gap is ____.

exceeds; zero

exceeds; negative

exceeds; positive

is less than; negative

19. Other things being equal assets with ____ maturities and ____ frequent coupon payments have shorter durations.

shorter; more

shorter; less

longer; more

longer; less

20. If a bank attempts to reduce exposure to interest rate risk by replacing long-term marketable securities with more floating-rate commercial loans, it is likely that the bank's

default risk would decrease.

default risk would increase.

liquidity risk would increase.

liquidity risk would decrease.

B and C

21. Which of the following is not a likely method used by a bank to reduce interest rate risk?

maturity matching

using fixed-rate loans

using interest rate futures contracts

using interest rate caps

22. Floating-rate loans cannot completely eliminate interest rate risk; if the cost of funds is changing more frequently than the rate on assets, the bank's net interest margin is still affected by interest rate fluctuations.

a. True

b. False

23. The ____ of interest rate futures ____ the potential adverse effect of rising interest rates on a bank's interest expenses.

sale; increases

sale; reduces

purchase; reduces

both A and C are correct

24. Which of the following financial institutions would be most willing to swap variable-rate payments for fixed-rate payments in order to reduce exposure to interest rate risk?

one whose assets and liabilities are equally interest-rate sensitive

one whose assets are more interest-rate sensitive than its liabilities

one whose liabilities are more interest-rate sensitive than its assets

one whose gap ratio is equal to 1.0

25. Banks increase their risk by increasing their capital as a percentage of assets.

a. True

b. False

26. Banks generally ____ loans and ____ their purchases of low-risk securities when the economy is weak.

increase; increase

reduce; reduce

increase; reduce

reduce; increase

27. Banks tend to focus their loans in one industry so that they can specialize on one industry and reduce the credit risk of their loan portfolio.

a. True

b. False

28. Most loan sales enable the bank originating the loan to continue servicing the loan.

a. True

b. False

29. ROE is defined as

30. The greater the ____, the greater the amount of assets per dollar's worth of equity.

leverage measure

ratio of equity to debt

capital ratio

proportion of loans to securities in the asset portfolio

31. A bank has a return on assets of 2 percent, $40 million in assets, and $4 million in equity. What is the return on equity?

10 percent

.2 percent

2 percent

20 percent

none of the above

32. A bank has the following asset and liability portfolios. What is the gap?

Rate-sensitive

Amount

Rate-sensitive

Amount

assets

(in millions)

liabilities

(in millions)

Floating-rate

loans

$4,000

NOW accounts

$1,750

Floating-rate

mortgages

1,000

MMDAs

4,500

Short-term

Treasury securities

1,500

Short-term CDs

1,000

$6,500

$7,250

$750 million

−$750 million

1.12

.896

none of the above

33. A bank has the following asset and liability portfolios. What is the gap ratio?

Rate-sensitive

Amount

Rate-sensitive

Amount

assets

(in millions)

liabilities

(in millions)

Floating-rate

loans

$4,000

NOW accounts

$1,750

Floating-rate

mortgages

1,000

MMDAs

4,500

Short-term

Treasury securities

1,500

Short-term CDs

1,000

$6,500

$7,250

$750 million

−$750 million

1.12

.896

none of the above

34. If Bank A has a negative gap and Bank B has a positive gap. Which of the following is true?

Bank A is more favorably affected by rising interest rates.

Bank B is more favorably affected by falling interest rates.

Bank A is adversely affected by falling interest rates.

none of the above

35. Which of the following is a measure for banks to assess their exposure to interest rate risk?

capital ratio

leverage measure

duration measurement

gap ratio

C and D

36. If a bank sells interest rate futures, it ____ of rising interest rates and ____ of declining interest rates on its interest expenses.

reduces the potential adverse effect; reduces the potential favorable effect

increases the potential adverse effect; increases the potential favorable effect

decreases the potential adverse effect; increases the potential favorable effect

increases the potential adverse effect; decreases the potential favorable effect

37. Which of the following loan portfolios are best diversified against default risk?

consumer loans to farmers and commercial loans to farm equipment dealers in a local area

commercial loans to the same industry

commercial loans to various retail stores in the same city

consumer and commercial loans to different industries in different cities

38. Banks can increase their liquidity position by restructuring their asset portfolio to contain less ____ and more ____.

excess reserves; Treasury bills

Treasury bonds; corporate bonds

loans; Treasury bills

none of the above

39. Banks would reduce their liquidity position by restructuring their asset portfolio to contain less ____ and more ____.

Treasury securities; excess reserves

loans; Treasury securities

corporate bonds; Treasury securities

none of the above

40. Banks can reduce their default risk by restructuring their asset portfolio to contain less ____ and more ____.

Treasury bonds; corporate bonds

Treasury bonds; municipal bonds

Treasury bonds; commercial loans

none of the above

41. Banks can increase their potential interest revenues by restructuring their asset portfolio to contain less ____ and more ____.

Treasury bonds; commercial loans

Treasury bonds; excess reserves

consumer loans; Treasury bills

none of the above

42. If a bank desired to maximize its net interest margin, it would best achieve its goal by attempting to obtain most of its funds through ____ and use most of its funds for ____ (assuming that all loans will be repaid).

traditional demand deposits; commercial loans

traditional demand deposits; consumer loans

NOW accounts; consumer loans

NOW accounts; commercial loans

43. A bank that holds a greater percentage of traditional demand deposits and loans will likely incur ____ non-interest expenses and have a ____ net interest margin than other banks of the same size (assuming that its loan losses are no higher than those at other banks).

greater; higher

greater; lower

less; higher

less; lower

44. A bank's net interest margin is commonly defined as

interest revenues minus interest expenses.

(interest revenues minus interest expenses)/total assets.

(interest revenues minus interest expenses)/total liabilities.

(interest revenues minus interest expenses)/capital.

45. A common method for banks to reduce their default risk is to

specialize in loans to just one or a few particular industries in which they have expertise in assessing creditworthiness.

specialize in loans of companies whose earnings patterns are quite similar over time.

A and B

none of the above

46. International diversification of loans can best reduce the bank's overall default risk if

the countries where loans are given are clustered together in a single continent.

the countries where loans are given have economic cycles that do not move together over time.

A and B

none of the above

47. A bank's net interest margin will likely decline if it has a large amount of

rate-sensitive assets and no rate-sensitive liabilities.

rate-sensitive liabilities and no rate-sensitive assets.

loans to technology firms.

real estate loans.

48. Banks can reduce their required capital levels by

increasing their loans.

reducing their loans.

increasing their dividends.

obtaining more deposits.

49. Terp Bank obtains a relatively large portion of its funds from conventional demand deposits as it creates many branches with many employees to attract demand deposits. Its interest expenses should be relatively ____, while its noninterest expenses should be relatively ____.

high; low

low; high

high; high

low; low

none of the above

50. Bank A has interest revenues of $4 million, interest expenses of $5 million, and assets totaling $20 million. Bank A's net interest margin is

$1 million.

−$1 million.

−5 percent.

5 percent.

51. ____ is not a method used to assess interest rate risk.

Efficiency analysis

Gap analysis

Duration analysis

Regression analysis

52. Durango Bank has $2 million in rate-sensitive liabilities and $3 million in rate sensitive assets. Durango's gap is ____, and Durango is probably more concerned about a(n) ____ in interest rates.

−$1 million; increase

−$1 million; decrease

$1 million; increase

$1 million; decrease

none of the above

53. Leskar Bank has $2 million in rate-sensitive liabilities and $3 million in rate sensitive assets. Leskar's gap ratio is ____.

1.5

0.67

$1 million

none of the above

54. ____ is (are) least likely to be used as a method of reducing interest rate risk.

Maturity matching

Using floating-rate loans

Stock options

Using interest rate swaps

Using interest rate caps

55. Ringo Bank has a profit after taxes of $3.0 million, total assets of $300 million, and shareholder's equity of $30 million. Ringo's return on equity (ROE) is ____ percent.

1.0

10.0

3.0

none of the above

56. For a commercial bank, when the average duration of assets exceeds the average duration of liabilities, the duration gap is

zero.

positive.

negative.

B or C

57. Assume a bank accepts deposits on Australian dollars (A$) and makes some fixed-rate loans in British pounds. Which of the following would reduce the bank's profit margin?

the A$ appreciates against the pound

the A$ is stable against the pound

the A$ depreciates against the pound

the British interest rates increase

C and D

58. The performance of a bank that continually concentrates in short-term deposits in euros and adjustable-rate dollar loans with equal rate-sensitivity is

unaffected if European interest rates increase and U.S. rates decrease.

unaffected if U.S. interest rates increase and European interest rates decrease.

adversely affected if European interest rates increase and U.S. rates decrease.

adversely affected if U.S. interest rates increase and European rates decrease.

A and B

59. If a bank has assets and liabilities in dollars and euros, its exposure to interest rate risk can best be minimized if the

currency mix of assets is similar to that of liabilities.

overall rate-sensitivity of assets and liabilities are similar.

rate sensitivity of assets and liabilities is matched for each currency.

A and B

60. The risk of a loss due to closing out a transaction is referred to as ____ risk.

credit

settlement

interest rate

exchange rate

none of the above

61. The Sarbanes-Oxley Act has had little impact on the monitoring conducted by the board members of commercial banks.

a. True

b. False

62. Whether a bank has a temporary or a permanent need for funds, the decision should be to borrow in the federal funds market.

a. True

b. False

63. A positive gap (or gap ratio of more than 1.00) suggests that rate-sensitive liabilities exceed rate-sensitive assets.

a. True

b. False

64. For most banks, the average duration of liabilities exceeds the average duration of assets, so the duration gap is positive.

a. True

b. False

65. Floating-rate loans completely eliminate interest rate risk.

a. True

b. False

66. A bank can usually simultaneously maximize its return on assets and minimize credit risk.

a. True

b. False

67. If the currency mix of a bank's assets is similar to that of its liabilities and the overall rate sensitivity of its assets and liabilities is similar, interest rate risk is completely nonexistent.

a. True

b. False

68. Macon Bank has interest revenues of $4 million, interest expenses of $5 million, and assets totaling $20 million. Macon Bank's net interest margin is

$1 million.

−1 million.

5 percent.

−5 percent.

69. ____ is not a method used to assess interest rate risk.

Gap analysis

Ratio analysis

Duration analysis

Regression analysis

All of the above are methods to assess interest rate risk.

70. ____ is (are) least likely to be used as a method of reducing interest rate risk.

Maturity matching

Floating-rate loans

Stock options

Interest rate swaps

Interest rate caps

71. Crazer Bank has a profit after taxes of $2 million, total assets of $100 million, and shareholder's equity of $10 million. Crazer's return on equity (ROE) is ____ percent.

210

none of the above

72. Parsons Bank reported $3 million in interest revenues and $1 million in interest expenses. Parsons has $20 million in assets and $8 million in liabilities. Parsons net interest margin is ____ percent.

−10

none of the above

73. If a bank expects interest rates to consistently ____ over time, it will consider allocating most of its funds to rate-____ assets.

decrease; sensitive

increase; insensitive

increase; sensitive

answers A and B are correct

none of the above

74. During a period of ____ interest rates, a bank's net interest margin will likely ____ if its liabilities are more rate sensitive than its assets.

decreasing; decrease

increasing; increase

decreasing; increase

increasing; decrease

answers C and D are correct

75. If interest rates ____, banks with ____ duration gaps will be ____ affected.

rise; positive; positively

rise; positive; adversely

decrease; positive; adversely

decrease; negative; positively

none of the above

76. In a regression of a bank's stock return on an interest rate proxy and market returns, a ____ coefficient for the interest rate variable suggests that bank performance is ____ affected by ____ interest rates.

positive; adversely; rising

positive; favorably; declining

negative; adversely; rising

negative; favorably; rising

none of the above

77. If a bank has a ____ duration gap, its average asset duration is probably ____ than its liability duration.

negative; smaller

positive; larger

negative; larger

none of the above

78. In an interest rate swap, a bank whose liabilities are ____ rate sensitive than its assets can swap payments with a ____ interest rate in exchange for payments with a ____ interest rate.

more; fixed; variable

more; variable; fixed

less; fixed; variable

less; fixed; fixed

none of the above

79. Because riskier assets offer ____ returns, a bank's strategy to increase its return will typically entail a(n) ____ in the overall credit risk of its asset portfolio.

lower; increase

lower; decrease

higher; increase

higher; decrease

none of the above

80. The risk of a loss due to closing out a transaction is referred to as ____ risk.

settlement

credit

interest rate

exchange rate

none of the above

81. An effective way to align bank managers’ interests with shareholders’ goal of higher returns is to compensate the managers with fixed salaries without a bonus.

a. True

b. False

82. Which of the following is not a function of a bank’s board of directors?

overseeing acquisitions

determining a compensation system for the bank’s executives

overseeing policies for changing the bank’s capital structure

pursuing a proxy contest to change the bank’s dividend policy

83. As part of its liquidity management, a bank might:

purchase interest rate swaps.

issue commercial paper.

purchase long-term Treasury securities.

A and C

84. A(n) ____________ is an agreement for a fee to receive payments when the interest rate of a particular security rises above a specified level by a specified date.

interest rate cap

interest rate futures contract

interest rate swap

maximum rate contract

85. Which of the following is a method that a bank can use to reduce its credit risk?

diversifying its loans across industries

focusing on credit card loans

focusing on consumer loans

selling its holdings of Treasury securities

#FIN 350 Week 9 Quiz – Strayer

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FIN 320 Week 9 Quiz – Strayer

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Quiz 7 Chapter 17 and 18

Chapter 17: ___________________________________________________________________________

Today's futures markets are dominated by trading in _______ contracts.

metals

agriculture

financial

commodity

A person with a long position in a commodity futures contract wants the price of the commodity to ______.

decrease substantially

increase substantially

remain unchanged

increase or decrease substantially

If an asset price declines, the investor with a _______ is exposed to the largest potential loss.

long call option

long put option

long futures contract

short futures contract

The clearing corporation has a net position equal to ______.

the open interest

the open interest times 2

the open interest divided by 2

zero

The S&P 500 Index futures contract is an example of a(n) ______ delivery contract. The pork bellies contract is an example of a(n) ______ delivery contract.

cash; cash

cash; actual

actual; cash

actual; actual

Which one of the following contracts requires no cash to change hands when initiated?

Listed put option

Short futures contract

Forward contract

Listed call option

Synthetic stock positions are commonly used by ______ because of their ______.

market timers; lower transaction cost

banks; lower risk

wealthy investors; tax treatment

money market funds; limited exposure

_____________ are likely to close their positions before the expiration date, while ____________ are likely to make or take delivery.

Investors; regulators

Hedgers; speculators

Speculators; hedgers

Regulators; investors

Futures contracts have many advantages over forward contracts except that _________.

futures positions are easier to trade

futures contracts are tailored to the specific needs of the investor

futures trading preserves the anonymity of the participants

counterparty credit risk is not a concern on futures

10.

An investor who is hedging a corporate bond portfolio using a T-bond futures contract is said to have _______.

an arbitrage

a cross-hedge

an over hedge

a spread hedge

11.

The open interest on silver futures at a particular time is the number of __________.

all outstanding silver futures contracts

long and short silver futures positions counted separately on a particular trading day

silver futures contracts traded during the day

silver futures contracts traded the previous day

12.

An investor who goes short in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

pay; pay

pay; receive

receive; pay

receive; receive

13.

An investor who goes long in a futures contract will _____ any increase in value of the underlying asset and will _____ any decrease in value in the underlying asset.

pay; pay

pay; receive

receive; pay

receive; receive

14.

The advantage that standardization of futures contracts brings is that _____ is improved because ____________________.

liquidity; all traders must trade a small set of identical contracts

credit risk; all traders understand the risk of the contracts

pricing; convergence is more likely to take place with fewer contracts

trading cost; trading volume is reduced

15.

The fact that the exchange is the counterparty to every futures contract issued is important because it eliminates _________ risk.

market

credit

interest rate

basis

16.

In the futures market the short position's loss is ___________ the long position's gain.

greater than

less than

equal to

sometimes less than and sometimes greater than

17.

A wheat farmer should __________ in order to reduce his exposure to risk associated with fluctuations in wheat prices.

sell wheat futures

buy wheat futures

buy a contract for delivery of wheat now and sell a contract for delivery of wheat at harvest time

sell wheat futures if the basis is currently positive and buy wheat futures if the basis is currently negative

18.

Which of the following provides the profit to a long position at contract maturity?

Original futures price - Spot price at maturity

Spot price at maturity - Original futures price

Zero

Basis

19.

You take a long position in a futures contract of one maturity and a short position in a contract of a different maturity, both on the same commodity. This is called a __________.

cross-hedge

reversing trade

spread position

straddle

20.

Interest rate futures contracts exist for all of the following except __________.

federal funds

Eurodollars

banker's acceptances

repurchase agreements

21.

Initial margin is usually set in the region of ________ of the total value of a futures contract.

5%-15%

10%-20%

15%-25%

20%-30%

22.

Margin must be posted by ________.

buyers of futures contracts only

sellers of futures contracts only

both buyers and sellers of futures contracts

speculators only

23.

The daily settlement of obligations on futures positions is called _____________.

a margin call

marking to market

a variation margin check

the initial margin requirement

24.

Which of the following provides the profit to a short position at contract maturity?

Original futures price - Spot price at maturity

Spot price at maturity - Original futures price

Zero

Basis

25.

Margin requirements for futures contracts can be met by ______________.

cash only

cash or highly marketable securities such as Treasury bills

cash or any marketable securities

cash or warehouse receipts for an equivalent quantity of the underlying commodity

26.

An established value below which a trader's margin may not fall is called the ________.

daily limit

daily margin

maintenance margin

convergence limit

27.

Which one of the following is a true statement?

A margin deposit can be met only by cash.

All futures contracts require the same margin deposit.

The maintenance margin is the amount of money you post with your broker when you buy or sell a futures contract.

The maintenance margin is the value of the margin account below which the holder of a futures contract receives a margin call.

28.

At maturity of a futures contract, the spot price and futures price must be approximately the same because of __________.

marking to market

the convergence property

the open interest

the triple witching hour

29.

A futures contract __________.

is a contract to be signed in the future by the buyer and the seller of a commodity

is an agreement to buy or sell a specified amount of an asset at a predetermined price on the expiration date of the contract

is an agreement to buy or sell a specified amount of an asset at whatever the spot price happens to be on the expiration date of the contract

gives the buyer the right, but not the obligation, to buy an asset some time in the future

30.

Which one of the following exploits differences between actual future prices and their theoretically correct parity values?

Index arbitrage

Marking to market

Reversing trades

Settlement transactions

31.

Which one of the following refers to the daily settlement of obligations on future positions?

Marking to market

The convergence property

The open interest

The triple witching hour

32.

The most actively traded interest rate futures contract is for ___________.

LIBOR

Treasury bills

Eurodollars

Treasury bonds

33.

The CME weather futures contract is an example of ______________.

a cash-settled contract

an agricultural contract

a financial future

a commodity future

34.

Single stock futures, as opposed to stock index futures, are _______________.

not yet being offered by any exchanges

offered overseas but not in the United States

currently trading on One Chicago, a joint venture of several exchanges

scheduled to begin trading in 2015 on several exchanges

35.

You are currently long in a futures contract. You instruct a broker to enter the short side of a futures contract to close your position. This is called __________.

a cross-hedge

a reversing trade

a speculation

marking to market

36.

A company that mines bauxite, an aluminum ore, decides to short aluminum futures. This is an example of __________ to limit its risk.

cross-hedging

long hedging

spreading

speculating

37.

Futures markets are regulated by the __________.

CFA Institute

CFTC

CIA

SEC

38.

A hog farmer decides to sell hog futures. This is an example of __________ to limit risk.

cross-hedging

short hedging

spreading

speculating

39.

On May 21, 2012, you could have purchased a futures contract from Intrade for a price of $5.70 that would pay you $10 if Barack Obama won the 2012 presidential election. This tells you _____.

that the market believed that Obama had a 57% chance of winning

that the market believed that Obama would not win the election

nothing about the market's belief concerning the odds of Obama winning

that the market believed Obama's chances of winning were about 43%

40.

An investor would want to __________ to exploit an expected fall in interest rates.

sell S&P 500 Index futures

sell Treasury-bond futures

buy Treasury-bond futures

buy wheat futures

41.

Forward contracts _________ traded on an organized exchange, and futures contracts __________ traded on an organized exchange.

are; are

are; are not

are not; are

are not; are not

42.

If the S&P 500 Index futures contract is overpriced relative to the spot S&P 500 Index, you should __________.

buy all the stocks in the S&P 500 and write put options on the S&P 500 Index

sell all the stocks in the S&P 500 and buy call options on S&P 500 Index

sell S&P 500 Index futures and buy all the stocks in the S&P 500

sell short all the stocks in the S&P 500 and buy S&P 500 Index futures

43.

A long hedge is a simultaneous __________ position in the spot market and a __________ position in the futures market.

long; long

long; short

short; long

short; short

44.

Investors who take short positions in futures contract agree to ___________ delivery of the commodity on the delivery date, and those who take long positions agree to __________ delivery of the commodity.

make; make

make; take

take; make

take; take

45.

An investor would want to __________ to hedge a long position in Treasury bonds.

buy interest rate futures

buy Treasury bonds in the spot market

sell interest rate futures

sell S&P 500 futures

46.

Futures contracts are said to exhibit the property of convergence because _______________.

the profits from long positions and short positions must ultimately be equal

the profits from long positions and short positions must ultimately net to zero

price discrepancies would open arbitrage opportunities for investors who spot them

the futures price and spot price of any asset must ultimately net to zero

47.

In the context of a futures contract, the basis is defined as ______________.

the futures price minus the spot price

the spot price minus the futures price

the futures price minus the initial margin

the profit on the futures contract

48.

The __________ is among the world's largest derivatives exchanges and operates a fully electronic trading and clearing platform.

CBOE

CBOT

CME

Eurex

49.

Violation of the spot-futures parity relationship results in _______________.

fines and other penalties imposed by the SEC

arbitrage opportunities for investors who spot them

suspension of delivery privileges

suspension of trading

50.

When dividend-paying assets are involved, the spot-futures parity relationship can be stated as _________________.

F1 = S0(1 + rf)

F0 = S0(1 + rf - d)T

F0 = S0(1 + rf + d)T

F0 = S0(1 + rf)T

51.

An investor establishes a long position in a futures contract now (time 0) and holds the position until maturity (time T). The sum of all daily settlements will be __________.

F0 - FT

F0 - S0

FT - F0

FT - S0

52.

A short hedge is a simultaneous __________ position in the spot market and a __________ position in the futures market.

long; long

long; short

short; long

short; short

53.

Approximately __________ of futures contracts result in actual delivery.

less than 1% to 3%

less than 5% to 15%

less than 60% to 80%

54.

A long hedger will __________ from an increase in the basis; a short hedger will __________.

be hurt; be hurt

be hurt; profit

profit; be hurt

profit; profit

55.

At year-end, taxes on a futures position _______________.

must be paid if the position has been closed out

must be paid if the position has not been closed out

must be paid regardless of whether the position has been closed out or not

need not be paid if the position supports a hedge

56.

A speculator will often prefer to buy a futures contract rather than the underlying asset because: I. Gains in futures contracts can be larger due to leverage. II. Transaction costs in futures are typically lower than those in spot markets. III. Futures markets are often more liquid than the markets of the underlying commodities.

I and II only

II and III only

I and III only

I, II, and III

57.

On January 1, you sold one April S&P 500 Index futures contract at a futures price of 1,300. If the April futures price is 1,250 on February 1, your profit would be __________ if you close your position. (The contract multiplier is 250.)

-$12,500

-$15,000

$15,000

$12,500

58.

The current level of the S&P 500 is 1,250. The dividend yield on the S&P 500 is 3%. The risk-free interest rate is 6%. The futures price quote for a contract on the S&P 500 due to expire 6 months from now should be __________.

1,274.33

1,286.95

1,268.61

1,291.29

59.

The spot price for gold is $1,550 per ounce. The dividend yield on the S&P 500 is 2.5%. The risk-free interest rate is 3.5%. The futures price for gold for a 6-month contract on gold should be __________.

$1,504.99

$1,569.08

$1,554.04

$1,557.73

60.

If you expect a stock market downturn, one potential defensive strategy would be to __________.

buy stock-index futures

sell stock-index futures

buy stock-index options

sell foreign exchange futures

61.

At contract maturity the basis should equal ___________.

the risk-free interest rate

-1

62.

You believe that the spread between the September T-bond contract and the June T-bond futures contract is too large and will soon correct. This market exhibits positive cost of carry for all contracts. To take advantage of this, you should ______________.

buy the September contract and sell the June contract

sell the September contract and buy the June contract

sell the September contract and sell the June contract

buy the September contract and buy the June contract

63.

A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. The arbitrage profit implied by these prices is _____________.

$3.27

$4.39

$5.24

$6.72

64.

A 1-year gold futures contract is selling for $1,645. Spot gold prices are $1,592 and the 1-year risk-free rate is 3%. Based on the above data, which of the following set of transactions will yield positive riskless arbitrage profits?

Buy gold in the spot with borrowed money, and sell the futures contract.

Buy the futures contract, and sell the gold spot and invest the money earned.

Buy gold spot with borrowed money, and buy the futures contract.

Buy the futures contract, and buy the gold spot using borrowed money.

65.

A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of 1 year. If the T-bill rate is 5%, what should the futures price be?

$95.24

$100

$105

$107

66.

A hypothetical futures contract on a nondividend-paying stock with a current spot price of $100 has a maturity of 4 years. If the T-bill rate is 7%, what should the futures price be?

$76.29

$93.46

$107

$131.08

67.

On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. After Monday's close the balance on your margin account will be ________.

$2,700

$2,000

$3,137.50

$2,262.50

68.

On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. At the close of day on Tuesday your cumulative rate of return on your investment is _____.

16.2%

-5.8%

-.16%

-2.2%

69.

On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. On which of the given days do you get a margin call?

Monday

Tuesday

Wednesday

None of these options

70.

On Monday morning you sell one June T-bond futures contract at 97:27, that is, for $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. The cumulative rate of return on your investment after Wednesday is a ____.

79.9% loss

2.6% loss

33% gain

53.9% loss

71.

The volume of interest rate swaps increased from almost zero in 1980 to over __________ today.

$40 million

$400 million

$400 billion

$400 trillion

72.

If the risk-free rate is greater than the dividend yield, then we know that _______________.

the futures price will be higher as contract maturity increases

F0<S0

FT>ST

arbitrage profits are possible

73.

Sahali Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 9%. Sahali Trading Company then enters into an interest rate swap where it will pay LIBOR and receive a fixed 8% on a notional principal of $100 million. After all these transactions are considered, Sahali's cost of funds is __________.

17%

LIBOR

LIBOR + 1%

LIBOR - 1%

74.

Interest rate swaps involve the exchange of ________________.

actual fixed-rate bonds for actual floating-rate bonds

actual floating-rate bonds for actual fixed-rate bonds

net interest payments and an actual principal swap

net interest payments based on notional principal, but no exchange of principal

75.

From the perspective of determining profit and loss, the long futures position most closely resembles a levered investment in a ____________.

long call

short call

short stock position

long stock position

76.

The _________ contract dominates trading in stock-index futures.

S&P 500

DJIA

Nasdaq 100

Russell 2000

77.

The ________ and the _______ have the lowest correlations with the large-cap indexes.

Nasdaq Composite; Russell 2000

NYSE; DJIA

S&P 500; DJIA

Russell 2000; S&P 500

78.

The use of leverage is practiced in the futures markets due to the existence of _________.

banks

brokers

clearinghouses

margin

79.

You purchase an interest rate futures contract that has an initial margin requirement of 15% and a futures price of $115,098. The contract has a $100,000 underlying par value bond. If the futures price falls to $108,000, you will experience a ______ loss on your money invested.

31%

41%

52%

64%

80.

You own a $15 million bond portfolio with a modified duration of 11 years. Interest rates are expected to increase by 5 basis points, or .05%. What is the price value of a basis point?

$10,400

$14,300

$16,500

$21,300

81.

The price of a corn futures contract is $2.65 per bushel when the contract is issued, and the commodity spot price is $2.55. When the contract expires, the two prices are identical. What principle is represented by this price behavior?

Convergence

Margin

Basis

Volatility

82.

A corporation will be issuing bonds in 6 months, and the treasurer is concerned about unfavorable interest rate moves in the interim. The best way for her to hedge the risk is to _________________.

buy T-bond futures

sell T-bond futures

buy stock-index futures

sell stock-index futures

83.

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. What are the farmer's proceeds from the sale of corn?

$27,500

$31,875

$33,875

$35,950

84.

A farmer sells futures contracts at a price of $2.75 per bushel. The spot price of corn is $2.55 at contract expiration. The farmer harvested 12,500 bushels of corn and sold futures contracts on 10,000 bushels of corn. Ignoring the transaction costs, how much did the farmer improve his cash flow by hedging sales with the futures contracts?

$2,000

$31,875

$33,875

85.

A bank has made long-term fixed-rate mortgages and has financed them with short-term deposits. To hedge out its interest rate risk, the bank could ________.

sell T-bond futures

buy T-bond futures

buy stock-index futures

sell stock-index futures

86.

A market timer now believes that the economy will soften over the rest of the year as the housing market slump continues, and she also believes that foreign investors will stop buying U.S. fixed-income securities in the large quantities that they have in the past. One way the timer could take advantage of this forecast is to ________________.

buy T-bond futures and sell stock-index futures

sell T-bond futures and buy stock-index futures

buy stock-index futures and buy T-bond futures

sell stock-index futures and sell T-bond futures

87.

The Student Loan Marketing Association (SLMA) has short-term student loans funded by long-term debt. To hedge out this interest rate risk, SLMA could: I. Engage in a swap to pay fixed and receive variable interest payments II. Engage in a swap to pay variable and receive fixed interest payments III. Buy T-bond futures IV. Sell T-bond futures

I and II only

I and IV only

II and III only

II and IV only

Chapter 18: ___________________________________________________________________________

A mutual fund with a beta of 1.1 has outperformed the S&P 500 over the last 20 years. We know that this mutual fund manager _____.

must have had superior stock selection ability.

must have had superior asset allocation ability.

must have had superior timing ability.

may or may not have outperformed the S&P 500 on a risk-adjusted basis.

The comparison universe is __________.

the bogey portfolio

a set of mutual funds with similar risk characteristics to your mutual fund

the set of all mutual funds in the United States

the set of all mutual funds in the world

Which one of the following performance measures is the Sharpe ratio?

Average excess return to beta ratio

Average excess return to standard deviation ratio

Alpha to standard deviation of residuals ratio

Average return minus required return

The M2 measure is a variant of ________________.

the Sharpe measure

the Treynor measure

Jensen's alpha

the appraisal ratio

A managed portfolio has a standard deviation equal to 22% and a beta of .9 when the market portfolio's standard deviation is 26%. The adjusted portfolio P* needed to calculate the M2 measure will have ________ invested in the managed portfolio and the rest in T-bills.

84.6%

118%

18%

15.4%

Your return will generally be higher using the __________ if you time your transactions poorly, and your return will generally be higher using the __________ if you time your transactions well.

dollar-weighted return method; dollar-weighted return method

dollar-weighted return method; time-weighted return method

time-weighted return method; dollar-weighted return method

time-weighted return method; time-weighted return method

Consider the Sharpe and Treynor performance measures. When a pension fund is large and well diversified in total and it has many managers, the __________ measure is better for evaluating individual managers while the __________ measure is better for evaluating the manager of a small fund with only one manager responsible for all investments, which may not be fully diversified.

Sharpe; Sharpe

Sharpe; Treynor

Treynor; Sharpe

Treynor; Treynor

Consider the theory of active portfolio management. Stocks A and B have the same beta and the same positive alpha. Stock A has higher nonsystematic risk than stock B. You should want __________ in your active portfolio.

equal proportions of stocks A and B

more of stock A than stock B

more of stock B than stock A

The answer cannot be determined from the information given.

Suppose that over the same time period two portfolios have the same average return and the same standard deviation of return, but portfolio A has a higher beta than portfolio B. According to the Sharpe ratio, the performance of portfolio A __________.

is better than the performance of portfolio B

is the same as the performance of portfolio B

is poorer than the performance of portfolio B

cannot be measured since there is no data on the alpha of the portfolio

10.

Which model is preferred by academics, and is gaining in popularity with practitioners, when evaluating investment performance?

The Treynor-Black model

The single-index model

The Fama-French three-factor model

The Sharpe model

11.

The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. What is the Treynor measure for portfolio A?

12.38%

2.38%

.91%

3.64%

12.

The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. What is the M2 measure for portfolio B?

.43%

1.25%

1.77%

1.43%

13.

The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. If these portfolios are subcomponents that make up part of a well-diversified portfolio, then portfolio ______ is preferred.

S&P 500

14.

The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500 are given below. Based on the M2 measure, portfolio C has a superior return of _____ as compared to the S&P 500.

-1.33%

1.43%

15.

Which one of the following is largely based on forecasts of macroeconomic factors?

Security selection

Passive investing

Market efficiency

Market timing

16.

Based on the example used in the book, a perfect market timer would have made _______ by 2008 on a $1 investment made in 1926.

$100

$1,626

$1.5 million

$36.7 billion

17.

The average returns, standard deviations, and betas for three funds are given below along with data for the S&P 500 Index. The risk-free return during the sample period is 6%. You want to evaluate the three mutual funds using the Sharpe ratio for performance evaluation. The fund with the highest Sharpe ratio of performance is __________.

fund A

fund B

fund C

The answer cannot be determined from the information given.

18.

The average returns, standard deviations, and betas for three funds are given below along with data for the S&P 500 Index. The risk-free return during the sample period is 6%. You want to evaluate the three mutual funds using the Treynor measure for performance evaluation. The fund with the highest Treynor measure of performance is __________.

fund A

fund B

fund C

The answer cannot be determined from the information given.

19.

The average returns, standard deviations, and betas for three funds are given below along with data for the S&P 500 Index. The risk-free return during the sample period is 6%. You want to evaluate the three mutual funds using the Jensen measure for performance evaluation. The fund with the highest Jensen measure of performance is __________.

fund A

fund B

fund C

S&P 500

20.

In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The total excess return on the managed portfolio was __________.

21.

In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of asset allocation across markets to the total excess return was __________.

1.5%

2.5%

3.5%

22.

In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of security selection within asset classes to the total excess return was __________.

1.5%

2.5%

3.5%

23.

In a particular year, Lost Hope Mutual Fund made the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The total extra return on the managed portfolio was __________.

24.

In a particular year, Lost Hope Mutual Fund made the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of asset allocation across markets to the total extra return was __________.

-1%

25.

In a particular year, Lost Hope Mutual Fund made the following investments in asset classes: The return on a bogey portfolio was 12%, based on the following: The contribution of security selection within asset classes to the total extra return was __________.

-1%

26.

Which one of the following averaging methods is the preferred method of constructing returns series for use in evaluating portfolio performance?

Geometric average

Arithmetic average

Dollar weighted

Internal

27.

The __________ calculates the reward to risk trade-off by dividing the average portfolio excess return by the portfolio beta.

Sharpe ratio

Treynor measure

Jensen measure

appraisal ratio

28.

28. In creating the P* portfolio, one mixes the original portfolio P and T-bills to match the _________ of the market.

alpha

beta

excess return

standard deviation

29.

The M2 measure of portfolio performance was developed by ______________.

Modigliani and Miller

Modigliani and Modigliani

Merton and Miller

Fama and French

30.

Probably the biggest problem with evaluating the portfolio performance of actively managed funds is the assumption that __________________________.

the markets are efficient

portfolio risk is constant over time

diversification pays off

security selection is more valuable than asset allocation

31.

Perfect-timing ability is equivalent to having __________ on the market portfolio.

a call option

a futures contract

a put option

a forward contract

32.

One hundred fund managers enter a contest to see how many times in 13 years they can earn a higher return than their competitors. The probability distribution of the number of successful years out of 13 for the best-performing money managers is Out of this sample, chance alone would indicate that there is a ______ probability that someone would beat the market at least 11 times out of 13 years.

51.3%

65.9%

67.1%

10.83%

33.

The Treynor-Black model is a model that shows how an investment manager can use security analysis and statistics to construct __________.

a market portfolio

a passive portfolio

an active portfolio

an index portfolio

34.

If an investor is a successful market timer, his distribution of monthly portfolio returns will __________.

be skewed to the left

be skewed to the right

exhibit kurtosis

exhibit neither skewness nor kurtosis

35.

Recent analysis indicates that the style of investing is a critical component of fund performance. In fact, on average about _____ of fund performance is attributable to the asset allocation decision.

68%

74%

88%

97%

36.

In the Treynor-Black model, the active portfolio will contain stocks with __________.

alphas equal to zero

negative alphas

positive alphas

some negative and some positive alphas

37.

Portfolio performance is often decomposed into various subcomponents, such as the return due to: I. Broad asset allocation across security classes II. Sector weightings within equity markets III. Security selection with a given sector The one decision that contributes most to the fund performance is _____.

III

All contribute equally to fund performance.

38.

The theory of efficient frontiers has __________.

no adherents among practitioners

a small number of adherents among practitioners

a significant number of adherents among practitioners

complete support by practitioners

39.

In the Treynor-Black model, security analysts __________.

analyze a relatively small number of stocks

analyze all stocks that are publicly traded

are redundant

devote their attention to market timing rather than fundamental analysis

40.

In the Treynor-Black model, security analysts __________.

analyze the entire universe of stocks

assume that markets are inefficient

treat market index as a baseline portfolio from which an active portfolio is constructed

focus on selecting the best-performing bogey

41.

Active portfolio management consists of: I. Market timing II. Security selection III. Sector selection within given markets IV. Indexing

I and II only

II and III only

I, II, and III only

I, II, III, and IV

42.

A market-timing strategy is one in which asset allocation in the stock market __________ when one forecasts that the stock market will outperform Treasury bills.

decreases

increases

remains the same

may increase or decrease

43.

In the Treynor-Black model, the contribution of individual security to the active portfolio should be based primarily on the stock's _________.

alpha

beta

residual variance

information ratio

44.

If all ______ are ______ in the Treynor-Black model, there would be no reason to depart from the passive portfolio.

alphas; zero

alphas; positive

betas; positive

standard deviations; positive

45.

In the Treynor-Black model, the weight of each analyzed security in the portfolio should be proportional to its __________.

alpha/beta

alpha/residual variance

beta/residual variance

none of these options

46.

The critical variable in the determination of the success of the active portfolio is the stock's __________.

alpha/nonsystematic risk ratio

alpha/systematic risk ratio

delta/nonsystematic risk ratio

delta/systematic risk ratio

47.

Consider the theory of active portfolio management. Stocks A and B have the same positive alpha and the same nonsystematic risk. Stock A has a higher beta than stock B. You should want __________ in your active portfolio.

equal proportions of stocks A and B

more of stock A than stock B

more of stock B than stock A

The answer cannot be determined from the information given.

48.

Consider the theory of active portfolio management. Stocks A and B have the same beta and nonsystematic risk. Stock A has a higher positive alpha than stock B. You should want __________ in your active portfolio.

equal proportions of stocks A and B

more of stock A than stock B

more of stock B than stock A

The answer cannot be determined from the information given.

49.

The market-timing form of active portfolio management relies on __________ forecasting, and the security selection form of active portfolio management relies on __________ forecasting.

macroeconomic; macroeconomic

macroeconomic; microeconomic

microeconomic; macroeconomic

microeconomic; microeconomic

50.

Active portfolio managers try to construct a risky portfolio with _______.

a higher Sharpe ratio than a passive strategy

a lower Sharpe ratio than a passive strategy

the same Sharpe ratio as a passive strategy

very few securities

51.

In performance measurement, the bogey portfolio is designed to _________.

measure the returns to a completely passive strategy

measure the returns to a similar active strategy

measure the returns to a given investment style

equal the return on the S&P 500

52.

__________ portfolio managers experience streaks of abnormal returns that are hard to label as lucky outcomes, and _________ anomalies in realized returns have been sufficiently persistent that portfolio managers could use them to beat a passive strategy over prolonged periods.

No; no

No; some

Some; no

Some; some

53.

A passive benchmark portfolio is: I. A portfolio in which the asset allocation across broad asset classes is neutral and not determined by forecasts of performance of the different asset classes II. One in which an indexed portfolio is held within each asset class III. Often called the bogey

I only

I and III only

II and III only

I, II, and III

54.

The correct measure of timing ability is ____________ for a portfolio manager who correctly forecasts 55% of bull markets and 55% of bear markets.

-5%

10%

95%

55.

It is very hard to statistically verify abnormal fund performance because of all of the following except which one?

Inevitably, some fund managers experience streaks of good performance that may just be due to luck.

The noise in realized rates of return is so large as to make it hard to identify abnormal performance in competitive markets.

Portfolio composition is rarely stable long enough to identify abnormal performance.

Even if successful, there is really not much value to be added by active strategies such as market timing.

56.

The term alpha transport refers to _____.

establishing alpha and then using index products to hedge market exposure and reduce exposure to particular sectors.

establishing alpha and then using sector mutual funds to hedge market exposure and reduce exposure to the general market.

establishing alpha and then using sector mutual funds to hedge market exposure and gain exposure to the general market.

establishing alpha and then using index products to hedge market exposure and gain exposure to particular sectors.

57.

Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The correct measure of timing ability for Krueger is __________.

20%

60%

75%

120%

58.

Portfolio managers Martin and Krueger each manage $1 million funds. Martin has perfect foresight, and the call option value of his perfect foresight is $150,000. Krueger is an imperfect forecaster and correctly predicts 50% of all bull markets and 70% of all bear markets. The value of Krueger's imperfect forecasting ability is __________.

$30,000

$67,500

$108,750

$217,500

59.

Douglass, an imperfect forecaster, correctly predicts 57% of all bull markets and 68% of all bear markets. Simmonds is a perfect forecaster. If Douglass is able to charge a fee of $125,000, the fee that Roy Simmonds should charge is __________. Assume that both forecasters manage similar-size funds.

$31,250

$200,000

$500,000

$625,000

60.

A mutual fund invests in large-capitalization stocks. Its performance should be measured against which one of the following?

Russell 2000 Index

S&P 500 Index

Wilshire 5000 Index

Dow Jones Industrial Average

61.

Assume you purchased a rental property for $100,000 and sold it 1 year later for $115,000 (there was no mortgage on the property). At the time of the sale, you paid $3,000 in commissions and $1,000 in taxes. If you received $10,000 in rental income (all received at the end of the year), what annual rate of return did you earn?

11%

21%

25%

62.

The table presents the actual return of each sector of the manager's portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column 4. What was the manager's return in the month?

2.07%

2.21%

2.24%

4.8%

63.

2.07%

2.21%

2.24%

4.8%

64.

Underperformance = .03%

Overperformance = .03%

Overperformance = .14%

Underperformance = 3%

65.

-.15%

.15%

-.3%

.3%

66.

-.18%

.18%

-.15%

.15%

67.

Morningstar's RAR produce results that are similar but not identical to ________.

Jensen's alpha

the Treynor ratio

the Sharpe ratio

68.

The Treynor-Black model assumes that security markets are _________.

completely efficient

nearly efficient

very inefficient

random walks

69.

The information ratio is equal to the stock's ____ divided by its ______.

diversifiable risk; beta

beta; alpha

alpha; beta

alpha; diversifiable risk

70.

Empirical tests to date show ______________.

that many investors have earned large rewards by market timing

little evidence of market-timing ability

clear-cut evidence of substantial market-timing ability

evidence that absolutely no market-timing ability exists

71.

A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the M2 measure of the portfolio if the risk-free rate is 5%?

.58%

.68%

.78%

.88%

72.

A portfolio generates an annual return of 17%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the M2 measure of the portfolio if the risk-free rate is 4%?

2.15%

2.76%

2.94%

3.14%

73.

A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the Treynor measure of the portfolio if the risk-free rate is 5%?

.1143

.1233

.1354

.1477

74.

A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Treynor measure of the portfolio if the risk-free rate is 6%?

.0833

.1083

.1114

.1163

75.

A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is the Sharpe measure of the portfolio if the risk-free rate is 5%?

.3978

.4158

.4563

.4706

76.

A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is the Sharpe ratio of the portfolio if the risk-free rate is 6%?

.4757

.5263

.6842

.7252

77.

A portfolio generates an annual return of 13%, a beta of .7, and a standard deviation of 17%. The market index return is 14% and has a standard deviation of 21%. What is Jensen's alpha of the portfolio if the risk-free rate is 5%?

.017

.034

.067

.078

78.

A portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation of 19%. The market index return is 12% and has a standard deviation of 16%. What is Jensen's alpha of the portfolio if the risk-free rate is 6%?

.017

.028

.036

.078

79.

The portfolio that contains the benchmark asset allocation against which a manager will be measured is often called _____________.

the bogey portfolio

the Vanguard Index

Jensen's alpha

the Treynor measure

80.

An attribution analysis will not likely contain which of the following components?

Asset allocation

Index returns

Risk-free returns

Security selection

81.

Which of the following investment strategies would have produced the highest returns in the time period since 1926?

T-bills portfolio

S&P 500 Index fund

Perfect market timing

Random stock selection

82.

What phrase might be used as a substitute for the Treynor-Black model developed in 1973?

Solely active management

Enhanced index approach

Passive management

Random selection

83.

What is the term for the process used to assess portfolio manager performance?

Active analysis

Attribution analysis

Passive analysis

Treynor-Black Analysis

84.

A fund has excess performance of 1.5%. In looking at the fund's investment breakdown, you see that the fund overweighted equities relative to the benchmark and that the average return on the fund's equity portfolio was slightly lower than the equity benchmark return. The excess performance for this fund is probably due to _______________.

security selection ability

better sector weightings in the equity portfolio

the asset allocation decision

finding securities with positive alphas

85.

For a market timer, the _____________ will be higher when RM is higher.

portfolio's alpha and beta

portfolio's unsystematic risk

portfolio's beta and slope of the characteristic line

security selection component of the portfolio

86.

The Treynor-Black model combines an actively managed portfolio with an efficiently diversified portfolio in order to: I. Improve the diversification of the overall portfolio II. Improve the overall portfolio's Sharpe ratio III. Reach a higher CAL than would otherwise be possible

I only

I and II only

II and III only

I, II, and III

#FIN 320 Week 9 Quiz – Strayer

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