Finance and Investment Challenge Practice Test

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• A portfolio is valued at $1,000,000 and has a 1-day 95% VaR of $82,250. What is the VaR?
• What is a capital gains tax?
• Which term describes a small data file stored by a website to remember you across visits?
• What is a co-signer?
• Which rate is commonly used as the interbank offered rate among major banks for short-term loans?
• Which item is not typically listed on a balance sheet?
• If corporate tax rate is 25% and interest expense is 40, what is the annual tax shield?
• Given COGS of $600 and average inventory of $150, what is the inventory turnover ratio?
• The P/S ratio is defined as price per share divided by sales per share. Given price per share is $30 and sales per share is $2, which statement is true?
• Office Properties, Retail Properties, Industrial Properties, Single-family rental properties are collectively best described as what?
• In a market where supply exceeds demand, the market is typically described as a:
• Penalties on early withdrawals from retirement plans are primarily designed to do what?
• What term describes socioeconomic groups, characterized by age, sex, income, occupation, and education, that comprise a market niche?
• What does DRIP stand for?
• What is a redemption fee?
• Calculate ROE given Net Margin 8%, Asset Turnover 1.5, Equity Multiplier 2.0.
• Which term describes a legal method to reduce or avoid taxes by exploiting favorable provisions?
• In the Gordon Growth Model, if the perpetual growth rate g equals the required return r, what happens to the equity price?
• What is a protective put strategy?
• Why would a retirement plan have a penalty for taking money out before retirement age?
• If a stock yields a 3% dividend and its price increases by 3% in a year, what is the total annual return?
• What is special about a bond with a 'floating' interest rate?
• In investment terms, what is speculation?
• The Latin term caveat emptor means 'in God We Trust'.
• Which term refers to a substantial severance payment guaranteed to an executive if the company is acquired?
• The categories Office Properties, Retail Properties, Industrial Properties, and Single-family rental properties collectively describe which type of investments?
• What is the name of the theory that emphasizes diversification to optimize risk and return?
• Portfolio beta given weights 0.6 and 0.4 and betas 1.3 and 0.5 equals what?
• A Free Trade Agreement also cements rights and protections for investors and corporations. This is most directly beneficial to which group?
• Which form of the Efficient Market Hypothesis argues that prices reflect all publicly available information?
• If the corporate tax rate is 30% and annual interest expense is $50, what is the annual tax shield?
• Given the same bond in the previous question, what is the modified duration?
• Which statement about futures contracts is true?
• Which formula represents the price of a stock under the Gordon Growth Model?
• Which statement best defines speculation in investing?
• What is carry trade in international finance?
• Which rate is the rate of interest that top-quality banks charge each other for loans?
• Which of the following is NOT one of the Wisconsin Department of Revenue's three strategic goals?
• Which term is defined as a financial asset whose resale value depends on the value of other financial assets?
• It's a measure of the output provided by a given input.
• A co-signer is defined as which of the following?
• Trading done after the stock market closes is most commonly referred to as which term?
• What is disability insurance?
• Approximately how many copies of The Bible have been sold worldwide since it was first published?
• What is meant by a real option in capital budgeting?
• Which of the following is not a responsibility of the Securities and Exchange Commission?
• The market capitalization of all the companies listed on the NYSE is roughly
• What is the small payment you make upfront when you see a doctor or dentist called?
• Net Sales is defined as the revenue after subtracting returns and discounts. Which term is this describing?
• Which financial metric measures profitability relative to a company's assets?
• What best describes a derivative?
• Which term describes a substantial payout guaranteed to an executive if the company is acquired and the executive's employment ends?
• Asset A has beta 1.2, asset B has beta 0.6, and portfolio weights are 0.5 each. What is the portfolio beta?
• If the risk-free rate is 3%, the expected market return is 9%, and the stock's beta is 1.0, what is the expected return according to CAPM?
• What is the financial instrument called that certifies a contract between a borrower and a lender to raise capital for general or specific purposes?
• The Federal Reserve's Board of Governors is comprised of seven individuals serving fourteen-year terms. They are appointed by whom?
• According to CAPM, if the risk-free rate is 2%, the expected market return is 8%, and the beta of a stock is 1.3, what is the stock's expected return?
• Because the federal government can always print more money, U.S. government bonds are considered risk-free.
• Which option has the greatest value in a comparison of: $1,000,000; the value of 1 cent doubled daily for 30 days; 10 shares of Berkshire Hathaway stock; or $500,000?
• A 4-year bond with face value 100, annual coupon 6%, yields 5%. What is its price?
• Which fund has investments in a mix of stocks?
• A project requires an initial investment of $2,000 and yields inflows of $1,200 in year 1 and $900 in year 2. Discount rate is 8%. What is the NPV?
• What is the present value of $1,000 to be received in 3 years discounted at 5% annually?
• What is the intrinsic value of a European call option with strike price $50 when the stock price is $60?
• A convertible bond can be converted into what type of security when certain conditions are met?
• Which term describes the act or process of combining two or more businesses into one?
• A Dividend Reinvestment Plan (DRIP) primarily encourages investors to do what?
• Which term denotes the percentage of return on an investment over one year after adjustment for inflation or deflation?
• Following the Black Monday market crash in 1987, the NYSE imposed trading curbs, or 'cooling-off periods', for what reason?
• The listed individuals Tim O' Driscoll, David Ricardo, Irving Fisher, and Adam Smith are best described as which of the following?
• What does ROI measure versus ROE in investment performance?
• A 2-year bond with annual coupon 5%, face 100, yield 6%. What is Macaulay duration approximately?
• This state has the highest sales tax rate at 7.5%?
• Did Ferdinand Porsche develop the first gasoline-electric hybrid automobile in 1901?
• What is a line of credit?
• Discrimination is defined as
• Which order type executes immediately at the current market price?
• Distinguish between forwards and futures in one key way.
• A firm has operating income of $120 and debt service of $100. What is the debt service coverage ratio (DSCR)?
• Sanitation workers in New York City earn over $90,000 annually.
• What term describes the original amount invested in a stock or bond?
• Asset turnover is defined as what?
• Holding D1 = 2, g = 3% and now r = 12% rather than 10%, what is the Gordon Growth price?
• What is the slang term used to describe someone considered to have bad luck picking stock?
• What is the geometric return?
• If the stock price rises while the dividend remains unchanged, what happens to the dividend yield?
• Residents in Alaska do not pay sales tax.
• The real rate of return is best described as which of the following?
• Which term describes the illegal practice of denying mortgage lending or insurance coverage to certain geographic areas?
• It's the name for a union's efforts to force an employer to hire more employees than necessary?
• Individuals earning wages pay a tax on their income, known as FICA, that funds your social security benefits.
• Which term describes carbon dioxide, methane, ozone, and fluorocarbons that absorb solar radiation?
• Which term refers to a legally permissible method to reduce or avoid tax liabilities?
• How many stocks comprise the Dow Jones Industrial Average?
• You are an American importer with euro-payables in 6 months. To hedge, you would enter into what type of financial instrument?
• In web terminology, which term is a small piece of data that helps reload web pages more quickly?
• If EBIT is $40 and annual interest expense is $10, what is the interest coverage ratio?
• A combination of slow economic growth and high inflation is called:
• Tariffs are imposed by governments on imports, not exports.
• If net income is $80 and equity is $500, what is return on equity (ROE)?
• A 3-year bond with face value 100, annual coupon 5%, yields 5%. What is its price?
• What is a stock option?
• Which financial instrument is typically issued by a local government or its agencies to raise capital?
• Using the Gordon Growth Model, with D1 = $2, growth g = 3%, and required return r = 10%, what is the stock price?
• Name one consequence identified by the rise in global temperatures.
• Defensive stocks are described as which of the following?
• A REIT is a corporation or trust that invests in and manages which asset class?
• Given a two-asset portfolio with weights 0.6 and 0.4, standard deviations 20% and 10%, and correlation 0.5, what is the portfolio standard deviation?
• EOQ is designed to minimize which of the following costs?
• In a Gordon Growth Model, with D1 = $3 and P0 = $60 and growth rate g = 2%, what is the cost of equity?
• Which term refers to the bit of information stored by your browser that enables faster loading of pages on return visits?
• Which term is most closely tied to revenue from sales after returns and discounts are deducted?
• If you borrow money at .25% per month, what is the APR for that loan?
• Short selling is a technique used by investors who try to profit from the:
• Define market capitalization.
• Which statement best describes arithmetic returns versus geometric returns?
• A project requires an initial investment of $1,000 and yields cash inflows of $400 at the end of years 1–3. The internal rate of return is approximately ____%?
• What is a municipal bond?
• What term describes a system where business leaders and government officials collude for mutual benefit?
• During a decline in oil prices, which factor has benefited Saudi Arabia according to the material?
• Which term is used for a small data file that helps a website remember you and speed up loading on subsequent visits?
• What is fiduciary duty in investment management?
• The World Trade Organization is an international economic organization located where?
• Hyper-inflation is best described as:
• An investor's order that instructs a broker to execute a transaction at a specified price is called a ...
• If inventory is $100 and current assets are $400 with current liabilities $160, what is the quick ratio?
• Speculation involves taking on risk in the hope of gain; which option best describes this concept?
• What is the future value of an ordinary annuity of $200 per year for 5 years at 6%?
• The first inductee at the Insurance Hall of Fame at the University of Alabama was Benjamin Franklin.
• What does the profitability index measure?
• Which organization is primarily responsible for regulating securities markets in the United States?
• Which term describes the process used to determine the value of a residence for tax purposes, including consideration of comparable home sales?
• Which of the following is a tactic of management in a labor dispute?
• This country claims to have the largest department store in the world, nearly 5.5 million square feet. Which country is it?
• The debt-to-equity ratio is a measure of what aspect of a firm’s capital structure?
• Subtracting returns and discounts from gross sales yields which metric?
• Which statement correctly describes how to calculate market capitalization?
• What is a balance sheet?
• According to purchasing power parity (PPP), if domestic inflation is higher than foreign inflation, what should happen to the domestic currency?
• The balance sheet provides a snapshot of a company's financial position at a single point in time. This statement is:
• Which financial metric is calculated by subtracting sales returns and discounts from gross sales?
• If the after-tax cost of debt is 4.2% and the tax rate is 30%, what was the pre-tax cost of debt?
• If the pre-tax cost of debt is 6% and the tax rate is 30%, what is the after-tax cost of debt?
• When providing loans, banks may use points, a term that refers to:
• Market capitalization is calculated by multiplying the current share price by which quantity?
• A second mortgage refers to a second chance that the borrower is given if the borrower defaults on a first mortgage. This statement is true or false?
• Which phrase best captures speculation in investing?
• What is a bond?
• In Modigliani–Miller Proposition I (no taxes, no bankruptcy costs), how does capital structure affect firm value?
• If net income is $80 and total assets are $1,000, what is return on assets (ROA)?
• Hyper-inflation is described as which of the following statements?
• Which action would a mature, publicly traded company take to finance expansion?
• What term describes the return on an investment expressed as a percentage of its cost?
• If a company has a stock price of 15.25 and 3.2 million shares outstanding, what is its market capitalization?
• A portfolio has an excess return of 10%, standard deviation of 8%. What is the Sharpe ratio?
• If a company has price $30 per share and sales per share of $2, what is the price-to-sales (P/S) ratio?
• In the presence of corporate taxes, does increasing debt typically reduce the WACC?
• They're a form of tax in which the users of public services are charged a specified fee to cover some of all of the cost of providing that service.
• What is the cost to extract oil per barrel in the given context?
• Which term describes a campaign in which supporters parade in front of a business with signs to communicate a dispute?
• Trading done after the stock market closes at 4:00 Eastern Time is commonly referred to as what?
• Which of the following best describes the quick ratio?
• A fund that invests in a mix of stocks to balance growth and income is called which type?
• Bonds are a form of which financing?
• If the PV of perpetual tax shields discounted at 5% equals 300, what is the approximate annual tax shield?
• A REIT invests in and manages which asset class for the purpose of making money?
• Which of the following is not a type of trading order?
• In the context of public services financing, which term describes charges that cover the costs of providing those services to users?
• A company has debt 40%, equity 60%. Pre-tax cost of debt 6%, cost of equity 12%, tax rate 30%. What is the after-tax weighted average cost of capital (WACC)?
• An investor's order to execute a transaction at a specified price is called a Limit Order.
• What is the name of the economic discipline that studies entire economies, including inflation, unemployment, and GDP?
• If a bond has a Macaulay duration of 2.0 years and yields 6%, what is its approximate modified duration?
• The NASDAQ has a much larger trading floor than the NYSE to accommodate higher trade activity.
• In calculating the after-tax cost of debt within the weighted average cost of capital, which expression correctly reflects the after-tax cost of debt?
• A firm has enterprise value of $500 and debt of $200. If equity value equals enterprise value minus debt, what is the market value of equity?
• Redemption fees are commonly charged when selling shares of which investments?
• Property Tax amounts are determined exclusively by the square footage of the property owned.
• Defensive stocks are stocks that remain relatively stable and pay dividends during periods of economic decline.
• Which list includes true examples of greenhouse gases?
• Owning a breed of dog that's aggressive can lead to higher homeowners insurance rates.
• The material states that fracking has nothing to do with the significant increase in earthquakes in the United States.
• If current assets are $400 and current liabilities are $160, what is the current ratio?
• Which statement best defines a real option in capital budgeting?
• A stock pays a dividend of $2 next year and has a perpetual growth rate of 0%. If the stock price today is $40, what is the cost of equity implied by the Gordon Growth Model?
• What is a Carbon Tax?
• Which term describes a brief uptick in prices within a downtrend that is usually followed by further declines?
• The willingness to take on -(blank)- is a crucial ingredient of economic growth because it allows investments that would not otherwise be affordable.
• Which rate is the interbank offered rate among major banks for short-term lending?
• Which term denotes a professional opinion, usually written, of the market value of a property such as a home, business, or other asset?
• Which event prompted the NYSE to implement trading curbs, or 'cooling-off periods' after a major market crash?
• What term describes a brief, sharp rally in a downtrend followed by continued decline?
• Tariffs are taxes imposed by governments on imports, not exports.
• Which investment description matches Buy and Hold: The strategy in which the stock portion of one's portfolio is fully invested, including dividend reinvestments, at all times?
• If enterprise value is $600 and debt is $200, what is the market value of equity?
• A convertible bond provides the option to convert into which type of security?
• Which statement correctly defines the debt service coverage ratio (DSCR)?
• Which term describes an approach to business that prioritizes one’s own interests and is often discussed in relation to relationships between business people and government officials?
• Which investment strategy involves deliberately taking on a new risk to offset an existing one?
• Where is the headquarters of the World Trade Organization located?
• Which book is estimated to have sold over 3 billion copies worldwide?
• Which individual was listed as the first inductee at the Insurance Hall of Fame at the University of Alabama?
• In EOQ, what does the variable D represent?
• Which of the following is a disadvantage of a sole proprietorship?
• Disability insurance is a program managed by which agency?
• Which description best defines macroeconomics?
• Which description best defines a non-durable good?
• Using the cash flows described above, what is the profitability index (PI) with an initial investment of $2,000?
• What does a Free Trade Agreement do?
• Using the EOQ formula sqrt(2DS/H) with D = 10,000 units, S = $100, and H = $2, what is EOQ?
• What is direct deposit?
• A market in which product availability exceeds demand is called a:
• Speculation is characterized by taking on risk in pursuit of potentially higher returns; which description fits this?
• Which statement about APR and monthly rates is correct?
• A stock pays a dividend of $3 next year and is expected to grow at 4% perpetually. If the required return is 9%, what is the stock price using Gordon Growth Model?
• Property tax amounts are influenced by which factors?
• Division of labor refers to which concept?
• What does the term default refer to in borrowing?
• Two corporations join together into one with one surviving and the other disappearing. What is this called?
• Which term refers to browser data used to remember information across visits to speed up loading?
• What term describes a situation where quantity supplied exceeds demand?
• Using the same cash flows as above, what is the payback period?
• How many recessions has the United States suffered through?
• Why might a publicly traded company issue additional shares?
• If you borrow money at .75% per month, what is the APR for that loan?
• If the market value of debt is $150 and the market value of equity is $350, what is the debt-to-equity ratio?
• A Buy and Hold investment strategy includes reinvesting dividends into additional shares to benefit from compounding.
• A stock trades at $150 and its earnings per share are $7.50. What is the P/E ratio?
• How does the term length of a certificate of deposit typically affect the interest rate offered?
• If Net Margin increases to 9% while Asset Turnover remains 1.5 and Equity Multiplier 2.0, what is ROE?
• In 1927, the NYSE enclosed the trading gallery with bulletproof glass.
• If a stock pays a dividend of $1.50 per share and the current price is $30, what is the dividend yield?
• Experian, Equifax, and TransUnion are examples of what?
• Which company is a major credit reporting agency?
• Which term refers to revenue after subtracting returns and discounts?
• Redlining is best described as geographic discrimination in lending. Which statement best defines it?
• What best describes a hybrid vehicle?
• Which concept is based on the idea that diversification can produce the same total returns for less risk?
• What is the unit price of a dozen eggs that cost $2.88?
• A foreign exchange rate is: