EXAM 1_IPM_Solutions_2011(a)

EXAM 1_IPM_Solutions_2011(a) - BUS 415 Investment and...

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BUS 415 Investment and Portfolio Management AUBG: Spring 2011 MIDTERM EXAM 1 NAME____________________________________ Solution Guide (1) INSTRUCTIONS: 1. You have 75 minutes to complete the exam. 2. The exam is worth a total of 100 points. 3. You may use a calculator and scratch paper sheets. You must hand in the sheets with your exam (put your name on it). 4. Allocate your time wisely. Use the number of points assigned to each problem as your guide. 5. In order to get full credit on the problems, you must show ALL your work! 6. You can get partial credits if you show your calculations or provide arguments to support your answer. 7. No credits will be warded if you fail to state your assumptions or conclusions explicitly. 1
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A. Multiple choice questions (2 points each, total 16 points): 1. If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA? A. The stock trading at the highest dollar price per share. B. The stock with total equity has the higher market value. C. The stock having the greatest amount of equity in its capital structure. D. The stock having the lowest volatility. E. None of the above. Answer: A. Higher priced stocks affect the DJIA more than lower priced stocks; other choices are not relevant. 2. Which one of the following statements regarding orders is false ? A. A market order is simply an order to buy or sell a stock immediately at the prevailing market price. B. A limit sell order is where investors specify prices at which they are willing to sell a security. C. If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45. D. A day order expires at the close of the trading day. E. None of the above. Answer: E. All of the order descriptions above are correct. 3. The floor broker is best described as A. an independent member of the exchange who owns a seat and handles overload work for commission brokers. B. someone who makes a market in one or more securities. C. a representative of a brokerage firm who is on the floor of the exchange to execute trade. D. a frequent trader who performs no public function but executes trades for himself. E. any counter party to a trade executed on the floor of the exchange. Answer: A. The floor broker is an independent member of the exchange who handles work for commission brokers when they have too many orders to handle 4. At issue, offering prices of open-end funds will often be: A. less than NAV due to loads and commissions. B. greater than NAV due to loads and commissions. C. less than NAV due to limited demand. D. greater than NAV due to excess demand.
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EXAM 1_IPM_Solutions_2011(a) - BUS 415 Investment and...

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