Page 1 of 9Marketing Research and Data Analysis
The Financial System (25556) – Autumn 2023
Final Exam Practce Questons
Question 1
Jillian wants to contribute a once-off amount to her superannuation fund. Assume returns
are 6% p.a. compounding monthly. Calculate the accumulated sum of a single payment of:
a) $1,000 invested 45 years prior to retirement.
b) $1,000 invested 10 years before retirement.
Question 2
A funds management style that aims to replicate the performance of a particular market
index is:

A.	active investment management
B.	passive investment management
C.	technical analysis
D.	fundamental analysis
E.	contrarian investment

Question 3
Hedge funds:

A.	do not use financial leverage
B.	hedge risk exposures to minimise the risks to investors
C.	are also referred to as ‘mutual funds’
D.	aggressively pursue high returns
E.	only charge performance-based fees

Question 4
Which of the following can be described as a defensive asset class?

A.	Australian equities
B.	International equities
C.	Property
D.	Alternative investments
E.	Debt securities

Question 5
The activities of superannuation schemes include:

A.	the collection of regular payments by employers on behalf of their employees
B.	the investment of funds over various asset classes
C.	the release of funds to the employee at retirement
D.	earning fees for the services they provide
E.	All of these

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Question 6
Fund managers:

A.	bear all the investment risk posed by the variability of returns on investments
B.	earn net interest revenue in return for their services
C.	collect retail investor’s funds and arrange the investment of pooled funds
D.	invest pooled funds only in shares
E.	All of these

Question 7
The 4.50% 15 April 2020 Treasury bond is traded for settlement on 15 April 2016 at 3.50%.
Calculate the settlement price, assuming a face value of $100.
Question 8
A 10-year bond making half-yearly coupon payments at 6% p.a. is purchased at par and held
to maturity. Calculate the investor’s holding-period yield, given that the coupons are
reinvested at 5% p.a. compounding half-yearly. Assume a face value of $100.
Question 9
Of the following, which is not relevant to the calculation of the return earned on a Treasury
bond investment?

A.	The coupons received
B.	The interest earned on the reinvestment of these coupons
C.	The price paid for the bond
D.	The price the bond is sold for, or its face value if held to maturity
E.	All of these are relevant

Question 10
The 4.5% 15 April 2030 bond will:

A.	be a premium bond if bond yields are 5%
B.	be a par bond if bond yields are 4%
C.	earn a capital gain, if yields decrease from when it is purchased to when it is sold
D.	have more price risk than a longer-term bond
E.	More than one of these answers is correct

Question 11
A Treasury bond trade requires the buyer and seller agree on:

A.	the bond series, the quantity and the yield
B.	the bond series, the quantity and the price
C.	the quantity, the clearinghouse and the yield
D.	the quantity, the clearinghouse and the price
E.	the bond series, the coupon rate and the yield

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Question 12
The ratngs provided by ratngs agencies are not:

A.	a trading recommendaton
B.	useful to investors in bond securites
C.	reflected in the market yield for securites
D.	based on a qualitatve and quanttatve analysis of the issuer
E.	reviewed afer the securites are frst issued

Question 13
Treasury bond investors are exposed to:

A.	credit risk only
B.	price risk only
C.	reinvestment risk only
D.	price risk and reinvestment risk only
E.	credit risk, price risk and reinvestment risk

Question 14
Woolworths Ltd shares are trading at $37.53. The company has 1.25 billion ordinary shares
issued and annual earnings available to ordinary shareholders of $2.35 billion. What is the
current Woolworths P/E ratio?
Question 15
Calculate the estimated share price for the following companies assuming a required return
of 12% p.a.
(a) Red’s dividends have been $1.70 per share for some time. It does not reinvest any of its
earnings and therefore is not expected to grow in the foreseeable future.
(b) White’s most recent dividend was $1.70 per share and dividends are expected to
continue to grow at 4% indefinitely.
Question 16
A listed company:

A.	can generally raise as much new equity as it wishes through a private placement
B.	can expect its share price to rise if it conducts a rights issue
C.	will successfully conduct a rights issue if the subscription price is set above the current share price
D.	can rapidly increase its equity capital through dividend reinvestment schemes
E.	None of these are correct

Question 17
The marketing process of a large IPO would not normally include:

A.	pre-marketing to prepare investors for the issue
B.	the commissioning of independent and unbiased analyst’s reports
C.	a road show
D.	a bookbuild
E.	the pricing and allocation of shares to investors

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Question 18
In Gordon’s dividend discount model (DDM), the estimated share value is:

A.	positively related to the current annual dividend
B.	positively related to the required return on the share
C.	negatively related to the dividend growth rate
D.	positively related to the share’s beta
E.	None of these

Question 19
Venture capital is best defined as:

A.	debt capital supplied to new emerging businesses
B.	equity capital supplied to established businesses
C.	debt capital supplied to established businesses
D.	equity capital supplied to new listed businesses
E.	equity capital supplied to new emerging businesses

Question 20
A difference between ordinary and preference shares is:

A.	preference dividends are payable only afer ordinary dividends have been paid
B.	preference dividends are tax deductble
C.	preference dividends are a fxed amount
D.	ordinary shares are less risky
E.	preference shares have greater potental for capital gains

Question 21
According to the capital asset pricing model (CAPM), which of the following is not relevant
to the required return for a frm’s equity?

A.	The standard deviaton of returns for the frm’s equity
B.	The risk-free rate
C.	The market return on a diversifed equity portolio
D.	The beta of the share
E.	All of these are relevant

Question 22
A company is concerned about rising interest rates and approaches a bank to hedge this
risk. The company enters into a 1:4 FRA at a rate of 4.5%. A month later the spot rate is
5.00% and the company issues $100 million (face value) 90-day bills. Calculate the effective
interest cost on the planned issue next month of the 90-day bills.
Question 23
In January the BBSW was 3.45% for 30 days, 3.49% for 60 days and 3.53% for 90 days.
Calculate the one-month implicit forward rates (1r2 and 2r3) using the approximate method.
Page 5 of 9
Question 24
The term structure of interest rates:

A.	is the set of interest rates for a range of securities with different terms
B.	can be represented graphically by a yield curve
C.	reveals yield curves that are so stable that they can be considered fixed
D.	is based on rates set by institutions such as for fixed term deposits
E.	All of these are correct

Question 25
A forward interest rate is:

A.	the current interest rate in a wholesale fnancial market
B.	the current interest rate for a specifed term on a single-payments security or zero-coupon bond
C.	the interest rate that applies from now for an unspecifed term
D.	an agreement made now to borrow now and repay at a specifed future date
E.	an interest rate that applies from a specifed future date for a specifed term

Question 26
Consider the following market depth information for Company X. How much would you pay
to buy 5,000 shares at-market?

Bid	Offer
Number	Quantity	Price	Price	Quantity	Number
4	5,400	5.730	5.770	1,200	1
2	2,360	5.720	5.780	6,750	1
1	900	5.710	5.790	1,445	2

Question 27
The setlement of share market trades:

A.	requires the exchange of physical share certfcates
B.	is performed electronically by CHESS
C.	occurs on a T+0 basis
D.	is carried out by Computershare
E.	None of these

Question 28
The automated trading system used by the ASX:

A.	can be accessed by individual retail investors
B.	ranks unmatched orders in terms of time
C.	matches the highest priced buy orders and the lowest priced sell orders first
D.	is called SEATS

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Question 29
The functons of the share market do not include:

A.	performing price discovery by revealing the value of shares
B.	endowing listed securites with liquidity
C.	setng the price for IPOs
D.	disciplining the behaviour of a company’s top management
E.	developing a pool of investors

Question 30
To conduct a secondary market for shares, the ASX:

A.	sets the rules for the admission of companies to the market
B.	establishes trading and setlement arrangements
C.	discloses trading informaton, such as individual share prices
D.	promotes itself as a market for securites
E.	All of these

Question 31
Basis risk can be defined as:

A.	the chance that a hedge instrument will not precisely manage a risk exposure
B.	the chance of a futures position resulting in a loss
C.	the chance of the physical market transaction resulting in a loss
D.	the risk a hedged investment earns more than expected
E.	the risk a hedged debt costs less than expected

Question 32
A speculator in futures contracts:

A.	will always have an exposure elsewhere to the contract item
B.	takes a futures positon that has an opposite proft and loss potental to that of their physical market exposure
C.	seeks to exploit occasions when prices in the spot and futures markets are misaligned
D.	is seeking to proft from futures markets price changes
E.	takes a positon simultaneously in both the physical and futures markets to proft from price differences

Question 33
Susan placed an at-market order to buy a quantity of futures contracts. The counterparty in
her resulting futures contract is:

A.	another trader
B.	a bank
C.	her broker
D.	the clearinghouse
E.	the ASX

Page 7 of 9
Question 34
Through the processes of novation and margin payments, the clearinghouse:

A.	becomes counterparty to each futures transaction
B.	seeks to protect traders from default risk
C.	will close out the position of defaulting traders
D.	guarantees the performance of futures contracts
E.	All of these are correct

Question 35
An advantage of futures contracts over FRAs is that:

A.	futures contracts are not standardised
B.	futures contracts have a secondary market
C.	futures contracts have a lower up-front cost
D.	futures contracts are always deliverable
E.	futures contracts are more likely to provide a perfect hedge

Question 36
A short position in 90-day June BAB futures contracts is established at a price of 97.50 and
later closed-out at 97.75. Calculate the profit or loss per futures contract traded.
Question 37
A trader pays an option premium of $0.50 to purchase a European call option on XYZ shares
with a strike price of $8 per share. What will be the share price at the maturity date for the
trader to break even from their position?
Question 38
To close out an unprofitable position on a short put, an option trader would:

A.	buy puts with the same expiry date and exercise price
B.	sell puts with the same expiry date and exercise price
C.	buy calls with the same expiry date and exercise price
D.	sell calls with the same expiry date and exercise price
E.	Short option positions must be maintained until expiry

Question 39
The value of call options, all else being equal, is less when which of the following is larger:

A.	share price
B.	exercise price
C.	volatility of the underlying asset
D.	time to expiry

Page 8 of 9
Question 40
Which of the following is not one of the fundamental factors that determine an option’s
value?

A.	The option’s exercise price
B.	The expected rate of return on the underlying share
C.	The share price
D.	The option’s time to expiry
E.	The expected volatility in the share price

Question 41
The seller of a call option:

A.	has unlimited profit potential
B.	has a potential for profit that is limited to the option premium
C.	rarely makes a profit
D.	has positive intrinsic value when the S < X.

Question 42
The profit or loss for the holder of a $5 call option (purchased for $0.50) given the share
price at expiry is $5.20, will be:

A.	zero, because they will not exercise
B.	a loss of $0.50, because they will not exercise
C.	a loss of $0.30, because they will exercise
D.	a profit of $0.20, because they will exercise

Question 43
An exchange-traded option contract is:

A.	a method by which companies can raise additional equity financing
B.	a perpetual contract, like a share
C.	the right, but not the obligation, to settle the contract
D.	a derivative contract that can be acquired for free
E.	a derivative contract that is traded OTC

Question 44
A call option is said to be in-the-money when:

A.	the price of the share is greater than the exercise price
B.	the price of the share is less than the exercise price
C.	the price of the share is the same as the exercise price
D.	when the option position is profitable

Question 45
The profit or loss on a long call at expiry is equal to:

A.	(maximum of (X – S) or zero) + option premium
B.	(maximum of (X – S) or zero) – option premium
C.	(maximum of (S – X) or zero) – option premium
D.	(maximum of (S – X) or zero) + option premium
E.	Cannot be negative

Page 9 of 9
Question 46
Given the quote USD/JPY102.51, calculate (i) the amount of JPY that can be purchased with
USD 100,000, and (ii) the amount of USD that can be purchased with JPY 1,000,000.
Question 47
Suppose the spot exchange rate is AUD/SGD0.9820, and that interest rates in Australia are
5% p.a. while those in Singapore are 3% per annum.

A.	Calculate the 180-day forward rate. (Note that Singapore uses a 365-day financial year)
B.	What is the size of the forward premium or forward discount?

Question 48
The following factors may have an influence on the value of a currency. For which of these is
the relative inflation rate of central importance?

A.	Purchasing-power parity
B.	Interest-rate parity
C.	Terms of trade
D.	Current account balance
E.	Speculation

Question 49
A forward contract in foreign currencies is an agreement to exchange:

A.	currencies in the future, at an unspecified date, at an exchange rate agreed when the contract is traded
B.	currencies in the future, at a specified date, at whatever the spot rate is at that future date
C.	currencies in the future, at an unspecified date, at an unknown exchange rate
D.	a product for foreign currency, in the future, at a specified date
E.	currencies in the future, at a specified date, at an exchange rate agreed when the contract is traded.

Question 50
A dealer quotes AUD/EUR0.6325-0.45.

A.	The dealer will buy AUD at 0.6325 and sell AUD at 0.6345
B.	The dealer will buy EUR at 0.6325 and sell EUR at 0.6345
C.	The dealer will buy AUD at 0.6325 and sell EUR at 0.6345
D.	The dealer will sell AUD at 0.6325 and buy EUR at 0.6345

 

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