1) Putable bonds would sell at _____ prices and callable bonds would sell at _____ prices than otherwise similar bonds without embedded options.

1. higher; the same
2. higher; lower
3. higher; higher
4. lower; lower
5. lower; higher

2) The CAPM states that the relevant risk of an individual asset is its _______.

1. interest-rate risk
2. standard deviation
3. company-specific risk
4. liquidity risk
5. market risk

3) In an IPO, the difference between the offer price and the first day's closing price goes to _______.

1. the issuer
2. the investor who initially bought the stock and sold it at the first day's close
3. the underwriter
4. the investor who bought the stock at the first day's close
5. the Securities and Exchange Commission (SEC)

4) What must be true in an efficient market?

1. All stocks must have the same expected return.
2. All stocks must have the same market risk.
3. All stocks must have the same total risk
4. All stocks must have the same reward/risk ratio.
5. Individual stock returns cannot be higher than the general market return.

5) Which of the following risks is created by investing in foreign assets?

1. liquidity risk
2. intervention risk
3. default risk
4. foreign exchange risk
5. basis risk

6) Hedgers in the futures market _______.

1. usually take short positions in futures
2. usually take long positions in futures
3. take either long or short positions in futures so that underlying asset gains/losses are directly related to futures contract gains/losses.
4. take either long or short positions in futures so that underlying asset gains/losses are inversely related to futures contract gains/losses

7) _______ risk can be eliminated through diversification.

1. Unsystematic
2. Firm-specific
3. Market
4. Model

8) The value that can be realized by exercising an option immediately is the _______ value of the option.

1. immediate
2. money
3. internal
4. intrinsic
5. time

9) Which of the following positions is riskless (provides the same payoffs regardless of the outcome)?

1. buying a digital call and selling a digital put on the same stock with the same strike
2. buying a digital call and buying a digital put on the same stock with the same strike
3. selling a digital call and buying a digital put on the same stock with the same strike
4. selling a digital call and selling a digital put on the same stock with different strikes