Investment Analysis And Portfolio Management 10th Edition

1) Refer to Exhibit 7.13. Calculate the expected return for Magnum Oil. a. 5.0 b. 10.3% c. 13.7% d. 17.5% e. 20.0% Answer: B Answer: B Answer: B 2) Exhibit 9.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas). The zero-beta return

1) Which of the following is a market tenet of Warren Buffett? a. Long term prospects. b. Resistance to institutional imperative. c. Creation of one dollar of market value for every dollar retained. d. Purchase at discount to intrinsic value. e. Product is not faddish Answer: D Answer: D Answer: D 2) Assume that you have

1) Exhibit 5.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Refer to Exhibit 5.6. Calculate a value weighted average for Day T + 1. Assume a base index value of 100 on Day T. a.46.20 b.53.33 c.54.12 d.92.39 e.108.23 Answer: D Base Value = $80(5,000,000) + $60(8,000,000) + $20(15,000,000) = 1,380,000,000Day T + 1 Value =

1) Which of the following statements is not true? a. During a specific time period, rates of return across industry do not vary substantially. b. The rates of return for individual industries do vary substantially over time. c. During a specific time period, rates of return within industries do vary substantially. d. Risk measures

1) Cho, Elton, and Gruber tested the APT by examining the number of factors in the return generating process and found that a. Five factors were required using Roll-Ross procedures. b. Six factors were present when using historical beta. c. Fundamental betas indicated a need for three factors. d. All of the above. e. None

1) Which of the following economic series is not included in the National Bureau of Economic Research (NBER) leading indicator group? a. Average weekly initial claims for unemployment b. Index of 500 consumer stock prices c. Real money supply, M2 d. Index of industrial production e. All of the above are included in the NBER

1) As the correlation coefficient between two assets decreases, the shape of the efficient frontier a. approaches a horizontal straight line. b. bends out. c. bends in. d. approaches a vertical straight line. e. none of the above. Answer: C Answer: C Answer: C 2) The dividend payout ratio for the aggregate market is 65 percent, the required rate of

1) Exhibit 8.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Refer to Exhibit 8.3. What is the beta for Radtron using the true index? a. 0.87 b. 0.97 c. 1.02 d. 1.15 e. 1.28 Answer: B86.5 / 89.5 = 0.97 Answer: B86.5 / 89.5 = 0.97 Answer: B 86.5 / 89.5 = 0.97 2) If this year is consistent with historical

1) General obligation bonds are a. U.S. Treasury bonds backed by the full faith and credit of the issuer. b. U.S. Treasury bonds backed by income generated form specific projects. c. Municipal bonds backed by the full faith and credit of the issuer. d. Municipal bonds backed by income generated from specific projects. e. A

1) Which of the following variables was considered not significant in explaining stock returns? a. Industrial production b. Changes in the risk premium c. Consumption d. Twists in the yield curve e. Inflation Answer: C Answer: C Answer: C 2) Calculate the yield to maturity of a zero coupon bond with a face value of $1000,

1) Regional exchanges exist because a.They provide trading facilities for local companies b.They allow local brokers to trade dual listed stocks c.They allow for trading of local bonds d.a and b. e.b and c. Answer: D Answer: D Answer: D 2) If the annual geometric mean for the equity risk premium is 8.4 percent, what percentage of the equity

1) Horizon matching is a combination of a. Immunization and valuation. b. Cash matching and immunization. c. Valuation and cash matching. d. All of the above. e. None of the above. Answer: B Answer: B Answer: B 2) Refer to Exhibit 3A.1. Calculate the covariance. a.-32.20 b.-23.32 c.1.00 d.23.32 e.32.20 Answer: A Alpine's average return equals(5 + 9 + 11 - 10 +

1) When assessing the risk impact of adding a new security to a portfolio, it is necessary to consider the a. New securities variance b. Variance of every security in the portfolio c. Weight of every security in the portfolio d. Average covariance of the new security with every security in the portfolio e. All of

1) Which of the following would be considered a low liquidity investment? a.Warrants b.Call options c.Zero coupon bonds d.Balanced mutual funds e.Diamonds Answer: E Answer: E Answer: E 2) Exhibit 8.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You expect the risk-free rate (RFR) to be 3 percent and the market return to be 8 percent. You also have the

1) Open-end mutual funds that charge a sales fee when the fund is initially offered to the investor are known as a. 12b-1. b. Americus trusts. c. Unit investment trusts. d. Load funds. e. Contingency funds. Answer: D Answer: D Answer: D 2) Consider an asset that has a beta of 1.5. The return on the

1) In the absence of arbitrage opportunities, the forward contract price should be equal to the current price plus a. Contract price. b. The cost of carry. c. Margin requirement. d. The price discovery rate. e. The convenience return. Answer: B Answer: B Answer: B 2) Exhibit 10.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What was

1) In Berkshire Hathoway annual reports Warren Buffet highlights financial tenets that he believes are important. Which of the following is not a financial tenet of Warren Buffet? a. Focus on return on equity (ROE) not earnings per share (EPS). b. Calculate owner earnings similar to free cash flow after capital expenditures. c.

1) Assume that you purchase a 10-year $1,000 par value bond, with a 12% coupon, and a yield of 9%. Immediately after you purchase the bond, yields fall to 8% and remain at that level to maturity. Calculate the realized horizon yield, if you hold the bond for 5 years

1) Exhibit 6.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit= return for stock i during period t Rmt= return for the aggregate market during period t Refer to Exhibit 6.4. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore

1) Based on Stock Z's beta of 0.9 the normal return is 9%. However, the actual return for Stock Z was 8%. What is Stock Z's abnormal rate of return? a.-1.0% b.-0.1% c.0.1% d.1.0% e.1.1% Answer: A Abnormal Returnit= actual return - market based returnAbnormal Returnit= 8.0% - 9.0% = -1.0% Answer: A Abnormal Returnit= actual return

1) The nominal yield of a bond is the a. Annual coupon as a percent of the current price. b. Annual rate earned including the capital gain or loss. c. Rate earned giving consideration to coupon reinvestment. d. Coupon rate. e. Promised yield to maturity. Answer: D Answer: D Answer: D 2) All investment companies charge

1) Which equation is valid? a. g = Percent of earnings retained / Return on equity b. g = Return on equity / Percent of earnings retained c. g = Return on equity / Return on total assets d. g = Percent of earnings retained x Return on equity e. g = Total assets x

1) At what point would an investor be indifferent between a Bridgford corporate bond yielding 8.0 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent? a. 5.00% b. 7.10% c. 8.00% d. 9.15% e. 6.00% Answer: E (8)(1.0 - 0.25) = 6% Answer: E (8)(1.0 - 0.25)

1) Exhibit 10.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What was BMC'S fixed asset turnover ratio? a. 0.680 b. 0.780 c. 1.278 d. 1.874 e. 8.220 Answer: C Fixed asset turnover ratio = 1025 / 802 = 1.278 Answer: C Fixed asset turnover ratio = 1025 / 802 = 1.278 Answer: C Fixed asset turnover ratio = 1025

1) A positive covariance between two variables indicates that a. the two variables move in different directions. b. the two variables move in the same direction. c. the two variables are low risk. d. the two variables are high risk. e. the two variables are risk free. Answer: B Answer: B Answer: B 2) Exhibit 12.2 USE THE INFORMATION

1) Which of the following series does not include the long-leading index? a. Dow Jones Industrial Average b. Dow Jones Bond Prices, Percent Face Value c. Price to Unit Labor Cost d. M2 Money Supply, Deflated e. New Building Permits Answer: A Answer: A Answer: A 2) If the hedge ratio is 0.50, this indicates that

1) Exhibit 12.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information that you propose to use to obtain an estimate of year 2004 EPS for the MacLog Company. In addition a regression analysis indicates the following relationship between growth in sales per share for MacLog and GDP growth

1) Exhibit 5.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003. Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2003, after the splits. Assume a base index value of 100. The base

1) Exhibit 22.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) If the spot rate at expiration is $0.75 and the put option was purchased, what is the dollar gain or loss? a. $0 b. $200 loss c. $200 gain d. $3160 gain e. $1187 loss Answer: D Cost = $340Payoff = (0.82 - 0.75)(50,000) - $340

1) Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and you expect the fund to earn 14% over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9% and charges a 1/2 percent redemption

1) Exhibit 21.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $3,000,000. The customer would pay a quarterly interest expense based on the prevailing level of LIBOR at

1) Which of the following statements concerning the competitive environment is true? a. High fixed costs encourage firms to produce at a low level of capacity, in order to minimize fixed cost per unit produced. b. Low current prices relative to costs in an industry indicate low barriers to entry. c. Substantial economies

1) Which of the following assumptions regarding price movements summarized by Levy (1966) are controversial? a. Supply and demand determine the market value of any good or service. b. Supply and demand are governed by numerous rational and irrational factors. c. The prices for individual securities and the overall value of the market

1) Exhibit 10.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What is BMC'S traditional cash flow? a. 69 b. 86 c. 38 d. 55 e. 701 Answer: A Traditional Cash Flow = 38 + 31 = 69 Answer: A Traditional Cash Flow = 38 + 31 = 69 Answer: A Traditional Cash Flow = 38 + 31 = 69 2)

1) The growth rate (g) of dividends is affected by all of the following except a. Required return b. Retention rate c. Total asset turnover d. Financial leverage e. Net profit margin Answer: A Answer: A Answer: A 2) ____ has coupons denominated in a currency other than that of their principal. a. Eurodollar bonds b. Dual

1) Exhibit 22.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup A protective put is an appropriate strategy if a. An investor wishes to generate additional income. b. An investor wished to insure against a decline in share values. c. An investor expected share

1) For technical trading rules to generate returns that are superior to a buy-and-hold strategy, net of transaction costs, the market would have to be a. Rising. b. Falling. c. Inefficient. d. Overvalued. e. Undervalued. Answer: C Answer: C Answer: C 2) Given the following fees and expected returns for fund X, assuming an initial investment

1) All of the following are characteristics of a dealer market except: a.Also referred to as a quote-driven market b.NASDAQ market is a dealer market c.Individual dealers buy and sell shares for themselves d.Centralized trading location e.All of the above are characteristics of a dealer market Answer: D Answer: D Answer: D 2) Which of the following is not

1) A firm that follows a differentiation strategy a. Must heavily discount its prices. b. Must command prices near the industry average. c. Must focus on providing exceptional quality and service. d. All of the above. e. None of the above. Answer: C Answer: C Answer: C 2) A number of factors affect the cash flow

1) There are four major factors accounting for the existence of yield differentials. Which of the following is not a factor? a. Segments b. Sectors c. Indentures d. Coupons e. Maturities Answer: C Answer: C Answer: C 2) Research has shown that the asset allocation decision explains ____% of the variation in fund returns across all

1) The original maturity of a United States Treasury bill is a.Zero years to five years. b.Six months to ten years. c.One year or less. d.One year to ten years. e.Over ten years. Answer: C Answer: C Answer: C 2) The term dedication, used to describe portfolio management techniques, is referring to servicing a prescribed set of a. Interest payments. b.

1) A one year call option has a strike price of 50, expires in 6 months, and has a price of $4.74. If the risk free rate is 3%, and the current stock price is $45, what should the corresponding put be worth? a. $12.74 b. $10.48 c. $5.00 d. $9.00 e. $8.30 Answer: D p(t) =

1) Exhibit 12.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Financial leverage = 1.2 Estimated dividend payout ratio = 75% Required rate of return = 14% Estimated EPS =

1) Estimating forward rates from the spot rate curve is based on the assumption that the ____ hypothesis accurately describes the shape of the yield curve. a. Expectations b. Liquidity preference c. Segmented market d. Efficient market e. None of the above Answer: A Answer: A Answer: A 2) A portfolio is considered to be efficient

1) As a contract approaches maturity, the spot price and forward price a. Increase. b. Diverge. c. Maintain a fixed price differential. d. Have a random relationship. e. Converge. Answer: E Answer: E Answer: E 2) Exhibit 21.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) In late January 2004, The Union Cosmos Company is considering the

1) The confidence index published by Barron's is the ratio of the average yield on 10 top grade corporate bonds to the a. Average yield on 30 blue chip corporate stocks. b. Average yield on 40 convertible corporate bonds. c. Yield on U.S. Treasury bills. d. Yield on the Dow Jones average of 40

1) Which of the following is not an example of an alternative asset class? a. Hedge funds b. Private equity c. Real estate d. Commodities e. All of the above are examples of alternative asset classes. Answer: E Answer: E Answer: E 2) Exhibit 19.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The following information is

1) Exhibit 21.11 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider a portfolio manager with a $10,000,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock index future is priced at 1350 and has a multiplier of

1) A portfolio manager has the following sequence of cash flows over a two year period: Calculate the portfolio manager's dollar weighted return. a. 13.56% b. 11.48% c. 15.50% d. 8.75% e. 10.67% Answer: ATo calculate dollar weighted return solve for r in the following equation Answer: ATo calculate dollar weighted return solve for r in the following

1) When identifying undervalued and overvalued assets, which of the following statements is false? a. An asset is properly valued if its estimated rate of return is equal to its required rate of return. b. An asset is considered overvalued if its estimated rate of return is below its required rate of

1) ____ gains are taxable and occur when an asset is sold for more than its basis (the value of the asset when it was purchased by the original owner, or inherited by the heirs of the original owner). a.Realized capital b.Income c.Portfolio d.Nominal e.Real Answer: A Answer: A Answer: A 2) Exhibit 12.2 USE THE INFORMATION BELOW FOR THE

1) The financial risk for the retail store industry is difficult to judge because of a. Convertible debt. b. Numerous building leases. c. Warrants. d. Variable operating profits. e. Extensive use of preferred stock. Answer: B Answer: B Answer: B 2) Calculate the expected return for a three asset portfolio with the following a. 11.71% b. 11.12% c. 15.70% d.

1) Datacorp stock currently trades at $50. August call options on the stock with a strike price of $55 are priced at $5.75. October call options with a strike price of $55 are priced at $6.25. Calculate the value of the time premium between the August and October options. a. -$0.50 b.

1) Which of the following statements about the business cycle is false? a. Toward the end of a recession, financial stocks typically increase in value as investment and borrowing activities accelerate. b. Once the economy hits a trough and begins to recover, consumer durable stocks become attractive investments. c. Once the economy has

1) Which of the following investments can be purchased with future contracts? a.Commodities b.T-bills c.Treasury bonds d.Eurobonds e.All of the above Answer: E Answer: E Answer: E 2) Exhibit 19.10 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two

1) Exhibit 23.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Darden Industries has decided to borrow $25,000,000.00 for six months in two three-month issues. As the Treasurer, you are concerned that interest rates will rise over the next three months and the rate upon which the second payment will be based

1) Recently you have received a tip that the stock of Buttercup Industries is going to rise from $76.00 to $85.00 per share over the next year. You know that the annual return on the S&P 500 has been 13% and the 90-day T-bill rate has been yielding 3% per year

1) The growth rate of equity earnings without external financing is equal to a. Retention rate plus return on equity. b. Retention rate minus return on equity. c. Retention rate divided by return on equity. d. Retention rate times return on equity. e. Return on equity divided by retention rate. Answer: D Answer: D Answer: D

1) Exhibit 6.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit= return for stock i during period t Rmt= return for the aggregate market during period t Refer to Exhibit 6.6. What is the abnormal rate of return for Stock A when you consider its systematic risk measure (beta)? a.-2.3% b.-0.3% c.0.3% d.2.3% e.3.0% Answer: D Abnormal Returnit=

1) Suppose the current 6 year rate is 9% and the current 5 year rate is 7%. What is the one year forward rate for five years? a. 19.57% b. 18.62% c. 15.80% d. 14.65% e. 12.67% Answer: A (1 + 0.09)6/ (1 + 0.07)5= 19.57% Answer: A (1 + 0.09)6/ (1 + 0.07)5= 19.57% Answer: A (1

1) Which of the following ratios is least likely to be impacted by accounting manipulation? a. P/E b. ROE c. ROI d. P/S e. PM Answer: D Answer: D Answer: D 2) All of the following are considered fixed income securities except a.Debentures. b.Eurobonds. c.Preferred stock. d.Mutual funds. e.Yankee bonds. Answer: D Answer: D Answer: D 3) Options embedded in real assets owned by

1) Calculate the modified duration for a 10-year, 12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years. a. 6.43 years b. 6.55 years c. 6.79 years d. 6.86 years e. 7.01 years Answer: D Dmod= 7.2/(1 + .10/2) = 7.2/1.05 = 6.86 years Answer: D Dmod= 7.2/(1 +

1) Exhibit 22.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup A long straddle is an appropriate strategy if a. An investor wishes to generate additional income. b. An investor wished to insure against a decline in share values. c. An investor expected share

1) Given the following fees and expected returns for fund Y, assuming an initial investment of $1000 calculate the value of the investment at the end of 5 years a. $1069.82 b. $1550.77 c. $1642.36 d. $1389.95 e. $1362.59 Answer: D $1000(1 + 0.08)5(1 - 0.005)5(1 - .03) = $1,389.95 Answer: D $1000(1 + 0.08)5(1 - 0.005)5(1

1) A disadvantage of the Treynor and Sharpe measures is that a. They produce absolute performance rankings. b. The beta and standard deviation are static. c. They are both difficult to compute. d. They produce relative performance rankings. e. They give very different measurements for well-diversified portfolios. Answer: D Answer: D Answer: D 2) Sharpe's performance

1) Which of the following is not a secondary equity market? a.Treasury market b.National exchanges c.Regional exchanges d.Over-the-counter market e.All of the above are secondary equity markets. Answer: A Answer: A Answer: A 2) Studies of the relationship between P/E ratios and stock returns have found that a.Low P/E stocks of large cap stocks outperformed low P/E stocks of small

1) Which of the following is not a technique for valuing a firm's common stock? a. Present value of free cash flow to equity b. Present value of dividends c. Price-earnings ratio d. Price-book value ratios e. Price-cost of goods sold ratio Answer: E Answer: E Answer: E 2) Which of the following is not a

1) Exhibit 14.11 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)? a. 15.5% b. 17.3% c. 21.3% d. 26.5% e. 30.5% Answer: C Required return = 0.04 + 2.3(0.115 - 0.04) = 0.04 + 2.3(0.075) = 0.2125 or 21.3% Answer:

1) Exhibit 12.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that the dividend payout ratio will be 45 percent when the rate on long term government bonds falls to 9 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will

1) An example of an international fund would be one that consisted of investments in securities from a. The U.S., Germany, and Japan. b. Germany, Italy, and the U.K. c. The U.S., Korea, and Argentina. d. All of the above. e. None of the above. Answer: B Answer: B Answer: B 2) Markowitz believes that any

1) On January 2, 2003, you invest $10,000 in the Tiger Fund, a load fund that charges a fee of 6%. The fund's returns were 25% in 2003, 35% in 2004, -5% in 2005. On December 31, 2005 you redeem all your shares of Tiger. The dollar value is a. $5,200.89 b.

1) A currency call is like being ____ in the currency futures. a. Out-of-the-money b. In-the-money c. Long d. Short e. At-the-money Answer: C Answer: C Answer: C 2) Contingent immunization strategies a. Provide the bond portfolio manager to engage in various active portfolio strategies if the client is willing to accept a floor value. b. Insure that

1) Exhibit 13.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following information that you propose to use to obtain an estimate of year 2002 EPS for the U.S. Autoparts Industry: In addition a regression analysis indicates the following

1) A growth company is one that has the ability to a. Acquire capital at a low cost and is able to invest in projects that yield an average return. b. Acquire capital at a low cost and is able to invest in projects that yield a below average return. c. Acquire capital

1) Refer to Exhibit 5.4. Calculate the average annual rate of change for this index for the 5 year period using the geometric mean. a.0.09% b.1.99% c.3.99% d.4.50% e.4.67% Answer: B The Geometric Average is: [(1.08)(1.10)(.86)(1.20)(.9)]1/5- 1 = 1.99% Answer: B The Geometric Average is: [(1.08)(1.10)(.86)(1.20)(.9)]1/5- 1 = 1.99% Answer: B The Geometric Average is: [(1.08)(1.10)(.86)(1.20)(.9)]1/5- 1 =

1) In a defined contribution pension plan, a. The plan does not promise to pay the retiree a specific income stream after retirement. b. The plan does promise to pay the retiree a specific income stream after retirement. c. The employee's retirement income is not an obligation of the firm. d. The company carries

1) Exhibit 25.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The data presented below has been collected at this point in time. Compute the Jensen Measure for the YYY fund. a. 6.98 b. 2.35 c. 2.53 d. 3.86 e. 1.72 Answer: D (17 - 6) - [1.02 (13.0 - 6.0)] = 3.86 Answer: D (17 - 6) -

1) Which of the following statements is false? a.Unrealized capital gains are taxable. b.Realized capital gains are taxable. c.Tax-exempt investments are attractive to individuals with high tax liabilities. d.Returns comparisons should be made on an equivalent tax basis. e.Tax exempt investors prefer tax exempt investments. Answer: A Answer: A Answer: A 2) Exhibit 23.7 USE THE INFORMATION BELOW FOR THE

1) Exhibit 23.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The Skalmory Corporation has entered into a 3-year interest rate swap, with semiannual settlement, to pay a fixed rate of 7.5% per year and receive 6-month LIBOR. The notional principal is $10,000,000. Assuming that one year after the swap was initiated the fixed

1) Exhibit 25.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The data presented below has been collected at this point in time. Compute the Sharpe Measure for the XXX fund. a. 6.98 b. 2.35 c. 2.53 d. 3.86 e. 1.72 Answer: C (19 - 6) / 5.13 = 2.53 Answer: C (19 - 6) / 5.13 = 2.53 Answer:

1) A stock has a beta of 1.25. The risk free rate is 5% and the return on the market is 6%. The estimated return for the stock is 14%. According to the CAPM you should a. Sell because it is overvalued. b. Sell because it is undervalued. c. Buy because it overvalued. d.

1) Exhibit 25.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the data presented below on three mutual funds and the market. Compute the Jensen Measure for the BBB fund. a. 4.49 b. 2.74 c. 4.25 d. 5.55 e. 8.99 Answer: D (18 - 3) - [1.05 (12.0 - 3.0)] = 5.55 Answer: D (18 - 3) -

1) Consider a bond with a duration of 7 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond? a. 3.62% b. 3.45% c. -3.38% d. 3.38% e. -3.62% Answer: C 7 / [1 + (0.07/2)]

1) In the Black-Scholes option pricing model, an increase in security price (S) will cause a. An increase in call value and an increase in put value b. An increase in call value and a decrease in put value c. A decrease in call value and an increase in put value d. A decrease

1) Exhibit 13.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The Home Appliance Industry had free cash flow to equity (FCFE) of $87 for the most recent year ending reported yesterday. The industry anticipates a growth rate of 8% for the next three years due to favorable economic conditions. However,

1) In classical immunization the effect of a change in interest rates is effectively neutralized because a. Price risk and reinvestment risk offset each other. b. Price risk and maturity risk offset each other. c. Reinvestment risk and credit risk offset each other. d. Reinvestment risk and maturity risk offset each other. e. None of

1) Studies strongly suggest that the CAPM be abandoned and replaced with the APT. Answer: F Answer: F Answer: F 2) Which of the following is not considered an asset allocation strategy? a. Integrated asset allocation b. Strategic asset allocation c. Tactical asset allocation d. Insured asset allocation e. None of the above (that is, all are asset allocation

1) Calculate the expected return for A Industries which has a beta of 1.75 when the risk free rate is 0.03 and you expect the market return to be 0.11. a. 11.13% b. 14.97% c. 16.25% d. 22.25% e. 17.0% Answer: E k = 0.03 + 1.75 (0.11 - 0.03) = 0.17 Answer: E k = 0.03

1) Exhibit 4.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Refer to Exhibit 4.7. At the

1) Consider two securities, A and B. Security A and B have a correlation coefficient of 0.65. Security A has standard deviation of 12, and security B has standard deviation of 25. Calculate the covariance between these two securities. a. 300 b. 461.54 c. 261.54 d. 195 e. 200 Answer: D Cov(A, B) = (0.65)(12)(25) =

1) Which of the following statements regarding momentum strategies is true? a. Price momentum is a fundamental strategy. b. Earnings momentum is a technical strategy. c. Price momentum and earnings momentum strategies will often result in identical portfolio strategies and holdings. d. The earnings momentum investor will most likely acquire stocks for companies that

1) Which of the following variables were found to be important in explaining return based upon a study of Fama and French (covering the period 1963 to 1990)? a. Size b. Book-to-market value c. Beta d. Choices a and b only e. All of the above Answer: D Answer: D Answer: D 2) If the nominal return on an

1) What is the current price of a zero coupon bond with a 7% yield to maturity that matures in 20 years? a. $1,000 b. $2,582 c. $25.82 d. $258.42 e. $100.00 Answer: D Price = Par/(1 + YTM)n= 1000/(1.07)20= $258.42 Answer: D Price = Par/(1 + YTM)n= 1000/(1.07)20= $258.42 Answer: D Price = Par/(1 + YTM)n= 1000/(1.07)20=

1) Which of the following would be inconsistent with an efficient market? a.Information arrives randomly and independently. b.Stock prices adjust rapidly to new information. c.Price changes are independent. d.Price changes are random. e.Price adjustments are biased. Answer: E Answer: E Answer: E 2) Exhibit 8.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You expect the risk-free rate (RFR) to be

1) The major owners of high-yield bonds have been a. Commercial banks. b. Savings and loans. c. Mutual funds. d. California Credit Unions (CCU's). e. European banks. Answer: C Answer: C Answer: C 2) An individual investor's utility curves specify the tradeoffs he or she is willing to make between a. high risk and low risk assets. b.

1) At the initial stage of an economic recovery, a. Financial stocks rise on expectations of increases in loan demand, housing constructions and security offerings. b. Consumer durable stocks rise on expectations of rising consumer confidence and personal income. c. Capital goods stocks rise on expectation of increases in business capital spending. d. Basic

1) Assume that you are embarking on a test of the small-firm effect using APT. You form 10 size-based portfolios. The following finding would suggest there is evidence supporting APT: a. The top five size based portfolios should have excess returns that exceed the bottom five size based portfolios. b. The bottom

1) Exhibit 10.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What is Star's operating profit margin? a. 0.104 b. 0.094 c. 0.084 d. 0.067 e. 0.047 Answer: B Operating profit margin = 101 / 1075 = 0.094 Answer: B Operating profit margin = 101 / 1075 = 0.094 Answer: B Operating profit margin = 101 / 1075 = 0.094 2)

1) Exhibit 11.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Fast Grow Corporation is expecting dividends to grow at a 20% rate for the next two years. The corporation just paid a $2 dividend and the next dividend will be paid one year from now. After two years of rapid

1) The P/E ratio is determined by a. The required rate of return. b. The expected dividend payout ratio. c. The expected growth rate of dividends. d. Choices a and b e. All of the above Answer: E Answer: E Answer: E 2) Exhibit 10.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What was BMC'S net profit

1) Exhibit 14.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The Valentine Company currently has a 14% annual growth rate while the market average is 4 percent. The market multiple is 15. Determine the justified P/E ratio for the Valentine Company assuming Valentine can maintain its superior growth rate for the

1) A positive relationship between expected return and expected risk is consistent with a. investors being risk seekers. b. investors being risk avoiders. c. investors being risk averse. d. all of the above. e. none of the above. Answer: C Answer: C Answer: C 2) Utilizing the security market line an investor owning a stock with a beta of

1) All of the following are normal characteristics of a convertible bond, except a. Conversion at the option of the issuer. b. Conversion into a fixed number of shares of common stock. c. A conversion price initially above the market price of the common stock. d. An interest rate lower than that on straight

1) Between 1994 and 2004, the standard deviation of the returns for the S&P 500 and the NYSE indexes were 0.27 and 0.14, respectively, and the covariance of these index returns was 0.03. What was the correlation coefficient between the two market indicators? a. 1.26 b. 0.7937 c. 0.2142 d. 0.1111 e. 0.44 Answer: B Answer: B Answer:

1) Which of the following is not considered a favorable attribute of firms by Peter Lynch? a. Firm's product is not faddish b. Firm has a sustainable comparative competitive advantage over its rivals c. Firm's industry or product has market stability d. Firm can benefit from cost reductions e. All of the above are considered

1) Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the a.Large firm effect. b.Size effect. c.Small firm effect. d.PIE effect. e.None of the above. Answer: B Answer: B Answer: B 2) Exhibit 22.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The following information is provided in the context of a

1) A stock currently trades for $25. January call options with a strike price of $30 sell for $6. The appropriate risk free bond has a price of $30. Calculate the price of the January put option. a. $11 b. $24 c. $19 d. $30 e. $25 Answer: A P = 6 + 30 - 25

1) Which of the following is not considered a mainstream investment style? a. Value b. Growth c. Market-oriented d. Benchmark e. Small-cap Answer: D Answer: D Answer: D 2) Exhibit 8.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You expect the risk-free rate (RFR) to be 4 percent and the market return to be 10 percent. You

1) What is the Sharpe measure for the S&P 500 over the last ten years if the standard deviation was 8% and the return was 14%? a. 1.55 b. 1.69 c. 1.75 d. 1.99 e. 2.09 Answer: C 14 / 8 = 1.75 Answer: C 14 / 8 = 1.75 Answer: C 14 / 8 = 1.75 2) Using

1) A company's dividend last year was $3.00. Dividends are expected to grow indefinitely at 7% and the required rate of return for the stock is 13%. What is the value of the stock today? a. $2.83 b. $23.08 c. $24.69 d. $50.00 e. $53.50 Answer: E Value of stock today = $3.00(1.07)/(.13 - .07) = $3.21/0.06

1) Unit labor costs, the rate of inflation, the level of foreign competition, and the capacity utilization rate were variables tested by Finkel and Tuttle as determinants of the a. Balance of payments. b. The exchange rate. c. Aggregate operating profit margin. d. Aggregate profit margin. e. Aggregate cost margin. Answer: D Answer: D Answer: D

1) A study by Chen, Roll, and Ross in 1986 examined all of the following factors in applying the Arbitrage Pricing Theory (APT) except the a. Return on a market value-weighted return. b. Monthly growth rate in U.S. industrial production. c. Change in the consumer price index (CPI). d. Expected change in the bond

1) Exhibit 22.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) If the spot rate at expiration is $0.85 and the put option was purchased, what is the dollar gain or loss? a. $340 loss b. $125 gain c. $750 gain d. $750 loss e. $200 loss Answer: A Cost = $340Payoff = (0) - 340 =

1) Exhibit 12.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The aggregate market currently has a retention ratio of 60 percent, a required rate of return of 12 percent, and an expected growth rate for dividends of 4 percent. Starting with the initial conditions, you expect the retention ratio to be

1) Funds that normally contain a combination of common stock and fixed income securities are known as a. Section 401(k) plans. b. Balanced funds. c. Contractual plans. d. Income funds. e. Flexible funds. Answer: B Answer: B Answer: B 2) Tayco Corporation has just paid dividends of $3 per share. The earnings per share for the company