FC 42957

Which one of the following is the type of risk that only affects either a single firm or just a small number of firms?
A. unexpected
B. market
C. systematic
D. unsystematic
E. expected

Lambert Corporation reported net income of $60 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future. Lambert faces a 40% tax rate and has a 0.45 debt to equity ratio with $185 million (market value) in debt outstanding. Lambert’s equity beta is 1.25, the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%. What is the current total value of Lambert’s equity (in millions)?
A. $655.90
B. $731.20
C. $840.95
D. $951.26
E. $1,025.95

What is the operating cash flow, given the following information?

A. $680
B. $650
C. $780
D. $890
E. $930

A call option has a premium of $2.80, a strike price of $55, and 3 months to expiration. The current stock price is $52.20. The stock will pay a $1.25 dividend in one month. The risk-free rate is 2.5 percent. What is the premium on a 3-month put with a strike price of $55? Assume the options are European style.
A. $2.08
B. $2.15
C. $3.32
D. $4.12
E. $6.51

Which one of the following is a short-term debt instrument issued by the U.S. Treasury?
A. Freddie Mac
B. Ginnie Mae
C. T-note
D. T-bill
E. T-bond

The Erie Bay Liner Company has sales of $2.6 million and operating expenses of $175,000. The firm uses the percentage of sales approach and estimates next year’s sales at $2.8 million. What are the operating expenses expected to be next year?
A. $171,231
B. $175,123
C. $179,400
D. $182,549
E. $188,462

Alex purchased a $1,000 par value bond one year ago at a price of $1,016. At the time of purchase, the bond had 12 years to maturity and a 5 percent, semiannual coupon. Today, the bond has a yield to maturity of 5.25 percent. What is his realized yield as of today?
A. 0.43 percent
B. 0.86 percent
C. 1.19 percent
D. 1.32 percent
E. 2.60 percent

Five months ago, you purchased 400 shares of stock on margin. The initial margin requirement on your account is 60 percent and the maintenance margin is 30 percent. The call money rate is 4.8 percent and you pay 1.85 percent above that rate. The purchase price was $16 a share. Today, you sold these shares for $18.00 each. What is your annualized rate of return?
A. 26.15 percent
B. 33.35 percent
C. 42.77 percent
D. 56.87 percent
E. 64.64 percent

Which one of the following involves the study of a firm’s stock price for the few days surrounding a news announcement?
A. web survey
B. market analysis
C. event study
D. auditing review
E. trend study

Which one of the following statements is correct concerning large-denomination certificates of deposit?
A. The security can be sold to another investor.
B. The face amount is equal to $10,000 or more.
C. The security is a bank time deposit.
D. The security is a form of a commercial check.
E. The security is issued by the U.S. Treasury.

Anna bought a $40 April call and a $40 April put on the same underlying stock. This strategy is referred to as which one of the following?
A. bull spread
B. bear spread
C. parity play
D. short straddle
E. long straddle

Wythe is trying to decide whether he wants to purchase shares in General Motors, Ford, or Honda, all of which are auto manufacturers. Wythe is making a(n) _____ decision.
A. security selection
B. tax-advantaged
C. risk aversion
D. active strategy
E. asset allocation

Arbitrage traders:
A. tend to be well-capitalized.
B. tend to be irrational investors.
C. are dominated by irrational investors in an efficient market.
D. lower the efficiency level of a market.
E. sell only relatively inexpensive stocks.

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?
A. minimum variance set
B. financial frontier
C. efficient portfolio
D. allocated set
E. investment opportunity set

An option trading strategy that utilizes both put and call options is referred to as which one of the following?
A. bull call spread
B. butterfly spread
C. split
D. combination
E. counteraction

You are considering the purchase of a mutual fund. You have found three funds that meet your basic criteria. Each fund has a different alpha. Which alpha indicates the preferred investment?
A. the most negative alpha
B. the least negative alpha
C. the zero alpha
D. the lowest positive alpha
E. the highest positive alpha

Stock market indexes:
A. are all computed using the same methodology.
B. all react the same to a change in the price of a particular stock.
C. all cover the same market sectors.
D. are all price-weighted.
E. vary in the type of stocks included.

A bond has a par value of $1,000 and a market price of $1,087.20. The conversion price is $40 and the stock price is $41.75. What is the conversion value?
A. $1,043.75
B. $1,250.00
C. $1,481.10
D. $1,500.00
E. $1,652.00

You own 1,800 shares of Textile stock which is currently valued at $62 a share. The $65 put has a premium of $4.26 and a put delta of -.60. What position should you take in $65 put contracts to hedge your stock against a $1 decrease in price?
A. buy 3 contracts
B. buy 30 contracts
C. buy 300 contracts
D. write 3 contracts
E. write 30 contracts

A portfolio has a standard deviation of 15.8 percent and an average return of 14.2 percent. What loss is associated with a 2.5 percent probability?

A. -12.03 percent
B. -14.87 percent
C. -16.77 percent
D. -17.38 percent
E. -19.36 percent

Given the following information, what is the value of the closing Arms?

A. .82
B. .84
C. .92
D. 1.11
E. 1.22

A STRIPS has a $9,000 par value and a market value of $7,050. The time to maturity is 5 years. What is the yield to maturity?
A. 2.07 percent
B. 3.00 percent
C. 4.94 percent
D. 5.00 percent
E. 5.07 percent

A 4.5 percent, semi-annual coupon bond has a face value of $1,000 and a time to maturity of 4 years. The bonds are convertible into shares of common stock at a conversion price of $42.50. The stock price currently is $40.70. Similar, non-convertible bonds have a yield to maturity of 4.5 percent. The intrinsic value of this bond is _____ and the conversion value is _____.
A. $832.62; $982.80
B. $961.06; $957.65
C. $1,014.16; $1,017.50
D. $1,014.16; $982.80
E. $1,006.96; $1,017.50

A fixed-income security is defined as:
A. a debt obligation that pays a fixed rate of return for a one-year period of time.
B. common or preferred stock that pays a fixed annual dividend.
C. a long-term debt obligation that pays scheduled fixed payments.
D. long-term debt issued solely by a federal or state government.
E. any security originally issued as either debt or equity that pays a fixed, pre-set payment.

What is the 3-day exponential moving average as of day 5 assuming that a weight of 60 percent is placed on the most recent price?

A. $39.04
B. $39.07
C. $39.13
D. $39.22
E. $39.28

If the financial markets are highly efficient, then:
A. investing based on technical analysis is highly recommended.
B. holding a diversified, low-cost, passively-managed portfolio is probably your best investment strategy.
C. you should adopt an investment strategy based on market timing.
D. having a professional manager who actively trades your portfolio is most likely your best investment strategy.
E. it doesn’t matter which securities you invest in as all securities will provide relatively equal returns.

Taylor Industries stock is selling for $26 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $4,700 and the initial margin requirement is 60 percent. What is the maximum number of shares you can buy?
A. 193 shares
B. 287 shares
C. 301 shares
D. 360 shares
E. 408 shares

A stock is valued at $25.75 a share. A European 6-month call option has a strike price of $25 and an option premium of $1.50. The market rate is 9.5 percent and the risk-free rate is 2.5 percent. What is the price of a European 6-month put option with a $25 strike price?
A. $0.00
B. $0.09
C. $0.44
D. $1.48
E. $1.61

Which one of the following statements is correct concerning mutual funds?
A. Mutual funds generally pay no taxes.
B. Mutual funds are risk-free.
C. Profits on the sale of mutual fund shares are tax-free.
D. All mutual funds are diversified.
E. Investments in mutual funds are guaranteed from loss by a private agency of the federal government.

What is the conversion ratio of a $1,000 par value bond that is selling for $888.96 and has a conversion price of $58.82?
A. 15
B. 16
C. 17
D. 18
E. 19

Which one of the following statements is correct?
A. Investors know the rate of return they will earn with certainty provided they hold bonds until they mature.
B. Reinvestment risk causes realized yields to differ from promised yields.
C. Realized yields generally equal promised yields as long as a bond is not called.
D. Redeeming a bond early helps ensure an investor earns the promised yield.
E. Realized yields cannot exceed promised yields.

A risky asset has a beta of 1.40 and an expected return of 17.6 percent. What is the risk-free rate if the risk-to-reward ratio is 8.4 percent?
A. 2.74 percent
B. 4.03 percent
C. 4.33 percent
D. 5.32 percent
E. 5.84 percent

Children’s Books, Inc. has net income of $48,000 and a plowback ratio of 85 percent. There are 25,000 shares of stock outstanding at a market price of $18.64 a share. What is the price-earnings ratio?
A. 6.9
B. 7.1
C. 9.7
D. 11.1
E. 11.6

The DJIA is an index of the stock prices of _____ firms.
A. 25
B. 30
C. 50
D. 100
E. 500