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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%
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 (λ0) = 3%, and the risk premia are λ1= 10%, λ2= 8%. Assume that
all three stocks are currently priced at $50.
If you know that the actual prices one year from now are stock X $55, stock Y $52, and
stock Z $57, then
a. stock X is undervalued, stock Y is undervalued, stock Z is undervalued.
b. stock X is undervalued, stock Y is overvalued, stock Z is overvalued.
c. stock X is overvalued, stock Y is undervalued, stock Z is undervalued.
d. stock X is undervalued, stock Y is overvalued, stock Z is undervalued.
e. stock X is overvalued, stock Y is overvalued, stock Z is undervalued.
3) At what stage in the industrial life cycle is there an influx of competition?
a. Early pioneering development
b. Rapid accelerating growth
c. Acquisition and consolidation
d. Mature growth
e. Stabilization and market maturity
4) Which of the following is not a characteristic of a warrant?
a.The right to buy common stock in a corporation.
b.Issued by the corporation or an individual.
c.Typically valid for longer time periods than options.
d.Similar to a call option with respect to a striking price.
e.All of the above statements are characteristics of a warrant.
5) A microeconomic estimate of the market earnings multiple requires an estimate for
which of the following variables?
a. Dividend payout ratio
b. Return on equity
c. Real RFR
d. All of the above
e. None of the above
6) A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%.
Assuming the returns are normally distributed what is the range of returns that an
investor would expect to receive 95% of the time?
a.12.8% to 20.6%
b.-10.6% to 36.2%
c.-2.8% to 28.4%
d.-12.8% to 20.6%
e.10.6% to 36.2%
7) The results of studies that have looked at the relationship between PEG ratios and
subsequent stock returns
a.Find an inverse relationship, with annual rebalancing.
b.Find no relationship, with monthly or quarterly rebalancing.
c.Find an inverse relationship, with monthly or quarterly rebalancing.
d.Find a direct relationship, with monthly or quarterly rebalancing.
e.Find a direct relationship with annual rebalancing
8) Exhibit 8.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.3. The average return for Radtron is
a. 1%
b. 2%
c. 3%
d. 4%
e. 5%
9) When a fixed income security is being traded but the issuer is not meeting interest
payments it is trading
a. Stamped.
b. Registered.
c. Flat.
d. Round.
e. No accrual.
10) Exhibit 11.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a firm that has just paid a dividend of $2. An analyst expects dividends to
grow at a rate of 8% per year for the next five years. After that dividends are expected
to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is
7%.
The future price of the stock in year 5 is
a. $113.40
b. $122.47
c. $132.27
d. $142.85
e. $154.35
11) A completely diversified portfolio would have a correlation with the market
portfolio that is
a. Equal to zero because it has only unsystematic risk.
b. Equal to one because it has only systematic risk.
c. Less than zero because it has only systematic risk.
d. Less than one because it has only unsystematic risk.
e. Less than one because it has only systematic risk.
12) Investors can leverage their stock transactions with the use of
a.Margin orders
b.Stop loss orders
c.Limit orders
d.Market orders
e.Specialists
