1) one hundred fund managers enter a contest to see how many times in 13 years they
can earn a higher return than their competitors. the probability distribution of the
number of successful years out of 13 for the best-performing money managers is
out of this sample, chance alone would indicate that there is a ______ probability that
someone would beat the market at least 11 times out of 13 years.
a.51.3%
b.65.9%
c.67.1%
d.10.83%
2) an investor plans to retire at age 60 with total savings of $1,000,000. if she is
currently 35 years old, has no savings, and expects to earn 8% per year on her
investments, how much money must she set aside every year?
a.$15,546
b.$13,679
c.$11,892
d.$10,324
3) if you combine a long stock position with selling an at-the-money call option, the
resulting net payoff profile will resemble the payoff profile of a _______.
a.long call
b.short call
c.short put
d.long put
4) private placements can be advantageous, compared to public issue, because:
i. private placements are cheaper to market than public issues.
ii. private placements may still be sold to the general public under sec rule 144a.
iii. privately placed securities trade on secondary markets.
a.i only
b.i and iii only
c.ii and iii only
d.i, ii, and iii
5) which of the following is not a ratio used in the dupont analysis?
a.interest burden
b.profit margin
c.asset turnover
d.earnings yield ratio
6) a put option on dr. pepper snapple group, inc., has an exercise price of $45. the
current stock price is $41. the put option is _________.
a.at the money
b.in the money
c.out of the money
d.knocked out
7) a pension fund has an average duration of its liabilities equal to 15 years. the fund is
looking at 5-year maturity zero-coupon bonds and 4% yield perpetuities to immunize its
interest rate risk. how much of its portfolio should it allocate to the zero-coupon bonds
to immunize if there are no other assets funding the plan?
a.52%
b.48%
c.33%
d.25%
8) steel pier company has issued bonds that pay semiannually with the following
characteristics:
if the bond’s coupon was smaller than 10%, the modified duration would be _____
compared to the original modified duration.
a.larger
b.unchanged
c.smaller
d.the answer cannot be determined from the information given.
9) a forecast of bond returns based largely on a prediction of the yield curve at the end
of the investment horizon is called a _________.
a.contingent immunization
b.dedication strategy
c.duration analysis
d.horizon analysis
10) you invest $10,000 in a complete portfolio. the complete portfolio is composed of a
risky asset with an expected rate of return of 15% and a standard deviation of 21% and
a treasury bill with a rate of return of 5%. how much money should be invested in the
risky asset to form a portfolio with an expected return of 11%?
a.$6,000
b.$4,000
c.$7,000
d.$3,000
11) you have an investment horizon of 6 years. you choose to hold a bond with a
duration of 10 years. your realized rate of return will be larger than the promised yield
on the bond if ___________________.
a.interest rates increase
b.interest rates stay the same
c.interest rates fall
d.the answer cannot be determined from the information given.
12) ownership of a call option entitles the owner to the __________ to __________ a
specific stock, on or before a specific date, at a specific price.
a.right; buy
b.right; sell
c.obligation; buy
d.obligation; sell
13) an american call option gives the buyer the right to _________.
a.buy the underlying asset at the exercise price on or before the expiration date
b.buy the underlying asset at the exercise price only at the expiration date
c.sell the underlying asset at the exercise price on or before the expiration date
d.sell the underlying asset at the exercise price only at the expiration date
14) the systemic risk that led to the financial crisis of 2008 was increased by _____.
a.collateralized debt obligations
b.subprime mortgages
c.credit default swaps
d.all of the options
15) mutual funds provide the following for their shareholders:
a.diversification
b.professional management
c.record keeping and administration
d.all of these options
16) suppose that techno tv produces lcd televisions. at a price of $2000 per television,
techno determines that its optimal output is 3000 television sets per week. if prices are
sticky and fears of a recession reduce demand for lcd televisions, we would expect
techno to:
a.reduce output in the long run.
b.reduce output in the short run.
c.raise prices in the short run to compensate for lost revenue.
d.lower prices in the short run to offset the reduced demand.
17) for an economy to increase investment, it must:
a.increase saving.
b.increase present consumption.
c.buy more stocks and bonds.
d.increase nominal gdp.