1) the vanguard 500 index fund tracks the performance of the s&p 500. to do so, the
fund buys shares in each s&p 500 company __________.
a.in proportion to the market value weight of the firm’s equity in the s&p 500
b.in proportion to the price weight of the stock in the s&p 500
c.by purchasing an equal number of shares of each stock in the s&p 500
d.by purchasing an equal dollar amount of shares of each stock in the s&p 500
2) a 1-year oil futures contract is selling for $74.50. spot oil prices are $68, and the
1-year risk-free rate is 3.25%.
the arbitrage profit implied by these prices is _____________.
a.$6.50
b.$5.44
c.$4.29
d.$3.25
3) a corporation in a 34% tax bracket invests in the preferred stock of another company
and earns a 6% pretax rate of return. an individual investor in a 15% tax bracket invests
in the same preferred stock and earns the same pretax return. the after-tax return to the
corporation is _______, and the after-tax return to the individual investor is _______.
a.3.96%; 5.1%
b.5.39%; 5.1%
c.6%; 6%
d.3.96%; 6%
4) an increase in the value of the yen against the u.s. dollar can cause the japanese
automaker toyota to either _____________ on its u.s. sales.
a.lose market share or reduce its profit margin
b.gain market share or reduce its profit margin
c.lose market share or increase its profit margin
d.gain market share or increase its profit margin
5) your investment has a 40% chance of earning a 15% rate of return, a 50% chance of
earning a 10% rate of return, and a 10% chance of losing 3%. what is the standard
deviation of this investment?
a.5.14%
b.7.59%
c.9.29%
d.8.43%
6) an industry analysis for manufacturers of a small personal care gadget observed the
following characteristics:
1. industry sales have grown at 15%-20% per year in recent years and are expected to
grow at 10%-15% per year over the next 3 years, still well above the economic growth
rate.
2. some u.s. manufacturers are attempting to enter fast-growing non-u.s. markets, which
remain largely unexploited.
3. some manufacturers have created a new niche in the industry by selling directly to
customers through mail order. sales for this industry segment are growing at 40% per
year.
4. the current penetration rate in the united states is 60% of households and will be
difficult to increase.
5. manufacturers compete fiercely on the basis of price, and price wars within the
industry are common.
6. some manufacturers are able to develop new, unexploited niche markets in the united
states based on company reputation, quality, and service.
7. several manufacturers have recently merged, and it is expected that consolidation in
the industry will increase.
8. new manufacturers continue to enter the market.
characteristics ____ would be typical of an industry that is in the consolidation stage.
a.6 and 7
b.1 and 4
c.5 and 6
d.2 and 8
7) the analysis of the determinants of firm value is called _____________.
a.fundamental analysis
b.technical analysis
c.momentum analysis
d.indexing
8) you invest in a mutual fund that charges a 3% front-end load, 1% total annual fees,
and a 0% back-end load on class a shares. the same fund charges a 0% front-end load,
1% total annual fees, and a 2% back-end load on class b shares. what are the total fees
in year 1 on a class b investment of $20,000 if you redeem shares with no growth in
value?
a.$596
b.$794
c.$885
d.$902
9) when testing mutual fund performance over time, one must be careful of
___________, which means that a certain percentage of poorer-performing funds fail
over time, making the performance of remaining funds seem more consistent over time.
a.survivorship bias
b.lucky event bias
c.magnitude bias
d.mean reversion bias
10) when all investors analyze securities in the same way and share the same economic
view of the world, we say they have ____________________.
a.heterogeneous expectations
b.equal risk aversion
c.asymmetric information
d.homogeneous expectations
11) most evidence indicates that u.s. stock markets are _______________________.
a.reasonably weak-form and semistrong-form efficient
b.strong-form efficient
c.reasonably weak-form but not semistrong- or strong-form efficient
d.neither weak-, semistrong-, nor strong-form efficient
12)
from day 1 to day 4, the trin has ___ and is ___.
a.increased; bullish
b.increased; bearish
c.decreased; bullish
d.decreased; bearish
13) an investor can design a risky portfolio based on two stocks, a and b. stock a has an
expected return of 18% and a standard deviation of return of 20%. stock b has an
expected return of 14% and a standard deviation of return of 5%. the correlation
coefficient between the returns of a and b is .50. the risk-free rate of return is 10%. the
expected return on the optimal risky portfolio is _________.
a.14%
b.15.6%
c.16.4%
d.18%
14) which one of the following stocks represents industries with below-average
sensitivity to the state of the economy?
a.financials
b.technology
c.food and beverage
d.cyclicals
15) an expanding economy requires more workers. if the supply of workers becomes
inadequate to meet the demand, what is the likely impact on the economy?
a.an economic slowdown is likely
b.employment trends will reverse and unemployment will occur
c.government deficits will result from capacity utilization
d.inflation may result from upward wage pressures
16) annie’s donut shops, inc., has expected earnings of $3 per share for next year. the
firm’s roe is 18%, and its earnings retention ratio is 60%. if the firm’s market
capitalization rate is 12%, what is the value of the firm excluding any growth
opportunities?
a.$25
b.$50
c.$83.33
d.$208