1) an investor can design a risky portfolio based on two stocks, a and b. the standard
deviation of return on stock a is 20%, while the standard deviation on stock b is 15%.
the correlation coefficient between the returns on a and b is 0%. the standard deviation
of return on the minimum-variance portfolio is _________.
a.0%
b.6%
c.12%
d.17%
2) a bond pays annual interest. its coupon rate is 9%. its value at maturity is $1,000. it
matures in 4 years. its yield to maturity is currently 6%.
the duration of this bond is _______ years.
a.2.44
b.3.23
c.3.56
d.4.1
3) calculate the price of a call option using the black scholes model and the following
data: stock price = $47.30, exercise price = $50, time to expiration = 85 days, risk-free
rate = 3%, standard deviation = 35%.
a.$1.11
b.$2.22
c.$3.33
d.$4.44
4) supply shocks:
a.occur more frequently than demand shocks.
b.usually result from fiscal and monetary policy changes.
c.occur when sellers face unexpected changes in the availability and/or prices of key
inputs.
d.have been responsible for most of the recessions in the united states since world war
ii.
5) a nonprofit organization offers a 5% salary contribution to john’s 403b plan
regardless of his own contributions, plus a matching 5% when john contributes 5% of
his salary. john makes $56,000 a year.
what is the amount of the total contribution to his 403b if john contributes 5% of his
own money?
a.$5,600
b.$8,400
c.$11,200
d.$12,500
6) which of the following is (are) true about nonconforming mortgage loans?
a.they are also known as subprime loans.
b.they have higher default risk than conforming loans.
c.they were able to be offered without due diligence.
d.all of these options are true.
7) according to results by seyhun, __________.
a.investors cannot usually earn abnormal returns by following inside trades after
knowledge of the trades are made public
b.investors can usually earn abnormal returns by following inside trades after
knowledge of the trades are made public
c.investors cannot earn abnormal returns by following inside trades before knowledge
of the trades are made public
d.investors cannot earn abnormal returns by trading before insiders
8) if you expect a stock market downturn, one potential defensive strategy would be to
__________.
a.buy stock-index futures
b.sell stock-index futures
c.buy stock-index options
d.sell foreign exchange futures
9) in the context of the capital asset pricing model, the systematic measure of risk is
captured by _________.
a.unique risk
b.beta
c.the standard deviation of returns
d.the variance of returns
10) an investor who goes short in a futures contract will _____ any increase in value of
the underlying asset and will _____ any decrease in value in the underlying asset.
a.pay; pay
b.pay; receive
c.receive; pay
d.receive; receive
11) following a period of falling prices, the moving average will _____.
a.be below the current price
b.be above the current price
c.be equal to the current price
d.become more volatile than it had been before prices fell
12) a firm has current assets that could be sold for their book value of $10 million. the
book value of its fixed assets is $60 million, but they could be sold for $95 million
today. the firm has total debt at a book value of $40 million, but interest rate changes
have increased the value of the debt to a current market value of $50 million. this firm’s
market-to-book ratio is ________.
a.1.83
b.1.5
c.1.35
d.1.46
13) which of the following are financial assets?
i. debt securities
ii. equity securities
iii. derivative securities
a.i only
b.i and ii only
c.ii and iii only
d.i, ii, and iii
14) an investor needs cash to pay some hospital bills. he is willing to use his dividend
income to pay the bills, but he will not sell any stock to do so. he is engaging in
___________.
a.overconfidence
b.representativeness
c.forecast errors
d.mental accounting
15) what is the tax exempt equivalent yield on a 9% bond yield given a marginal tax
rate of 28%?
a.6.48%
b.7.25%
c.8.02%
d.9%
16) the hang seng index reflects market performance on which of the following major
stock markets?
a.japan
b.singapore
c.taiwan
d.hong kong
17) the delta of an option is __________.
a.the change in the dollar value of an option for a dollar change in the price of the
underlying asset
b.the change in the dollar value of the underlying asset for a dollar change in the call
price
c.the percentage change in the value of an option for a 1% change in the value of the
underlying asset
d.the percentage change in the value of the underlying asset for a 1% change in the
value of the call
18) the first step any investor should take before beginning to invest is to __________.
a.establish investment objectives
b.develop a list of investment managers with superior records to interview
c.establish asset allocation guidelines
d.decide between active management and passive management