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1) Which of the following economic series is not included in the National Bureau of
Economic Research (NBER) leading indicator group?
a. Average weekly initial claims for unemployment
b. Index of 500 consumer stock prices
c. Real money supply, M2
d. Index of industrial production
e. All of the above are included in the NBER leading indicator group
2) Exhibit 25.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Tyler Incorporated (TI).
Calculate TI's risk.
a. 0.0113
b. 0.1200
c. 0.0670
d. 0.0530
e. 0.0696
3) Exhibit 12.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 55 percent when the rate on long-term
government bonds falls to 9 percent. Since investors are becoming more risk averse, the
equity risk premium will rise to 8 percent and investors will require a 7 percent return.
The return on equity will be 13 percent.
What is your expectation of the market P/E ratio?
a. 37.69
b. 24.92
c. 58.15
d. 55.02
e. 47.82
4) Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual
settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional
principal is $50,000,000.
Assume that one year later the fixed rate on a new 3-year receive fixed pay floating
LIBOR swap has risen to 9% per year. Settlement is on a semiannual basis. Calculate
the market value of the FRN based on $100 face value.
a. $97.42
b. $100.00
c. $92.56
d. $99.63
e. $75.77
5)
Refer to Exhibit 7.5. What is the expected return of a portfolio of two risky assets if the
expected return E(Ri), standard deviation (si), covariance (COVi,j), and asset weight
(Wi) are as shown above?
a. 8.0%
b. 12.2%
c. 7.4%
d. 9.1%
e. 11.6%
6) Exhibit 11.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A large grocery chain is reevaluating its bonds since it is planning to issue a new bond
in the current market. The firm's outstanding bond issue has 6 years remaining until
maturity. The bonds were issued with a 6 percent coupon rate (paid semiannually) and a
par value of $1,000. Because of increased risk the required rate has risen to 10 percent.
What is the current value of these securities?
a. $656.40
b. $899.00
c. $822.70
d. $569.50
e. $962.00
7) The refunding provision of an indenture allows bonds to be retired unless
a. They are replaced with a lower coupon bond issue.
b. The remaining time to maturity is less than five years.
c. The remaining time to maturity is greater than five years.
d. The stated time period in the indenture has not passed.
e. The stated time period in the indenture has passed.
8) Exhibit 25.12
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An analyst is considering investing in funds A, B, C, and D. The market portfolio, M, is
expected to be 11% next period and the risk-free rate of return is 3%. The market
portfolio had a standard deviation over the past ten years of 0.20. The analyst gathered
the following information on the four funds.
Rank the four funds and market portfolio in order from highest to lowest based on their
Treynor performance measures.
a. A, B, C, D, M
b. B, C, M, D, A
c. C, A, M, D, B
d. D, A, B, M, C
e. D, B, A, C, M
9) Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
Calculate the profit margin for the firm.
a. 22.5%
b. 18.4%
c. 17.6%
d. 15.3%
e. 11.9%
10) Exhibit 19.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond C has a coupon of 6% per year,
maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond
D has a coupon of 8% per year, maturity of 15 years, yield to maturity of 6% per year,
and a face value of $1000.
Assume that your investment horizon is 6 years and your portfolio consists only of
Bond C and Bond D. Indicate the proportions invested in each bond, so that the
portfolio is immunized.
a. 50% in Bond C and 50% in Bond D
b. 64% in Bond C and 36% in Bond D
c. 36% in Bond C and 64% in Bond D
d. 100% in Bond D
e. None of the above
11) Exhibit 21.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a relationship officer for a money-center commercial bank, one of your corporate
accounts has just approached you about a one-year loan for $3,000,000. The customer
would pay a quarterly interest expense based on the prevailing level of LIBOR at the
beginning of each quarter. As is the bank's convention on all such loans, the amount of
the interest payment would then be paid at the end of the quarterly cycle when the new
rate for the next cycle is determined. You observe the following LIBOR yield curve in
the cash market:
Assuming the yields inferred from the Eurodollar futures contract prices for the next
three settlement periods are equal to the implied forward rates, calculate in annual
(360-day) percentage terms, the annuity that would leave the bank indifferent between
making the floating-rate loan and hedging it in the futures market, and making a
one-year fixed-rate loan.
a. 20.86%
b. 5.10%
c. 4.91%
d. 5.20%
e. None of the above
12) Which of the following is a business tenet of Warren Buffett?
a. Long term prospects.
b. Resistance to institutional imperative.
c. Creation of one dollar of market value for every dollar retained.
d. Purchase at discount to intrinsic value.
e. Product is not faddish
13) Free cash flow = Cash flow from operations - Capital expenditures + Disposition of
property and equipment.
14) The investment value of a convertible bond is the price which it would be expected
to sell as a straight debt instrument.
15) The value of preferred stock can be calculated by dividing its dividend by the
required rate of return.
16) Country risk is the uncertainty of earning due to changes in exchange rates faced by
firms in this industry that sell outside the United States.
17) Technical analysis and the efficient market hypothesis have a consistent set of
assumptions concerning stock market behavior.
18) Most U.S. municipal bonds are serial issues which are subject to state and local
taxes when they are issued in the investor's home state.
