FC 280 1 firm a produces gadgets the

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1) firm a produces gadgets. the price of gadgets is $2 each. firm a has total fixed costs

of $1,000,000 and variable costs of $1 per gadget. the corporate tax rate is 40%. if the

economy is strong, the firm will sell 2,000,000 gadgets. if the economy enters a

recession, the firm will sell only half as many gadgets. if the economy enters a

recession, the after-tax profit of firm a will be _________.

a.$0

b.$90,000

c.$180,000

d.$270,000

2) in a ___________ index, changes in the value of the stock with the greatest market

value will move the index value the most, everything else equal.

a.value-weighted index

b.equally weighted index

c.price-weighted index

d.bond price index

3) financial assets represent _____ of total assets of u.s. households.

a.over 60%

b.over 90%

c.under 10%

d.about 30%

4) approximately __________ of futures contracts result in actual delivery.

a.0%

b.less than 1% to 3%

c.less than 5% to 15%

d.less than 60% to 80%

5) in the treynor-black model, the contribution of individual security to the active

portfolio should be based primarily on the stock’s _________.

a.alpha

b.beta

c.residual variance

d.information ratio

6) which of the following is (are) true about dark pools?

i. they allow anonymity in trading.

ii. they often involve large blocks of stocks.

iii. trades made through them might not be reported.

a.i and ii only

b.ii and iii only

c.i and iii only

d.i, ii, and iii

7) a firm’s leverage ratio is 1.2, interest-burden ratio is .81, and profit margin is .25, and

its asset turnover is 1.1. what is the firm’s compound leverage factor?

a..243

b..267

c..826

d..972

8) the discount rate is the ________.

a.interest rate banks charge each other for overnight loans of deposits on reserve at the

fed

b.interest rate the fed charges commercial banks on short-term loans

c.interest rate that the u.s. treasury pays on its bills

d.interest rate that banks charge their best corporate customers

9) you have the following rates of return for a risky portfolio for several recent years:

if you invested $1,000 at the beginning of 2008, your investment at the end of 2011

would be worth ___________.

a.$2,176.60

b.$1,785.56

c.$1,645.53

d.$1,247.87

10) life insurance companies try to hedge the risks inherent in whole-life insurance

policies by investing in __________.

a.long-term bonds

b.money market mutual funds

c.savings accounts

d.short-term commercial paper

11) based on the outcomes in the following table, choose which of the statements below

is (are) correct?

i. the covariance of security a and security b is zero.

ii. the correlation coefficient between securities a and c is negative.

iii. the correlation coefficient between securities b and c is positive.

a.i only

b.i and ii only

c.ii and iii only

d.i, ii, and iii

12) which of the following will result in an increase in cash to the firm?

a.dividends paid

b.a delay in collecting on accounts receivable

c.net new investments

d.an increase in accounts payable

13) according to market technicians, a trin statistic of less than 1 is considered a

__________.

a.bearish signal

b.bullish signal

c.volume decline

d.signal reversal

14) you are recalculating the risk of ace stock in relation to the market index, and you

find that the ratio of the systematic variance to the total variance has risen. you must

also find that the ____________.

a.covariance between ace and the market has fallen

b.correlation coefficient between ace and the market has fallen

c.correlation coefficient between ace and the market has risen

d.unsystematic risk of ace has risen

15) you are considering investing $1,000 in a complete portfolio. the complete portfolio

is composed of treasury bills that pay 5% and a risky portfolio, p, constructed with two

risky securities, x and y. the optimal weights of x and y in p are 60% and 40%,

respectively. x has an expected rate of return of 14%, and y has an expected rate of

return of 10%. to form a complete portfolio with an expected rate of return of 11%, you

should invest __________ of your complete portfolio in treasury bills.

a.19%

b.25%

c.36%

d.50%

16) the historical yield spread between the aa bond and the aaa bond has been 25 basis

points. currently the spread is only 9 basis points. if you believe the spread will soon

return to its historical levels, you should ________________________.

a.buy the aa and short the aaa

b.buy both the aa and the aaa

c.buy the aaa and short the aa

d.short both the aa and the aaa

17) buyers of listed options __________ required to post margins, and writers of naked

listed options __________ required to post margins.

a.are; are not

b.are; are

c.are not; are

d.are not; are not

18) suppose you pay $9,400 for a $10,000 par treasury bill maturing in 6 months. what

is the effective annual rate of return for this investment?

a.6.38%

b.12.77%

c.13.17%

d.14.25%

19) the practice of using options or dynamic hedging strategies to provide protection

against investment losses while maintaining upside potential is called _________.

a.trading on gamma

b.index optioning

c.portfolio insurance

d.index arbitrage

20) if the interest rate on debt is higher than the roa, then a firm’s roe will _________.

a.decrease

b.increase

c.not change

d.change but in an indeterminable manner