1) Which of the following variables was considered not significant in explaining stock
returns?
a. Industrial production
b. Changes in the risk premium
c. Consumption
d. Twists in the yield curve
e. Inflation
2) Calculate the yield to maturity of a zero coupon bond with a face value of $1000,
maturing in 10 years and selling for a price of $628.72.
a. 4.18%
b. 4.75%
c. 6.29%
d. 8.23%
e. 9.54%
3) You sell short 100 shares of Hi-Light Corporation when it is trading at $70. Your
margin requirement is 50%. Assuming there was no commission and the maintenance
margin is 25%, at what stock price would you receive a margin call?
a.$76
b.$80
c.$84
d.$88
e.$92
4) Exhibit 12.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are using the free cash flow to equity (FCFE) technique to analyze U.S. equity
market. The beginning FCFE is $90 and the required rate of return is 10%. Free cash
flows are expected to grow at a 10% rate for the next two years and then grow at a
constant rate of 7% forever.
What is the estimated value of the U.S. market today using the FCFE approach?
a. 2,852
b. 2,918
c. 3,210
d. 3,390
e. 3,884
5) Suppose you consider investing $5,000 in a load fund from which a fee of 8% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 1/2
percent redemption fee. Which is better and by how much?
a. Load fund by $320.50
b. Load fund by $575.50
c. Funds are equal
d. No load fund by $320.50
e. No load fund by $575.50
6) Consider a bond portfolio manager who expects interest rates to decline and has to
choose between the following two bonds.
Bond A: 10 years to maturity, 5% coupon, 5% yield to maturity
Bond B: 10 years to maturity, 3% coupon, 4% yield to maturity
a. Bond A because it has a higher coupon rate.
b. Bond A because it has a higher yield to maturity.
c. Bond B because it has a lower coupon rate.
d. Bond A or Bond B because the maturities are the same.
e. None of the above.
7) Exhibit 3.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The annual rate of inflation is 2%.
Refer to Exhibit 3.1. What is the real return on long-term corporate bonds?
a.1.02%
b.3.68%
c.4.71%
d.11.27%
e.13.33%
8) Which of the following is not a consideration in the three-step valuation process?
a. Analysis of alternative economies
b. Analysis of security markets
c. Analysis of alternative industries
d. Analysis of individual companies
e. None of the above (that is, all are considerations in the three-step valuation process)
9) Which of the following is not considered when looking at free cash flow to equity
technique?
a. Depreciation expense
b. Change in working capital
c. Principal debt repayments
d. Change in competitive environment
e. Net income
10) Exhibit 25.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
Compute the Sharpe Measure for the AAA fund.
a. 2.01
b. 2.74
c. 2.91
d. 5.43
e. 1.72
11) The text offers a number of suggestions for investing in mutual funds. Which of the
following is not such a suggestion?
a. Choose only those mutual funds which are consistent with your objectives and
constraints.
b. Invest in no-load funds whenever possible.
c. Avoid investing in index funds.
d. Use a dollar cost average strategy.
e. None of the above (that is, all are valid suggestions for investing in mutual funds)
12) Exhibit 25.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the data presented below on three mutual funds and the market.
Compute the Treynor Measure for the CCC fund.
a. 14.7
b. 15.3
c. 19.1
d. 17.0
e. 12.7
13) Exhibit 10.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was Star’s total asset turnover for 2004?
a. 1.65
b. 1.21
c. 0.92
d. 0.033
e. 0.70