1) Regional exchanges exist because
a.They provide trading facilities for local companies
b.They allow local brokers to trade dual listed stocks
c.They allow for trading of local bonds
d.a and b.
e.b and c.
2) If the annual geometric mean for the equity risk premium is 8.4 percent, what
percentage of the equity risk premium is consumed by trading costs of 1.2 percent?
a. 7.20%
b. 9.60%
c. 9.70%
d. 10.08%
e. 14.29%
3) Exhibit 6.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.5. What is the abnormal rate of return for Stock Z when you consider
its systematic risk measure (beta)?
a.0.1%
b.1.0%
c.0.5%
d.-1.0%
e.-2.0%
4) Financial ratios are only useful when they are compared to other ratios. All of the
following are useful means of examining relative performance except
a. Aggregate economy
b. Industries
c. Competitors
d. Historical performance
e. All of the above are relevant comparison measures for financial ratios
5) Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The
zero-beta return (λ0) = .025 and the risk premiums for the two factors are (λ1) = .12 and
(λ0) = .10.
Suppose that you know that the prices of stocks A, B, and C will be $10.95, 22.18, and
$30.89, respectively. Based on this information
a. All three stocks are overvalued.
b. All three stocks are undervalued.
c. Stock a is undervalued, stock b is properly valued, stock c is undervalued.
d. Stock a is undervalued, stock b is properly valued, stock c is overvalued.
e. Stock a is overvalued, stock b is overvalued, stock c is undervalued.
6) Exhibit 8.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.1. Compute the beta for RA Computer using the historic returns
presented above.
a. 0.7715
b. 1.2195
c. 1.3893
d. 1.1023
e. -0.7715
7) The asset allocation strategy that separately examines capital market conditions and
the investor’s objectives and constraints is called
a. Integrated asset allocation.
b. Tactical asset allocation.
c. Sector rotation.
d. Strategic asset allocation.
e. Insured asset allocation.
8) Exhibit 22.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If you establish a long strap using the options with a 90 exercise price, what is your
dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a. $37.50 loss
b. $37.50 gain
c. $100.00 loss
d. $100.00 gain
e. $2,437.50 loss
9) Between 1980 and 2000, the standard deviation of the returns for the NIKKEI and
the DJIA indexes were 0.08 and 0.10, respectively, and the covariance of these index
returns was 0.0007. What was the correlation coefficient between the two market
indicators?
a. .0906
b. .0985
c. .0796
d. .0875
e. .0654
10) Exhibit 5.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
Refer to Exhibit 5.2. Calculate a value weighted index for Jan. 13th if the initial index
value is 100.
a.111.54
b.100
c.102.31
d.123.07
e.None of the above
11) Exhibit 10.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information for the Klandy Corporation.
During 2004 Klandy Corp. made capital expenditures totaling $500 and disposed
property worth $400.
The firm’s free cash flow is
a. $2100
b. $1900
c. $1800
d. $1700
e. $1600
12) Which of the following is not considered a contrary trading rules?
a. Futures traders bullish on stock index futures
b. Investment advisory opinions
c. Credit balance in brokerage accounts
d. CBOE put/call ratio
e. Confidence index
13) When there are no embedded options, ____ duration can be used to provide an
approximation of the interest rate sensitivity of the bond.
a. Macaulay
b. Modified
c. Effective
d. Empirical
e. None of the above
14) Exhibit 18.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The
bonds have a 7% coupon rate. Interest is paid annually and the required rate of return is
6 percent for these bonds.
What is the price of the Talmart corporate bonds?
a. $965.63
b. $966.13
c. $1,034.65
d. $1,135.10
e. $1,051.97
15) Exhibit 5.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
Refer to Exhibit 5.2. Calculate a value weighted index for January 15th if the initial
index value is 100.
a.102.31
b.100
c.123.07
d.111.54
e.None of the above
16) Increasing the correlation among assets in a portfolio results in an increase in the
standard deviation of the portfolio.
17) Credit risk in the options market is only a concern to the option seller.
18) Municipal bond nominal yields are generally below comparable taxable bond
yields.
19) Many endowments are tax-exempt.
20) Overall performance is the total return above the risk free rate.
21) Overall the correlation coefficients of industries to the market portfolio vary widely,
which is expected due to the wide variance of industry Betas.
22) In constructing the portfolio, the manager should maximize the investor’s risk level.
23) The over-the-counter market includes all stocks not listed on one of the major
exchanges but constitutes a lesser of a dollar value than the New York and American
Exchanges combined.
24) For a given change in yield bond price volatility is inversely related to term to
maturity.