1) Horizon matching is a combination of
a. Immunization and valuation.
b. Cash matching and immunization.
c. Valuation and cash matching.
d. All of the above.
e. None of the above.
2)
Refer to Exhibit 3A.1. Calculate the covariance.
a.-32.20
b.-23.32
c.1.00
d.23.32
e.32.20
3) The following are examples of Style Indexes
a.Small-cap growth
b.Mid-cap value
c.Small-cap value
d.All of the above
e.None of the above
4) Exhibit 10.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Zeco Company has the following financial statements for year ending 12/31/2008.
The Zeco Company’s industry averages are as follows:
Net Profit Margin = 4.5%; Total Asset Turnover = 0.8; Total Assets/Equity = 1.5
Calculate the return on equity (ROE) for Zeco Company and the Industry.
Zeco Industry Average
a. 1.52% 0.55%
b. 1.68% 5.40%
c. 2.10% 1.80%
d. 6.00% 5.40%
e. 8.40% 9.32%
5) Exhibit 12.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 65 percent when the rate on long-term
government bonds falls to 8 percent. Since investors are becoming more risk averse, the
equity risk premium will rise to 7 percent and investors will require a 15 percent return.
The return on equity will be 12 percent.
To what price will the market rise if the earnings expectation is $22.00 per share?
a. $183.26
b. $132.41
c. $198.66
d. $71.28
e. $14.30
6) Consider a bond with a duration of 8 years having a yield to maturity of 8% and
interest rates are expected to rise by 50 basis points. What is the percentage change in
the price of the bond?
a. 3.85%
b. 3.45%
c. -4.02%
d. -3.45%
e. -3.85%
7) According to technical analysts using mutual fund cash positions to guide investment
decisions
a. A low cash ratio position is a bullish indicator.
b. A high cash position is a bullish indicator.
c. A high cash position is a bearish indicator.
d. A low cash position is neither bearish nor bullish.
e. None of the above.
8) Assume that you purchase a 5-year $1,000 par value bond, with a 6% coupon, and a
yield of 7%. Immediately after you purchase the bond, yields rise to 8% and remain at
that level to maturity. Calculate the realized horizon yield if you hold the bond to
maturity. Interest is paid annually.
a. 6.0%
b. 7.11%
c. 8.0%
d. 15.25%
e. 8.18%
9) Exhibit 10.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information about Albermarle Corp.
Calculate the asset turnover ratio.
a. 2.2
b. 5.6
c. 4.2
d. 2.9
e. 3.9
10) Which of the following has not been involved in a direct test of the semi-strong
form of the efficient market hypothesis?
a.Stock splits
b.New Issues
c.Exchange listing
d.Accounting changes
e.NYSE Specialists’ returns
11) Exhibit 7.15
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 7.15. 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. 13.8%
b. 14.6%
c. 15.0%
d. 15.2%
e. 16.8%
12) Tom Gettback buys 100 shares of Johnson Walker stock for $87.00 per share and a
3-month Johnson Walker put option with an exercise price of $105.00 for $20.00. What
is his dollar gain if at expiration the stock is selling for $80.00 per share?
a. $200 loss
b. $700 loss
c. $200 gain
d. $700 gain
e. None of the above
13) When the 50-day moving average crosses the 200-day moving average from below
on good volume
a. This would be a bearish indicator because it signals a change to a negative trend.
b. This would be a bullish indicator because it signals a change to a negative trend.
c. This would be a bullish indicator because it signals a change to a positive trend.
d. This would be a bearish indicator because it signals a change to a positive trend.
e. None of the above.
14) Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate
objective is to calculate the EVA for the firm.
Calculate the adjusted operating profits before taxes.
a. $586.5
b. $225.64
c. $825.23
d. $831.56
e. $692.5
15) The rate of return on a risk free asset should equal the
a. Long run real growth rate of the economy.
b. Long run nominal growth rate of the economy.
c. Short run real growth rate of the economy.
d. Short run nominal growth rate of the economy.
e. Prime rate of interest.
16) Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF)
of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000.
The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year.
The stock has a beta of 1.1 and the current market price is $80. Currently the yield on
10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise
debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and
the proportion of debt is 45%.
Calculate the weighted average cost of capital (WACC).
a. 8.2%
b. 9.4%
c. 9.0%
d. 10.3%
e. 7.3%
17) Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor
loadings (or factor betas).
The zero-beta return (λ0) = 3%, and the risk premia are λ1= 10%, λ2= 8%. Assume that
all three stocks are currently priced at $50.
The expected returns for stock X, stock Y, and stock Z are
a. 3%, 8%, 10%
b. 7.1%, 10.5%, 8.8%
c. 7.1%, 8.8%, 10.5%
d. 10%, 5.5%, 14%
e. None of the above.
18) The writer of a ____ agreement makes settlement payments when LIBOR is less
than the striking rate of the agreement.
a. Swap
b. Cap
c. Floor
d. Collar
e. None of the above
19) In the evaluation of bond portfolio performance, the policy effect refers to
a. The difference in portfolio duration and index duration.
b. The extra return attributable to acquiring bonds that are temporarily mispriced
relative to risk.
c. Short-run changes in the portfolio during a specific period.
d. The differential return from changing duration of the portfolio during a specific
period.
e. None of the above.
20) There is little evidence from studies examining initial public offerings (IPOs) that
suggest markets are semistrong form efficient.
21) Empirical studies have shown that the market factor has increased over time and
now accounts for the majority of an individual stock’s price variance.
22) Hedge funds have no limitations on when and how often capital can be contributed
or removed from the partnership.
23) A stock with low systematic risk is considered to be a defensive stock.
24) A debenture is an option issued by a corporation that gives the holder the right to
acquire common stock from the issuing firm at a specified price within a designated
period of time.
25) Exhibit 7B.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The general equation for the weight of the first security to achieve the minimum
variance (in a two stock portfolio) is given by:
Refer to Exhibit 7B.1. Show the minimum portfolio variance for a portfolio of two
risky assets when r1.2= -1.
26) Index options can only be settled in cash.
27) There is empirical evidence that low P/E stocks have outperformed high P/E stocks
for some historical time periods.
28) According to the expectations hypothesis, a rising yield curve indicates that
investors’ demand for long maturity bonds is expected to rise.