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1) you find a 5-year aa xerox bond priced to yield 6%. you find a similar-risk 5-year
canon bond priced to yield 6.5%. if you expect interest rates to rise, which of the
following should you do?
a.short the canon bond, and buy the xerox bond.
b.buy the canon bond, and short the xerox bond.
c.short both the canon bond and the xerox bond.
d.buy both the canon bond and the xerox bond.
2) in the context of a point and figure chart, a horizontal band of xs and os is a
_____________.
a.buy signal
b.sell signal
c.congestion area
d.trend reversal
3) the abs company has a capital base of $100 million, an opportunity cost of capital (k)
of 15%, a return on assets (roa) of 9%, and a return on equity (roe) of 18%. what is the
economic value added (eva) for abs?
a.$8 million
b.-$6 million
c.$3 million
d.-$4 million
4) consider the theory of active portfolio management. stocks a and b have the same
beta and nonsystematic risk. stock a has a higher positive alpha than stock b. you should
want __________ in your active portfolio.
a.equal proportions of stocks a and b
b.more of stock a than stock b
c.more of stock b than stock a
d.the answer cannot be determined from the information given.
5) if a firm increases its plowback ratio, this will probably result in _______ p/e ratio.
a.a higher
b.a lower
c.an unchanged
d.the answer cannot be determined from the information given.
6) a convertible bond is deep in the money. this means the bond price will closely track
the __________.
a.straight debt value of the bond
b.conversion value of the bond
c.straight debt value of the bond minus the conversion value
d.straight debt value of the bond plus the conversion value
7) which one of the following averaging methods is the preferred method of
constructing returns series for use in evaluating portfolio performance?
a.geometric average
b.arithmetic average
c.dollar weighted
d.internal
8) according to sec rule 415 regarding shelf registration, firms can gradually sell
securities to the public for __________ following initial registration.
a.1 year
b.2 years
c.3 years
d.4 years
9) if a treasury note has a bid price of $996.25, the quoted bid price in the wall street
journal would be _________.
a.99:25
b.99:63
c.99:20
d.99:08
10) you buy a 10-year $1,000 par value zero-coupon bond priced to yield 6%. you do
not sell the bond. if you are in a 28% tax bracket, you will owe taxes on this investment
after the first year equal to _______.
a.$0
b.$4.27
c.$9.38
d.$33.51
11) in a simple capm world which of the following statements is (are) correct?
i. all investors will choose to hold the market portfolio, which includes all risky assets
in the world.
ii. investors' complete portfolio will vary depending on their risk aversion.
iii. the return per unit of risk will be identical for all individual assets.
iv. the market portfolio will be on the efficient frontier, and it will be the optimal risky
portfolio.
a.i, ii, and iii only
b.ii, iii, and iv only
c.i, iii, and iv only
d.i, ii, iii, and iv
12) what strategy is designed to ensure a value within the bounds of two different stock
prices?
a.collar
b.covered call
c.protective put
d.straddle
13) the arbitrage pricing theory was developed by _________.
a.henry markowitz
b.stephen ross
c.william sharpe
d.eugene fama
14) the duration of a portfolio of bonds can be calculated as _______________.
a.the coupon weighted average of the durations of the individual bonds in the portfolio
b.the yield weighted average of the durations of the individual bonds in the portfolio
c.the value weighted average of the durations of the individual bonds in the portfolio
d.averages of the durations of the longest- and shortest-duration bonds in the portfolio
15) consider a no-load mutual fund with $400 million in assets, 50 million in debt, and
15 million shares at the start of the year and with $500 million in assets, 40 million in
debt, and 18 million shares at the end of the year. during the year investors have
received income distributions of $.50 per share and capital gain distributions of $.30 per
share. if the total expense ratio is .75%, what is the rate of return on the fund?
a.12.09%
b.12.99%
c.8.25%
d.the answer cannot be determined from the information given.
16) the common stock of the avalon corporation has been trading in a narrow range
around $40 per share for months, and you believe it is going to stay in that range for the
next 3 months. the price of a 3-month put option with an exercise price of $40 is $3,
and a call with the same expiration date and exercise price sells for $4.
selling a straddle would generate total premium income of _____.
a.$300
b.$400
c.$500
d.$700
