Calculate the price at the beginning of year 1 of a 10% annual coupon bond with face
value $1,000 and 5 years to maturity.
A. $1,105
B. $1,132
C. $1,179
D. $1,150
E. $1,119
“ADRs” stands for ___________, and “WEBS” stands for ____________.
A. additional dollar returns; weekly equity and bond survey
B. additional daily returns; world equity and bond survey
C. American dollar returns; world equity and bond statistics
D. American depository receipts; world equity benchmark shares
E. adjusted dollar returns; weighted equity benchmark shares
Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20
each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger.
Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The
corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat
hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers.
If the economy is strong, the total revenue of firm C will be
A. $1,680,000.
B. $1,400,000.
C. $2,000,000.
D.-$2,400,000.
In 2016, ____________ was(were) the most significant liability(ies) of U.S.
commercial banks in terms of total value.
A. loans and leases
B. cash
C. real estate
D. deposits
E. investment securities
If the hedge ratio for a stock call is 0.30, the hedge ratio for a put with the same
expiration date and exercise price as the call would be
A. 0.70.
B. 0.30.
C. −0.70.
D. −0.30.
E. −0.17.
Call options on IBM-listed stock options are
A. issued by IBM Corporation.
B. created by investors.
C. traded on various exchanges.
D. issued by IBM Corporation and traded on various exchanges.
E.created by investors and traded on various exchanges.
You purchased a call option for $3.45 17 days ago. The call has a strike price of $45,
and the stock is now trading for $51. If you exercise the call today, what will be your
holding-period return? If you do not exercise the call today and it expires, what will be
your holding-period return?
A. 173.9%, 100%
B.73.9%, 100%
C. 57.5%, 173.9%
D. 73.9%, 57.5%
E. 100%, 100%
Consider the following three stocks:
The value-weighted index constructed with the three stocks using a divisor of 100 is
A. 1.2.
B. 1200.
C. 490.
D. 4900.
E. 49.
Suppose two portfolios have the same average return and the same standard deviation
of returns, but Buckeye Fund has a lower beta than Gator Fund. According to the
Sharpe measure, the performance of Buckeye Fund
A. is better than the performance of Gator Fund.
B. is the same as the performance of Gator Fund.
C. is poorer than the performance of Gator Fund.
D. cannot be measured as there are no data on the alpha of the portfolio.
An investor with a short position in Treasury notes futures will profit if
A. interest rates decline.
B. interest rates increase.
C. the prices of Treasury notes increase.
D. the price of the long bond increases.
E. None of the options are correct.
Statman (1977) argues that ________ is consistent with some investors’ irrational
preference for stocks with high cash dividends and with a tendency to hold losing
positions too long.
A. mental accounting
B. regret avoidance
C. overconfidence
D. conservatism
An extension of the Fama French three factor model was introduced by
A. Black.
B. Scholes.
C. Carhart.
D. Jensen.
E. Miller.
A mutual fund had average daily assets of $4.7 billion in 2016. The fund sold $2.2
billion worth of stock and purchased $3.6 billion worth of stock during the year. The
fund’s turnover ratio is
A. 37.5%.
B. 22.6%.
C. 15.3%.
D. 46.8%.
E. 20.7%.
Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20
each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger.
Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The
corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat
hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers.
If the economy enters a recession, the total cost of firm C will be
A. $1,680,000.
B.-$1,170,000.
C. $750,000.
D. $420,000.
The anomalies literature
A. provides a conclusive rejection of market efficiency.
B. provides conclusive support of market efficiency.
C. suggests that several strategies would have provided superior returns.
D. provides a conclusive rejection of market efficiency and suggests that several
strategies would have provided superior returns.
E. None of the options are correct.
The yield curve shows at any point in time
A. the relationship between the yield on a bond and the duration of the bond.
B. the relationship between the coupon rate on a bond and time to maturity of the bond.
C. the relationship between yield on a bond and the time to maturity on the bond.
D. All of the options are correct.
E. None of the options are correct.
Consider a bond selling at par with modified duration of 10.6 years and convexity of
210. A 2% decrease in yield would cause the price to increase by 21.2% according to
the duration rule. What would be the percentage price change according to the
duration-with-convexity rule?
A. 21.2%
B. 25.4%
C. 17.0%
D. 10.6%
A European call option allows the buyer to
A. sell the underlying asset at the exercise price on the expiration date.
B. buy the underlying asset at the exercise price on or before the expiration date.
C. sell the option in the open market prior to expiration.
D. buy the underlying asset at the exercise price on the expiration date.
E.sell the option in the open market prior to expiration and buy the underlying asset at
the exercise price on the expiration date.
Which one of the following statements regarding “basis” is true?
I) The basis is the difference between the futures price and the spot price.
II) The basis risk is borne by the hedger.
III) A short hedger suffers losses when the basis decreases.
IV) The basis increases when the futures price increases by more than the spot price.
A. I only
B. II only
C. III only
D. IV only
E. I, II, and IV.
Which of the following statements regarding the capital allocation line (CAL) is false?
A. The CAL shows risk-return combinations.
B. The slope of the CAL equals the increase in the expected return of the complete
portfolio per unit of
additional standard deviation.
C. The slope of the CAL is also called the reward-to-volatility ratio.
D. The CAL is also called the efficient frontier of risky assets in the absence of a
risk-free asset.
Exercise Bicycle Company is expected to pay a dividend in year 1 of $1.20, a dividend
in year 2 of $1.50, and a dividend in year 3 of $2.00. After year 3, dividends are
expected to grow at the rate of 10% per year. An appropriate required return for the
stock is 14%. The stock should be worth _______ today.
A. $33.00
B. $39.86
C. $55.00
D. $66.00
E. $40.68
The domestic net worth of the U.S. in 2016 was
A. $15.411 trillion.
B. $26.431 trillion.
C. $42.669 trillion.
D. $64.747 trillion.
E. $70.983 trillion.
The dollar change in the value of a stock call option is always
A. lower than the dollar change in the value of the stock.
B. higher than the dollar change in the value of the stock.
C. negatively correlated with the change in the value of the stock.
D. higher than the dollar change in the value of the stock and negatively correlated with
the change in the value of the stock.
E. lower than the dollar change in the value of the stock and negatively correlated with
the change in the value of the stock.
A fair game
A. will not be undertaken by a risk-averse investor.
B. is a risky investment with a zero risk premium.
C. is a riskless investment.
D. will not be undertaken by a risk-averse investor and is a risky investment with a zero
risk premium.
E. will not be undertaken by a risk-averse investor and is a riskless investment.
Money market securities
A. are short term.
B. are highly marketable.
C. are generally very low risk.
D. are highly marketable and are generally very low risk.
E. All of the options.
The value of a Treasury bond should
A. be equal to the sum of the value of STRIPS created from it.
B. be less than the sum of the value of STRIPS created from it.
C. be greater than the sum of the value of STRIPS created from it.
D. All of the options are correct.
A zero-coupon bond is one that
A. effectively has a zero-percent coupon rate.
B. pays interest to the investor based on the general level of interest rates rather than at
a specified coupon rate.
C. pays interest to the investor without requiring the actual coupon to be mailed to the
corporation.
D. is issued by state governments because they don’t have to pay interest.
E. is analyzed primarily by focusing (“zeroing in”) on the coupon rate.
The financial statements of Snapit Company are given below.
Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company. The firm’s fixed asset turnover
ratio for 2009 is
A. 4.60.
B. 3.61.
C. 3.16.
D. 5.46.
Consider the following three stocks:
The price-weighted index constructed with the three stocks is
A. 30.
B. 40.
C. 50.
D. 60.
E. 70.
A coupon bond that pays interest semi-annually is selling at a par value of $1,000,
matures in seven years, and has a coupon rate of 8.6%. The yield to maturity on this
bond is
A. 8.0%.
B. 8.6%.
C. 9.0%.
D. 10.0%.
E. None of the options are correct.
The financial statements of Black Barn Company are given below.
Note: The common shares are trading in the stock market for $40 each.
Refer to the financial statements of Black Barn Company. The firm’s average collection
period for 2009 is
A. 59.31.
B. 55.05.
C. 61.31.
D. 49.05.
E. None of the options are correct.
If a portfolio had a return of 8%, the risk-free asset return was 3%, and the standard
deviation of the portfolio’s
excess returns was 20%, the Sharpe measure would be
A. 0.08.
B. 0.03.
C. 0.20.
D. 0.11.
E. 0.25.