1) Which of the following would be considered a low liquidity investment?
a.Warrants
b.Call options
c.Zero coupon bonds
d.Balanced mutual funds
e.Diamonds
2) Exhibit 8.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You expect the risk-free rate (RFR) to be 3 percent and the market return to be 8
percent. You also have the following information about three stocks.
Refer to Exhibit 8.2. What are the expected (required) rates of return for the three
stocks (in the order X, Y, Z)?
a. 16.50%, 5.50%, 22.00%
b. 9.25%, 10.5%, 7.5%
c. 21.25%, 8.33%, 11.43%
d. 6.20%, 2.20%, 8.20%
e. 15.00%, 3.50%, 7.30%
3) Exhibit 22.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If you establish a long strip using the options with an 85 exercise price, what is your
dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a. $1,668.75 gain
b. $1,700.00 gain
c. $1,700.00 loss
d. $31.25 gain
e. $31.25 loss
4) Assuming no change in interest rates, the duration of a coupon bond
a. Stays constant.
b. Declines more slowly than the term to maturity.
c. Declines more quickly than the term to maturity
d. Increases at a slower rate than the term to maturity.
e. Changes in line with the term to maturity.
5) Consider a zero coupon bond that has a current price of $436.19 and matures in 10
years. What is its yield to maturity?
a. 0.86%
b. 8.65%
c. 8.00%
d. 58.80%
e. 6.564%
6) Exhibit 12.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 45 percent when the rate on long term
government bonds falls to 9 percent. Since investors are becoming more risk averse, the
equity risk premium will rise to 7 percent and investors will require a 16 percent return.
The return on equity will be 14 percent.
What is your expectation of the market P/E ratio?
a. 5.42
b. 7.14
c. 6.63
d. 6.25
e. 5.11
7) Given the following weights and expected security returns, calculate the expected
return for the portfolio.
a. 0.085
b. 0.090
c. 0.092
d. 0.097
e. None of the above
8) Exhibit 25.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Tyler Incorporated (TI).
Calculate TI’s overall performance.
a. 0.0113
b. 0.1200
c. 0.0670
d. 0.0530
e. 0.0696
9) 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 Treynor Measure for the CCC fund.
a. 5.43
b. 2.74
c. 2.19
d. 2.00
e. 1.65
10) Exhibit 8.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.4. If the expected return on the market is 11.5% and the risk-free rate
of return is 4.5%, then what are the required rates of return for stocks X, Y, and Z based
on the CAPM?
X Y Z
a. 4.8% 18.3% 16.9%
b. 7.2% 20.7% 22.3%
c. 10.7% 17.5% 14.4%
d. 10.1% 12.2% 19.2%
e. 11.1% 12.2% 21.3%
11) The annual interest paid on a bond relative to its prevailing market price is called its
a. Promised yield.
b. Yield to maturity.
c. Coupon rate.
d. Effective yield.
e. Current yield.
12) More recent studies done in 2001 suggest more securities are needed than
historically to create a well-diversified portfolio.
13) A risk-free asset is one in which the return is completely guaranteed; there is no
uncertainty.
14) Securities with returns that lie below the security market line are undervalued.
15) Price-to-book value ratio cannot be used to estimate the value of firms with
negative earnings or negative cash flows.
16) Operating free cash flow and Free cash flow to equity are equivalent cash flow
concepts.