1) In the absence of arbitrage opportunities, the forward contract price should be equal
to the current price plus
a. Contract price.
b. The cost of carry.
c. Margin requirement.
d. The price discovery rate.
e. The convenience return.
2) Exhibit 10.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was BMC’S total asset turnover for 2004?
a. 0.23
b. 1.28
c. 1.46
d. 0.87
e. 0.68
3) Exhibit 21.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume you are the Treasurer for the Johnson Pharmaceutical Company and in late July
2004, the company is considering the sale of $500 million in 20-year debentures that
will most likely be rated the same as the firm’s other debt issues. The firm would like to
proceed at the current rate of 8.5%, but you know that it will probably take until
November to bring the issue to market. Therefore, you suggest that the firm hedge the
pending issue using Treasury bond futures contracts which each represent $100,000.
What is the dollar gain or loss assuming that future conditions described in Case 2
actually occur? (Ignore commissions and margin costs, and assume a naive hedge ratio.)
a. $19,500,000.00 gain
b. $27,816,683.04 gain
c. $27,816,683.04 loss
d. $19,500,000.00 loss
e. None of the above
4) A riskless stock index arbitrage profit is possible if the following condition holds:
a. F0,T= S0(1 + rf– d)T
b. F0,T> S0(1 + rf– d)T
c. F0,T< S0(1 + rf– d)T
d. a and b
e. b and c
5) Exhibit 10.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information about Albermarle Corp.
Calculate the return on equity (ROE).
a. 15%
b. 12%
c. 32%
d. 9%
e. 7%
6) Calculate the duration of a 6 percent, $1,000 par bond maturing in three years if the
yield to maturity is 10 percent and interest is paid semiannually.
a. 1.35 years
b. 1.78 years
c. 2.50 years
d. 2.78 years
e. 2.95 years
7) A chart used to show only significant price changes, regardless of their timing, is the
a. Candlestick chart
b. Multiple indicator chart
c. Bar chart
d. Point-and-figure chart
e. Point-and-click chart
8) John is 55 years old has $55,000 outstanding on a mortgage and no other debt. John
typically saves $5,000 in an IRA account and another $10,000 in a company pension.
John is most likely in the:
a.Discovery phase
b.Accumulation phase
c.Consolidation phase
d.Spending phase
e.Gifting phase
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 operating margin.
a. 15.5%
b. 5.6%
c. 8.6%
d. 10.6%
e. 6.5%
10) Exhibit 19.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond C has a coupon of 6% per year,
maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond
D has a coupon of 8% per year, maturity of 15 years, yield to maturity of 6% per year,
and a face value of $1000.
Calculate the modified duration for Bond C.
a. 4.47
b. 4.22
c. 4.34
d. 5
e. None of the above
11) Exhibit 12.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As an economist for a research firm you are forecasting the market P/E ratio using the
dividend discount model. Because the economy has been slow for 5 years, you expect
the dividend-payout ratio to be 55%. Long-term government bond rates are at 6% and
the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to
be 11%.
What is your expectation of the market P/E ratio?
a. 9.17
b. 11.11
c. 13.58
d. 18.33
e. 21.42
12) The index of leading indicators includes all of the following, except:
a. M2 money supply.
b. S & P 500 index.
c. Orders for plant and equipment.
d. Changes in the sensitive materials price.
e. Index of industrial production.
13) The Peterson Company has FCFF of $1000. FCFF is expected to grow by 12% next
year. The cost of capital is 12% and the level of debt is $5000. The number of shares
outstanding is 500. Calculate the firm’s share price.
a. $44
b. $55
c. $34.19
d. $47.23
e. $50
14) Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual
settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional
principal is $50,000,000.
Assume that one year after the swap was initiated the fixed rate on a new 3-year receive
fixed pay floating LIBOR swap has risen to 9% per year, calculate the market value of
the 8% fixed rate bond based on $100 face value. Settlement is on a semiannual basis.
a. $76.45
b. $101.24
c. $100.0
d. $97.42
e. $70.77
15) The following are participating investors in bond markets:
a. U.S. Treasury.
b. Life insurance companies.
c. Commercial banks.
d. a and b.
e. b and c.
16) The market price of a closed-end investment company has generally been
a. 5 to 20 percent below the NAV.
b. 25 to 35 percent below the NAV.
c. Equal to the NAV (within a 2 percent range).
d. 5 to 20 percent above the NAV.
e. 25 to 35 percent above the NAV.