1) The nominal yield of a bond is the
a. Annual coupon as a percent of the current price.
b. Annual rate earned including the capital gain or loss.
c. Rate earned giving consideration to coupon reinvestment.
d. Coupon rate.
e. Promised yield to maturity.
2) All investment companies charge an annual
a. 12b-1 fee.
b. Marketing and distribution.
c. Management fee.
d. Maintenance fee.
e. Market adjustment.
3) Exhibit 7A.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 7A.1. What weight of security 1 gives the minimum portfolio variance
when r1.2= .60, E(s1) = .10 and E(s2) = .16?
a. .0244
b. .3679
c. .5697
d. .6309
e. .9756
4) Recently you have received a tip that the stock of Bubbly Incorporated is going to
rise from $57 to $61 per share over the next year. You know that the annual return on
the S&P 500 has been 9.25% and the 90-day T-bill rate has been yielding 3.75% per
year over the past 10 years. If beta for Bubbly is 0.85, will you purchase the stock?
a. Yes, because it is overvalued.
b. No, because it is overvalued.
c. No, because it is undervalued.
d. Yes, because it is undervalued.
e. Yes, because the expected return equals the estimated return.
5) The optimal hedge ratio is a function of all of the following except
a. The standard deviation of changes in spot prices.
b. The variance deviation of changes in forward prices.
c. The covariance between changes in spot and forward prices.
d. Choices a and b only
e. All of the above
6) Exhibit 25.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. Assume that
during the period under consideration Rf= .04.
Using the Sharpe Measure, which portfolio performed best?
a. W
b. X
c. Y
d. Z
e. Two portfolios are tied
7) Exhibit 18.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with 4 years to maturity and a 5% coupon has a yield to
maturity of 6%. Interest is paid annually.
Calculate the current price of the bond.
a. $964.90
b. $965.35
c. $981.41
d. $1035.45
e. $1035.85
8) When homeowners pay off mortgages when they sell their homes, or when
homeowners refinance home mortgages, they effectively
a. Make the maturities of GNMA securities longer.
b. Make the maturities of GNMA securities shorter.
c. Make the maturities of U.S. Treasury securities longer.
d. Make the maturities of U.S. Treasury securities shorter.
e. None of the above.
9) Suppose Under Mutual Fund owns only the 3 stocks shown below with no liabilities.
The fund originated by selling $500,000 of stock at $50.00 per share. What is its current
NAV?
a. $12.53
b. $15.29
c. $152.90
d. $125.30
e. None of the above
10) The legal document setting forth the obligations of a bond’s issuer is called
a. A debenture.
b. A warrant.
c. An indenture.
d. A rights certificate.
e. A trustee deed.
11) Exhibit 22.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
GE Corporation has a put option selling for $2.90 and a call option selling for $1.95,
both with a strike price of $29.00.
Which strategy is most appropriate for an investor who expects share prices to be
volatile, but was inclined to be bullish?
a. protective put
b. covered call
c. long straddle
d. short straddle
e. long strap
12) 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.
To what price will the market rise if the earnings expectation is $10.00?
a. $71.40
b. $66.30
c. $54.20
d. $77.00
e. $51.10
13) A technical analyst might use mutual fund cash positions as follows:
a. Sell stock when cash levels are low
b. Buy stock when cash levels are low
c. Sell stock when cash levels are high
d. b and c
e. a and b
14) Exhibit 6.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.5. What is the abnormal rate of return for Stock A when you consider
its systematic risk measure (beta)?
a.1.40%
b.-1.40%
c.2.80%
d.-2.80%
e.None of the above
15) Exhibit 7.16
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Based on the economic outlook for the industry a financial analyst covering Top Choice
Corporation has determined the following three possible returns given three different
states of the economy over the next period.
Refer to Exhibit 7.16. What is the expected return for Top Choice Corporation?
a. 5.2%
b. 10.4%
c. 13.7%
d. 15.0%
e. 17.6%
16) The Securities Act of 1933
a. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
b. Regulates broker-dealers.
c. Requires federal registration of all public offerings of securities.
d. Regulates the structure and operations of mutual funds.
e. Contains a code of ethics and standards of professional conduct.
17) An order that specifies the highest buy or lowest sell price is a
a.Limit order.
b.Short sale.
c.Market order.
d.Margin call.
e.Stop loss.
18) The first step in the Goldman Sachs analysis of world markets examines a country’s
aggregate economy and its components that relate to the valuation of securities.
19) A cross-sectional analysis compares a firm to a subset of industry firms comparable
in size or characteristics.
20) Fama and French suggest a four factor model approach that explains many prior
market anomalies.
21) A U.S. investor who ignores foreign markets reduces overall number of investment
choices.
22) One of the economic series included in the National Bureau of Economic Research
(NBER) coincident indicator is the index of industrial production.
23) A price-weighted index such as the DJIA is a geometric mean of current stock
prices.
24) Treynor developed the first composite measure of portfolio performance by
introducing the capital market line, which defines the relationship between the return of
a portfolio over time and the return for the market portfolio.
25) The introduction of lending and borrowing severely limits the available risk/return
opportunities.
26) Risk management is the driving force behind the futures options market.