1) Which of the following series does not include the long-leading index?
a. Dow Jones Industrial Average
b. Dow Jones Bond Prices, Percent Face Value
c. Price to Unit Labor Cost
d. M2 Money Supply, Deflated
e. New Building Permits
2) If the hedge ratio is 0.50, this indicates that the portfolio should hold
a. Two shares of stock for every call option written.
b. One share of stock for every two call options written.
c. Two shares of stock for every call option purchased.
d. One share of stock for every two call options purchased.
e. Two call options for every put option written.
3) A price range at which technicians feel that a significant increase in the price of the
stock will be resisted is referred to as
a. Supply threshold.
b. Support level.
c. Short interest level.
d. Advancement level.
e. Resistance level.
4) On the settlement date for a forward rate agreement (FRA) contract, the difference
between the two interest rates is multiplied by the FRA’s par value and prorated by the
length of the holding period.
5) Assume that as a portfolio manager the beta of your portfolio is 1.2 and that your
performance is exactly on target with the SML data under condition 1. If the true SML
data is given by condition 2, how much does your performance differ from the true
SML?
a. 2% lower
b. 1% lower
c. 5% lower
d. 1% higher
e. 2% higher
6) Exhibit 6.2
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 6.2. What is the abnormal rate of return for Stock ABC during period t
using only the aggregate market return (ignore differential systematic risk)?
a.3.2%
b.2.4%
c.1.3%
d.-1.5%
e.2.0%
7) Which of the following is not considered a “cost of carry”?
a. Commissions for physical storage
b. An opportunity cost for the net amount of invested capital
c. A premium for the convenience of consuming the asset now
d. A risk premium for uncertainty
e. All of the above are considered costs of carry.
8) 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.
What would the net value of a long straddle position be if the stock price at expiration is
$35?
a. -7.15
b. -$1.15
c. $1.15
d. $7.15
e. $36.15
9) 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 standard deviation for Top Choice Corporation?
a. 0.1%
b. 6.3%
c. 7.9%
d. 9.4%
e. 12.1%
10) Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The
zero-beta return (λ0) = .025 and the risk premiums for the two factors are (λ1) = .12 and
(λ0) = .10.
Assume that stocks A, B, and C never pay dividends and stocks A, B, and C are
currently trading at $10, $20, and $30, respectively. What is the expected price next
year for each stock?
A B C
a. $10.82 $21.82 $30.99
b. $11.05 $22.18 $30.96
c. $11.32 $22.56 $30.99
d. $11.65 $22.42 $30.96
e. $18.50 $37.00 $48.30
11) Exhibit 21.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a relationship officer for a money-center commercial bank, one of your corporate
accounts has just approached you about a one-year loan for $3,000,000. The customer
would pay a quarterly interest expense based on the prevailing level of LIBOR at the
beginning of each quarter. As is the bank’s convention on all such loans, the amount of
the interest payment would then be paid at the end of the quarterly cycle when the new
rate for the next cycle is determined. You observe the following LIBOR yield curve in
the cash market:
Assuming the yields inferred from the Eurodollar futures contract prices for the next
three settlement periods are equal to the implied forward rates, calculate the dollar
value of the annuity that would leave the bank indifferent between making the
floating-rate loan and hedging it in the futures market, and making a one-year fixed-rate
loan.
a. $49,312.36
b. $35,120.62
c. $39,036.45
d. $44,452.36
e. None of the above
12) The practice of comparing the firm to a subset of industry firms comparable in size
or characteristics is referred to as
a. Common size analysis
b. Cross-sectional analysis
c. DuPont analysis
d. Proforma analysis
e. Time-series analysis
13) The growth rate will most likely increase if the:
a. Retention ratio decreases
b. Payout ratio decreases
c. Return on equity decreases
d. Net income increases
e. Both a and c
14) Attribution analysis separates a portfolio manager’s performance into an allocation
effect and selection effect.
15) Risk is defined as the uncertainty of future outcomes.
16) Cash flow from operations = Net Income + Non cash revenue and expenses –
Changes in net working capital.
17) It is easier to construct an indicator series for bonds because of their relatively
stable returns pattern.
18) Style investing involves constructing portfolios in such a way as to capture one or
more of the characteristics of equity securities.