1) an investor can earn a 6% nominal rate of return, but inflation is expected to be 3%.
if the individual invests $2,000 per year for 20 years, the real future value of this
investment is ________. (all investments occur at year-end).
a.$73,571
b.$66,334
c.$53,251
d.$48,732
2) the ratio of trading activity of a portfolio to the assets of the portfolio is called the
____________.
a.reinvestment ratio
b.trading rate
c.portfolio turnover
d.tax yield
3) you have a 15-year maturity, 4% coupon, 6% yield bond with duration of 10.5 years
and a convexity of 128.75. the bond is currently priced at $805.76. if the interest rate
were to increase 200 basis points, your predicted new price for the bond (including
convexity) is _________.
a.$638.85
b.$642.54
c.$666.88
d.$705.03
4) you invest in the stock of valleyview corp. and purchase a put option on valleyview
corp. this strategy is called a _________.
a.long straddle
b.naked put
c.protective put
d.short stroll
5) in 1997 csx successfully purchased a significant share of conrail. immediately after
the first offer was announced and the acquisition eventually consummated, the price of
csx fell below preacquisition levels and took many years to recover. this may be an
example of ________________.
a.loss aversion
b.mental accounting
c.overreaction
d.managerial overconfidence
6) you are looking to invest in one of three stocks. all other things being equal, stock a
has high expected earnings growth, stock b has only modest expected earnings growth,
and stock c is expected to generate poor earnings growth. according to laporta’s 1996
study, which stock is likely to generate the greatest alpha for you?
a.stock a
b.stock b
c.stock c
d.the answer cannot be determined from the information given.
7) you are an investment manager who is currently managing assets worth $6 billion.
you believe that active management of your fund could generate an additional one-tenth
of 1% return on the portfolio. if you want to make sure your active strategy adds value,
how much can you spend on security analysis?
a.$12,000,000
b.$6,000,000
c.$3,000,000
d.$0
8) the four-factor model used to construct performance benchmarks for mutual funds
uses the three fama and french factors and one additional factor related to _________.
a.the tenure of the fund manager
b.momentum
c.fees
d.the age of the fund manager
9) what would you expect to have happened to the spread between yields on
commercial paper and treasury bills immediately after september 11, 2001?
a.no change, as both yields will remain the same
b.increase, as the spread usually increases in response to a crisis
c.decrease, as the spread usually decreases in response to a crisis
d.no change, as both yields will move in the same direction
10) you are considering adding a new security to your portfolio. to decide whether you
should add the security, you need to know the security’s:
i. expected return
ii. standard deviation
iii. correlation with your portfolio
a.i only
b.i and ii only
c.i and iii only
d.i, ii, and iii
11) building a zero-investment portfolio will always involve _____________.
a.an unknown mixture of short and long positions
b.only short positions
c.only long positions
d.equal investments in a short and a long position
12) active portfolio management consists of:
i. market timing
ii. security selection
iii. sector selection within given markets
iv. indexing
a.i and ii only
b.ii and iii only
c.i, ii, and iii only
d.i, ii, iii, and iv
13) the employees of a firm complain that they cannot afford to contribute $8,000 per
year to a 401k because of the loss of $8,000 of take-home pay. in fact, how much will
the take-home pay be reduced if all taxes combined total 33%?
a.$5,360
b.$6,340
c.$7,637
d.$8,000
14) which of the following assets is most liquid?
a.cash equivalents
b.receivables
c.inventories
d.plant and equipment
15) the firm’s leverage ratio is 1.2, interest-burden ratio is .81, and profit margin is .24,
and its asset turnover is 1.25. what is the firm’s roa?
a..25
b..3
c..335
d..372
16) westsyde tool company is expected to pay a dividend of $1.50 in the upcoming
year. the risk-free rate of return is 6%, and the expected return on the market portfolio is
14%. analysts expect the price of westsyde tool company shares to be $29 a year from
now. the beta of westsyde tool company’s stock is 1.2. using the capm, an appropriate
required return on westsyde tool company’s stock is _________.
a.8%
b.10.8%
c.15.6%
d.16.8%
17) when a company sets up a defined contribution pension plan, the __________ bears
all the risk and the __________ receives all the return from the plan’s assets.
a.employee; employee
b.employee; employer
c.employer; employee
d.employer; employer
18) you have the following rates of return for a risky portfolio for several recent years.
assume that the stock pays no dividends.
what is the dollar-weighted return over the entire time period?
a.2.87%
b..74%
c.2.6%
d.2.21%