1) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2003, after the
splits. Assume a base index value of 100. The base year is Dec 31, 2003.
a.72.5
b.81.69
c.100.0
d.120.0
e.121.25
2) The variance of returns for a risky asset is 25%. The variance of the error term,
Var(e), is 8%. What portion of the total risk of the asset, as measured by variance, is
systematic?
a. 32%
b. 8%
c. 68%
d. 25%
e. 75%
3) When a market is externally efficient, it means that
a.Timely and accurate information is available
b.The market is liquid
c.Transaction costs are low
d.Prices adjust rapidly to new information
e.The number of buyers and sellers are the same
4) Jensen, Johnson, and Mercer showed that the relationship between stock returns and
size and price-to-book ratio holds in periods when monetary policy is
a. Neutral.
b. Tight.
c. Easy.
d. All of the above.
e. None of the above.
5) 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 during period t
using only the aggregate market return (ignore differential systematic risk)?
a.3.40
b.4.40
c.-1.86
d.-4.40
e.-1.70
6) According to the segmented-market hypothesis a rising yield curve indicates that
a. demand for long term bonds has fallen and demand for short term bonds has fallen.
b. demand for long term bonds has risen and demand for short term bonds has fallen.
c. demand for long term bonds has fallen and demand for short term bonds has risen.
d. demand for long term bonds has risen and demand for short term bonds has risen.
e. none of the above.
7) A security that has a coupon that is periodically adjusted is a(n)
a. Variable note.
b. Variation note.
c. Adjustable coupon note.
d. Money market certificate.
e. Deep discount bond.
8) In an event study the objective is to
a.Determine whether it is possible to predict stock prices.
b.Determine how fast stock prices adjust to news.
c.Examine the cross-sectional distributions of returns.
d.Conduct a time series analysis of returns.
e.Determine normal P/E ratios.
9) The relative strength index for a stock is equal to the price of the stock
a. Divided by the value of a stock-market index.
b. Multiplied by the value of a stock-market index.
c. Divided by the value of a group of industry stocks.
d. Multiplied by an industry peer group and divided by a market index.
e. Divided by the 30 day moving average of prior stock movements.
10) In 2004, Swisten Inc. issued a $150 par value preferred stock that pays an 8 percent
annual dividend. Due to changes in the overall economy and in the company’s financial
condition investors are now requiring an 15 percent return. What price would you be
willing to pay for a share of the preferred if you receive your first dividend one year
from now?
a. $80
b. $75
c. $59
d. $95
e. $110
11) Exhibit 13.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2004 the Office Equipment Industry had free cash flow to equity
(FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected:
From year 2013 onward growth in FCFE is expected to remain constant at 5% per year.
The industry has a beta of 0.90 and the current industry price is $105. Currently the
yield on 10-year Treasury notes is 5% and the equity risk premium is 4%
Calculate the intrinsic value of the industry now (Year 2004).
a. $155
b. $143.52
c. $177.79
d. $135.77
e. $162.34
12) The owner of a call option on a futures contract has the obligation to buy the futures
contract at a predetermined strike price during a specified time period.
13) The NYSE is a dealer market.
14) “Downsizing” of corporate America in the 1990s is an example of structural change.
15) An undervalued stock is a growth stock.
16) Financial Accounting Standards Board (FASB) recognizes that it would be
improper for all companies to use identical and restrictive accounting principles.
17) In his original article, Fama divided the efficient market hypothesis into two
subhypotheses.
18) An interest rate collar is a combination of a long position in either a cap or floor
with a short position in the other.