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1) Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and
you expect the fund to earn 14% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 9% and charges a 1/2 percent
redemption fee. Which is better and by how much?
a. Funds are equal
b. Load fund by $32.65
c. Load fund by $50.55
d. No-load fund by $64.55
e. No-load fund by $44.30
2) The expected rate of return on Rooter Industries is 1.5 times the 16 percent expected
rate of return from the market. What is Research's beta if the risk free rate is 8 percent?
a. 2
b. 3
c. 4
d. 5
e. 6
3) Calculate the yield to maturity of a zero coupon bond with a face value of $1000,
maturing in 15 years and selling for a price of $525.75.
a. 5.62%
b. 4.38%
c. 8.74%
d. 15.26%
e. 16.27%
4) According to Dow Theory, a major market
a. Advance has few price fluctuations indicate a new upward trend.
b. Advance does not go straight up, because some investors will take profits.
c. Decline is easier to predict than an advance.
d. Decline typically has a higher level of volume than a major market advance.
e. Both a and d.
5) Exhibit 9.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
In the list above which are assumptions of the Arbitrage Pricing Model?
a. (1) and (4)
b. (1), (2), and (3)
c. (1), (3), and (5)
d. (2), (3), (4), and (6)
e. All six are assumptions
6) The price paid for the option contract is referred to as the
a. Forward price.
b. Exercise price.
c. Striking price.
d. Option premium.
e. Call price.
7) Porter contends that ____ and ____ are two important competitive strategies.
a. Low cost leadership, barrier to entry
b. New entrant deterrent, differentiation
c. Low cost leadership, differentiation
d. Differentiation, monopolistic
e. Monopolistic simulation, differentiation
8) Consider the Compliance Bond Fund that consists of the 7 bonds shown below and
has no liabilities.
If initially the value of the fund was $2,500,000 and the original shares were offered to
the public with a NAV of $25 per share, what is the current NAV of the fund?
a. $27.11
b. $25.00
c. $26.11
d. $21.67
e. $26.27
9) In the Black-Scholes model N(d1) represents the
a. Hedge ratio.
b. Partial derivative of the call's value with respect to the stock price.
c. Change in the option's value given a one dollar change in the underlying security's
price.
d. Option's delta.
e. All of the above.
10) The following is an example of a fundamental active equity portfolio management
strategy.
a. Contrarian investing.
b. Earnings momentum investing.
c. Low P/E and low P/BV investing.
d. Bottom up investing.
e. Investing on the basis of calendar effects.
11) On January 2, 2003, you invest $100,000 in the Jeffers Mutual Fund, a load fund
that charges a fee of 5%. The fund's returns were -14.6% in 2003, -6.4% in 2004, 35%
in 2005. On December 31, 2005 you redeem all your shares. The dollar value is:
a. $95,600.57
b. $102,515.90
c. $83,297.75
d. $133,995.75
e. $100,000.00
12) Which of the following is not considered to be an investment objective?
a.Capital preservation
b.Capital appreciation
c.Current income
d.Total return
e.None of the above (that is, all are considered investment objectives)
13) Exhibit 8.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.3. What is the beta for Radtron using the proxy index?
a. 0.87
b. 0.97
c. 1.02
d. 1.15
e. 1.28
14)
Refer to Exhibit 7.2. What is the standard deviation of this portfolio?
a. 5.45%
b. 18.64%
c. 20.0%
d. 22.5%
e. 13.65%
15) Which of the following factors influence an investor's required rate of return?
a. The economy's real risk-free rate (RFR)
b. The expected rate of inflation (I)
c. A risk premium
d. All of the above
e. None of the above
16) Exhibit 19.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold
a 25 year, Aa 10 percent coupon bond priced to yield 12 percent. As a swap candidate
you are considering a 25 year, Aa 10 percent coupon bond priced to yield 13 percent.
Assume a reinvestment rate of 12 percent, semiannual compounding, and a one-year
workout period.
The value of the swap is ____ basis points in one year.
a. 94.14
b. 0.9414
c. 9.414
d. 941.4
e. 0.09414
17) Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF)
of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000.
The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year.
The stock has a beta of 1.1 and the current market price is $80. Currently the yield on
10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise
debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and
the proportion of debt is 45%.
Calculate the present value now (Year 2010) of OFCF during the period of declining
growth (that is for years 2011 to 2014).
a. $1,044,612
b. $1,554,823
c. $1,898,096
d. $1,327,547
e. $1,579,326
18) Which of the following strategies seeks to increase the portfolio value by
reinvesting current income in addition to capital gains?
a.Capital appreciation
b.Capital preservation
c.Return preservation
d.Current income
e.Total return
19) The purpose of calculating the covariance between two stocks is to provide a(n)
____ measure of their movement together.
a. Absolute
b. Relative
c. Indexed
d. Loglinear
e. Squared
20) The only way to estimate a beta for a security is to calculate the covariance of the
security with the market.
21) In the cost of carry model the inclusion of storage costs will increase the futures
price.
22) A pure yield pickup swap involves a switch from a low-coupon bond to a
higher-coupon bond of similar quality and maturity.
23) A basic assumption of the Markowitz model is that investors base decisions solely
on expected return and risk.
24) An option buyer must exercise the option on or before the expiration date.
25) The random walk hypothesis contends that stock prices occur randomly.
26) The general economic influences would include inflation, political upheavals,
monetary policy, and fiscal policy initiatives.
27) Assuming the U.S. dollar is strong relative to the Euro, it will be easier for the U.S.
paper industry to export to Germany.
