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1) 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:
If 90-day LIBOR rises to the levels "predicted" by the implied forward rates, what will
the dollar level of the bank's interest receipt be at the end of the fourth quarter?
a. $36,223.50
b. $40,500.00
c. $38,250.00
d. $36,375.00
e. None of the above
2) Technical analysis differs from fundamental analysis in that
a. Technical analysts contend that in-depth assessments of basic aggregate market,
industry, and company performance is necessary; past price movements indicate future
price movements.
b. Technical analysts believe the market value of common stocks is determined by the
interaction of supply and demand.
c. Technical analysts argue that the market constantly weighs rational and irrational
factors and that both of these affect price.
d. Technical analysts depend far more heavily on objective, data-based approaches than
the fundamentalists do.
e. Technical analysts hold that the price of a security is determined by an expected
return risk.
3) According to the liquidity preference hypothesis yield curves generally slope upward
because
a. investors prefer short maturity obligations to long maturity obligations.
b. investors prefer long maturity obligations to short maturity obligations.
c. investors prefer less volatile long maturity obligations.
d. investors prefer more volatile short maturity obligations.
e. none of the above.
4) ____ phase is the stage when investors in their early-to-middle earning years attempt
to accumulate assets to satisfy near-term needs, e.g., children's education or down
payment on a home.
a.Accumulation
b.Spending
c.Gifting
d.Consolidation
e.Divestiture
5) A bond portfolio manager expects a cash outflow of $35,000,000. The manager plans
to hedge potential risk with a Treasury futures contract with a value of $105,215. The
conversion factor between the CTD and the bond specified in the Treasury futures
contract is 0.85. The duration of bond portfolio is 8 years, and the duration of the CTD
bond is 6.5 years. Indicate the number of contracts required and whether the position to
be taken is short or long.
a. 333 contracts short
b. 333 contracts long
c. 348 contract short
d. 348 contracts long
e. None of the above
6) The table below provides returns on a portfolio along with returns for the
corresponding benchmark index for the past eight quarters. The table also provides the
difference between portfolio returns and the benchmark index, the average of these
differences over the past eight quarters and the standard deviation of these differences.
The annualized tracking error for this period is
a. 2.36%
b. 4.08%
c. 2.89%
d. 3.33%
e. 1.18%
7) A 12-year, 8 percent bond with a YTM of 12 percent has a Macaulay duration of 9.5
years. If interest rates decline by 50 basis points, what will be the percent change in
price for this bond?
a. +4.48%
b. +4.61%
c. +8.48%
d. +8.96%
e. +17.92%
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 protective put position be if the stock price at expiration
is $35?
a. $3.10
b. $30.15
c. $32.10
d. $34.05
e. $35.00
9) Of the following indices, which includes the most comprehensive list of stocks?
a.New York Exchange Index
b.Standard and Poor's Index
c.American Stock Exchange Index
d.NASDAQ Series Index
e.Wilshire Equity Index
10) If statistical tests of stock returns over time support the efficient market hypothesis
the resulting correlations should be
a.Positive.
b.Negative.
c.Zero.
d.Lagged.
e.Skewed.
11) Soft dollars are generated when
a. A manager commits to paying a higher than normal brokerage fee in exchange for
additional bundled services.
b. A manager commits to paying a higher than normal brokerage fee in exchange for
secretarial services.
c. A manager commits to paying a higher than normal brokerage fee in exchange for
office equipment.
d. All of the above.
e. None of the above.
12) On January 2, 2003, you invest $100,000 in Righteous, a load fund that charges a
fee of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in 2005. On
December 31, 2005 you redeem all your Righteous shares. The dollar value is
a. $12,800.00
b. $12,892.50
c. $100,000.00
d. $128,925.00
e. $10,000.00
13) A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%.
Assuming the returns are normally distributed what is the range of returns that an
investor would expect to receive 90% of the time?
a.12.8% to 20.6%
b.-10.6% to 36.2%
c.-2.8% to 28.4%
d.-12.8% to 20.6%
e.10.6% to 36.2%
14) Exhibit 25.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The portfolios identified below are being considered for investment. During the period
under consideration Rf= .03.
According to the Treynor Measure, which portfolio performed best?
a. A
b. B
c. C
d. D
e. Two portfolios are tied
15) Exhibit 23.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
TexMex Corporation has decided to borrow $50,000,000 for six months in two
three-month issues. The corporation is concerned that interest rates will rise over the
next three months. Thus, the corporation purchases a 3 - 6 FRA whereby the
corporation pays the dealer's quoted fixed rate of 3.5% in exchange for receiving
3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys
LIBOR from Newport Inc. at its bid rate of 3%. The notional principal is $50,000,000
and that there are 60 days between month 3 and month 6.
Suppose that 3-month LIBOR is 4.00% on the rate determination day, and the contract
specified settlement in advance, describe the transaction that occurs between the dealer
and Newport.
a. The dealer is obligated to pay Newport $123,762.
b. The dealer is obligated to pay Newport $125,000.
c. Newport is obligated to pay the dealer $125,000.
d. Newport is obligated to pay the dealer $123,762.
e. None of the above
16) Which of the following statements about investment style is false?
a. Growth stocks generally have smaller capitalizations than value stocks.
b. Value stocks have P/E and P/B ratios significantly lower than those of growth stocks.
c. Value stocks dividend yields are much higher than those of growth stocks.
d. Growth and levels of earnings is higher in growth stocks.
e. Value stocks have a higher risk premium.
17) Exhibit 21.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $10,000,000 equity portfolio under management.
The manager wishes to hedge against a decline in share values using stock index
futures. Currently a stock index future is priced at 1350 and has a multiplier of 250. The
portfolio beta is 1.50.
Assume that a month later the equity portfolio has a market value of $9,500,000 and the
stock index future is priced at 1300 with a multiplier of 250. Calculate the profit on the
equity position.
a. $100,000
b. $200,000
c. -$200,000
d. -$500,000
e. -$600,000
