Holding other factors constant, which one of the following bonds has the smallest price
volatility?
A. 5-year, 0% coupon bond
B. 5-year, 12% coupon bond
C. 5 year, 14% coupon bond
D. 5-year, 10% coupon bond
E. Cannot tell from the information given
The risk that can be diversified away is
A. firm-specific risk.
B. beta.
C. systematic risk.
D. market risk.
In a particular year, Razorback Mutual Fund earned a return of 1% by making the
following investments in asset classes:
The return on a bogey portfolio was 2%, calculated from the following information.
The contribution of selection within markets to the Razorback Fund’s total excess return
was
A. –1.80%.
B. –1.00%.
C. 0.80%.
D. 1.00%.
A top-down analysis of a firm’s prospects starts with
A. an examination of the firm’s industry.
B. an evaluation of the firm’s position within its industry.
C. a forecast of interest-rate movements.
D.-an assessment of the broad economic environment.
E. the application of the CAPM to find the firm’s theoretical return.
Ceteris paribus, the duration of a bond is negatively correlated with the bond’s
A. time to maturity.
B. coupon rate.
C. yield to maturity.
D. coupon rate and yield to maturity.
E. None of the options are correct.
A put option is currently selling for $6 with an exercise price of $50. If the hedge ratio
for the put is 0.30, and the stock is currently selling for $46, what is the elasticity of the
put?
A. 2.76
B. 2.30
C. −7.67
D. −2.76
E. −2.30
The process of estimating the dividends and earnings that can be expected from the firm
based on determinants of value is called
A. business-cycle forecasting.
B. macroeconomic forecasting.
C. technical analysis.
D.-fundamental analysis.
E. None of the options are correct.
The idea that there is a limit to the reduction of portfolio risk due to diversification is
A. contradicted by both the CAPM and the single-index model.
B. contradicted by the CAPM.
C. contradicted by the single-index model.
D. supported in theory, but not supported empirically.
E. supported both in theory and by empirical evidence.
The trading of stock that was previously issued takes place
A. in the secondary market.
B. in the primary market.
C. usually with the assistance of an investment banker.
D. in the secondary and primary markets.
QQAG just announced yesterday that its fourth quarter earnings will be 35% higher
than last year’s fourth quarter. You observe that QQAG had an abnormal return of 1.7%
yesterday. This suggests that
A. the market is not efficient.
B. QQAG stock will probably rise in value tomorrow.
C. investors expected the earnings increase to be larger than what was actually
announced.
D. investors expected the earnings increase to be smaller than what was actually
announced.
E. earnings are expected to decrease next quarter.
Suppose you purchase one WFM May 100 call contract at $5 and write one WFM May
105 call contract at $2. If, at expiration, the price of a share of WFM stock is $103, your
profit would be
A. $500.
B. $300.
C.zero.
D. $200.
Jaffe (1974) found that stock prices _________ after insiders intensively sold shares.
A. decreased
B. did not change
C. increased
D. became extremely volatile
E. became much less volatile
There are three stocks: A, B, and C. You can either invest in these stocks or short sell
them. There are three possible states of nature for economic growth in the upcoming
year (each equally likely to occur); economic growth may be strong, moderate, or weak.
The returns for the upcoming year on stocks A, B, and C for each of these states of
nature are given below:
If you invested in an equally-weighted portfolio of stocks A and B, your portfolio return
would be ___________ if economic growth were moderate.
A. 3.0%
B. 14.5%
C. 15.5%
D. 16.0%
The following data are available relating to the performance of Wildcat Fund and the
market portfolio:
The risk-free return during the sample period was 7%.
Calculate Jensen’s measure of performance for Wildcat Fund.
A. 1.00%
B. 8.80%
C. 44.00%
D. 50.00%
If the interest rate on debt is higher than ROA, a firm will __________ by increasing
the use of debt in the capital structure.
A. increase the ROE
B. not change the ROE
C. decrease the ROE
D. change the ROE in an indeterminable manner
The following data are available relating to the performance of Sooner Stock Fund and
the market portfolio:
The risk-free return during the sample period was 3%.
Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.
A. 2.6%
B. 4.00%
C. 8.67%
D. 31.43%
E. 37.14%
The North American Industry Classification System (NAICS) codes
A. are for firms that operate in the NAFTA region.
B. group firms by industry.
C. are a perfect classification system for firms.
D.-are for firms that operate in the NAFTA region and group firms by industry.
E. are for firms that operate in the NAFTA region and are a perfect classification system
for firms.
Petkova and Zhang (2005) examine the relationship between beta and the market risk
premium and find
A. a countercyclical beta is negative in good economies and positive in bad economies.
B. the beta of the HML portfolio is negative in good economies and positive in bad
economies.
C. a cyclical beta is positive in good economies and negative in bad economies.
D. the beta of the HML portfolio is positive in good economies and negative in bad
economies.
E. a countercyclical beta and the beta of the HML portfolio are negative in good
economies and positive in bad economies.
The main difference between the three forms of market efficiency is that
A. the definition of efficiency differs.
B. the definition of excess return differs.
C. the definition of prices differs.
D. the definition of information differs.
E. they were discovered by different people.
You have just purchased a 12-year zero-coupon bond with a yield to maturity of 9% and
a par value of $1,000. What would your rate of return at the end of the year be if you
sell the bond? Assume the yield to maturity on the bond is 10% at the time you sell.
A. 10.00%
B. 20.42%
C. -1.4%
D. 1.4%
Mortgage-backed CDOs were a disaster in 2007 because
A. they were formed by pooling high quality fixed-rate loans with low interest rates.
B. they were formed by pooling subprime mortgages.
C. home prices stalled.
D. the mortgages were variable rate loans, and interest rates increased.
E. they were formed by pooling subprime mortgages, home prices stalled, the
mortgages were variable rate loans, and interest rates increased.
Suppose you forecast that the market index will earn a return of 15% in the coming
year. Treasury bills are yielding 6%. The unadjusted β of Mobil stock is 1.30. A
reasonable forecast of the return on Mobil stock for the coming year is _________ if
you use a common method to derive adjusted betas.
A. 15.0%
B. 15.5%
C. 16.0%
D. 16.8%
Suppose that the risk-free rates in the United States and in the United Kingdom are 5%
and 4%, respectively. The spot exchange rate between the dollar and the pound is
$1.80/BP. What should the futures price of the pound for a one-year contract be to
prevent arbitrage opportunities, ignoring transactions costs?
A. $1.62/BP
B. $1.72/BP
C. $1.82/BP
D. $1.92/BP
The intercept in the regression equations calculated by beta books is equal to
A. α in the CAPM.
B. α + rf(1 + β).
C. α + rf(1 – β).
D. 1 – α.
The first major step in asset allocation is
A. assessing risk tolerance.
B. analyzing financial statements.
C. estimating security betas.
D. identifying market anomalies.
Which of the following is not an advantage of owning mutual funds?
A. They offer a variety of investment styles.
B. They offer small investors the benefits of diversification.
C. They treat income as “passed through” to the investor for tax purposes.
D. All of the options are advantages of mutual funds.
E. None of the options are an advantage of mutual funds.
__________ argued in his famous critique that tests of the expected return/beta
relationship are invalid and that it is doubtful that the CAPM can ever be tested.
A. Kim
B. Markowitz
C. Modigliani
D. Roll
E. None of the options are correct.
_________ above which it is difficult for the market to rise.
A. A book value is a value
B. A resistance level is a value
C. A support level is a value
D. A book value and a resistance level are values
E. A book value and a support level are values
Which of the following statements regarding risk-averse investors is true?
A. They only care about the rate of return.
B. They accept investments that are fair games.
C. They only accept risky investments that offer risk premiums over the risk-free rate.
D. They are willing to accept lower returns and high risk.
E. They only care about the rate of return, and they accept investments that are fair
games.