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1) Which of the following assumptions regarding price movements summarized by
Levy (1966) are controversial?
a. Supply and demand determine the market value of any good or service.
b. Supply and demand are governed by numerous rational and irrational factors.
c. The prices for individual securities and the overall value of the market tend to move
in trends.
d. All of the above assumptions are controversial.
e. None of the above assumptions are controversial.
2) Exhibit 25.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for a portfolio manager:
Calculate the percentage return that can be attributed to the asset allocation decision.
a. 0.105%
b. 0.925%
c. 0.20%
d. 0.96%
e. 0.94%
3) Exhibit 16.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A portfolio manager is trying to establish a strategic asset allocation for two different
clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and
Tom Luck has a risk tolerance factor of 6. The characteristics of the three model
portfolios under consideration are provided in the table below.
The expected utilities of Portfolios A, B and C for Bob Bowman are
a. Portfolio A = 9.95, Portfolio B = 7.27, Portfolio C = 4.73
b. Portfolio A = 4.5, Portfolio B = 5.33, Portfolio C = 4.0
c. Portfolio A = 7.95, Portfolio B = 5.33, Portfolio C = 4.73
d. Portfolio A = 3.5, Portfolio B = 7.27, Portfolio C = 4.73
e. Portfolio A = 5.33, Portfolio B = 7.27, Portfolio C = 4.73
4) Which of the following is a management tenet of Warren Buffett?
a. Long term prospects.
b. Resistance to institutional imperative.
c. Creation of one dollar of market value for every dollar retained.
d. Purchase at discount to intrinsic value.
e. Product is not faddish
5) Investment style for a bond portfolio is best characterized by
a. Beta and credit quality
b. Credit quality and duration
c. Interest rate risk and yield to maturity
d. Yield to maturity and beta
e. None of the above
6) Exhibit 22.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
How much must an investor pay for one put option contract?
a. $680
b. $815
c. $340
d. $625
e. $590
7) An individual in the 15% tax bracket has $10,000 invested in a tax-exempt IRA
account. If the individual earns 8% annually before taxes and inflation is 2.5% per year,
what is the real value of the investment in 20 years?
a.$23,211
b.$28,467
c.$29,178
d.$37,276
e.$46,610
8) An estimate of the discounted value of future lease payments can be obtained by:
a. Discounting future lease payments at the firm's cost of debt.
b. Discounting future lease payments at the firm's cost of capital.
c. Applying a multiple to forthcoming minimum lease payments.
d. a or b.
e. a or c.
9) The future value of $50,000 invested today, at the end of 10 years assuming an
interest rate of 7.5% per year, with semiannual compounding, is
a.$104,407.60
b.$103,051.58
c.$123,510.52
d.$210,673.43
e.$105,117.46
10) Exhibit 18.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The
bonds have a 7% coupon rate. Interest is paid annually and the required rate of return is
6 percent for these bonds.
What is the Macaulay duration of the Talmart corporate bonds?
a. 3.43
b. 3.64
c. 3.76
d. 3.85
e. 4.11
11) A bond provision that specifies payments the issuer must make to redeem a given
percentage of the outstanding issue prior to maturity is known as
a.Call provision
b.Indenture
c.Collateralization
d.Sinking fund
e.Collateral trust bond
12) Exhibit 5.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.3. Calculate the average annual rate of change for GB Industries for
the 5 year period using the geometric mean.
a.9.7800%
b.0.0978%
c.9.0700%
d.0.0970%
e.3.6400%
13) An investor focusing on a growth strategy does all of the following except
a. Focuses on the earnings per share (EPS) component on the P/E ratio.
b. Seek out investments with higher expected growth in earnings.
c. Implicitly assume that the P/E ratio will grow over the near term.
d. Focuses on the current and future economic 'story" of a company.
e. All of the above statements are true.
14) High-yield bonds are considered "investment" grade.
15) The dividend discount model (DDM) can be used to value preferred stock by
simply using a growth rate of zero in the DDM model.
16) The Capital Market Line (CML) refers only to those portfolios that lie on the line
segment that extends from the risk-free asset to the point of tangency on the efficient
frontier known as the market portfolio.
17) In index options, the aggregate market takes the place of the individual stock issues
being traded, as in stock options.
18) Diffusion indexes indicate the spread in interest rates between major economies.
19) When considering markets in Europe, it is inappropriate to assume a level of
efficiency similar to that for U.S. markets.
20) Informational efficiency is where the cost of acquiring information is very cheap.
21) An overvalued stock is a non-growth stock.
