1) the ________ is equal to the square root of the systematic variance divided by the
total variance.
a.covariance
b.correlation coefficient
c.standard deviation
d.reward-to-variability ratio
2) deposits of commercial banks at the federal reserve are called _____.
a.bankers’ acceptances
b.federal funds
c.repurchase agreements
d.time deposits
3) the highest possible value for the interest-burden ratio is ______, and this occurs
when the firm _________.
a.0; uses as much debt as possible
b.1; uses debt to the point where roa = interest cost of debt
c.1; uses no interest-bearing debt
d.-1; pays down its existing debts
4) which one of the following is not a u.s. supply shock?
a.unions force an increase in national wage rates.
b.the oil supply from the middle east drops 30%.
c.extended droughts reduce u.s. food production 25%.
d.chinese purchases of u.s. exports increase.
5) you sell one hewlett packard august 50 call contract and sell one hewlett packard
august 50 put contract. the call premium is $1.25 and the put premium is $4.50. your
strategy will pay off only if the stock price is __________ in august.
a.either lower than $44.25 or higher than $55.75
b.between $44.25 and $55.75
c.higher than $55.75
d.lower than $44.25
6) according to technical analysts, a shift in market fundamentals will __________.
a.be reflected in stock prices immediately
b.lead to a gradual price change that can be recognized as a trend
c.lead to high volatility in stock market prices
d.leave prices unchanged
7) synthetic stock positions are commonly used by ______ because of their ______.
a.market timers; lower transaction cost
b.banks; lower risk
c.wealthy investors; tax treatment
d.money market funds; limited exposure
8) according to historical data, over the long run which of the following assets has the
best chance to provide the best after-inflation, after-tax rate of return?
a.long-term treasury bonds
b.corporate bonds
c.common stocks
d.preferred stocks
9) net worth represents _____ of the liabilities and net worth of commercial banks.
a.about 51%
b.about 91%
c.about 11%
d.about 31%
10) fundamental analysis determines that the price of a firm’s stock is too low, given its
intrinsic value. the information used in the analysis is available to all market
participants, yet the price does not seem to react. the stock does not trade on a major
exchange. what concept might explain the ability to produce excess returns on this
stock?
a.january effect
b.neglected-firm effect
c.p/e effect
d.reversal effect
11) a portfolio generates an annual return of 16%, a beta of 1.2, and a standard
deviation of 19%. the market index return is 12% and has a standard deviation of 16%.
what is the treynor measure of the portfolio if the risk-free rate is 6%?
a..0833
b..1083
c..1114
d..1163
12) a mortgage bond is _______.
a.secured by other securities held by the firm
b.secured by equipment owned by the firm
c.secured by property owned by the firm
d.unsecured
13) inflation has an adverse effect on your savings because:
i. it erodes the purchasing power of the dollars you have saved.
ii. it increases the real rate of return on the dollars you save.
iii. unless sheltered, it increases the taxes owed on investment income.
a.i only
b.ii and iii only
c.i and iii only
d.i, ii, and iii
14) you are convinced that a stock’s price will move by at least 15% over the next 3
months. you are not sure which way the price will move, but you believe that the results
of a patent hearing are definitely going to have a major effect on the stock price. you are
somewhat more bullish than bearish however. which one of the following options
strategies best fits this scenario?
a.buy a strip.
b.buy a strap.
c.buy a straddle.
d.write a straddle.
15) approximately how many securities does it take to diversify almost all of the unique
risk from a portfolio?
a.2
b.6
c.8
d.20
16) consider the following two investment alternatives: first, a risky portfolio that pays
a 15% rate of return with a probability of 40% or a 5% rate of return with a probability
of 60%. second, a treasury bill that pays 6%. the risk premium on the risky investment
is _________.
a.1%
b.3%
c.6%
d.9%
17) the student loan marketing association (slma) has short-term student loans funded
by long-term debt. to hedge out this interest rate risk, slma could:
i. engage in a swap to pay fixed and receive variable interest payments
ii. engage in a swap to pay variable and receive fixed interest payments
iii. buy t-bond futures
iv. sell t-bond futures
a.i and ii only
b.i and iv only
c.ii and iii only
d.ii and iv only
18) according to the capm, investors are compensated for all but which of the
following?
a.expected inflation
b.systematic risk
c.time value of money
d.residual risk
19) fundamental analysis is likely to yield best results for _______.
a.nyse stocks
b.neglected stocks
c.stocks that are frequently in the news
d.fast-growing companies
20) small firms have tended to earn abnormal returns primarily in __________.
a.the month of january
b.the month july
c.the trough of the business cycle
d.the peak of the business cycle