1) a firm has pvgo of 0 and a market capitalization rate of 12%. what is the firm’s p/e
ratio?
a.12
b.8.33
c.10.25
d.18.55
2) a tax free municipal bond provides a yield of 2.34%. what is the equivalent taxable
yield on the bond given a 28% tax bracket?
a.2.34%
b.2.68%
c.3.25%
d.4.92%
3) the correlation coefficient between the u.s. stock market index and stock market
indexes of major countries is __________.
a.between -1 and -.5
b.between -.50 and 0
c.between 0 and .5
d.between .5 and 1
4) a long hedger will __________ from an increase in the basis; a short hedger will
__________.
a.be hurt; be hurt
b.be hurt; profit
c.profit; be hurt
d.profit; profit
5) to _____ means to mitigate a financial risk.
a.invest
b.speculate
c.hedge
d.renege
6) firm a has a stock price of $35, and 60% of the value of the stock is in the form of
pvgo. firm b also has a stock price of $35, but only 20% of the value of stock b is in the
form of pvgo. we know that:
i. stock a will give us a higher return than stock b.
ii. an investment in stock a is probably riskier than an investment in stock b.
iii. stock a has higher forecast earnings growth than stock b.
a.i only
b.i and ii only
c.ii and iii only
d.i, ii, and iii
7) if the risk-free interest rate is rf and equals the fund’s benchmark, the portfolio’s net
asset value is s0, and the hedge fund manager incentive fee is 20% of profit beyond
that, the incentive fee is equivalent to receiving ______ call(s) with exercise price
________.
a..2;s0
b.1;s0(1 + rf)
c.1.2;s0
d..2;s0(1 + rf)
8) when interest rates increase, the duration of a 20-year bond selling at a premium
_________.
a.increases
b.decreases
c.remains the same
d.increases at first and then declines
9) to construct a riskless portfolio using two risky stocks, one would need to find two
stocks with a correlation coefficient of ________.
a.1
b..5
c.0
d.-1
10) the term hedge refers to an investment that is used ________________.
a.primarily for tax-loss selling purposes
b.to mitigate specific financial risks
c.to conceal one’s true investment strategy from other market participants
d.primarily to defer capital losses
11) consider a hedge fund with $200 million at the start of the year. the benchmark s&p
500 index was up 16.5% during the same period. the gross return on assets is 21%, and
the expense ratio is 2%. for each 1% above the benchmark return, the fund managers
receive a .1% incentive bonus.
what was the annual return on this fund?
a.16.5%
b.18.04%
c.18.55%
d.21%
12) just 2 months after you put money into an investment, its price falls 25%. assuming
that none of the investment fundamentals have changed, which of the following actions
would evidence the greatest risk tolerance?
a.you sell to avoid further worry and buy something else.
b.you do nothing and wait for the investment to come back.
c.you buy more, thinking that if it was a good investment before, now it’s not only good
but cheap too.
d.you sue your financial adviser.
13) when matching orders from the public, a specialist is required to use the _______.
a.lowest outstanding bid price and highest outstanding ask price
b.highest outstanding bid price and highest outstanding ask price
c.lowest outstanding bid price and lowest outstanding ask price
d.highest outstanding bid price and lowest outstanding ask price
14) you sell short 200 shares of doggie treats inc. that are currently selling at $25 per
share. you post the 50% margin required on the short sale. if your broker requires a 30%
maintenance margin, at what stock price will you get a margin call? (you earn no
interest on the funds in your margin account, and the firm does not pay any dividends.)
a.$28.85
b.$35.71
c.$31.50
d.$32.25
15) a call option on juniper corp. stock with an exercise price of $75 and an expiration
date 1 year from now is worth $3 today. a put option on juniper corp. stock with an
exercise price of $75 and an expiration date 1 year from now is worth $2.50 today. the
risk-free rate of return is 8%, and juniper corp. pays no dividends. the stock should be
worth __________ today.
a.$69.73
b.$71.69
c.$73.12
d.$77.25
16) you buy a 10-year $1,000 par value 4% annual-payment coupon bond priced to
yield 6%. you do not sell the bond at year-end. if you are in a 15% tax bracket, at
year-end you will owe taxes on this investment equal to _______.
a.$9.10
b.$4.25
c.$7.68
d.$5.20
17) the risk-free rate and the expected market rate of return are 6% and 16%,
respectively. according to the capital asset pricing model, the expected rate of return on
security x with a beta of 1.2 is equal to _________.
a.12%
b.17%
c.18%
d.23%
18)
the figure above depicts a situation where:
a.prices are sticky, but output is flexible.
b.prices are flexible, but output is constant.
c.prices and output are both flexible.
d.prices are sticky, and output is constant.
19) if the direct quote for the exchange rate for the u.s. dollar versus the canadian dollar
is .98, what is the indirect quote?
a.1.98
b.1.02
c..02
d.1.05
20) the price of a stock fluctuates between $43 and $60. if the time frame referenced
encompasses the primary trend, the $43 price may be considered the ___________.
a.intermediate trend level
b.minor trend level
c.resistance level
d.support level