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1) The original maturity of a United States Treasury bill is
a.Zero years to five years.
b.Six months to ten years.
c.One year or less.
d.One year to ten years.
e.Over ten years.
2) The term dedication, used to describe portfolio management techniques, is referring
to servicing a prescribed set of
a. Interest payments.
b. Assets.
c. Liabilities.
d. Pensioners.
e. Sinking fund payments.
3) Studies of correlations among monthly U.S. bond price index returns have found:
a.Low correlations between investment grade bonds and high yield bonds
b.High correlations between investment grade bonds and high yield bonds
c.Low correlations between various investment grade bond indexes
d.Negative correlations between investment grade bonds and high yield bonds
e.None of the above
4) Toward the end of a recession,
a. Financial stocks rise on expectations of increases in loan demand, housing
constructions and security offerings.
b. Consumer durable stocks rise on expectations of rising consumer confidence and
personal income.
c. Capital goods stocks rise on expectation of increases in business capital spending.
d. Basic materials stocks rise on expectation of rising profit margins.
e. Consumer staple stocks rise on expectations that consumers will continue to spend on
necessities.
5) The expected return for a stock, calculated using the CAPM, is 25%. The risk free
rate is 7.5% and the beta of the stock is 0.80. Calculate the implied return on the
market.
a. 7.50%
b. 13.91%
c. 17.50%
d. 21.88%
e. 14.38%
6) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2004. Assume a
base index value of 100. The base year is Dec 31, 2003.
a.121.25
b.100.0
c.81.69
d.72.5
e.120.0
7) You own a stock that has risen from $10 per share to $32 per share. You wish to
delay taking the profit but you are troubled about the short run behavior of the stock
market. An effective action on your part would be to
a. Buy a put option on the stock.
b. Write a call option on the stock.
c. Purchase an index option.
d. Utilize a bearish spread.
e. Utilize a bullish spread.
8) Exhibit 18.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A $1000 par value bond with 5 years to maturity and a 6% coupon has a yield to
maturity of 8%. Interest is paid semiannually.
Calculate the modified duration for the bond.
a. 4.19 years
b. 4.36 years
c. 8.72 years
d. 8.38 years
e. 9.52 years
9) Holding a put option and the underlying security at the same time is an example of
a. Collar
b. Straddle
c. Income generation
d. Portfolio insurance
e. None of the above
10) A growth company may exist for all of the following reasons except
a. The company holds patents.
b. The company possess unique distribution or marketing strategies.
c. The company is in a competitive environment.
d. Significant barriers to entry exist.
e. All of the above are reasons a growth company may exist.
11) The current outlay of money to guard against a potentially large future loss is
commonly known as
a.Asset management.
b.Portfolio management.
c.Minimizing risk.
d.Loss control.
e.Insurance.
12) Exhibit 8.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.1. Compute the correlation coefficient between RA Computer and the
Market Index.
a. -0.32
b. 0.78
c. 0.66
d. 0.58
e. 0.32
13) Exhibit 12.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information that you propose to use to obtain an estimate of
year 2004 EPS for the MacLog Company.
In addition a regression analysis indicates the following relationship between growth in
sales per share for MacLog and GDP growth is
Calculate the per share interest rate charge for the year 2004.
a. $18.74
b. $14.72
c. $30.07
d. $13.76
e. $28.59
14) Peter Lynch identified a number of attributes of firms that may result in favorable
stock market performances, including
a. Products that are faddish, people like change.
b. Firms that have competitive advantages over their rivals.
c. Firms that can benefit from cost reductions.
d. Choices b and c only
e. All of the above
15) Which of the following statements regarding 130/30 strategies is false?
a. Analyst can make full use of their knowledge of undervalued and overvalued stocks.
b. Long positions up to 130% of the value of the portfolio cab be made.
c. Short positions up to 30% of the value of the portfolio can be made.
d. 130/30 strategies are not very popular due to the increased risk of hedging.
e. The use of short positions creates leverage.
16) Experts suggest life insurance coverage should be seven to ten times an individual's
annual salary.
17) A manager following an interest rate anticipation strategy would shorten portfolio
duration if interest rates were expected to increase.
18) An aggregate market index can be used as a benchmark to judge the performance of
professional money managers.
19) The fact that all firms in an industry do not move together negates the value of
industry analysis.
20) Futures contracts are slower to absorb new information than forward contracts.
21) The total domestic return on German bonds is the return that would be experienced
by an U.S. investor who owned German bonds.
22) If you have entered into a currency futures hedge for the Japanese yen in connection
with buying Japanese equipment, if the yen goes from 110 yen/$1 to 100 yen/$1, you
will lose in the spot market but have an offsetting gain in the futures market.
23) A main limitation of the NBER indicator series is false signals.
24) In valuation analysis, undervalued bonds are bonds where the expected YTMs are
lower than the prevailing YTM.
