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1) A one year call option has a strike price of 50, expires in 6 months, and has a price of
$4.74. If the risk free rate is 3%, and the current stock price is $45, what should the
corresponding put be worth?
a. $12.74
b. $10.48
c. $5.00
d. $9.00
e. $8.30
2) Treasury bonds which can be purchased at a discount to be used at par to pay estate
taxes are called
a. Estate bonds.
b. Flower bonds.
c. Municipal bonds.
d. Probate bonds.
e. Survivor bonds.
3) What variables impact the Price/Sales ratio?
a. Sales growth rate, volatility of sales growth, profit margin
b. Earnings growth rate, volatility of sales growth, profit margin
c. Earnings growth rate, volatility of sales growth, operating margin
d. Sales growth rate, volatility of sales growth, operating margin
e. Sales growth rate, volatility of profit margin, profit margin
4)
Refer to Exhibit 7.11. Calculate the expected return of the two stock portfolio.
a. 0.107
b. 0.1367
c. 0.1169
d. 0.1872
e. 0.20
5) A portfolio manager has the following sequence of cash flows over a two year
period:
Calculate the portfolio manager's time weighted return.
a. 13.56%
b. 11.48%
c. 15.50%
d. 8.75%
e. 10.67%
6) Consider a stock that is currently trading at $45. Calculate the intrinsic value for a
call option that has an exercise price of $35.
a. $25
b. $35
c. $0
d. -$10
e. $10
7) Exhibit 22.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
A short straddle is an appropriate strategy if
a. An investor wishes to generate additional income.
b. An investor wished to insure against a decline in share values.
c. An investor expected share prices to be volatile.
d. An investor expected share prices to remain in a trading range.
e. An investor expected share prices to be volatile, but was inclined to be bullish.
8) Suppose you buy a round lot of Altman Industries stock on 50% margin when it is
selling at $35 a share. The broker charges a 10 percent annual interest rate and
commissions are 5 percent of the total stock value on both the purchase and the sale. If
at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is
your rate of return on the investment?
a.15.58%
b.11.84%
c.14.74%
d.21.84%
e.28.38%
9) Which of the following is not a type of investment company?
a.Money market funds
b.Common stock funds
c.Balanced funds
d.Bond funds
e.None of the above
10) The beta for the DAK Corporation is 1.25. If the yield on 30 year T-bonds is 5.65%,
and the long term average return on the S&P 500 is 11%. Calculate the required rate of
return for DAK Corporation.
a. 12.34%
b. 7.06%
c. 13.74%
d. 5.35%
e. 5.65%
11) The implication of efficient capital markets and a lack of superior analysts have led
to the introduction of
a.Balanced funds.
b.Naive funds.
c.January funds.
d.Index funds.
e.Futures options.
12) Exhibit 23.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An international investment firm buys an interest rate cap that pays the difference
between LIBOR and 6% if LIBOR exceeds 6%. Current LIBOR is 5%. The amount of
the option is $1,500,000, and the settlement is every 3 months. Assume a 360 day year.
Find the payoff if LIBOR closes at 4.7%.
a. -$45,000
b. -$11,250
c. $0
d. $11,250
e. $45,000
13) Which of the following is consistent with put-call-spot parity?
a. S + C = P + X/(1 + RFR)
b. S + P = C + X/(1 + RFR)
c. S - C = P + X/(1 + RFR)
d. S - P = C + X/(1 + RFR)
e. S = P - C + X/(1 + RFR)
14) A return series has an arithmetic mean of 10.5% and standard deviation of 13%.
Assuming the returns are normally distributed what is the range of returns that an
investor would expect to receive 90% of the time?
a.10.5% to 13%
b.-2.5% to 23.5%
c.-28.5 to 49.5%
d.-15.5% to 36.5%
e.0% to 10.5%
15) Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual
settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional
principal is $50,000,000.
Indicate the market value of the swap to the WallMal Company.
a. $3,525,120
b. -$3,500,000
c. $1,332,150
d. -$1,332,150
e. $1,026,600
16) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Calculate industry level of debt for the year 2004.
a. $215.58
b. $300.75
c. $237.67
d. $285.98
e. $193.72
17) The Securities Exchange Act of 1934
a. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
b. Regulates broker-dealers.
c. Requires federal registration of all public offerings of securities.
d. Regulates the structure and operations of mutual funds.
e. Contains a code of ethics and standards of professional conduct.
18) In a money spread, an investor would
a. Buy two in-the-money call options on the same stock with different exercise dates.
b. Buy two out-of-the-money call options on the same stock with different exercise
dates.
c. Sell two in-the-money call options on the same stock with different exercise dates.
d. Sell an out-of-the-money call and purchase an in-the-money call on the same stock
with the same exercise date.
e. Sell two out-of-the-money call options on the same stock with different exercise
dates.
19) By definition growth companies have growth stocks.
20) The industry life cycle can be rejuvenated at any stage by product innovations that
attract new customers or convince existing customers to buy the new product.
21) The offering price for a share of a load fund equals the net asset value of the share.
22) Investing 30 to 40 percent of your retirement funds in the company you work for is
reasonable when they match funds.
23) A warrant is an option to buy a stated number of shares of common stock at a
specified price at any time during the life of the warrant.
24) Securities with returns that lie above the security market line are undervalued.
25) If the estimated value of an asset is greater than the market price, you would want
to buy the investment.
26) The internal rate of return is that discount rate that sets the present value of cash
flows from an investment equal to its par value.
27) A portfolio manager should be evaluated many times and in a variety of market
environments before a final judgment is reached regarding his/her strengths and
weaknesses.
