1) Estimating forward rates from the spot rate curve is based on the assumption that the
____ hypothesis accurately describes the shape of the yield curve.
a. Expectations
b. Liquidity preference
c. Segmented market
d. Efficient market
e. None of the above
2) A portfolio is considered to be efficient if:
a. No other portfolio offers higher expected returns with the same risk.
b. No other portfolio offers lower risk with the same expected return.
c. There is no portfolio with a higher return.
d. Choices a and b
e. All of the above
3) Confirmation bias refers to the situation where
a.Investors have a propensity to sell winners too soon and hang on to losers too long.
b.Investors ignore bad news and overemphasize good news.
c.Investors tend to follow the herd.
d.Investors put more money into a failure rather than into a success.
e.Investors are all noise traders.
4) In the case of closed-end investment companies, shares of the company
a. Trade on the secondary market.
b. Can be bought from or sold to the investment company at the NAV.
c. Are determined by supply and demand.
d. a and c.
e. b and c.
5) Exhibit 14.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What are the ROE’s for Wal-Blue and its industry?
a. 24.3% and 27.0%
b. 29.7% and 27.0%
c. 29.7% and 30.0%
d. 33.6% and 30.0%
e. 34.5% and 31.5%
6) The cost of carry includes all of the following except
a. Storage costs.
b. Insurance.
c. Current price.
d. Financing costs.
e. Risk free rate.
7) Exhibit 17.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What annual dollar coupon amount will investors receive?
a. $4.75
b. $47.50
c. $4.808
d. $48.08
e. $62
8) Speculative companies are firms where
a. Sales, earnings and cash flows are extremely uncertain and not necessarily related to
the economy.
b. Sales, earnings and cash flows are likely to withstand changes caused by the
economic environment.
c. Sales, earnings and cash flows are heavily influenced by aggregate business activity.
d. Sales, earnings and cash flows are growing exponentially.
e. None of the above.
9) The expected rate of return on Research Industries is twice the 12 percent expected
rate of return from the market. What is Research’s beta if the risk free rate is 6 percent?
a. 2
b. 3
c. 4
d. 5
e. 6
10) Fusion investing is the integration of the following elements of investment
valuation:
a.Fundamental value and investor sentiment.
b.Fads and fashions.
c.Technical analysis and investor sentiment.
d.Historical prices and returns.
e.Transaction costs and fundamental value.
11) Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an
annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face
value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield
to maturity of 9%, and a face value of $1,000.
Calculate the price of Bond A.
a. $975.62
b. $982.17
c. $990.57
d. $1,009.50
e. $1,018.08
12) Exhibit 20.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The current stock price of ABC Corporation is $53.50. ABC Corporation has the
following put and call option prices that expire 6 months from today. The risk-free rate
of return is 5% and the expected return on the market is 11%.
What is the value of a synthetic stock created with put and call options that expire in 6
months with an expiration price of $50?
a. $53.04
b. $53.53
c. $54.54
d. $55.03
e. $56.23
13) A substitution pickup swap involves swapping out of a
a. Bond to realize capital losses, into a comparable bond.
b. Low coupon bond, into a comparable high coupon bond.
c. High coupon bond, into a comparable low coupon bond.
d. Bond that is underpriced, into a comparable bond that is overpriced.
e. Bond that is overpriced, into a comparable bond that is underpriced.
14) It does not make economic sense for portfolio managers to try to “time” between
different investment styles.
15) According to the APT model all securities should be priced such that riskless
arbitrage is possible.
16) The buyer of a straddle expects stock prices to move strongly in either direction.
17) Forward contracts are much easier to unwind than futures contracts due to the
standardization of the contracts.
18) Growth oriented investors focus on the price component of the Price/Earnings ratio.