1) you invest $600 in security a with a beta of 1.5 and $400 in security b with a beta of .
90. the beta of this portfolio is _________.
a.1.14
b.1.2
c.1.26
d.1.5
2) a 1-year gold futures contract is selling for $1,645. spot gold prices are $1,592 and
the 1-year risk-free rate is 3%.
the arbitrage profit implied by these prices is _____________.
a.$3.27
b.$4.39
c.$5.24
d.$6.72
3) rank the following fund categories from most risky to least risky:
i. equity growth fund
ii. balanced fund
iii. sector fund
iv. money market fund
a.iv, i, iii, ii
b.iii, ii, iv, i
c.i, ii, iii, iv
d.iii, i, ii, iv
4) in his famous critique of the capm, roll argued that the capm ______________.
a.is not testable because the true market portfolio can never be observed
b.is of limited use because systematic risk can never be entirely eliminated
c.should be replaced by the apt
d.should be replaced by the fama-french three-factor model
5) a family will retire in a few years. they have a high tax bracket and are concerned
about their after-tax rate of return. a meeting with their financial planner reveals that
they are primarily focused on safety of principal and will need a 6% to 8% average rate
of return on their portfolio. they desire a diversified portfolio, and liquidity is likely to
be a concern due to health reasons. which of the following asset allocations seems to
best fit this family’s situation?
a.10% money market; 50% intermediate-term bonds; 40% blue chip stocks, many with
high dividend yields
b.0% money market; 60% intermediate-term bonds; 40% stocks
c.10% money market; 30% intermediate-term bonds; 60% high-dividend-paying stocks
d.5% money market; 35% intermediate-term bonds; 60% stocks, most with low
dividends
6) the free cash flow to the firm is reported as $205 million. the interest expense to the
firm is $22 million. if the tax rate is 35% and the net debt of the firm increased by $25
million, what is the approximate market value of the firm if the fcfe grows at 2% and
the cost of equity is 11%?
a.$2,168 billion
b.$2,445 billion
c.$2,565 billion
d.$2,998 billion
7) webs are ____________________.
a.investments in country-specific portfolios
b.traded exactly like mutual funds
c.identical to adrs
d.designed to give investors foreign currency exposure to multiple countries
8) suppose the 1-year risk-free rate of return in the united states is 5% and the 1-year
risk-free rate of return in britain is 8%. the current exchange rate is $1 = .50. a 1-year
future exchange rate of __________ would make a u.s. investor indifferent between
investing in the u.s. security and investing in the british security.
a..5150
b..5142
c..5123
d..4859
9) a long hedge is a simultaneous __________ position in the spot market and a
__________ position in the futures market.
a.long; long
b.long; short
c.short; long
d.short; short
10) all else equal, bond price volatility is greater for __________.
a.higher coupon rates
b.lower coupon rates
c.shorter maturity
d.lower default risk
11) if you require a real growth in the purchasing power of your investment of 8%, and
you expect the rate of inflation over the next year to be 3%, what is the lowest nominal
return that you would be satisfied with?
a.3%
b.8%
c.11%
d.11.24%
12) the divergence between an option’s intrinsic value and its market value is usually
greatest when ___________________.
a.the option is deep in the money
b.the option is approximately at the money
c.the option is far out of the money
d.time to expiration is very low
13) a stock has a correlation with the market of .45. the standard deviation of the market
is 21%, and the standard deviation of the stock is 35%. what is the stock’s beta?
a.1
b..75
c..60
d..55
14) the black-scholes hedge ratio for a long call option is equal to __________.
a.n(d1)
b.n(d2)
c.n(d1) – 1
d.n(d2) – 1
15) of the following, which is the most commonly used international index?
a.djia
b.eafe
c.russell 2000
d.s&p 500
16) to attract new clients, hedge funds often include past returns of funds only if they
were successful. this is called __________.
a.long-short bias
b.survivorship bias
c.backfill bias
d.incentive bias
17) the tax burden of the firm is .5, the interest burden is .55, the profit margin is .25,
the asset turnover is 1.5, and the leverage ratio is 1.65. what is the roe of the firm?
a.1.88%
b.6.68%
c.12.15%
d.17.02%
18) unlike market-neutral hedge funds, which have betas near ________, directional
long funds exhibit highly _______ betas.
a.zero; positive
b.positive; negative
c.positive; zero
d.negative; positive
19) which of the following is not an example of fiscal policy?
a.social security spending
b.medicare spending
c.fed purchases of treasury securities
d.changes in the tax rate