1) As a contract approaches maturity, the spot price and forward price
a. Increase.
b. Diverge.
c. Maintain a fixed price differential.
d. Have a random relationship.
e. Converge.
2) Exhibit 21.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
In late January 2004, The Union Cosmos Company is considering the sale of $100
million in 10-year debentures that will probably be rated AAA like the firm’s other bond
issues. The firm is anxious to proceed at today’s rate of 10.5 percent. As treasurer, you
know that it will take until sometime in April to get the issue registered and sold.
Therefore, you suggest that the firm hedge the pending issue using Treasury bond
futures contracts each representing $100,000.
Explain how you would go about hedging the bond issue?
a. Sell 1,000 contracts
b. Buy 1,000 contracts
c. Sell 100 contracts
d. Sell 10,000 contracts
e. None of the above
3) Exhibit 23.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
BioTech Industries has debentures outstanding (par value $1,000) convertible into the
company’s common stock at $30. The coupon rate is 11 percent payable semiannually
and they mature in 10 years.
Calculate the conversion value of the bond if the stock price is $27.00 per share.
a. $600.00
b. $700.00
c. $800.00
d. $900.00
e. $1,000.00
4) Exhibit 10.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was BMC’S return on equity in 2004?
a. 4.8%
b. 5.9%
c. 6.7%
d. 8.3%
e. 11.6%
5) Under the following conditions, what are the expected returns for stocks A and C?
a. 14.1% and 17.65%
b. 14.1% and 18.45%
c. 17.65% and 18.45%
d. 18.45% and 17.52%
e. None of the above
6) An ETF (exchange traded fund):
a.Is priced once a day at the opening of trading.
b.Is priced once a day at the close of trading.
c.Is priced continuously during the trading day.
d.Is priced at the open and close of trading.
e.None of the above.
7) Exhibit 4.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your
margin requirement is 60% and the commission on the sale is $50 and the broker
charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while
you were short the stock. After one year you cover your short sale at $35 per share with
a $50 commission for the purchase.
Refer to Exhibit 4.8. What is your annual rate of return on this investment?
a.18%
b.24%
c.25%
d.36%
e.37%
8) Exhibit 6.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.2. What is the abnormal rate of return for Stock ABC when you
consider its systematic risk measure (beta)?
a.2.4%
b.1.5%
c.-1.5%
d.2.0%
e.-3.2%
9) The Investment Company Act of 1940
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.
10) If, for the S&P Industrials Index, the profit margin was .25 and the equity turnover
ratio was 12, the ROE would be:
a. 0.83%
b. 0.48%
c. 3.00%
d. 30.00%
e. 48.00%
11) Exhibit 10.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information for the Nelson Corporation.
During 2004 Nelson Corp. made capital expenditures totaling $500 and disposed
property worth $800.
The firm’s free cash flow is
a. $2200
b. $1900
c. $2875
d. $2325
e. $2575
12) Floor brokers on the New York Stock Exchange
a.Use their membership to buy and sell for their own account.
b.Are employees of a member firm and buy and sell for customers of the firm.
c.Handle limit and other orders placed by other brokers.
d.Act as brokers for other members.
e.Maintain a fair and orderly market.
13) Exhibit 22.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
How much must an investor pay for one call option contract?
a. $680
b. $815
c. $625
d. $590
e. $340
14) Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of
return of 12 percent, and an expected growth rate for dividends of 4 percent.
If the payout ratio changes to 50 percent, but there are no other changes, what will be
the new P/E?
a. 3.25
b. 4.16
c. 5.75
d. 6.25
e. 7.67
15) The total market value of all assets of a mutual fund divided by the number of
shares of the fund is known as the net asset value.
16) The real risk free rate depends on the real growth in the economy and can be
affected for short time periods by temporary tightness or ease in the capital markets.
17) There is an inverse relationship between the market interest rate and the value of a
call option.
18) When applying the Jensen’s alpha measure the alpha level and significance can vary
greatly depending on the specification of the return-generating model.
19) The secondary bond market is significantly more active than the stock market.
20) An increase in the required rate of return k will increase the P/E ratio.
21) Low-cost leadership and differentiation are two major competitive strategies
suggested by Porter.