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1) you have a $50,000 portfolio consisting of intel, ge, and con edison. you put $20,000
in intel, $12,000 in ge, and the rest in con edison. intel, ge, and con edison have betas of
1.3, 1, and .8, respectively. what is your portfolio beta?
a.1.048
b.1.033
c.1
d.1.037
2) inflation-indexed treasury securities are commonly called ____.
a.piks
b.cars
c.tips
d.strips
3) consider the capm. the expected return on the market is 18%. the expected return on
a stock with a beta of 1.2 is 20%. what is the risk-free rate?
a.2%
b.6%
c.8%
d.12%
4) steel pier company has issued bonds that pay semiannually with the following
characteristics:
if the maturity of the bond was less than 10 years, the modified duration would be
_____ compared to the original modified duration.
a.larger
b.unchanged
c.smaller
d.the answer cannot be determined from the information given.
5) a firm has an roa of 19%, a debt/equity ratio of 1.8, and a tax rate of 30%, and the
interest rate on its debt is 7%. its roe is _________.
a.15.12%
b.28.42%
c.37.24%
d.40.6%
6) compute the modified duration of a 9% coupon, 3-year corporate bond with a yield
to maturity of 12%.
a.2.45
b.2.75
c.2.88
d.3
7) each of two stocks, a and b, is expected to pay a dividend of $7 in the upcoming year.
the expected growth rate of dividends is 6% for both stocks. you require a return of
10% on stock a and a return of 12% on stock b. using the constant-growth ddm, the
intrinsic value of stock a _________.
a.will be higher than the intrinsic value of stock b
b.will be the same as the intrinsic value of stock b
c.will be less than the intrinsic value of stock b
d.the answer cannot be determined from the information given.
8) which of the following bonds would most likely sell at the lowest yield?
a.a callable debenture
b.a puttable mortgage bond
c.a callable mortgage bond
d.a puttable debenture
9) which one of the following statements about ipos is not true?
a.ipos generally underperform in the short run.
b.ipos often provide very good initial returns to investors.
c.ipos generally provide superior long-term performance as compared to other stocks.
d.shares in ipos are often primarily allocated to institutional investors.
10) individuals may find it more advantageous to purchase claims from a financial
intermediary rather than directly purchasing claims in capital markets because:
i. intermediaries are better diversified than most individuals
ii. intermediaries can exploit economies of scale in investing that individual investors
cannot
iii. intermediated investments usually offer higher rates of return than direct capital
market claims
a.i only
b.i and ii only
c.ii and iii only
d.i, ii, and iii
11) treasury notes have initial maturities between ________ years.
a.2 and 4
b.5 and 10
c.10 and 30
d.1 and 10
12) an investor would want to __________ to exploit an expected fall in interest rates.
a.sell s&p 500 index futures
b.sell treasury-bond futures
c.buy treasury-bond futures
d.buy wheat futures
13)
all exchange rates are expressed as units of foreign currency that can be purchased with
one u.s. dollar. answer the following about decomposing the manager's performance.
what is the difference in return of the manager's portfolio due to currency selection?
a.-5%
b.-3%
c.2%
d.1%
14) a person with a long position in a commodity futures contract wants the price of the
commodity to ______.
a.decrease substantially
b.increase substantially
c.remain unchanged
d.increase or decrease substantially
15) which one of the following statements about returns reported by mutual funds is not
correct?
a.reported returns are net of management expenses.
b.reported returns are net of 12b-1 fees.
c.reported returns are net of brokerage fees paid on the fund's trading activity.
d.none of these options. (all of the items are included in reported returns.)
16) an investor holds a very conservative portfolio invested for retirement, but she takes
some extra cash she earned from her year-end bonus and buys gold futures. she appears
to be engaging in ___________.
a.overconfidence
b.representativeness
c.forecast errors
d.mental accounting
17) because of convexity, when interest rates change, the actual bond price will
____________ the bond price predicted by duration.
a.always be higher than
b.sometimes be higher than
c.always be lower than
d.sometimes be lower than
18) which one of the following is not a demand shock?
a.increase in government spending
b.increases in the money supply
c.reductions in consumer spending
d.improvements in education of u.s. workers
19) in the treynor-black model, security analysts __________.
a.analyze a relatively small number of stocks
b.analyze all stocks that are publicly traded
c.are redundant
d.devote their attention to market timing rather than fundamental analysis
20) what ratio will definitely increase when a firm increases its annual sales with no
corresponding increase in assets?
a.asset turnover
b.current ratio
c.liquidity ratio
d.quick ratio
