1) Exhibit 21.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $10,000,000 equity portfolio under management.
The manager wishes to hedge against a decline in share values using stock index
futures. Currently a stock index future is priced at 1350 and has a multiplier of 250. The
portfolio beta is 1.50.
Calculate the number of contract required to hedge the risk exposure and indicate
whether the manager should be short or long.
a. 100 contracts long.
b. 44 contracts long.
c. 44 contracts short.
d. 100 contract short.
e. None of the above.
2) Exhibit 5.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.1. Assume that a stock price-weighted indicator consisted of the four
issues with their prices. What are the values of the stock indicator for Day T and T + 1
and what is the percentage change?
a.36.25, 38.75, 6.9%
b.38.75, 36.25, –6.9%
c.100, 106.9, 6.9%
d.107.48, 106.33, 1.15%
e.None of the above
3) Exhibit 4.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2%
for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The
maintenance margin is 30%.
Refer to Exhibit 4.7. At the end of one year shares of RossCorp stock are selling for $55
per share and the company paid dividends of $0.85 per share. Assuming that you paid
the full cost of the purchase, what is your rate of return if you sell RossCorp stock?
a.18.08%
b.23.51%
c.22.32%
d.14.96%
e.19.28%
4) Ross Corporation paid dividends per share of $1.20 at the end of 1990. At the end of
2000 it paid dividends per share of $3.50. Calculate the compound annual growth rate
in dividends.
a. 52.17%
b. 34.28%
c. 23%
d. 19.17%
e. 11.29%
5) Exhibit 17.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What is the estimated yield on Treasury securities?
a. 4.188%
b. 5.428%
c. 5.371%
d. 4.132%
e. 4.753%
6) Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor
loadings (or factor betas).
The zero-beta return (λ0) = 3%, and the risk premia are λ1= 10%, λ2= 8%. Assume that
all three stocks are currently priced at $50.
Assume that you wish to create a portfolio with no net wealth invested. The portfolio
that achieves this has 50% in stock X, −100% in stock Y, and 50% in stock Z. The
weighted exposure to risk factor 2 for stocks X, Y, and Z are
a. 0.50, −1.0, 0.50
b. −0.50, 1.0, −0.50
c. 0.60, −0.85, 0.25
d. −0.275, 0.10, 0.175
e. None of the above.
7) ____ must be stated in terms of expected returns and risk. An investor’s tolerance for
risk must be established before returns objectives can be stated.
a.Investment requirements
b.Investment constraints
c.Investment rewards
d.Investment objectives
e.Investment policy
8) If the wrong benchmark (or market portfolio) is selected then
a. Computed betas would be wrong.
b. The SML would be wrong.
c. Computed betas would be correct.
d. a and b.
e. b and c.
9) The table below provides factor risk sensitivities and factor risk premia for a three
factor model for a particular asset where factor 1 is MP the growth rate in U.S.
industrial production, factor 2 is UI the difference between actual and expected
inflation, and factor 3 is UPR the unanticipated change in bond credit spread.
Calculate the expected excess return for the asset.
a. 12.32%
b. 9.32%
c. 4.56%
d. 6.32%
e. 8.02%
10) A friend has information that the stock of Zip Incorporated is going to rise from
$62.00 to $65.00 per share over the next year. You know that the annual return on the
S&P 500 has been 10% and the 90-day T-bill rate has been yielding 6% per year over
the past 10 years. If beta for Zip is 0.9, will you purchase the stock?
a. Yes, because it is overvalued.
b. Yes, because it is undervalued.
c. No, because it is undervalued.
d. No, because it is overvalued.
e. Yes, because the expected return equals the estimated return.
11) For a U.S. based investor, a weaker dollar means that overall dollar based returns on
overseas security investment will be higher because
a.A weaker dollar means that exports will rise.
b.A weaker dollar means that more foreign investors will by U.S. securities.
c.A weaker dollar means that the foreign currency will convert to more dollars.
d.A weaker dollar means that more investors will purchase the foreign security.
e.None of the above.