1) a tax free municipal bond provides a yield of 3.2%. what is the equivalent taxable
yield on the bond given a 35% tax bracket?
a.3.2%
b.3.68%
c.4.92%
d.5%
2) you are considering investing $1,000 in a complete portfolio. the complete portfolio
is composed of treasury bills that pay 5% and a risky portfolio, p, constructed with two
risky securities, x and y. the optimal weights of x and y in p are 60% and 40%
respectively. x has an expected rate of return of 14%, and y has an expected rate of
return of 10%. to form a complete portfolio with an expected rate of return of 8%, you
should invest approximately __________ in the risky portfolio. this will mean you will
also invest approximately __________ and __________ of your complete portfolio in
security x and y, respectively.
a.0%; 60%; 40%
b.25%; 45%; 30%
c.40%; 24%; 16%
d.50%; 30%; 20%
3) one of the major functions of the investment committee is to ________________.
a.determine security selection of each portfolio operated by the investment company
b.translate the objectives and constraints of the investment company into an asset
universe
c.determine the percentages of each security in the total investment company portfolio
d.calculate and report the overall rate of return to investment company constituents
4) the hedge ratio is often called the option’s _______.
a.delta
b.gamma
c.theta
d.beta
5) the _________ contract dominates trading in stock-index futures.
a.s&p 500
b.djia
c.nasdaq 100
d.russell 2000
6) the _________ is the difference between the actual call price and the intrinsic value.
a.stated value
b.strike value
c.time value
d.binomial value
7) the level of real income of a firm can be distorted by the reporting of depreciation
and interest expense. during periods of low inflation, the level of reported depreciation
tends to __________ income, and the level of interest expense reported tends to
__________ income.
a.understate; overstate
b.understate; understate
c.overstate; understate
d.overstate; overstate
8) which one of the following invests in a portfolio that is fixed for the life of the fund?
a.mutual fund
b.money market fund
c.managed investment company
d.unit investment trust
9) a firm has a net profit/pretax profit ratio of .6, a leverage ratio of 1.5, a pretax
profit/ebit of .7, an asset turnover ratio of 4, a current ratio of 2, and a return-on-sales
ratio of 6%. its roe is _________.
a.7.56%
b.15.12%
c.20.16%
d.30.24%
10) in performance measurement, the bogey portfolio is designed to _________.
a.measure the returns to a completely passive strategy
b.measure the returns to a similar active strategy
c.measure the returns to a given investment style
d.equal the return on the s&p 500
11) stalwarts are typically found in the _________ stage of the industry life cycle.
a.start-up
b.consolidation
c.maturity
d.relative decline
12) consider the capm. the risk-free rate is 6%, and the expected return on the market is
18%. what is the expected return on a stock with a beta of 1.3?
a.6%
b.15.6%
c.18%
d.21.6%
13) the current stock price of johnson & johnson is $64, and the stock does not pay
dividends. the instantaneous risk-free rate of return is 5%. the instantaneous standard
deviation of j&j’s stock is 20%. you want to purchase a call option on this stock with an
exercise price of $55 and an expiration date 73 days from now.
using the black-scholes opm, the put option should be worth __________ today.
a.$.01
b.$.07
c.$9.26
d.$9.62
14) steel pier company has issued bonds that pay semiannually with the following
characteristics:
if the yield to maturity decreases to 8.045%, the expected percentage change in the
price of the bond using modified duration would be ____.
a.11%
b.13%
c.12%
d.10%
15) you buy an 8-year $1,000 par value bond today that has a 6% yield and a 6% annual
payment coupon. in 1 year promised yields have risen to 7%. your 1-year
holding-period return was ___.
a..61%
b.-5.39%
c.1.28%
d.-3.25%
this year’s price is 1,000. since the ytm equals the coupon rate.
16) the term inside quotes refers to _____.
a.the difference between the lowest bid price and the highest ask price in the limit order
book.
b.the difference between the highest bid price and the lowest ask price in the limit order
book.
c.the difference between the lowest bid price and the lowest ask price in the limit order
book.
d.the difference between the highest bid price and the highest ask price in the limit
order book.
17) the stock price of harper corp. is $33 today. the risk-free rate of return is 6%, and
harper corp. pays no dividends. a put option on harper corp. stock with an exercise price
of $30 and an expiration date 73 days from now is worth $.95 today. a call option on
harper corp. stock with an exercise price of $30 and the same expiration date should be
worth __________ today.
a.$2.25
b.$3.14
c.$3.99
d.$4.31
18) a firm that fails to pay dividends on its preferred stock is said to be _________.
a.insolvent
b.in arrears
c.insufferable
d.delinquent