1) The financial risk for the retail store industry is difficult to judge because of
a. Convertible debt.
b. Numerous building leases.
c. Warrants.
d. Variable operating profits.
e. Extensive use of preferred stock.
2) Calculate the expected return for a three asset portfolio with the following
a. 11.71%
b. 11.12%
c. 15.70%
d. 14.25%
e. 6.75%.
3) Of the following provisions that might be found in a bond indenture, which would
tend to reduce the coupon interest rate?
a. A call provision
b. No restrictive covenants
c. A sinking fund provision
d. Change in bond rating from Aaa to Aa
e. None of the above (that is, all will increase the coupon rate)
4) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Calculate industry EPS for the year 2004.
a. $45.25
b. $36.79
c. $57.25
d. $32.56
e. $48.57
5) Exhibit 19.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay annual interest. Bond Y has a coupon of 6% per year,
maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond
X has a coupon of 7% per year, maturity of 10 years, yield to maturity of 4% per year,
and a face value of $1000.
Calculate the modified duration for Bond Y.
a. 7.8
b. 4.22
c. 4.34
d. 7.5
e. 9.8
6) Exhibit 19.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond X has a coupon of 7% per
year, maturity of 20 years, yield to maturity of 8% per year, and a face value of $1000.
Bond Y has a coupon of 7% per year, maturity of 20 years, yield to maturity of 8.5%
per year, and a face value of $1000.
Calculate the percentage gain per invested dollar for Bond X assuming a one year
horizon, and a reinvestment rate of 8% per year.
a. 2.35%
b. 4.08%
c. 7.92%
d. 8.16%
e. 8.32%
7) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Heidi Talbott has a margin account with a balance of $50,000. The initial margin
deposit is 50 percent, and RC Industries is currently selling at $50 per share.
Refer to Exhibit 4.2. What is Heidi’s profit if RC’s price rises to $80?
a.$55,000
b.$50,000
c.$60,000
d.$68,270
e.$28,570
8) Exhibit 20.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for
a premium of $8.25 when Peppy was selling for $48.00 per share.
If at expiration Peppy is selling for $42.00, what is Sarah’s dollar gain or loss?
a. $420 gain
b. $420 loss
c. $475 loss
d. $475 gain
e. None of the above
9) Exhibit 20.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for
a premium of $8.25 when Peppy was selling for $48.00 per share.
What is Sarah’s annualized gain/loss?
a. 60.60% gain
b. 6.06% loss
c. 60.60% loss
d. 6.06% gain
e. None of the above
10) 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.
The expected prices one year from now for stocks X, Y, and Z are
a. $53.55, $54.4, $55.25
b. $45.35, $54.4, $55.25
c. $55.55, $56.35, $57.15
d. $50, $50, $50
e. $51.35, $47.79, $51.58.
11) Which of the following statements about industry analysis is true?
a. During any time period, rates of return of firms within industries do vary within a
wide range.
b. Aggregate market performance accurately reflects the performance of alternative
industries.
c. Risk of return for individual industries have not varied over time, so one can simply
extrapolate past performance into the future.
d. All of the above are true.
e. None of the above are true.
12) There is a direct relationship between coupon and price.
13) Public bonds differ from other debt because they are sold to the public rather than to
a single investor.
14) Studies have shown the beta is more stable for portfolios than for individual
securities.
15) If transaction prices are volatile, but long-term prices are stable, this is referred to as
price continuity.
16) A negative Treynor measure (negative T) for a portfolio always indicates that the
portfolio would plot below the SML.
17) The minimum value of an option is zero.
18) Results of studies concerning corporate insider trading indicate that corporate
insiders generally enjoy above-average returns.
19) Turnarounds are firms with valuable assets that are hidden on the balance sheet.
20) A call option is in the money if the current market price is above the strike price.
21) In a dealer market trading system shares of stock are sold to the investor with the
highest bid price and bought from the seller with the lowest offering price.