1) Suppose the current 6 year rate is 9% and the current 5 year rate is 7%. What is the
one year forward rate for five years?
a. 19.57%
b. 18.62%
c. 15.80%
d. 14.65%
e. 12.67%
2) What is the implied growth duration of Casey Industries given the following:
a. 3.2 years
b. 2.8 years
c. 4.8 years
d. 9.6 years
e. 13.2 years
3) “Economic profit” is analogous to ____ in capital budgeting.
a. Weighted average cost of capital
b. Internal rate of return
c. Composite discount rates
d. Discounted cashflows
e. Net present value
4) Which of the following statements regarding fundamental and relative valuation
techniques is true?
a. Both techniques require an appropriate estimate of the required rate of return and the
growth rate.
b. Both techniques require an estimate of future cash flows and a discount rate.
c. Both techniques require an estimate of future cash flows and a growth rate.
d. Both techniques require an estimate of future cash flows, the required rate of return
and a growth estimate.
e. All of the above are true.
5) In one of their empirical tests of the APT, Roll and Ross examined the relationship
between a security’s returns and its own standard deviation. A finding of a statistically
significant relationship would indicate that
a. APT is valid because a security’s unsystematic component would be eliminated by
diversification.
b. APT is valid because non-diversifiable components should explained by factor
sensitivities.
c. APT is invalid because a security’s unsystematic component would be eliminated by
diversification.
d. APT is invalid because standard deviation is not an appropriate factor.
e. None of the above.
6) Towards the end of the recession which industry is most likely to excel?
a. Consumer staples
b. Consumer durables
c. Basic industries
d. Financial stocks
e. Capital goods
7) Exhibit 25.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for four portfolios, the market and the risk free rate
(RFR):
Calculate the Treynor Measure for each portfolio.
a. A1 = 0.0625, A2 = 0.0778, A3 = 0.0818, A4 = 0.096
b. A1 = 0.096, A2 = 0.0778, A3 = 0.0818, A4 = 0.0625
c. A1 = 0.096, A2 = 0.0818, A3 = 0.0778, A4 = 0.0625
d. A1 = 0.0778, A2 = 0.096, A3 = 0.0818, A4 = 0.0625
e. None of the above
8) What was developed in the early 1980s to offset some of the problems with
traditional mortgage pass-throughs?
a. Variable rate mortgages.
b. Collateralized mortgage obligations (CMOs)
c. Leveraged buyouts (LBOs)
d. Deep discount bonds (DDBs)
e. High yield bonds.
9) Exhibit 16.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A portfolio manager is trying to establish a strategic asset allocation for two different
clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and
Tom Luck has a risk tolerance factor of 6. The characteristics of the three model
portfolios under consideration are provided in the table below.
The recommended portfolio for Bob Bowman is
a. Portfolio A because it has expected utility of 9.95
b. Portfolio A because it has expected utility of 4.5
c. Portfolio B because it has expected utility of 5.33
d. Portfolio B because it has expected utility of 7.27
e. Portfolio C because it has expected utility of 6.75
10) Exhibit 10.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was BMC’S quick ratio for 2004?
a. 1.72
b. 1.37
c. 1.02
d. 0.85
e. 0.55
11) What is the value of a preferred stock that has a par value of $100, a required rate of
return of 11%, and pays a 7 percent annual dividend?
a. $63.64
b. $157.14
c. $909.09
d. $1,428.57
e. $2,500.00
12) In a barbell strategy
a. One half of funds are invested in short duration bonds and the test in long duration
bonds.
b. Seventy five percent of funds are invested in short duration bonds and the test in long
duration bonds.
c. Twenty five percent of funds are invested in short duration bonds and the test in long
duration bonds.
d. An equal amount of funds are invested in a wide range of maturities.
e. None of the above.
13) In the case of private management firms
a. Investors deal with a fund company and do not have separate accounts tailored to
their specific needs.
b. Investors deal with a fund company and have separate accounts tailored to their
specific needs.
c. Investors deal with an asset manager and do not have separate accounts tailored to
their specific needs.
d. Investors deal with an asset manager have separate accounts tailored to their specific
needs.
e. None of the above.
14) Aggregate return on equity increases as
a. Profit margins increase.
b. Total asset turnover increases.
c. Financial leverage increases.
d. Equity turnover decreases.
e. All of the above.
15) Exhibit 10.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was Star’s net profit margin?
a. 2.4%
b. 3.8%
c. 4.2%
d. 4.7%
e. 5.2%
16) Suppose the expected return for the market portfolio and risk-free rate are 13% and
3% respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11,
respectively. Based on this information an investor should
a. Buy stocks A, B, and C
b. Buy stocks A and B and sell stock C
c. Buy stock A and sell stocks B and C
d. Sell stocks A, B, and C
e. Hold stocks A, B, and C
17) Important reasons for constructing a policy statement include:
a.Helps investors decide on realistic investment goals
b.Create a standard by which to judge the performance of the portfolio manager
c.Develop an instrument to judge risk
d.Choices a and b
e.All of the above
18) Exhibit 25.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The last year’s performance for four mutual funds is presented below. The market return
was 10.70%, last year with a standard deviation of 13.1% and the risk-free rate of return
was 5%.
Compute the Jensen Measure for the B fund.
a. 1.16%
b. 2.31%
c. 6.90%
d. 9.60%
e. 10.13%
19) Fusion investing refers to the combination of
a.Technical analysis and fundamental analysis.
b.Behavioral analysis and technical analysis.
c.Fundamental analysis and investor sentiment.
d.Technical analysis and investor sentiment.
e.All of the above