1) a put option with several months until expiration has a strike price of $55 when the
stock price is $50. the option has _____ intrinsic value and _____ time value.
a.negative; positive
b.positive; positive
c.zero; zero
d.zero; positive
2) yields on municipal bonds are typically ___________ yields on corporate bonds of
similar risk and time to maturity.
a.lower than
b.slightly higher than
c.identical to
d.twice as high as
3) you have an investment horizon of 6 years. you choose to hold a bond with a
duration of 4 years. your realized rate of return will be larger than the promised yield on
the bond if ___________________.
a.interest rates increase
b.interest rates stay the same
c.interest rates fall
d.the answer cannot be determined from the information given.
4) violation of the spot-futures parity relationship results in _______________.
a.fines and other penalties imposed by the sec
b.arbitrage opportunities for investors who spot them
c.suspension of delivery privileges
d.suspension of trading
5) the possibility of arbitrage arises when ____________.
a.there is no consensus among investors regarding the future direction of the market,
and thus trades are made arbitrarily
b.mispricing among securities creates opportunities for riskless profits
c.two identically risky securities carry the same expected returns
d.investors do not diversify
6) semitool corp. has an expected excess return of 6% for next year. however, for every
unexpected 1% change in the market, semitool’s return responds by a factor of 1.2.
suppose it turns out that the economy and the stock market do better than expected by
1.5% and semitool’s products experience more rapid growth than anticipated, pushing
up the stock price by another 1%. based on this information, what was semitool’s actual
excess return?
a.7%
b.8.5%
c.8.8%
d.9.25%
7) forward contracts _________ traded on an organized exchange, and futures contracts
__________ traded on an organized exchange.
a.are; are
b.are; are not
c.are not; are
d.are not; are not
8) from 1926 to 2010 the world stock portfolio offered _____ return and _____
volatility than the portfolio of large u.s. stocks.
a.lower; higher
b.lower; lower
c.higher; lower
d.higher; higher
9) the fed funds rate is the __________.
a.interest rate that banks charge their best corporate customers
b.interest rate banks charge each other for overnight loans of deposits on reserve at the
fed
c.interest rate the fed charges commercial banks on short-term loans
d.interest rate that the u.s. treasury pays on its bills
10) the duration is independent of the coupon rate only for which one of the following?
a.discount bonds
b.premium bonds
c.perpetuities
d.short-term bonds
11) the free cash flow to the firm is $300 million in perpetuity, the cost of equity equals
14%, and the wacc is 10%. if the market value of the debt is $1 billion, what is the
value of the equity using the free cash flow valuation approach?
a.$1 billion
b.$2 billion
c.$3 billion
d.$4 billion
12) evidence by blake, elton, and gruber indicates that, on average, actively managed
bond funds ______.
a.outperform passive fixed-income indexes
b.underperform passive fixed-income indexes by a wide margin
c.perform as well as passive fixed-income indexes
d.underperform passive fixed-income indexes by an amount equal to fund expenses
13) suppose you purchase a call and write a put on the same stock with the same
exercise price and expiration. if prices are at equilibrium, the value of this portfolio is
________.
a.s0 – xe-rt
b.s0 – x
c.s0 + xe-rt
d.s0 + x
14) a technical analyst is most likely to be affiliated with which investment philosophy?
a.active management
b.buy and hold
c.passive investment
d.index funds
15) what was the result of high-frequency traders’ leaving the market during the flash
crash of 2010?
a.market liquidity decreased.
b.market liquidity increased.
c.market volatility decreased.
d. trading frequency increased.
16) sponsors of unit investment trusts earn a profit by ___________________.
a.deducting management fees from fund assets
b.deducting a percentage of any gains in asset value
c.selling shares in the trust at a premium to the cost of acquiring the underlying assets
d.charging portfolio turnover fees