1) douglass, an imperfect forecaster, correctly predicts 57% of all bull markets and 68%
of all bear markets. simmonds is a perfect forecaster. if douglass is able to charge a fee
of $125,000, the fee that roy simmonds should charge is __________. assume that both
forecasters manage similar-size funds.
a.$31,250
b.$200,000
c.$500,000
d.$625,000
2) a firm has a tax burden of .7, a leverage ratio of 1.3, an interest burden of .8, and a
return-on-sales ratio of 10%. the firm generates $2.28 in sales per dollar of assets. what
is the firm’s roe?
a.12.4%
b.14.5%
c.16.6%
d.17.8%
3) you short-sell 200 shares of tuckerton trading co., now selling for $50 per share.
what is your maximum possible loss?
a.$50
b.$150
c.$10,000
d.unlimited
4) for a bank, the difference between the interest rate charged to borrowers and the
interest rate paid on liabilities is called the __________.
a.insurance premium
b.interest rate spread
c.risk premium
d.term premium
5) the constant-growth dividend discount model (ddm) can be used only when the
___________.
a.growth rate is less than or equal to the required return
b.growth rate is greater than or equal to the required return
c.growth rate is less than the required return
d.growth rate is greater than the required return
6) the treynor-black model assumes that security markets are _________.
a.completely efficient
b.nearly efficient
c.very inefficient
d.random walks
7) given its time to maturity, the duration of a zero-coupon bond is _________.
a.higher when the discount rate is higher
b.higher when the discount rate is lower
c.lowest when the discount rate is equal to the risk-free rate
d.the same regardless of the discount rate
8) purchases of new issues of stock take place _________.
a.at the desk of the fed
b.in the primary market
c.in the secondary market
d.in the money markets
9) the average duration of unemployment is _________.
a.a leading economic indicator
b.a coincidental economic indicator
c.a lagging economic indicator
d.both a coincidental indicator and a lagging indicator
10) you buy a call option on merritt corp. with an exercise price of $50 and an
expiration date in july, and you write a call option on merritt corp. with an exercise
price of $55 and an expiration date in july. this is called a ________.
a.time spread
b.long straddle
c.short straddle
d.money spread
11) a fund has excess performance of 1.5%. in looking at the fund’s investment
breakdown, you see that the fund overweighted equities relative to the benchmark and
that the average return on the fund’s equity portfolio was slightly lower than the equity
benchmark return. the excess performance for this fund is probably due to
_______________.
a.security selection ability
b.better sector weightings in the equity portfolio
c.the asset allocation decision
d.finding securities with positive alphas
12) the yield to maturity on a bond is:
i. above the coupon rate when the bond sells at a discount and below the coupon rate
when the bond sells at a premium
ii. the discount rate that will set the present value of the payments equal to the bond
price
iii. equal to the true compound return on investment only if all interest payments
received are reinvested at the yield to maturity
a.i only
b.ii only
c.i and ii only
d.i, ii, and iii