1) Calculate the modified duration for a 10-year, 12 percent bond with a yield to
maturity of 10 percent and a Macaulay duration of 7.2 years.
a. 6.43 years
b. 6.55 years
c. 6.79 years
d. 6.86 years
e. 7.01 years
2) Exhibit 5.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.6. Compute the arithmetic mean of the price change of Stocks Q, R,
and S from days T to T + 1.
a.8.65%
b.10.14%
c.15.69%
d.30.42%
e.47.08%
3) Banks typically have short-term investment horizons because
a. They have a strong need for liquidity.
b. They offer short-term deposit accounts.
c. They are required to by federal and state laws.
d. Choices a and b.
e. All of the above
4) Calculate the Macaulay duration for a 5-year $1,000 par value bond, with a 6%
coupon and a yield to maturity of 8%. Interest is paid annually.
a. 6.44 years
b. 5.25 years
c. 4.44 years
d. 2.50 years
e. None of the above
5) Exhibit 21.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $20,500,000 equity portfolio under management.
The manager wishes to hedge against a decline in share values using stock index
futures. Currently a stock index future is priced at 1250 and has a multiplier of 250. The
portfolio beta is 1.25.
Calculate the overall profit.
a. $1,550,000
b. -$2,000,000
c. $2,050,000
d. -$5,000,000
e. $2,400,000
6) Exhibit 10.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information about MaxCorp.
Calculate the sustainable growth rate.
a. 27.8%
b. 30.4%
c. 20.4%
d. 27.8%
e. 17.8%
7) Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate
objective is to calculate the EVA for the firm.
Calculate the cash operating expenses for the firm.
a. 225
b. 228
c. 232
d. 242
e. 252
8) Which of the following statements is false?
a. A manager’s choice to align with an investment style communicates information to
clients about the investor’s focus, area of expertise, and stock evaluation methods.
b. An investment manager’s style cannot be used as a basis for measuring the manager’s
performance relative to a benchmark.
c. Style identification allows an investor to select investment managers that allow his
overall portfolio to be properly diversified.
d. Style investing allows control of the total portfolio to be shared between the
investment managers and a knowledgeable sponsor.
e. None of the above (all are true statements)
9) Asset allocation is
a.The process of dividing funds into asset classes.
b.Concerned with returns variability.
c.Concerned with the risk associated with different assets.
d.Concerned with the relationship among investments’ returns.
e.All of the above.
10) Exhibit 4.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Kathy Smith has a margin account with a balance of $60,000. Initial margin
requirements are 80 percent, and Jackson Industries is currently selling at $40 per share.
Refer to Exhibit 4.3. If the maintenance margin is 25 percent, to what price can Jackson
Industries fall before Kathy receives a margin call?
a.$21.75
b.$23.00
c.$10.67
d.$15.93
e.None of the above
11) Which of the following entities acquire mortgages and create mortgage backed
securities?
a. Federal National Mortgage Association (Fannie Mae)
b. Government National Mortgage Association (Ginnie Mae)
c. Federal Home Loan Mortgage Corporation (Freddie Mac)
d. All of the above.
e. None of the above.
12) You purchase a 11 3/8s February $10,000 par Treasury Note at 103:11 and hold it
for exactly one year at which time you sell it. What is your rate of return if your selling
price is 100:13?
a. 10.14%
b. 11.75%
c. 8.22%
d. 8.32%
e. 8.16%
13) Futures differ from forward contracts because
a. Futures have more liquidity risk.
b. Futures have more credit risk.
c. Futures have more maturity risk.
d. All of the above
e. None of the above
14) Exhibit 5.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.3. Calculate the average annual rate of change for GB Industries for
the 5 year period using the arithmetic mean.
a.0.098%
b.9.80%
c.8.50%
d.8.00%
e.89.00%
15) Diversification with foreign securities can help reduce portfolio risk.
16) The two components that are required in order to carry out asset valuation are (1)
the stream of expected cash flows and (2) the required rate of return.
17) In recent years there has been a trend toward the consolidation of existing
exchanges in developed markets, such as London, Frankfurt and Paris.
18) To benefit from cost leadership a firm must command prices near the industry
average.
19) Two desirable attributes of a portfolio manager’s performance are the ability to
derive above-average returns for a given risk class and the ability to time the market.
20) Some factors that determine business risk include sales variability and debt to
equity ratio.
21) Studies concerning quarterly earnings reports indicate that information in quarterly
statements is of value and can provide an above-average risk-adjusted return.
22) The Dow Jones Industrial Average has been criticized for being blue-chip biased.