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1) the stock price of ajax inc. is currently $105. the stock price a year from now will be
either $130 or $90 with equal probabilities. the interest rate at which investors can
borrow is 10%. using the binomial opm, the value of a call option with an exercise price
of $110 and an expiration date 1 year from now should be worth __________ today.
a.$11.59
b.$15
c.$20
d.$40
2) a mutual fund with a beta of 1 has outperformed the s&p 500 over the last 20 years.
we know that this mutual fund manager _____.
a.must have had superior stock selection ability.
b.must have had superior asset allocation ability.
c.must have had superior timing ability.
d.may or may not have outperformed the s&p 500 on a risk-adjusted basis.
3) p/e ratios tend to be _______ when inflation is ______.
a.higher; higher
b.lower; lower
c.higher; lower
d.they are unrelated.
4) the excess return is the _________.
a.rate of return that can be earned with certainty
b.rate of return in excess of the treasury-bill rate
c.rate of return to risk aversion
d.index return
5) if your marginal tax rate is 15%, your capital gains tax rate on a stock you have held
for 10 years would be ___.
a.5%
b.15%
c.20%
d.27.5%
6) technical analysis focuses on _____________________.
a.finding opportunities for risk-free investing
b.finding repeating trends and patterns in prices
c.changing prospects for earnings growth of particular firms or industries
d.forecasting technical regulatory changes
7) on may 1, 2007, joe hill is considering one of the following newly issued 10-year aaa
corporate bonds.
suppose market interest rates decline by 100 basis points (i.e., 1%). the effect of this
decline would be ______.
a.the price of the wildwood bond would decline by more than the price of the asbury
bond.
b.the price of the wildwood bond would decline by less than the price of the asbury
bond.
c.the price of the wildwood bond would increase by more than the price of the asbury
bond.
8) consider a hedge fund with $400 million in assets, $60 million in debt, and 16
million shares at the start of the year and with $500 million in assets, $40 million in
debt, and 20 million shares at the end of the year. during the year, investors have
received an income dividend of $.75 per share. assuming that the total expense ratio is
2.75%, what is the rate of return on the fund?
a.6.45%
b.8.52%
c.8.95%
d.9.46%
9) the ________ the ratio of municipal bond yields to corporate bond yields, the
_________ the cutoff tax bracket at which more individuals will prefer to hold
municipal debt.
a.higher; lower
b.lower; lower
c.higher; higher
d.the answer cannot be determined without more information.
10) if the put/call ratio increases, market contrarians may interpret this as what kind of
signal?
a.buy signal
b.sell signal
c.hold signal
d.this is not interpreted as a signal
