1) A disadvantage of the Treynor and Sharpe measures is that
a. They produce absolute performance rankings.
b. The beta and standard deviation are static.
c. They are both difficult to compute.
d. They produce relative performance rankings.
e. They give very different measurements for well-diversified portfolios.
2) Sharpe’s performance measure divides the portfolio’s risk premium by the
a. Standard deviation of the rate of return.
b. Variance of the rate of return.
c. Slope of the fund’s characteristic line.
d. Beta.
e. Risk free rate.
3) Exhibit 21.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a portfolio manager, you are responsible for a $150 million portfolio, 90 percent of
which is invested in equities, with a portfolio beta of 1.25. You are utilizing the S&P
500 as your passive benchmark. Currently the S&P 500 is valued at 1202. The value of
the S&P 500 futures contract is equal to $250 times the value of the index. The beta of
the futures contract is 1.0.
How many contracts should you buy or sell in order to reduce the portfolio beta to 0.80
(rounded to the nearest integer)?
a. Sell 162 contracts
b. Buy 162 contracts
c. Sell 324 contracts
d. Buy 324 contracts
e. None of the above
4) Exhibit 25.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
Calculate CI’s selectivity.
a. 0.1225
b. 0.1000
c. 0.0525
d. 0.0475
e. 0.0325
5) Advances and declines are associated with market
a. Efficiency.
b. Position.
c. Diffusion.
d. Depth.
e. Breadth.
6) Which of the following statements is true?
a. The buyer of a forward contract is said to be long forward.
b. The seller of a forward contract is said to be short forward.
c. The seller of a forward contract is said to be long forward.
d. The buyer of a forward contract is said to be short forward.
e. Choices a and b
7) You own a stock that has risen from $10 per share to $32 per share. You wish to
delay taking the profit but you are troubled about the short run behavior of the stock
market. An effective action on your part would be to
a. Purchase a put.
b. Purchase a call.
c. Purchase an index option.
d. Utilize a bearish spread.
e. Utilize a bullish spread.
8) Which is not an implication of the EMH?
a.To do superior industry or company analysis you must understand the variables that
affect returns and do a superior job of estimating these variables.
b.Aggregate market analysis that involves very detailed analysis of reliable historical
economic data should outperform a simple buy-and-hold policy.
c.A superior analyst is one who can consistently select stocks that provide positive
abnormal returns on a risk-adjusted basis.
d.If a portfolio manager does not have any superior analysts, he/she should consider
investing funds in an index fund.
e.If a portfolio manager has some superior analytical skills, they should be encouraged
to concentrate in second tier stocks which have liquidity, but may be neglected.
9) Micro Corp. just paid dividends of $2 per share. Assume that over the next three
years dividends will grow as follows, 5% next year, 15% in year two, and 25% in year
3. After that growth is expected to level off to a constant growth rate of 10% per year.
The required rate of return is 15%. Calculate the intrinsic value using the multistage
model.
a. $5.56
b. $66.4
c. $49.31
d. $43.66
e. none of the above
10) Which of the following statements is false?
a. Returns for different industries vary within a wide range
b. Rates of return for individual industries vary over time
c. Rates of return of firms within industries vary over time
d. Different industries’ risk levels vary within a wide range
e. Risk measures for different industries vary within a wide range over time
11) What is the value to you of a 10 percent coupon bond with semi-annual coupon
payments and a par value of $10,000 that matures in 20 years if you require an 8
percent return?
a. $9,652.89
b. $10,356.65
c. $11,359.03
d. $11,979.28
e. $12,385.62
12) Consider a 15%, 20 year bond that pays interest annually, and its current price is
$850. What is the promised yield to maturity?
a. 10.23%
b. 18.45%
c. 2.31%
d. 17.77%
e. 9.26%
13) Exhibit 22.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If you establish a long strap using the options with an 85 exercise price, what is your
dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a. $1,687.50 loss
b. $3,362.50 loss
c. $3,675.50 gain
d. $13.00 gain
e. $13.00 loss
14)
Refer to Exhibit 3A.1. Calculate the coefficient of correlation.
a.-0.456
b.-0.354
c.0.000
d.0.456
e.3.538
15) Fama and French suggest a three factor model approach. Which of the following is
not included in their approach?
a. Excess returns to a broad market index
b. Return differences between small-cap and large-cap portfolios
c. Return differences between industry characteristics
d. Return differences between value and growth stocks
e. Both c and d
16) The main tradeoff between forward and future contracts is
a. Design flexibility.
b. Credit risk.
c. Liquidity risk.
d. All of the above.
e. Choices a and b only