1) the risk premium for exposure to exchange rates is 5%, and the firm has a beta
relative to exchange rates of .4. the risk premium for exposure to the consumer price
index is -6%, and the firm has a beta relative to the cpi of .8. if the risk-free rate is 3%,
what is the expected return on this stock?
a..2%
b.1.5%
c.3.6%
d.4%
2) a high water mark is a limiting factor of hedge fund manager compensation. this
means that managers can’t charge incentive fees ________.
a.when a fund stays flat
b.when a fund falls and does not recover to its previous high value
c.when a fund falls by 10% or more
d.none of these options. (managers can always charge incentive fees.)
3) the fact that the u.s. government provides deposit insurance to banks creates a form
of ___________, which is at least partially offset by requiring banks to hold more
capital if they are riskier.
a.moral hazard
b.adverse selection
c.risk aversion
d.interest rate risk
4) suppose the market prices of the 30 stocks in the dow jones industrial average all
change by the same dollar amount on a given day. assuming there are no stock splits,
which stock will have the greatest impact on the average?
a.the one with the highest price
b.the one with the lowest price
c.all 30 stocks will have the same impact.
d.the answer cannot be determined from the information given.
5) benjamin graham thought that the benefits from detailed analysis of a firm’s financial
statements had _________ over his long professional life.
a.increased greatly
b.increased slightly
c.remained constant
d.decreased
6) jill is offered a choice between receiving $50 with certainty or possibly receiving the
proceeds from a gamble. in the gamble a fair coin is tossed, and if it comes up heads,
jill will receive $100; if the coin comes up tails, she will receive nothing. jill chooses
the $50 instead of the gamble. jill’s behavior indicates __________________.
a.regret avoidance
b.overconfidence
c.that she has a diminishing marginal utility of wealth
d.prospect theory loss aversion
7) the issuer of ________ bond may choose to pay interest either in cash or in
additional bonds.
a.an asset-backed
b.a tips
c.a catastrophe
d.a pay-in-kind
8) suppose that a stock portfolio and a bond portfolio have a zero correlation. this
means that ______.
a.the returns on the stock and bond portfolios tend to move inversely
b.the returns on the stock and bond portfolios tend to vary independently of each other
c.the returns on the stock and bond portfolios tend to move together
d.the covariance of the stock and bond portfolios will be positive
9) you buy a call option and a put option on general electric. both the call option and the
put option have the same exercise price and expiration date. this strategy is called a
_________.
a.time spread
b.long straddle
c.short straddle
d.money spread
10) which of the following are characteristics of a hedge fund?
i. pooling of assets
ii. strict regulatory oversight by the sec
iii. investing in equities, debt instruments, and derivative instruments
iv. professional management of assets
a.i and ii only
b.ii and iii only
c.iii and iv only
d.i, iii, and iv only
11) which of the following is not a type of managed investment company?
a.unit investment trusts
b.closed-end funds
c.open-end funds
d.hedge funds
12) you have a 25-year maturity, 10% coupon, 10% yield bond with a duration of 10
years and a convexity of 135.5. if the interest rate were to fall 125 basis points, your
predicted new price for the bond (including convexity) is _________.
a.$1,098.45
b.$1,104.56
c.$1,113.41
d.$1,124.22
13) an attribution analysis will not likely contain which of the following components?
a.asset allocation
b.index returns
c.risk-free returns
d.security selection
14) you estimate that the present value of a firm’s cash flow is valued at $15 million. the
break up value of the firm if you were to sell the major assets and divisions separately
would be $20 million. this is an example of what peter lynch would call ___________.
a.a stalwart
b.slow growth
c.a star
d.an asset play
15) you purchase an interest rate futures contract that has an initial margin requirement
of 15% and a futures price of $115,098. the contract has a $100,000 underlying par
value bond. if the futures price falls to $108,000, you will experience a ______ loss on
your money invested.
a.31%
b.41%
c.52%
d.64%
16) the theory of efficient frontiers has __________.
a.no adherents among practitioners
b.a small number of adherents among practitioners
c.a significant number of adherents among practitioners
d.complete support by practitioners
17) at the early stage of an individual’s working career, his or her retirement portfolio
should probably consist mostly of _______.
a.annuities
b.stocks
c.bonds
d.commodities