1) investor a bought a call option, and investor b bought a put option. all else equal, if
the interest rate increases, the value of investor a’s position will ______ and the value of
investor b’s position will _______.
a.increase; increase
b.increase; decrease
c.decrease; increase
d.decrease; decrease
2) you invest in various broadly diversified international mutual funds as well as your
u.s. portfolio. the one risk you probably don’t have to worry about affecting your returns
is __________.
a.business-cycle risk
b.beta risk
c.inflation risk
d.currency risk
3) for which of the following goods are services are prices most sticky?
a.taxi fares
b.haircuts
c.coin-operated laundry machines
d.airlines tickets
4) which of the following is not an example of a financial intermediary?
a.goldman sachs
b.allstate insurance
c.first interstate bank
d.ibm
5) during 2004 china increased its use of global oil by 40%. this followed a 100%
increase during the previous 5 years. how do economists refer to this kind of economic
event?
a.demand shock
b.equilibrium event
c.expanding commodity event
d.supply shock
6) sharon decides to put $5,000 into her retirement plan at the age of 25. she will
continue to invest the same amount for a total of 6 years and then stop contributing.
assume 10% annual return.
how much money will sharon have in her retirement plan after 6 years?
a.$30,000
b.$35,575
c.$38,578
d.$41,451
7) an investor establishes a long position in a futures contract now (time 0) and holds
the position until maturity (time t). the sum of all daily settlements will be __________.
a.f0 – ft
b.f0 – s0
c.ft – f0
d.ft – s0
8) according to the capm, the risk premium an investor expects to receive on any stock
or portfolio is _______________.
a.directly related to the risk aversion of the particular investor
b.inversely related to the risk aversion of the particular investor
c.directly related to the beta of the stock
d.inversely related to the alpha of the stock
9)
refer to the figure above. assuming this market is representative of the economy as a
whole, a positive demand shock will:
a.increase both the price level and the quantity of output produced.
b.increase output, but leave prices unchanged.
c.lower the price level, but leave output unchanged.
d. raise the price level, but leave output unchanged.
10) bill jones inherited 5,000 shares of stock priced at $45 per share. he does not want
to sell the stock this year due to tax reasons, but he is concerned that the stock will drop
in value before year-end. bill wants to use a collar to ensure that he minimizes his risk
and doesn’t incur too much cost in deferring the gain. january call options with a strike
of $50 are quoted at a cost of $2, and january puts with a $40 exercise price are quoted
at a cost of $3. if bill establishes the collar and the stock price winds up at $35 in
january, bill’s net position value including the option profit or loss and the stock is
_________.
a.$195,000
b.$220,000
c.$175,000
d.$215,000
11) passive investors with well-diversified international portfolios _________.
a.can safely ignore all political risk in emerging markets
b.can expect very large diversification gains from their international investing
c.do not need to be concerned with hedging exposure to foreign currencies
d.can expect returns to be better than the eafe on a consistent basis
12) a bond swap made in response to forecasts of interest rate changes is called ______.
a.a substitution swap
b.an intermarket spread swap
c.a rate anticipation swap
d.a pure yield pickup swap
13) you purchase a call option on a stock. the profit at contract maturity of the option
position is ___________, where x equals the option’s strike price, st is the stock price at
contract expiration, and c0 is the original purchase price of the option.
a.max (-c0, st – x – c0)
b.min (-c0, st – x – c0)
c.max (c0, st – x + c0)
d.max (0, st – x – c0)
14) at contract maturity the value of a put option is ___________, where x equals the
option’s strike price and st is the stock price at contract expiration.
a.max (0, st – x)
b.min (0, st – x)
c.max (0, x – st)
d.min (0, x – st)
15) value stocks usually exhibit ______ price-to-book ratios and ______
price-to-earnings ratios.
a.low; low
b.low; high
c.high; low
d.high; high
16) portfolio manager peter lynch would classify coca-cola as _________.
a.an asset play
b.a slow grower
c.a stalwart
d.a turnaround