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1) suppose that over the same time period two portfolios have the same average return
and the same standard deviation of return, but portfolio a has a higher beta than
portfolio b. according to the sharpe ratio, the performance of portfolio a __________.
a.is better than the performance of portfolio b
b.is the same as the performance of portfolio b
c.is poorer than the performance of portfolio b
d.cannot be measured since there is no data on the alpha of the portfolio
2) portfolio a has a beta of 1.3 and an expected return of 21%. portfolio b has a beta of .
7 and an expected return of 17%. the risk-free rate of return is 9%. if a hedge fund
manager wants to take advantage of an arbitrage opportunity, she should take a short
position in portfolio __________ and a long position in portfolio __________.
a.a; a
b.a; b
c.b; a
d.b; b
3) you find that a firm that uses debt has a compound leverage factor less than 1. this
tells you that ________.
a.the firm's use of financial leverage is positively contributing to roe
b.the firm's use of financial leverage is negatively contributing to roe
c.the firm's use of operating leverage is positively contributing to roe
d.the firm's use of operating leverage is negatively contributing to roe
4) suppose that u.s. equity markets represent about 35% of total global equity markets
and that the typical u.s. investor has about 95% of her portfolio invested only in u.s.
equities. this is an example of _________.
a.home-country bias
b.excessive diversification
c.active management
d.passive management
5) if you are not a contrarian, you consider a high put/call ratio to be a __________.
a.bearish signal
b.bullish signal
c.trend confirmation signal
d.signal to enter the options market
6) june call and put options on king books inc. are available with exercise prices of $30,
$35, and $40. among the different exercise prices, the call option with the _____
exercise price and the put option with the _____ exercise price will have the greatest
value.
a.$40; $30
b.$30; $40
c.$35; $35
d.$40; $40
7) if you want to measure the performance of your investment in a fund, including the
timing of your purchases and redemptions, you should calculate the __________.
a.geometric average return
b.arithmetic average return
c.dollar-weighted return
d.index return
8) you purchased a share of stock for $29. one year later you received $2.25 as dividend
and sold the share for $28. your holding-period return was _________.
a.-3.57%
b.-3.45%
c.4.31%
d.8.03%
9) you hold a subordinated debenture in a firm. in the event of bankruptcy you will be
paid off before which one of the following?
a.mortgage bonds
b.senior debentures
c.preferred stock
d.equipment obligation bonds
10) many current and retired enron corp. employees had their 401k retirement accounts
wiped out when enron collapsed because ________.
a.they had to pay huge fines for obstruction of justice
b.their 401k accounts were held outside the company
c.their 401k accounts were not well diversified
d.none of these options
11) a fixed-income portfolio manager sets a minimum acceptable rate of return on the
bond portfolio at 5% per year over the next 4 years. the portfolio is currently worth $10
million. one year later interest rates are at 6%. what is the portfolio value trigger point
at this time that would require the manager to immunize the portfolio?
a.$12,155,063
b.$10,205,625
c.$9,627,948
d.$10,500,000
