The Black-Scholes hedge ratio for a long call option is equal to __________.
A.
N(d1)
B.
N(d2)
C.
N(d1) – 1
D.
If you have an extremely “bullish” outlook on the stock market, you could attempt to
maximize your rate of return by
________________.
A. purchasing out-of-the-money call options
B. purchasing at-the-money bull spreads
C. purchasing in-the-money call options
D. purchasing at-the-money call options
Portfolio manager Peter Lynch would classify Coca-Cola as _________.
A. an asset play
B. a slow grower
C. a stalwart
D. a turnaround
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and
a 2% back-end load, which decreases .5% per year. How much will you pay in fees on a
$10,000 investment that does not grow if you cash out after 3 years of no gain?
A. $103
B. $219
C. $553
D. $635
The difference between the price at which a dealer is willing to buy and the price at
which a dealer is willing to sell is called the _________.
A. market spread
B. bid-ask spread
C. bid-ask gap
D. market variation
Which of the following case studies illustrates a limit to arbitrage as discussed in the
text?
A. “Siamese twin” companies
B. equity carve-outs
C. closed-end funds
D. all of the options.
According to Kondratieff, the macro economy moves in a series of waves that recur at
intervals of approximately _________________.
A. 18 months
B. 4 years
C. 8 years
D. 50 years
Research suggests that the performance of the Black-Scholes option-pricing model has
__________________.
A. improved in recent years
B. remained about the same over time
C. been deficient for stocks with high dividend payouts
D. varied widely over the years since 1973
The ABS company has a capital base of $100 million, an opportunity cost of capital (k)
of 15%, a return on assets (ROA) of 9%, and a return on equity (ROE) of 18%. What is
the economic value added (EVA) for ABS?
A. $8 million
B. -$6 million
C. $3 million
D. -$4 million
The put/call ratio is a ______ indicator.
A. sentiment
B. flow of funds
C. market structure
D. fundamental
Convertible arbitrage hedge funds _________.
A. attempt to profit from mispriced interest-sensitive securities
B. hold long positions in convertible bonds and offsetting short positions in stocks
C. establish long and short positions in global capital markets
D. use derivative products to hedge their short positions in convertible bonds
Which of the following is an example of an agency problem?
A. Managers engage in empire building.
B. Managers protect their jobs by avoiding risky projects.
C. Managers overconsume luxuries such as corporate jets.
D. All of the options are examples of agency problems.
The difference between market-neutral and long-short hedges is that market-neutral
hedge funds _________.
A. establish long and short positions on both sides of the market to eliminate risk and to
benefit from security asset mispricing whereas long-short hedges establish positions
only on one side of the market
B. allocate money to several other funds while long-short funds do not
C. invest in relatively stable proportions of stocks and bonds while the proportions may
vary dramatically for long-short funds
D. invest only in equities and bonds while long-short funds use only derivatives
The table presents the actual return of each sector of the manager’s portfolio in column
(1), the fraction of the portfolio allocated to each sector in column (2), the benchmark
or neutral sector allocations in column (3), and the returns of sector indexes in column
4.
What is the
contribution of
asset allocation
to relative
performance?
A. -.18%
B. .18%
C. -.15%
D. .15%
Which one of the following statements about market and book value is correct?
A. All firms sell at a market-to-book ratio above 1.
B. All firms sell at a market-to-book ratio greater than or equal to 1.
C. All firms sell at a market-to-book ratio below 1.
D. Most firms have a market-to-book ratio above 1, but not all.
Suppose that the pretax holding-period returns on two stocks are the same. Stock A has
a high dividend payout policy and stock B has a low dividend payout policy. If you are
a high-tax rate individual and do not intend to sell the stocks during the holding period,
__________.
A. stock A will have a higher after-tax holding-period return than stock B
B. the after-tax holding period returns on stocks A and B will be the same
C. stock B will have a higher after-tax holding-period return than stock A
D. The answer cannot be determined from the information given.
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
Morningstar’s RAR produce results that are similar but not identical to ________.
A. Jensen’s alpha
B. M2
C. the Treynor ratio
D. the Sharpe ratio
Order the following stages in the industry life cycle from the earliest to latest to occur
after the start-up phase:
I. Maturity
II. Relative decline
III. Consolidation
A. III, I, II
B. I, III, II
C. III, II, I
D. I, II, III
Perfect-timing ability is equivalent to having __________ on the market portfolio.
A. a call option
B. a futures contract
C. a put option
D. a forward contract
You find that the exchange rate quote for the yen is 121 yen per dollar. This is an
example of ________ quote. You also find that the euro is worth $1.33. This second
quote is an example of _______ quote.
A. a direct; an indirect
B. an indirect; a direct
C. a foreign; a U.S.
D. a U.S.; a foreign
A firm has an earnings retention ratio of 40%. The stock has a market capitalization rate
of 15% and an ROE of 18%. What is the stock’s P/E ratio?
A. 12.82
B. 7.69
C. 8.33
D. 9.46
A retirement plan that offers a tax shelter will defer ______________ taxes on
contributions and investment earnings.
A. income
B. sales
C. property
D. estate
Which of the following describes the percentage of the total labor force that has yet to
find work?
A. the capacity utilization rate
B. the participation rate
C. the unemployment rate
D. the natural rate
Treasury notes have initial maturities between ________ years.
A. 2 and 4
B. 5 and 10
C. 10 and 30
D. 1 and 10
Consider the CAPM. The expected return on the market is 18%. The expected return on
a stock with a beta of 1.2 is 20%. What is the risk-free rate?
A. 2%
B. 6%
C. 8%
D. 12%
Methods of encouraging managers to act in shareholders’ best interest include:
I. Threat of takeover.
II. Proxy fights for control of the board of directors.
III. Tying managers’ compensation to stock price performance.
A. I only
B. I and II only
C. II and III only
D. I, II, and III
As compared with equivalent maturity bonds selling at par, deep discount bonds will
have ________.
A. greater reinvestment risk
B. greater price volatility
C. less call protection
D. shorter average maturity
A company that mines bauxite, an aluminum ore, decides to short aluminum futures.
This is an example of __________ to limit its risk.
A. cross-hedging
B. long hedging
C. spreading
D. speculating
Historically, small-firm stocks have earned higher returns than large-firm stocks. When
viewed in the context of an efficient market, this suggests that ___________.
A. small firms are better run than large firms
B. government subsidies available to small firms produce effects that are discernible in
stock market statistics
C. small firms are riskier than large firms
D. small firms are not being accurately represented in the data
Which of the following is a true statement?
A. The actual value of a call option is greater than its intrinsic value prior to expiration.
B. The intrinsic value of a call option is always greater than its time value prior to
expiration.
C. The intrinsic value of a call option is always positive prior to expiration.
D. The intrinsic value of a call option is greater than its actual value prior to expiration.
In 2008, the NASDAQ stock market merged with _____.
A. Euronext
B. OMX, which operates seven Nordic and Baltic stock exchanges
C. the International Securities Exchange (ISE)
D. BATS
You purchase one MBI July 120 call contract (equaling 100 shares) for a premium of
$5. You hold the option until the expiration date, when MBI stock sells for $123 per
share. You will realize a ______ on the investment.
A. $200 profit
B. $200 loss
C. $300 profit
D. $300 loss