1) An example of an international fund would be one that consisted of investments in
securities from
a. The U.S., Germany, and Japan.
b. Germany, Italy, and the U.K.
c. The U.S., Korea, and Argentina.
d. All of the above.
e. None of the above.
2) Markowitz believes that any asset or portfolio of assets can be described by ____
parameter(s).
a. One
b. Two
c. Three
d. Four
e. Five
3) Which of the following statements regarding cyclical industries is true?
a. Cyclical industries are affected by changes in consumer sentiment.
b. Cyclical industries are not affected by the consumer’s willingness to borrow and
spend money.
c. Cyclical industries often outperform other sectors during a recession.
d. All of the above statements are true.
e. None of the above statements are true.
4) Which of the following is an underlying assumption of the constant growth dividend
discount model (DDM)?
a. Dividends have a constant growth rate
b. The constant growth rate of dividends will continue for an infinite time period
c. The required rate of return is greater than the expected growth rate
d. All of the above
e. None of the above
5) A bond denominated in U.S. dollars and sold in Japan to Japanese investors is called
a
a. Samurai bond.
b. Eurobond.
c. Yankee bond.
d. Euroyen bond
e. Foreign bond.
6) Exhibit 19.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is given concerning a substitution swap. You currently hold
a 25 year, Aa 8 percent coupon bond priced to yield 10 percent. As a swap candidate
you are considering a 25 year, Aa 8 percent coupon bond priced to yield 10.50 percent.
Assume a reinvestment rate of 10 percent, semiannual compounding, and a one-year
workout period.
The realized compound yield on the current bond is
a. 6.00%
b. 7.00%
c. 8.00%
d. 10.00%
e. 12.00%
7) Which of the following statements concerning active equity portfolio management
strategies is true?
a. The goal of active equity portfolio management is to earn a portfolio return that
exceeds the return of a passive benchmark portfolio (net of transaction costs) on a
risk-adjusted basis.
b. An actively managed equity portfolio has lower total transaction costs.
c. An actively managed equity portfolio has lower risk than the passive benchmark.
d. A key to success for an actively managed equity portfolio is to maximize trading
activity.
e. All of the above
8) A stock currently trades for $63. Call options with a strike price of $62 sell for $4.00
and expire in 6 months. If the risk-free rate is 4% what should the price of a put option
with an exercise price of $62 be worth?
a. $0.62
b. $0.98
c. $1.80
d. $3.00
e. $5.80
9) Which of the following is not normally associated with cyclical indicators?
a. The Securities and Exchange Commission (SEC)
b. The National Bureau of Economic Research (NBER)
c. Business Week
d. Center for International Business Cycle Research (CIBCR)
e. All of the above
10) Which of the following is not a use of security market indicator series?
a.To use as a benchmark of individual portfolio performance
b.To develop an index portfolio
c.To determine factors influencing aggregate security price movements
d.To use in the measurement of systematic risk
e.To use in the measurement of diversifiable risk
11) Which of the following is not a factor needed to calculate the value of an American
call option?
a. The stock price
b. The exercise price
c. The exchange on which the option is listed
d. The volatility of the underlying stock
e. The interest rate
12) Value stocks would have the following characteristics:
a. Low price/book, high price/earnings.
b. Low price/book, low price/earnings.
c. High EPS growth, high profitability.
d. Low EPS growth, high profitability.
e. None of the above.
13) To estimate earnings per share an analyst will start by estimating
a. Profits
b. Free cash flows
c. Sales
d. Number of shares outstanding
e. All of the above
14) What is the expected return of the three stock portfolio described below?
a. 18.27%
b. 14.33%
c. 16.33%
d. 12.72%
e. 16.45%
15) Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an
annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face
value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield
to maturity of 9%, and a face value of $1,000.
Calculate the Macaulay Duration for Bond B.
a. 1.44
b. 2.47
c. 2.55
d. 2.70
e. 2.78
16) Assume that as a portfolio manager the beta of your portfolio is 1.1 and that your
performance is exactly on target with the SML data under condition 1. If the true SML
data is given by condition 2, how much does your performance differ from the true
SML?
a. 3.2% lower
b. 6.4% lower
c. 4.9% lower
d. 3.2% higher
e. 6.4% higher
17) Exhibit 14.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Rollerball Corporation’s industry averages are as follows:
Net Profit Margin = 7.5%; Total Asset Turnover = 2.2; Total Assets/Equity = 2.0
Rollerball Corporation has the following financial statements for year ending
12/31/2008. (000’s omitted)
Calculate the return on equity (ROE) for Rollerball Corporation and the Industry.
Rollerball Industry Average
a. 115.0% 67.5%
b. 65.7% 33.0%
c. 41.8% 33.0%
d. 19.1% 15.7%
e. 8.7% 15.7%
18) The three step valuation process consists of (1) analysis of alternative economies
and markets, (2) analysis of alternative industries and (3) analysis of industry
influences.
19) If the exchange rate effect for Japanese bonds is negative, it means that the
domestic rate of return will be greater than the U.S. dollar return.
20) The Sharpe and Treynor measures complement each other and thus both should be
used to measure portfolio performance.
21) The economy and the stock market have a strong, consistent relationship, but the
stock market generally turns before the economy does.
22) The basis (Bt,T) at time t between the spot price (St) and a futures contract expiring
at time T (Ft,T) is: St– Ft,T.
23) The policy effect is a difference in bond portfolio performance from that of a
benchmark index due to a difference in duration.
24) Findings by Basu that stocks with high P/E ratios tended to outperform stocks with
low P/E ratios challenge the efficacy of the CAPM.
25) The most common way to test a portfolio manager’s performance is to compare the
portfolio return to a benchmark.