1) On January 2, 2003, you invest $10,000 in the Tiger Fund, a load fund that charges a
fee of 6%. The fund’s returns were 25% in 2003, 35% in 2004, -5% in 2005. On
December 31, 2005 you redeem all your shares of Tiger. The dollar value is
a. $5,200.89
b. $13,345.89
c. $7,931.25
d. $15,896.34
e. $8,646.91
2) Which of the following is not a factor under the Free Cash Flow to Equity (FCFE)
Model?
a. Depreciation expense
b. Capital expenditure
c. Change in working capital
d. Principal debt repayment
e. Earnings multiplier
3) The equation for the single-index market model is
a. RFRit= ai+ bRmt+ et
b. Rit= ai+ bRmt+ et
c. Rit= ai+ bRFRt+ et
d. Rmt= ai+ bRit+ et
e. Rit= ai+ b(Rmt€ RFRt) + et
4) Exhibit 6.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.3. What is the abnormal rate of return for Hemlick during period t
using only the aggregate market return (ignore differential systematic risk)?
a.0.11
b.1.10
c.-1.80
d.-1.80
e.-4.60
5) In Berkshire Hathoway annual reports Warren Buffet highlights business tenets that
he believes are important. Which of the following is not a business tenet of Warren
Buffet?
a. Is the business unique and technologically advanced?
b. Does the business have a consistent operating history?
c. Does the business have favorable long-term prospects?
d. a and b above.
e. All of the above are business tenets of Warren Buffet.
6) Exhibit 11.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a firm that has just paid a dividend of $1.5. An analyst expects dividends to
grow at a rate of 9% per year for the next three years. After that dividends are expected
to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is
7%.
The price of the stock today (P0) is
a. $84.81
b. $87.81
c. $91.09
d. $94.32
e. $97.61
7) All of the following are common risk measurements except
a. Standard deviation
b. Variance
c. Semivariance
d. Covariance
e. Range of returns
8) You own a call option and put option that both have the same exercise price of $50
and their respective prices are $4 and $3. The stock is currently trading at $60.
Calculate the dollar return on this strategy.
a. $1.00
b. $2.00
c. $3.00
d. $4.00
e. $5.00
9) Exhibit 10.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following year end information for All Systems Corporation.
Calculate the return on equity (ROE).
a. 31.3%
b. 23.2%
c. 18.4%
d. 13.2%
e. 7.5%
10) Exhibit 21.12
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Suppose you are a loan officer for a commercial bank and one of your clients has just
approached you about a one-year loan for $4,000,000. Interest on the new loan will be
paid at the end of each quarter based on the prevailing level of LIBOR at the beginning
of each quarter. The LIBOR yield curve in the cash market is as follows:
What is the implied 90-day forward rate at the beginning of the second quarter?
a. 2.70%
b. 2.85%
c. 2.98%
d. 3.15%
e. 3.32%
11) Exhibit 14.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information on Kayray Corporation. Your ultimate
objective is to calculate the EVA for the firm.
Calculate the capital for the firm.
a. 1725
b. 1953
c. 2524
d. 2385
e. 1987
12) The annual interest paid on a bond relative to its prevailing market price is called its
____.
a. Promised yield
b. Yield to maturity
c. Coupon rate
d. Effective yield
e. Current yield
13) Which of the following statements is false?
a. Financial institutions are typically adversely impacted by higher rates of interest.
b. Industries with high operating leverage typically benefit with inflation when their
costs are fixed in nominal terms.
c. Industries with low financial leverage typically outperform firms with higher
leverage when inflation increases.
d. A weaker U.S. dollar typically helps U.S. industries.
e. Consumer cyclical industries are affected by increasing interest rates.
14) Using the constant growth model, an increase in the required rate of return from 17
to 20 percent combined with an increase in the growth rate from 8 to 11 percent would
cause the price to
a. Rise more than 3%
b. Rise less than 3%.
c. Remain constant.
d. Fall more than 3%.
e. Fall less than 3%.
15) Exhibit 23.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Chimichango Industries has decided to borrow $50,000,000.00 for six months in two
three-month issues. As the Treasurer, you are concerned that interest rates will rise over
the next three months and the rate upon which the second payment will be based will be
undesirable. (The amount of Chimichango’s first payment will be known at origination.)
To reduce the company’s interest rate exposure, you decide to purchase a 3 – 6 FRA
whereby you pay the dealer’s quoted fixed rate of 5.91% in exchange for receiving
3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys
LIBOR from Megabuks Industries at its bid rate of 5.85%. (Assume a notional principal
of $50,000,000.00 and that there are 60 days between month 3 and month 6.)
Assuming that 3-month LIBOR is 5.6% on the rate determination day, and the contract
specified settlement in arrears at month 6, describe the transaction that occurs between
the dealer and Megabuks.
a. The dealer is obligated to pay Megabuks $38,750.
b. The dealer is obligated to pay Megabuks $31,250.
c. Megabuks is obligated to pay the dealer $38,750.
d. Megabuks is obligated to pay the dealer $31,250.
e. None of the above.
16) In SWOT analysis, one examines all of the following factors, except
a. Strengths.
b. Weaknesses.
c. Opportunities.
d. Threats.
e. Turnarounds.
17) The expectations hypothesis is also known as both the institutional theory and the
hedging pressure theory.
18) Recent studies indicate that one can earn excess returns in the stock market by
forecasting unanticipated changes in the money supply.
19) Prior to the work of Markowitz in the late 1950’s and early 1960’s, portfolio
managers did not have a well-developed, quantitative means of measuring risk.
20) The major U.S. stock indexes are highly correlated.
21) If an investor wants to acquire the right to buy or sell an asset, but not the obligation
to do it, the best instrument is an option rather than a futures contract.