1) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Calculate the per share EBIT for the year 2004.
a. $95.33
b. $70.42
c. $85.56
d. $95.89
e. $75.32
2) Exhibit 20.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rick Thompson is considering the following alternatives for investing in Davis
Industries which is now selling for $44 per share:
Assuming no commissions or taxes, what is the annualized percentage gain if the stock
is at $30 in four months and the stock was purchased?
a. 9.54% loss
b. 95.45% loss
c. 0.9545% gain
d. 95.45% gain
e. 9.54% gain
3) Which of the following is not a flow ratio?
a. Interest coverage
b. Fixed charge coverage
c. Debt/equity
d. Cash flow/long term debt
e. Cash flow/total debt
4) In a convertible arbitrage strategy hedge fund managers attempt to
a. Generate profits by taking advantage of convertible bond pricing disparities caused
by changing market events.
b. Generate profits by taking advantage of disparities in the relationship between prices
for convertible bonds and the underlying common stock.
c. Generate profits by taking advantage of disparities in the relationship between prices
for convertible bonds and the underlying common stock option.
d. All of the above.
e. None of the above.
5) During which stage of the industrial life cycle is the product or service recognized as
viable and the demand substantial?
a. Early pioneering development
b. Rapid accelerating growth
c. Acquisition and consolidation
d. Mature growth
e. Stabilization and market maturity
6) Calculate the expected return for E Services which has a beta of 1.5 when the risk
free rate is 0.05 and you expect the market return to be 0.11.
a. 10.6%
b. 12.1%
c. 13.6%
d. 14.0%
e. 16.2%
7) Exhibit 20.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Sarah Kling bought a 6-month Peppy Cola put option with an exercise price of $55 for
a premium of $8.25 when Peppy was selling for $48.00 per share.
If at expiration Peppy is selling for $47.00, what is Sarah’s dollar gain or loss?
a. $25 loss
b. $250 loss
c. $25 gain
d. $250 gain
e. None of the above
8) DuPont Analysis breaks down return on equity into major areas that can be used to
identify a firm’s strengths or weaknesses with respect to
a. Profitability
b. Leverage
c. Liquidity
d. Efficiency
e. All of the above are broken out in the basic DuPont equation.
9) Exhibit 14.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Valentine Company currently has a 14% annual growth rate while the market
average is 4 percent. The market multiple is 15.
Determine the P/E ratio for the Valentine Company assuming Valentine can maintain its
superior growth rate for the next 5 years.
a. 23.7
b. 16.4
c. 15.3
d. 8.3
e. 3.8
10) Which of the following statements is not true regarding bond ratings?
a. The ratings assigned are meant to indicate the probability of default for the bond
issuer.
b. The bonds assigned one of the top four rating classes are considered investment
grade bonds.
c. Once a rating is assigned to an issue it cannot be changed for the first two years after
which it is reviewed on a regular basis.
d. Bonds rated BB and below are referred to as high yield or “junk” bonds.
e. The rating agencies modify the ratings with + and – signs or numbers after the letters.
11) Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor
loadings (or factor betas).
The zero-beta return (λ0) = 3%, and the risk premia are λ1= 10%, λ2= 8%. Assume that
all three stocks are currently priced at $50.
Assume that you wish to create a portfolio with no net wealth invested. The portfolio
that achieves this has 50% in stock X, −100% in stock Y, and 50% in stock Z. The
weighted exposure to risk factor 1 for stocks X, Y, and Z are
a. 0.50, −1.0, 0.50
b. −0.50, 1.0, −0.50
c. 0.60, −0.85, 0.25
d. −0.275, 0.10, 0.175
e. None of the above.
12) What is the 95 percent confidence interval for an investment with an expected
return of 9 percent and a standard deviation of 15%?
a.9% to 15%
b.-6% to 24%
c.-15% to 32%
d.-21% to 39%
e.-36% to 56%
13) The annual rate of inflation is 2.5%
Refer to Exhibit 3.2. What is the long term Treasury bond nominal return?
a.3.56%
b.5.37%
c.6.19%
d.9.16%
e.11.32%
14) Exhibit 23.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Darden Industries has decided to borrow $25,000,000.00 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 Darden’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 4.5% in exchange for receiving
3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys
LIBOR from McIntire Industries at its bid rate of 4%. (Assume a notional principal of
$25,000,000.00 and that there are 60 days between month 3 and month 6.)
Assuming that 3-month LIBOR is 5.00% on the rate determination day, and the contract
specified settlement in advance, describe the transaction that occurs between the dealer
and Darden.
a. The dealer is obligated to pay Darden $30,864.20.
b. The dealer is obligated to pay Darden $19,359.61.
c. Darden is obligated to pay the dealer $19,359.61.
d. Darden is obligated to pay the dealer $30,864.20.
e. None of the above