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1) A growth company is one that has the ability to
a. Acquire capital at a low cost and is able to invest in projects that yield an average
return.
b. Acquire capital at a low cost and is able to invest in projects that yield a below
average return.
c. Acquire capital at an average cost and is able to invest in projects that yield an above
average return.
d. Acquire capital at an average cost and is able to invest in projects that yield an
average return.
e. Acquire capital at an above average cost and is able to invest in projects that yield an
average return.
2) ____ is a strategy used because the market seems to reward companies that have
steady, above average earnings growth, or whose prices are rising because of market
optimism.
a. Relative strength
b. Asset momentum
c. Rotational attribution
d. All of the above.
e. None of the above.
3) The major requirements of a portfolio manager include the following, except
a. Follow the client's policy statement.
b. Completely diversify the portfolio to eliminate all unsystematic risk.
c. The ability to derive above-average risk adjusted returns.
d. Completely diversify the portfolio to eliminate all systematic risk.
e. None of the above (that is, all are requirements of a portfolio manager)
4) How much would you expect to pay for a $10,000 stripped Treasury bond quoted at
101:16?
a. $10,150.00
b. $10,000.00
c. $101.16
d. $10,160.00
e. None of the above
5) The ratio of OTC volume versus NYSE volume is a measure of ____. This ratio
typically ____ at a market ____.
a. Speculative activity, bottoms, peak.
b. Hedging activity, bottoms, peak.
c. Speculative activity, peaks, peak
d. Speculative activity, bottoms, bottoms.
e. None of the above.
6) Exhibit 22.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
Calculate the payoffs of a short straddle at a stock price at expiration of $20 and a stock
price at expiration of $45.
a. $6.35, $18.85
b. $29.65, $42.15
c. $21.65, $34.15
d. $8, $8
e. -$8, -$8
7) The process by which invest on margin accounts are credited or debited to reflect
daily trading gains or losses is referred to as the ____ process.
a. Hedge rationing
b. Daily settlement
c. Marked-to-market
d. Book-to-market
e. Account realization
8) A trading rule which signals purchase of a stock if it rises X percent and sale of a
stock if it falls X percent is known as a
a.Breakout.
b.Short sale.
c.Sieve.
d.Filter.
e.Relative strength.
9) A call option in which the stock price is higher than the exercise price is said to be
a. At-the-money.
b. In-the-money.
c. Before-the-money.
d. Out-of-the-money.
e. Above-the-money.
10) If a diffusion index for new orders went from 87 to 74 and then to 68, it would
indicate ____ receipt of new orders and indicate a ____ in breadth and the possibility of
a future ____ in the series.
a. Limited, strengthening, decline
b. Limited, weakening, increase
c. Widespread, strengthening, increase
d. Widespread, weakening, decline
e. Widespread, weakening, increase
11) A portfolio manager who uses tactical asset allocation is attempting to create alpha.
12) In the Black-Scholes option pricing model, an increase in the risk free rate (RFR)
will cause
a. An increase in call value and an increase in put value
b. An increase in call value and a decrease in put value
c. A decrease in call value and an increase in put value
d. A decrease in call value and a decrease in put value
e. An increase in call value and an increase or decrease in put value
13) The exercise price of The American Dairy Company is $17. You purchase the
warrants for $4.00 each when American Dairy's stock price is $20.00 a share. Each
warrant entitles you to purchase one share of ADC stock. Calculate your percentage
gain assuming the warrant premium drops by 50% and you sell your warrants when the
stock reaches $30.00 per share.
a. 37.5%
b. 87.5%
c. 137.5%
d. 237.5%
e. 337.5%
14) 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 third quarter?
a. 2.97%
b. 3.05%
c. 3.34%
d. 3.55%
e. 3.76%
15) Exhibit 21.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a relationship officer for a money-center commercial bank, one of your corporate
accounts has just approached you about a one-year loan for $3,000,000. The customer
would pay a quarterly interest expense based on the prevailing level of LIBOR at the
beginning of each quarter. As is the bank's convention on all such loans, the amount of
the interest payment would then be paid at the end of the quarterly cycle when the new
rate for the next cycle is determined. You observe the following LIBOR yield curve in
the cash market:
What is the implied 90-day forward rate at the beginning of the fourth quarter?
a. 6.19%
b. 5.10%
c. 6.07%
d. 5.68%
e. None of the above
16) In a price weighted average stock market indicator series, the following type of
stock has the greatest influence
a.The stock with the highest price
b.The stock with the lowest price
c.The stock with the highest market capitalization
d.The stock with the lowest market capitalization
e.The stock with the highest P/E ratio
