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1) Refer to Exhibit 5.4. Calculate the average annual rate of change for this index for
the 5 year period using the geometric mean.
a.0.09%
b.1.99%
c.3.99%
d.4.50%
e.4.67%
2) Exhibit 21.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $20,500,000 equity portfolio under management.
The manager wishes to hedge against a decline in share values using stock index
futures. Currently a stock index future is priced at 1250 and has a multiplier of 250. The
portfolio beta is 1.25.
Assume that a month later the equity portfolio has a market value of $20,000,000 and
the stock index future is priced at 1150 with a multiplier of 250. Calculate the profit on
the stock index futures position.
a. $1,550,000
b. -$2,000,000
c. $2,050,000
d. -$5,000,000
e. $2,400,000
3) Serial bonds
a. Can be callable.
b. Can have sinking funds.
c. Have different maturity dates.
d. All of the above.
e. None of the above.
4) Assume that as a portfolio manager the beta of your portfolio is 0.85 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. 1.33% higher
b. 2.35% lower
c. 8% lower
d. 1.33% lower
e. 2.35% higher
5) Which of the following is an underwriting function?
a.Origination
b.Risk-bearing
c.Distribution
d.Choices b and c
e.All of the above
6) Exhibit 4.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2%
for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The
maintenance margin is 30%.
Refer to Exhibit 4.7. Assume that you purchase 150 shares of RossCorp stock at $45
each by making a margin deposit of 55%. At what price would you receive a margin
call?
a.$29.39
b.$26.48
c.$50.39
d.$28.93
e.$50.10
7) At what point would an investor be indifferent between a Drifton corporate bond
yielding 12.5 percent and a tax-free municipal bond of equal financial strength if the
investor's marginal tax rate is 25 percent?
a. 6.05%
b. 7.10%
c. 8.15%
d. 9.38%
e. 16.27%
8) Which of the following performance measures is the most rigorous risk-adjustment
process separating systematic and unsystematic risk?
a. Treynor ratio
b. Sharpe ratio
c. Jensen's Alpha
d. Information ratio
e. None of the above
9) Exhibit 5.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
Refer to Exhibit 5.2. Calculate a price weighted average for January 14th.
a.32
b.30
c.36.13
d.34
e.None of the above
10) If the economic outlook was such that you expected corporate earnings to decline,
consumers have excessive levels of debt, and there is significant overcapacity in the
technology sector, then an appropriate asset allocation policy would be to:
a. Overweight equity especially technology stocks and underweight bonds
b. Underweight equity especially technology stocks and overweight bonds
c. Overweight equity especially technology stocks and overweight bonds
d. Underweight equity especially technology stocks and underweight bonds
e. None of the above
11) A Eurobond is an international bond
a.Sold by an issuer within its own country in that country's currency.
b.Denominated in a currency not native to where it is issued.
c.Also known as a Yankee Bond.
d.Denominated in U.S. dollars but issued by a foreign company.
e.That is sold only to European investors.
12) Exhibit 25.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Which of the following statements is true?
a. The portfolio manager earned an extra 0.3% because of a shift in allocation out of
bonds and into stocks.
b. The portfolio manager earned an extra 0.3% because of a shift in allocation out of
stocks and into bonds.
c. The portfolio manager earned an extra 6.5% because of a shift in allocation out of
bonds and into stocks.
d. The portfolio manager earned an extra 6.5% because of a shift in allocation out of
stocks and into bonds.
e. None of the above is a true statement.
13) Exhibit 14.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What are the expected sustainable growth rates for Wal-Blue and its industry?
a. 25.2% and 15.0%
b. 30.0% and 17.5%
c. 25.2% and 17.5%
d. 27.5% and 12.5%
e. 30.0% and 15.0%
14) A pay-fixed interest rate swap can be viewed as equivalent to
a. A long position in a par valued FRN and a long position in a par valued fixed rate
note.
b. A long position in a par valued FRN and a short position in a par valued fixed rate
note.
c. A short position in a par valued FRN and a long position in a par valued fixed rate
note.
d. A short position in a par valued FRN and a short position in a par valued fixed rate
note.
e. None of the above.
15) The payoffs diagrams to both long and short positions in a forward contract are
asymmetrical around the contract price.
16) Banks face regulatory constraints at both the state and federal level.
17) Income bonds are considered as safe as debentures because they pay higher rates of
interest.
18) A cyclical company's sales and earnings are heavily influenced by aggregate
business activity.
19) The low correlations between the U.S. and Japan confirm the benefit of global
diversification.
20) Average tax rate is defined as total tax payment divided by total income.
21) The market portfolio consists of all risky assets.
