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1) a market-timing strategy is one in which asset allocation in the stock market
__________ when one forecasts that the stock market will outperform treasury bills.
a.decreases
b.increases
c.remains the same
d.may increase or decrease
2) proponents of the emh typically advocate __________.
a.a conservative investment strategy
b.a liberal investment strategy
c.a passive investment strategy
d.an aggressive investment strategy
3) a portfolio with a 25% standard deviation generated a return of 15% last year when
t-bills were paying 4.5%. this portfolio had a sharpe ratio of ____.
a..22
b..60
c..42
d..25
4) a call option has an exercise price of $35 and a stock price of $36.50. if the call
option is trading at $2.25, what is the time value embedded in the option?
a.$0
b.$.75
c.$1.50
d.$2.25
5) a project has a 60% chance of doubling your investment in 1 year and a 40% chance
of losing half your money. what is the standard deviation of this investment?
a.25%
b.50%
c.62%
d.73%
6) a wheat farmer should __________ in order to reduce his exposure to risk associated
with fluctuations in wheat prices.
a.sell wheat futures
b.buy wheat futures
c.buy a contract for delivery of wheat now and sell a contract for delivery of wheat at
harvest time
d.sell wheat futures if the basis is currently positive and buy wheat futures if the basis is
currently negative
7) in 2006 hewlett-packard repurchased shares of common stock worth $5,241 million
and made dividend payments of $894 million. other financing activities raised $196
million, and hewlett-packard's total cash flow from financing was -$6,077 million. how
much did the long-term debt accounts of hewlett-packard change?
a.increased $138 million
b.decreased $138 million
c.increased $836 million
d.decreased $836 million
8) _____ is an example of an exchange-traded fund.
a.an spdr or spider
b.a samurai
c.a vanguard
d.an open-end fund
9) rational risk-averse investors will always prefer portfolios _____________.
a.located on the efficient frontier to those located on the capital market line
b.located on the capital market line to those located on the efficient frontier
c.at or near the minimum-variance point on the efficient frontier
d.that are risk-free to all other asset choices
10) which of the following types of bonds are excluded from most bond indexes?
a.corporate bonds
b.junk bonds
c.municipal bonds
d.none of these options
11) there are two independent economic factors, m1 and m2. the risk-free rate is 5%,
and all stocks have independent firm-specific components with a standard deviation of
25%. portfolios a and b are well diversified. given the data below, which equation
provides the correct pricing model?
a.e(rp) = 5 + 1.12p1 + 11.86p2
b.e(rp) = 5 + 4.96p1 + 13.26p2
c.e(rp) = 5 + 3.23p1 + 8.46p2
d.e(rp) = 5 + 8.71p1 + 9.68p2
