1) Which of the following statements is false?
a.Unrealized capital gains are taxable.
b.Realized capital gains are taxable.
c.Tax-exempt investments are attractive to individuals with high tax liabilities.
d.Returns comparisons should be made on an equivalent tax basis.
e.Tax exempt investors prefer tax exempt investments.
2) Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual
settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional
principal is $50,000,000.
Assume that one year later the fixed rate on a new 3-year receive fixed pay floating
LIBOR swap has fallen to 7% per year. Settlement is on a semiannual basis. Calculate
the market value of the FRN based on $100 face value.
a. $102.66
b. $100.00
c. $95.56
d. $89.63
e. $70.77
3) The actual index movements are typically based on the arithmetic mean of the
percent changes in price or value for the stocks in the
a.Price-weighted index.
b.Unweighted index.
c.Value-weighted index.
d.All of the above
e.None of the above
4) Exhibit 5.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.1. Compute an unweighted price indicator series, using geometric
means. What is the percentage change in the index from Day T to Day T+1? Assume a
base index value of 100 on Day T.
a.5.35%
b.7.48%
c.9.93%
d.6.33%
e.None of the above
5) Which of the following economic series is not included in the National Bureau of
Economic Research (NBER) lagging indicator group?
a. Average duration of unemployment
b. Ratio of manufacturing and trade inventories to sales
c. Number of employees on nonagricultural payrolls
d. Percentage change in the labor cost per unit of output in manufacturing
e. All of the above are included in the NBER lagging indicator group
6) Exhibit 14.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the BRK Corporation had free cash flow to equity (FCFE)
of $250,000 and shares outstanding of 200,000. The company projects the following
annual growth rates in FCFE:
From year 2019 onward growth in FCFE is expected to remain constant at 5% per year.
The stock has a beta of 1.3 and the current market price is $55. Currently the yield on
10-year Treasury notes is 5% and the equity risk premium is 4%.
Calculate the required rate of return on equity.
a. 5%
b. 9.2%
c. 10.2%
d. 10%
e. 4.3%
7) At what point would an investor be indifferent between a Compco corporate bond
yielding 8.5 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. 6.38%
e. 2.34%
8) Exhibit 22.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If you establish a long straddle using the options with a 90 exercise price, what is your
dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a. $68.75 loss
b. $68.75 gain
c. $37.50 loss
d. $1,200.00 loss
e. $1,200.00 gain
9) Exhibit 23.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The Skalmory Corporation has entered into a 3-year interest rate swap, with semiannual
settlement, to pay a fixed rate of 7.5% per year and receive 6-month LIBOR. The
notional principal is $10,000,000.
What is the market value of the swap to the Skalmory Corporation?
a. -$9,000,000
b. -$1,804,000
c. -$87,654
d. $91,830
e. $7,620,000
10) A more recent adjustment to the Sharpe measurement for portfolio evaluation is
a. To divide the portfolio risk premium by total risk rather than the portfolio’s beta.
b. To divide the portfolio risk premium by standard deviation rather than the portfolio’s
beta.
c. To divide the portfolio risk premium by the excess portfolio return rather than total
risk.
d. To divide the excess portfolio return by the portfolio’s standard deviation.
e. To divide the excess portfolio return by the portfolio’s beta.
11) A 12b-1 plan allows funds to
a. Charge a redemption fee.
b. Deduct 7 to 8 percent commission at the initial offering.
c. Deduct .75 percent of the average net assets per year.
d. Charge a contingent deferred sales load.
e. Switch from closed-end to open-end.
12) Exhibit 17.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
XLR Corporation just issued a $1,000 par value bond with a 7% yield to maturity,
twenty years to maturity, with an 8% semi-annual coupon rate.
If market interest rates are constant, what will the price of the XLR Corporate bond be
in three years?
a. $904.29
b. $1,097.63
c. $1,098.50
d. $1,102.85
e. $1,105.62
13) Consider a bond with a 9% coupon and a current yield of 8 1/2%. What is this
bond’s price?
a. $1058.82
b. $1009.00
c. $1085.00
d. $1062.44
e. $1077.96
14) The strong form of the efficient market hypothesis contends that only insiders can
earn abnormal returns.
15) Risk management strategies involving interest rate agreements can be classified as
forward-based or option-based.
16) Financial ratios can be used to identify firms that might default on a loan or declare
bankruptcy.
17) Stock prices move coincidentally with the economy.
18) Rule 415 allows corporations to place securities privately with large, sophisticated
institutional investors without extensive registration documents.
19) The APT does not require a market portfolio.
20) One of the potential disadvantages of technical analysis is that it can lead to
investing too early, even before fundamental analysts do.
21) According to the cost of carry model the futures price is the present value of the
spot price discounted at the risk free rate.