1) 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.
Assuming that one year after the swap was initiated the fixed rate on a new 2-year
receive fixed pay floating LIBOR swap has fallen to 7% per year, calculate the market
value of the 7.5% fixed rate bond based on $100 face value. Settlement is on a
semiannual basis.
a. $101.33
b. $100.92
c. $100.00
d. $98.67
e. $95.83
2) Exhibit 22.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If you establish a long straddle using the options with a 95 exercise price, what is your
dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
a. $668.75 gain
b. $668.75 loss
c. $94.56 gain
d. $94.56 loss
e. $81.25 loss
3) When a market is internally efficient, it means that
a.The market has price continuity.
b.The market has minimal transactions costs
c.The market has good depth
d.The market has more buyers than sellers
e.The market has more sellers than buyers
4) In examining the properties of world market currencies or the spreads between
currencies, an analyst is most likely to use time series properties to determine all the
following, except
a. Volatility.
b. Overbought condition.
c. Resistance-support levels.
d. Trend.
e. An oversold condition.
5) Exhibit 11.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a firm that has just paid a dividend of $2. An analyst expects dividends to
grow at a rate of 8% per year for the next five years. After that dividends are expected
to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is
7%.
The dividends for years 1, 2, and 3 are
a. $2, $2.08, $2.16
b. $2, $2.05, $2.10
c. $2.16, $2.24, $2.32
d. $2.16, $2.33, $2.52
e. $2.07, $2.14, $2.21
6) An investor wishes to construct a portfolio by borrowing 30% of his initial wealth at
the risk-free rate of 3% and investing all the money in a stock index. The expected
return on the stock index is 12%. Calculate the expected return on the portfolio.
a. 14.7%
b. 15.6%
c. 17.1%
d. 18.9%
e. 19.7%
7) Exhibit 22.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The information provided is relevant in the context of a one period (one year) binomial
option pricing model. A stock currently trades at $50 per share, a call option on the
stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by
25%. The one-year risk free rate is 2%.
Calculate the possible prices of the stock one year from today.
a. $37.50 or $17.50.
b. $62.50 or $37.50.
c. $62.50 or $17.50.
d. $50 or $45.
e. None of the above.
8) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2003, prior to the
splits. Assume a base index value of 100. The base year is Dec 31, 2003.
a.120.0
b.81.69
c.72.5
d.100.0
e.121.25
9) According to the expectations hypothesis a rising yield curve indicates that investors
expect
a. future short term rates to fall
b. future short term rates to rise
c. future long term rates to rise
d. future long term rates to fall
e. none of the above
10) Exhibit 4.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Kathy Smith has a margin account with a balance of $60,000. Initial margin
requirements are 80 percent, and Jackson Industries is currently selling at $40 per share.
Refer to Exhibit 4.3. How many shares of Jackson can Kathy buy?
a.1875
b.1500
c.1750
d.1200
e.None of the above
11) Exhibit 10.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was BMC’S interest coverage for 2004?
a. 6.82
b. 3.04
c. 2.74
d. 2.04
e. 1.41
12) Exhibit 11.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A major manufacturer is reevaluating its bonds since it is planning to issue a new bond
in the current market. The firm’s outstanding bond issue has 7 years remaining till
maturity. The bonds were issued with an 8 percent coupon rate (paid quarterly) and a
par value of $1,000. The required rate of return is 10 percent.
What will be the value of these securities in one year if the required return is 6 percent?
a. $1151.92
b. $972.52
c. $1100.15
d. $900.18
e. $936.72
13) Exhibit 6.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.6. What is the abnormal rate of return for Stock B when you consider
its systematic risk measure (beta)?
a.-0.8%
b.-1.2%
c.1.3%
d.2.4%
e.6.6%
14) Ethical conflicts may arise as a result of
a. Incentive compensation schemes.
b. Soft dollar arrangements.
c. Marketing investment management services.
d. All of the above.
e. None of the above.
15) Portfolio managers who anticipate an increase in interest rates should
a. Act to keep the duration constant.
b. Decrease the portfolio duration.
c. Increase the portfolio duration.
d. Assume higher risk in the market.
e. Invest in junk bonds.
16) If you expected interest rates to fall, you would prefer to own bonds with
a. long durations and high convexity.
b. long durations and low convexity.
c. short durations and high convexity.
d. short durations and low convexity.
e. none of the above.
17) Exhibit 5.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.7. If the December 31, 2011 equal weighted index for ABC was 100,
what is the equal weighted index for ABC on December 31, 2012?
a.108.35
b.114.74
c.120.19
d.126.67
e.131.54
18) Exhibit 8.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Jonathan Crowley is a portfolio manager for a large pension fund. Last year his
portfolio had an actual return of 12.6% with a standard deviation of 13% and a beta of
1.3. The market risk premium for this period of time was 6% and the risk-free rate of
return was 5%.
Refer to Exhibit 8.6. How does Jonathan Crowley’s portfolio compare to the market
portfolio?
a. Crowley’s portfolio is less risky than the market portfolio.
b. Crowley’s portfolio significantly outperformed the market portfolio.
c. On a risk-adjusted basis Crowley’s portfolio performed similar to the market
portfolio.
d. On a risk-adjusted basis Crowley’s portfolio significantly underperformed the market.
e. On a risk-adjusted basis Crowley’s portfolio significantly outperformed the market.
19) Under the following conditions, what are the expected returns for stocks Y and Z?
a. 12.0% and 13.3%
b. 13.5% and 14.2%
c. 13.9% and 15.6%
d. 14.0% and 16.9%
e. 15.8% and 17.3%
20) Fund of funds give investors access to hedge fund managers that might otherwise
be unavailable to them.
21) All investment firms charge annual management fees to compensate the
professional manager of the fund.
22) Only the stocks of large companies are traded in the primary market.
23) An analysis of U.S. equity markets using the cash flow techniques concludes that
the market is not fully valued.
24) A bond swap involves liquidating a current bond position, and later investing in a
similar issue under more favorable conditions.
25) Bond price volatility varies directly with the term to maturity and directly with the
coupon.