1) a coupon bond that pays semiannual interest is reported in the wall street journal as
having an ask price of 117% of its $1,000 par value. if the last interest payment was
made 2 months ago and the coupon rate is 6%, the invoice price of the bond will be
_________.
a.$1,140
b.$1,170
c.$1,180
d.$1,200
2) medfield college’s $10 million endowment fund is not allowed to spend any
contributed capital or any capital gains. the fund may spend only investment earnings.
the fund is expected to need between $500,000 and $1,000,000 to pay for new lab
equipment for the science building. which of the following is (are) true?
i. the fund should have a target rate of return of at least 10%.
ii. the limitations on spending require that the fund limit its considerations to growth
stocks.
iii. the requirement to spend money out of the fund this year provides a liquidity
constraint that may reduce the fund’s rate of return.
a.i only
b.ii only
c.i and iii only
d.i, ii, and iii
3) gagliardi way corporation has an expected roe of 15%. if it pays out 30% of its
earnings as dividends, its dividend growth rate will be _____.
a.4.5%
b.10.5%
c.15%
d.30%
4) a mutual fund may not hold more than ______ of the shares of any publicly traded
company.
a.5%
b.10%
c.25%
d.50%
5) the reward-to-volatility ratio is given by _________.
a.the slope of the capital allocation line
b.the second derivative of the capital allocation line
c.the point at which the second derivative of the investor’s indifference curve reaches
zero
d.the portfolio’s excess return
6) futures contracts are said to exhibit the property of convergence because
_______________.
a.the profits from long positions and short positions must ultimately be equal
b.the profits from long positions and short positions must ultimately net to zero
c.price discrepancies would open arbitrage opportunities for investors who spot them
d.the futures price and spot price of any asset must ultimately net to zero
7) according to the capm, what is the market risk premium given an expected return on
a security of 13.6%, a stock beta of 1.2, and a risk-free interest rate of 4%?
a.4%
b.4.8%
c.6.6%
d.8%
8) assume the risk-free interest rate is 10% and is equal to the fund’s benchmark, the
portfolio’s net asset value is $100, and the fund’s standard deviation is 20%. also assume
a time horizon of 1 year.
what is the black-scholes value of the call option on the management incentive fee?
a.$6.67
b.$8.18
c.$9.74
d.$10.22
9) market economists all predict a rise in interest rates. an astute bond manager wishing
to maximize her capital gain might employ which strategy?
a.switch from low-duration to high-duration bonds.
b.switch from high-duration to low-duration bonds.
c.switch from high-grade to low-grade bonds.
d.switch from low-coupon to high-coupon bonds.
10) security x has an expected rate of return of 13% and a beta of 1.15. the risk-free rate
is 5%, and the market expected rate of return is 15%. according to the capital asset
pricing model, security x is _________.
a.fairly priced
b.overpriced
c.underpriced
d.none of these answers
11) the goal of supply-side policies is to _______.
a.increase government involvement in the economy
b.create an environment where workers and owners of capital have the maximum
incentive and ability to produce and develop goods
c.maximize tax revenues of the government
d.focus more on wealth redistribution policies
12) you manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per
quarter. assume the risk-free rate is 2% per quarter and the current value of the s&p 500
index is 1,200. you want to exploit the positive alpha, but you are afraid that the stock
market may fall and you want to hedge your portfolio by selling 3-month s&p 500
future contracts. the s&p contract multiplier is $250.
how many s&p 500 contracts do you need to sell to hedge your portfolio?
a.25
b.35
c.50
d.60