1) Exhibit 25.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
Compute the Sharpe Measure for the XXX fund.
a. 6.98
b. 2.35
c. 2.53
d. 3.86
e. 1.72
2) Exhibit 23.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Darden Industries has decided to borrow $25,000,000.00 for six months in two
three-month issues. As the Treasurer, you are concerned that interest rates will rise over
the next three months and the rate upon which the second payment will be based will be
undesirable. (The amount of Darden’s first payment will be known at origination.) To
reduce the company’s interest rate exposure, you decide to purchase a 3 – 6 FRA
whereby you pay the dealer’s quoted fixed rate of 4.5% in exchange for receiving
3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys
LIBOR from McIntire Industries at its bid rate of 4%. (Assume a notional principal of
$25,000,000.00 and that there are 60 days between month 3 and month 6.)
Assuming that 3-month LIBOR is 5.00% on the rate determination day, and the contract
specified settlement in advance, describe the transaction that occurs between the dealer
and Darden.
Assuming that 3-month LIBOR is 5.00% on the rate determination day, and the contract
specified settlement in arrears at month 6, describe the transaction that occurs between
the dealer and McIntire.
a. The dealer is obligated to pay McIntire $62,500.
b. The dealer is obligated to pay McIntire $57,500.
c. McIntire is obligated to pay the dealer $62,500.
d. McIntire is obligated to pay the dealer $57,500.
e. None of the above
3) Which of the following is not a technical trading rule category?
a. Contrary-opinion rules
b. Follow the smart money rules
c. Anti-fundamental and anti-portfolio approaches
d. Stock price and volume techniques
e. Other market environment indicators
4)
Refer to Exhibit 7.5. What is the standard deviation of this portfolio?
a. 3.89%
b. 4.61%
c. 5.02%
d. 6.83%
e. 6.09%
5) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Calculate the industry year 2004 EBITDA per share.
a. $95.05
b. $89.15
c. $92.56
d. $94.73
e. $86.23
6) The Absolute Finance Company (AFC) earned $5 a share last year and paid a
dividend of $2 per share. Next year, you expect AFC to earn $6 a share next year and
continue its payout ratio. Assume that you expect to sell the stock for $45 a year from
now. If you require a 13 percent return on this stock, how much would you be willing to
pay for it?
a. $41.95
b. $43.21
c. $45.13
d. $46.72
e. $47.40
7) The calculation of a weighted average of the implied volatility estimates from
options on the Standard & Poor’s 500 index using a wide range of exercise prices is
known as
a. Spider.
b. QQQ.
c. VIX.
d. CIN.
e. VOL.
8) Daily closing for the Dow Jones Industrial Average are provided in the table below.
Calculate a 5-day moving average for day 6.
a. 11,397
b. 13,565
c. 13,594
d. 13,647
e. 13,676
9) Exhibit 22.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If you establish a long strip 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. $256.25 loss
b. $256.25 gain
c. $925.00 loss
d. $668.75 gain
e. $668.75 loss
10) Exhibit 22.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
Calculate the payoffs of a long straddle at a stock price at expiration of $20 and a stock
price at expiration of $45.
a. $6.35, $18.85
b. $29.65, $42.15
c. $21.65, $34.15
d. $8, $8
e. -$8, -$8
11) You currently have $150,000 in an IRA designated for retirement. If you save an
additional $100 at the end of every month and expect to earn an annual return of 12%,
how much do you expect to have in the IRA in 10 years?
a.$467,632
b.$518,062
c.$732,546
d.$949,328
e.$1,215,234
12) 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 price of the stock today (P0) is
a. $136.29
b. $133.03
c. $120.33
d. $123.43
e. $126.60
13) Which of the following factors is not considered in the valuation of call and put
options?
a. Current stock price
b. Exercise price
c. Market interest rate
d. Volatility of underlying stock price
e. none of the above (that is, all are factors which should be considered in the valuation
of call and put options)
14) The following are all advantages of having an equity swap market except
a. These agreements allow investors to take advantage of overall price movements in a
specific country’s stock market.
b. Creating a direct equity investment in a foreign country may be difficult for some
investors where it is prohibited by law.
c. These agreements eliminate the need for a counterparty because they are traded on
the NYSE.
d. An investment fund wanting to accumulate foreign index returns denominated in
their domestic currency may not be legally permitted to obtain sufficient
exchange-traded derivative contracts to hedge a direct equity investment.
e. All of the above are advantages of an equity swap market
15) Exhibit 19.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds, both pay semiannual interest. Bond A has a coupon of 8% per
year, maturity of 30 years, yield to maturity of 9% per year, and a face value of $1000.
Bond B has a coupon of 8% per year, maturity of 30 years, yield to maturity of 9.5%
per year, and a face value of $1000.
Calculate the percentage gain per invested dollar for Bond A assuming a one year
horizon, and a reinvestment rate of 9% per year.
a. 9.73%
b. 9.93%
c. 9.20%
d. 8.20%
e. 9.50%
16) Exhibit 8.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You expect the risk-free rate (RFR) to be 3 percent and the market return to be 8
percent. You also have the following information about three stocks.
Refer to Exhibit 8.2. What are the estimated rates of return for the three stocks (in the
order X, Y, Z)?
a. 21.25%, 8.33%, 11.43%
b. 6.20%, 2.20%, 8.20%
c. 16.50%, 5.50%, 22.00%
d. 9.25%, 10.5%, 7.5%
e. 15.00%, 3.50%, 7.30%
17) There is a direct relationship between a passive portfolio’s tracking error relative to
its index and the time and expense necessary to create and maintain the portfolio.
18) A portfolio is efficient if no other asset or portfolios offer higher expected return
with the same (or lower) risk or lower risk with the same (or higher) expected return.
19) In common size analysis all assets and liabilities on the balance sheet are divided by
total sales.
20) If an investor buys a high coupon bond, and rates then fall, the investor has “locked
up” that high yield as a realized yield.
21) The duration of a perpetual bond is always equal to its term to maturity.
22) Investment horizon is the future time when an investor must begin an investment
program to generate the required funds for a future liability.
23) The futures market is a dealer market where all the details of the transactions are
negotiated.
24) Assuming that everyone agrees on the efficient frontier (given a set of costs), there
would be consensus that the optimal portfolio on the frontier would be where the ratio
of return per unit of risk was greatest.
25) Estimating net profit margin directly is difficult because it is so volatile.
26) A common hedge fund strategy known as long-short equity is a type of arbitrage
strategy.