1) harry markowitz is best known for his nobel prize-winning work on _____________.
a.strategies for active securities trading
b.techniques used to identify efficient portfolios of risky assets
c.techniques used to measure the systematic risk of securities
d.techniques used in valuing securities options
2) a portfolio generates an annual return of 16%, a beta of 1.2, and a standard deviation
of 19%. the market index return is 12% and has a standard deviation of 16%. what is
jensen’s alpha of the portfolio if the risk-free rate is 6%?
a..017
b..028
c..036
d..078
3) an expanding economy puts stress on the manufacturing ability of a company. when
a firm turns business down during periods of economic expansion, a problem exists in
the area of ____________.
a.asset allocation
b.capacity utilization
c.employment management
d.strategic planning
4) brevik builders has an expected roe of 25%. its dividend growth rate will be
__________ if it follows a policy of paying 30% of earnings in the form of dividends.
a.5%
b.15%
c.17.5%
d.45%
5) investors who want to liquidate their holdings in a unit investment trust may
___________________.
a.sell their shares back to the trustee at a discount
b.sell their shares back to the trustee at net asset value
c.sell their shares on the open market
d.sell their shares at a premium to net asset value
6) assume that both x and y are well-diversified portfolios and the risk-free rate is 8%.
portfolio x has an expected return of 14% and a beta of 1. portfolio y has an expected
return of 9.5% and a beta of .25. in this situation, you would conclude that portfolios x
and y _________.
a.are in equilibrium
b.offer an arbitrage opportunity
c.are both underpriced
d.are both fairly priced
7) you have the following rates of return for a risky portfolio for several recent years:
the annualized (geometric) average return on this investment is _____.
a.16.15%
b.16.87%
c.21.32%
d.15.60%
8) a nonprofit organization offers a 5% salary contribution to john’s 403b plan
regardless of his own contributions, plus a matching 5% when john contributes 5% of
his salary. john makes $56,000 a year.
what is john’s effective salary reduction if he is in the 25% tax bracket?
a.$2,100
b.$2,800
c.$5,600
d.$8,400
9) capital goods industries such as industrial equipment, transportation, and
construction would be good investments during the _____ stage of the business cycle.
a.peak
b.contraction
c.trough
d.expansion
10) suppose the 6-month risk-free rate of return in the united states is 5%. the current
exchange rate is 1 pound = us$2.05. the 6-month forward rate is 1 pound = us$2. the
minimum yield on a 6-month risk-free security in britain that would induce a u.s.
investor to invest in the british security is ________.
a.5.06%
b.6.74%
c.8.48%
d.10.13%
11) the common stock of the avalon corporation has been trading in a narrow range
around $40 per share for months, and you believe it is going to stay in that range for the
next 3 months. the price of a 3-month put option with an exercise price of $40 is $3,
and a call with the same expiration date and exercise price sells for $4.
what would be a simple options strategy using a put and a call to exploit your
conviction about the stock price’s future movement?
a.sell a call.
b.purchase a put.
c.sell a straddle.
d.buy a straddle.
12) the choice of an active portfolio management strategy rather than a passive strategy
assumes ___________.
a.the ability to continuously adjust the portfolio to provide superior returns
b.asset allocation involving only domestic securities
c.stable economic conditions over the short term
d.the ability to minimize trading costs
13) suppose an investor is considering one of two investments that are identical in all
respects except for risk. if the investor anticipates a fair return for the risk of the
security he invests in, he can expect to _____.
a.earn no more than the treasury-bill rate on either security.
b.pay less for the security that has higher risk.
c.pay less for the security that has lower risk.
d.earn more if interest rates are lower.
14) the top morningstar mutual fund performance rating is ________.
a.five stars
b.four stars
c.three stars
d.two stars
15) a european put option gives its holder the right to _________.
a.buy the underlying asset at the exercise price on or before the expiration date
b.buy the underlying asset at the exercise price only at the expiration date
c.sell the underlying asset at the exercise price on or before the expiration date
d.sell the underlying asset at the exercise price only at the expiration date
16) what combination of variables is likely to lead to the lowest time value?
a.short time to expiration and low volatility
b.long time to expiration and high volatility
c.short time to expiration and high volatility
d.long time to expiration and low volatility