1) Exhibit 25.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the data presented below on three mutual funds and the market.
Compute the Jensen Measure for the BBB fund.
a. 4.49
b. 2.74
c. 4.25
d. 5.55
e. 8.99
2) For an investor with a time horizon of 5 years and moderate risk tolerance, an
appropriate asset allocation strategy would be
a.100% cash
b.30% cash, 50% bonds, and 20% stocks
c.20% cash, 40% bonds, and 40% stocks
d.10% cash, 30% bonds, and 60% stocks
e.100% bonds
3) The market liquidity of a security can be measured using
a. Trading turnover.
b. Bid-Ask spread.
c. Price of the security.
d. a and b.
e. b and c.
4) Assume that you manage a $50 million equity portfolio. The portfolio beta is 0.85.
You anticipate a cash inflow of $5 million into the portfolio. Calculate the number of
contracts you would need to hedge your position and indicate whether you would go
short or long. Assume that the price of the S&P 500 futures contract is 1062 and the
multiplier is 250.
a. 25 contracts short
b. 18 contracts short
c. 16 contracts long
d. 19 contracts short
e. None of the above
5) Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an
annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face
value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield
to maturity of 9%, and a face value of $1,000.
Calculate the price of Bond B.
a. $974.69
b. $990.64
c. $995.22
d. $1,013.88
e. $1,025.77
6) The following are ways to implement index portfolio investing
a. Buying shares in index mutual funds
b. Buying hedge funds.
c. Buying exchange traded funds
d. a and b.
e. a and c.
7) Exhibit 20.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
On the last day of October, Bruce Springsteen is considering the purchase of 100 shares
of Olivia Corporation common stock selling at $37 1/2 per share and also considering
an Olivia option.
If Bruce decides to buy a March call option with an exercise price of 35, what is his
dollar gain (loss) if he closes his position when the stock is selling at 43 1/2?
a. $225.00 loss
b. $350.00 loss
c. $225.00 gain
d. $350.00 gain
e. $850.00 gain
8) Junk bonds are high yield bond bonds rated below
a. BBB.
b. BB.
c. B.
d. CCC.
e. CC.
9) Exhibit 21.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The S&P 500 stock index is at 1300. The annualized interest rate is 4.0% and the
annualized dividend is 2%. You are currently considering purchasing a 2-month futures
contract for your portfolio.
If the futures contract was currently available for 1280, indicate the appropriate strategy
that would earn an arbitrage profit.
a. Long futures, and short the index.
b. Short futures and long the index.
c. Long futures and long the index.
d. Short futures and short the index.
e. None of the above.
10) ____ charts show time series of price while ____ charts only reflect change
regardless of time.
a. Relative strength, bar
b. Relative strength, advance/decline
c. Point and bar, figure
d. Bar, point and figure
e. Bar, multiple indicator
11) Exhibit 6.4
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 6.4. What is the abnormal rate of return for Stock B during period t
using only the aggregate market return (ignore differential systematic risk)?
a.0.40
b.1.40
c.-1.10
d.-4.40
e.-6.40
12) Exhibit 2.1
USE THE TAX TABLE PROVIDED BELOW FOR THE FOLLOWING
PROBLEM(S)
Refer to Exhibit 2.1. What is the tax liability for a married couple filing jointly with
taxable income of $125,000?
a.$23,800
b.$18,427
c.$24,958
d.$16,867
e.$19,650
13) Options on futures contracts are very popular because
a. They require the holder to purchase at a future date
b. Of their ability to create leverage
c. The seller of the futures contract is under no obligation
d. The amount of the underlying commodity is negotiable
e. None of the above
14) Exhibit 24.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Suppose ABC Mutual fund owned only 4 stocks as follows:
The fund originated by selling $100,000 of stock at $10.00 per share. What is its current
NAV?
a. $1.47
b. $14.75
c. $16.03
d. $27.62
e. $234.12
15) In a macro-economic based risk factor model the following factor would be one of
many appropriate factors:
a. Confidence risk.
b. Maturity risk.
c. Expected inflation risk.
d. Call risk.
e. Return difference between small capitalization and large capitalization stocks.
16) Assume that you have just sold a stock for a loss at a price of $75, for tax purposes.
You still wish to maintain exposure to the sold stock. Suppose that you buy a call with a
strike price of $70 and a price of $6.75. Calculate the effective price paid to repurchase
the stock if the price after 35 days is $80.
a. $81.75
b. $73.25
c. $86.75
d. $76.75
e. None of the above
17) Which of the following is not considered an assumption of technical analysis?
a. Market value is determined solely by supply and demand.
b. Supply and demand are governed by both rational and irrational factors.
c. Security prices tend to move in trends that persist for an appreciable length of time.
d. Stock prices follow a random walk.
e. Changes in trend are caused by the shifts in supply and demand relationships.
18) The comparisons with which ratios should be made include the following, except
a. The firm’s own past performance.
b. The firm’s major competitor within the industry.
c. The firm’s suppliers and customers.
d. The firm’s industry or industries.
e. The aggregate economy.
19) Exhibit 4.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin
deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock
pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year.
Refer to Exhibit 4.6. Suppose at the end of one year XCorp is selling at $90 per share
and you cover your short position at this price. What is your rate of return on the
investment? (Assume a 1.25% commission on the purchase.)
a.-40.64%
b.-25.53%
c.5.21%
d.72.7%
e.-71.2%
20) Zappo Corporation just issued $1,000 face value bonds that will mature in 20 years
and have a 7% coupon rate. Interest is paid semi-annually and the required rate of
return is 9 percent for these bonds. The bonds have a 5 year call provision that will pay
a call premium of $1,050 if they are called in. What is the price of the Zappo
Corporation bond?
a. $815.98
b. $817.43
c. $826.35
d. $920.87
e. $953.07
21) According to Peter Lynch a favorable attribute of a firm that may result in favorable
stock performance is when a firm buys back its shares.
22) Individual security selection is far more important than the asset allocation decision.
23) Like hedging, arbitrage results in increased returns with a disproportional increase
in risk.