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1) Consider a bond with a duration of 7 years having a yield to maturity of 7% and
interest rates are expected to rise by 50 basis points. What is the percentage change in
the price of the bond?
a. 3.62%
b. 3.45%
c. -3.38%
d. 3.38%
e. -3.62%
2) In analyzing risk levels among industries, studies have found that
a. risk levels vary among different industries.
b. risk levels remained fairly constant across industries.
c. risk levels for the same industry varied over time.
d. risk levels for the same industry remain fairly constant over time.
e. Choices a and d
3) Determinants of market liquidity include all except the
a. Number of shares traded.
b. Dollar value of shares traded.
c. Bid-ask spread.
d. Number of security owners.
e. Market price per share.
4) The weak form of the efficient market hypothesis states that
a.Successive price changes are dependent.
b.Successive price changes are independent.
c.Successive price changes are biased.
d.Successive price changes depend on trading volume.
e.Properly specified trading rules are of value.
5)
Refer to Exhibit 7.12. Calculate the expected return and expected standard deviation of
a two stock portfolio when r1,2= -.60 and w1= .75.
a. .13 and .0024
b. .13 and .0455
c. .12 and .0585
d. .12 and .5585
e. .13 and .6758
6) 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. Based on the Capital Asset Pricing Model (CAPM), what is the
required rate of return for this portfolio?
a. 6.3%
b. 7.8%
c. 10.6%
d. 12.8%
e. 15.4%
7) Calculate the annual rate of return for a mutual fund with the following fees and
expected returns
a. 4.95%
b. 5.0%
c. 5.85%
d. 2.5%
e. 6.55%
8) Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF)
of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000.
The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year.
The stock has a beta of 1.1 and the current market price is $80. Currently the yield on
10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise
debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and
the proportion of debt is 45%.
Calculate the required rate of return on equity.
a. 8.2%
b. 9.4%
c. 9.0%
d. 10.3%
e. 7.3%
9) Behavioral finance differs from the standard model of finance because behavioral
finance
a.Precludes the impact of investor psychology.
b.Includes the impact of investor psychology.
c.Accepts the Efficient Markets Hypothesis.
d.Rejects the idea of market anomalies.
e.none of the above.
10) Exhibit 25.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
Calculate CI's risk.
a. 0.1225
b. 0.1000
c. 0.0525
d. 0.0475
e. 0.0325
11) The initial effect of a change in monetary policy appears in ____ and only later in
____.
a. The aggregate economy, financial markets.
b. Financial markets, the aggregate economy.
c. Bond markets, stock markets,
d. Stock markets, bond markets.
e. None of the above.
