1) which of the following variables do fama and french claim do a better job explaining
stock returns than beta?
i. book-to-market ratio
ii. unexpected change in industrial production
iii. firm size
a.i only
b.i and ii only
c.i and iii only
d.i, ii, and iii
2) an investor can design a risky portfolio based on two stocks, a and b. the standard
deviation of return on stock a is 20%, while the standard deviation on stock b is 15%.
the correlation coefficient between the returns on a and b is 0%. the expected return on
the minimum-variance portfolio is approximately _________.
a.10%
b.13.6%
c.15%
d.19.41%
3) on may 1, 2007, joe hill is considering one of the following newly issued 10-year aaa
corporate bonds.
if the volatility of interest rates is expected to increase, then joe hill should __.
a.prefer the wildwood bond to the asbury bond
b.prefer the asbury bond to the wildwood bond
c.be indifferent between the wildwood bond and the asbury bond
d.the answer cannot be determined from the information given.
4) bill and shelly are friends. bill invests in a portfolio of hot stocks that almost all his
friends are invested in. shelly invests in a portfolio that is totally different from the
portfolios of all her friends. both bill’s and shelly’s stocks fall 15%. according to regret
theory, _________________________________________.
a.bill will have more regret over the loss than shelly
b.shelly will have more regret over the loss than bill
c.bill and shelly will have equal regret over their losses
d.bill’s and shelly’s risk aversion will increase in the future
5) a firm in the early stages of its industry life cycle will likely have _________.
a.low dividend payout rates
b.low rates of investment
c.low rates of return on investment
d.low r&d spending
6) the bid price of a treasury bill is _________.
a.the price at which the dealer in treasury bills is willing to sell the bill
b.the price at which the dealer in treasury bills is willing to buy the bill
c.greater than the ask price of the treasury bill expressed in dollar terms
d.the price at which the investor can buy the treasury bill
7) assume that you have invested $500,000 to purchase shares in a hedge fund reporting
$800 million in assets, $100 million in liabilities, and 70 million shares outstanding.
your initial lockout period is 3 years.
how many shares did you purchase?
a.13,333
b.25,000
c.50,000
d.66,000
8) in a world where the capm holds, which one of the following is not a true statement
regarding the capital market line?
a.the capital market line always has a positive slope.
b.the capital market line is also called the security market line.
c.the capital market line is the best-attainable capital allocation line.
d.the capital market line is the line from the risk-free rate through the market portfolio.
9) the nyse has lost market share to ecns in recent years. part of the nyse’s response to
the growth of ecns has been to:
i. purchase archipelago, a major ecn, and rename it nyse arca
ii. enable automatic trade execution through its new market center
iii. impose a tighter limit on bid-ask spreads
a.i only
b.ii and iii only
c.i and ii only
d.i, ii, and iii
10) investing in two assets with a correlation coefficient of 1 will reduce which kind of
risk?
a.market risk
b.unique risk
c.unsystematic risk
d.none of these options (with a correlation of 1, no risk will be reduced.)
11) bond portfolio immunization techniques balance ________ and ________ risk.
a.price; reinvestment
b.price; liquidity
c.credit; reinvestment
d.credit; liquidity
12) in a market economy, capital resources are primarily allocated by ____________.
a.governments
b.the sec
c.financial markets
d.investment bankers