1) which of the following typically employ significant amounts of leverage?
i. hedge funds
ii. reits
iii. money market funds
iv. equity mutual funds
a.i and ii only
b.ii and iii only
c.iii and iv only
d.i, ii, and iii only
2) the __________ is among the world’s largest derivatives exchanges and operates a
fully electronic trading and clearing platform.
a.cboe
b.cbot
c.cme
d.eurex
3) you manage a $15 million hedge fund portfolio with beta = 1.2 and alpha = 2% per
quarter. assume the risk-free rate is 2% per quarter and the current value of the s&p 500
index is 1,200. you want to exploit the positive alpha, but you are afraid that the stock
market may fall and you want to hedge your portfolio by selling 3-month s&p 500
future contracts. the s&p contract multiplier is $250.
hedging this portfolio by selling s&p 500 futures contracts is an example of
___________.
a.statistical arbitrage
b.pure play
c.a short equity hedge
d.fixed-income arbitrage
4) technical traders view mutual fund investors as _________ market timers.
a.excellent
b.frequent
c.neutral
d.poor
5) perfect dynamic hedging requires _______________.
a.a smaller capital outlay than static hedging
b.less commission expense than static hedging
c.daily rebalancing
d.continuous rebalancing
6) the term excess return refers to ______________.
a.returns earned illegally by means of insider trading
b.the difference between the rate of return earned and the risk-free rate
c.the difference between the rate of return earned on a particular security and the rate of
return earned on other securities of equivalent risk
d.the portion of the return on a security that represents tax liability and therefore cannot
be reinvested
7) in the treynor-black model, the active portfolio will contain stocks with __________.
a.alphas equal to zero
b.negative alphas
c.positive alphas
d.some negative and some positive alphas
8) next year’s earnings are estimated to be $5. the company plans to reinvest 20% of its
earnings at 15%. if the cost of equity is 9%, what is the present value of growth
opportunities?
a.$9.09
b.$10.10
c.$11.11
d.$12.21
9) you are constructing a scatter plot of excess returns for stock a versus the market
index. if the correlation coefficient between stock a and the index is -1, you will find
that the points of the scatter diagram ___________ and the line of best fit has a
______________.
a.all fall on the line of best fit; positive slope
b.all fall on the line of best fit; negative slope
c.are widely scattered around the line; positive slope
d.are widely scattered around the line; negative slope
10) market breadth is a ______ indicator.
a.sentiment
b.flow of funds
c.technical
d.fundamental
11) firms that specialize in helping companies raise capital by selling securities to the
public are called _________.
a.pension funds
b.investment banks
c.savings banks
d.reits