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Alpha forecasts must be ____________ to account for less-than-perfect forecasting
quality. When alphaforecasts are ____________ to account for forecast imprecision, the
resulting portfolio position becomes
____________.
A. shrunk; shrunk; far less moderate
B.shrunk; shrunk; far more moderate
C. grossed up; grossed up; far less moderate
D. grossed up; grossed up; far more moderate
E. None of the options are correct.
Holding other factors constant, which one of the following bonds has the smallest price
volatility?
A. 7-year, 0% coupon bond
B. 7-year, 12% coupon bond
C. 7 year, 14% coupon bond
D. 7-year, 10% coupon bond
E. Cannot tell from the information given
The Value Line Index is an equally-weighted geometric average of the returns of about
1,700 firms. The value of an index based on the geometric average returns of three
stocks where the returns on the three stocks during a given period were 32%, 5%, and
10%, respectively, is
A. 4.3%.
B. 7.6%.
C. 9.0%.
D. 13.4%.
E. 5.0%.
Security A has an expected rate of return of 0.10 and a beta of 1.3. The market expected
rate of return is 0.10,
and the risk-free rate is 0.04. The alpha of the stock is
A. 1.7%.
B. –1.8%.
C. 8.3%.
D. 5.5%.
Investors who take long positions in futures agree to __________ of the commodity on
the delivery date, and those who take the short positions agree to __________ of the
commodity.
A. make delivery; take delivery
B. take delivery; make delivery
C. take delivery; take delivery
D. make delivery; make delivery
E. negotiate the price; pay the price
Consider the one-factor APT. The standard deviation of returns on a well-diversified
portfolio is 22%. The standard deviation on the factor portfolio is 14%. The beta of the
well-diversified portfolio is approximately
A. 0.80.
B. 1.13.
C. 1.25.
D. 1.57.
When a bond indenture includes a sinking fund provision,
A. firms must establish a cash fund for future bond redemption.
B. bondholders always benefit because principal repayment on the scheduled maturity
date is guaranteed.
C. bondholders may lose because their bonds can be repurchased by the corporation at
below-market prices.
D. firms must establish a cash fund for future bond redemption, and bondholders
always benefit because principal repayment on the scheduled maturity date is
guaranteed.
E. None of the options are true.
Portfolio A consists of 600 shares of stock and 300 calls on that stock. Portfolio B
consists of 685 shares of stock. The call delta is 0,3; Which portfolio has a higher dollar
exposure to a change in stock price?
A. Portfolio B
B. Portfolio A
C. The two portfolios have the same exposure.
D. Portfolio A if the stock price increases, and portfolio B if it decreases
E. Portfolio B if the stock price increases, and portfolio A if it decreases
Consider the regression equation:
rirf = g0 + g1b1 + g2s2(ei) + eit
where:
rirf = the average difference between the monthly return on stock i and the monthly risk
free rate
bi = the beta of stock i
s2(ei) = a measure of the nonsystematic variance of the stock i
If you estimated this regression equation and the CAPM was valid, you would expect
the estimated coefficient, g0, has to be
A. 0.
B. 1.
C. equal to the risk free rate of return.
D. equal to the average difference between the monthly return on the market portfolio
and the monthly risk free rate.
E. None of the options are correct.
Of the following types of ETFs, an investor who wishes to invest in a diversified
portfolio that tracks the Dow Jones Industrials should choose
A. SPY.
B. DIA.
C. QQQQ.
D. IWM.
E. VTI.
You purchased 100 shares of XON common stock on margin at $60 per share. Assume
the initial margin is 50%, and the maintenance margin is 30%. Below what stock price
level would you get a margin call? Assume the stock pays no dividend; ignore interest
on margin.
A. $42.86
B. $50.75
C. $49.67
D. $80.34
Consider the following probability distribution for stocks A and B:
The coefficient of correlation between A and B is
A. 0.474.
B. 0.612.
C. 0.590.
D. 1.206.
A rate anticipation swap is an exchange of bonds undertaken to
A. shift portfolio duration in response to an anticipated change in interest rates.
B. shift between corporate and government bonds when the yield spread is out of line
with historical values.
C. profit from apparent mispricing between two bonds.
D. change the credit risk of the portfolio.
E. increase return by shifting into higher yield bonds.
The financial statements of Midwest Tours are given below.
Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours. The firm's times interest earned
ratio for 2009 is
A. 2.897.
B. 2.719.
C. 3.375.
D. 3.462.
The _________ gives the number of shares for which each convertible bond can be
exchanged.
A. conversion ratio
B. current ratio
C. P/E ratio
D. conversion premium
E. convertible floor
A trader who has a __________ position in wheat futures believes the price of wheat
will __________ in the future.
A. long; increase
B. long; decrease
C. short; increase
D. long; stay the same
E. short; stay the same
An analyst who selects a particular holding period and predicts the yield curve at the
end of that holding period is engaging in
A. a rate anticipation swap.
B. immunization.
C. horizon analysis.
D. an intermarket spread swap.
E. None of the options are correct.
You are considering acquiring a common stock that you would like to hold for one year.
You expect to receive both $2.50 in dividends and $28 from the sale of the stock at the
end of the year. The maximum price you would pay for the stock today is _____ if you
wanted to earn a 15% return.
A. $23.91
B. $24.11
C. $26.52
D. $27.50
E. None of the options are correct.
An American put option can be exercised
A.any time on or before the expiration date.
B.only on the expiration date.
C. any time in the indefinite future.
D. only after dividends are paid.
E. None of the options are correct.
A coupon bond that pays interest semi-annually has a par value of $1,000, matures in
seven years, and has a yield to maturity of 9.3%. The intrinsic value of the bond today
will be ________ if the coupon rate is 9.5%.
A. $922.77
B. $1,010.12
C. $1,075.80
D. $1,077.22
E. None of the options are correct.
If you believe in the reversal effect, you should
A. sell bonds in this period if you held stocks in the last period.
B. sell stocks in this period if you held bonds in the last period.
C. sell stocks this period that performed well last period.
D. go long.
E. sell stocks this period that performed well last period and go long.
Consider the following probability distribution for stocks A and B:
The standard deviations of stocks A and B are _____ and _____, respectively.
A. 1.5%; 1.9%
B. 2.5%; 1.1%
C. 3.2%; 2.0%
D. 1.5%; 1.1%
The most appropriate discount rate to use when applying a FCFF valuation model is the
A. required rate of return on equity.
B. WACC.
C. risk-free rate.
D. required rate of return on equity or risk-free rate, depending on the debt level of the
firm.
E. None of the options are correct.
A measure of asset utilization is
A. sales divided by working capital.
B. return on total assets.
C. return on equity capital.
D. operating profit divided by sales.
E. None of the options are correct.
An example of a negative demand shock is
A. a decrease in the money supply.
B. a decrease in government spending.
C. an increase in foreign export demand.
D. a decrease in the price of imported oil.
E.-a decrease in the money supply and a decrease in government spending.
A 6%, 30-year corporate bond was recently being priced to yield 8%. The Macaulay
duration for the bond is 8.4 years. Given this information, the bond's modified duration
would be
A. 8.05.
B. 9.44.
C. 9.27.
D. 7.78.
To create a common size income statement, ____________ all items on the income
statement by
____________.
A. multiply; net income
B. multiply; total revenue
C. divide; net income
D. divide; total revenue
E. multiply; COGS
______ are subject to the Securities Act of 1933 and the Investment Company Act of
1940 to protect unsophisticated investors.
A. Hedge funds
B. Mutual funds
C. ADRs
D. Hedge funds and ADRs
E. Mutual funds and ADRs
The market-capitalization rate on the stock of Flexsteel Company is 12%. The expected
ROE is 13%, and the expected EPS are $3.60. If the firm's plowback ratio is 50%, the
P/E ratio will be
A. 7.69.
B. 8.33.
C. 9.09.
D. 11.11.
E. None of the options are correct.
If the economy were going into a recession, an attractive industry to invest in would be
the
A. automobile industry.
B.-medical services industry.
C. construction industry.
D. automobile and construction industries.
E. medical services and construction industries.
