Holding other factors constant, the interest-rate risk of a coupon bond is higher when
the bond’s
A. term to maturity is lower.
B. coupon rate is higher.
C. yield to maturity is lower.
D. current yield is higher.
E. None of the options are correct.
Consider two bonds, F and G. Both bonds presently are selling at their par value of
$1,000. Each pays interest of $90 annually. Bond F will mature in 15 years while bond
G will mature in 26 years. If the yields to maturity on the two bonds change from 9% to
10%,
A. both bonds will increase in value, but bond F will increase more than bond G.
B. both bonds will increase in value, but bond G will increase more than bond F.
C. both bonds will decrease in value, but bond F will decrease more than bond G.
D. both bonds will decrease in value, but bond G will decrease more than bond F.
E. None of the options are correct.
According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio’s
rate of return is a function
Of
A. systematic risk.
B. unsystematic risk.
C. unique risk.
D. reinvestment risk.
The value of a stock put option is positively related to
A. the time to expiration.
B. the striking price.
C. the stock price.
D.the time to expiration and the striking price.
E. All of the options are correct.
_______ is the amount of money per common share that could be realized by breaking
up the firm, selling the assets, repaying the debt, and distributing the remainder to
shareholders.
A. Book value per share
B. Liquidation value per share
C. Market value per share
D. Tobin’s Q
An increase in the basis will __________ a long hedger and __________ a short hedger.
A. hurt; benefit
B. hurt; hurt
C. benefit; hurt
D. benefit; benefit
E. benefit; have no effect upon
A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has
a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this
bond is
A. 10.39%.
B. 10.43%.
C. 10.58%.
D. 11.73%.
E. None of the options are correct.
If a 7.25% coupon bond is trading for $982.00, it has a current yield of
A. 7.38%.
B. 6.53%.
C. 7.25%.
D. 8.53%.
E. 7.18%.
A mutual fund had year-end assets of $250,000,000 and liabilities of $4,000,000. There
were 3,750,000 shares in the fund at year end. What was the mutual fund’s net asset
value?
A. $92.53
B. $67.39
C. $63.24
D. $65.60
E. $17.46
You purchased a share of stock for $20. One year later, you received $1 as a dividend
and sold the share for
$29. What was your holding-period return?
A. 45%
B. 50%
C. 5%
D. 40%
E. None of the options are correct.
As a financial analyst, you are tasked with evaluating a capital-budgeting project. You
were instructed to use
the IRR method, and you need to determine an appropriate hurdle rate. The risk-free
rate is 4%, and the
expected market rate of return is 11%. Your company has a beta of 1.0, and the project
that you are evaluating
is considered to have risk equal to the average project that the company has accepted in
the past. According to
CAPM, the appropriate hurdle rate would be
A. 4%.
B. 7%.
C. 15%.
D. 11%.
E. 1%.
To earn a high rating from the bond-rating agencies, a firm should have
A. a low times-interest-earned ratio.
B. a low debt-to-equity ratio.
C. a high quick ratio.
D. a low debt-to-equity ratio and a high quick ratio.
E. a low times-interest-earned ratio and a high quick ratio.
Other things being equal, a low ________ would be most consistent with a relatively
high growth rate of firm earnings.
A. dividend-payout ratio
B. degree of financial leverage
C. variability of earnings
D. inflation rate
Open interest includes
A. only contracts with a specified delivery date.
B. the sum of short and long positions.
C. the sum of short, long, and clearinghouse positions.
D. the sum of long or short positions and clearinghouse positions.
E. only long or short positions but not both.
The yield curve is a component of
A. the Dow Jones Industrial Average.
B. the consumer price index.
C. the index of leading economic indicators.
D. the producer price index.
E. the inflation index.
The ______ is a measure of the average rate of return an investor will earn if the
investor buys the bond now and holds until maturity.
A. current yield
B. dividend yield
C. P/E ratio
D. yield to maturity
E. discount yield
Low Tech Chip Company is expected to have EPS of $2.50 in the coming year. The
expected ROE is 14%. An appropriate required return on the stock is 11%. If the firm
has a dividend payout ratio of 40%, the intrinsic value of the stock should be
A. $22.73.
B. $27.50.
C. $28.57.
D. $38.46.
____________ measures the extent to which a security has outperformed or
underperformed either the market as a whole or its particular industry.
A. Put call ratio
B. Trin ratio
C. Breadth
D. Relative strength
E. All of the options are correct.
The research by Fama and French suggesting that CAPM is invalid has generated which
of the following responses?
A. Better econometrics should be used in the test procedure.
B. Estimates of asset betas need to be improved.
C. Theoretical sources and implications of research that contradicts CAPM needs to be
reconsidered.
D. The single index model needs to account for nontraded assets and the cyclical
behavior of asset betas.
E. All of the options are correct.
When Maurice Kendall first examined stock price patterns in 1953, he found that
A. certain patterns tended to repeat within the business cycle.
B. there were no predictable patterns in stock prices.
C. stocks whose prices had increased consistently for one week tended to have a net
decrease the following week.
D. stocks whose prices had increased consistently for one week tended to have a net
increase the following week.
E. the direction of change in stock prices was unpredictable, but the amount of change
followed a distinct pattern.
LJP Corporation just announced yesterday that it would undertake an international joint
venture. You observe that LJP had an abnormal return of 3% yesterday. This suggests
that
A. the market is not efficient.
B. LJP stock will probably rise in value again tomorrow.
C. investors view the international joint venture as bad news.
D. investors view the international joint venture as good news.
E. earnings are expected to decrease next quarter.
Which of the following must be done to test the multifactor CAPM or the APT?
I) Specify the risk factors
II) Identify portfolios that hedge the risk factors
III) Test the explanatory power of hedge portfolios
IV) Test the risk premiums of hedge portfolios
A. I and II
B. II and IV
C. II and III
D. I, II, and IV
E. I, II, III, and IV
The current market price of a share of a stock is $20. If a put option on this stock has a
strike price of $18, the put
A.is out of the money.
B.is in the money.
C. sells for a higher price than if the strike price of the put option was $23.
D. is out of the money and sells for a higher price than if the strike price of the put
option was $23.
E. is in the money and sells for a higher price than if the strike price of the put option
was $23.
The following is a list of prices for zero-coupon bonds with different maturities and par
values of $1,000.
You have purchased a 4-year maturity bond with a 9% coupon rate paid annually. The
bond has a par value of $1,000. What would the price of the bond be one year from now
if the implied forward rates stay the same?
A. $995.63
B. $1,108.88
C. $1,000.00
D. $1,042.78
Common size balance sheets make it easier to compare firms
A. with different degrees of leverage.
B. of different sizes.
C. in different industries.
D. that use different inventory valuation methods (FIFO vs. LIFO).
A well-diversified portfolio is defined as
A.one that is diversified over a large enough number of securities that the
nonsystematic variance is essentially zero.
B. one that contains securities from at least three different industry sectors.
C. a portfolio whose factor beta equals 1.0.
D. a portfolio that is equally weighted.
According to the Capital Asset Pricing Model (CAPM), fairly-priced securities have
A. positive betas.
B. zero alphas.
C. negative betas.
D. positive alphas.
Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If
interest rates remain constant, one year from now, the price of this bond will be
A. higher.
B. lower.
C. the same.
D. $1,000.
E. Cannot be determined.
An example of a defensive industry is
A. the automobile industry.
B. the tobacco industry.
C. the food industry.
D. the automobile industry and the tobacco industry.
E.-the tobacco industry and the food industry.
You are a U.S. investor who purchased British securities for 4,000 pounds one year ago
when the British pound cost $1.50. No dividends were paid on the British securities in
the past year. Your total return based on U.S. dollars was __________ if the value of the
securities is now 4,400 pounds and the pound is worth $1.62.
A. 16.7%
B. 18.8%
C. 28.0%
D. 40.0%
E. None of the options
Investors’ Choice Fund had NAV per share of $37.25 on January 1, 2016. On December
31 of the same year, the fund s rate of return for the year was 17.3%. Income
distributions were $1.14, and the fund had capital gain distributions of $1.35. Without
considering taxes and transactions costs, what ending NAV would you calculate for
Investors’ Choice?
A. $41.20
B. $33.88
C. $43.69
D. $42.03
E. $46.62