1) __________ is the amount of money per common share that could be realized by
breaking up the firm, selling its assets, repaying its 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
2) a point and figure chart:
i. gives a sell signal when the stock price penetrates previous lows
ii. tracks significant upward or downward movements
iii. has no time dimension
iv. indicates congestion areas
a.i and ii only
b.ii and iii only
c.i, iii, and iv only
d.i, ii, iii, and iv
3) the stock price of bravo corp. is currently $100. the stock price a year from now will
be either $160 or $60 with equal probabilities. the interest rate at which investors invest
in riskless assets is 6%. using the binomial opm, the value of a put option with an
exercise price of $135 and an expiration date 1 year from now should be worth
__________ today.
a.$34.09
b.$37.50
c.$38.21
d.$45.45
4) measured by assets, about _____ of funds are money market funds.
a.15%
b.25%
c.40%
d.60%
5) a bond portfolio manager notices a hump in the yield curve at the 5-year point. how
might a bond manager take advantage of this event?
a.buy the 5-year bonds, and short the surrounding maturity bonds.
b.buy the 5-year bonds, and buy the surrounding maturity bonds.
c.short the 5-year bonds, and short the surrounding maturity bonds.
d.short the 5-year bonds, and buy the surrounding maturity bonds.
6) higher rates of unemployment are linked with:
a.greater political stability because the employed tend to be more politically active.
b.higher crime rates as the unemployed seek to replace lost income.
c.lower rates of heart disease as the unemployed have eliminated job stress.
d.improvements in overall health as the unemployed have more leisure time to be
physically active.
7) the semistrong form of the emh states that ________ must be reflected in the current
stock price.
a.all security price and volume data
b.all publicly available information
c.all information, including inside information
d.all costless information
8) futures markets are regulated by the __________.
a.cfa institute
b.cftc
c.cia
d.sec
9) cache creek manufacturing company is expected to pay a dividend of $3.36 in the
upcoming year. dividends are expected to grow at 8% per year. the risk-free rate of
return is 4%, and the expected return on the market portfolio is 14%. investors use the
capm to compute the market capitalization rate and use the constant-growth ddm to
determine the value of the stock. the stock’s current price is $84. using the
constant-growth ddm, the market capitalization rate is _________.
a.9%
b.12%
c.14%
d.18%
10) one feasible way to hedge labor income is to ____________________.
a.diversify your investment portfolio away from the industry in which you work
b.save for retirement only from investment income
c.change careers every 7 years
d.invest heavily in the stock options provided by your firm
11) what strategy might an insurance company employ to ensure that it will be able to
meet the obligations of annuity holders?
a.cash flow matching
b.index tracking
c.yield pickup swaps
d.substitution swap
12) you are cautiously bullish on the common stock of the wildwood corporation over
the next several months. the current price of the stock is $50 per share. you want to
establish a bullish money spread to help limit the cost of your option position. you find
the following option quotes:
suppose you establish a bullish money spread with the puts. in june the stock’s price
turns out to be $52. ignoring commissions, the net profit on your position is
_______________.
a.$500
b.$700
c.$200
d.$250
13) if investors overweight recent performance in forecasting the future, they are
exhibiting _______.
a.representativeness bias
b.framing error
c.memory bias
d.overconfidence