1) $1,000 par value zero-coupon bonds (ignore liquidity premiums)
one year from now bond c should sell for ________ (to the nearest dollar).
a.$857
b.$842
c.$835
d.$821
2) a person in poor health trying to buy supplemental health insurance is an example of
________.
a.moral hazard
b.adverse selection
c.a texas hedge
d.actuarial error
3) you work for fun-a-rama corporation and receive stock options as an incentive for
your performance on the job. you are counting on the stock options to provide the funds
you’ll need for your retirement. this is called _____________.
a.adverse selection
b.a 529 plan
c.a moral hazard
d.a texas hedge
4) a higher-dividend payout policy will have a __________ impact on the value of a put
and a __________ impact on the value of a call.
a.negative; negative
b.negative; positive
c.positive; negative
d.positive; positive
5) the risk-free rate is 4%. the expected market rate of return is 11%. if you expect stock
x with a beta of .8 to offer a rate of return of 12%, then you should _________.
a.buy stock x because it is overpriced
b.buy stock x because it is underpriced
c.sell short stock x because it is overpriced
d.sell short stock x because it is underpriced
6) a perpetuity pays $100 each and every year forever. the duration of this perpetuity
will be __________ if its yield is 9%.
a.7
b.9
c.9.39
d.12.11
7) in a binomial option model with three subintervals, the probability that the stock
price moves up every possible time is _________.
a.25%
b.15.5%
c.12.5%
d.8%
8) you invest in a mutual fund that charges a 3% front-end load, 1% total annual fees,
and a 2% back-end load, which decreases .5% per year. how much will you pay in fees
on a $10,000 investment that does not grow if you cash out after 3 years of no gain?
a.$103
b.$219
c.$553
d.$635
9) the treynor-black model combines an actively managed portfolio with an efficiently
diversified portfolio in order to:
i. improve the diversification of the overall portfolio
ii. improve the overall portfolio’s sharpe ratio
iii. reach a higher cal than would otherwise be possible
a.i only
b.i and ii only
c.ii and iii only
d.i, ii, and iii
10) social security is ____________.
a.a pension plan only
b.an insurance plan only
c.a combination of a pension and insurance plan
d.an involuntary intergenerational transfer
11) consider the sharpe and treynor performance measures. when a pension fund is
large and well diversified in total and it has many managers, the __________ measure
is better for evaluating individual managers while the __________ measure is better for
evaluating the manager of a small fund with only one manager responsible for all
investments, which may not be fully diversified.
a.sharpe; sharpe
b.sharpe; treynor
c.treynor; sharpe
d.treynor; treynor
12) which one of the following will increase the value of a put option?
a.a decrease in the exercise price
b.a decrease in time to expiration of the put
c.an increase in the volatility of the underlying stock
d.an increase in stock price