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1) Calculate the expected return for A Industries which has a beta of 1.75 when the risk
free rate is 0.03 and you expect the market return to be 0.11.
a. 11.13%
b. 14.97%
c. 16.25%
d. 22.25%
e. 17.0%
2) The bonds issued by the Bank of England are known as
a. Gilts.
b. Bunds.
c. Limies.
d. Treasuries.
e. Benchmarks.
3) A portfolio manager who is trying to generate alpha could use
a. Hedge funds
b. Mutual funds
c. Insured asset allocation
d. ETFs
e. None of the above
4) Consider the following list of risk factors:
Which of the following factors would you use to develop a macroeconomic-based risk
factor model?
a. (1), (2), and (3).
b. (1), (3), and (5).
c. (2), (4), and (5).
d. (1), (3), and (6).
e. (4), (5), and (6).
5) Investing in emerging markets can be viewed as a global application of
a. Fixed-income arbitrage.
b. Convertible arbitrage.
c. Merger arbitrage.
d. Distressed opportunistic strategies.
e. Equity market neutral.
6) In 2004, Venus Fly Co. issued a $75 par value preferred stock which pays a 7 percent
annual dividend. Due to changes in the overall economy and in the company's financial
condition investors are now requiring a 5 percent return. What price would you be
willing to pay for a share of the preferred if you receive your first dividend one year
from now?
a. $125
b. $84
c. $91
d. $145
e. $105
7) Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF)
of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000.
The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year.
The stock has a beta of 1.1 and the current market price is $80. Currently the yield on
10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise
debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and
the proportion of debt is 45%.
Calculate the total intrinsic value of the firm.
a. $19,644,612
b. $15,558,546
c. $17,327,250
d. $20,830,412
e. $10,779,025
8) Which type of bond is backed by the full faith and credit of the issuer and its entire
taxing power?
a. Fannie Mae
b. Freddie Mac
c. GSEs
d. General obligation
e. Revenue
9) On January 2, 2003, you invest $10,000 in Megabucks Mutual Fund, a load fund that
charges a fee of 2%. The fund's returns were 13% in 2003, 11% in 2004, 8% in 2005.
On December 31, 2005 you redeem all your shares. The dollar value is
a. $13,600.00
b. $13,275.51
c. $13,297.67
d. $13,995.75
e. $10,000.00
10) If you were to purchase an October option with an exercise price of 50 for 8 and
simultaneously sell an October option with an exercise price of 60 for 2, you would be
a. Bullish and taking a high risk.
b. Bullish and conservative.
c. Bearish and taking a high risk.
d. Bearish and conservative.
e. Neutral.
