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1) Which of the following statements regarding momentum strategies is true?
a. Price momentum is a fundamental strategy.
b. Earnings momentum is a technical strategy.
c. Price momentum and earnings momentum strategies will often result in identical
portfolio strategies and holdings.
d. The earnings momentum investor will most likely acquire stocks for companies that
have positive earnings surprises.
e. All of the above statements are true
2) The probability of an adverse outcome is a definition of
a. Statistics.
b. Variance.
c. Random.
d. Risk.
e. Semi-variance above the mean.
3) Which of the following is not an assumption of the Capital Market Theory?
a. All investors are Markowitz efficient investors.
b. All investors have homogeneous expectations.
c. There are no taxes or transaction costs in buying or selling assets.
d. All investments are indivisible so it is impossible to buy or sell fractional shares.
e. All investors have the same one period time horizon.
4) In the valuation of an option contract, the following statements apply except
a. The value of an option increases with its maturity.
b. There is a negative relationship between the market interest rate and the value of a
call option.
c. The value of a call option is negatively related to its exercise price.
d. The value of a call option is positively related to the volatility of the underlying asset.
e. The value of a call option is positively related to the price of the underlying stock.
5) Exhibit 25.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The last year's performance for four mutual funds is presented below. The market return
was 10.70%, last year with a standard deviation of 13.1% and the risk-free rate of return
was 5%.
Compute the Treynor Measure for the C fund.
a. 0.012
b. 0.040
c. 0.069
d. 0.396
e. 1.142
6) Which of the following is a passive bond portfolio strategy?
a. Indexing
b. Buy-and-Hold
c. Classical immunization
d. Choices a and b
e. None of the above
7) Which of the following factors does not indicate market liquidity?
a. Number of shareholders
b. High price volatility
c. Number of shares outstanding
d. Number of shares traded
e. Institutional interest
8) Exhibit 6.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.1. What is the abnormal rate of return for Stock E during period t
using only the aggregate market return (ignore differential systematic risk)?
a.4.0%
b.2.0%
c.1.2%
d.-1.05%
e.-8.5%
9) Operating performance is divided into which two subcategories of ratios?
a. Efficiency and profitability
b. Efficiency and debt
c. Profitability and growth
d. Debt and equity
e. Liquidity and leverage
10) Exhibit 23.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Chimichango Industries has decided to borrow $50,000,000.00 for six months in two
three-month issues. As the Treasurer, you are concerned that interest rates will rise over
the next three months and the rate upon which the second payment will be based will be
undesirable. (The amount of Chimichango's first payment will be known at origination.)
To reduce the company's interest rate exposure, you decide to purchase a 3 - 6 FRA
whereby you pay the dealer's quoted fixed rate of 5.91% in exchange for receiving
3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys
LIBOR from Megabuks Industries at its bid rate of 5.85%. (Assume a notional principal
of $50,000,000.00 and that there are 60 days between month 3 and month 6.)
Refer to Exhibit 23.3. Assuming that 3-month LIBOR is 5.6% on the rate determination
day, and the contract specified settlement in advance, describe the transaction that
occurs between the dealer and Megabuks.
a. The dealer is obligated to pay Megabuks $38,215.00
b. Megabuks is obligated to pay the dealer $31,818. 54.
c. Megabuks is obligated to pay the dealer $38,215.00
d. The dealer is obligated to pay Megabuks $30,818.54.
e. None of the above
11) Exhibit 12.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information that you propose to use to obtain an estimate of
year 2004 EPS for the MacLog Company.
In addition a regression analysis indicates the following relationship between growth in
sales per share for MacLog and GDP growth is
Calculate GDP for the year 2004.
a. $10,500 billion
b. $11,000 billion
c. $11,385 billion
d. $10,550 billion
e. $11,025 billion
12) An investor wishes to construct a portfolio by borrowing 35% of his original wealth
and investing all the money in a stock index. The return on the risk-free asset is 4.0%
and the expected return on the stock index is 15%. Calculate the expected return on the
portfolio.
a. 18.25%
b. 18.85%
c. 9.50%
d. 15.00%
e. 11.15%
13) A firm that follows a low cost leadership strategy
a. Must heavily discount its prices.
b. Must command prices near the industry average.
c. Must focus on providing exceptional quality and service.
d. All of the above.
e. None of the above.
14) Exhibit 25.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The data presented below has been collected at this point in time.
Compute the Treynor Measure for the ZZZ fund.
a. 6.98
b. 2.35
c. 2.53
d. 3.86
e. 1.72
15) A mutual fund:
a.Is priced once a day at the opening of trading.
b.Is priced once a day at the close of trading.
c.Is priced continuously during the trading day.
d.Is priced at the open and close of trading.
e.None of the above.
16) Which of the following is not considered a relative valuation technique?
a. Price-earnings ratio
b. Price/cash flow ratio
c. Price/book value ratio
d. Price/cost of goods sold ratio
e. Price/sales ratio
17) The most popular financial futures in terms of average daily volume is the
a. OEX contracts.
b. S&P 500 contracts.
c. LIBOR contracts.
d. T-bill contracts.
e. T-bond contracts.
18) The statement of cash flows shows the effect on the firm's cash flows of earnings
and changes in the assets, current liabilities, long-term liabilities and net worth.
19) With dollar-cost averaging a manager purchases fewer shares when stock prices are
low and more shares when stock prices are high.
20) Treasury Inflation Protected Securities (TIPS) ensures that investors will received
the promised yield in real terms by indexing bond principal and interest payments to the
stock market.
21) The Options Clearing Corporation (OCC) acts as the guarantor of each Chicago
Board Options Exchange (CBOE) traded contract.
22) In the forward market both parties are required to post collateral or margin.
23) For a two stock portfolio containing Stocks i and j, the correlation coefficient of
returns (rij) is equal to the square root of the covariance (covij).
24) The combination of two assets that are completely negatively correlated provides
maximum returns.
25) Rule 415, shelf registration, allows large firms to register ten years worth of
financing needs all at one time.
26) The New York Stock Exchange Index is based on a sample of all of the New York
Stock Exchange stocks.
27) If you were bearish on the near term outlook for the stock market but did not want
to sell your portfolio, you could hedge against the decline by selling stock index
futures.
