1) Which of the following variables were found to be important in explaining return
based upon a study of Fama and French (covering the period 1963 to 1990)?
a. Size
b. Book-to-market value
c. Beta
d. Choices a and b only
e. All of the above
2) If the nominal return on an investment of common stocks was 11% and inflation was
2.5% annually, what was the real return on common stock?
a.8.3%
b.8.5%
c.9.7%
d.11.0%
e.12.6%
3) Exhibit 25.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Given the following information evaluate the performance of Cloud Incorporated (CI).
Calculate CI’s overall performance.
a. 0.1225
b. 0.1000
c. 0.0525
d. 0.0475
e. 0.0325
4) An individual in the 36% tax bracket invests $5,000 in a tax-exempt IRA. If the
investment earns 10% annually, what will be the value of the IRA after five years?
a.$6,600
b.$6,818
c.$7,500
d.$8,053
e.$10,879
5) Which of the following is not a variable required to determine an option’s value in
the Black-Scholes valuation model?
a. Future security price.
b. Exercise price.
c. Time to expiration.
d. Risk-free rate.
e. Security price volatility.
6) Which of the following would most closely resemble the true market portfolio?
a. Stocks
b. Stocks and bonds
c. Stocks, bonds and foreign securities
d. Stocks, bonds, foreign securities and options
e. Stocks, bonds, foreign securities options and coins
7) Exhibit 24.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Suppose ABC Mutual fund owned only 4 stocks as follows:
What is the offering price for the fund if the NAV is $25.25 and the load is 6 percent?
a. $26.19
b. $23.74
c. $25.25
d. $26.77
e. $24.13
8) In a(n) ____ strategy, a firm seeks to identify itself as unique within its industry.
a. Defensive
b. Offensive
c. Low-cost
d. Differentiation
e. None of the above
9) Exhibit 21.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you observe the following prices in the T-Bill and Eurodollar futures
markets
If you expected the TED spread to widen over the next month then an appropriate
strategy would be to
a. Go long T-Bill futures and long Eurodollar futures.
b. Go short T-Bill futures and short Eurodollar futures.
c. Go long T-Bill futures and short Eurodollar futures.
d. Go short T-Bill futures and long Eurodollar futures.
e. None of the above.
10)
Refer to Exhibit 7.7. What is the expected return of a portfolio of two risky assets if the
expected return E(Ri), standard deviation (si), covariance (COVi,j), and asset weight
(Wi) are as shown above?
a. 5.8%
b. 6.1%
c. 6.9%
d. 7.8%
e. 8.9%
11) The betas for the market portfolio and risk-free security are:
Market Risk-free
a. 0 1
b. 1 0
c. -1 1
d. 1 -1
e. 2 1
12) Exhibit 12.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 75 percent when the rate on long-term
government bonds falls to 8 percent. Since investors are becoming more risk averse, the
equity risk premium will rise to 7 percent and investors will require a 15 percent return.
The return on equity will be 12 percent.
What is your expectation of the market P/E ratio?
a. 3.92
b. 6.25
c. 6.67
d. 8.33
e. 12.00
13) Exhibit 19.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an
annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face
value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield
to maturity of 9%, and a face value of $1,000.
Calculate the Modified Duration for Bond A.
a. 0.98
b. 1.79
c. 1.90
d. 1.93
e. 2.31
14) In tests of the semistrong-form efficient market hypothesis, an adjustment for
market effects is carried out by
a.Calculating the historical return.
b.Calculating the market rate of return.
c.Calculating the abnormal rate of return.
d.Calculating the cross-sectional return.
e.None of the above.
15) Which of the following are guiding principles for ethical behavior in the asset
management industry as put forward by the CFA Center for Financial Market Integrity?
a. The interests of investment professional come first.
b. The preferred method for promoting fair and efficient markets is to set up a central
oversight board.
c. Financial markets in various countries should develop high-quality standards for
reporting financial information that reflect local customs.
d. Financial statements should be reported from the perspective of firm shareholders.
e. All of the above.
16) One approach for using multifactor models is to use factors that capture systematic
risk. Which of the following is not a common factor used in this approach?
a. Unexpected changes in inflation
b. Consumer confidence
c. Yield curve shifts
d. Unexpected changes in real GDP
e. All of the above are common factors used to measure systematic risk
17) Walgreen’s higher P/BV ratio than the market or industry is most likely attributed to
Walgreen’s
a. Consistently higher ROE
b. Difference in WACC
c. Marketing strategy
d. Lower cost of assets
e. None of the above
18) A divergence between an increase in a stock market series and the rest of the stock
market can be detected using
a. Debit balances in brokerage accounts
b. Short interest
c. The advance-decline line
d. Confidence index
e. None of the above
19) Which statement is true concerning alternative efficient market hypothesis?
a.The weak hypothesis encompasses the semi-strong hypothesis.
b.The weak hypothesis encompasses the strong hypothesis.
c.The semi-strong hypothesis encompasses the weak hypothesis.
d.The strong hypothesis relates only to public information.
e.None of the above (all statements are false)
20) According to Peter Lynch a favorable attribute of a firm that may result in favorable
stock performance is when a firm’s product is the latest craze.
21) The basis is the spot price minus the future price.
22) The correlation coefficient and the covariance are measures of the extent to which
two random variables move together.
23) Bond rating agencies include the analysis of financial ratios in arriving at corporate
bond ratings.
24) Most experts recommend a cash reserve of at least one year’s worth of living
expenses.
25) A portfolio of bonds is immunized from interest rate risk if the duration of the
portfolio is always equal to the desired investment horizon.
26) While EVA is considered an internal performance measure, MVA is considered to
be an external performance measure.
27) The portfolios on the capital market line are combinations of the risk-free asset and
the market portfolio.