To determine whether portfolio performance is statistically significant requires
A. a very long observation period due to the high variance of stock returns.
B. a short observation period due to the high variance of stock returns.
C. a very long observation period due to the low variance of stock returns.
D. a short observation period due to the low variance of stock returns.
E. a low variance of returns over any observation period.
In the equation Profits = a + b × ($/£ exchange rate), b is a measure of
A. the firm’s beta when measured in terms of the foreign currency.
B. the ratio of the firm’s beta in terms of dollars to the firm’s beta in terms of pounds.
C. the sensitivity of profits to the exchange rate.
D. the sensitivity of the exchange rate to profits.
E. the frequency with which the exchange rate changes.
Which of the following are key economic statistics that are used to describe the state of
the macroeconomy?
I) Gross domestic product
II) The unemployment rate
III) Inflation
IV) Consumer sentiment
V) The budget deficit
A. I, II, and V
B. I, III, and V
C. I, II, and III
D. I, II, III, and V
E.-I, II, III, IV, and V
Federally-sponsored agency debt
A. is legally insured by the U.S. Treasury.
B. would probably be backed by the U.S. Treasury in the event of a near-default.
C. has a small positive yield spread relative to U.S. Treasuries.
D. would probably be backed by the U.S. Treasury in the event of a near-default and
has a small positive yield spread relative to U.S. Treasuries.
E. is legally insured by the U.S. Treasury and has a small positive yield spread relative
to U.S. Treasuries. Federally sponsored agencies are not government owned. These
agencies’debt is not insured by the U.S. Treasury, but probably would be backed by the
Treasury in the event of an agency near-default. As a result, the issues are very safe and
carry a yield only slightly higher than that of U.S. Treasuries.
Mutual funds show ____________ evidence of serial correlation, and hedge funds show
____________
evidence of serial correlation.
A. almost no; almost no
B. almost no; substantial
C. substantial; substantial
D. substantial; almost no
E. modest; modest
Which of the following orders is most useful to short sellers who want to limit their
potential losses?
A. Limit order
B. Discretionary order
C. Limit-loss order
D. Stop-buy order
On January 1, the listed spot and futures prices of a Treasury bond were 95.4 and 95.6.
You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures
contract. One month later, the listed spot price and futures prices were 95 and 94.4,
respectively. If you were to liquidate your position, your profits would be a
A. $125 loss.
B. $125 profit.
C. $1,060.50 loss.
D. $1,062.50 profit.
E. None of the options are correct.
You have been given this probability distribution for the holding-period return for a
stock:
What is the expected holding-period return for the stock?
A. 11.67%
B. 8.33%
C. 9.56%
D. 12.4%
E. None of the options are correct.
A call option has an intrinsic value of zero if the option is
A. at the money.
B. out of the money.
C. in the money.
D. at the money and in the money.
E. at the money or out of the money.
Most corporate bonds are traded
A. on a formal exchange operated by the New York Stock Exchange.
B. by the issuing corporation.
C. over the counter by bond dealers linked by a computer quotation system.
D. on a formal exchange operated by the American Stock Exchange.
E. on a formal exchange operated by the Philadelphia Stock Exchange.
Treasury STRIPS are
A. securities issued by the Treasury with very long maturities.
B. extremely risky securities.
C. created by selling each coupon or principal payment from a whole Treasury bond as
a separate cash flow.
D. created by pooling mortgage payments made to the Treasury.
Given the results of the early studies by Lintner (1965) and Miller and Scholes (1972),
one would conclude that
A. high beta stocks tend to outperform the predictions of the CAPM.
B. low beta stocks tend to outperform the predictions of the CAPM.
C. there is no relationship between beta and the predictions of the CAPM.
D. high beta stocks and low beta stocks tend to outperform the predictions of the
CAPM.
E. None of the options are correct.
Arbitrage proofs in futures market pricing relationships
A. rely on the CAPM.
B. demonstrate how investors can exploit misalignments.
C. incorporate transactions costs.
D. All of the options are correct.
E. None of the options are correct.
Errors in information processing can lead investors to misestimate
A. true probabilities of possible events and associated rates of return.
B. occurrence of possible events.
C. only possible rates of return.
D. the effect of accounting manipulation.
E. fraud.
Which of the following portfolio construction methods starts with security analysis?
A. Top-down
B. Bottom-up
C. Middle-out
D. Buy and hold
E. Asset allocation
According to the CAPM, the risk premium an investor expects to receive on any stock
or portfolio increases
A. directly with alpha.
B. inversely with alpha.
C. directly with beta.
D. inversely with beta.
E. in proportion to its standard deviation.
In the context of the Capital Asset Pricing Model (CAPM), the relevant risk is
A. unique risk.
B. systematic risk.
C. standard deviation of returns.
D. variance of returns.
Stingy Corporation is expected have EBIT of $1.2M this year. Stingy Corporation is in
the 30% tax bracket, will report $133,000 in depreciation, will make $76,000 in capital
expenditures, and will have a $24,000 increase in net working capital this year. What is
Stingy’s FCFF?
A. 1,139,000
B. 1,200,000
C. 1,025,000
D. 921,000
E. 873,000
A preferred stock will pay a dividend of $1.25 in the upcoming year and every year
thereafter; i.e., dividends are not expected to grow. You require a return of 12% on this
stock. Use the constant growth DDM to calculate the intrinsic value of this preferred
stock.
A. $11.56
B. $9.65
C. $11.82
D. $10.42
A firm has a lower asset turnover ratio than the industry average, which implies
A. the firm has a lower P/E ratio than other firms in the industry.
B. the firm is less likely to avoid insolvency in the short run than other firms in the
industry.
C. the firm is less profitable than other firms in the industry.
D. the firm is utilizing assets less efficiently than other firms in the industry.
E. the firm has lower spending on new fixed assets than other firms in the industry.