1) What is the current price of a zero coupon bond with a 7% yield to maturity that
matures in 20 years?
a. $1,000
b. $2,582
c. $25.82
d. $258.42
e. $100.00
2) The value of a put option at expiration is
a. Max [0, S(T) – X]
b. Max [0, X – S(T)]
c. Min [0, S(T) – X]
d. Min [0, X – S(T)]
e. X
3) All of the following are assumptions of the Markowitz model except
a. Risk is measured based on the variability of returns.
b. Investors maximize one-period expected utility.
c. Investors’ utility curves demonstrate properties of diminishing marginal utility of
wealth.
d. Investors base decisions solely on expected return and time.
e. All of the above
4) Which of the following is not a U.S. investment-grade bond index?
a.Merrill Lynch
b.Ryan Treasury
c.Salomon Brothers
d.Lehman Brothers
e.None of the above (that is, all are U.S. investment-grade bond indexes)
5) Given the following three days of data, compute the daily net advance-decline line
and cumulative advance-decline line for each day. What is the final value at the end of
the third day?
a. 5,000
b. 9,270
c. 12,500
d. 13,250
e. 11,667
6) Exhibit 6.2
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 6.2. What is the abnormal rate of return for Stock XYZ during period t
using only the aggregate market return (ignore differential systematic risk)?
a.-3.2%
b.2.4%
c.2.0%
d.1.3%
e.-1.5%
7) Exhibit 4.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60
percent and Turtle Industries is currently selling at $50 per share.
Refer to Exhibit 4.1. What is Jackie’s profit/loss if Turtle’s price after one year is $40?
a.$50,000
b.-$50,000
c.$100,000
d.-$100,000
e.None of the above
8) Under the following conditions, what are the expected returns for stocks A and B?
a. 24.8% and 19.7%
b. 22.1% and 18.0%
c. 20.3% and 17.8%
d. 19.9% and 16.9%
e. 18.7% and 15.3%
9) An open-end investment company is commonly referred to as a(n)
a. Balanced fund.
b. Mutual fund.
c. Money market fund.
d. Accessible fund.
e. Unit trust.
10) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the percentage return in the unweighted index
(geometric mean) for the period Dec 31, 2003 to Dec 31, 2004. Assume a base index
value of 100. Base year is Dec 31, 2003.
a.19.25%
b.21.25%
c.51.25%
d.5.25%
e.100.25%
11) What is the offering price for a mutual fund with a NAV of $36.50 and a load of 4
percent?
a. $34.78
b. $35.51
c. $35.77
d. $36.50
e. $37.96
12) Exhibit 22.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The information provided is relevant in the context of a one period (one year) binomial
option pricing model. A stock currently trades at $50 per share, a call option on the
stock has an exercise price of $45. The stock is equally likely to rise by 25% or fall by
25%. The one-year risk free rate is 2%.
Calculate the price of the call option today (C0).
a. $7.56
b. $17.48
c. $9.26
d. $5.0
e. $17.15
13) Antiques, art, coins, stamps, jewelry, etc., are not included in the investment
portfolios of financial institutions because
a.Prices vary substantially.
b.Transaction costs are relatively high.
c.They are illiquid.
d.All of the above.
e.None of the above.
14) Exhibit 21.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A 3-month T-bond futures contract (maturity 20 years, coupon 6%, face $100,000)
currently trades at $98,781.25 (implied yield 6.11%). A 3-month T-note futures contract
(maturity 10 years, coupon 6%, face $100,000) currently trades at $101,468.80 (implied
yield 5.80%). Assume semiannual compounding.
If you expected the yield curve to steepen, the appropriate NOB futures spread strategy
would be
a. Go long the T-bond and short the T-note
b. Go short the T-bond and long the T-note
c. Go long the T-bond and long the T-note
d. Go short the T-bond and short the T-note
e. None of the above
15) Exhibit 13.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2004 the Office Equipment Industry had free cash flow to equity
(FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected:
From year 2013 onward growth in FCFE is expected to remain constant at 5% per year.
The industry has a beta of 0.90 and the current industry price is $105. Currently the
yield on 10-year Treasury notes is 5% and the equity risk premium is 4%
Calculate the present value now (Year 2004) of FCFE during the period of increasing
growth (that is for years 2005 to 2008).
a. $17.19
b. $14.15
c. $11.59
d. $15.78
e. $18.09
16) Exhibit 15.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The table below provides five days of trade data.
Calculate the net advance-decline for day 5.
a. -3,883
b. 9,540
c. -2,354
d. 13,356
e. 7,953
17) Exhibit 22.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The following information is provided in the context of a two period (two six month
periods) binomial option pricing model. A stock currently trades at $60 per share, a call
option on the stock has an exercise price of $65. The stock is equally likely to rise by
15% or fall by 15% during each six month period. The one-year risk free rate is 3%.
Calculate the price of the call option today (C0).
a. $7.77
b. $14.35
c. $0
d. $4.21
e. $6.44
18) According to the cost of carry model the relationship between the spot (S0) and
futures price (F0,T) is
a. S0= F0,T/(1 + rf)T
b. S0= F0,T(1 + rf)T
c. S0+ F0,T= (1 + rf)T
d. S0= F0,T+ (1 + rf)T
e. S0– F0,T= (1 + rf)T