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1) At the initial stage of an economic recovery,
a. Financial stocks rise on expectations of increases in loan demand, housing
constructions and security offerings.
b. Consumer durable stocks rise on expectations of rising consumer confidence and
personal income.
c. Capital goods stocks rise on expectation of increases in business capital spending.
d. Basic materials stocks rise on expectation of rising profit margins.
e. Consumer staple stocks rise on expectations that consumers will continue to spend on
necessities.
2) Exhibit 4.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2%
for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The
maintenance margin is 30%.
Refer to Exhibit 4.7. At the end of one year shares of RossCorp stock are selling for $35
per share and the company paid dividends of $0.85 per share. Assuming that you paid
the full cost of the purchase, what is your rate of return if you sell RossCorp stock?
a.-33.05%
b.-23.42%
c.23.42%
d.33.05%
e.-25.35%
3) Technicians using the confidence index published by Barrons to make investment
decisions
a. Believe the ratio is a bullish indicator because during periods of high confidence
investors will invest in higher quality bonds.
b. Believe the ratio is a bearish indicator because during periods of high confidence
investors will invest in higher quality bonds.
c. Believe the ration is a bearish indicator because during periods of high confidence
investors will invest in lower quality bonds.
d. Believe the ration is a bullish indicator because during periods of high confidence
investors will invest in lower quality bonds.
e. None of the above.
4) Exhibit 9.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
In the list above, which are not assumptions of the Arbitrage Pricing model?
a. (1) and (3)
b. (1), (2), and (3)
c. (1), (2), and (5)
d. (2), (4), and (6)
e. All six are assumptions
5) Hunter Corporation had a dividend payout ratio of 63% in 1999. The retention rate in
1999 was
a. 37%
b. 63%
c. 50%
d. 0%
e. 100%
6) If you expected interest rates to fall, you would prefer to own bonds with
a. short maturities and low coupons.
b. long maturities and high coupons .
c. long maturities and low coupons.
d. short maturities and high coupons.
e. none of the above.
7) Business risk is a function of
a. Sales variability.
b. Operating leverage.
c. Financial leverage.
d. a and b.
e. b and c.
8) Between 1975 and 1985, the standard deviation of the returns for the NYSE and the
S&P 500 indexes were 0.06 and 0.07, respectively, and the covariance of these index
returns was 0.0008. What was the correlation coefficient between the two market
indicators?
a. .1525
b. .1388
c. .1458
d. .1622
e. .1064
9) Exhibit 21.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a portfolio manager, you are responsible for a $150 million portfolio, 90 percent of
which is invested in equities, with a portfolio beta of 1.25. You are utilizing the S&P
500 as your passive benchmark. Currently the S&P 500 is valued at 1202. The value of
the S&P 500 futures contract is equal to $250 times the value of the index. The beta of
the futures contract is 1.0.
How many contracts should you buy or sell in order to increase the portfolio beta to
1.30 (rounded to the nearest integer)?
a. Sell 70 contracts
b. Buy 70 contracts
c. Buy 87 contracts
d. Buy 98 contracts
e. None of the above
10) Calculate the expected return for C Inc. which has a beta of 0.8 when the risk free
rate is 0.04 and you expect the market return to be 0.12.
a. 8.10%
b. 9.60%
c. 10.40%
d. 11.20%
e. 12.60%
11) An example of an active strategy for bond management would be
a. Buy and hold.
b. Credit analysis.
c. Indexing.
d. Classical immunization.
e. Horizon matching.
12)
Refer to Exhibit 7.8. 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. 6.4%
b. 9.1%
c. 10.2%
d. 10.8%
e. 11.2%
