1) The major owners of high-yield bonds have been
a. Commercial banks.
b. Savings and loans.
c. Mutual funds.
d. California Credit Unions (CCU’s).
e. European banks.
2) An individual investor’s utility curves specify the tradeoffs he or she is willing to
make between
a. high risk and low risk assets.
b. high return and low return assets.
c. covariance and correlation.
d. return and risk.
e. efficient portfolios.
3) The Black-Scholes model assumes that stock price movements can be described by
a. Geometric moving averages.
b. Arithmetic moving averages.
c. Regression towards the mean.
d. Geometric Brownian motion.
e. Stochastic time lags.
4) Which of the following ratios is not a measurement of the firm’s liquidity?
a. Current ratio
b. Cash ratio
c. Receivables turnover
d. Inventory turnover
e. Total asset turnover
5) The following are participating issuers in bond markets:
a. Governments.
b. School districts.
c. Corporations
d. a and c.
e. a, b and c.
6) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Estimate the industry growth rate in sales per share.
a. 10.5%
b. 11%
c. 12.16%
d. 9.5%
e. 8.73%
7) Beta is a measure of:
a. Company specific risk
b. Industry risk
c. Diversifiable risk
d. Systematic risk
e. Unique risk
8) 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 after the stock price has already moved up in value
once (Cu).
a. $7.77
b. $14.35
c. $0
d. $4.21
e. $6.44
9) On January 2, 2003, you invest $50,000 in the Lizbiz Mutual Fund, a load fund that
charges a fee of 5%. The fund’s returns were 14.6% in 2003, -6.4% in 2004, 15.2% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is
a. $66,722.27
b. $15,200.00
c. $58,695.74
d. $33,366.25
e. $10,000.00
10) 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.
Assume that your investment horizon is 2 years and your portfolio consists only of
bonds A and B. What proportion should be invested in each bond to immunize the
portfolio?
a. Invest 72.4% in bond A and 27.6% in bond B.
b. Invest 68.3% in bond A and 31.7% in bond B.
c. Invest 58.5% in bond A and 41.5% in bond B.
d. Invest 31.7% in bond A and 68.3% in bond B.
e. Invest 27.6% in bond A and 72.4% in bond B.
11) Assume that you have just sold a stock for a loss at a price of $75, for tax purposes.
You still wish to maintain exposure to the sold stock. Suppose that you buy a call with a
strike price of $70 and a price of $6.75. Calculate the effective price paid to repurchase
the stock if the price after 35 days is $65.
a. $71.75
b. $76.75
c. $58.25
d. $81.75
e. None of the above
12) What type of funds are typically no-load funds that impose no penalty for early
withdrawal and generally allow holders to write checks against their account?
a. Mutual funds
b. Open-end funds
c. Closed-end funds
d. Money market funds
e. Balanced funds
13) Exhibit 12.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are using the free cash flow to equity (FCFE) technique to analyze U.S. equity
market. The beginning FCFE is $90 and the required rate of return is 10%. Free cash
flows are expected to grow at a 10% rate for the next two years and then grow at a
constant rate of 7% forever.
What would the estimated value of the U.S. market be today using the FCFE approach,
if the growth rate was expected to be a constant 8% indefinitely, instead of the 10% and
7% estimates?
a. 4,500
b. 4,728
c. 4,860
d. 4,923
e. 5,042
14) 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 price weighted series for the
period Dec 31, 2000 to Dec 31, 2004.
a.12.68%
b.20.00%
c.21.76%
d.33.33%
e.40.00%
15) Calculate the net advance-decline for day 5 using the trade data in the table below.
a. -5,459
b. 941
c. 5,459
d. 6,400
e. 7,853
16) A 15-year bond has a $1,000 par value bond, a 4% coupon and a yield to maturity
of 3.3%. Interest is paid annually. The bond’s current yield is
a. 3.7%
b. 4.0%
c. 3.3%
d. 7.3%
e. None of the above
17) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Estimate the industry sales per share for the year 2004.
a. $574.9
b. $600.0
c. $585.03
d. $625
e. $550
18) Exhibit 23.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Black Gold Industries (BGI) is an independent oil producer with production capacity of
500,000 barrels per month. Due to the cost structure of the business, BGI needs to
receive $56.50 per barrel in order to remain solvent. On the other side of this situation
is Petrochemicals Unlimited (PU) which uses an average of 500,000 barrels of West
Texas crude oil in its normal production operations. The nature of PU’s business is such
that they will financially suffer if they have to pay more than an average of $57.80 per
barrel for oil over the next six years. To hedge against their exposure to volatile oil
prices, BI and PU contact a swap dealer to arrange the six-year oil swap described
below:
Describe the transaction that occurs between BGI and the swap dealer if the monthly
average oil futures settlement price is $55.50.
a. BGI pays the swap dealer $750,000.
b. The swap dealer pays BGI $800,000.
c. BGI pays the swap dealer $800,000.
d. The swap dealer pays BGI $750,000.
e. None of the above.
19) The importance of an industry’s performance on an individual stock’s performance
varies across industries.
20) The three basic techniques for constructing a passive index are: full replication,
sampling and linear programming.
21) There is a negative relationship between the capacity utilization rate and the profit
margin.
22) Arbitrage Pricing Theory (APT) specifies the exact number of risk factors and their
identity
23) If a technical trading rule is successful, more traders use it, causing the rule to
become even more successful.