1) Assume that you are embarking on a test of the small-firm effect using APT. You
form 10 size-based portfolios. The following finding would suggest there is evidence
supporting APT:
a. The top five size based portfolios should have excess returns that exceed the bottom
five size based portfolios.
b. The bottom five size based portfolios should have excess returns that exceed the top
five size based portfolios.
c. The ten portfolios must have excess returns not significantly different from zero.
d. The ten portfolios must have excess returns significantly different from zero.
e. None of the above.
2) The following are tenets of Warren Buffett:
a. Business tenets.
b. Financial tenets.
c. Management tenets.
d. All of the above.
e. None of the above.
3) Which of the four major yield spreads defines the difference in yields between pure
government agency bonds and corporate bonds?
a. Segments
b. Sectors
c. Coupons
d. Seasoning
e. Maturity
4) The most appropriate discount rate to use when applying the Operating Free Cash
Flows model is the firm’s
a. Required rate of return based on the capital asset pricing model (CAPM)
b. Required rate of return based on the dividend discount model (DDM)
c. Weighted average cost of capital (WACC)
d. Historical cost of debt and equity
e. All of the above are appropriate depending on the situation
5) Which of the following is not a function of the specialist?
a.Assists the Federal Reserve in controlling the money supply
b.Acts as a broker who handles the limit orders or special orders placed with member
brokers
c.Buys and sells securities in order to stabilize the market
d.Acts as a dealer in assigned stocks to maintain a fair and orderly market
e.All of the above are functions of a specialist
6) If the coupon payments are not reinvested during the life of the issue then the
a. Promised yield is greater than the realized yield.
b. Promised yield is less than the realized yield.
c. Nominal yield declines.
d. Nominal yield is greater than the promised yield.
e. Current yield equals the yield to maturity.
7) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Heidi Talbott has a margin account with a balance of $50,000. The initial margin
deposit is 50 percent, and RC Industries is currently selling at $50 per share.
Refer to Exhibit 4.2. If the maintenance margin is 25 percent, to what price can RC
Industries stock price fall before Heidi receives a margin call?
a.$21.75
b.$23.33
c.$32.00
d.$33.33
e.None of the above
8) The following are examples of mutual fund companies
a. Common stock funds.
b. Bond funds.
c. Hedge funds.
d. a and b.
e. a, b and c
9) A portfolio manager should be able to perform all of the following functions, except
a. Determine risk-return preferences.
b. Eliminate systematic risk.
c. Maintain diversification ensuring a stabilized risk class.
d. Attempt to derive a risk-adjusted performance that is superior to the market.
e. Administer the account, keep records and provide timely information.
10) Option adjusted duration can be calculated as
a. Duration of noncallable bond – duration of call option on the bond.
b. Duration of noncallable bond + duration of call option on the bond.
c. Duration of callable bond – duration of call option on the bond.
d. Duration of callable bond + duration of call option on the bond.
e. None of the above.
11) Portfolio managers are often evaluated using a boxplot of returns for a universe of
investors over a specific period of time which is known as a(n)
a. Return adjusted comparison
b. Efficient frontier comparison
c. Time plot comparison
d. Peer group comparison
e. None of the above
12) Exhibit 5.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
Refer to Exhibit 5.2. Calculate a price weighted average for January 13th.
a.32
b.30
c.36.13
d.34
e.None of the above
13) Bond ratings are positively related to
a. Leverage.
b. Size.
c. Type of business.
d. All of the above.
e. None of the above.
14) It is not a good idea to get too specific when constructing your policy statement.
15) Two major competitive strategies are low-cost leadership and low-price leadership.
16) The required rate of return is determined by (1) the real risk free rate, (2) the
expected rate of inflation and (3) liquidity risk.
17) A plain vanilla swap agreement is used in similar situations as a forward rate
agreement.
18) The weak form of the efficient market hypothesis contends that technical trading
rules are of little value.
19) The capital market line is the tangent line between the risk free rate of return and
the efficient frontier.
20) The term structure of interest rates is a dynamic function that relates the term to
maturity to the yield to maturity of bonds.
21) The University of Michigan Consumer Sentiment Index is an example of a leading
indicator.
22) Some forward contracts, particularly in the foreign exchange market, are quite
standard and liquid.