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1) Exhibit 10.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What is Star's operating profit margin?
a. 0.104
b. 0.094
c. 0.084
d. 0.067
e. 0.047
2) Exhibit 20.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A futures contract on Treasury bond futures with a December expiration date currently
trade at 103:06. The face value of a Treasury bond futures contract is $100,000. Your
broker requires an initial margin of 10%.
Calculate the initial margin deposit.
a. $10,000
b. $10,360.50
c. $10,318.75
d. $10,230.63
e. $10,429.35
3) Toward the business cycle peak
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.
4) Suppose a corporation desires to borrow financial capital for six months, with two
three-month installments. The firm is concerned that interest rates may rise over this
period of time. To eliminate interest rate exposure the firm could acquire a
a. 3 - 6 Forward Rate Agreement
b. 3 month "floating-for-fixed" Swap
c. 3 month Bond-Index Linked Swap
d. 3 month Warrant
e. All of the above
5) The Markowitz model is based on several assumptions regarding investor behavior.
Which of the following is not such any assumption?
a. Investors consider each investment alternative as being represented by a probability
distribution of expected returns over some holding period.
b. Investors maximize one-period expected utility.
c. Investors estimate the risk of the portfolio on the basis of the variability of expected
returns.
d. Investors base decisions solely on expected return and risk.
e. None of the above (that is, all are assumptions of the Markowitz model)
6) 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.
Suppose the yield curve changed so the that the new yield on the T-bond contract rose
to 6.5% and the new yield on the T-note contract fell to 5.5%. Calculate the profit on
the NOB futures spread. (Assume coupons are paid semiannually)
a. -$5850.92
b. -$6,671.42
c. $6,671.42
d. $5850.92
e. None of the above
7) Exhibit 21.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you observe the following prices in the T-Bill and Eurodollar futures
markets
Assume that a month later the price of the September T-Bill future is 96.25 and the
price of the Eurodollar future is 95.9. Calculate the profit on the Eurodollar futures
position.
a. 101 basis points.
b. 130 basis points.
c. -101 basis points.
d. -130 basis points.
e. 29 basis points.
8) Which of the following is not a major variable that affects the aggregate stock
market earning multiplier in a country?
a. Required rate of return on common stock in the country
b. Expected growth rate of dividends for the stocks in the country
c. Composite dividend-payout ratio for common stocks in country
d. Composite debt to equity ratio for firms in the country
e. All of the above are major variables for a country's aggregate stock market earnings
multiplier
9) If equal risk is added moving along the envelope curve containing the best possible
combinations the return will
a. Decrease at an increasing rate.
b. Decrease at a decreasing rate.
c. Increase at an increasing rate.
d. Increase at a decreasing rate.
e. Remain constant.
10) On January 2, 2003, you invest $50,000 in A Mutual Fund, a load fund that charges
a fee of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in 2005. On
December 31, 2005 you redeem all your shares in A. The dollar value is
a. $64,462.57
b. $644,625.70
c. $50,000.00
d. $6,446.25
e. $10,000.00
11) A stock currently trades at $110. June call options on the stock with a strike price of
$105 are priced at $4. Calculate the arbitrage profit that you can earn.
a. $0
b. $1
c. $5
d. $4
e. None of the above
12) An equity call option issued directly by the company whose stock serves as the
underlying asset is known as a
a. Collar.
b. Cap.
c. Floor.
d. Warrant.
e. Swap.
13)
Refer to Exhibit 7.1. What is the standard deviation of this portfolio?
a. 8.79%
b. 13.75%
c. 12.5%
d. 7.72%
e. 5.64%
14) A pure yield pickup swap involves swapping out of a
a. Bond to realize capital losses, into a comparable bond.
b. Low coupon bond, into a comparable high coupon bond.
c. High coupon bond, into a comparable low coupon bond.
d. Bond that is underpriced, into a comparable bond that is overpriced.
e. Bond that is overpriced, into a comparable bond that is underpriced.
15) All portfolios on the capital market line are
a. Perfectly positively correlated.
b. Perfectly negatively correlated.
c. Unique from each other.
d. Weakly correlated.
e. Unrelated except that they contain the risk free asset.
16) With a best effort offering, the investment banker performs all of the following
roles except:
a.determines the fee paid to themselves for handling the issue.
b.manages the selling group for the new issue.
c.evaluates market conditions and determines the characteristics of the security.
d.guarantees the selling price for the entire issue to the firm issuing the securities.
e.All of the above are true.
17) What type of mutual fund issues "redeemable securities" meaning that the fund
stands ready to buy or sell the shares at their net asset value with a transaction fee?
a.No-load, closed-end fund
b.No-load, open-end fund
c.Load, closed-end fund
d.Load, open-end fund
e.None of the above
18) The infinite period dividend discount model (DDM) can be used to value a
supernormal growth company.
19) The substitution swap is generally long term and relies heavily on interest rate
expectations.
20) The existence of transaction costs indicates that at some point the additional cost of
diversification relative to its benefit would be excessive for most investors.
21) Style investing allows control of the total portfolio to be shared between investment
managers and pension fund managers.
22) The bond management strategy intended to eliminate interest rate risk is
immunization.
23) The coupon of a bond indicates the income that the bond investor will receive over
the life of the bond.
