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1) Exhibit 11.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Fast Grow Corporation is expecting dividends to grow at a 20% rate for the next two
years. The corporation just paid a $2 dividend and the next dividend will be paid one
year from now. After two years of rapid growth dividends are expected to grow at a
constant rate of 9% forever.
If the required return is 14%, what is the value of Fast Grow Corporation common
stock today?
a. $40.26
b. $42.38
c. $46.70
d. $52.63
e. $62.78
2) Exhibit 21.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The S&P 500 stock index is at 1300. The annualized interest rate is 4.0% and the
annualized dividend is 2%. You are currently considering purchasing a 2-month futures
contract for your portfolio.
If the futures contract was currently available for 1350, calculate the arbitrage profit.
a. $8.33
b. $28.45
c. $45.67
d. $50.00
e. $54.33
3) Trading in the secondary markets for U.S. Government and municipal bonds
a.Takes place through a network of primary dealers
b.Takes place over the counter by dealers who buy and sell on their own account
c.Takes place on the NYSE bond annex
d.All of the above
e.None of the above
4) Which duration is computed by discounting flows using the yield to maturity of the
bond?
a. Effective
b. Macaulay Duration
c. Modified Duration
d. Present Value Duration
e. Cash Flow Duration
5) Exhibit 10.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What was Star's fixed asset turnover ratio?
a. 1.65
b. 1.21
c. 1.01
d. 0.82
e. 0.42
6) Exhibit 18.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Talmart Corporation bonds have a $1,000 face value and will mature in 4 years. The
bonds have a 7% coupon rate. Interest is paid annually and the required rate of return is
6 percent for these bonds.
If interest rates increase 50 basis points, what will be the approximate price change for
the Talmart bond?
a. -17.0%
b. -1.7%
c. 1.7%
d. 1.8%
e. 17.0%
7) The dividend payout ratio for the aggregate market is 50 percent, the required rate of
return is 16 percent, and the expected growth rate for dividends is 6 percent. Compute
the current earnings multiple.
a. 5
b. 2.81
c. 7.5
d. 4
e. None of the above
8) Exhibit 22.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock
Calculate the payoff of a short straddle at an expiration stock price of $20.
a. -$4.50
b. -$2.00
c. $2.00
d. $4.50
e. $20.50
9) Which of the following statements about returns-based analysis or effective mix
analysis is true?
a. This analysis compares the historical return pattern of the portfolio in question with
the historical returns of various well-specified indexes.
b. This analysis uses sophisticated quadratic programming techniques to indicate what
styles or style combinations were most similar to the portfolio's actual historical returns.
c. This analysis is based on the belief that the portfolio's current make-up will be a good
predictor for the next period's returns.
d. Choices a and b
e. All of the above statements describe returns-based analysis or effective mix analysis
10) The value of a call option is positively related to:
a. Underlying stock price.
b. Time to expiration
c. Exercise price.
d. a and b
e. b and c
11) The Dow Theory describes stock prices as moving in trends analogous to the
movement of water. Which of the following statements is not true?
a. Major trends resemble tides.
b. Intermediate trends resemble waves.
c. Short-run movements are like ripples.
d. Waves are the most important.
e. None of the above (that is, all are true statements)
12) Exhibit 21.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider a portfolio manager with a $10,000,000 equity portfolio under management.
The manager wishes to hedge against a decline in share values using stock index
futures. Currently a stock index future is priced at 1350 and has a multiplier of 250. The
portfolio beta is 1.50.
Calculate the overall profit.
a. -$50,000
b. -$150,000
c. $50,000
d. $150,000
e. $550,000
