1) a stock’s alpha measures the stock’s ____________________.
a.expected return
b.abnormal return
c.excess return
d.residual return
2) the new york stock exchange is a good example of _________.
a.an auction market
b.a brokered market
c.a dealer market
d.a direct search market
3) a hedge ratio of .70 implies that a hedged portfolio should consist of ________.
a.long .70 calls for each short stock
b.long .70 shares for each long call
c.long .70 shares for each short call
d.short .70 calls for each long stock
4) which one of the following is the ratio of actual output from factories to potential
output from factories?
a.capacity utilizationrate
b.participation rate
c.durable goods orders rate
d.industrial production rate
5) you find that the annual sharpe ratio for stock a returns is equal to 1.8. for a 3-year
holding period, the sharpe ratio would equal _______.
a.1.8
b.2.48
c.3.12
d.5.49
6) you buy a tips at issue at par for $1,000. the bond has a 3% coupon. inflation turns
out to be 2%, 3%, and 4% over the next 3 years. the total annual coupon income you
will receive in year 3 is _________.
a.$30
b.$33
c.$32.78
d.$30.90
7) in the prs financial risk ratings, the united states rates poorly because of the u.s.
________.
i. large budget deficit
ii. large trade deficit
iii. large amount of total debt
a.i only
b.i and ii only
c.i and iii only
d.i, ii, and iii
8) the volume of interest rate swaps increased from almost zero in 1980 to over
__________ today.
a.$40 million
b.$400 million
c.$400 billion
d.$400 trillion
9) an investor purchases shares of an index fund. the investor could take on the same
level of risk by taking out a loan and purchasing a higher-risk specialty fund. the sharpe
ratio on this complete portfolio is higher than her existing investment. what behavioral
concept prevents the investor from taking out the loan and investing in the index fund?
a.framing bias
b.excessive volatility
c.loss aversion
d.mental accounting
10) a stock is priced at $45 per share. the stock has earnings per share of $3 and a
market capitalization rate of 14%. what is the stock’s pvgo?
a.$23.57
b.$15
c.$19.78
d.$21.34
11) a one-dollar increase in a stock’s price would result in __________ in the call
option’s value of __________ than one dollar.
a.a decrease; less
b.a decrease; more
c.an increase; less
d.an increase; more
12) the trin statistic is a ______ indicator.
a.sentiment
b.flow of funds
c.market structure
d.fundamental
13) the option smirk in the black-scholes option model indicates that __________.
a.implied volatility changes unpredictably as the exercise price rises
b.stock prices may fall by a larger amount than the model assumes
c.stock prices evolve continuously in today’s actively traded markets
d.stocks with lower exercise prices are more likely to pay dividends
14) when google’s share price reached $475 per share, google had a p/e ratio of about
68 and an estimated market capitalization rate of 11.5%. google pays no dividends.
approximately what percentage of google’s stock price was represented by pvgo?
a.92%
b.87%
c.77%
d.64%
15) you purchase one ibm july 120 put contract for a premium of $ you hold the option
until the expiration date, when ibm stock sells for $123 per share. you will realize a
______ on the investment.
a.$300 profit
b.$300 loss
c.$500 loss
d.$200 profit
16) a regular retirement plan requires that taxes be paid at the time the money is
removed from the plan. what is the after-tax value of a $5,000 deposit into a retirement
plan today that generates an 8% return for 20 years if the investor is taxed at the 28%
level?
a.$16,779
b.$20,135
c.$21,685
d.$23,305
calculator entries are n = 20, i/y = 8, pv = -5,000, pmt = 0, cpt fv 23,304.79
before taxes.
17) from the perspective of determining profit and loss, the long futures position most
closely resembles a levered investment in a ____________.
a.long call
b.short call
c.short stock position
d.long stock position
18) the current stock price of international paper is $69, and the stock does not pay
dividends. the instantaneous risk-free rate of return is 10%. the instantaneous standard
deviation of international paper’s stock is 25%. you want to purchase a call option on
this stock with an exercise price of $70 and an expiration date 73 days from now.
using the black-scholes opm, the call option should be worth __________ today.
a.$2.50
b.$2.94
c.$3.26
d.$3.50
19) which one of the following describes the amount by which government spending
exceeds government revenues?
a.balance of trade
b.budget deficit
c.gross domestic product
d.output gap
20) you invest all of your money in 1-year t-bills. which of the following statements is
(are) correct?
i. your nominal return on the t-bills is riskless.
ii. your real return on the t-bills is riskless.
iii. your nominal sharpe ratio is zero.
a.i only
b.i and iii only
c.ii only
d.i, ii, and iii