1) A positive relationship between expected return and expected risk is consistent with
a. investors being risk seekers.
b. investors being risk avoiders.
c. investors being risk averse.
d. all of the above.
e. none of the above.
2) Utilizing the security market line an investor owning a stock with a beta of -2 would
expect the stock’s return to ____ in a market that was expected to decline 15 percent.
a. Rise or fall an indeterminate amount
b. Fall by 3%
c. Fall by 30%
d. Rise by 13%
e. Rise by 30%
3) A company has a dividend payout ratio of 35 percent. If the company’s return on
equity is 15 percent, what is the expected growth rate if no new outside financing is
used?
a. 4.50%
b. 5.25%
c. 7.75%
d. 8.25%
e. 9.75%
4) Exhibit 23.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The WallMal Company has entered into a 4-year interest rate swap, with semiannual
settlement, to pay a fixed rate of 8% per year and receive 6-month LIBOR. The notional
principal is $50,000,000.
Assuming that one year after the swap was initiated the fixed rate on a new 3-year
receive fixed pay floating LIBOR swap has fallen to 7% per year, calculate the market
value of the 8% fixed rate bond based on $100 face value. Settlement is on a
semiannual basis.
a. $102.66
b. $100.00
c. $95.56
d. $89.63
e. $70.77
5) Exhibit 14.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
At the end of the year 2010 the CKL Corporation had operating free cash flow (OFCF)
of $300,000 and shares outstanding of 100,000. Total debt is currently $10,000,000.
The company projects the following annual growth rates in OFCF
From year 2019 onward growth in OFCF is expected to remain constant at 5% per year.
The stock has a beta of 1.1 and the current market price is $80. Currently the yield on
10-year Treasury notes is 5% and the equity risk premium is 4%. The firm can raise
debt at a pre-tax cost of 9%. The tax rate is 25%. The proportion of equity is 55% and
the proportion of debt is 45%.
Calculate the present value now (Year 2010) of OFCF during the period of declining
growth (that is for years 2015 to 2018).
a. $1,044,612
b. $1,554,823
c. $1,898,096
d. $1,327,547
e. $1,579,326
6) Consider a bond with a price of $944.44 and a coupon of 8 1/2%. What is the current
yield?
a. 9.4%
b. 6.8%
c. 8.6%
d. 9.0%
e. 11.0%
7) Exhibit 5.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.7. If the December 31, 2011 value weighted index for ABC was 100,
what is the value weighted index for ABC on December 31, 2012?
a.108.35
b.114.74
c.120.19
d.126.67
e.131.54
8) Which of the following is not a competitive force suggested by Porter?
a. Rivalry among existing competitors
b. Threat of new entrants
c. Threat of substitute products
d. Government and regulatory influences
e. None of the above (that is, all are competitive forces)
9) Fund XYZ had a pretax return of 10.2% and a tax-adjusted return of 9.5%. Calculate
Fund XYZ’s tax cost ratio.
a. 0.006
b. 0.106
c. 0.116
d. 0.342
e. 0.635
10) Exhibit 21.6
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 93 and the price of
the Eurodollar future is 90.25. Calculate the profit on the Eurodollar futures position.
a. 190 basis points.
b. 210 basis points.
c. -190 basis points.
d. -210 basis points.
e. 100 basis points.
11) Exhibit 14.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Harcourt Industries currently has an 18% annual growth rate while the market average
is 8 percent. The market multiple is 12.
Determine the justified P/E ratio for Harcourt Industries assuming Harcourt can
maintain its superior growth rate for the next 9 years.
a. 5.98
b. 13.13
c. 21.20
d. 58.68
e. 26.65
12) Which of the following statements concerning performance measures is false?
a. The Sharpe measure examines both unsystematic and systematic risk.
b. The Treynor measure examines systematic risk.
c. The Jensen measure examines systematic risk.
d. All three measures examine both unsystematic and systematic risk.
e. None of the above (that is, all statements are true)