1) an underpriced stock provides an expected return that is ____________ the required
return based on the capital asset pricing model (capm).
a.less than
b.equal to
c.greater than
d.greater than or equal to
2) in their 2010 study, fama and french used a four-factor model to analyze excess
returns on equity mutual funds. they found that the funds ______.
a.had negative alphas before fees were considered.
b.had positive alphas after fees were considered.
c.had negative alphas after fees were considered.
3) an investor buys a t-bill at a bank discount quote of 4.80 with 150 days to maturity.
the investor’s actual annual rate of return on this investment is _____.
a.4.8%
b.4.97%
c.5.47%
d.5.74%
4) webs are _____________.
a.mutual funds marketed internationally on the internet
b.synthetic domestic stock indexes
c.equity indexes that replicate the price and yield performance of foreign stock
portfolios
d.single stock investments in a foreign security
5) if you believed in the reversal effect, you should __________.
a.buy bonds this period if you held stocks last period
b.buy stocks this period that performed poorly last period
c.buy stocks this period that performed well last period
d.do nothing if you held the stock last period
6) the cal provided by combinations of 1-month t-bills and a broad index of common
stocks is called the ______.
a.sml
b.capm
c.cml
d.total return line
7) as compared with equivalent maturity bonds selling at par, deep discount bonds will
have ________.
a.greater reinvestment risk
b.greater price volatility
c.less call protection
d.shorter average maturity
8) a bank has an average duration of its liabilities equal to 2 years. the bank’s average
duration of its assets is 3.5 years. the bank’s market value of equity is at risk if
_______________________.
a.interest rates fall
b.credit spreads fall
c.interest rates rise
d.the price of all fixed-income securities rises
9) ______ are private partnerships of a small number of wealthy investors, are often
subject to lock-up periods, and are allowed to pursue a wide range of investment
activities.
a.hedge funds
b.closed-end funds
c.reits
d.mutual funds
10) a covered call strategy benefits from what environment?
a.falling interest rates
b.price stability
c.price volatility
d.unexpected events
11) _____________ are likely to close their positions before the expiration date, while
____________ are likely to make or take delivery.
a.investors; regulators
b.hedgers; speculators
c.speculators; hedgers
d.regulators; investors
12) increases in the money supply will cause demand for investment and consumption
goods to __________ in the short run and may cause prices to __________ in the long
run.
a.increase; increase
b.increase; decrease
c.decrease; increase
d.decrease; decrease
13) research conducted by rubinstein (1994) suggests that _______________ command
a disproportionately high time value.
a.out-of-the-money call options
b.out-of-the-money put options
c.in-the-money call options
d.in-the-money put options
14) as you lengthen the time horizon of your investment period and decide to invest for
multiple years, you will find that:
i. the average risk per year may be smaller over longer investment horizons.
ii. the overall risk of your investment will compound over time.
iii. your overall risk on the investment will fall.
a.i only
b.i and ii only
c.iii only
d.i, ii, and iii
15) margin requirements for futures contracts can be met by ______________.
a.cash only
b.cash or highly marketable securities such as treasury bills
c.cash or any marketable securities
d.cash or warehouse receipts for an equivalent quantity of the underlying commodity
16) the price of a bond (with par value of $1,000) at the beginning of a period is $980
and at the end of the period is $975. what is the holding-period return if the annual
coupon rate is 4.5%?
a.4.08%
b.4.5%
c.5.1%
d.5.6%
17) the manhawkin fund has an expected return of 16% and a standard deviation of
20%. the risk-free rate is 4%. what is the reward-to-volatility ratio for the manhawkin
fund?
a..8
b..6
c.9
d.1
18) a security’s beta coefficient will be negative if ____________.
a.its returns are negatively correlated with market-index returns
b.its returns are positively correlated with market-index returns
c.its stock price has historically been very stable
d.market demand for the firm’s shares is very low
19) which of the following describes the rate at which your ability to purchase grows
while you hold an interest-earning investment?
a.the nominal exchange rate
b.the nominal interest rate
c.the real exchange rate
d.the real interest rate