1) All of the following are normal characteristics of a convertible bond, except
a. Conversion at the option of the issuer.
b. Conversion into a fixed number of shares of common stock.
c. A conversion price initially above the market price of the common stock.
d. An interest rate lower than that on straight debentures.
e. Subordination.
2) Exhibit 22.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
A covered call is an appropriate strategy if
a. An investor wishes to generate additional income.
b. An investor wished to insure against a decline in share values.
c. An investor expected share prices to be volatile.
d. An investor expected share prices to remain in a trading range.
e. An investor expected share prices to be volatile, but was inclined to be bullish.
3) Which of the following statements concerning global company analysis is false?
a. Analysis of companies within industries should be extended to include foreign
companies.
b. There is a problem in obtaining data that is required for a thorough company analysis
of foreign companies.
c. Foreign companies’ financial risk should be evaluated over time.
d. Differences in relative measures can be explained by the variations in accounting
procedures among countries and investors attitudes within each country.
e. None of the above (that is, all statements are true)
4) Exhibit 8.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You expect the risk-free rate (RFR) to be 4 percent and the market return to be 10
percent. You also have the following information about three stocks.
Refer to Exhibit 8.7. What are the estimated rates of return for the three stocks (in the
order A, B, C)?
a. 13.0%, 10.6%, 8.8%
b. 15.0%, 11.1%, 2.9%
c. 18.7%, 11.1%, 8.8%
d. 21.7%, 10.0%, 6.9%
e. 25.0%, 11.1%, 7.1%
5) In order to confirm the weak-form efficient market hypothesis you could develop
trading rules that consider
a.Advance-decline ratios.
b.Short sales.
c.Specialist activities.
d.Any of the above.
e.None of the above.
6) ____ is an appropriate objective for investors who want their portfolio to grow in real
terms, i.e., exceed the rate of inflation.
a.Capital preservation
b.Capital appreciation
c.Portfolio growth
d.Value additivity
e.Nominal preservation
7) Which of the following are factors that make it difficult to create and maintain a
bond index?
a.The universe of bonds is broader than stocks.
b.The universe of bonds is constantly changing due to new issues, bond maturities,
calls, and bond sinking funds.
c.It is difficult to derive value, up-to-date prices.
d.Choices a and c
e.All of the above
8) An investor who wants a long position in a ____ must first place the order with a
broker, who then passes it on to the trading pit or electronic network. Details of the
order are then passed on to the exchange clearinghouse.
a. Call option
b. Put option
c. Forward contract
d. Futures contract
e. None of the above
9) There are three techniques available to help an investor make a market decision.
Which of the following is not such an analysis technique?
a. Macro techniques that are based on the strong relationship between the economy and
security markets.
b. Micro techniques that estimate future market values by applying one of several basic
valuation models to equity markets.
c. Technical analysis where an investor analyzes past and recent market movements for
indications of future performance.
d. Fundamental analysis that considers the effect of market on the entire portfolio.
e. None of the above (that is, all are techniques available to make market decisions)
10) The Sharpe measure of portfolio performance divides the portfolio’s risk premium
by the portfolio’s beta.
11) Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The
zero-beta return (λ0) = .025 and the risk premiums for the two factors are (λ1) = .12 and
(λ0) = .10.
Calculate the expected returns for stocks A, B, C.
A B C
a. 0.082 0.091 0.033
b. 0.105 0.109 0.032
c. 0.132 0.128 0.033
d. 0.165 0.121 0.032
e. 0.850 0.850 0.610
12) A portfolio manager without superior analytical skills should
a.Determine and quantify the risk preferences of a client.
b.Minimize transaction costs.
c.Maintain the specified risk level.
d.Ensure that the portfolio is completely diversified.
e.All of the above.
13) Exhibit 14.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
What is the required rate of return for Stock Y based on the capital asset pricing model
(CAPM)?
a. 11.5%
b. 13.0%
c. 13.6%
d. 14.8%
e. 15.5%
14) An examination of the relationship between stock prices and the economy has
shown that the relationship is
a. Weak, and that stock prices turn after the economy does.
b. Nonexistent.
c. Strong, and that stock prices turn after the economy does.
d. Strong, and that stock prices turn before the economy does.
e. Weak, and that stock prices turn before the economy does.
15)
Refer to Exhibit 7.6. What is the standard deviation of this portfolio?
a. 6.08%
b. 5.89%
c. 7.06%
d. 6.54%
e. 7.26%
16) A buyer of the call option is speculating on the
a. Direction of the price movement of the underlying investment.
b. Timing of the price movement of the underlying investment.
c. Leverage that a call option creates with respect to the underlying investment.
d. All of the above.
e. None of the above.
17) A hedge strategy known as a collar agreement involves the simultaneous
a. Purchase of an in-the money put and purchase of an out-of-the-money call on the
same underlying asset with same expiration date and market price.
b. Sale of an out-of-the money put and sale of an out-of-the-money call on the same
underlying asset with same expiration date and market price.
c. Purchase of an in-the money put and purchase of an in-the-money call on the same
underlying asset with same expiration date and market price.
d. Purchase of an out-of-the money put and sale of an out-of-the-money call on the
same underlying asset with same expiration date and market price.
e. Sale of an in-the money put and purchase of an in-the-money call on the same
underlying asset with same expiration date and market price.
18) Exhibit 23.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
BioTech Industries has debentures outstanding (par value $1,000) convertible into the
company’s common stock at $30. The coupon rate is 11 percent payable semiannually
and they mature in 10 years.
Calculate the straight-bond value assuming that bonds of equivalent risk and maturity
are yielding 14 percent per year compounded semiannually.
a. $757.37
b. $796.83
c. $841.07
d. $889.82
e. $902.65
19) Exhibit 10.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information about Albermarle Corp.
Calculate the financial leverage.
a. 1.05
b. 5.32
c. 2.15
d. 1.54
e. 2.31
20) One way to measure a company’s intrinsic value is to divide the company’s current
dividends by the required return less the dividend growth rate.
21) A growth company is one whose stock is undervalued by the market.
22) The valuation techniques presented in the chapter can only be applied to the stock
market in the United States, since the U.S. stock market is inefficient.
23) Studies have shown that a well-diversified investor needs as few as five stocks.
24) The micro approach to estimating the industry multiple would entail examining
specific variables such as: dividend payout ratios, required rates of return, and expected
growth rates of dividends and earnings.
25) Bonds can have different types of collateral and can be either secured, unsecured or
registered bonds.
26) Closed-end investment companies never sell at discounts to their NAV.
27) The “true” market portfolio is unknown.
28) Hedge funds are far less liquid than mutual fund shares.
29) The inclusion of dividends in the cost of carry model will increase the futures price.