1) A study by Chen, Roll, and Ross in 1986 examined all of the following factors in
applying the Arbitrage Pricing Theory (APT) except the
a. Return on a market value-weighted return.
b. Monthly growth rate in U.S. industrial production.
c. Change in the consumer price index (CPI).
d. Expected change in the bond credit spread.
e. All of the above factors were used in their 1986 study.
2) If you have a portfolio with a market value of $100 million and a beta (measured
against the S&P 500) of 1.5, then if the market rises by 10 percent, what value would
you expect your portfolio to have?
a. $100 million
b. $110 million
c. $150 million
d. $165 million
e. $1.65 billion
3) Which of the following is not a typical portfolio constraint?
a.Liquidity needs
b.Risk tolerance
c.Time horizon
d.Tax concerns
e.Legal factors
4) What range of returns would an investor expect to achieve 99% of the time on an
investment with an expected return of 11% and a standard deviation of 16%?
a.5% to 27%
b.-5% to 27%
c.-21% to 43%
d.-37% to 59%
e.5% to 21%
5) Exhibit 5.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 5.6. Calculate a price weighted average for Day T.
a.46.20
b.53.33
c.54.12
d.92.39
e.108.23
6) Which of the following economic series are included in the NBER lagging indicator
series?
a. Vendor Performance.
b. Index of industrial production.
c. Manufacturing and trade sales data in 1992 dollars.
d. Manufacturers’ new orders, non-defense capital goods.
e. Average duration of unemployment in weeks.
7) An inconsistency between a stock’s P/E ratio and growth rate can be attributed to all
of the following, except
a. A major difference in the risk involved.
b. Inaccurate growth estimates.
c. An undervaluation of the stock.
d. An overvaluation of the stock.
e. Competition.
8) Which of the following statements concerning defined benefit plans is false?
a. The company bears the risk of investments
b. Employees are entitled to either a lump-sum payment or income stream at retirement
c. Risk tolerance depends on funding status and its actuarial rate
d. Defined benefit plans for young workers are typically more conservatively invested
than defined contribution plans
e. All of the above are true statements
9) Exhibit 10.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information for a company.
Calculate the inventory turnover ratio.
a. 27.23
b. 23.3
c. 55.43
d. 8.67
e. 11.67
10) If an individual owns only one security the most appropriate measure of risk is:
a. Standard deviation
b. Correlation
c. Beta
d. Covariance
e. All of the above are equally important
11) Convertibles provide the upside potential of common stock and the downside
protection of a bond.
12) When estimating a major stock market value using the earnings multiplier approach
near-term estimates of the required rate of return and growth rate are essential due to
the impact of near-term events on cash flows.
13) There is a high correlation between the Wilshire 5000 index and the alternative
NYSE series (S&P 500 and the NYSE), representing the substantial influence of large
NYSE stocks on the Wilshire 5000 index.
14) The forward market has low liquidity relative to the futures market.
15) The usefulness of CAPM theory is limited in practice due to benchmark error.