1) Exhibit 22.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
If the spot rate at expiration is $0.85 and the put option was purchased, what is the
dollar gain or loss?
a. $340 loss
b. $125 gain
c. $750 gain
d. $750 loss
e. $200 loss
2) Exhibit 8.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.4. What are the expected returns for stocks X, Y, and Z for the next
period based on the above prices and dividends?
X Y Z
a. 4.8% 18.3% 16.9%
b. 10.7% 17.5% 14.4%
c. 11.2% 20.7% 16.9%
d. 12.3% 22.5% 22.3%
e. 13.1% 24.3% 18.2%
3) If the assumption that there are no transaction costs is relaxed, the SML will be a
a. Straight line.
b. Band of securities.
c. Convex curve.
d. Concave curve.
e. Parabolic curve.
4) According to prospect theory
a.Investors have a propensity to sell winners too soon and hang on to losers too long.
b.Investors ignore bad news and overemphasize good news.
c.Investors tend to follow the herd.
d.Investors put more money into a failure rather than into a success.
e.Investors are all noise traders.
5) Exhibit 8.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Refer to Exhibit 8.3. The average proxy return is
a. 1%
b. 2%
c. 3%
d. 4%
e. 5%
6) Exhibit 6.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Rit= return for stock i during period t
Rmt= return for the aggregate market during period t
Refer to Exhibit 6.4. What is the abnormal rate of return for Stock A when you consider
its systematic risk measure (beta)?
a.2.30%
b.2.10%
c.3.10%
d.12.40%
e.None of the above
7) Assume that you purchased shares of a stock at a price of $35 per share. At this time
you purchased a put option with a $35 strike price of $3. The stock currently trades at
$40. Calculate the dollar return on this option strategy.
a. $3
b. -$2
c. $2
d. -$3
e. $0
8) Refer to Exhibit 8.1. If you expected the return on the Market Index to be 12%, what
would you expect the return on RA Computer to be?
a. 7.26%
b. 6.75%
c. 8.00%
d. 9.37%
e. -3.29%
9) The National Bureau of Economic Research (NBER) has derived the following
indicator series in order to monitor business cycles.
a. M2, leading, and lagging.
b. Leading, coincident, and consumer expectations.
c. Leading, coincident, and lagging.
d. Leading, coincident, and M2.
e. Consumer expectations, leading, and lagging.
10) Exhibit 3.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The annual rate of inflation is 2%.
Refer to Exhibit 3.1. What is the real return on small capitalization stocks?
a.1.02%
b.3.68%
c.4.71%
d.11.27%
e.13.33%
11) Studies indicate that neither firm size nor the time interval used are important when
computing beta.
12) A portfolio manager that attempts to select bonds based on their intrinsic value
would be carrying out
a. Credit analysis
b. Valuation analysis
c. Yield-spread analysis
d. Horizon-matching analysis
e. Interest-rate analysis
13) Exhibit 11.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A major retailer is reevaluating its bonds since it is planning to issue a new bond in the
current market. The firm’s outstanding bond issue has 8 years remaining until maturity.
The bonds were issued with a 6.5 percent coupon rate (paid quarterly) and a par value
of $1,000. The required rate of return is 4.25 percent.
What will be the value of these securities in one year if the required return is 7 percent?
a. $970.14
b. $388.13
c. $1031.15
d. $1035.81
e. $972.52
14) Adding international investments to an all U.S. portfolio will most likely:
a.Increase the overall risk of the portfolio
b.Decrease the overall risk of the portfolio
c.Increase the expected return of the portfolio
d.Decrease the expected return of the portfolio
e.None of the above
15) Exhibit 13.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following
information that you propose to use to obtain an estimate of year 2002 EPS for the U.S.
Autoparts Industry:
In addition a regression analysis indicates the following relationship between growth in
industry sales per share and personal consumption expenditures (PCE) growth is
Calculate the per share interest rate charge for the year 2004.
a. $12.93
b. $17.72
c. $10.07
d. $13.76
e. $18.59