1) Exhibit 12.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The aggregate market currently has a retention ratio of 60 percent, a required rate of
return of 12 percent, and an expected growth rate for dividends of 4 percent.
Starting with the initial conditions, you expect the retention ratio to be constant, the rate
of inflation to decline by 2 percent, and the growth rate to decline by 1 percent. What is
the expected P/E?
a. 8.57
b. 8.00
c. 6.67
d. 5.71
e. 5.00
2) Exhibit 10.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are provided with the following information for the Nelson Corporation.
During 2004 Nelson Corp. made capital expenditures totaling $500 and disposed
property worth $800.
The firm’s cash flow from operating activities for the year 2004 is
a. $2200
b. $2575
c. $2325
d. $2875
e. $1900
3) On January 1, 2005, you invest $20,000 in Libby Mutual Fund, a load fund that
charges a fee of 2.5%. The fund’s returns were 9% in 2005, 8% in 2006, 3% in 2007. If
you redeem all your shares on December 31, 2007, what is the dollar value?
a. $24,250.32
b. $24,000.32
c. $23,644.06
d. $23,195.17
e. $21,501.80
4) ____ refer(s) to the ability to convert assets to cash quickly and at a fair market price
and often increase(s) as one approaches the later stages of the investment life cycle.
a.Liquidity needs
b.Time horizons
c.Liquidation values
d.Liquidation essentials
e.Capital liquidations
5) Exhibit 5.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
Refer to Exhibit 5.2. What is the divisor at the beginning of January 14th?
a.3.0
b.2.5
c.2.2734
d.1.9375
e.None of the above
6) Under the present value of operating free cash flow technique, the firm’s operating
free cash flow to the firm is discounted at the firm’s
a. Weighted average cost of capital.
b. Cost of debt.
c. Internal rate of return.
d. External cost of new equity.
e. Net present value.
7) 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 large capitalization stocks?
a.1.02%
b.3.68%
c.4.71%
d.11.27%
e.13.33%
8) A firm that follows a defensive competitive strategy could
a. Lower production costs.
b. Create a strong brand image.
c. Use its buying power to obtain price concessions.
d. a and b.
e. b and c
9) The yield to call is a more conservative yield measure whenever the price of a
callable bond is quoted at a value
a. Equal to or greater than par plus one year’s interest.
b. Equal to par.
c. Equal to par less one year’s interest.
d. Less than par.
e. Five percent over par.
10) Given Gilbert’s beta of 1.10 and a risk free rate of 5 percent, what is the expected
rate of return assuming a 10 percent market return?
a. 21.5%
b. 10.5%
c. 5.5%
d. 15.5%
e. 16.5%
11) Refer to Exhibit 8.1. The equation of the characteristic line for RA is
a. RRA= 11.63 + 1.2195RMI
b. RRA= -7.98 + 1.1023RMI
c. RRA= -9.41 + 1.3893RMI
d. RRA= -4.92 – 0.7715RMI
e. RRA= 4.92 + 0.7715RMI
12) Calculate the expected return for B Services which has a beta of 0.83 when the risk
free rate is 0.05 and you expect the market return to be 0.12.
a. 14.96%
b. 16.15%
c. 10.81%
d. 17.00%
e. 15.25%
13) An investment company is
a. A corporation that handles the administrative functions for a fund.
b. A corporation that has its major assets in a portfolio of securities.
c. A corporation that invests in financial services firms.
d. a and b.
e. a and c.
14) Which of the following is not considered a basic economic force?
a. Fiscal policy
b. Monetary policy
c. Inflation
d. P/E ratio
e. None of the above (that is, all are basic economic forces)
15) Which of the following is not a major difference between the capital market line
(CML) and the capital asset pricing model (CAPM)?
a. Definitions of portfolio risk are based on systematic and total risk
b. One is related to the market portfolio, the other does not
c. The number of calculations to determine risk is significantly greater for one method
d. One requires a tangency point on the efficient frontier, the other does not
e. All of the above
16) The original maturity of a United States Treasury bond is
a.Zero years to five years.
b.Six months to ten years.
c.One year or less.
d.One year to ten years.
e.Over ten years.
17) Exhibit 25.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The last year’s performance for four mutual funds is presented below. The market return
was 10.70%, last year with a standard deviation of 13.1% and the risk-free rate of return
was 5%.
Compute the Sharpe Measure for the A fund.
a. 0.012
b. 0.040
c. 0.069
d. 0.396
e. 1.142
18) The growth rate in equity without any external financing is determined by
multiplying the payout ratio times the return on equity (ROE).
19) Complete consistency over time for different industries would indicate that industry
analysis is not necessary after market analysis.
20) Coincident indicators include economic time series that have peaks and troughs that
roughly occur at the same time as the peaks and troughs of overall economic activity.
21) Stock options expire on the Sunday following the third Saturday of the designated
month.
22) Options on futures expire at the same time the futures contract expires.
23) The market price of shares of a closed-end fund is typically determined by supply
and demand.
24) The over-the-counter market lists more stocks than the New York Stock Exchange
and the American Stock Exchange combined.
25) As the number of risky assets in a portfolio increases, the total risk of the portfolio
decreases.