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1) Funds that normally contain a combination of common stock and fixed income
securities are known as
a. Section 401(k) plans.
b. Balanced funds.
c. Contractual plans.
d. Income funds.
e. Flexible funds.
2) Tayco Corporation has just paid dividends of $3 per share. The earnings per share for
the company was $4. If you believe that the appropriate discount rate is 15% and the
long term growth rate in dividends is 6%, and earnings is 6%, the firm's P/E ratio is
a. 8.33
b. 33.33
c. 44.44
d. 11.11
e. None of the above
3) The capital market line (CML) uses ____ as a risk measurement, whereas the capital
asset pricing model (CAPM) uses ____.
a. Beta; total risk
b. Standard deviation; total risk
c. Standard deviation; systematic risk
d. Unsystematic risk; total risk
e. Systematic risk; beta
4) A common-size income statement expresses all income statement items
a. As a percentage of Current Assets.
b. As a percentage of Fixed Assets.
c. As a percentage of Total Assets.
d. As a percentage of Net Income.
e. As a percentage of Sales
5) In the Black-Scholes option pricing model, an increase in security volatility (³) will
cause
a. An increase in call value and an increase in put value
b. An increase in call value and a decrease in put value
c. A decrease in call value and an increase in put value
d. A decrease in call value and a decrease in put value
e. An increase in call value and an increase or decrease in put value
6) Investigators have tested the strong form EMH by examining the performance of the
following type of investor:
a.Corporate insiders.
b.Stock exchange specialists.
c.Security analysts.
d.Professional money managers.
e.All of the above.
7) Studies that have examined the relationship between EVA and MVA have found
a. An inverse relationship.
b. A positive relationship.
c. A poor relationship.
d. EVA always exceeded MVA.
e. MVA always exceeded EVA.
8) Reinvestment risk is greatest for bonds that have
a. Short maturities and low coupon rates
b. Long maturities and high coupon rates
c. Short maturities and high coupon rates
d. Long maturities and low coupon rates
e. None of the above
9) Exhibit 21.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A 3-month T-bond futures contract (maturity 20 years, coupon 6%, face $100,000)
currently trades at $98,781.25 (implied yield 6.11%). A 3-month T-note futures contract
(maturity 10 years, coupon 6%, face $100,000) currently trades at $101,468.80 (implied
yield 5.80%). Assume semiannual compounding.
If you expected the yield curve to flatten, the appropriate NOB futures spread strategy
would be
a. Go long the T-bond and short the T-note
b. Go short the T-bond and long the T-note
c. Go long the T-bond and long the T-note
d. Go short the T-bond and short the T-note
e. None of the above
10) Exhibit 21.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that you observe the following prices in the T-Bill and Eurodollar futures
markets
Assume that a month later the price of the September T-Bill future is 96.25 and the
price of the Eurodollar future is 95.9. Calculate the profit on the T-Bill futures position.
a. 101 basis points.
b. 130 basis points.
c. -101 basis points.
d. -130 basis points.
e. 29 basis points.
11) Modified duration is determined by making small adjustments to Macaulay
duration.
12) The NYSE series should have higher rates of return and risk measures than the
AMEX and OTC series.
13) A price spread (or vertical spread) involves buying and selling an option for the
same stock and expiration date but with different exercise prices.
14) Global trading has eroded the NYSE's share of the market for NYSE-listed stocks.
15) The January Effect is an anomaly where returns in January are significantly smaller
than in any other month.
