Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is
0%, and the average return is 16%. Based on Jensen’s measure of portfolio
performance, you would calculate the return on the market portfolio as
A. 12.3%.
B. 10.4%.
C. 15.1%.
D. 16.7%.
The following price quotations on WFM were taken from the Wall Street Journal.
The premium on one WFM February 85 call
contract is
A. $8.875.
B.$887.50.
C. $412.50.
D. $158.00.
Prior to expiration,
A. the intrinsic value of a put option is greater than its actual value.
B. the intrinsic value of a put option is always positive.
C. the actual value of a put option is greater than the intrinsic value.
D. the intrinsic value of a put option is always greater than its time value.
You are given the following information about a portfolio you are to manage. For the
long term, you are bullish, but you think the market may fall over the next month.
If the anticipated market value materializes, what will be your expected loss on the
portfolio?
A. 14.29%
B. 16.67%
C. 15.43%
D. 8.57%
E. 6.42%
Alan Barnett is 43 years old and has accumulated $78,000 in his selfdirected defined
contribution pension plan. Each year he contributes $1,500 to the plan, and his
employer contributes an equal amount. Alan thinks he will retire at age 60 and figures
he will live to age 83. The plan allows for two types of investments. One offers a 4%
riskfree real rate of return. The other offers an expected return of 10% and has a
standard deviation of 34%. Alan now has 40% of his money in the riskfree investment
and 60% in the risky investment. He plans to continue saving at the same rate and keep
the same proportions invested in each of the investments. His salary will grow at the
same rate as inflation. Of the total amount of new funds that will be invested by Alan
and by his employer on his behalf, how much will he put into the safe account each
year; how much into the risky account?
A. $1,500; $1,500
B. $1,200; $1,800
C. $2,000; $1,000
D. $2,500; $500
E. $1,400; $1,600
Bubba Gumm Company has an expected ROE of 9%. The dividend growth rate will be
_______ if the firm follows a policy of plowing back 10% of earnings.
A. 90%
B. 10%
C. 9%
D. 0.9%
Assume that you purchased shares of a mutual fund at a net asset value of $14.50 per
share. During the year, you received dividend income distributions of $0.27 per share
and capital gains distributions of $0.65 per share. At the end of the year, the shares had
a net asset value of $13.74 per share. What was your rate of return on this investment?
A. 2.91%
B. 3.07%
C. 1.10%
D. 1.78%
E. –1.18%
One “cost” of the single-index model is that it
A. is virtually impossible to apply.
B. prohibits specialization of efforts within the security analysis industry.
C. requires forecasts of the money supply.
D. is legally prohibited by the SEC.
E. allows for only two kinds of risk—macro risk and micro risk.
A “fairly-priced” asset lies
A. above the security-market line.
B. on the security-market line.
C. on the capital-market line.
D. above the capital-market line.
E. below the security-market line.
The beta of JCP stock has been estimated as 1.2 using regression analysis on a sample
of historical returns. A commonly-used adjustment technique would provide an adjusted
beta of
A. 1.20.
B. 1.32.
C. 1.13.
D. 1.0.
Two firms, C and D, both produce coat hangers. The price of coat hangers is $1.20
each. Firm C has total fixed costs of $750,000 and variable costs of 30 per coat hanger.
Firm D has total fixed costs of $400,000 and variable costs of 50 per coat hanger. The
corporate tax rate is 40%. If the economy is strong, each firm will sell 2,000,000 coat
hangers. If the economy enters a recession, each firm will sell 1,400,000 coat hangers.
If the economy is strong, the tax of firm C will be
A.-$420,000.
B. $750,000.
C. $510,000.
D. $204,000.
The financial statements of Snapit Company are given below.
Note: The common shares are trading in the stock market for $100 each.
Refer to the financial statements of Snapit Company. The firm’s return on sales ratio for
2009 is
A. 0.0133.
B. 0.1325.
C. 1.325.
D. 1.260.
QQAG has a beta of 1.7. The annualized market return yesterday was 13%, and the
risk-free rate is currently 3%. You observe that QQAG had an annualized return
yesterday of 20%. Assuming that markets are efficient, this suggests that
A. bad news about QQAG was announced yesterday.
B. good news about QQAG was announced yesterday.
C. no significant news about QQAG was announced yesterday.
D. interest rates rose yesterday.
E. interest rates fell yesterday.
The following data are available relating to the performance of Wildcat Fund and the
market portfolio:
The risk-free return during the sample period was 7%.
What is the information ratio measure of performance evaluation for Wildcat Fund?
A. 1.00%
B. 8.80%
C. 44.00%
D. 50.00%
Which one of the following is not a money market instrument?
A. Treasury bill
B. Negotiable certificate of deposit
C. Commercial paper
D. Treasury bond
E. Eurodollar account
To take advantage of an arbitrage opportunity, an investor would
I) construct a zero-investment portfolio that will yield a sure profit.
II) construct a zero-beta-investment portfolio that will yield a sure profit.
III) make simultaneous trades in two markets without any net investment.
IV) short sell the asset in the low-priced market and buy it in the high-priced market.
A. I and IV
B. I and III
C. II and III
D. I, III, and IV
E. II, III, and IV
The feature of the APT that offers the greatest potential advantage over the CAPM is
the
A. use of several factors instead of a single market index to explain the risk-return
relationship.
B. identification of anticipated changes in production, inflation, and term structure as
key factors in explaining the risk-return relationship.
C. superior measurement of the risk-free rate of return over historical time periods.
D. variability of coefficients of sensitivity to the APT factors for a given asset over
time.
E. None of the options are correct.
Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the coming
year. Dividends are expected to decline at the rate of 2% per year. The risk-free rate of
return is 6%, and the expected return on the market portfolio is 14%. The stock of Old
Quartz Gold Mining Company has a beta of 0.25. The intrinsic value of the stock is
A. $80.00.
B. $133.33.
C. $200.00.
D. $400.00.
The current market price of a share of Disney stock is $60. If a put option on this stock
has a strike price of $65, the put
A. is out of the money.
B. is in the money.
C. can be exercised profitably.
D. is out of the money and can be exercised profitably.
E.is in the money and can be exercised profitably.
Commercial banks differ from other businesses in that both their assets and their
liabilities are mostly
A. illiquid.
B. financial.
C. real.
D. owned by the government.
E. regulated.
Two firms, A and B, both produce widgets. The price of widgets is $1 each. Firm A has
total fixed costs of $500,000 and variable costs of 50 per widget. Firm B has total fixed
costs of $240,000 and variable costs of 75 per widget. The corporate tax rate is 40%. If
the economy is strong, each firm will sell 1,200,000 widgets. If the economy enters a
recession, each firm will sell 1,100,000 widgets. Calculate firm B’s degree of operating
leverage.
A. .714
B. 9.09
C.-7.86
D. 7.14
Barber and Odean (2001) report that men trade __________ frequently than women and
the frequent trading leads to __________ returns.
A. less; superior
B. less; inferior
C. more; superior
D. more; inferior
The ____ index represents the performance of the U.K. stock market.
A. DAX
B. FTSE
C. Nikkei
D. Hang Seng
You are considering acquiring a common stock that you would like to hold for one year.
You expect to receive both $0.75 in dividends and $16 from the sale of the stock at the
end of the year. The maximum price you would pay for the stock today is _____ if you
wanted to earn a 12% return.
A. $23.91
B. $14.96
C. $26.52
D. $27.50
E. None of the options are correct.
Specialists on stock exchanges perform which of the following functions?
A. Act as dealers in their own accounts
B. Analyze the securities in which they specialize
C. Provide liquidity to the market
D. Act as dealers in their own accounts and analyze the securities in which they
specialize
E. Act as dealers in their own accounts and provide liquidity to the market
Assume there is a fixed exchange rate between the Canadian and U.S. dollar. The
expected return and standard deviation of return on the U.S. stock market are 18% and
15%, respectively. The expected return and standard deviation on the Canadian stock
market are 13% and 20%, respectively. The covariance of returns between the U.S. and
Canadian stock markets is 1.5%.
If you invested 50% of your money in the Canadian stock market and 50% in the U.S.
stock market, the expected return on your portfolio would be
A. 12.0%.
B. 12.5%.
C. 13.0%.
D. 15.5%.
Assume newly-issued 30-year on-the-run bonds sell at higher yields (lower prices) than
29-year bonds with a nearly identical duration. A hedge fund that sells 29-year bonds
and buys 30-year bonds is taking a
A. market neutral position.
B. conservative position.
C. bullish position.
D. bearish position.
The following data are available relating to the performance of Monarch Stock Fund
and the market portfolio:
The risk-free return during the sample period was 4%.
Calculate Sharpe’s measure of performance for Monarch Stock Fund.
A. 1%
B. 46%
C. 44%
D. 50%
E. None of the options are correct.
Genny Webb is 27 years old and has accumulated $7,500 in her selfdirected defined
contribution pension plan. Each year she contributes $2,000 to the plan, and her
employer contributes an equal amount. Genny thinks she will retire at age 63 and
figures she will live to age 90. The plan allows for two types of investments. One offers
a 3% riskfree real rate of return. The other offers an expected return of 12% and has a
standard deviation of 39%. Genny now has 20% of her money in the riskfree
investment and 80% in the risky investment. She plans to continue saving at the same
rate and keep the same proportions invested in each of the investments. Her salary will
grow at the same rate as inflation. How much can Genny expect to have in her risky
account at retirement?
A. $1,800,326
B. $1,905,095
C. $1,743,781
D. $1,224,651
E. $345,886
Market neutral bets can result in ______ volatility because hedge funds use ______.
A. very low; hedging techniques to eliminate risk
B. low; risk management techniques to reduce risk
C. considerable; risk management techniques to reduce risk
D. considerable; considerable leverage
The ____ is an example of a U.S. index of small firms.
A. S&P 500
B. DJIA
C. DAX
D. Russell 2000
E. All of the options are correct.