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The price that the writer of a call option receives to sell the option is called the
A. strike price.
B. exercise price.
C. execution price.
D. acquisition price.
E. premium.
The following data are available relating to the performance of Long Horn Stock Fund
and the market portfolio:
The risk-free return during the sample period was 6%.
What is the Sharpe measure of performance evaluation for Long Horn Stock Fund?
A. 1.33%
B. 4.00%
C. 8.67%
D. 31.43%
E. 37.14%
In the maturity stage of the industry life cycle,
A. the product has reached full potential.
B. profit margins are narrower.
C. producers are forced to compete on price to a greater extent.
D. the product has reached full potential and profit margins are narrower.
E.-the product has reached full potential, profit margins are narrower, and producers are
forced to compete on price to a greater extent.
If a firm's beta was calculated as 1.3 in a regression equation, a commonly-used
adjustment technique would provide an adjusted beta of
A. less than 1.0 but greater than zero.
B. between 0.3 and 0.9.
C. between 1.0 and 1.3.
D. greater than 1.3.
E. zero or less.
The value of a stock put option is positively related to the following factors except
A. the time to expiration.
B. the striking price.
C.the stock price.
D. All of the options are correct.
E. None of the options are correct.
If the index model is valid, _________ would be helpful in determining the covariance
between assets HPQ and KMP.
A. βHPQ
B. βKMP
C. σM
D. all of the options
E. None of the options are correct.
The life cycle stage in which industry leaders are likely to emerge is the
A. start-up stage.
B. maturity stage.
C.-consolidation stage.
D. relative decline stage.
E. All of the options are correct.
You purchased an annual interest coupon bond one year ago that had six years
remaining to maturity at that time. The coupon interest rate was 10%, and the par value
was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you
sold the bond after receiving the first interest payment and the yield to maturity
continued to be 8%, your annual total rate of return on holding the bond for that year
would have been
A. 7.00%.
B. 7.82%.
C. 8.00%.
D. 11.95%.
E. None of the options are correct.
Investors in closed-end funds who wish to liquidate their positions must
A. sell their shares through a broker.
B. sell their shares to the issuer at a discount to net asset value.
C. sell their shares to the issuer at a premium to net asset value.
D. sell their shares to the issuer for net asset value.
E. hold their shares to maturity.
You have been given this probability distribution for the holding-period return for KMP
stock:
What is the expected standard deviation for KMP stock?
A. 6.91%
B. 8.13%
C. 7.79%
D. 7.25%
E. 8.85%
In volatile markets, dynamic hedging may be difficult to implement because
A. prices move too quickly for effective rebalancing.
B. as volatility increases, historical deltas are too low.
C. price quotes may be delayed so that correct hedge ratios cannot be computed.
D. volatile markets may cause trading halts.
E. All of the options are correct.
You sold one silver future contract at $3 per ounce. What would be your profit (loss) at
maturity if the silver spot price at that time is $4.10 per ounce? Assume the contract size
is 5,000 ounces and there are no transactions costs.
A. $5.50 profit
B. $5,500 profit
C. $5.50 loss
D. $5,500 loss
E. None of the options are correct.
What should the purchase price of a 1-year zero-coupon bond be if it is purchased today
and has face value of $1,000?
A. $966.37
B. $912.87
C. $950.21
D. $956.02
E. $945.51
If a portfolio had a return of 12%, the risk-free asset return was 4%, and the standard
deviation of the portfolio's
excess returns was 25%, the Sharpe measure would be
A. 0.12.
B. 0.04.
C. 0.32.
D. 0.16.
E. 0.25.
Convertible bonds
A. give their holders the ability to share in price appreciation of the underlying stock.
B. offer lower coupon rates than similar nonconvertible bonds.
C. offer higher coupon rates than similar nonconvertible bonds.
D. give their holders the ability to share in price appreciation of the underlying stock
and offer lower coupon rates than similar nonconvertible bonds.
E. give their holders the ability to share in price appreciation of the underlying stock
and offer higher coupon rates than similar nonconvertible bonds.
Because the DDM requires multiple estimates, investors should
A. carefully examine inputs to the model.
B. perform sensitivity analysis on price estimates.
C. not use this model without expert assistance.
D. feel confident that DDM estimates are correct.
E. carefully examine inputs to the model and perform sensitivity analysis on price
estimates.
According to the expectations hypothesis, an upward-sloping yield curve implies that
A. interest rates are expected to remain stable in the future.
B. interest rates are expected to decline in the future.
C. interest rates are expected to increase in the future.
D. interest rates are expected to decline first, then increase.
E. interest rates are expected to increase first, then decrease.
____________ is a measure of the extent to which a movement in the market index is
reflected in the price movements of all stocks in the market.
A. Put call ratio
B. Trin ratio
C. Breadth
D. Confidence index
E. All of the options are correct.
The price that the buyer of a call option pays for the underlying asset if she executes her
option is called the
A. strike price.
B. exercise price.
C. execution price.
D. strike price or execution price.
E. strike price or exercise price.
The largest component of the money market is/are
A. repurchase agreements.
B. money market mutual funds.
C. T-bills.
D. Eurodollars.
E. savings deposits.
The financial statements of Midwest Tours are given below.
Note: The common shares are trading in the stock market for $36 each.
Refer to the financial statements of Midwest Tours. The firm's market-to-book value for
2009 is
A. 0.24.
B. 0.95.
C. 0.71.
D. 1.12.
The time value of a call option is
I) the difference between the option's price and the value it would have if it were
expiring immediately.
II) the same as the present value of the option's expected future cash flows.
III) the difference between the option's price and its expected future value.
IV) different from the usual time value of money concept.
A. I
B. I and II
C. II and III
D. II
E. I and IV
FOX Company has a ratio of (total debt/total assets) that is above the industry average,
and a ratio of (long term debt/equity) that is below the industry average. These ratios
suggest that the firm
A. utilizes assets effectively.
B. has too much equity in the capital structure.
C. has relatively high current liabilities.
D. has a relatively low dividend-payout ratio.
E. None of the options are correct.
Assume that you purchased shares of a mutual fund at a net asset value of $10.00 per
share. During the year, you received dividend income distributions of $0.05 per share
and capital gains distributions of $0.06 per share. At the end of the year, the shares had
a net asset value of $8.16 per share. What was your rate of return on this investment?
A. –18.24%
B. –16.1%
C. 16.10%
D. –17.3%
E. 17.3%
You purchased an annual interest coupon bond one year ago that now has 18 years
remaining until maturity. The coupon rate of interest was 11%, and par value was
$1,000. At the time you purchased the bond, the yield to maturity was 10%. The amount
you paid for this bond one year ago was
A. $1,057.50.
B. $1,075.50.
C. $1,083.65.
D. $1.092.46.
E. $1,104.13.
Multifactor models seek to improve the performance of the single-index model by
A. modeling the systematic component of firm returns in greater detail.
B. incorporating firm-specific components into the pricing model.
C. allowing for multiple economic factors to have differential effects.
D. All of the options are correct.
E. None of the options are correct.
__________ is a false statement.
A. During periods of inflation, LIFO makes the balance sheet less representative of the
actual inventory values than if FIFO were used
B. During periods of inflation, FIFO makes the balance sheet less representative of
actual inventory values than if LIFO were used
C. During periods of inflation, LIFO overstates earnings relative to FIFO
D. During periods of inflation, FIFO makes the balance sheet less representative of
actual inventory values than . if LIFO were used, and LIFO overstates earnings relative
to FIFO
E. None of the options are correct.
You purchased 100 shares of common stock on margin for $50 per share. The initial
margin is 50%, and the stock pays no dividend. What would your rate of return be if
you sell the stock at $56 per share? Ignore interest on margin.
A. 28%
B. 33%
C. 14%
D. 42%
E. 24%
Stephanie Watson is 23 years old and has accumulated $4,000 in her selfdirected
defined contribution pension plan. Each year she contributes $2,000 to the plan, and her
employer contributes an equal amount. Stephanie thinks she will retire at age 67 and
figures she will live to age 81. The plan allows for two types of investments. One offers
a 3.5% riskfree real rate of return. The other offers an expected return of 10% and has a
standard deviation of 23%. Stephanie now has 5% of her money in the riskfree
investment and 95% 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. Of the total amount of new funds that will be
invested by Stephanie and by her employer on her behalf, how much will she put into
the safe account each year; how much into the risky account?
A. $3,800; $200
B. $2,000; $2,000
C. $200; $3,800
D. $2,500; $1,500
E. $1,500; $2,500
In measuring the comparative performance of different fund managers, the preferred
method of calculating rate of return is
A. internal rate of return.
B. arithmetic average.
C. dollar weighted.
D. time weighted.
E. None of the options are correct.
