All else equal, call option values are higher
A. in the month of May.
B.for low dividend-payout policies.
C. for high dividend-payout policies.
D. in the month of May and for low dividend-payout policies.
E. in the month of May and for high dividend-payout policies.
An American-style call option with six months to maturity has a strike price of $42. The
underlying stock now sells for $50. The call premium is $14. If the company
unexpectedly announces it will pay its first-ever dividend four months from today, you
would expect that
A. the call price would increase.
B. the call price would decrease.
C. the call price would not change.
D. the put price would decrease.
E. the put price would not change.
If the stock price increases, the price of a put option on that stock __________, and that
of a call option __________.
A. decreases; increases
B. decreases; decreases
C. increases; decreases
D. increases; increases
E. does not change; does not change
Consider the free cash flow approach to stock valuation. F&G Manufacturing Company
is expected to have before-tax cash flow from operations of $750,000 in the coming
year. The firm’s corporate tax rate is 40%. It is expected that $250,000 of operating cash
flow will be invested in new fixed assets. Depreciation for the year will be $125,000.
After the coming year, cash flows are expected to grow at 7% per year. The appropriate
market capitalization rate for unleveraged cash flow is 13% per year. The firm has no
outstanding debt. The total value of the equity of F&G Manufacturing Company should
be
A. $1,615,156.50.
B. $2,479,168.95.
C. $3,333,333.33.
D. $4,166,666.67.
The process of retiring high-coupon debt and issuing new bonds at a lower coupon to
reduce interest payments is called
A. deferral.
B. reissue.
C. repurchase.
D. refunding.
E. None of the options are correct.
In equilibrium, the marginal price of risk for a risky security must be
A. equal to the marginal price of risk for the market portfolio.
B. greater than the marginal price of risk for the market portfolio.
C. less than the marginal price of risk for the market portfolio.
D. adjusted by its degree of nonsystematic risk.
E. None of the options are true.
See Candy had a FCFE of $6.1M last year and has 2.32M shares outstanding. See’s
required return on equity is 10.6%, and WACC is 9.3%. If FCFE is expected to grow at
6.5% forever, the intrinsic value of See’s shares is
A. $108.00.
B. $68.30.
C. $26.35.
D. $14.76.
Which one of the following statements regarding “basis” is not true?
A. The basis is the difference between the futures price and the spot price.
B. The basis risk is borne by the hedger.
C. A short hedger suffers losses when the basis decreases.
D. The basis increases when the futures price increases by more than the spot price.
What is the yield to maturity of a 4-year bond?
A. 4.69%
B. 4.95%
C. 5.02%
D. 5.05%
E. 5.08%
Your personal opinion is that a security has an expected rate of return of 0.11. It has a
beta of 1.5. The risk-free
rate is 0.05 and the market expected rate of return is 0.09. According to the Capital
Asset Pricing Model, this
security is
A. underpriced.
B. overpriced.
C. fairly priced.
D. Cannot be determined from data provided.
A Treasury bond due in one year has a yield of 4.6%; a Treasury bond due in five years
has a yield of 5.6%. A bond issued by Lucent Technologies due in five years has a yield
of 8.9%; a bond issued by Exxon due in one year has a yield of 6.2%. The default risk
premiums on the bonds issued by Exxon and Lucent Technologies, respectively, are
A. 1.6% and 3.3%.
B. 0.5% and 0.7%.
C. 3.3% and 1.6%.
D. 0.7% and 0.5%.
E. None of the options are correct.
Assume that stock market returns do follow a single-index structure. An investment
fund analyzes 125 stocks in order to construct a mean-variance efficient portfolio
constrained by 125 investments. They will need to calculate ________ estimates of
expected returns and ________ estimates of sensitivity coefficients to the
macroeconomic factor.
A. 125; 15,225
B. 15,625; 125
C. 7,750; 125
D. 125; 125
An example of a positive demand shock is
A. a decrease in the money supply.
B. a decrease in government spending.
C. a decrease in foreign export demand.
D. a decrease in the price of imported oil.
E.-a decrease in tax rates.
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 fixed asset turnover ratio
for 2009 is
A. 1.45.
B. 1.63.
C. 1.20.
D. 1.58.
In recent years, P/E multiples for S&P 500 companies have
A. ranged from −1 to −10.
B. ranged from 1 to 8.
C. ranged from 6 to 10.
D.-ranged from 12 to 25.
E. ranged from 20 to more than 50.
An investor with a long position in Treasury notes futures will profit if
A. interest rates decline.
B. interest rates increase.
C. the prices of Treasury notes decrease.
D. the price of the S&P 500 Index increases.
E. None of the options are correct.
Given the time to maturity, the duration of a zero-coupon bond is higher when the
discount rate is
A. higher.
B. lower.
C. equal to the risk-free rate.
D. The bond’s duration is independent of the discount rate.
E. None of the options are correct.
Suppose that the average P/E multiple in the oil industry is 20. Dominion Oil is
expected to have an EPS of $3.00 in the coming year. The intrinsic value of Dominion
Oil stock should be
A. $28.12.
B. $35.55.
C. $60.00.
D. $72.00.
E. None of the options are correct.
Which one of the following stock index futures has a multiplier of $50 times the index
value?
A. Russell 2000
B. FTSE 100
C. Nikkei
D. NASDAQ 100
E. Mini-Russell 2000 and NASDAQ 100
In 2016, which of the following financial assets make up the greatest proportion of the
financial assets held by U.S. households?
A. Pension reserves
B. Life insurance reserves
C. Mutual fund shares
D. Debt securities
E. Personal trusts
You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard
deviation of 0.40 and a
T-bill with a rate of return of 0.04.
The slope of the capital allocation line formed with the risky asset and the risk-free
asset is equal to
A. 0.325.
B. 0.675.
C. 0.912.
D. 0.407.
E. Cannot be determined.
A firm has a market to book value ratio that is equivalent to the industry average and an
ROE that is less than the industry average, which implies
A. the firm has a higher P/E ratio than other firms in the industry.
B. the firm is more likely to avoid insolvency in the short run than other firms in the
industry.
C. the firm is more profitable than other firms in the industry.
D. the firm is utilizing its assets more efficiently than other firms in the industry.
If you wish to compute economic earnings and are trying to decide how to account for
inventory,
A. FIFO is better than LIFO.
B. LIFO is better than FIFO.
C. FIFO and LIFO are equally good.
D. FIFO and LIFO are equally bad.
E. None of the options are correct.
Pension funds do not
I) accept contributions from employers, which are tax deductible.
II) pay distributions that are taxed as ordinary income.
III) pay benefits only from the income component of the fund.
IV) accept contributions from employees, which are not tax deductible.
A. III and IV
B. II and III
C. I and II
D. I, II, and IV
E. I, II, III, and IV
Which of the following is not a type of international bond?
A. Samurai bonds
B. Yankee bonds
C. Bulldog bonds
D. Elton bonds
E. All of the options are international bonds.
All of the following factors affect the price of a stock option except
A. the risk-free rate.
B. the riskiness of the stock.
C. the time to expiration.
D.the expected rate of return on the stock.
E. None of the options are correct.
________ are, in essence, an insurance contract against the default of one or more
borrowers.
A. Credit default swaps
B. CMOs
C. ETFs
D. Collateralized debt obligations
E. All of the options
If the annual real rate of interest is 2.5%, and the expected inflation rate is 3.7%, the
nominal rate of interest
would be approximately
A. 3.7%.
B. 6.2%.
C. 2.5%.
D. –1.2%.
In regard to moving averages, it is considered to be a ____________ signal when
market price breaks through the moving average from ____________.
A. bearish; below
B. bullish; below
C. bullish; above
D. None of the options are correct.
The fee that mutual funds use to help pay for advertising and promotional literature is
called a
A. front-end load fee.
B. back-end load fee.
C. operating expense fee.
D. 12b-1 fee.
E. structured fee.
Given the bond described above, if interest were paid semi-annually (rather than
annually) and the bond continued to be priced at $917.99, the resulting effective annual
yield to maturity would be
A. less than 10%.
B. more than 10%.
C. 10%.
D. Cannot be determined.
E. None of the options are correct.