Archives: Quiz

1) A positive relationship between expected return and expected risk is consistent with a. investors being risk seekers. b. investors being risk avoiders. c. investors being risk averse. d. all of the above. e. none of the above. 2) Utilizing […]

1) Exhibit 22.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the following information on put and call options for Citigroup A long straddle is an appropriate strategy if a. An investor wishes to generate additional income. b. An […]

1) Refer to Exhibit 7.13. Calculate the expected return for Magnum Oil. a. 5.0 b. 10.3% c. 13.7% d. 17.5% e. 20.0% 2) Exhibit 9.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the three stocks, stock X, stock […]

1) A company’s dividend last year was $3.00. Dividends are expected to grow indefinitely at 7% and the required rate of return for the stock is 13%. What is the value of the stock today? a. $2.83 b. $23.08 c. […]

1) At the initial stage of an economic recovery, a. Financial stocks rise on expectations of increases in loan demand, housing constructions and security offerings. b. Consumer durable stocks rise on expectations of rising consumer confidence and personal income. c. […]

1) Which of the following is not considered a favorable attribute of firms by Peter Lynch? a. Firm’s product is not faddish b. Firm has a sustainable comparative competitive advantage over its rivals c. Firm’s industry or product has market […]

1) Exhibit 11.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Fast Grow Corporation is expecting dividends to grow at a 20% rate for the next two years. The corporation just paid a $2 dividend and the next dividend will […]

1) A firm that follows a differentiation strategy a. Must heavily discount its prices. b. Must command prices near the industry average. c. Must focus on providing exceptional quality and service. d. All of the above. e. None of the […]

1) Between 1994 and 2004, the standard deviation of the returns for the S&P 500 and the NYSE indexes were 0.27 and 0.14, respectively, and the covariance of these index returns was 0.03. What was the correlation coefficient between the […]

1) Exhibit 13.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) The Home Appliance Industry had free cash flow to equity (FCFE) of $87 for the most recent year ending reported yesterday. The industry anticipates a growth rate of 8% […]

1) A stock has a beta of 1.25. The risk free rate is 5% and the return on the market is 6%. The estimated return for the stock is 14%. According to the CAPM you should a. Sell because it […]

1) Which of the following is not considered a mainstream investment style? a. Value b. Growth c. Market-oriented d. Benchmark e. Small-cap 2) Exhibit 8.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You expect the risk-free rate (RFR) to […]

1) Exhibit 21.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $3,000,000. The customer would pay a […]

1) Open-end mutual funds that charge a sales fee when the fund is initially offered to the investor are known as a. 12b-1. b. Americus trusts. c. Unit investment trusts. d. Load funds. e. Contingency funds. 2) Consider an asset […]

1) Which of the following variables was considered not significant in explaining stock returns? a. Industrial production b. Changes in the risk premium c. Consumption d. Twists in the yield curve e. Inflation 2) Calculate the yield to maturity of […]

1) Exhibit 6.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Rit= return for stock i during period t Rmt= return for the aggregate market during period t Refer to Exhibit 6.4. What is the abnormal rate of return for […]

1) A disadvantage of the Treynor and Sharpe measures is that a. They produce absolute performance rankings. b. The beta and standard deviation are static. c. They are both difficult to compute. d. They produce relative performance rankings. e. They […]

1) Consider a bond with a duration of 7 years having a yield to maturity of 7% and interest rates are expected to rise by 50 basis points. What is the percentage change in the price of the bond? a. […]

1) Which of the following statements concerning the competitive environment is true? a. High fixed costs encourage firms to produce at a low level of capacity, in order to minimize fixed cost per unit produced. b. Low current prices relative […]

1) What is the current price of a zero coupon bond with a 7% yield to maturity that matures in 20 years? a. $1,000 b. $2,582 c. $25.82 d. $258.42 e. $100.00 2) The value of a put option at […]

1) Calculate the expected return for A Industries which has a beta of 1.75 when the risk free rate is 0.03 and you expect the market return to be 0.11. a. 11.13% b. 14.97% c. 16.25% d. 22.25% e. 17.0% […]

1) Consider two securities, A and B. Security A and B have a correlation coefficient of 0.65. Security A has standard deviation of 12, and security B has standard deviation of 25. Calculate the covariance between these two securities. a. […]

1) Suppose the current 6 year rate is 9% and the current 5 year rate is 7%. What is the one year forward rate for five years? a. 19.57% b. 18.62% c. 15.80% d. 14.65% e. 12.67% 2) What is […]

1) Which of the following investments can be purchased with future contracts? a.Commodities b.T-bills c.Treasury bonds d.Eurobonds e.All of the above 2) Exhibit 19.10 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You are creating a portfolio that consists of […]

1) Exhibit 21.11 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider a portfolio manager with a $10,000,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock […]

1) Exhibit 25.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the data presented below on three mutual funds and the market. Compute the Jensen Measure for the BBB fund. a. 4.49 b. 2.74 c. 4.25 d. 5.55 e. […]

1) Which equation is valid? a. g = Percent of earnings retained / Return on equity b. g = Return on equity / Percent of earnings retained c. g = Return on equity / Return on total assets d. g […]

1) For technical trading rules to generate returns that are superior to a buy-and-hold strategy, net of transaction costs, the market would have to be a. Rising. b. Falling. c. Inefficient. d. Overvalued. e. Undervalued. 2) Given the following fees […]

1) When identifying undervalued and overvalued assets, which of the following statements is false? a. An asset is properly valued if its estimated rate of return is equal to its required rate of return. b. An asset is considered overvalued […]

1) Exhibit 10.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) What is BMC’S traditional cash flow? a. 69 b. 86 c. 38 d. 55 e. 701 Answer: A Traditional Cash Flow = 38 + 31 = 69 2) Exhibit […]

1) Exhibit 5.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003. Refer to Exhibit 5.5. Calculate the value weighted index for Dec 31, 2003, […]

1) The financial risk for the retail store industry is difficult to judge because of a. Convertible debt. b. Numerous building leases. c. Warrants. d. Variable operating profits. e. Extensive use of preferred stock. 2) Calculate the expected return for […]

1) The confidence index published by Barron’s is the ratio of the average yield on 10 top grade corporate bonds to the a. Average yield on 30 blue chip corporate stocks. b. Average yield on 40 convertible corporate bonds. c. […]

1) Exhibit 12.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) An analyst wishes to estimate the share price for Ashley Corporation. The following information is made available: Estimated profit margin = 15% Total asset turnover = 2 Financial leverage […]

1) A stock currently trades for $25. January call options with a strike price of $30 sell for $6. The appropriate risk free bond has a price of $30. Calculate the price of the January put option. a. $11 b. […]

1) All of the following are characteristics of a dealer market except: a.Also referred to as a quote-driven market b.NASDAQ market is a dealer market c.Individual dealers buy and sell shares for themselves d.Centralized trading location e.All of the above […]

1) Which of the following statements regarding momentum strategies is true? a. Price momentum is a fundamental strategy. b. Earnings momentum is a technical strategy. c. Price momentum and earnings momentum strategies will often result in identical portfolio strategies and […]

1) Which of the following is not a secondary equity market? a.Treasury market b.National exchanges c.Regional exchanges d.Over-the-counter market e.All of the above are secondary equity markets. 2) Studies of the relationship between P/E ratios and stock returns have found […]

1) The major owners of high-yield bonds have been a. Commercial banks. b. Savings and loans. c. Mutual funds. d. California Credit Unions (CCU’s). e. European banks. 2) An individual investor’s utility curves specify the tradeoffs he or she is […]

1) Horizon matching is a combination of a. Immunization and valuation. b. Cash matching and immunization. c. Valuation and cash matching. d. All of the above. e. None of the above. 2) Refer to Exhibit 3A.1. Calculate the covariance. a.-32.20 […]

1) Which of the following statements about the business cycle is false? a. Toward the end of a recession, financial stocks typically increase in value as investment and borrowing activities accelerate. b. Once the economy hits a trough and begins […]

1) On January 2, 2003, you invest $10,000 in the Tiger Fund, a load fund that charges a fee of 6%. The fund’s returns were 25% in 2003, 35% in 2004, -5% in 2005. On December 31, 2005 you redeem […]

1) The growth rate (g) of dividends is affected by all of the following except a. Required return b. Retention rate c. Total asset turnover d. Financial leverage e. Net profit margin 2) ____ has coupons denominated in a currency […]

1) Unit labor costs, the rate of inflation, the level of foreign competition, and the capacity utilization rate were variables tested by Finkel and Tuttle as determinants of the a. Balance of payments. b. The exchange rate. c. Aggregate operating […]

1) A study by Chen, Roll, and Ross in 1986 examined all of the following factors in applying the Arbitrage Pricing Theory (APT) except the a. Return on a market value-weighted return. b. Monthly growth rate in U.S. industrial production. […]

1) The growth rate of equity earnings without external financing is equal to a. Retention rate plus return on equity. b. Retention rate minus return on equity. c. Retention rate divided by return on equity. d. Retention rate times return […]

1) When assessing the risk impact of adding a new security to a portfolio, it is necessary to consider the a. New securities variance b. Variance of every security in the portfolio c. Weight of every security in the portfolio […]

1) Calculate the modified duration for a 10-year, 12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years. a. 6.43 years b. 6.55 years c. 6.79 years d. 6.86 years e. 7.01 […]

1) Which of the following variables were found to be important in explaining return based upon a study of Fama and French (covering the period 1963 to 1990)? a. Size b. Book-to-market value c. Beta d. Choices a and b […]

1) Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the a.Large firm effect. b.Size effect. c.Small firm effect. d.PIE effect. e.None of the above. 2) Exhibit 22.6 USE THE INFORMATION BELOW […]