Fin4502_R1

Fin4502_R1

Student: ___________________________________________________________________________

1._____ is an example of an agency problemA.Managers engage in empire buildingB.Managers protect their jobs by avoiding risky projectsC.Managers over consume luxuries such as corporate jetsD.All of the answers provide examples of agency problems

2.__________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.A.ActiveB.IdioticC.PassiveD.Market timing

3.The most actively traded money market security isA.Treasury billsB.Bankers' AcceptancesC.Certificates of DepositD.Common stock

4.The bid price of a treasury bill is __________.A.The price at which the dealer in treasury bills is willing to sell the billB.The price at which the dealer in treasury bills is willing to buy the billC.Greater than the ask price of the treasury bill expressed in dollar termsD.The price at which the investor can buy the treasury bill

5.Which of the following is not a characteristic of a money market instrument?A.LiquidityB.MarketabilityC.Low riskD.Maturity greater than one year

6.A T-bill quote sheet has 90 day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value an investor could buy this bill forA.$10,000.00B.$9,878.50C.$9,877.00D.$9,880.16

7.An investor buys a 180 day T-bill at a bank discount quote of 5.25. The investor's actual annual rate of return on this investment was ______.A.5.25%B.5.39%C.5.47%D.5.52%

8.The price quotations of treasury bonds in the Wall Street Journal show a bid price of 102:12 and an ask price of 102:14. If you sold the bond you expect to receive __________.A.$1,024.75B.$1,024.38C.$1,023.75D.$1,022.50

9.Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million and $150 million respectively. If you were to construct a price-weighted index of the three stocks what would be the index value?A.300B.39C.43D.30

10.What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?A.6.48%B.7.25%C.8.02%D.9.00%

11.A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58, what is the new index value?A.960B.970C.975D.985

12.Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. If a market buy order for 100 shares comes in, at what price will it be filled?

A.$39.75B.$40.25C.$40.375D.$40.25 or less

13.Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is __________.A.$20,000B.$12,000C.$ 8,000D.$15,000

14.You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?A.$50B.$150C.$10,000D.Unlimited

15.You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you wish to limit your loss to $2,500, you should place a stop-buy order at _____.A.$37.50B.$62.50C.$56.25D.$59.75

16.You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.A.35%B.39%C.43%D.28%

17.The geometric average of -12%, 20% and 25% is __________.A.8.42%B.11.00%C.9.70%D.18.88%

18.An investment earns 10% the first year, 15% the second year and loses 12% the third year. Your total compound return over the three years was _______.A.41.68%B.11.32%C.3.64%D.13.00%

19.Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months. What is the holding period return for this investment?A.3.01%B.3.09%C.12.42%D.16.71%

20.Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 10% chance of losing 3%. What is the standard deviation of this investment?A.5.14%B.7.59%C.9.29%D.8.43%E.10.21%

21.If you are promised a nominal return of 12% on a one year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn?A.5.48%B.8.74%C.9.00%D.12.00%

22.An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively.A.10.0%, 6.7%B.12.0%, 22.4%C.12.0%, 15.7%D.10.0%, 35.0%

23.Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is __________.A.1%B.5%C.9%D.11%

24.You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should __________.A.invest $125,000 in the risk-free assetB.invest $375,000 in the risk-free assetC.borrow $125,000D.borrow $375,000

25.A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between -28% and 64% in any one year isA.68.26%B.95.44%C.99.74%D.100.00%

26.Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio?A..40B..50C..75D..80

27.A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35% while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is 0.45. Stock A comprises 40% of the portfolio while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is __________.A.23.00%B.19.76%C.18.45%D.17.67%

28.Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return 10% and a standard deviation of return of 30%. The weight of security B in the global minimum variance is __________.A.10%B.20%C.40%D.60%

Use the following to answer questions 33-35:An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 10%.

29.The expected return on the optimal risky portfolio is __________.A.14.0%B.15.6%C.16.4%D.18.0%

Use the following to answer questions 36-38:An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The risk-free rate of return is 5%.

30.The standard deviation of the returns on the optimal risky portfolio is __________.A.25.5%B.22.3%C.21.4%D.20.7%

31.Consider the CAPM. The risk-free rate is 6% and the expected return on the market is 18%. What is the expected return on a stock with a beta of 1.3?A.6%B.15.6%C.18%D.21.6%

32.Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?A.2%B.6%C.8%D.12%

33.Consider the multi-factor APT with two factors. Portfolio A has a beta of 0. 5 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factors 1 and 2 portfolios are 1% and 7% respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.A.13.5%B.15.0%C.16.25%D.23.0%

34.Consider the capital asset pricing model. The market degree of risk aversion, A, is 3. The variance of return on the market portfolio is .0225. If the risk-free rate of return is 4%, the expected return on the market portfolio is __________.A.6.75%B.9.0%C.10.75%D.12.0%

35.Consider the one-factor APT. The standard deviation of return on a well-diversified portfolio is 20%. The standard deviation on the factor portfolio is 12%. The beta of the well-diversified portfolio is approximately __________.A.0.60B.1.00C.1.67D.3.20

36.Consider the following two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.20. Stock B has an expected return of 14% and a beta of 1.80. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered a good buy because __________.A.A, it offers an expected excess return of 0.8%B.A, it offers an expected excess return of 2.2%C.B, it offers an expected excess return of 1.8%D.B, it offers an expected return of 2.4%

37.You consider buying a share of stock at a price of $25. The stock is expected to pay a dividend of $1.50 next year and your advisory service tells you that you can expect to sell the stock in one year for $28. The stock's beta is 1.1, Rf is 6% and E[rm] = 16%. What is the stock's abnormal return?A.1%B.2%C.-1%D.-2%

38.According to the CAPM, what is the market risk premium given an expected return on a security of 13.6%, a stock beta of 1.2, and a risk free interest rate of 4.0%?A.4.0%B.4.8%C.6.6%D.8.0%

Fin4502_R1 Key

1._____ is an example of an agency problemA.Managers engage in empire buildingB.Managers protect their jobs by avoiding risky projectsC.Managers over consume luxuries such as corporate jetsD.All of the answers provide examples of agency problems

Bodie - Chapter 01 #18Difficulty: Easy2.__________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.A.ActiveB.IdioticC.PassiveD.Market timing

Bodie - Chapter 01 #26Difficulty: Easy3.The most actively traded money market security isA.Treasury billsB.Bankers' AcceptancesC.Certificates of DepositD.Common stock

Bodie - Chapter 02 #6Difficulty: Medium4.The bid price of a treasury bill is __________.A.The price at which the dealer in treasury bills is willing to sell the billB.The price at which the dealer in treasury bills is willing to buy the billC.Greater than the ask price of the treasury bill expressed in dollar termsD.The price at which the investor can buy the treasury bill

Bodie - Chapter 02 #12Difficulty: Easy5.Which of the following is not a characteristic of a money market instrument?A.LiquidityB.MarketabilityC.Low riskD.Maturity greater than one year

Bodie - Chapter 02 #16Difficulty: Easy6.A T-bill quote sheet has 90 day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value an investor could buy this bill forA.$10,000.00B.$9,878.50C.$9,877.00D.$9,880.16

Bodie - Chapter 02 #26Difficulty: Hard7.An investor buys a 180 day T-bill at a bank discount quote of 5.25. The investor's actual annual rate of return on this investment was ______.A.5.25%B.5.39%C.5.47%D.5.52%

Bodie - Chapter 02 #30Difficulty: Hard8.The price quotations of treasury bonds in the Wall Street Journal show a bid price of 102:12 and an ask price of 102:14. If you sold the bond you expect to receive __________.A.$1,024.75B.$1,024.38C.$1,023.75D.$1,022.50

Bodie - Chapter 02 #41Difficulty: Medium9.Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million and $150 million respectively. If you were to construct a price-weighted index of the three stocks what would be the index value?A.300B.39C.43D.30

Bodie - Chapter 02 #70Difficulty: Medium10.What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?A.6.48%B.7.25%C.8.02%D.9.00%

Bodie - Chapter 02 #78Difficulty: Medium11.A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58, what is the new index value?A.960B.970C.975D.985

Bodie - Chapter 02 #84Difficulty: Hard12.Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. If a market buy order for 100 shares comes in, at what price will it be filled?

A.$39.75B.$40.25C.$40.375D.$40.25 or less

Bodie - Chapter 03 #48Difficulty: Hard13.Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is __________.A.$20,000B.$12,000C.$ 8,000D.$15,000

Bodie - Chapter 03 #52Difficulty: Medium14.You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?A.$50B.$150C.$10,000D.Unlimited

Bodie - Chapter 03 #54Difficulty: Easy15.You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you wish to limit your loss to $2,500, you should place a stop-buy order at _____.A.$37.50B.$62.50C.$56.25D.$59.75

Bodie - Chapter 03 #56Difficulty: Medium16.You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.A.35%B.39%C.43%D.28%

Bodie - Chapter 03 #58Difficulty: Hard17.The geometric average of -12%, 20% and 25% is __________.A.8.42%B.11.00%C.9.70%D.18.88%

Bodie - Chapter 05 #14Difficulty: Medium18.An investment earns 10% the first year, 15% the second year and loses 12% the third year. Your total compound return over the three years was _______.A.41.68%B.11.32%C.3.64%D.13.00%

Bodie - Chapter 05 #16Difficulty: Medium19.Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months. What is the holding period return for this investment?A.3.01%B.3.09%C.12.42%D.16.71%

Bodie - Chapter 05 #18Difficulty: Medium20.Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 10% chance of losing 3%. What is the standard deviation of this investment?A.5.14%B.7.59%C.9.29%D.8.43%E.10.21%

Bodie - Chapter 05 #28Difficulty: Hard21.If you are promised a nominal return of 12% on a one year investment, and you expect the rate of inflation to be 3%, what real rate do you expect to earn?A.5.48%B.8.74%C.9.00%D.12.00%

Bodie - Chapter 05 #38Difficulty: Medium22.An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively.A.10.0%, 6.7%B.12.0%, 22.4%C.12.0%, 15.7%D.10.0%, 35.0%

Bodie - Chapter 05 #52Difficulty: Medium23.Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is __________.A.1%B.5%C.9%D.11%

Bodie - Chapter 05 #54Difficulty: Medium24.You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should __________.A.invest $125,000 in the risk-free assetB.invest $375,000 in the risk-free assetC.borrow $125,000D.borrow $375,000

Bodie - Chapter 05 #60Difficulty: Hard25.A security with normally distributed returns has an annual expected return of 18% and standard deviation of 23%. The probability of getting a return between -28% and 64% in any one year isA.68.26%B.95.44%C.99.74%D.100.00%

Bodie - Chapter 05 #68Difficulty: Hard26.Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio?A..40B..50C..75D..80

Bodie - Chapter 06 #10Difficulty: Medium27.A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35% while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is 0.45. Stock A comprises 40% of the portfolio while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is __________.A.23.00%B.19.76%C.18.45%D.17.67%

Bodie - Chapter 06 #30Difficulty: Medium28.Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return 10% and a standard deviation of return of 30%. The weight of security B in the global minimum variance is __________.A.10%B.20%C.40%D.60%

Bodie - Chapter 06 #32Difficulty: HardUse the following to answer questions 33-35:An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 10%.

Bodie - Chapter 0629.The expected return on the optimal risky portfolio is __________.A.14.0%B.15.6%C.16.4%D.18.0%

Bodie - Chapter 06 #34Difficulty: HardUse the following to answer questions 36-38:An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The risk-free rate of return is 5%.

Bodie - Chapter 0630.The standard deviation of the returns on the optimal risky portfolio is __________.A.25.5%B.22.3%C.21.4%D.20.7%

Bodie - Chapter 06 #38Difficulty: Hard31.Consider the CAPM. The risk-free rate is 6% and the expected return on the market is 18%. What is the expected return on a stock with a beta of 1.3?A.6%B.15.6%C.18%D.21.6%

Bodie - Chapter 07 #6Difficulty: Medium32.Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?A.2%B.6%C.8%D.12%

Bodie - Chapter 07 #8Difficulty: Medium33.Consider the multi-factor APT with two factors. Portfolio A has a beta of 0. 5 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factors 1 and 2 portfolios are 1% and 7% respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.A.13.5%B.15.0%C.16.25%D.23.0%

Bodie - Chapter 07 #30Difficulty: Medium34.Consider the capital asset pricing model. The market degree of risk aversion, A, is 3. The variance of return on the market portfolio is .0225. If the risk-free rate of return is 4%, the expected return on the market portfolio is __________.A.6.75%B.9.0%C.10.75%D.12.0%

Bodie - Chapter 07 #36Difficulty: Medium35.Consider the one-factor APT. The standard deviation of return on a well-diversified portfolio is 20%. The standard deviation on the factor portfolio is 12%. The beta of the well-diversified portfolio is approximately __________.A.0.60B.1.00C.1.67D.3.20

Bodie - Chapter 07 #42Difficulty: Medium36.Consider the following two stocks, A and B. Stock A has an expected return of 10% and a beta of 1.20. Stock B has an expected return of 14% and a beta of 1.80. The expected market rate of return is 9% and the risk-free rate is 5%. Security __________ would be considered a good buy because __________.A.A, it offers an expected excess return of 0.8%B.A, it offers an expected excess return of 2.2%C.B, it offers an expected excess return of 1.8%D.B, it offers an expected return of 2.4%

Bodie - Chapter 07 #44Difficulty: Hard37.You consider buying a share of stock at a price of $25. The stock is expected to pay a dividend of $1.50 next year and your advisory service tells you that you can expect to sell the stock in one year for $28. The stock's beta is 1.1, Rf is 6% and E[rm] = 16%. What is the stock's abnormal return?A.1%B.2%C.-1%D.-2%

Bodie - Chapter 07 #72Difficulty: Hard38.According to the CAPM, what is the market risk premium given an expected return on a security of 13.6%, a stock beta of 1.2, and a risk free interest rate of 4.0%?A.4.0%B.4.8%C.6.6%D.8.0%

Bodie - Chapter 07 #74Difficulty: MediumFin4502_R1 Summary

Category#ofQuestions

Bodie-Chapter012

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Bodie-Chapter078

Difficulty:Easy5

Difficulty:Hard13

Difficulty:Medium20