投资学第7版Test-Bank答案22
投资学第7版TestBank答案20
投资学第7版TestBank答案20Multiple Choice Questions1. The price that the buyer of a call option pays to acquire the option is called theA) strike priceB) exercise priceC) execution priceD) acquisition priceE) premiumAnswer: E Difficulty: Easy2. The price that the writer of a call option receives to sell the option is called theA) strike priceB) exercise priceC) execution priceD) acquisition priceE) premiumAnswer: E Difficulty: Easy3. The price that the buyer of a put option pays to acquire the option is called theA) strike priceB) exercise priceC) execution priceD) acquisition priceE) premiumAnswer: E Difficulty: Easy4. The price that the writer of a put option receives to sell the option is called theA) premiumB) exercise priceC) execution priceD) acquisition priceE) strike priceAnswer: A Difficulty: Easy5. The price that the buyer of a call option pays for the underlying asset if she executes heroption is called theA) strike priceB) exercise priceC) execution priceD) A or CE) A or BAnswer: E Difficulty: Easy6. The price that the writer of a call option receives for the underlying asset if the buyerexecutes her option is called theA) strike priceB) exercise priceC) execution priceD) A or BE) A or CAnswer: D Difficulty: Easy7. The price that the buyer of a put option receives for the underlying asset if she executesher option is called theA) strike priceB) exercise priceC) execution priceD) A or CE) A or BAnswer: E Difficulty: Easy8. The price that the writer of a put option receives for the underlying asset if the option isexercised is called theA) strike priceB) exercise priceC) execution priceD) A or BE) none of the aboveAnswer: E Difficulty: Easy9. An American call option allows the buyer toA) sell the underlying asset at the exercise price on or before the expiration date.B) buy the underlying asset at the exercise price on or before the expiration date.C) sell the option in the open market prior to expiration.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: An American call option may be exercised (allowing the holder to buy the underlying asset) on or before expiration; the option contract also may be sold prior to expiration.10. A European call option allows the buyer toA) sell the underlying asset at the exercise price on the expiration date.B) buy the underlying asset at the exercise price on or before the expiration date.C) sell the option in the open market prior to expiration.D) buy the underlying asset at the exercise price on the expiration date.E) C and D.Answer: E Difficulty: EasyRationale: A European call option may be exercised (allowing the holder to buy the underlying asset) on the expiration date; the option contract also may be sold prior to expiration.11. An American put option allows the holder toA) buy the underlying asset at the striking price on or before the expiration date.B) sell the underlying asset at the striking price on or before the expiration date.C) potentially benefit from a stock price decrease with less risk than short selling thestock.D) B and C.E) A and C.Answer: D Difficulty: EasyRationale: An American put option allows the buyer to sell the underlying asset at the striking price on or before the expiration date. The put option also allows the investor to benefit from an expected stock price decrease while risking only the amount invested in the contract.12. A European put option allows the holder toA) buy the underlying asset at the striking price on or before the expiration date.B) sell the underlying asset at the striking price on or before the expiration date.C) potentially benefit from a stock price decrease with less risk than short selling thestock.D) sell the underlying asset at the striking price on the expiration date.E) C and D.Answer: E Difficulty: EasyRationale: A European put option allows the buyer to sell the underlying asset at the striking price on or before the expiration date. The put option also allows the investor to benefit from an expected stock price decrease while risking only the amount invested in the contract.13. An American put option can be exercisedA) any time on or before the expiration date.B) only on the expiration date.C) any time in the indefinite future.D) only after dividends are paid.E) none of the above.Answer: A Difficulty: EasyRationale: American options can be exercised on or before expiration date.14. An American call option can be exercisedA) any time on or before the expiration date.B) only on the expiration date.C) any time in the indefinite future.D) only after dividends are paid.E) none of the above.Answer: A Difficulty: EasyRationale: American options can be exercised on or before expiration date.15. A European call option can be exercisedA) any time in the future.B) only on the expiration date.C) if the price of the underlying asset declines below the exercise price.D) immediately after dividends are paid.E) none of the above.Answer: B Difficulty: EasyRationale: European options can be exercised at expiration only.16. A European put option can be exercisedA) any time in the future.B) only on the expiration date.C) if the price of the underlying asset declines below the exercise price.D) immediately after dividends are paid.E) none of the above.Answer: B Difficulty: EasyRationale: European options can be exercised at expiration only.17. To adjust for stock splitsA) the exercise price of the option is reduced by the factor of the split and the numberof option held is increased by that factor.B) the exercise price of the option is increased by the factor of the split and the numberof option held is reduced by that factor.C) the exercise price of the option is reduced by the factor of the split and the numberof option held is reduced by that factor.D) the exercise price of the option is increased by the factor of the split and the numberof option held is increased by that factor.E) none of the aboveAnswer: A Difficulty: Easy18. All else equal, call option values are lowerA) in the month of May.B) for low dividend payout policies.C) for high dividend payout policies.D) A and B.E) A and C.Answer: C Difficulty: Easy19. The current market price of a share of AT&T stock is $50. If a call option on this stockhas a strike price of $45, the callA) is out of the money.B) is in the money.C) sells for a higher price than if the market price of AT&T stock is $40.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: If the striking price on a call option is less than the market price, the option is in the money and sells for more than an out of the money option.20. The current market price of a share of Boeing stock is $75. If a call option on this stockhas a strike price of $70, the callA) is out of the money.B) is in the money.C) sells for a higher price than if the market price of Boeing stock is $70.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: If the striking price on a call option is less than the market price, the option is in the money and sells for more than an at the money option.21. The current market price of a share of CSCO stock is $22. If a call option on this stockhas a strike price of $20, the callA) is out of the money.B) is in the money.C) sells for a higher price than if the market price of CSCO stock is $21.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: If the striking price on a call option is less than the market price, the option is in the money and sells for more thana less in the money option.22. The current market price of a share of Disney stock is $30. If a call option on this stockhas a strike price of $35, the callA) is out of the money.B) is in the money.C) can be exercised profitably.D) A and C.E) B and C.Answer: A Difficulty: EasyRationale: If the striking price on a call option is more than the market price, the option is out of the money and cannot beexercised profitably.23. The current market price of a share of CAT stock is $76. Ifa call option on this stockhas a strike price of $76, the callA) is out of the money.B) is in the money.C) is at the money.D) A and C.E) B and C.Answer: C Difficulty: EasyRationale: If the striking price on a call option is equal to the market price, the option is at the money.24. A put option on a stock is said to be out of the money ifA) the exercise price is higher than the stock price.B) the exercise price is less than the stock price.C) the exercise price is equal to the stock price.D) the price of the put is higher than the price of the call.E) the price of the call is higher than the price of the put.Answer: B Difficulty: EasyRationale: An out of the money put option gives the owner the right to sell the shares for less than market price.25. A put option on a stock is said to be in the money ifA) the exercise price is higher than the stock price.B) the exercise price is less than the stock price.C) the exercise price is equal to the stock price.D) the price of the put is higher than the price of the call.E) the price of the call is higher than the price of the put.Answer: A Difficulty: EasyRationale: An in the money put option gives the owner the right to sell the shares for more than market price.26. A put option on a stock is said to be at the money ifA) the exercise price is higher than the stock price.B) the exercise price is less than the stock price.C) the exercise price is equal to the stock price.D) the price of the put is higher than the price of the call.E) the price of the call is higher than the price of the put.Answer: C Difficulty: Easy27. A call option on a stock is said to be out of the money ifA) the exercise price is higher than the stock price.B) the exercise price is less than the stock price.C) the exercise price is equal to the stock price.D) the price of the put is higher than the price of the call.E) the price of the call is higher than the price of the put.Answer: A Difficulty: EasyRationale: An out of the money call option gives the owner the right to buy the shares for more than market price.28. A call option on a stock is said to be in the money ifA) the exercise price is higher than the stock price.B) the exercise price is less than the stock price.C) the exercise price is equal to the stock price.D) the price of the put is higher than the price of the call.E) the price of the call is higher than the price of the put.Answer: B Difficulty: EasyRationale: An in the money call option gives the owner the right to buy the shares for less than market price.29. A call option on a stock is said to be at the money ifA) the exercise price is higher than the stock price.B) the exercise price is less than the stock price.C) the exercise price is equal to the stock price.D) the price of the put is higher than the price of the call.E) the price of the call is higher than the price of the put.Answer: C Difficulty: Easy30. The current market price of a share of AT&T stock is $50. If a put option on this stockhas a strike price of $45, the putA) is out of the money.B) is in the money.C) sells for a lower price than if the market price of AT&T stock is $40.D) A and C.E) B and C.Answer: D Difficulty: EasyRationale: If the striking price on a put option is more than the market price, the option is out of the money and sells for less than an in the money option.31. The current market price of a share of Boeing stock is $75. If a put option on this stockhas a strike price of $70, the putA) is out of the money.B) is in the money.C) sells for a higher price than if the market price of Boeing stock is $70.D) A and C.E) B and C.Answer: A Difficulty: EasyRationale: If the striking price on a put option is more than the market price, the option is out of the money and sells for less than an at the money option.32. The current market price of a share of CSCO stock is $22. If a put option on this stockhas a strike price of $20, the putA) is out of the money.B) is in the money.C) sells for a higher price than if the strike price of the put option was $25.D) A and C.E) B and C.Answer: D Difficulty: EasyRationale: If the striking price on a put option is less than the market price, the option is out of the money and sells for less than an in the money option.33. The current market price of a share of Disney stock is $30. If a put option on this stockhas a strike price of $35, the putA) is out of the money.B) is in the money.C) can be exercised profitably.D) A and C.E) B and C.Answer: A Difficulty: EasyRationale: If the striking price on a put option is less than the market price, the option is out of the money.34. The current market price of a share of CAT stock is $76. Ifa put option on this stock hasa strike price of $80, the putA) is out of the money.B) is in the money.C) can be exercised profitably.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: If the striking price on a put option is less than the market price, the option is in the money and can be profitably exercised.35. Lookback options have payoffs thatA) have payoffs that depend in part on the minimum or maximum price of theunderlying asset during the life of the option.B) have payoffs that only depend on the minimum price of the underlying asset duringthe life of the option.C) have payoffs that only depend on the maximum price of the underlying asset duringthe life of the option.D) are known in advance.E) none of the above.Answer: A Difficulty: Easy36. Barrier Options have payoffs thatA) have payoffs that only depend on the minimum price of the underlying asset duringthe life of the option.B) depend both on the asset's price at expiration and on whether the underlying asset'sprice has crossed through some barrier.C) are known in advance.D) have payoffs that only depend on the maximum price of the underlying asset duringthe life of the option.E) none of the above.Answer: A Difficulty: Easy37. Currency-Translated Options haveA) only asset prices denoted in a foreign currency.B) only exercise prices denoted in a foreign currency.C) have payoffs that only depend on the maximum price of the underlying asset duringthe life of the option.D) either asset or exercise prices denoted in a foreign currency.E) none of the above.Answer: D Difficulty: Easy38. Binary OptionsA) are based on two possible outcomes--yes or no.B) may make a payoff of a fixed amount if a specified event happens.C) may make a payoff of a fixed amount if a specified event does not happen.D) A and B only.E) A, B, and C.Answer: E Difficulty: Easy39. The maximum loss a buyer of a stock call option can suffer is equal toA) the striking price minus the stock price.B) the stock price minus the value of the call.C) the call premium.D) the stock price.E) none of the above.Answer: C Difficulty: EasyRationale: If an option expires worthless all the buyer has lost is the price of the contract (premium).40. The maximum loss a buyer of a stock put option cansuffer is equal toA) the striking price minus the stock price.B) the stock price minus the value of the call.C) the put premium.D) the stock price.E) none of the above.Answer: C Difficulty: EasyRationale: If an option expires worthless all the buyer has lost is the price of the contract (premium).41. The lower bound on the market price of a convertible bond isA) its straight bond value.B) its crooked bond value.C) its conversion value.D) A and C.E) none of the aboveAnswer: D Difficulty: Easy42. The potential loss for a writer of a naked call option on a stock isA) limitedB) unlimitedC) larger the lower the stock price.D) equal to the call premium.E) none of the above.Answer: B Difficulty: ModerateRationale: If the buyer of the option elects to exercise the option and buy the stock at the exercise price, the seller of the option must go into the open market and buy the stock (in order to sell the stock to the buyer of the contract) at the current market price.Theoretically, the market price of a stock is unlimited; thus the writer's potential loss is unlimited.43. The intrinsic value of an out-of-the-money call option is equal toA) the call premium.B) zero.C) the stock price minus the exercise price.D) the striking price.E) none of the above.Answer: B Difficulty: EasyRationale: The fact that the owner of the option can buy the stock at a price greater than the market price gives the contract an intrinsic value of zero, and the holder will not exercise.44. The intrinsic value of an at-the-money call option is equal toA) the call premium.B) zero.C) the stock price plus the exercise price.D) the striking price.E) none of the above.Answer: B Difficulty: EasyRationale: The fact that the owner of the option can buy the stock at a price equal to the market price gives the contract an intrinsic value of zero.45. The intrinsic value of an in-of-the-money call option is equal toA) the call premium.B) zero.C) the stock price minus the exercise price.D) the striking price.E) none of the above.Answer: C Difficulty: EasyRationale: The fact that the owner of the option can buy the stock at a price less than the market price gives the contract a positive intrinsic value.46. The intrinsic value of an in-the-money put option is equal toA) the stock price minus the exercise price.B) the put premium.C) zero.D) the exercise price minus the stock price.E) none of the above.Answer: D Difficulty: ModerateRationale: The intrinsic value of an in-the-money put option contract is the strike price less the stock price, since the holder can buy the stock at the market price and sell it for the strike.47. The intrinsic value of an at-the-money put option is equal toA) the stock price minus the exercise price.B) the put premium.C) zero.D) the exercise price minus the stock price.E) none of the above.Answer: C Difficulty: ModerateRationale: The intrinsic value of an at-the-money put option contract is zero.48. The intrinsic value of an out-of-the-money put option is equal toA) the stock price minus the exercise price.B) the put premium.C) zero.D) the exercise price minus the stock price.E) none of the above.Answer: C Difficulty: ModerateRationale: The intrinsic value of an out-of-the-money put option contract is zero.49. You write one AT&T February 50 put for a premium of $5. Ignoring transactions costs,what is the breakeven price of this position?A) $50B) $55C) $45D) $40E) none of the aboveAnswer: C Difficulty: EasyRationale: +$50 - $5 = $45.50. You purchase one IBM 70 call option for a premium of $6. Ignoring transaction costs,the break-even price of the position isA) $98B) $64C) $76D) $70E) none of the aboveAnswer: C Difficulty: EasyRationale: +70 + $6 = $76.51. Call options on IBM listed stock options areA) issued by IBM Corporation.B) created by investors.C) traded on various exchanges.D) A and C.E) B and C.Answer: E Difficulty: ModerateRationale: Options are merely contracts between buyer and seller and sold primarily on various organized exchanges.52. Buyers of call options __________ required to post margin deposits and sellers of putoptions __________ required to post margin deposits.A) are; are notB) are; areC) are not; areD) are not; are notE) are always; are sometimesAnswer: C Difficulty: ModerateRationale: Buyers of call options pose no risk as they have no commitment. If theoption expires worthless, the buyer merely loses the option premium. If the option is in the money at expiration and the buyer lacks funds, there is no requirement to exercise.The seller of a put option is committed to selling the stock at the exercise price. If the seller of the option does not own the underlying stock the seller must go into the open market and buy the stock in order to be able to sell the stock to the buyer of the contract.53. Buyers of put options anticipate the value of the underlying asset will __________ andsellers of call options anticipate the value of the underlying asset will ________.A) increase; increaseB) decrease; increaseC) increase; decreaseD) decrease; decreaseE) cannot tell without further informationAnswer: D Difficulty: ModerateRationale: The buyer of the put option hopes the price will fall in order to exercise the option and sell the stock at a price higher than the market price. Likewise, the seller of the call option hopes the price will decrease so the option will expire worthless.54. The Option Clearing Corporation is owned byA) the Federal Reserve System.B) the exchanges on which stock options are traded.C) the major U. S. banks.D) the Federal Deposit Insurance Corporation.E) none of the above.Answer: B Difficulty: ModerateRationale: The exchanges on which options are traded jointly own the Option Clearing Corporation in order to facilitate option trading.55. A covered call position isA) the simultaneous purchase of the call and the underlying asset.B) the purchase of a share of stock with a simultaneous sale of a put on that stock.C) the short sale of a share of stock with a simultaneous sale of a call on that stock.D) the purchase of a share of stock with a simultaneous sale of a call on that stock.E) the simultaneous purchase of a call and sale of a put on the same stock.Answer: D Difficulty: ModerateRationale: Writing a covered call is a very safe strategy, as the writer owns theunderlying stock. The only risk to the writer is that the stock will be called away, thus limiting the upside potential.56. A covered call position is equivalent to aA) long put.B) short put.C) long straddle.D) vertical spread.E) none of the above.Answer: B Difficulty: ModerateRationale: With a short put, the seller of the contract must buy the stock if the option is exercised; however, this cash outflow is offset by the premium income as in the covered call scenario.57. According to the put-call parity theorem, the value of a European put option on anon-dividend paying stock is equal to:A) the call value plus the present value of the exercise price plus the stock price.B) the call value plus the present value of the exercise price minus the stock price.C) the present value of the stock price minus the exercise price minus the call price.D) the present value of the stock price plus the exercise price minus the call price.E) none of the above.Answer: B Difficulty: DifficultRationale: P = C - SO + PV(X) + PV(dividends), where SO = the market price of the stock, and X = the exercise price.58. A protective put strategy isA) a long put plus a long position in the underlying asset.B) a long put plus a long call on the same underlying asset.C) a long call plus a short put on the same underlying asset.D) a long put plus a short call on the same underlying asset.E) none of the above.Answer: A Difficulty: ModerateRationale: If you invest in a stock and purchase a put option on the stock you areguaranteed a payoff equal to the exercise price; thus the protection of the put.59. Suppose the price of a share of IBM stock is $100. An April call option on IBM stockhas a premium of $5 and an exercise price of $100. Ignoring commissions, the holder of the call option will earn a profit if the price of the shareA) increases to $104.B) decreases to $90.C) increases to $105.D) decreases to $96.E) none of the above.Answer: C Difficulty: ModerateRationale: $100 + $5 = $105 (Breakeven). The price of the stock must increase to above $105 for the option holder to earna profit.60. You purchased one AT&T March 50 call and sold one AT&T March 55 call. Yourstrategy is known asA) a long straddle.B) a horizontal spread.C) a vertical spread.D) a short straddle.E) none of the above.Answer: C Difficulty: ModerateRationale: A vertical or money spread involves the purchase one option and thesimultaneous sale of another with a different exercise price and same expiration date.61. You purchased one AT&T March 50 put and sold one AT&T April 50 put. Yourstrategy is known asA) a vertical spread.B) a straddle.C) a horizontal spread.D) a collar.E) none of the above.Answer: C Difficulty: ModerateRationale: A horizontal or time spread involves the simultaneous purchase and sale of options with different expiration dates, same exercise price.62. Before expiration, the time value of a call option is equal toA) zero.B) the actual call price minus the intrinsic value of the call.C) the intrinsic value of the call.D) the actual call price plus the intrinsic value of the call.E) none of the above.Answer: B Difficulty: ModerateRationale: The difference between the actual call price and the intrinsic value is the time value of the option, which shouldnot be confused with the time value of money. The option's time value is the difference between the option's price and the value of theoption were the option expiring immediately.63. All of the following factors affect the price of a stock option exceptA) 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 above.Answer: D Difficulty: ModerateRationale: A, B, and C are directly related to the price of the option; D does not affect the price of the option.64. The value of a stock put option is positively related to the following factors exceptA) the time to expiration.B) the striking price.C) the stock price.D) all of the above.E) none of the above.Answer: C Difficulty: ModerateRationale: The time to expiration and striking price are positively related to the value ofa put option; the stock price is inversely related to the value of the option.65. You purchase one IBM March 100 put contract for a put premium of $6. What is themaximum profit that you could gain from this strategy?A) $10,000B) $10,600C) $9,400D) $9,000E) none of the aboveAnswer: C Difficulty: ModerateRationale: -$600 + $10,000 = $9,400 (if the stock falls to zero.)66. The following price quotations on IBM were taken from the Wall Street Journal.The premium on one IBM February 90 call contract isA) $4.1250B) $418.00C) $412.50D) $158.00E) none of the aboveAnswer: C Difficulty: ModerateRationale: 4 1/8 = $4.125 X 100 = $412.50. Price quotations are per share; however, option contracts are standardized for 100 shares of the underlying stock; thus, thequoted premiums must be multiplied by 100.。
投资学第7版TestBank答案22
投资学第7版TestBank答案22Multiple Choice Questions1. A futures contractA) is an agreement to buy or sell a specified amount of an asset at the spot price on theexpiration date of the contract.B) is an agreement to buy or sell a specified amount of an asset at a predeterminedprice on the expiration date of the contract.C) gives the buyer the right, but not the obligation, to buy an asset some time in thefuture.D) is a contract to be signed in the future by the buyer and the seller of the commodity.E) none of the above.Answer: B Difficulty: EasyRationale: A futures contract locks in the price of a commodity to be delivered at some future date. Both the buyer and seller of the contract are committed.2. The terms of futures contracts __________ standardized, and the terms of forwardcontracts __________ standardized.A) are; areB) are not; areC) are; are notD) are not; are notE) are; may or may not beAnswer: C Difficulty: EasyRationale: Futures contracts are standardized and are tradedon organized exchanges;forward contracts are not traded on organized exchanges, the participant negotiates for the delivery of any quantity of goods, and banks and brokers negotiate contracts as needed.3. Futures contracts __________ traded on an organized exchange, and forward contracts__________ traded on an organized exchange.A) are not; areB) are; areC) are not; are notD) are; are notE) are; may or may not beAnswer: D Difficulty: EasyRationale: See rationale for test bank question 22.2.4. In a futures contract the futures price isA) determined by the buyer and the seller when the delivery of the commodity takesplace.B) determined by the futures exchange.C) determined by the buyer and the seller when they initiate the contract.D) determined independently by the provider of the underlying asset.E) none of the above.Answer: C Difficulty: ModerateRationale: The futures exchanges specify all the terms of the contracts except price; as a result, the traders bargain over the futures price.5. The buyer of a futures contract is said to have a __________position and the seller of afutures contract is said to have a __________ position in futures.A) long; shortB) long; longC) short; shortD) short; longE) margined; longAnswer: A Difficulty: ModerateRationale: The trader taking the long position commits to purchase the commodity on the delivery date. The trader taking the short position commits to delivering thecommodity at contract maturity. The trader in the long position is said to "buy" the contract; the trader in the short position is said to "sell" the contract. However, no money changes hands at this time.6. Investors who take long positions in futures agree to __________ of the commodity onthe delivery date, and those who take the short positions agree to __________ of the commodity.A) make delivery; take deliveryB) take delivery; make deliveryC) take delivery; take deliveryD) make delivery; take deliveryE) negotiate the price; pay the priceAnswer: B Difficulty: ModerateRationale: See explanation for test bank question 22.5.7. The terms of futures contracts such as the quality and quantity of the commodity and thedelivery date areA) specified by the buyers and sellers.B) specified only by the buyers.C) specified by the futures exchanges.D) specified by brokers and dealers.E) none of the above.Answer: C Difficulty: ModerateRationale: See rationale for test bank question 22.4.8. A trader who has a __________ position in wheat futures believes the price of wheatwill __________ in the future.A) long; increaseB) long; decreaseC) short; increaseD) long; stay the sameE) short; stay the sameAnswer: A Difficulty: ModerateRationale: The trader holding the long position (the person who will purchase the goods) will profit from a price increase. Profit to long position = Spot price atmaturity--Original futures price.9. A trader who has a __________ position in gold futures wants the price of gold to__________ in the future.A) long; decreaseB) short; decreaseC) short; stay the sameD) short; increaseE) long; stay the sameAnswer: B Difficulty: ModerateRationale: Profit to short position = Original futures price--Spot price at maturity. Thus, the person in the short positionprofits if the price of the commodity declines in the future.10. The open interest on silver futures at a particular time is theA) number of silver futures contracts traded during the day.B) number of outstanding silver futures contracts for delivery within the next month.C) number of silver futures contracts traded the previous day.D) number of all silver futures outstanding contracts.E) none of the above.Answer: D Difficulty: ModerateRationale: Open interest is the number of contracts outstanding. When contracts begin trading, open interest is zero; as time passes more contracts are entered. Most contracts are liquidated before the maturity date.11. Which one of the following statements regarding delivery is true?A) Most futures contracts result in actual delivery.B) Only one to three percent of futures contracts result in actual delivery.C) Only fifteen percent of futures contracts result in actual delivery.D) Approximately fifty percent of futures contracts result in actual delivery.E) Futures contracts never result in actual delivery.Answer: B Difficulty: ModerateRationale: Virtually all traders enter reversing trades to cancel their original positions, thereby realizing profits or losses on the contract.12. You hold one long corn futures contract that expires in April. To close your position incorn futures before the delivery date you mustA) buy one May corn futures contract.B) buy two April corn futures contract.C) sell one April corn futures contract.D) sell one May corn futures contract.E) none of the above.Answer: C Difficulty: ModerateRationale: The long position is considered the buyer; to close out the position one must take a reversing position, or sell the contract.13. Which one of the following statements is true?A) The maintenance margin is the amount of money you post with your broker whenyou buy or sell a futures contract.B) The maintenance margin determines the value of the margin account below whichthe holder of a futures contract receives a margin call.C) A margin deposit can only be met with cash.D) All futures contracts require the same margin deposit.E) The maintenance margin is set by the producer of the underlying asset.Answer: B Difficulty: ModerateRationale: The maintenance margin applies to the value of the account after the account is opened; if the value of this account falls below the maintenance margin requirement and the holder of the contract will receive a margin call. A margin deposit can be made with cash or interest-earning securities; the margin deposit amounts depend on thevolatility of the underlying asset.14. Financial futures contracts are actively traded on thefollowing indices exceptA) the S&P 500 Index.B) the New York Stock Exchange Index.C) the Nikkei Index.D) the Dow Jones Industrial Index.E) all of the above indices have actively traded futures contracts.Answer: E Difficulty: ModerateRationale: The indices are listed in Table 22.1.15. To exploit an expected increase in interest rates, an investor would most likelyA) sell Treasury bond futures.B) take a long position in wheat futures.C) buy S&P 500 index futures.D) take a long position in Treasury bond futures.E) none of the above.Answer: A Difficulty: DifficultRationale: If interest rates rise, bond prices decrease. As bond prices decrease, the short position gains. Thus, if you are bearish about bond prices, you might speculate byselling T-bond futures contracts.16. An investor with a long position in Treasury notes futures will profit ifA) interest rates decline.B) interest rate increase.C) the prices of Treasury notes increase.D) the price of the long bond increases.E) none of the above.Answer: A Difficulty: ModerateRationale: Profit to long position = Spot price at maturity--original futures price.17. To hedge a long position in Treasury bonds, an investor most likely wouldA) buy interest rate futures.B) sell S&P futures.C) sell interest rate futures.D) buy Treasury bonds in the spot market.E) none of the above.Answer: C Difficulty: DifficultRationale: By taking the short position, the hedger is obligated to deliver T-bonds at the contract maturity date for the current futures price, which locks in the sales price for the bonds and guarantees that the total value of the bond-plus-futures position at thematurity date is the futures price.18. An increase in the basis will __________ a long hedger and __________ a short hedger.A) hurt; benefitB) hurt; hurtC) benefit; hurtD) benefit; benefitE) benefit; have no effect uponAnswer: C Difficulty: DifficultRationale: If a contract and an asset are to be liquidated early, basis risk exists andfutures price and spot price need not move in lockstep before delivery date. An increase in the basis will hurt the short hedger and benefit the long hedger.19. 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.E) none of the above.Answer: C Difficulty: DifficultRationale: See explanation for test bank question 22.20.20. If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P500 Index you could make an arbitrage profit byA) buying all the stocks in the S&P 500 and selling put options on the S&P 500 index.B) selling short all the stocks in the S&P 500 and buying S&P Index futures.C) selling all the stocks in the S&P 500 and buying call options on the S&P 500 index.D) selling S&P 500 Index futures and buying all the stocks in the S&P 500.E) none of the above.Answer: D Difficulty: ModerateRationale: If you think one asset is overpriced relative to another, you sell theoverpriced asset and buy the other one.21. On January 1, the listed spot and futures prices of a Treasury bond were 93.8 and 93.13.You purchased $100,000 par value Treasury bonds and sold one Treasury bond futures contract. One month later, the listed spot price and futures prices were 94 and 94.09, respectively. Ifyou were to liquidate your position, your profits would beA) $125 loss.B) $125 profit.C) $12.50 loss.D) $1,250 loss.E) none of the above.Answer: A Difficulty: DifficultRationale: On bonds: $94,000 - $93,250 = $750; On futures: $93,406.25 - $94,281.25 = -$875; Net profits: $750 - $875 = -$125.22. You purchased 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 profitB) $5,500 profitC) $5.50 lossD) $5,500 lossE) none of the above.Answer: B Difficulty: ModerateRationale: $4.10 - $3.00 = $1.10 X 5,000 = $5,500.23. You sold one silver future contract at $3 per ounce. What would be your profit (loss) atmaturity 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 profitB) $5,500 profitC) $5.50 lossD) $5,500 lossE) none of the above.Answer: D Difficulty: ModerateRationale: $3.00 - $4.10 = -$1.10 X 5,000 = -$5,500.24. You purchased one corn future contract at $2.29 per bushel. What would be your profit(loss) at maturity if the corn spot price at that time were $2.10 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.A) $950 profitB) $95 profitC) $950 lossD) $95 lossE) none of the above.Answer: C Difficulty: ModerateRationale: $2.10 - $2.29 = -$0.19 X 5,000 = -$950.25. You sold one corn future contract at $2.29 per bushel. What would be your profit (loss)at maturity if the corn spot price at that time were $2.10 per bushel? Assume thecontract size is 5,000 ounces and there are no transactions costs.A) $950 profitB) $95 profitC) $950 lossD) $95 lossE) none of the above.Answer: A Difficulty: ModerateRationale: $2.29 - $2.10 = $0.19 X 5,000 = $950.26. You sold one wheat future contract at $3.04 per bushel. What would be your profit (loss)at maturity if the wheat spot price at that time were $2.98 per bushel? Assume thecontract size is 5,000 ounces and there are no transactions costs.A) $30 profitB) $300 profitC) $300 lossD) $30 lossE) none of the above.Answer: B Difficulty: ModerateRationale: $3.04 - $2.98 = $0.06 X 5,000 = $300.27. You purchased one wheat future contract at $3.04 per bushel. What would be yourprofit (loss) at maturity if the wheat spot price at that time were $2.98 per bushel?Assume the contract size is 5,000 ounces and there are no transactions costs.A) $30 profitB) $300 profitC) $300 lossD) $30 lossE) none of the above.Answer: C Difficulty: ModerateRationale: $2.98 - $3.04 = -$0.06 X 5,000 = -$300.28. On January 1, you sold one April S&P 500 index futures contract at a futures price of420. If on February 1 the April futures price were 430, what would be your profit (loss) if you closed your position (without considering transactions costs)?A) $2,500 lossB) $10 lossC) $2,500 profitD) $10 profitE) none of the aboveAnswer: A Difficulty: DifficultRationale: $420 - $430 = -$10 X 250 = -$2,50029. On January 1, you bought one April S&P 500 index futures contract at a futures price of420. If on February 1 the April futures price were 430, what would be your profit (loss) if you closed your position (without considering transactions costs)?A) $2,500 lossB) $10 lossC) $2,500 profitD) $10 profitE) none of the aboveAnswer: C Difficulty: DifficultRationale: $430 - $420 = $10 X 250 = $2,50030. You sold one soybean future contract at $5.13 per bushel. What would be your profit(loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.A) $65 profitB) $650 profitC) $650 lossD) $65 lossE) none of the above.Answer: C Difficulty: ModerateRationale: $5.13 - $5.26 = -$0.13 X 5,000 = -$650.31. You bought one soybean future contract at $5.13 per bushel. What would be your profit(loss) at maturity if the wheat spot price at that time were $5.26 per bushel? Assume the contract size is 5,000 ounces and there are no transactions costs.A) $65 profitB) $650 profitC) $650 lossD) $65 lossE) none of the above.Answer: B Difficulty: ModerateRationale: $5.26 - $5.13 = $0.13 X 5,000 = $650.32. On April 1, you bought one S&P 500 index futures contract at a futures price of 950. Ifon June 15th the futures price were 1012, what would be your profit (loss) if you closed your position (without considering transactions costs)?A) $1,550 lossB) $15,550 lossC) $15,550 profitD) $1,550 profitE) none of the aboveAnswer: C Difficulty: DifficultRationale: $1012 - $950 = $62 X 250 = $15,50033. On April 1, you sold one S&P 500 index futures contract at a futures price of 950. If onJune 15th the futures price were 1012, what would be your profit (loss) if you closed your position (without considering transactions costs)?A) $1,550 lossB) $15,550 lossC) $15,550 profitD) $1,550 profitE) none of the aboveAnswer: B Difficulty: DifficultRationale: $950 - $1012 = -$62 X 250 = -$15,50034. The expectations hypothesis of futures pricingA) is the simplest theory of futures pricing.B) states that the futures price equals the expected value of the future spot price of theasset.C) is not a zero sum game.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: The expectations hypothesis relies on the concept of risk neutrality; i.e., if all market participants are risk neutral, they should agree on a futures price that provides an expected profit of zero to all parties.35. Normal backwardationA) maintains that for most commodities, there are natural hedgers who desire to shedrisk.B) maintains that speculators will enter the long side of the contract only if the futuresprice is below the expected spot price.C) assumes that risk premiums in the futures markets are based on systematic risk.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: Risk premiums in this theory are based on total variability.36. ContangoA) holds that the natural hedgers are the purchasers of a commodity, not the suppliers.B) is a hypothesis polar to backwardation.C) holds that F O must be less than (P T).D) A and C.E) A and B.Answer: E Difficulty: Easy37. Delivery of stock index futuresA) is never made.B) is made by a cash settlement based on the index value.C) requires delivery of 1 share of each stock in the index.D) is made by delivering 100 shares of each stock in the index.E) is made by delivering a value-weighted basket of stocks.Answer: B Difficulty: ModerateRationale: Stock index futures are cash-settled, similar to the procedure used for index options.38. The establishment of a futures market in a commodity should not have a major impacton spot prices becauseA) the futures market is small relative to the spot market.B) the futures market is illiquid.C) futures are a zero-sum gameD) the futures market is large relative to the spot market.E) most futures contracts do not take delivery.Answer: C Difficulty: ModerateRationale: Losses and gains to futures contracts net to zero,and thus should not impact spot prices.39. The most recently established category of futures contracts isA) agricultural commodities.B) metals and minerals.C) foreign currencies.D) financial futures.E) both B and C.Answer: D Difficulty: ModerateRationale: Financial futures were first introduced in 1975, and this segment of themarket has seen rapid innovation.40. If a trader holding a long position in corn futures fails to meet the obligations of afutures contract, the party that is hurt by the failure isA) the offsetting short trader.B) the corn farmer.C) the clearinghouse.D) the broker.E) the commodities dealer.Answer: C Difficulty: ModerateRationale: The clearinghouse acts as a middle party to every transaction, and bears any losses arising from failure to meet contractual obligations.41. Open interest includesA) only contracts with a specified delivery date.B) the sum of short and long positions.C) the sum of short, long and clearinghouse positions.D) the sum of long or short positions and clearinghouse positions.E) only long or short positions but not both.Answer: E Difficulty: ModerateRationale: Open interest is the number of contracts outstanding across all delivery dates for a given contract. Long and short positions are not counted separately, and the clearinghouse position is not counted because it nets to zero.42. The process of marking-to-marketA) posts gains or losses to each account daily.B) may result in margin calls.C) impacts only long positions.D) all of the above are true.E) both A and B are true.Answer: E Difficulty: EasyRationale: Marking-to-market effectively puts futures contracts on a "pay as you go"basis.43. Futures contracts are regulated byA) the Commodity Futures Trading Corporation.B) the Chicago Board of Trade.C) the Chicago Mercantile Exchange.D) the Federal Reserve.E) the Securities and Exchange Commission.Answer: A Difficulty: EasyRationale: The CFTC, a federal agency, sets rules and requirements for futures trading.44. Taxation of futures trading gains and lossesA) is based on cumulative year-end profits or losses.B) occurs based on the date contracts are sold or closed.C) can be timed to offset stock portfolio gains and losses.D) is based on the contract holding period.E) none of the above.Answer: A Difficulty: ModerateRationale: Futures profits and losses are taxed based on cumulative year-end value due to marking-to-market procedures.45. Speculators may use futures markets rather than spot markets becauseA) transactions costs are lower in futures markets.B) futures markets provide leverage.C) spot markets are less efficient.D) futures markets are less efficient.E) both A and B are true.Answer: E Difficulty: ModerateRationale: Futures markets allow speculators to benefit from leverage and minimize transactions costs. Both markets should be equally price-efficient.46. Given a stock index with a value of $1,000, an anticipated dividend of $30 and arisk-free rate of 6%, what should be the value of one futures contract on the index?A) $943.40B) $970.00C) $913.40D) $915.09E) $1000.00Answer: C Difficulty: DifficultRationale: F = 1000/(1.06) - 30; F = 913.40.47. Given a stock index with a value of $1,125, an anticipated dividend of $33 and arisk-free rate of 4%, what should be the value of one futures contract on the index?A) $1048.73B) $1070.00C) $993.40D) $995.09E) $1000.00Answer: A Difficulty: DifficultRationale: F = 1125/(1.04) - 33; F = 1048.73.48. Given a stock index with a value of $1100, an anticipated dividend of $27 and arisk-free rate of 3%, what should be the value of one futures contract on the index?A) $943.40B) $970.00C) $913.40D) $1040.96E) $1000.00Answer: D Difficulty: DifficultRationale: F = 1100/(1.03) - 27; F = 1040.96.49. Given a stock index with a value of $1,200, an anticipated dividend of $45 and arisk-free rate of 6%, what should be the value of one futures contract on the index?A) $1087.08B) $1070.00C) $993.40D) $995.09E) $1000.00Answer: A Difficulty: DifficultRationale: F = 1200/(1.06) - 45; F = 1087.08.50. Which of the following items is specified in a futurescontract?I)the contract sizeII)the maximum acceptable price range during the life of the contractIII)the acceptable grade of the commodity on which the contract is heldIV)the market price at expirationV)the settlement priceA) I, II, and IVB) I, III, and VC) I and VD) I, IV, and VE) I, II, III, IV, and VAnswer: B Difficulty: ModerateRationale: The maximum price range and the market price at expiration will bedetermined by the market rather than specified in the contract.51. With regard to futures contracts, what does the word “margin” mean?A) It is the amount of the money borrowed from the broker when you buy the contract.B) It is the maximum percentage that the price of the contract can change before it ismarked to market.C) It is the maximum percentage that the price of the underlying asset can changebefore it is marked to market.D) It is a good-faith deposit made at the time of the contract's purchase or sale.E) It is the amount by which the contract is marked to market.Answer: D Difficulty: EasyRationale: The exchange guarantees the performance of each party, so it requires agood-faith deposit. This helps avoid the cost of credit checks.52. Which of the following is true about profits from futures contracts?A) The person with the long position gets to decide whether to exercise the futurescontract and will only do so if there is a profit to be made.B) It is possible for both the holder of the long position and the holder of the shortposition to earn a profit.C) The clearinghouse makes most of the profit.D) The amount that the holder of the long position gains must equal the amount that theholder of the short position loses.E) Holders of short positions can recognize profits by making delivery early.Answer: D Difficulty: ModerateRationale: The net profit on the contract is zero it is a zero-sum game.53. Some of the newer futures contracts includeI)fashion futures.II)weather futures.III)electricity futures.IV)entertainment futures.A) I and IIB) II and IIIC) III and IVD) I, II, and IIIE) I, III, and IVAnswer: B Difficulty: EasyRationale: Weather and electricity futures are mentioned in the textbook as recentinnovations.54. Who guarantees that a futures contract will be fulfilled?A) the buyerB) the sellerC) the brokerD) the clearinghouseE) nobodyAnswer: D Difficulty: EasyRationale: Once two parties have agreed to enter the transaction, the clearinghouse becomes the buyer and seller of the contract and guarantees its completion.55. If you took a long position in a pork bellies futures contract and then forgot about it,what would happen at the expiration of the contract?A) Nothing--the seller understands that these things happen.B) You would wake up to find the pork bellies on your front lawn.C) Your broker would send you a nasty letter.D) You would be notified that you owe the holder of the short position a certain amountof cash.E) You would be notified that you have to pay a penalty in addition to the regular costof the pork bellies.Answer: D Difficulty: EasyRationale: The item is usually not delivered, but cash settlement can be made through the use of warehouse receipts. You are still obligated to fulfill the contract and give the holder of the short position the value of the pork bellies.56. Hedging a position using futures on another commodity is calledA) surrogate hedging.B) cross hedging.C) alternative hedging.D) correlative hedging.E) proxy hedging.Answer: B Difficulty: EasyRationale: Cross-hedging is used in some cases because no futures contract exists for the item you want to hedge. The two commodities should be highly correlated.57. A trader who has a __________ position in oil futures believes the price of oil will__________ in the future.A) short; increaseB) long; increaseC) short; decreaseD) long; stay the sameE) B and CAnswer: E Difficulty: ModerateRationale: The trader holding the long position (the person who will purchase the goods) will profit from a price increase. Profit to long position = Spot price atmaturity--Original futures price.。
投资学第7版testbank答案.pdf
7. Initial margin requirements are determined by A) the Securities and Exchange Commission. B) the Federal Reserve System. C) the New York Stock Exchange. D) B and C. E) A and B
Answer: C Difficulty: Moderate Rationale: With a stop-buy order, the stock would be purchased if the price increased to a specified level, thus limiting your loss. Noneof the other orders are applicable to this situation.
Answer: D Difficulty: Moderate Rationale: The role of the investment banker is to assist the firm in issuing new securities, both in advisory and marketing capacities. The investment banker does not have a role comparable to a commercial bank, as indicated in C.
Answer: B Difficulty: Moderate Rationale: The Board of Governors of the Federal Reserve System determines initial margin requirements. The New York Stock Exchange determines maintenance margin requirements on NYSE-listed stocks; however, brokers usually set maintenance margin requirements above those established by the NYSE.
投资学第7版Test-Bank答案23
投资学第7版T e s t-B a n k答案23-CAL-FENGHAI.-(YICAI)-Company One1Multiple Choice Questions1. Which one of the following stock index futures has a multiplier of $250 times theindex valueA) Russell 2000B) S&P 500 IndexC) NikkeiD) DAX-30E) NASDAQ 100Answer: B Difficulty: EasyRationale: The multiplier is used to calculate contract settlements. See Table 23.1.2. Which one of the following stock index futures has a multiplier of $10 times the indexvalueA) Russell 2000B) Dow Jones Industrial AverageC) NikkeiD) DAX-30E) NASDAQ 100Answer: B Difficulty: EasyRationale: The multiplier is used to calculate contract settlements. See Table 23.1.3. Which one of the following stock index futures has a multiplier of $500 times theindex valueA) Russell 2000B) FTSE 100C) NikkeiD) DAX-30E) NASDAQ 100Answer: A Difficulty: EasyRationale: The multiplier is used to calculate contract settlements. See Table 23.1.4. Which one of the following stock index futures has a multiplier of $100 times theindex valueA) Russell 2000B) S&P 500 IndexC) NikkeiD) DAX-30E) NASDAQ 100Answer: E Difficulty: EasyRationale: The multiplier is used to calculate contract settlements. See Table 23.1.5. Which one of the following stock index futures has a multiplier of 10 euros times theindexA) CAC 40B) DJ Euro Stoxx - 50C) NikkeiD) DAX-30E) A and BAnswer: E Difficulty: EasyRationale: The multiplier is used to calculate contract settlements. See Table 23.1.6. You purchased one S&P 500 Index futures contract at a price of 950 and closed yourposition when the index futures was 947, you incurred:A) a loss of $1,500.B) a gain of $1,500.C) a loss of $750.D) a gain of $750.E) None of the above.Answer: C Difficulty: ModerateRationale: (-$950 + $947) X 250 = - $750.7. You took a short position in two S&P 500 futures contracts at a price of 910 andclosed the position when the index futures was 892, you incurred:A) a gain of $9,000.B) a loss of $9,000.C) a loss of $18,000.D) a gain of $18,000.E) None of the above.Answer: A Difficulty: EasyRationale: ($910 - $892) X 250 X 2 = $9,0008. If a stock index futures contract is overpriced, you would exploit this situation by:A) selling both the stock index futures and the stocks in the index.B) selling the stock index futures and simultaneously buying the stocks in the index.C) buying both the stock index futures and the stocks in the index.D) buying the stock index futures and selling the stocks in the index.E) None of the above.Answer: B Difficulty: ModerateRationale: If one perceives one asset to be overpriced relative to another asset, onesells the overpriced asset and buys the other one.9. Foreign Exchange Futures markets are __________ and the Foreign ExchangeForward markets are __________.A) informal; formalB) formal; formalC) formal; informalD) informal; informalE) organized; unorganizedAnswer: C Difficulty: EasyRationale: The forward market in foreign exchange is a network of banks and brokers allowing customers to enter forward contracts to purchase or sell currency in the future at a currently agreed upon rate of exchange. The currency futures markets are formal markets established by the Chicago Mercantile Exchange where contracts arestandardized as to size and daily marking to market is observed. A clearinghouse is also involved.10. Suppose that the risk-free rates in the United States and in the United Kingdom are 4%and 6%, respectively. The spot exchange rate between the dollar and the pound is$1.60/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costs.A) $1.60/BPB) $1.70/BPC) $1.66/BPD) $1.63/BPE) $1.57/BPAnswer: E Difficulty: ModerateRationale: $1.60(1.04/1.06) = $1.57/BP.11. Suppose that the risk-free rates in the United States and in the United Kingdom are 5%and 4%, respectively. The spot exchange rate between the dollar and the pound is$1.80/BP. What should the futures price of the pound for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costsA) $1.62/BPB) $1.72/BPC) $1.82/BPD) $1.92/BPE) none of the aboveAnswer: C Difficulty: ModerateRationale: $1.80(1.05/1.04) = $1.82/BP.12. Suppose that the risk-free rates in the United States and in the Japan are 5.25% and4.5%, respectively. The spot exchange rate between the dollar and the yen is$0.008828/yen. What should the futures price of the yen for a one-year contract be to prevent arbitrage opportunities, ignoring transactions costsA) $0.009999/yenB) $0.009981/yenC) $0.008981/yenD) $0.008891/yenE) none of the aboveAnswer: D Difficulty: ModerateRationale: $0.008828 (1.0525/1.045) = $0.008891/yen.13. Let R US be the annual risk free rate in the United States, R UK be the risk free rate inthe United Kingdom, F be the futures price of $/BP for a 1-year contract, and E the spot exchange rate of $/BP. Which one of the following is trueA) if R US > R UK, then E > FB) if R US < R UK, then E < FC) if R US > R UK, then E < FD) if R US < R UK, then F = EE) There is no consistent relationship that can be predicted.Answer: C Difficulty: DifficultRationale: If R US > R UK, then (1 + R US)/(1 + R UK) > 1 and E < F.14. Let R US be the annual risk free rate in the United States, R J be the risk free rate inJapan, F be the futures price of $/yen for a 1-year contract, and E the spot exchange rate of $/yen. Which one of the following is trueA) if R US > R J, then E < FB) if R US < R J, then E < FC) if R US > R J, then E > FD) if R US < R J, then F = EE) There is no consistent relationship that can be predicted.Answer: A Difficulty: DifficultRationale: If R US > R J, then (1 + R US)/(1 + R J) > 1 and E < F.Use the following to answer questions 15-18:Consider the following:15. What should be the proper futures price for a 1-year contractA) 1.703 A$/$B) 1.654 A$/$C) 1.638 A$/$D) 1.778 A$/$E) 1.686 A$/$Answer: B Difficulty: ModerateRationale: 1.03/1.04(1.67 A$/$) = 1.654 A$/$.16. If the futures market price is 1.63 A$/$, how could you arbitrageA) Borrow Australian Dollars in Australia, convert them to dollars, lend the proceedsin the United States and enter futures positions to purchase Australian Dollars atthe current futures price.B) Borrow U. S dollars in the United States, convert them to Australian Dollars, lendthe proceeds in Australia and enter futures positions to sell Australian Dollars atthe current futures price.C) Borrow U. S. dollars in the United States and invest them in the U. S. and enterfutures positions to purchase Australian Dollars at the current futures price.D) Borrow Australian Dollars in Australia and invest them there, then convert back toU. S. dollars at the spot price.E) There is no arbitrage opportunity.Answer: B Difficulty: DifficultRationale: E0(1 + r US) - F O(1 + r A); use the U. S. $ values for the currency: 0.5988(1.04) - 0.6135(1.03) = -0.009153; when relationship is negative, action b will result inarbitrage profits.17. If the market futures price is 1.69 A$/$, how could you arbitrageA) Borrow Australian Dollars in Australia, convert them to dollars, lend the proceedsin the United States and enter futures positions to purchase Australian Dollars atthe current futures price.B) Borrow U. S. dollars in the United States, convert them to Australian Dollars, lendthe proceeds in Australia and enter futures positions to sell Australian Dollars atthe current futures price.C) Borrow U. S. dollars in the United States and invest them in the U. S. and enterfutures positions to purchase Australian Dollars at the current futures price.D) Borrow Australian Dollars in Australia and invest them there, then convert back toU. S. dollars at the spot price.E) There is no arbitrage opportunity.Answer: A Difficulty: DifficultRationale: 0.5988(1.04) - 0.5917(1.03) = 0.013301; when this relationship is positive;action a will result in arbitrage profits.18. Assume the current market futures price is 1.66 A$/$. You borrow 167,000 A$ andconvert the proceeds to U. S. dollars and invest them in the U. S at the risk-free rate.You simultaneously enter a contract to purchase 170,340 A$ at the current futuresprices (maturity of 1 year). What would be your profit (loss)A) Profit of 630 A$B) Loss of 2300 A$C) Profit of 2300 A$D) Loss of 630 A$E) None of the aboveAnswer: A Difficulty: DifficultRationale: [A$ 167,000 / 1.67 x 1.04 x 1.66] - (A$ 167,000 x 1.03) = A$ 630.19. Which of the following are examples of interest rate futures contractsA) corporate bonds.B) Treasury bonds.C) Eurodollars.D) B and CE) A and BAnswer: D Difficulty: EasyRationale: Interest rate futures are traded on Treasury bonds and Eurodollars.Examples that use these contracts to hedge are given in the textbook.20. You hold a $50 million portfolio of par value bonds with a coupon rate of 10 percentpaid annually and 15 years to maturity. How many T-bond futures contracts do you need to hedge the portfolio against an unanticipated change in the interest rate of0.18% Assume the market interest rate is 10 percent and that T-bond futures contractscall for delivery of an 8 percent coupon, paid annually 20-year _______ maturity T-bond.A) 398 contracts longB) 524 contracts shortC) 1048 contracts shortD) 398 contracts shortE) none of the aboveAnswer: D Difficulty: DifficultRationale: 0.9864485 X $50 M = $49,322,429; $50,000,000 - $49,322,429 = $677,571 loss on bonds; $100.00 - $82.97 = $17.03 X 100 = $1703 gain on futures;$677,571/$1,703 = 398 contracts short.21. A swapA) obligates two counterparties to exchange cash flows at one or more future dates.B) allow participants to restructure their balance sheets.C) allows a firm to convert outstanding fixed rate debt to floating rate debt.D) A and B.E) A, B, and C.Answer: E Difficulty: EasyRationale: A firm can enter into agreement to pay a floating rate and receive a fixed rate. Swaps involve an exchange of cash flows rather than securities.22. Credit risk in the swap marketA) is extensive.B) is limited to the difference between the values of the fixed rate and floating rateobligations.C) is equal to the total value of the payments that the floating rate payer wasobligated to make.D) A and C.E) none of the above.Answer: B Difficulty: EasyRationale: Swaps obligate two counterparties to exchange cash flows at one or more future dates. Swaps allow firms to restructure balance sheets, and the firm is obligated only for the difference between the fixed and floating rates.23. Trading in stock index futuresA) now exceeds buying and selling of shares in most markets.B) reduces transactions costs as compared to trading in stocks.C) increases leverage as compared to trading in stocks.D) generally results in faster execution than trading in stocks.E) all of the above.Answer: E Difficulty: Moderate24. Commodity futures pricingA) must be related to spot prices.B) includes cost of carry.C) converges to spot prices at maturity.D) all of the above are true.E) none of the above are true.Answer: D Difficulty: EasyRationale: Commodity futures are similar to other types of futures contracts but the cost of carrying must be considered. The cost of carrying includes interest costs,storage costs, and allowance for spoilage.25. Arbitrage proofs in futures market pricing relationshipsA) rely on the CAPM.B) demonstrate how investors can exploit misalignments.C) incorporate transactions costs.D) all of the above.E) none of the above.Answer: B Difficulty: DifficultRationale: No-arbitrage relationships are stronger than arguments such as the CAPM, but may be less precise if transactions or storage costs are not known.26. One reason swaps are desirable is thatA) they are free of credit risk.B) they have no transactions costs.C) they increase interest rate volatility.D) they increase interest rate risk.E) they offer participants easy ways to restructure their balance sheets.Answer: E Difficulty: ModerateRationale: For example, a firm can change a floating-rate obligation into a fixed-rate obligation and vice versa.27. Which two indices had the lowest correlation between them during the 2001-2006periodA) S&P and DJIA; the correlation was 0.957B) S&P and NASDAQ; the correlation was 0.899C) DJIA and Russell 2000 the correlation was 0.758D) S&P and NYSE; the correlation was 0.973E) NYSE and DJIA; the correlation was 0.931Answer: C Difficulty: EasyRationale: The correlations are shown in Table 23.2.28. The value of a futures contract for storable commodities can be determined by the_______ and the model __________ consistent with parity relationships.A) CAPM, will beB) CAPM, will not beC) APT, will not beD) APT, will beE) A and DAnswer: E Difficulty: ModerateRationale: Both the CAPM and the APT can be used for this purpose and both will be consistent with parity relationships.29. In the equation Profits = a + b*($/£ exchange rate), b is a measure ofA) the firm's beta when measured in terms of the foreign currency.B) the ratio of the firm's beta in terms of dollars to the firm's beta in terms of pounds.C) the sensitivity of profits to the exchange rate.D) the sensitivity of the exchange rate to profits.E) the frequency with which the exchange rate changes.Answer: C Difficulty: ModerateRationale: The slope of a line that plots profits vs. exchange rates gives the average amount by which profits will change for each unit change in the exchange rate.30. You would like to take a position in the S&P500 stock index, but have decided to usemarket-index futures contracts and T-bills rather than actually purchasing the index.Your strategy will duplicate the payoff you would receive if you held the index and your goal is to time the market. If you want to minimize transactions costs and are bullish you shouldA) sell futures contracts and buy T-bills and shift back and forth between them as youexpect the market to turn up or down.B) sell futures contracts and T-bills and shift back and forth between them as youexpect the market to turn up or down.C) buy futures contracts and T-bills and shift back and forth between them as youexpect the market to turn up or down.D) buy and hold futures contracts and shift in and out of T-bills as you expect themarket to turn up or down.E) buy and hold T-bills and shift in and out of futures contracts as you expect themarket to turn up or down.Answer: E Difficulty: DifficultRationale: This strategy will duplicate the payoff of holding the index itself and will minimize transactions costs.31. If the anticipated market value materializes, what will be your expected loss on theportfolioA) 14.29%B) 16.67%C) 15.43%D) 8.57%E) 6.42%Answer: D Difficulty: ModerateRationale: The change would represent a drop of (1200-1400)/1400=14.3% in theindex. Given the portfolio's beta, your portfolio would be expected to lose0.6*14.3%=8.57%32. What is the dollar value of your expected lossA) $142,900B) $16,670C) $85,700D) $30,000E) $64,200Answer: C Difficulty: EasyRationale: The dollar value equals the loss of 8.57% times the $1 million portfoliovalue = $85,700.33. For a 200-point drop in the S&P500, by how much does the index changeA) $200,000B) $50,000C) $250,000D) $500,000E) $100,000Answer: B Difficulty: EasyRationale: The change is 200 points times the $250 multiplier, which equals $50,000.34. How many contracts should you buy or sell to hedge your position Allow fractions ofcontracts in your answer.A) sell 1.714B) buy 1.714C) sell 4.236D) buy 4.236E) sell 11.235Answer: A Difficulty: ModerateRationale: The number of contracts equals the hedge ratio = Change in portfolio value / Profit on one futures contract = $85,700/$50,000 = 1.714. You should sell thecontract because as the market falls the value of the futures contract will rise and will offset the decline in the portfolio's value.35. You purchased sold S&P 500 Index futures contract at a price of 950 and closed yourposition when the index futures was 947, you incurred:A) A loss of $1,500.B) A gain of $1,500.C) A loss of $750.D) A gain of $750.E) None of the above.Answer: D Difficulty: ModerateRationale: ($950 - $947)=$3 X 250 = $750.36. You took a short position in three S&P 500 futures contracts at a price of 900 andclosed the position when the index futures was 885, you incurred:A) A gain of $11,250.B) A loss of $11,250.C) A loss of $8,000.D) A gain of $8,000.E) None of the above.Answer: A Difficulty: EasyRationale: ($900 - $885) = $15 X 250 X 3 = $11,25037. Suppose that the risk-free rates in the United States and in the Canada are 3% and 5%,respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$. What should the futures price of the C$ for a one-year contract be toprevent arbitrage opportunities, ignoring transactions costs.A) $1.00/ C$B) $1.70/ C$C) $0.88/ C$D) $0.78/ C$E) $1.22/ C$Answer: D Difficulty: ModerateRationale: $0.80(1.03/1.05) = $0.78/ C$.38. Suppose that the risk-free rates in the United States and in the Canada are 5% and 3%,respectively. The spot exchange rate between the dollar and the Canadian dollar (C$) is $0.80/C$. What should the futures price of the C$ for a one-year contract be toprevent arbitrage opportunities, ignoring transactions costs.A) $1.00/ C$B) $0.82/ C$C) $0.88/ C$D) $0.78/ C$E) $1.22/ C$Answer: B Difficulty: ModerateRationale: $0.80(1.05/1.03) = $0.82/ C$.39. Suppose that the risk-free rates in the United States and in the United Kingdom are 6%and 4%, respectively. The spot exchange rate between the dollar and the pound is$1.60/BP. What should the futures price of the pound for a one-year contract be toprevent arbitrage opportunities, ignoring transactions costsA) $1.60/BPB) $1.70/BPC) $1.66/BpD) $1.63/BPE) $1.57/BPAnswer: D Difficulty: ModerateRationale: $1.60(1.06/1.04) = $1.63/BP.Use the following to answer questions 40-43: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.40. If the anticipated market value materializes, what will be your expected loss on theportfolioA) 7.58%B) 6.52%C) 15.43%D) 8.57%E) 6.42%Answer: B Difficulty: ModerateRationale: The change would represent a drop of (915-990)/990=7.58% in the index.Given the portfolio's beta, your portfolio would be expected to lose0.86*7.58%=6.52%41. What is the dollar value of your expected lossA) $142,900B) $65,200C) $85,700D) $30,000E) $64,200Answer: B Difficulty: EasyRationale: The dollar value equals the loss of 6.52% times the $1 million portfolio value = $65,200.42. For a 75-point drop in the S&P500, by how much does the index changeA) $200,000B) $50,000C) $250,000D) $500,000E) $18,750Answer: E Difficulty: EasyRationale: The change is 75 points times the $250 multiplier, which equals $18,750.43. How many contracts should you buy or sell to hedge your position Allow fractions ofcontracts in your answer.A) sell 3.477B) buy 3.477C) sell 4.236D) buy 4.236E) sell 11.235Answer: A Difficulty: ModerateRationale: The number of contracts equals the hedge ratio = Change in portfolio value / Profit on one futures contract = $65,200/$18,750 = 3.477. You should sell thecontract because as the market falls the value of the futures contract will rise and will offset the decline in the portfolio's value.44. Covered interest arbitrage ____________.A) ensures that currency futures prices are set correctlyB) ensures that commodity futures prices are set correctlyC) ensures that interest rate futures prices are set correctlyD) A and BE) none of the aboveAnswer: A Difficulty: Easy45. A hedge ratio can be computed as ____________.A) profit derived from one futures position for a given change in the exchange ratedivided by the change in value of the unprotected position for the same exchangerateB) the change in value of the unprotected position for a given change in the exchangerate divided by the profit derived from one futures position for the same exchangerateC) profit derived from one futures position for a given change in the exchange rateplus the change in value of the unprotected position for the same exchange rateD) the change in value of the unprotected position for a given change in the exchangerate plus by the profit derived from one futures position for the same exchangerateE) none of the aboveAnswer: B Difficulty: Moderate46. E-Minis typically have a value of ____________ percent of the standard contract andexist for ____________.A) 50; individual stocks and commoditiesB) 50; stock indexes and foreign currenciesC) 40; stock indexes and commoditiesD) 20; individual stocks and commoditiesE) 20; stock indexes and foreign currenciesAnswer: E Difficulty: Easy47. The most common short term interest rate used in the swap market isA) the U.S. discount rateB) the U.S. prime rateC) The U.S. fed funds rateD) LIBORE) none of the aboveAnswer: E Difficulty: Easy48. Hedge funds engage in ____________.A) convergence arbitrageB) convertible bond arbitrageC) pure speculation onlyD) A and BE) DAnswer: E Difficulty: ModerateEssay Questions49. Why are commodity futures prices different from other futures prices Explain thedifference and give an example of a commodity and the factors involved.Difficulty: ModerateAnswer:The price of a futures contract for a commodity that must be stored is given byF0=P0*(1+r f+c), where P0 is the spot price of the commodity, r f is the risk-free ratethat applies to the opportunity cost of holding the commodity, and c is the carryingcost.Commodity futures have an extra cost integrated into their price - carrying costs canbe significant. Carrying costs can include interest costs, storage costs, insurance costs, and an allowance for spoilage of goods in storage. These costs should be consideredon a net basis: costs minus the benefits of carrying the commodity, such as protection against running out of stock.An example is a contract on corn. If the producer doesn't sell the corn now, it willneed to be stored for future delivery. There will be explicit costs like insurance andthe marginal cost of silo usage, including the resources used to keep the corn at itsproper moisture level. There may be some spoilage of the corn. An implicit cost isthe opportunity cost of not investing the funds that would have been earned if the corn had been sold in the spot market.This question tests whether the student recognizes the important difference incommodities contracts due to carrying costs.50. Suppose that the risk-free rate is 4% and the market risk premium is 6%. You areinterested in a cocoa futures contract. The beta of cocoa is –0.291.•What is the required annual rate of return on the cocoa contract?•You plan to hold the contract for three months, then take delivery of the cocoa. At that time you expect the spot price of cocoa to be $900 per ton. What is thepresent value of this three-month deferred claim?•What would the proper price be for this contractDifficulty: DifficultAnswer:The required rate of return is given by the CAPM. E(r)=4%+ (-.291)*6%=2.254%.The present value of the deferred claim is $900/(1.02254)0.25=$895.The proper price for the contract would be determined by setting the present value of the commitment to pay F0 dollars in three months to $895. F0/(1.04)0.25=$895.F0=$903.82.This question gives the student a chance to apply the CAPM to a storable commodity and to recognize the present value relationships that must hold.51. Explain how a firm that has issued $1 million of long-term bonds with a fixed 6%interest rate can convert its fixed-rate debt into floating-rate debt. Give two numerical examples that show the possible outcomes, one favorable and one unfavorable.Difficulty: EasyAnswer:The firm can enter a swap arrangement, committing to pay .06*$1 million=$60,000 in exchange for receiving payments equal to $1 million times the LIBOR rate. If theLIBOR rate is 5, the cash inflow would be $1 million*.05=$50,000. The net cashflow would be -$10,000 in this case, which is unfavorable. If the LIBOR rate is 8%, the firm will have a cash inflow of $1 million*.08=$80,000. The net cash flow in this case is $20,000, which is favorable.This is a basic question about the mechanics of a swap agreement.。
投资学第7版Test Bank答案 01
Multiple Choice Questions1. In 2005, ____________ was the most significant real asset of U. S. nonfinancialbusinesses in terms of total value.A) equipment and softwareB) inventoryC) real estateD) trade creditE) marketable securitiesAnswer: C Difficulty: EasyRationale: See Table 1.4.2. In 2005, ____________ was the least significant real asset of U. S. nonfinancialbusinesses in terms of total value.A) equipment and softwareB) inventoryC) real estateD) trade creditE) marketable securitiesAnswer: B Difficulty: EasyRationale: See Table 1.4.3. In 2005, ____________ was the least significant liability of U. S. nonfinancialbusinesses in terms of total value.A) bonds and mortgatgesB) bank loansC) inventoriesD) trade debtE) marketable securitiesAnswer: B Difficulty: EasyRationale: See Table 1.4.4. In 2005, ____________ was the most significant financial asset of U. S. nonfinancialbusinesses in terms of total value.A) cashB) trade creditC) trade debtD) inventoryE) marketable securitiesAnswer: B Difficulty: EasyRationale: See Table 1.4.5. The material wealth of a society is equal to the sum of _________.A) all financial assetsB) all real assetsC) all financial and real assetsD) all physical assetsE) none of the aboveAnswer: B Difficulty: EasyRationale: Financial assets do not directly contribute the productive capacity of the economy.6. ____________ of an investment bank.A) Citigroup is an exampleB) Merrill Lynch is an exampleC) Goldman is an exampleD) B and C are each examplesE) Each of the above is an exampleAnswer: E Difficulty: Easy7. _______ are financial assets.A) BondsB) MachinesC) StocksD) A and CE) A, B and CAnswer: D Difficulty: EasyRationale: Machines are real assets; stocks and bonds are financial assets.8. An example of a derivative security is ______.A) a common share of General MotorsB) a call option on Mobil stockC) a commodity futures contractD) B and CE) A and BAnswer: D Difficulty: EasyRationale: The values of B and C are derived from that of an underlying financial asset;the value of A is based on the value of the firm only.9. _______ was the first to introduce mortgage pass-through securities.A) Chase ManhattanB) CiticorpC) FNMAD) GNMAE) None of the aboveAnswer: D Difficulty: Easy10. A bond issue is broken up so that some investors will receive only interest paymentswhile others will receive only principal payments, which is an example of ________.A) bundlingB) credit enhancementC) unbundlingD) financial engineeringE) C and DAnswer: E Difficulty: EasyRationale: Unbundling is one of many examples of financial engineering that offer more alternatives to the investor.11. An example of a primitive security is __________.A) a common share of General MotorsB) a call option on Mobil stockC) a call option on a stock of a firm based in a Third World countryD) a U. S. government bondE) A and DAnswer: E Difficulty: EasyRationale: A primitive security's return is based only upon the earning power of the issuing agency, such as stock in General Motors and the U. S. government.12. The ____________ refers to the potential conflict between management andshareholders due to management's control of pecuniary rewards as well as thepossibility of incompetent performance by managers.A) agency problemB) diversification problemC) liquidity problemD) solvency problemE) regulatory problemAnswer: A Difficulty: EasyRationale: The agency problem describes potential conflict between management and shareholders. The other problems are those of firm management only.13. _________ financial asset(s).A) Buildings areB) Land is aC) Derivatives areD) U. S. Agency bonds areE) C and DAnswer: E Difficulty: EasyRationale: A and B are real assets.14. The value of a derivative security _______.A) depends on the value of the related primitive securityB) can only cause increased risk.C) is unrelated to the value of the related primitive securityD) has been enhanced due the recent misuse and negative publicity regarding theseinstrumentsE) is worthless todayAnswer: A Difficulty: EasyRationale: Of the factors cited above, only A affects the value of the derivative and/or isa true statement.15. In terms of total value, the most significant liability of U. S. nonfinancial businesses in2005 was _______.A) bank loansB) bonds and mortgagesC) trade debtD) other loansE) marketable securities.Answer: B Difficulty: EasyRationale: See Table 1.4.16. Money market funds were a financial innovation partly inspired to circumvent _______.A) Regulation B, which is still in existenceB) Regulation DC) DIDMCAD) Regulation ME) Regulation Q, which is no longer in existenceAnswer: E Difficulty: EasyRationale: Regulation Q limited the amount of interest that banks could pay todepositors; money market funds were not covered by Regulation Q and thus could pay a higher rate of interest. Although Regulation Q no longer exists, money market funds continue to be popular. See page 18.17. __________ are a way U. S. investor can invest in foreign companies.A) ADRsB) IRAsC) SDRsD) GNMAsE) KrugerrandsAnswer: A Difficulty: EasyRationale: Only ADRs represent an indirect investment in a foreign company.18. _______ are examples of financial intermediaries.A) Commercial banksB) Insurance companiesC) Investment companiesD) Credit unionsE) All of the aboveAnswer: E Difficulty: EasyRationale: All are institutions that bring borrowers and lenders together.19. Financial intermediaries exist because small investors cannot efficiently ________.A) diversify their portfoliosB) gather all relevant informationC) assess credit risk of borrowersD) advertise for needed investmentsE) all of the above.Answer: E Difficulty: EasyRationale: The individual investor cannot efficiently and effectively perform any of the tasks above without more time and knowledge than that available to most individual investors.20. Firms that specialize in helping companies raise capital by selling securities are called________.A) commercial banksB) investment banksC) savings banksD) credit unionsE) all of the above.Answer: B Difficulty: EasyRationale: An important role of investment banks is to act as middlemen in helping firms place new issues in the market.21. Financial assets ______.A) directly contribute to the country's productive capacityB) indirectly contribute to the country's productive capacityC) contribute to the country's productive capacity both directly and indirectlyD) do not contribute to the country's productive capacity either directly or indirectlyE) are of no value to anyoneAnswer: B Difficulty: EasyRationale: Financial assets indirectly contribute to the country's productive capacity because these assets permit individuals to invest in firms and governments. This in turn allows firms and governments to increase productive capacity.22. The sale of a mortgage portfolio by setting up mortgage pass-through securities is anexample of ________.A) credit enhancementB) securitizationC) unbundlingD) derivativesE) none of the aboveAnswer: B Difficulty: EasyRationale: The financial asset is secured by the mortgages backing the instrument.23. Corporate shareholders are best protected from incompetent management decisions byA) the ability to engage in proxy fights.B) management's control of pecuniary rewards.C) the ability to call shareholder meetings.D) the threat of takeover by other firms.E) one-share / one-vote election rules.Answer: D Difficulty: ModerateRationale: Proxy fights are expensive and seldom successful, and management may often control the board or own significant shares. It is the threat of takeover ofunderperforming firms that has the strongest ability to keep management on their toes.24. The national net worth of the U. S. in 2005 was _________.A) $15.411 trillionB) $26.431 trillionC) $42.669 trillionD) $55.651 trillionE) $70.983 trillionAnswer: C Difficulty: ModerateRationale: See Table 1.2.25. In 2005, _______ of the assets of U. S. households were financial assets as opposed totangible assets.A) 20.4%B) 34.2%C) 60.7%D) 71.7%E) 82.5%Answer: C Difficulty: ModerateRationale: See Table 1.1.26. Investment bankers perform the following role(s) ___________.A) market new stock and bond issues for firmsB) provide advice to the firms as to market conditions, price, etcC) design securities with desirable propertiesD) all of the aboveE) none of the aboveAnswer: D Difficulty: EasyRationale: Investment bankers perform all of the roles described above for their clients.27. Theoretically, takeovers should result in ___________.A) improved managementB) increased stock priceC) increased benefits to existing management of taken over firmD) A and BE) A, B, and CAnswer: D Difficulty: EasyRationale: Theoretically, when firms are taken over, better managers come in and thus increase the price of the stock; existing management often must either leave the firm, be demoted, or suffer a loss of existing benefits.28. Important trends changing the contemporary investment environment areA) globalization.B) securitization.C) information and computer networks.D) financial engineering.E) all of the aboveAnswer: E Difficulty: EasyRationale: All of these are examples of important trends in the contemporary investment environment.29. The means by which individuals hold their claims on real assets in a well-developedeconomy areA) investment assets.B) depository assets.C) derivative assetsD) financial assets.E) exchange-driven assetsAnswer: D Difficulty: EasyRationale: Financial assets allocate the wealth of the economy. Book example: it is easier for an individual to own shares of an auto company than to own an auto company directly.30. Which of the following financial assets makes up the greatest proportion of the financialassets held by U.S. households?A) pension reservesB) life insurance reservesC) mutual fund sharesD) debt securitiesE) personal trustsAnswer: A Difficulty: ModerateRationale: See Table 1.1.31. Which of the following are mechanisms that have evolved to mitigate potential agencyproblems?I)compensation in the form of the firm's stock optionsII)hiring bickering family members as corporate spiesIII)underperforming management teams being forced out by boards of directorsIV)security analysts monitoring the firm closelyV)takeover threatsA) II and VB) I, III, and IVC) I, III, IV, and VD) III, IV, and VE) I, III, and VAnswer: C Difficulty: ModerateRationale: All but the second option have been used to try to limit agency problems.32. Commercial banks differ from other businesses in that both their assets and theirliabilities are mostlyA) illiquid.B) financial.C) real.D) owned by the government.E) regulated.Answer: B Difficulty: EasyRationale: See Table 1.3.33. Which of the following is true about GNMA pass-throughs?I)They aggregate individual home mortgages into heterogeneous pools.II)The purchaser of a GNMA receives monthly interest and principal payments received from payments made on the pool.III)The banks that originated the mortgages maintain ownership of them.IV)The banks that originated the mortgages continue to service them.A) II, III, and IVB) I, II, and IVC) II and IVD) I, III, and IVE) I, II, III, and IVAnswer: B Difficulty: ModerateRationale: III is not correct because the bank no longer owns the mortgage investments.34. Although derivatives can be used as speculative instruments, businesses most often usethem toA) attract customers.B) appease stockholders.C) offset debt.D) hedge.E) enhance their balance sheets.Answer: D Difficulty: EasyRationale: Firms may use forward contracts and futures to protect against currency fluctuations or changes in commodity prices. Interest-rate options help companiescontrol financing costs.35. A WEBS securityA) limits the diversification potential of investors who hold it.B) may be traded only in the primary market.C) is linked directly to the value of a composite index of futures contracts.D) must be earned as a performance bonus within a corporation rather than purchased.E) tracks the performance of an index of share returns for a particular country.Answer: E Difficulty: ModerateRationale: WEBS (World Equity Benchmark Shares) allow investors to trade portfolios of foreign stocks in a selected country. They can be traded by investors in secondary markets (Amex) and allow U.S. investors to diversify their portfolios of foreign stocks.36. During the period between 2000 and 2002, a large number of scandals were uncovered.Most of these scandals were related toI)Manipulation of financial data to misrepresent the actual condition of the firm.II)Misleading and overly optimistic research reports produced by analysts.III)Allocating IPOs to executives as a quid pro quo for personal favors.IV)Greenmail.A) II, III, and IVB) I, II, and IVC) II and IVD) I, III, and IVE) I, II, and IIIAnswer: E Difficulty: ModerateRationale: I, II, and III are all mentioned as causes of recent scandals.37. A disadvantage of using stock options to compensate managers is thatA) it encourages mangers to undertake projects that will increase stock price.B) it encourages managers to engage in empire building.C) it can create an incentive for mangers to manipulate information to prop up a stockprice temporarily, giving them a chance to cash out before the price returns to alevel reflective of the firms true prospects.D) all of the above.E) none of the above.Answer: CRationale: A is a desired characteristic. B is not necessarily a good or bad thing in and of itself. C creates an agency problem.38. In 2005, ____________ was the most significant real asset of U. S. households in termsof total value.A) consumer durablesB) automobilesC) real estateD) mutual fund sharesE) bank loansAnswer: C Difficulty: EasyRationale: See Table 1.1.39. The largest component of domestic net worth in 2005 was ____________.A) non-residential real estateB) residential real estateC) inventoriesD) consumer durablesE) equipment and softwareAnswer: B Difficulty: ModerateRationale: See Table 1.2.40. A fixed-income security pays ____________.A) a fixed level of income for the life of the ownerB) a fixed level of income for the life of the securityC) a variable level of income for owners on a fixed incomeD) a fixed or variable income stream at the option of the ownerE) none of the aboveAnswer: B Difficulty: EasyRationale: Only answer B is correct.41. Money market securities ____________.A) are short termB) pay a fixed incomeC) are highly marketableD) generally very low riskE) all of the aboveAnswer: E Difficulty: EasyRationale: All answers are correct.42. Financial assets permit all of the following except ____________.A) consumption timingB) allocation of riskC) separation of ownership and controlD) elimination of riskE) all of the aboveAnswer: D Difficulty: ModerateRationale: Financial assets do not allow risk to be eliminated. However, they do permit allocation of risk, consumption timing, and separation of ownership and control.43. The Sarbanes-Oxley Act ____________.A) requires corporations to have more independent directorsB) requires the firm's CFO to personally vouch for the firm's accounting statementsC) prohibits auditing firms from providing other services to clientsD) A and B are correct.E) A, B, and C are correct.Answer: E Difficulty: ModerateRationale: The Sarbanes-Oxley Act does all of the above.44. Asset allocation refers to ____________.A) choosing which securities to hold based on their valuationB) investing only in “safe” securitiesC) the allocation of assets into broad asset classesD) bottom-up analysisE) all of the aboveAnswer: C Difficulty: ModerateRationale: Asset allocation refers to the allocation of assets into broad asset classes.45. Which of the following portfolio construction methods starts with security analysis?A) Top-downB) Bottom-upC) Middle-outD) Buy and holdE) Asset allocationAnswer: B Difficulty: ModerateRationale: Bottom-up refers to using security analysis to find securities that areattractively priced. Top-down refers to using asset allocation as a starting point.46. Which of the following portfolio construction methods starts with asset allocation?A) Top-downB) Bottom-upC) Middle-outD) Buy and holdE) Asset allocationAnswer: A Difficulty: ModerateRationale: Bottom-up refers to using security analysis to find securities that areattractively priced.Essay Questions47. Discuss the agency problem in detail.Difficulty: ModerateAnswer:Managers are the agents of the shareholders, and should act on their behalf to maximize shareholder wealth (the value of the stock). A conflict (the agency conflict) arises when managers take self-interested actions to the detriment of shareholders. The roles of the board of directors selected by the shareholders are to oversee management and tominimize agency problems. However, often these boards are figureheads, andindividual shareholders do not own large enough blocks of the shares to overridemanagement actions. One potential resolution of an agency problem occurs wheninefficient management actions cause the price of the stock to be depressed. The firm may then become a takeover target. If the acquisition is successful, managers may be replaced and potentially, stockholders benefit.The question is designed to ascertain that the student understands the corporaterelationship between shareholders, management, and the board of directors. In addition, this problem has been addressed extensively in recent years, both in the popularfinancial press during the mergers and acquisitions mania of the 1980s, and in theacademic literature as agency theory.48. Discuss the similarities and differences between real and financial assets.Difficulty: ModerateAnswer:Real assets represent the productive capacity of the firm, and appear as assets on the firm's balance sheet. Financial assets are claims against the firm, and thus appear as liabilities on the firm's balance sheet. On the other hand, financial assets are listed on the asset side of the balance sheet of the individuals who own them. Thus, whenfinancial statements are aggregated across the economy, the financial assets cancel out, leaving only the real assets, which directly contribute to the productive capacity of the economy. Financial assets contribute indirectly only.The purpose of this question is to ascertain if the student understands the difference between real and financial assets, both in the aggregate balance sheet context and the relative contribution of the two types of assets to the productive capacity of theeconomy.49. Discuss the euro in relation to its impact on globalization. How is it currently used andwhat are the plans for its future use?Difficulty: ModerateAnswer:The euro was introduced in 1999 as a new currency and has replaced the currencies of twelve participating countries so there will be one common European currency in the participating countries. A common currency is expected to facilitate global trade and encourage the integration of markets across national boundaries.50. Discuss the following ongoing trends as they relate to the field of investments:globalization, financial engineering, securitization, and computer networksDifficulty: ModerateAnswer:Globalization offers a wider array of investment choices than what would be available to investors who could only choose domestic securities. As efficient communication technology has become available, globalization of markets has been significantlyenhanced. There are many mechanisms by which one country's investors can holdforeign companies' securities. Some examples are ADRs, WEBS, and direct purchase of foreign securities.Securitization refers to aggregating underlying financial assets, such as mortgages, into pools and then offering a security that represents a claim on these underlying assets.Examples are GNMAs. Securitization allows investors to hold partial ownership in financial assets that would otherwise be beyond their reach (e.g., mortgages).Financial engineering involves bundling or unbundling. Bundling involves combining separate securities together into one composite security. Examples are combiningprimitive and derivative securities, and combining three primitive securities such as common stock, preferred stock, and bonds. Unbundling is the opposite - two or more security classes are created by separating a composite security into parts.Computer networks have permitted online trading, online information dissemination and automated trade crossing. Each of these major breakthroughs has significantimplications for investments.。
投资学第7版Test Bank答案完整可编辑版
Multiple Choice Questions1. ________ is equal to the total market value of the firm's common stock divided by (thereplacement cost of the firm's assets less liabilities).A) Book value per shareB) Liquidation value per shareC) Market value per shareD) Tobin's QE) None of the above.Answer: D Difficulty: EasyRationale: Book value per share is assets minus liabilities divided by number of shares.Liquidation value per share is the amount a shareholder would receive in the event ofbankruptcy. Market value per share is the market price of the stock.2. High P/E ratios tend to indicate that a company will _______, ceteris paribus.A) grow quicklyB) grow at the same speed as the average companyC) grow slowlyD) not growE) none of the aboveAnswer: A Difficulty: EasyRationale: Investors pay for growth; hence the high P/E ratio for growth firms; however, the investor should be sure that he or she is paying for expected, not historic, growth.3. _________ is equal to (common shareholders' equity/common shares outstanding).A) Book value per shareB) Liquidation value per shareC) Market value per shareD) Tobin's QE) none of the aboveAnswer: A Difficulty: EasyRationale: See rationale for test bank question 18.14. ________ are analysts who use information concerning current and prospectiveprofitability of a firms to assess the firm's fair market value.A) Credit analystsB) Fundamental analystsC) Systems analystsD) Technical analystsE) SpecialistsAnswer: B Difficulty: EasyRationale: Fundamentalists use all public information in an attempt to value stock (while hoping to identify undervalued securities).5. The _______ is defined as the present value of all cash proceeds to the investor in thestock.A) dividend payout ratioB) intrinsic valueC) market capitalization rateD) plowback ratioE) none of the aboveAnswer: B Difficulty: EasyRationale: The cash flows from the stock discounted at the appropriate rate, based on the perceived riskiness of the stock, the market risk premium and the risk free rate, determine the intrinsic value of the stock.6. _______ is the amount of money per common share that could be realized by breakingup the firm, selling the assets, repaying the debt, and distributing the remainder to shareholders.A) Book value per shareB) Liquidation value per shareC) Market value per shareD) Tobin's QE) None of the aboveAnswer: B Difficulty: EasyRationale: See explanation for test bank question 18.1.7. Since 1955, Treasury bond yields and earnings yields on stocks were_______.A) identicalB) negatively correlatedC) positively correlatedD) uncorrelatedAnswer: C Difficulty: EasyRationale: The earnings yield on stocks equals the expected real rate of return on the stock market, which should be equal to the yield to maturity on Treasury bonds plus a risk premium, which may change slowly over time. The yields are plotted in Figure18.8.8. Historically, P/E ratios have tended to be _________.A) higher when inflation has been highB) lower when inflation has been highC) uncorrelated with inflation rates but correlated with other macroeconomic variablesD) uncorrelated with any macroeconomic variables including inflation ratesE) none of the aboveAnswer: B Difficulty: EasyRationale: P/E ratios have tended to be lower when inflation has been high, reflecting the market's assessment that earnings in these periods are of "lower quality", i.e.,artificially distorted by inflation, and warranting lower P/E ratios.9. The ______ is a common term for the market consensus value of the required return ona stock.A) dividend payout ratioB) intrinsic valueC) market capitalization rateD) plowback rateE) none of the aboveAnswer: C Difficulty: EasyRationale: The market capitalization rate, which consists of the risk-free rate, thesystematic risk of the stock and the market risk premium, is the rate at which a stock's cash flows are discounted in order to determine intrinsic value.10. The _________ is the fraction of earnings reinvested in the firm.A) dividend payout ratioB) retention rateC) plowback ratioD) A and CE) B and CAnswer: E Difficulty: EasyRationale: Retention rate, or plowback ratio, represents the earnings reinvested in the firm. The retention rate, or (1 - plowback) = dividend payout.11. The Gordon modelA) is a generalization of the perpetuity formula to cover the case of a growingperpetuity.B) is valid only when g is less than k.C) is valid only when k is less than g.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: The Gordon model assumes constant growth indefinitely. Mathematically, g must be less than k; otherwise, the intrinsic value is undefined.12. You wish to earn a return of 13% on each of two stocks, X and Y. Stock X is expectedto pay a dividend of $3 in the upcoming year while Stock Y is expected to pay adividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock X ______.A) cannot be calculated without knowing the market rate of returnB) will be greater than the intrinsic value of stock YC) will be the same as the intrinsic value of stock YD) will be less than the intrinsic value of stock YE) none of the above is a correct answer.Answer: D Difficulty: EasyRationale: PV0 = D1/(k-g); given k and g are equal, the stock with the larger dividend will have the higher value.13. You wish to earn a return of 11% on each of two stocks, C and D. Stock C is expected topay a dividend of $3 in the upcoming year while Stock D is expected to pay a dividend of $4 in the upcoming year. The expected growth rate of dividends for both stocks is 7%. The intrinsic value of stock C ______.A) will be greater than the intrinsic value of stock DB) will be the same as the intrinsic value of stock DC) will be less than the intrinsic value of stock DD) cannot be calculated without knowing the market rate of returnE) none of the above is a correct answer.Answer: C Difficulty: EasyRationale: PV0 = D1/(k-g); given k and g are equal, the stock with the larger dividend will have the higher value.14. You wish to earn a return of 12% on each of two stocks, A and B. Each of the stocks isexpected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock A and 10% for stock B. The intrinsic value of stock A _____.A) will be greater than the intrinsic value of stock BB) will be the same as the intrinsic value of stock BC) will be less than the intrinsic value of stock BD) cannot be calculated without knowing the rate of return on the market portfolio.E) none of the above is a correct statement.Answer: C Difficulty: EasyRationale: PV0 = D1/(k-g); given that dividends are equal, the stock with the higher growth rate will have the higher value.15. You wish to earn a return of 10% on each of two stocks, C and D. Each of the stocks isexpected to pay a dividend of $2 in the upcoming year. The expected growth rate of dividends is 9% for stock C and 10% for stock D. The intrinsic value of stock C _____.A) will be greater than the intrinsic value of stock DB) will be the same as the intrinsic value of stock DC) will be less than the intrinsic value of stock DD) cannot be calculated without knowing the rate of return on the market portfolio.E) none of the above is a correct statement.Answer: C Difficulty: EasyRationale: PV0 = D1/(k-g); given that dividends are equal, the stock with the higher growth rate will have the higher value.16. Each of two stocks, A and B, are expected to pay a dividend of $5 in the upcoming year.The expected growth rate of dividends is 10% for both stocks. You require a rate of return of 11% on stock A and a return of 20% on stock B. The intrinsic value of stock A _____.A) will be greater than the intrinsic value of stock BB) will be the same as the intrinsic value of stock BC) will be less than the intrinsic value of stock BD) cannot be calculated without knowing the market rate of return.E) none of the above is true.Answer: A Difficulty: EasyRationale: PV0 = D1/(k-g); given that dividends are equal, the stock with the larger required return will have the lower value.17. Each of two stocks, C and D, are expected to pay a dividend of $3 in the upcoming year.The expected growth rate of dividends is 9% for both stocks. You require a rate ofreturn of 10% on stock C and a return of 13% on stock D. The intrinsic value of stock C _____.A) will be greater than the intrinsic value of stock DB) will be the same as the intrinsic value of stock DC) will be less than the intrinsic value of stock DD) cannot be calculated without knowing the market rate of return.E) none of the above is true.Answer: A Difficulty: EasyRationale: PV0 = D1/(k-g); given that dividends are equal, the stock with the larger required return will have the lower value.18. If the expected ROE on reinvested earnings is equal to k, the multistage DDM reducestoA) V0 = (Expected Dividend Per Share in Year 1)/kB) V0 = (Expected EPS in Year 1)/kC) V0 = (Treasury Bond Yield in Year 1)/kD) V0 = (Market return in Year 1)/kE) none of the aboveAnswer: B Difficulty: ModerateRationale: If ROE = k, no growth is occurring; b = 0; EPS = DPS19. Low Tech Company has an expected ROE of 10%. The dividend growth rate will be________ if the firm follows a policy of paying 40% of earnings in the form ofdividends.A) 6.0%B) 4.8%C) 7.2%D) 3.0%E) none of the aboveAnswer: A Difficulty: EasyRationale: 10% X 0.60 = 6.0%.20. Music Doctors Company has an expected ROE of 14%. The dividend growth rate willbe ________ if the firm follows a policy of paying 60% of earnings in the form ofdividends.A) 4.8%B) 5.6%C) 7.2%D) 6.0%E) none of the aboveAnswer: B Difficulty: EasyRationale: 14% X 0.40 = 5.6%.21. Medtronic Company has an expected ROE of 16%. The dividend growth rate will be________ if the firm follows a policy of paying 70% of earnings in the form ofdividends.A) 3.0%B) 6.0%C) 7.2%D) 4.8%E) none of the aboveAnswer: D Difficulty: EasyRationale: 16% X 0.30 = 4.8%.22. High Speed Company has an expected ROE of 15%. The dividend growth rate will be________ if the firm follows a policy of paying 50% of earnings in the form ofdividends.A) 3.0%B) 4.8%C) 7.5%D) 6.0%E) none of the aboveAnswer: C Difficulty: EasyRationale: 15% X 0.50 = 7.5%.23. Light Construction Machinery Company has an expected ROE of 11%. The dividendgrowth rate will be _______ if the firm follows a policy of paying 25% of earnings in the form of dividends.A) 3.0%B) 4.8%C) 8.25%D) 9.0%E) none of the aboveAnswer: C Difficulty: EasyRationale: 11% X 0.75 = 8.25%.24. Xlink Company has an expected ROE of 15%. The dividend growth rate will be_______ if the firm follows a policy of plowing back 75% of earnings.A) 3.75%B) 11.25%C) 8.25%D) 15.0%E) none of the aboveAnswer: B Difficulty: EasyRationale: 15% X 0.75 = 11.25%.25. Think Tank Company has an expected ROE of 26%. The dividend growth rate will be_______ if the firm follows a policy of plowing back 90% of earnings.A) 2.6%B) 10%C) 23.4%D) 90%E) none of the aboveAnswer: C Difficulty: EasyRationale: 26% X 0.90 = 23.4%.26. 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%E) none of the aboveAnswer: D Difficulty: EasyRationale: 9% X 0.10 = 0.9%.27. A preferred stock will pay a dividend of $2.75 in the upcoming year, and every yearthereafter, i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.A) $0.275B) $27.50C) $31.82D) $56.25E) none of the aboveAnswer: B Difficulty: ModerateRationale: 2.75 / .10 = 27.5028. A preferred stock will pay a dividend of $3.00in the upcoming year, and every yearthereafter, i.e., dividends are not expected to grow. You require a return of 9% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.A) $33.33B) $0..27C) $31.82D) $56.25E) none of the aboveAnswer: A Difficulty: ModerateRationale: 3.00 / .09 = 33.3329. A preferred stock will pay a dividend of $1.25 in the upcoming year, and every yearthereafter, i.e., dividends are not expected to grow. You require a return of 12% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.A) $11.56B) $9.65C) $11.82D) $10.42E) none of the aboveAnswer: D Difficulty: ModerateRationale: 1.25 / .12 = 10.4230. A preferred stock will pay a dividend of $3.50 in the upcoming year, and every yearthereafter, i.e., dividends are not expected to grow. You require a return of 11% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.A) $0.39B) $0.56C) $31.82D) $56.25E) none of the aboveAnswer: C Difficulty: ModerateRationale: 3.50 / .11 = 31.8231. A preferred stock will pay a dividend of $7.50 in the upcoming year, and every yearthereafter, i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.A) $0.75B) $7.50C) $64.12D) $56.25E) none of the aboveAnswer: E Difficulty: ModerateRationale: 7.50 / .10 = 75.0032. A preferred stock will pay a dividend of $6.00 in the upcoming year, and every yearthereafter, i.e., dividends are not expected to grow. You require a return of 10% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.A) $0.60B) $6.00C) $600D) $5.40E) none of the aboveAnswer: E Difficulty: ModerateRationale: 6.00 / .10 = 60.0033. You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $1.25 in dividends and $32 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 10% return.A) $30.23B) $24.11C) $26.52D) $27.50E) none of the aboveAnswer: A Difficulty: ModerateRationale: .10 = (32 - P + 1.25) / P; .10P = 32 - P + 1.25; 1.10P = 33.25; P = 30.23.34. 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) $23.91B) $14.96C) $26.52D) $27.50E) none of the aboveAnswer: B Difficulty: ModerateRationale: .12 = (16 - P + 0.75) / P; .12P = 16 - P + 0.75; 1.12P = 16.75; P = 14.96. 35. You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $2.50 in dividends and $28 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 15% return.A) $23.91B) $24.11C) $26.52D) $27.50E) none of the aboveAnswer: C Difficulty: ModerateRationale: .15 = (28 - P + 2.50) / P; .15P = 28 - P + 2.50; 1.15P = 30.50; P = 26.52. 36. You are considering acquiring a common stock that you would like to hold for one year.You expect to receive both $3.50 in dividends and $42 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 10% return.A) $23.91B) $24.11C) $26.52D) $27.50E) none of the aboveAnswer: E Difficulty: ModerateRationale: .10 = (42 - P + 3.50) / P; .10P = 42 - P + 3.50; 1.1P = 45.50; P = 41.36.Use the following to answer questions 37-40:Paper Express Company has a balance sheet which lists $85 million in assets, $40 million in liabilities and $45 million in common shareholders' equity. It has 1,400,000 common shares outstanding. The replacement cost of the assets is $115 million. The market share price is $90.37. What is Paper Express's book value per share?A) $1.68B) $2.60C) $32.14D) $60.71E) none of the aboveAnswer: C Difficulty: ModerateRationale: $45M/1.4M = $32.14.38. What is Paper Express's market value per share?A) $1.68B) $2.60C) $32.14D) $60.71E) none of the aboveAnswer: E Difficulty: Easy39. What is Paper Express's replacement cost per share?A) $1.68B) $2.60C) $53.57D) $60.71E) none of the aboveAnswer: C Difficulty: ModerateRationale: $115M - 40M/1.4M = $53.57.40. What is Paper Express's Tobin's q?A) 1.68B) 2.60C) 53.57D) 60.71E) none of the aboveAnswer: A Difficulty: ModerateRationale: $90/ 53.57 = 1.6841. One of the problems with attempting to forecast stock market values is thatA) there are no variables that seem to predict market return.B) the earnings multiplier approach can only be used at the firm level.C) the level of uncertainty surrounding the forecast will always be quite high.D) dividend payout ratios are highly variable.E) none of the above.Answer: C Difficulty: EasyRationale: Although some variables such as market dividend yield appear to be strongly related to market return, the market has great variability and so the level of uncertainty in any forecast will be high.42. The most popular approach to forecasting the overall stock market is to useA) the dividend multiplier.B) the aggregate return on assets.C) the historical ratio of book value to market value.D) the aggregate earnings multiplier.E) Tobin's Q.Answer: D Difficulty: EasyRationale: The earnings multiplier approach is the most popular approach to forecasting the overall stock market.Use the following to answer questions 43-44:Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25.43. The market's required rate of return on Sure's stock is _____.A) 14.0%B) 17.5%C) 16.5%D) 15.25%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 4% + 1.25(14% - 4%) = 16.5%.44. What is the intrinsic value of Sure's stock today?A) $20.60B) $20.00C) $12.12D) $22.00E) none of the aboveAnswer: A Difficulty: DifficultRationale: k = .04 + 1.25 (.14 - .04); k = .165; .165 = (22 - P + 2) / P; .165P = 24 - P;1.165P = 24 ; P = 20.60.45. If Sure's intrinsic value is $21.00 today, what must be its growth rate?A) 0.0%B) 10%C) 4%D) 6%E) 7%Answer: E Difficulty: DifficultRationale: k = .04 + 1.25 (.14 - .04); k = .165; .165 = 2/21 + g; g = .07Use the following to answer questions 46-47:Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2.46. What is the return you should require on Torque's stock?A) 12.0%B) 14.6%C) 15.6%D) 20%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 5% + 1.2(13% - 5%) = 14.6%.47. What is the intrinsic value of Torque's stock?A) $14.29B) $14.60C) $12.33D) $11.62E) none of the aboveAnswer: D Difficulty: DifficultRationale: k = 5% + 1.2(13% - 5%) = 14.6%; P = 1 / (.146 - .06) = $11.62.48. Midwest Airline is expected to pay a dividend of $7 in the coming year. Dividends areexpected to grow at the rate of 15% per year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. The stock of Midwest Airline has a beta of 3.00. The return you should require on the stock is ________.A) 10%B) 18%C) 30%D) 42%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 6% + 3(14% - 6%) = 30%.49. Fools Gold Mining Company is expected to pay a dividend of $8 in the upcoming 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 Fools Gold Mining Company has a beta of -0.25. The return you should require on the stock is ________.A) 2%B) 4%C) 6%D) 8%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 6% + [-0.25(14% - 6%)] = 4%.50. High Tech Chip Company is expected to have EPS in the coming year of $2.50. Theexpected ROE is 12.5%. An appropriate required return on the stock is 11%. If the firm has a plowback ratio of 70%, the growth rate of dividends should beA) 5.00%B) 6.25%C) 6.60%D) 7.50%E) 8.75%Answer: E Difficulty: EasyRationale: 12.5% X 0.7 = 8.75%.51. A company paid a dividend last year of $1.75. The expected ROE for next year is14.5%. An appropriate required return on the stock is 10%. If the firm has a plowbackratio of 75%, the dividend in the coming year should beA) $1.80B) $2.12C) $1.77D) $1.94E) none of the aboveAnswer: D Difficulty: ModerateRationale: g = .155 X .75 = 10.875%; $1.75(1.10875) = $1.9452. High Tech Chip Company paid a dividend last year of $2.50. The expected ROE fornext year is 12.5%. An appropriate required return on the stock is 11%. If the firm hasa plowback ratio of 60%, the dividend in the coming year should beA) $1.00B) $2.50C) $2.69D) $2.81E) none of the aboveAnswer: C Difficulty: ModerateRationale: g = .125 X .6 = 7.5%; $2.50(1.075) = $2.6953. Suppose that the average P/E multiple in the oil industry is 20. Dominion Oil isexpected to have an EPS of $3.00 in the coming year. The intrinsic value of Dominion Oil stock should be _____.A) $28.12B) $35.55C) $60.00D) $72.00E) none of the aboveAnswer: C Difficulty: EasyRationale: 20 X $3.00 = $60.00.54. Suppose that the average P/E multiple in the oil industry is 22. Exxon Oil is expected tohave an EPS of $1.50 in the coming year. The intrinsic value of Exxon Oil stock should be _____.A) $33.00B) $35.55C) $63.00D) $72.00E) none of the aboveAnswer: A Difficulty: EasyRationale: 22 X $1.50 = $33.00.55. Suppose that the average P/E multiple in the oil industry is 16. Mobil Oil is expected tohave an EPS of $4.50 in the coming year. The intrinsic value of Mobil Oil stock should be _____.A) $28.12B) $35.55C) $63.00D) $72.00E) none of the aboveAnswer: D Difficulty: EasyRationale: 16 X $4.50 = $72.00.56. Suppose that the average P/E multiple in the gas industry is 17. KMP is expected tohave an EPS of $5.50 in the coming year. The intrinsic value of KMP stock should be _____.A) $28.12B) $93.50C) $63.00D) $72.00E) none of the aboveAnswer: B Difficulty: EasyRationale: 17 X $5.50 = $93.50.57. An analyst has determined that the intrinsic value of HPQ stock is $20 per share usingthe capitalized earnings model. If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of HPQ in the coming year is ______.A) $3.63B) $4.44C) $0.80D) $22.50E) none of the aboveAnswer: C Difficulty: EasyRationale: $20(1/25) = $0.80.58. An analyst has determined that the intrinsic value of Dell stock is $34 per share usingthe capitalized earnings model. If the typical P/E ratio in the computer industry is 27, then it would be reasonable to assume the expected EPS of Dell in the coming year is ______.A) $3.63B) $4.44C) $14.40D) $1.26E) none of the aboveAnswer: D Difficulty: EasyRationale: $34(1/27) = $1.26.59. An analyst has determined that the intrinsic value of IBM stock is $80 per share usingthe capitalized earnings model. If the typical P/E ratio in the computer industry is 22, then it would be reasonable to assume the expected EPS of IBM in the coming year is ______.A) $3.64B) $4.44C) $14.40D) $22.50E) none of the aboveAnswer: A Difficulty: EasyRationale: $80(1/22) = $3.64.60. Old Quartz Gold Mining Company is expected to pay a dividend of $8 in the comingyear. 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) $80.00B) 133.33C) $200.00D) $400.00E) none of the aboveAnswer: B Difficulty: DifficultRationale: k = 6% + [-0.25(14% - 6%)] = 4%; P = 8 / [.04 - (-.02)] = $133.33.61. Low Fly Airline is expected to pay a dividend of $7 in the coming year. Dividends areexpected to grow at the rate of 15% per year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. The stock of low Fly Airline has a beta of 3.00. The intrinsic value of the stock is ______.A) $46.67B) $50.00C) $56.00D) $62.50E) none of the aboveAnswer: A Difficulty: ModerateRationale: 6% + 3(14% - 6%) = 30%; P = 7 / (.30 - .15) = $46.67.62. Sunshine Corporation is expected to pay a dividend of $1.50 in the upcoming year.Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. The stock of Sunshine Corporation has a beta of 0.75. The intrinsic value of the stock is _______.A) $10.71B) $15.00C) $17.75D) $25.00E) none of the aboveAnswer: D Difficulty: ModerateRationale: 6% + 0.75(14% - 6%) = 12%; P = 1.50 / (.12 - .06) = $25.63. Low Tech Chip Company is expected to have EPS in the coming year of $2.50. Theexpected ROE is 14%. An appropriate required return on the stock is 11%. If the firm has a dividend payout ratio of 40%, the intrinsic value of the stock should beA) $22.73B) $27.50C) $28.57D) $38.46E) none of the aboveAnswer: D Difficulty: DifficultRationale: g = 14% X 0.6 = 8.4%; Expected DPS = $2.50(0.4) = $1.00; P = 1 / (.11 - .084) = $38.46.Use the following to answer questions 64-65:Risk Metrics Company is expected to pay a dividend of $3.50 in the coming year. Dividends are expected to grow at a rate of 10% per year. The risk-free rate of return is 5% and the expected return on the market portfolio is 13%. The stock is trading in the market today at a price of $90.00.64. What is the market capitalization rate for Risk Metrics?A) 13.6%B) 13.9%C) 15.6%D) 16.9%E) none of the aboveAnswer: B Difficulty: ModerateRationale: k = 3.50 / 90 + .10; k = 13.9%65. What is the approximate beta of Risk Metrics's stock?A) 0.8B) 1.0C) 1.1D) 1.4E) none of the aboveAnswer: C Difficulty: DifficultRationale: k = 13.9% from 18.64; 13.9 = 5% + b(13% - 5%) = 1.11.66. The market capitalization rate on the stock of Flexsteel Company is 12%. The expectedROE is 13% and the expected EPS are $3.60. If the firm's plowback ratio is 50%, the P/E ratio will be _________.A) 7.69B) 8.33C) 9.09D) 11.11E) none of the aboveAnswer: C Difficulty: DifficultRationale: g = 13% X 0.5 = 6.5%; .5/(.12-.065) = 9.09。
投资学第7版Test Bank答案完整
Multiple Choice Questions1. ___________ a relationship between expected return and risk.A) APT stipulatesB) CAPM stipulatesC) Both CAPM and APT stipulateD) Neither CAPM nor APT stipulateE) No pricing model has foundAnswer: C Difficulty: EasyRationale: Both models attempt to explain asset pricing based on risk/returnrelationships.2. Which pricing model provides no guidance concerning the determination of the riskpremium on factor portfolios?A) The CAPMB) The multifactor APTC) Both the CAPM and the multifactor APTD) Neither the CAPM nor the multifactor APTE) None of the above is a true statement.Answer: B Difficulty: ModerateRationale: The multifactor APT provides no guidance as to the determination of the risk premium on the various factors. The CAPM assumes that the excess market return over the risk-free rate is the market premium in the single factor CAPM.3. An arbitrage opportunity exists if an investor can construct a __________ investmentportfolio that will yield a sure profit.A) positiveB) negativeC) zeroD) all of the aboveE) none of the aboveAnswer: C Difficulty: EasyRationale: If the investor can construct a portfolio without the use of the investor's own funds and the portfolio yields a positive profit, arbitrage opportunities exist.4. The APT was developed in 1976 by ____________.A) LintnerB) Modigliani and MillerC) RossD) SharpeE) none of the aboveAnswer: C Difficulty: EasyRationale: Ross developed this model in 1976.5. A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 onone of the factors and a beta of 0 on any other factor.A) factorB) marketC) indexD) A and BE) A, B, and CAnswer: A Difficulty: EasyRationale: A factor model portfolio has a beta of 1 one factor, with zero betas on other factors.6. The exploitation of security mispricing in such a way that risk-free economic profitsmay be earned is called ___________.A) arbitrageB) capital asset pricingC) factoringD) fundamental analysisE) none of the aboveAnswer: A Difficulty: EasyRationale: Arbitrage is earning of positive profits with a zero (risk-free) investment.7. In developing the APT, Ross assumed that uncertainty in asset returns was a result ofA) a common macroeconomic factorB) firm-specific factorsC) pricing errorD) neither A nor BE) both A and BAnswer: E Difficulty: ModerateRationale: Total risk (uncertainty) is assumed to be composed of both macroeconomic and firm-specific factors.8. The ____________ provides an unequivocal statement on the expected return-betarelationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.A) APT, CAPMB) APT, OPMC) CAPM, APTD) CAPM, OPME) none of the aboveAnswer: C Difficulty: ModerateRationale: The CAPM is an asset-pricing model based on the risk/return relationship of all assets. The APT implies that this relationship holds for all well-diversified portfolios, and for all but perhaps a few individual securities.9. Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _______.A) A, AB) A, BC) B, AD) B, BE) A, the riskless assetAnswer: C Difficulty: ModerateRationale: A: 16% = 1.0F + 6%; F = 10%; B: 12% = 0.8F + 6%: F = 7.5%; thus, short B and take a long position in A.10. Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _________ and a long position in portfolio _________.A) A, AB) A, BC) B, AD) B, BE) none of the aboveAnswer: C Difficulty: ModerateRationale: A: 13% = 10% + 0.2F; F = 15%; B: 15% = 10% + 0.4F; F = 12.5%; therefore, short B and take a long position in A.11. Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. Thebeta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately __________.A) 3.6%B) 6.0%C) 7.3%D) 10.1%E) none of the aboveAnswer: C Difficulty: ModerateRationale: s2P = (1.1)2(6%) = 7.26%.12. Consider the one-factor APT. The standard deviation of returns on a well-diversifiedportfolio is 18%. The standard deviation on the factor portfolio is 16%. The beta of the well-diversified portfolio is approximately __________.A) 0.80B) 1.13C) 1.25D) 1.56E) none of the aboveAnswer: B Difficulty: ModerateRationale: (18%)2 = (16%)2 b2; b = 1.125.13. Consider the single-factor APT. Stocks A and B have expected returns of 15% and 18%,respectively. The risk-free rate of return is 6%. Stock B has a beta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of __________.A) 0.67B) 1.00C) 1.30D) 1.69E) none of the aboveAnswer: E Difficulty: ModerateRationale: A: 15% = 6% + bF; B: 8% = 6% + 1.0F; F = 12%; thus, beta of A = 9/12 =0.75.14. Consider the multifactor APT with two factors. Stock A has an expected return of16.4%, a beta of 1.4 on factor 1 and a beta of .8 on factor 2. The risk premium on thefactor 1 portfolio is 3%. The risk-free rate of return is 6%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A) 2%B) 3%C) 4%D) 7.75%E) none of the aboveAnswer: D Difficulty: DifficultRationale: 16.4% = 1.4(3%) + .8x + 6%; x = 7.75.15. Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 onfactor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor 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) 16.5%D) 23.0%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 7% + 0.75(1%) + 1.25(7%) = 16.5%.16. Consider the multifactor APT with two factors. The risk premiums on the factor 1 andfactor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1, and a beta of 0.7 on factor 2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate of return is ___________.A) 6.0%B) 6.5%C) 6.8%D) 7.4%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 17% = x% + 1.2(5%) + 0.7(6%); x = 6.8%.17. Consider a one-factor economy. Portfolio A has a beta of 1.0 on the factor and portfolioB has a beta of 2.0 on the factor. The expected returns on portfolios A and B are 11%and 17%, respectively. Assume that the risk-free rate is 6% and that arbitrageopportunities exist. Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A. Your expected profit from this strategy would be ______________.A) -$1,000B) $0C) $1,000D) $2,000E) none of the aboveAnswer: C Difficulty: ModerateRationale: $100,000(0.06) = $6,000 (risk-free position); $100,000(0.17) = $17,000(portfolio B); -$200,000(0.11) = -$22,000 (short position, portfolio A); 1,000 profit. 18. Consider the one-factor APT. Assume that two portfolios, A and B, are well diversified.The betas of portfolios A and B are 1.0 and 1.5, respectively. The expected returns on portfolios A and B are 19% and 24%, respectively. Assuming no arbitrageopportunities exist, the risk-free rate of return must be ____________.A) 4.0%B) 9.0%C) 14.0%D) 16.5%E) none of the aboveAnswer: B Difficulty: ModerateRationale: A: 19% = r f + 1(F); B:24% = r f + 1.5(F); 5% = .5(F); F = 10%; 24% = r f +1.5(10); ff = 9%.19. Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfoliosare 5% and 3%, respectively. The risk-free rate of return is 10%. Stock A has anexpected return of 19% and a beta on factor 1 of 0.8. Stock A has a beta on factor 2 of ________.A) 1.33B) 1.50C) 1.67D) 2.00E) none of the aboveAnswer: C Difficulty: ModerateRationale: 19% = 10% + 5%(0.8) + 3%(x); x = 1.67.20. Consider the single factor APT. Portfolios A and B have expected returns of 14% and18%, respectively. The risk-free rate of return is 7%. Portfolio A has a beta of 0.7. If arbitrage opportunities are ruled out, portfolio B must have a beta of __________.A) 0.45B) 1.00C) 1.10D) 1.22E) none of the aboveAnswer: C Difficulty: ModerateRationale: A: 14% = 7% + 0.7F; F = 10; B: 18% = 7% + 10b; b = 1.10.Use the following to answer questions 21-24:There are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:21. If you invested in an equally weighted portfolio of stocks A and B, your portfolio returnwould be ___________ if economic growth were moderate.A) 3.0%B) 14.5%C) 15.5%D) 16.0%E) none of the aboveAnswer: D Difficulty: EasyRationale: E(Rp) = 0.5(17%) + 0.5(15%) = 16%.22. If you invested in an equally weighted portfolio of stocks A and C, your portfolio returnwould be ____________ if economic growth was strong.A) 17.0%B) 22.5%C) 30.0%D) 30.5%E) none of the aboveAnswer: B Difficulty: EasyRationale: 0.5(39%) + 0.5(6%) = 22.5%.23. If you invested in an equally weighted portfolio of stocks B and C, your portfolio returnwould be _____________ if economic growth was weak.A) -2.5%B) 0.5%C) 3.0%D) 11.0%E) none of the aboveAnswer: D Difficulty: EasyRationale: 0.5(0%) + 0.5(22%) = 11%.24. If you wanted to take advantage of a risk-free arbitrage opportunity, you should take ashort position in _________ and a long position in an equally weighted portfolio of_______.A) A, B and CB) B, A and CC) C, A and BD) A and B, CE) none of the above, none of the aboveAnswer: C Difficulty: DifficultRationale: E(R A) = (39% + 17% - 5%)/3 = 17%; E(R B) = (30% + 15% + 0%)/3 = 15%;E(R C) = (22% + 14% + 6%)/3 = 14%; E(R P) = -0.5(14%) + 0.5[(17% + 15%)/2]; -7.0% + 8.0% = 1.0%.Use the following to answer questions 25-26:Consider the multifactor APT. There are two independent economic factors, F1 and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios:25. Assuming no arbitrage opportunities exist, the risk premium on the factor F1 portfolioshould be __________.A) 3%B) 4%C) 5%D) 6%E) none of the aboveAnswer: A Difficulty: DifficultRationale: 2A: 38% = 12% + 2.0(RP1) + 4.0(RP2); B: 12% = 6% + 2.0(RP1) +0.0(RP2); 26% = 6% + 4.0(RP2); RP2 = 5; A: 19% = 6% + RP1 + 2.0(5); RP1 = 3%.26. Assuming no arbitrage opportunities exist, the risk premium on the factor F2 portfolioshould be ___________.A) 3%B) 4%C) 5%D) 6%E) none of the aboveAnswer: C Difficulty: DifficultRationale: See solution to previous problem.27. A zero-investment portfolio with a positive expected return arises when _________.A) an investor has downside risk onlyB) the law of prices is not violatedC) the opportunity set is not tangent to the capital allocation lineD) a risk-free arbitrage opportunity existsE) none of the aboveAnswer: D Difficulty: EasyRationale: When an investor can create a zero-investment portfolio (by using none of the investor's own funds) with a possibility of a positive profit, a risk-free arbitrage opportunity exists.28. An investor will take as large a position as possible when an equilibrium pricerelationship is violated. This is an example of _________.A) a dominance argumentB) the mean-variance efficiency frontierC) a risk-free arbitrageD) the capital asset pricing modelE) none of the aboveAnswer: C Difficulty: ModerateRationale: When the equilibrium price is violated, the investor will buy the lower priced asset and simultaneously place an order to sell the higher priced asset. Suchtransactions result in risk-free arbitrage. The larger the positions, the greater therisk-free arbitrage profits.29. The APT differs from the CAPM because the APT _________.A) places more emphasis on market riskB) minimizes the importance of diversificationC) recognizes multiple unsystematic risk factorsD) recognizes multiple systematic risk factorsE) none of the aboveAnswer: D Difficulty: ModerateRationale: The CAPM assumes that market returns represent systematic risk. The APT recognizes that other macroeconomic factors may be systematic risk factors.30. 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-returnrelationshipB) identification of anticipated changes in production, inflation and term structure askey factors in explaining the risk-return relationshipC) superior measurement of the risk-free rate of return over historical time periodsD) variability of coefficients of sensitivity to the APT factors for a given asset overtimeE) none of the aboveAnswer: A Difficulty: EasyRationale: The advantage of the APT is the use of multiple factors, rather than a single market index, to explain the risk-return relationship. However, APT does not identify the specific factors.31. In terms of the risk/return relationshipA) only factor risk commands a risk premium in market equilibrium.B) only systematic risk is related to expected returns.C) only nonsystematic risk is related to expected returns.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: Nonfactor risk may be diversified away; thus, only factor risk commands a risk premium in market equilibrium. Nonsystematic risk across firms cancels out in well-diversified portfolios; thus, only systematic risk is related to expected returns.32. The following factors might affect stock returns:A) the business cycle.B) interest rate fluctuations.C) inflation rates.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: A, B, and C all are likely to affect stock returns.33. Advantage(s) of the APT is(are)A) that the model provides specific guidance concerning the determination of the riskpremiums on the factor portfolios.B) that the model does not require a specific benchmark market portfolio.C) that risk need not be considered.D) A and B.E) B and C.Answer: B Difficulty: EasyRationale: The APT provides no guidance concerning the determination of the risk premiums on the factor portfolios. Risk must considered in both the CAPM and APT.A major advantage of APT over the CAPM is that a specific benchmark marketportfolio is not required.34. Portfolio A has expected return of 10% and standard deviation of 19%. Portfolio B hasexpected return of 12% and standard deviation of 17%. Rational investors willA) Borrow at the risk free rate and buy A.B) Sell A short and buy B.C) Sell B short and buy A.D) Borrow at the risk free rate and buy B.E) Lend at the risk free rate and buy B.Answer: B Difficulty: EasyRationale: Rational investors will arbitrage by selling A and buying B.35. An important difference between CAPM and APT isA) CAPM depends on risk-return dominance; APT depends on a no arbitragecondition.B) CAPM assumes many small changes are required to bring the market back toequilibrium; APT assumes a few large changes are required to bring the marketback to equilibrium.C) implications for prices derived from CAPM arguments are stronger than pricesderived from APT arguments.D) all of the above are true.E) both A and B are true.Answer: E Difficulty: DifficultRationale: Under the risk-return dominance argument of CAPM, when an equilibrium price is violated many investors will make small portfolio changes, depending on their risk tolerance, until equilibrium is restored. Under the no-arbitrage argument of APT, each investor will take as large a position as possible so only a few investors must act to restore equilibrium. Implications derived from APT are much stronger than thosederived from CAPM, making C an incorrect statement.36. A professional who searches for mispriced securities in specific areas such asmerger-target stocks, rather than one who seeks strict (risk-free) arbitrage opportunities is engaged inA) pure arbitrage.B) risk arbitrage.C) option arbitrage.D) equilibrium arbitrage.E) none of the above.Answer: B Difficulty: ModerateRationale: Risk arbitrage involves searching for mispricings based on speculativeinformation that may or may not materialize.37. In the context of the Arbitrage Pricing Theory, as a well-diversified portfolio becomeslarger its nonsystematic risk approachesA) one.B) infinity.C) zero.D) negative one.E) none of the above.Answer: C Difficulty: EasyRationale: As the number of securities, n, increases, the nonsystematic risk of awell-diversified portfolio approaches zero.38. A well-diversified portfolio is defined asA) one that is diversified over a large enough number of securities that thenonsystematic variance is essentially zero.B) one that contains securities from at least three different industry sectors.C) a portfolio whose factor beta equals 1.0.D) a portfolio that is equally weighted.E) all of the above.Answer: A Difficulty: ModerateRationale: A well-diversified portfolio is one that contains a large number of securities, each having a small (but not necessarily equal) weight, so that nonsystematic variance is negligible.39. The APT requires a benchmark portfolioA) that is equal to the true market portfolio.B) that contains all securities in proportion to their market values.C) that need not be well-diversified.D) that is well-diversified and lies on the SML.E) that is unobservable.Answer: D Difficulty: ModerateRationale: Any well-diversified portfolio lying on the SML can serve as the benchmark portfolio for the APT. The true (and unobservable) market portfolio is only arequirement for the CAPM.40. Imposing the no-arbitrage condition on a single-factor security market implies which ofthe following statements?I)the expected return-beta relationship is maintained for all but a small number ofwell-diversified portfolios.II)the expected return-beta relationship is maintained for all well-diversified portfolios.III)the expected return-beta relationship is maintained for all but a small number of individual securities.IV)the expected return-beta relationship is maintained for all individual securities.A) I and III are correct.B) I and IV are correct.C) II and III are correct.D) II and IV are correct.E) Only I is correct.Answer: C Difficulty: ModerateRationale: The expected return-beta relationship must hold for all well-diversifiedportfolios and for all but a few individual securities; otherwise arbitrage opportunities will be available.41. Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is6%, the risk premium on the first factor portfolio is 4% and the risk premium on the second factor portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and .8 on the second factor, what is its expected return?A) 7.0%B) 8.0%C) 9.2%D) 13.0%E) 13.2%Answer: E Difficulty: ModerateRationale: .06 + 1.2 (.04) + .8 (.03) = .13242. The term “arbitrage” refers toA) buying low and selling high.B) short selling high and buying low.C) earning risk-free economic profits.D) negotiating for favorable brokerage fees.E) hedging your portfolio through the use of options.Answer: C Difficulty: EasyRationale: Arbitrage is exploiting security mispricings by the simultaneous purchase and sale to gain economic profits without taking any risk. A capital market inequilibrium rules out arbitrage opportunities.43. To take advantage of an arbitrage opportunity, an investor wouldI)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 IVB) I and IIIC) II and IIID) I, III, and IVE) II, III, and IVAnswer: B Difficulty: DifficultRationale: Only I and III are correct. II is incorrect because the beta of the portfolio does not need to be zero. IV is incorrect because the opposite is true.44. The factor F in the APT model representsA) firm-specific risk.B) the sensitivity of the firm to that factor.C) a factor that affects all security returns.D) the deviation from its expected value of a factor that affects all security returns.E) a random amount of return attributable to firm events.Answer: D Difficulty: ModerateRationale: F measures the unanticipated portion of a factor that is common to allsecurity returns.45. In the APT model, what is the nonsystematic standard deviation of an equally-weightedportfolio that has an average value of ó(e i ) equal to 25% and 50 securities?A) 12.5%B) 625%C) 0.5%D) 3.54%E) 14.59%Answer: D Difficulty: ModerateRationale: ()%54.35.12)(,5.1225501)(1)(222=====p i p e e n e σσσ46. Which of the following is true about the security market line (SML) derived from theAPT?A) The SML has a downward slope.B) The SML for the APT shows expected return in relation to portfolio standarddeviation.C) The SML for the APT has an intercept equal to the expected return on the marketportfolio.D) The benchmark portfolio for the SML may be any well-diversified portfolio. E) The SML is not relevant for the APT.Answer: D Difficulty: ModerateRationale: The benchmark portfolio does not need to be the (unobservable) marketportfolio under the APT, but can be any well-diversified portfolio. The intercept still equals the risk-free rate.47. If arbitrage opportunities are to be ruled out, each well-diversified portfolio's expectedexcess return must beA) inversely proportional to the risk-free rate.B) inversely proportional to its standard deviation.C) proportional to its weight in the market portfolio.D) proportional to its standard deviation.E) proportional to its beta coefficient.Answer: E Difficulty: ModerateRationale: For each well-diversified portfolio (P and Q, for example), it must be true that [E(r p )-r f ]/βp = [E(r Q )-r f ]/ βQ.48. Suppose you are working with two factor portfolios, Portfolio 1 and Portfolio 2. Theportfolios have expected returns of 15% and 6%, respectively. Based on thisinformation, what would be the expected return on well-diversified portfolio A, if A hasa beta of 0.80 on the first factor and 0.50 on the second factor? The risk-free rate is 3%.A) 15.2%B) 14.1%C) 13.3%D) 10.7%E) 8.4%Answer: B Difficulty: ModerateRationale: E(R A) = 3 +0.8*(15-3) + 0.5*(6-3) = 14.1.49. Which of the following is (are) true regarding the APT?I)The Security Market Line does not apply to the APT.II)More than one factor can be important in determining returns.III)Almost all individual securities satisfy the APT relationship.IV)It doesn't rely on the market portfolio that contains all assets.A) II, III, and IVB) II and IVC) II and IIID) I, II, and IVE) I, II, III, and IVAnswer: A Difficulty: ModerateRationale: All except the first item are true. There is a Security Market Line associated with the APT.50. In a factor model, the return on a stock in a particular period will be related toA) factor risk.B) non-factor risk.C) standard deviation of returns.D) both A and B are true.E) none of the above is true.Answer: D Difficulty: ModerateRationale: Factor models explain firm returns based on both factor risk and non-factor risk.51. Which of the following factors did Chen, Roll and Ross not include in their multifactormodel?A) Change in industrial productionB) Change in expected inflationC) Change in unanticipated inflationD) Excess return of long-term government bonds over T-billsE) All of the above factors were included in their model.Answer: E Difficulty: ModerateRationale: Chen, Roll and Ross included the four listed factors as well as the excess return of long-term corporate bonds over long-term government bonds in their model.52. Which of the following factors were used by Fama and French in their multi-factormodel?A) Return on the market indexB) Excess return of small stocks over large stocks.C) Excess return of high book-to-market stocks over low book-to-market stocks.D) All of the above factors were included in their model.E) None of the above factors was included in their model.Answer: D Difficulty: ModerateRationale: Fama and French included all three of the factors listed.53. Which of the following factors did Merton not suggest as a likely source of uncertaintythat might affect security returns?A) uncertainties in labor income.B) prices of important consumption goods.C) book-to-market ratios.D) changes in future investment opportunities.E) All of the above are sources of uncertainty affecting security returns.Answer: C Difficulty: ModerateRationale: Merton did not suggest book-to-market ratios as an ICAPM pricing factor;the other three were suggested.54. Black argues that past risk premiums on firm-characteristic variables, such as thosedescribed by Fama and French, are problematic because.A) they may result from data snooping.B) they are sources of systematic risk.C) they can be explained by security characteristic lines.D) they are more appropriate for a single-factor model.E) they are macroeconomic factors.Answer: A Difficulty: Moderate55. Multifactor models seek to improve the performance of the single-index model byA) 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 effectsD) all of the above are true.E) none of the above is true.Answer: D Difficulty: Easy56. Multifactor models such as the one constructed by Chen, Roll, and Ross, can betterdescribe assets' returns byA) expanding beyond one factor to represent sources of systematic risk.B) using variables that are easier to forecast ex ante.C) calculating beta coefficients by an alternative method.D) using only stocks with relatively stable returns.E) ignoring firm-specific risk.Answer: A Difficulty: ModerateRationale: The study used five different factors to explain security returns, allowing for several sources of risk to affect the returns.。
投资学第7版Test Bank答案 02
Multiple Choice Questions1. Which of the following is not a characteristic of a money market instrument?A) liquidityB) marketabilityC) long maturityD) liquidity premiumE) C and DAnswer: E Difficulty: EasyRationale: Money market instruments are short-term instruments with high liquidityand marketability; they do not have long maturities nor pay liquidity premiums.2. Which one of the following is not a money market instrument?A) a Treasury billB) a negotiable certificate of depositC) commercial paperD) a Treasury bondE) a Eurodollar accountAnswer: D Difficulty: EasyRationale: Money market instruments are instruments with maturities of one year or less, which applies to all of the above except Treasury bonds. See Table 2.1.3. T-bills are financial instruments initially sold by ________ to raise funds.A) commercial banksB) the U. S. governmentC) state and local governmentsD) agencies of the federal governmentE) B and DAnswer: B Difficulty: EasyRationale: Only the U. S. government sells T-bills in the primary market.4. The bid price of a T-bill in the secondary market isA) the price at which the dealer in T-bills is willing to sell the bill.B) the price at which the dealer in T-bills is willing to buy the bill.C) greater than the asked price of the T-bill.D) the price at which the investor can buy the T-bill.E) never quoted in the financial press.Answer: B Difficulty: EasyRationale: T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press is the price at which the dealer is willing to buy the bill.5. Commercial paper is a short-term security issued by ________ to raise funds.A) the Federal Reserve BankB) commercial banksC) large, well-known companiesD) the New York Stock ExchangeE) state and local governmentsAnswer: C Difficulty: EasyRationale: Commercial paper is short-term unsecured financing issued directly by large, presumably safe corporations.6. Which one of the following terms best describes Eurodollars:A) dollar-denominated deposits in European banks.B) dollar-denominated deposits at branches of foreign banks in the U. S.C) dollar-denominated deposits at foreign banks and branches of American banksoutside the U. S.D) dollar-denominated deposits at American banks in the U. S.E) dollars that have been exchanged for European currency.Answer: C Difficulty: ModerateRationale: Although originally Eurodollars were used to describe dollar-denominated deposits in European banks, today the term has been extended to apply to anydollar-denominated deposit outside the U. S.7. Deposits of commercial banks at the Federal Reserve Bank are called __________.A) bankers' acceptancesB) repurchase agreementsC) time depositsD) federal fundsE) reserve requirementsAnswer: D Difficulty: EasyRationale: The federal funds are required for the bank to meet reserve requirements, which is a way of influencing the money supply. No substitutes for fed funds arepermitted.8. The interest rate charged by banks with excess reserves at a Federal Reserve Bank tobanks needing overnight loans to meet reserve requirements is called the_________.A) prime rateB) discount rateC) federal funds rateD) call money rateE) money market rateAnswer: C Difficulty: Easy9. Which of the following statements is (are) true regarding municipal bonds?I) A municipal bond is a debt obligation issued by state or local governments.II) A municipal bond is a debt obligation issued by the federal government.III)The interest income from a municipal bond is exempt from federal income taxation.IV)The interest income from a municipal bond is exempt from state and local taxation in the issuing state.A) I and II onlyB) I and III onlyC) I, II, and III onlyD) I, III, and IV onlyE) I and IV onlyAnswer: D Difficulty: ModerateRationale: State and local governments and agencies thereof issue municipal bonds on which the interest income is free from all federal taxes and is exempt from state and local taxation in the issuing state.10. Which of the following statements is true regarding a corporate bond?A) A corporate callable bond gives the holder the right to exchange it for a specifiednumber of the company's common shares.B) A corporate debenture is a secured bond.C) A corporate indenture is a secured bond.D) A corporate convertible bond gives the holder the right to exchange the bond for aspecified number of the company's common shares.E) Holders of corporate bonds have voting rights in the company.Answer: D Difficulty: EasyRationale: Statement D is the only true statement; all other statements describesomething other than the term specified.11. In the event of the firm's bankruptcyA) the most shareholders can lose is their original investment in the firm's stock.B) common shareholders are the first in line to receive their claims on the firm's assets.C) bondholders have claim to what is left from the liquidation of the firm's assets afterpaying the shareholders.D) the claims of preferred shareholders are honored before those of the commonshareholders.E) A and D.Answer: E Difficulty: ModerateRationale: Shareholders have limited liability and have residual claims on assets.Bondholders have a priority claim on assets, and preferred shareholders have priority over common shareholders.12. Which of the following is true regarding a firm's securities?A) Common dividends are paid before preferred dividends.B) Preferred stockholders have voting rights.C) Preferred dividends are usually cumulative.D) Preferred dividends are contractual obligations.E) Common dividends usually can be paid if preferred dividends have been skipped.Answer: C Difficulty: EasyRationale: The only advantages of preferred dividends over common dividends are that preferred dividends must be paid first and any skipped preferred dividends must be paid before common dividends may be paid.13. Which of the following is true of the Dow Jones Industrial Average?A) It is a value-weighted average of 30 large industrial stocks.B) It is a price-weighted average of 30 large industrial stocks.C) The divisor must be adjusted for stock splits.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: The Dow Jones Industrial Average is a price-weighted index of 30 large industrial firms and the divisor must be adjusted when any of the stocks on the index split.14. Which of the following indices is (are) market-value weighted?I)The New York Stock Exchange Composite IndexII)The Standard and Poor's 500 Stock IndexIII)The Dow Jones Industrial AverageA) I onlyB) I and II onlyC) I and III onlyD) I, II, and IIIE) II and III onlyAnswer: B Difficulty: ModerateRationale: The Dow Jones Industrial Average is a price-weighted index.15. The Dow Jones Industrial Average (DJIA) is computed by:A) adding the prices of 30 large "blue-chip" stocks and dividing by 30.B) calculating the total market value of the 30 firms in the index and dividing by 30.C) adding the prices of the 30 stocks in the index and dividing by a divisor.D) adding the prices of the 500 stocks in the index and dividing by a divisor.E) adding the prices of the 30 stocks in the index and dividing by the value of thesestocks as of some base date period.Answer: C Difficulty: EasyRationale: When the DJIA became a 30-stock index, response A was true; however, as stocks on the index have split and been replaced, the divisor has been adjusted. In 2006 the divisor was 0.125.Use the following to answer questions 16-18:Consider the following three stocks:16. The price-weighted index constructed with the three stocks isA) 30B) 40C) 50D) 60E) 70Answer: B Difficulty: EasyRationale: ($40 + $70 + $10)/3 = $40.17. The value-weighted index constructed with the three stocks using a divisor of 100 isA) 1.2B) 1200C) 490D) 4900E) 49Answer: C Difficulty: ModerateRationale: The sum of the value of the three stocks divided by 100 is 490: [($40 x 200) + ($70 x 500) + ($10 x 600)] /100 = 490.18. Assume at these prices the value-weighted index constructed with the three stocks is490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?A) 265B) 430C) 355D) 490E) 1000Answer: D Difficulty: ModerateRationale: Value-weighted indexes are not affected by stock splits.19. The price quotations of Treasury bonds in the Wall Street Journal show an ask price of104:08 and a bid price of 104:04. As a buyer of the bond what is the dollar price you expect to pay?A) $10,480.00B) $10,425.00C) $10,440.00D) $10,412.50E) $10,404.00Answer: B Difficulty: ModerateRationale: You pay the asking price of the dealer, 104 8/32, or 104.25% of $10,000, or $10,425.00.20. An investor purchases one municipal and one corporate bond that pay rates of return of8% and 10%, respectively. If the investor is in the 20% marginal tax bracket, his or her after tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.A) 8% and 10%B) 8% and 8%C) 6.4% and 8%D) 6.4% and 10%E) 10% and 10%Answer: B Difficulty: ModerateRationale: r c = 0.10(1 - 0.20) = 0.08, or 8%; r m = 0.08(1 - 0) = 8%.21. If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journalwould beA) 97:50.B) 97:16.C) 97:80.D) 94:24.E) 97:75.Answer: B Difficulty: EasyRationale: Treasuries are quoted as a percent of $1,000 and in 1/32s.22. In calculating the Standard and Poor's stock price indices, the adjustment for stock splitoccurs:A) by adjusting the divisor.B) automatically.C) by adjusting the numerator.D) quarterly, on the last trading day of each quarter.E) none of the above.Answer: B Difficulty: EasyRationale: The calculation of the value-weighted S&P indices includes both price and number of shares of each of the stocks in the index. Thus, the effects of stock splits are automatically incorporated into the calculation.23. Which of the following statements regarding the Dow Jones Industrial Average (DJIA)is false?A) The DJIA is not very representative of the market as a whole.B) The DJIA consists of 30 blue chip stocks.C) The DJIA is affected equally by changes in low and high priced stocks.D) The DJIA divisor needs to be adjusted for stock splits.E) The value of the DJIA is much higher than individual stock prices.Answer: C Difficulty: EasyRationale: The high priced stocks have much more impact on the DJIA than do the lower priced stocks.24. The index that includes the largest number of actively traded stock is:A) the NASDAQ Composite Index.B) the NYSE Composite Index.C) the Wilshire 5000 Index.D) the Value Line Composite Index.E) the Russell Index.Answer: C Difficulty: EasyRationale: The Wilshire 5000 is the largest readily available stock index, consisting of the stocks traded on the organized exchanges and the OTC stocks.25. A 5.5% 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the33% marginal tax bracket, this bond would offer an equivalent taxable yield of:A) 8.20%.B) 10.75%.C) 11.40%.D) 4.82%.E) none of the above.Answer: B Difficulty: ModerateRationale: 0.072 = r m (1-t); 0.072 = r m / (0.67); r m = 0.1075 = 10.75%.26. If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA)all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?A) The stock trading at the highest dollar price per share.B) The stock with total equity has the higher market value.C) The stock having the greatest amount of equity in its capital structure.D) The stock having the lowest volatility.E) None of the above.Answer: A Difficulty: ModerateRationale: Higher priced stocks affect the DJIA more than lower priced stocks; other choices are not relevant.27. The stocks on the Dow Jones Industrial AverageA) have remained unchanged since the creation of the index.B) include most of the stocks traded on the NYSE.C) are changed occasionally as circumstances dictate.D) consist of stocks on which the investor cannot lose money.E) B and C.Answer: C Difficulty: EasyRationale: The stocks on the DJIA are only a small sample of the entire market, have been changed occasionally since the creation of the index, and one can lose money on any stock. See text box on page 50 for a list of DJIA stock changes.28. Federally sponsored agency debtA) is legally insured by the U. S. Treasury.B) would probably be backed by the U. S. Treasury in the event of a near-default.C) has a small positive yield spread relative to U. S. Treasuries.D) B and C.E) A and C.Answer: D Difficulty: EasyRationale: Federally sponsored agencies, such as the FHLB, are not government owned.These agencies' debt is not insured by the U.S. Treasury, but probably would be backed by the Treasury in the event of an agency near-default. As a result, the issues are very safe and carry a yield only slightly higher than that of U. S. Treasuries.29. Brokers' callsA) are funds used by individuals who wish to buy stocks on margin.B) are funds borrowed by the broker from the bank, with the agreement to repay thebank immediately if requested to do so.C) carry a rate that is usually about one percentage point lower than the rate on U.S.T-bills.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: Brokers' calls are funds borrowed from banks by brokers and loaned toinvestors in margin accounts.30. A form of short-term borrowing by dealers in government securities isA) reserve requirements.B) repurchase agreements.C) banker's acceptances.D) commercial paper.E) brokers' calls.Answer: B Difficulty: EasyRationale: Repurchase agreements are a form of short-term borrowing where a dealer sells government securities to an investor with an agreement to buy back those same securities at a slightly higher price.31. Which of the following securities is a money market instrument?A) Treasury noteB) Treasury bond.C) municipal bond.D) commercial paper.E) mortgage security.Answer: D Difficulty: EasyRationale: Only commercial paper is a money market security. The others are capital market instruments.32. The yield to maturity reported in the financial pages for Treasury securitiesA) is calculated by compounding the semiannual yield.B) is calculated by doubling the semiannual yield.C) is also called the bond equivalent yield.D) is calculated as the yield-to-call for premium bonds.E) Both B and C are true.Answer: E Difficulty: EasyRationale: The yield to maturity shown in the financial pages is an APR calculated by doubling the semi-annual yield.33. Which of the following is not a mortgage-related government or government sponsoredagency?A) The Federal Home Loan BankB) The Federal National Mortgage AssociationC) The U.S. TreasuryD) Freddie MacE) Ginnie MaeAnswer: C Difficulty: EasyRationale: Only the U.S. Treasury issues securities that are not mortgage-backed.34. In order for you to be indifferent between the after tax returns on a corporate bondpaying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your taxbracket need to be?A) 33%B) 72%C) 15%D) 28%E) Cannot tell from the information givenAnswer: D Difficulty: ModerateRationale: .0612 = .085(1-t); (1-t) = 0.72; t = .2835. What does the term “negotiable” mean with regard to negotia ble certificates of deposit?A) The CD can be sold to another investor if the owner needs to cash it in before itsmaturity date.B) The rate of interest on the CD is subject to negotiation.C) The CD is automatically reinvested at its maturity date.D) The CD has staggered maturity dates built in.E) The interest rate paid on the CD will vary with a designated market rate.Answer: A Difficulty: Easy36. Freddie Mac and Ginnie Mae were organized to provideA) a primary market for mortgage transactions.B) liquidity for the mortgage market.C) a primary market for farm loan transactions.D) liquidity for the farm loan market.E) a source of funds for government agencies.Answer: B Difficulty: Easy37. The type of municipal bond that is used to finance commercial enterprises such as theconstruction of a new building for a corporation is calledA) a corporate courtesy bond.B) a revenue bond.C) a general obligation bond.D) a tax anticipation note.E) an industrial development bond.Answer: E Difficulty: Easy38. Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and amunicipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?A) 15.4%B) 23.7%C) 39.5%D) 17.3%E) 12.4%Answer: D Difficulty: ModerateRationale: t m = 1-(5.93%/7.17%) = 17.29%39. Which of the following are characteristics of preferred stock?I)It pays its holder a fixed amount of income each year, at the discretion of itsmanagers.II)It gives its holder voting power in the firm.III)Its dividends are usually cumulative.IV)Failure to pay dividends may result in bankruptcy proceedings.A) I, III, and IVB) I, II, and IIIC) I and IIID) I, II, and IVE) I, II, III, and IVAnswer: C Difficulty: Moderate40. Bond market indexes can be difficult to construct becauseA) they cannot be based on firms' market values.B) bonds tend to trade infrequently, making price information difficult to obtain.C) there are so many different kinds of bonds.D) prices cannot be obtained for companies that operate in emerging markets.E) corporations are not required to disclose the details of their bond issues.Answer: B Difficulty: Moderate41. With regard to a futures contract, the long position is held byA) the trader who bought the contract at the largest discount.B) the trader who has to travel the farthest distance to deliver the commodity.C) the trader who plans to hold the contract open for the lengthiest time period.D) the trader who commits to purchasing the commodity on the delivery date.E) the trader who commits to delivering the commodity on the delivery date.Answer: D Difficulty: EasyUse the following to answer questions 42-43:42. Based on the information given, for a price-weighted index of the three stocks calculate:A) the rate of return for the first period (t=0 to t=1).B) the value of the divisor in the second period (t=2). Assume that Stock A had a 2-1split during this period.C) the rate of return for the second period (t=1 to t=2).Answer: A Difficulty: DifficultRationale:A.The price-weighted index at time 0 is (70+85+105)/3 = 86.67. The price-weightedindex at time 1 is (72+81+98)/3 = 83.67. The return on the index is 83.67/86.67 1 =-3.46%.B.The divisor must change to reflect the stock split. Because nothing elsefundamentally changed, the value of the index should remain 83.67. So the newdivisor is (36+81+98)/83.67 = 2.57. The index value is (36+81+98)/2.57 = 83.67.C.The rate of return for the second period is 83.67/83.67-1 = 0.00%43. Based on the information given for the three stocks, calculate the first-period rates ofreturn (from t=0 to t=1) onA) a market-value-weighted index.B) an equally-weighted index.C) a geometric index.Answer: A Difficulty: DifficultRationale:A.The total market value at time 0 is $70*200 + $85*500 + $105*300 = $88,000. Thetotal market value at time 1 is $72*200 + $81*500 + $98*300 = $84,300. The return is $84,300/$88,000 1 = -4.20%.B.The return on Stock A for the first period is $72/$70-1 = 2.86%. The return onStock B for the first period is $81/$85-1 = -4.71%. The return on Stock C for thefirst period is $98/$105-1 = -6.67%. The return on an equally weighted index of the three stocks is (2.86%-4.71%-6.67%)/3 = -2.84%.C.The geometric average return is [(1+.0286)(1-.0471)(1-.0667)](1/3)-1 =[(1.0286)(0.9529)(0.9333)]0.3333 -1 = -2.92%44. In order for you to be indifferent between the after tax returns on a corporate bondpaying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?A) 17.6%B) 27%C) 22.2%D) 19.8%E) Cannot tell from the information givenAnswer: C Difficulty: ModerateRationale: .07 = .09(1-t); (1-t) = 0.777; t = .22245. In order for you to be indifferent between the after tax returns on a corporate bondpaying 7% and a tax-exempt municipal bond paying 5.5%, what would your tax bracket need to be?A) 22.6%B) 21.4%C) 26.2%D) 19.8%E) Cannot tell from the information givenAnswer: B Difficulty: ModerateRationale: .055 = .07(1-t); (1-t) = 0.786; t = .21446. An investor purchases one municipal and one corporate bond that pay rates of return of6% and 8%, respectively. If the investor is in the 25% marginal tax bracket, his or her after tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.A) 6% and 8%B) 4.5% and 6%C) 4.5% and 8%D) 6% and 6%E) None of the aboveAnswer: D Difficulty: ModerateRationale: r c = 0.08(1 - 0.25) = 0.06, or 6%; r m = 0.06(1 - 0) = 6%.47. An investor purchases one municipal and one corporate bond that pay rates of return of7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his orher after tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.A) 7.2% and 9.1%B) 7.2% and 7.735%C) 6.12% and 7.735%D) 8.471% and 9.1%E) None of the aboveAnswer: B Difficulty: ModerateRationale: r c = 0.091(1 - 0.15) = 0.07735, or 7.735%; r m = 0.072(1 - 0) = 7.2%.48. For a taxpayer in the 25% marginal tax bracket, a 20-year municipal bond currentlyyielding 5.5% would offer an equivalent taxable yield of:A) 7.33%.B) 10.75%.C) 5.5%.D) 4.125%.E) none of the above.Answer: A Difficulty: ModerateRationale: 0.055= r m(1-t); 0.0733 = r m / 0.75).49. For a taxpayer in the 15% marginal tax bracket, a 15-year municipal bond currentlyyielding 6.2% would offer an equivalent taxable yield of:A) 6.2%.B) 5.27%.C) 8.32%.D) 7.29%.E) none of the above.Answer: D Difficulty: ModerateRationale: 0.062= r m(1-t); 0.062 = r m / (0.85); r m = 0.0729 = 7.29%.50. With regard to a futures contract, the short position is held byA) the trader who bought the contract at the largest discount.B) the trader who has to travel the farthest distance to deliver the commodity.C) the trader who plans to hold the contract open for the lengthiest time period.D) the trader who commits to purchasing the commodity on the delivery date.E) the trader who commits to delivering the commodity on the delivery date.Answer: E Difficulty: Easy51. A call option allows the buyer toA) sell the underlying asset at the exercise price on or before the expiration date.B) buy the underlying asset at the exercise price on or before the expiration date.C) sell the option in the open market prior to expiration.D) A and C.E) B and C.Answer: E Difficulty: EasyRationale: A call option may be exercised (allowing the holder to buy the underlying asset) on or before expiration; the option contract also may be sold prior to expiration.52. A put option allows the holder toA) buy the underlying asset at the striking price on or before the expiration date.B) sell the underlying asset at the striking price on or before the expiration date.C) sell the option in the open market prior to expiration.D) B and C.E) A and C.Answer: D Difficulty: EasyRationale: A put option allows the buyer to sell the underlying asset at the striking price on or before the expiration date; the option contract also may be sold prior to expiration.53. The ____ index represents the performance of the German stock market.A) DAXB) FTSEC) NikkeiD) Hang SengE) None of the aboveAnswer: A Difficulty: Easy54. The ____ index represents the performance of the Japanese stock market.A) DAXB) FTSEC) NikkeiD) Hang SengE) None of the aboveAnswer: C Difficulty: Easy55. The ____ index represents the performance of the U.K. stock market.A) DAXB) FTSEC) NikkeiD) Hang SengE) None of the aboveAnswer: B Difficulty: Easy56. The ____ index represents the performance of the Hong Kong stock market.A) DAXB) FTSEC) NikkeiD) Hang SengE) None of the aboveAnswer: D Difficulty: Easy57. The ultimate stock index in the U.S. is theA) Wilshire 5000.B) DJIA.C) S&P 500.D) Russell 2000.E) None of the above.Answer: A Difficulty: Easy58. The ____ is an example of a U.S. index of large firms.A) Wilshire 5000B) DJIAC) DAXD) Russell 2000E) All of the aboveAnswer: B Difficulty: Easy59. The ____ is an example of a U.S. index of small firms.A) S&P 500B) DJIAC) DAXD) Russell 2000E) All of the aboveAnswer: D Difficulty: Easy60. The largest component of the money market is ____________.A) repurchase agreementsB) money market mutual fundsC) T-billsD) EurodollarsE) savings depositsAnswer: E Difficulty: Easy61. Certificates of deposit are insured by the ____________.A) SPICB) CFTCC) Lloyds of LondonD) FDICE) all of the aboveAnswer: D Difficulty: Easy62. Certificates of deposit are insured for up to ____________ in the event of bankinsolvency.A) $10,000B) $100,000C) $50,000D) $500,000E) none of the aboveAnswer: B Difficulty: Easy63. The maximum maturity of commercial paper that can be issued without SECregistration is ____________.A) 270 daysB) 180 daysC) 90 daysD) 30 daysE) none of the aboveAnswer: A Difficulty: Easy64. Which of the following is used extensively in foreign trade when the creditworthiness ofone trader is unknown to the trading partner?A) reposB) bankers acceptancesC) EurodollarsD) federal fundsE) none of the aboveAnswer: B Difficulty: Easy65. A US dollar denominated bond that is sold in Singapore is a ____________.A) EurobondB) Yankee bondC) Samurai bondD) Bulldog bondE) none of the aboveAnswer: A Difficulty: Easy66. A municipal bond issued to finance an airport, hospital, turnpike, or port authority istypically a ____________.A) revenue bondB) general obligation bondC) industrial development bondD) A and B are equally likelyE) B and C are equally likelyAnswer: A Difficulty: Easy67. Unsecured bonds are called ____________.A) junk bondsB) debenturesC) indenturesD) subordinated debenturesE) either A or DAnswer: E Difficulty: Easy68. A bond that can be retired prior to maturity by the issuer is a ____________ bond.A) convertibleB) securedC) unsecuredD) callableE) YankeeAnswer: D Difficulty: Easy。
投资学第7版TestBank答案完整
投资学第7版TestBank答案完整Multiple Choice Questions1. ___________ a relationship between expected return and risk.A) APT stipulatesB) CAPM stipulatesC) Both CAPM and APT stipulateD) Neither CAPM nor APT stipulateE) No pricing model has foundAnswer: C Difficulty: EasyRationale: Both models attempt to explain asset pricing based on risk/returnrelationships.2. Which pricing model provides no guidance concerning the determination of the riskpremium on factor portfolios?A) The CAPMB) The multifactor APTC) Both the CAPM and the multifactor APTD) Neither the CAPM nor the multifactor APTE) None of the above is a true statement.Answer: B Difficulty: ModerateRationale: The multifactor APT provides no guidance as to the determination of the risk premium on the various factors. The CAPM assumes that the excess market return over the risk-free rate is the market premium in the single factor CAPM.3. An arbitrage opportunity exists if an investor can constructa __________ investmentportfolio that will yield a sure profit.A) positiveB) negativeC) zeroD) all of the aboveE) none of the aboveAnswer: C Difficulty: EasyRationale: If the investor can construct a portfolio without the use of the investor's own funds and the portfolio yields a positive profit, arbitrage opportunities exist.4. The APT was developed in 1976 by ____________.A) LintnerB) Modigliani and MillerC) RossD) SharpeE) none of the aboveAnswer: C Difficulty: EasyRationale: Ross developed this model in 1976.5. A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 onone of the factors and a beta of 0 on any other factor.A) factorB) marketC) indexD) A and BE) A, B, and CAnswer: A Difficulty: EasyRationale: A factor model portfolio has a beta of 1 one factor, with zero betas on other factors.6. The exploitation of security mispricing in such a way that risk-free economic profitsmay be earned is called ___________.A) arbitrageB) capital asset pricingC) factoringD) fundamental analysisE) none of the aboveAnswer: A Difficulty: EasyRationale: Arbitrage is earning of positive profits with a zero (risk-free) investment.7. In developing the APT, Ross assumed that uncertainty in asset returns was a result ofA) a common macroeconomic factorB) firm-specific factorsC) pricing errorD) neither A nor BE) both A and BAnswer: E Difficulty: ModerateRationale: Total risk (uncertainty) is assumed to be composed of both macroeconomic and firm-specific factors.8. The ____________ provides an unequivocal statement on the expected return-betarelationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.A) APT, CAPMB) APT, OPMC) CAPM, APTD) CAPM, OPME) none of the aboveAnswer: C Difficulty: ModerateRationale: The CAPM is an asset-pricing model based on therisk/return relationship of all assets. The APT implies that this relationship holds for all well-diversified portfolios, and for all but perhaps a few individual securities.9. Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _______.A) A, AB) A, BC) B, AD) B, BE) A, the riskless assetAnswer: C Difficulty: ModerateRationale: A: 16% = 1.0F + 6%; F = 10%; B: 12% = 0.8F + 6%:F = 7.5%; thus, short B and take a long position in A.10. Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _________ and a long position in portfolio _________.A) A, AB) A, BC) B, AD) B, BE) none of the aboveAnswer: C Difficulty: ModerateRationale: A: 13% = 10% + 0.2F; F = 15%; B: 15% = 10% + 0.4F; F = 12.5%; therefore, short B and take a long position in A.11. Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. Thebeta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately __________.A) 3.6%B) 6.0%C) 7.3%D) 10.1%E) none of the aboveAnswer: C Difficulty: ModerateRationale: s2P = (1.1)2(6%) = 7.26%.12. Consider the one-factor APT. The standard deviation of returns on a well-diversifiedportfolio is 18%. The standard deviation on the factor portfolio is 16%. The beta of the well-diversified portfolio is approximately __________.A) 0.80B) 1.13C) 1.25D) 1.56E) none of the aboveAnswer: B Difficulty: ModerateRationale: (18%)2 = (16%)2 b2; b = 1.125.13. Consider the single-factor APT. Stocks A and B have expected returns of 15% and 18%,respectively. The risk-free rate of return is 6%. Stock B has abeta of 1.0. If arbitrage opportunities are ruled out, stock A has a beta of __________.A) 0.67B) 1.00C) 1.30D) 1.69E) none of the aboveAnswer: E Difficulty: ModerateRationale: A: 15% = 6% + bF; B: 8% = 6% + 1.0F; F = 12%; thus, beta of A = 9/12 =0.75.14. Consider the multifactor APT with two factors. Stock A has an expected return of16.4%, a beta of 1.4 on factor 1 and a beta of .8 on factor 2. The risk premium on thefactor 1 portfolio is 3%. The risk-free rate of return is 6%. What is the risk-premium on factor 2 if no arbitrage opportunities exit?A) 2%B) 3%C) 4%D) 7.75%E) none of the aboveAnswer: D Difficulty: DifficultRationale: 16.4% = 1.4(3%) + .8x + 6%; x = 7.75.15. Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 onfactor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and factor 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolioA is __________if no arbitrage opportunities exist.A) 13.5%B) 15.0%C) 16.5%D) 23.0%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 7% + 0.75(1%) + 1.25(7%) = 16.5%.16. Consider the multifactor APT with two factors. The risk premiums on the factor 1 andfactor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1, and a beta of 0.7 on factor 2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate of return is ___________.A) 6.0%B) 6.5%C) 6.8%D) 7.4%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 17% = x% + 1.2(5%) + 0.7(6%); x = 6.8%.17. Consider a one-factor economy. Portfolio A has a beta of1.0 on the factor and portfolioB has a beta of 2.0 on the factor. The expected returns on portfolios A and B are 11%and 17%, respectively. Assume that the risk-free rate is 6% and that arbitrageopportunities exist. Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A. Your expected profit from this strategy would be______________.A) -$1,000B) $0C) $1,000D) $2,000E) none of the aboveAnswer: C Difficulty: ModerateRationale: $100,000(0.06) = $6,000 (risk-free position); $100,000(0.17) = $17,000(portfolio B); -$200,000(0.11) = -$22,000 (short position, portfolio A); 1,000 profit. 18. Consider the one-factor APT. Assume that two portfolios, A and B, are well diversified.The betas of portfolios A and B are 1.0 and 1.5, respectively. The expected returns on portfolios A and B are 19% and 24%, respectively. Assuming no arbitrageopportunities exist, the risk-free rate of return must be ____________.A) 4.0%B) 9.0%C) 14.0%D) 16.5%E) none of the aboveAnswer: B Difficulty: ModerateRationale: A: 19% = r f + 1(F); B:24% = r f + 1.5(F); 5% = .5(F);F = 10%; 24% = r f +1.5(10); ff = 9%.。
投资学第7版TestBank标准答案07
Multiple Choice Questions1. Market risk is also referred to asA) systematic risk, diversifiable risk.B) systematic risk, nondiversifiable risk.C) unique risk, nondiversifiable risk.D) unique risk, diversifiable risk.E) none of the above.Answer: B Difficulty: EasyRationale: Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.2. The risk that can be diversified away isA) firm specific risk.B) beta.C) systematic risk.D) market risk.E) none of the above.Answer: A Difficulty: EasyRationale: See explanations for 1 and 2 above.3. The variance of a portfolio of risky securitiesA) is a weighted sum of the securities' variances.B) is the sum of the securities' variances.C) is the weighted sum of the securities' variances and covariances.D) is the sum of the securities' covariances.E) none of the above.Answer: C Difficulty: ModerateRationale: The variance of a portfolio of risky securities is a weighted sum taking into account both the variance of the individual securities and the covariances betweensecurities.4. The expected return of a portfolio of risky securitiesA) is a weighted average of the securities' returns.B) is the sum of the securities' returns.C) is the weighted sum of the securities' variances and covariances.D) A and C.E) none of the above.Answer: A Difficulty: Easy5. Other things equal, diversification is most effective whenA) securities' returns are uncorrelated.B) securities' returns are positively correlated.C) securities' returns are high.D) securities' returns are negatively correlated.E) B and C.Answer: D Difficulty: ModerateRationale: Negative correlation among securities results in the greatest reduction of portfolio risk, which is the goal of diversification.6. The efficient frontier of risky assets isA) the portion of the investment opportunity set that lies above the global minimumvariance portfolio.B) the portion of the investment opportunity set that represents the highest standarddeviations.C) the portion of the investment opportunity set which includes the portfolios with thelowest standard deviation.D) the set of portfolios that have zero standard deviation.E) both A and B are true.Answer: A Difficulty: ModerateRationale: Portfolios on the efficient frontier are those providing the greatest expected return for a given amount of risk. Only those portfolios above the global minimum variance portfolio meet this criterion.7. The Capital Allocation Line provided by a risk-free security and N risky securities isA) the line that connects the risk-free rate and the global minimum-variance portfolioof the risky securities.B) the line that connects the risk-free rate and the portfolio of the risky securities thathas the highest expected return on the efficient frontier.C) the line tangent to the efficient frontier of risky securities drawn from the risk-freerate.D) the horizontal line drawn from the risk-free rate.E) none of the above.Answer: C Difficulty: ModerateRationale: The Capital Allocation Line represents the most efficient combinations of the risk-free asset and risky securities. Only C meets that definition.8. Consider an investment opportunity set formed with two securities that are perfectlynegatively correlated. The global minimum variance portfolio has a standard deviation that is alwaysA) greater than zero.B) equal to zero.C) equal to the sum of the securities' standard deviations.D) equal to -1.E) none of the above.Answer: B Difficulty: DifficultRationale: If two securities were perfectly negatively correlated, the weights for the minimum variance portfolio for those securities could be calculated, and the standard deviation of the resulting portfolio would be zero.9. Which of the following statements is (are) true regarding the variance of a portfolio oftwo risky securities?A) The higher the coefficient of correlation between securities, the greater thereduction in the portfolio variance.B) There is a linear relationship between the securities' coefficient of correlation andthe portfolio variance.C) The degree to which the portfolio variance is reduced depends on the degree ofcorrelation between securities.D) A and B.E) A and C.Answer: C Difficulty: ModerateRationale: The lower the correlation between the returns of the securities, the more portfolio risk is reduced.10. Efficient portfolios of N risky securities are portfolios thatA) are formed with the securities that have the highest rates of return regardless of theirstandard deviations.B) have the highest rates of return for a given level of risk.C) are selected from those securities with the lowest standard deviations regardless oftheir returns.D) have the highest risk and rates of return and the highest standard deviations.E) have the lowest standard deviations and the lowest rates of return.Answer: B Difficulty: ModerateRationale: Portfolios that are efficient are those that provide the highest expected return for a given level of risk.11. Which of the following statement(s) is (are) true regarding the selection of a portfoliofrom those that lie on the Capital Allocation Line?A) Less risk-averse investors will invest more in the risk-free security and less in theoptimal risky portfolio than more risk-averse investors.B) More risk-averse investors will invest less in the optimal risky portfolio and more inthe risk-free security than less risk-averse investors.C) Investors choose the portfolio that maximizes their expected utility.D) A and C.E) B and C.Answer: E Difficulty: ModerateRationale: All rational investors select the portfolio that maximizes their expectedutility; for investors who are relatively more risk-averse, doing so means investing less in the optimal risky portfolio and more in the risk-free asset.Use the following to answer questions 12-18:Consider the following probability distribution for stocks A and B:12. The expected rates of return of stocks A and B are _____ and _____ , respectively.A) 13.2%; 9%B) 14%; 10%C) 13.2%; 7.7%D) 7.7%; 13.2%E) none of the aboveAnswer: C Difficulty: EasyRationale: E(RA) = 0.1(10%) + 0.2(13%) + 0.2(12%) + 0.3(14%) + 0.2(15%) = 13.2%;E(RB) = 0.1(8%) + 0.2(7%) + 0.2(6%) + 0.3(9%) + 0.2(8%) = 7.7%.13. The standard deviations of stocks A and B are _____ and _____, respectively.A) 1.5%; 1.9%B) 2.5%; 1.1%C) 3.2%; 2.0%D) 1.5%; 1.1%E) none of the aboveAnswer: D Difficulty: ModerateRationale: s A = [0.1(10% - 13.2%)2 + 0.2(13% - 13.2%)2 + 0.2(12% - 13.2%)2 +0.3(14% - 13.2%)2 + 0.2(15% - 13.2%)2]1/2 = 1.5%; s B = [0.1(8% - 7.7%)2 + 0.2(7% -7.7%)2 + 0.2(6% - 7.7%)2 + 0.3(9% - 7.7%)2 + 0.2(8% - 7.7%)2 = 1.1%.14. The coefficient of correlation between A and B isA) 0.47.B) 0.60.C) 0.58D) 1.20.E) none of the above.Answer: A Difficulty: DifficultRationale: covA,B = 0.1(10% - 13.2%)(8% - 7.7%) + 0.2(13% - 13.2%)(7% - 7.7%) +0.2(12% - 13.2%)(6% - 7.7%) + 0.3(14% - 13.2%)(9% - 7.7%) + 0.2(15% - 13.2%)(8%- 7.7%) = 0.76; rA,B = 0.76/[(1.1)(1.5)] = 0.47.15. If you invest 40% of your money in A and 60% in B, what would be your portfolio'sexpected rate of return and standard deviation?A) 9.9%; 3%B) 9.9%; 1.1%C) 11%; 1.1%D) 11%; 3%E) none of the aboveAnswer: B Difficulty: DifficultRationale: E(R P) = 0.4(13.2%) + 0.6(7.7%) = 9.9%; s P = [(0.4)2(1.5)2 + (0.6)2(1.1)2 + 2(0.4)(0.6)(1.5)(1.1)(0.46)]1/2 = 1.1%.16. Let G be the global minimum variance portfolio. The weights of A and B in G are__________ and __________, respectively.A) 0.40; 0.60B) 0.66; 0.34C) 0.34; 0.66D) 0.76; 0.24E) 0.24; 0.76Answer: E Difficulty: DifficultRationale: w A = [(1.1)2 - (1.5)(1.1)(0.46)]/[(1.5)2 + (1.1)2 - (2)(1.5)(1.1)(0.46) = 0.23;w B = 1 - 0.23 = 0.77.Note that the above solution assumes the solutions obtained in question 13 and 14.17. The expected rate of return and standard deviation of the global minimum varianceportfolio, G, are __________ and __________, respectively.A) 10.07%; 1.05%B) 9.04%; 2.03%C) 10.07%; 3.01%D) 9.04%; 1.05%E) none of the aboveAnswer: D Difficulty: ModerateRationale: E(R G) = 0.23(13.2%) + 0.77(7.7%) = 8.97% . 9%; s G = [(0.23)2(1.5)2 +(0.77)2(1.1)2 + (2)(0.23)(0.77)(1.5)(1.1)(0.46)]1/2 = 1.05%.18. Which of the following portfolio(s) is (are) on the efficient frontier?A) The portfolio with 20 percent in A and 80 percent in B.B) The portfolio with 15 percent in A and 85 percent in B.C) The portfolio with 26 percent in A and 74 percent in B.D) The portfolio with 10 percent in A and 90 percent in B.E) A and B are both on the efficient frontier.Answer: C Difficulty: DifficultRationale: The Portfolio's E(Rp), sp, Reward/volatility ratios are 20A/80B: 8.8%,1.05%, 8.38; 15A/85B: 8.53%, 1.06%, 8.07; 26A/74B: 9.13%, 1.05%, 8.70; 10A/90B:8.25%, 1.07%, 7.73. The portfolio with 26% in A and 74% in B dominates all of theother portfolios by the mean-variance criterion.Use the following to answer questions 19-21:Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%.19. The weights of A and B in the global minimum variance portfolio are _____ and _____,respectively.A) 0.24; 0.76B) 0.50; 0.50C) 0.57; 0.43D) 0.43; 0.57E) 0.76; 0.24Answer: D Difficulty: ModerateRationale: wA = 12 /(16 + 12) = 0.4286; wB = 1 - 0.4286 = 0.5714.20. The risk-free portfolio that can be formed with the two securities will earn _____ rate ofreturn.A) 8.5%B) 9.0%C) 8.9%D) 9.9%E) none of the aboveAnswer: C Difficulty: DifficultRationale: E(R P) = 0.43(10%) + 0.57(8%) = 8.86%.21. Which of the following portfolio(s) is (are) most efficient?A) 45 percent in A and 55 percent in B.B) 65 percent in A and 35 percent in B.C) 35 percent in A and 65 percent in B.D) A and B are both efficient.E) A and C are both efficient.Answer: D Difficulty: DifficultRationale: The Portfolio E(Rp), sp, and Reward/volatility ratios are 45A/55B: 8.9%,0.6%, 14.83; 65A/35B: 9.3%, 6.2%, 1.5; 35A/65B: 8.7%, 2.2%, 3.95. Both A and B areefficient according to the mean-variance criterion. A has a much higherReward/volatility ratio.22. An investor who wishes to form a portfolio that lies to the right of the optimal riskyportfolio on the Capital Allocation Line must:A) lend some of her money at the risk-free rate and invest the remainder in the optimalrisky portfolio.B) borrow some money at the risk-free rate and invest in the optimal risky portfolio.C) invest only in risky securities.D) such a portfolio cannot be formed.E) B and CAnswer: E Difficulty: ModerateRationale: The only way that an investor can create portfolios to the right of the Capital Allocation Line is to create a borrowing portfolio (buy stocks on margin). In this case, the investor will not hold any of the risk-free security, but will hold only risky securities.23. Which one of the following portfolios cannot lie on the efficient frontier as describedby Markowitz?A) Only portfolio W cannot lie on the efficient frontier.B) Only portfolio X cannot lie on the efficient frontier.C) Only portfolio Y cannot lie on the efficient frontier.D) Only portfolio Z cannot lie on the efficient frontier.E) Cannot tell from the information given.Answer: A Difficulty: ModerateRationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higher standard deviation than Z with a lower expected return.24. Which one of the following portfolios cannot lie on the efficient frontier as describedby Markowitz?A) Only portfolio A cannot lie on the efficient frontier.B) Only portfolio B cannot lie on the efficient frontier.C) Only portfolio C cannot lie on the efficient frontier.D) Only portfolio D cannot lie on the efficient frontier.E) Cannot tell from the information given.Answer: D Difficulty: ModerateRationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higher standard deviation than Z with a lower expected return.25. Portfolio theory as described by Markowitz is most concerned with:A) the elimination of systematic risk.B) the effect of diversification on portfolio risk.C) the identification of unsystematic risk.D) active portfolio management to enhance returns.E) none of the above.Answer: B Difficulty: ModerateRationale: Markowitz was concerned with reducing portfolio risk by combining risky securities with differing return patterns.26. The measure of risk in a Markowitz efficient frontier is:A) specific risk.B) standard deviation of returns.C) reinvestment risk.D) beta.E) none of the above.Answer: B Difficulty: ModerateRationale: Markowitz was interested in eliminating diversifiable risk (and thuslessening total risk) and thus was interested in decreasing the standard deviation of the returns of the portfolio.27. A statistic that measures how the returns of two risky assets move together is:A) variance.B) standard deviation.C) covariance.D) correlation.E) C and D.Answer: E Difficulty: ModerateRationale: Covariance measures whether security returns move together or inopposition; however, only the sign, not the magnitude, of covariance may be interpreted.Correlation, which is covariance standardized by the product of the standard deviations of the two securities, may assume values only between +1 and -1; thus, both the sign and the magnitude may be interpreted regarding the movement of one security's returnrelative to that of another security.28. The unsystematic risk of a specific securityA) is likely to be higher in an increasing market.B) results from factors unique to the firm.C) depends on market volatility.D) cannot be diversified away.E) none of the above.Answer: B Difficulty: ModerateRationale: Unsystematic (or diversifiable or firm-specific) risk refers to factors unique to the firm. Such risk may be diversified away; however, market risk will remain.29. Which statement about portfolio diversification is correct?A) Proper diversification can reduce or eliminate systematic risk.B) The risk-reducing benefits of diversification do not occur meaningfully until at least50-60 individual securities have been purchased.C) Because diversification reduces a portfolio's total risk, it necessarily reduces theportfolio's expected return.D) Typically, as more securities are added to a portfolio, total risk would be expectedto decrease at a decreasing rate.E) None of the above statements is correct.Answer: D Difficulty: ModerateRationale: Diversification can eliminate only nonsystematic risk; relatively fewsecurities are required to reduce this risk, thus diminishing returns result quickly.Diversification does not necessarily reduce returns.30. The individual investor's optimal portfolio is designated by:A) The point of tangency with the indifference curve and the capital allocation line.B) The point of highest reward to variability ratio in the opportunity set.C) The point of tangency with the opportunity set and the capital allocation line.D) The point of the highest reward to variability ratio in the indifference curve.E) None of the above.Answer: A Difficulty: ModerateRationale: The indifference curve represents what is acceptable to the investor; the capital allocation line represents what is available in the market. The point of tangency represents where the investor can obtain the greatest utility from what is available.31. For a two-stock portfolio, what would be the preferred correlation coefficient betweenthe two stocks?A) +1.00.B) +0.50.C) 0.00.D) -1.00.E) none of the above.Answer: D Difficulty: ModerateRationale: The correlation coefficient of -1.00 provides the greatest diversificationbenefits.32. In a two-security minimum variance portfolio where the correlation between securitiesis greater than -1.0A) the security with the higher standard deviation will be weighted more heavily.B) the security with the higher standard deviation will be weighted less heavily.C) the two securities will be equally weighted.D) the risk will be zero.E) the return will be zero.Answer: B Difficulty: DifficultRationale: The security with the higher standard deviation will be weighted less heavily to produce minimum variance. The return will not be zero; the risk will not be zero unless the correlation coefficient is -1.33. Which of the following is not a source of systematic risk?A) the business cycle.B) interest rates.C) personnel changesD) the inflation rate.E) exchange rates.Answer: C Difficulty: EasyRationale: Personnel changes are a firm-specific event that is a component ofnon-systematic risk. The others are all sources of systematic risk.34. The global minimum variance portfolio formed from two risky securities will beriskless when the correlation coefficient between the two securities isA) 0.0B) 1.0C) 0.5D) -1.0E) negativeAnswer: D Difficulty: ModerateRationale: The global minimum variance portfolio will have a standard deviation of zero whenever the two securities are perfectly negatively correlated.35. Security X has expected return of 12% and standard deviation of 20%. Security Y hasexpected return of 15% and standard deviation of 27%. If the two securities have a correlation coefficient of 0.7, what is their covariance?A) 0.038B) 0.070C) 0.018D) 0.013E) 0.054Answer: A Difficulty: ModerateRationale: Cov(r X, r Y) = (.7)(.20)(.27) = .037836. When two risky securities that are positively correlated but not perfectly correlated areheld in a portfolio,A) the portfolio standard deviation will be greater than the weighted average of theindividual security standard deviations.B) the portfolio standard deviation will be less than the weighted average of theindividual security standard deviations.C) the portfolio standard deviation will be equal to the weighted average of theindividual security standard deviations.D) the portfolio standard deviation will always be equal to the securities' covariance.E) none of the above is true.Answer: B Difficulty: ModerateRationale: Whenever two securities are less than perfectly positively correlated, the standard deviation of the portfolio of the two assets will be less than the weightedaverage of the two securities' standard deviations. There is some benefit todiversification in this case.37. The line representing all combinations of portfolio expected returns and standarddeviations that can be constructed from two available assets is called theA) risk/reward tradeoff lineB) Capital Allocation LineC) efficient frontierD) portfolio opportunity setE) Security Market LineAnswer: D Difficulty: EasyRationale: The portfolio opportunity set is the line describing all combinations ofexpected returns and standard deviations that can be achieved by a portfolio of risky assets.38. Given an optimal risky portfolio with expected return of 14% and standard deviation of22% and a risk free rate of 6%, what is the slope of the best feasible CAL?A) 0.64B) 0.14C) 0.08D) 0.33E) 0.36Answer: E Difficulty: ModerateRationale: Slope = (14-6)/22 = .363639. The risk that can be diversified away in a portfolio is referred to as ___________.I)diversifiable riskII)unique riskIII)systematic riskIV)firm-specific riskA) I, III, and IVB) II, III, and IVC) III and IVD) I, II, and IVE) I, II, III, and IVAnswer: D Difficulty: ModerateRationale: All of these terms are used interchangeably to refer to the risk that can be removed from a portfolio through diversification.40. As the number of securities in a portfolio is increased, what happens to the averageportfolio standard deviation?A) It increases at an increasing rate.B) It increases at a decreasing rate.C) It decreases at an increasing rate.D) It decreases at a decreasing rate.E) It first decreases, then starts to increase as more securities are added.Answer: D Difficulty: ModerateRationale: Statman's study showed that the risk of the portfolio would decrease asrandom stocks were added. At first the risk decreases quickly, but then the rate ofdecrease slows substantially, as shown in Figure 7.2. The minimum portfolio risk in the study was 19.2%.41. In words, the covariance considers the probability of each scenario happening and theinteraction betweenA) securities' returns relative to their variances.B) securities' returns relative to their mean returns.C) securities' returns relative to other securities' returns.D) the level of return a security has in that scenario and the overall portfolio return.E) the variance of the security's return in that scenario and the overall portfoliovariance.Answer: B Difficulty: DifficultRationale: As written in equation 7.4, the covariance of the returns between twosecurities is the sum over all scenarios of the product of three things. The first item is the probability that the scenario will happen. The second and third terms represent the deviations of the securities' returns in that scenario from their own expected returns. 42. The standard deviation of a two-asset portfolio is a linear function of the assets' weightswhenA) the assets have a correlation coefficient less than zero.B) the assets have a correlation coefficient equal to zero.C) the assets have a correlation coefficient greater than zero.D) the assets have a correlation coefficient equal to one.E) the assets have a correlation coefficient less than one.Answer: D Difficulty: ModerateRationale: When there is a perfect positive correlation (or a perfect negative correlation), the equation for the portfolio variance simplifies to a perfect square. The result is that the portfolio's standard deviation is linear relative to the assets' weights in the portfolio.43. A two-asset portfolio with a standard deviation of zero can be formed whenA) the assets have a correlation coefficient less than zero.B) the assets have a correlation coefficient equal to zero.C) the assets have a correlation coefficient greater than zero.D) the assets have a correlation coefficient equal to one.E) the assets have a correlation coefficient equal to negative one.Answer: E Difficulty: ModerateRationale: When there is a perfect negative correlation, the equation for the portfolio variance simplifies to a perfect square. The result is that the portfolio’s standarddeviation equals |w AσA– w BσB|, which can be set equal to zero. The solution w A = σB/(σA+ σB) and w B = 1 – w A will yield a zero-standard deviation portfolio.44. When borrowing and lending at a risk-free rate are allowed, which Capital AllocationLine (CAL) should the investor choose to combine with the efficient frontier?I)with the highest reward-to-variability ratio.II)that will maximize his utility.III)with the steepest slope.IV)with the lowest slope.A) I and IIIB) I and IVC) II and IVD) I onlyE) I, II, and IIIAnswer: E Difficulty: DifficultRationale: The optimal CAL is the one that is tangent to the efficient frontier. This CAL offers the highest reward-to-variability ratio, which is the slope of the CAL. It will also allow the investor to reach his highest feasible level of utility.45. Which Excel tool can be used to find the points along an efficient frontier?A) RegressionB) SolverC) ScenariosD) Goal SeekE) Data AnalysisAnswer: B Difficulty: ModerateRationale: Even if the student isn't familiar with Excel's Solver tool, he shouldrecognize it from the discussion in the text.46. The separation property refers to the conclusion thatA) the determination of the best risky portfolio is objective and the choice of the bestcomplete portfolio is subjective.B) the choice of the best complete portfolio is objective and the determination of thebest risky portfolio is objective.C) the choice of inputs to be used to determine the efficient frontier is objective and thechoice of the best CAL is subjective.D) the determination of the best CAL is objective and the choice of the inputs to beused to determine the efficient frontier is subjective.E) investors are separate beings and will therefore have different preferences regardingthe risk-return tradeoff.Answer: A Difficulty: DifficultRationale: The determination of the optimal risky portfolio is purely technical and can be done by a manager. The complete portfolio, which consists of the optimal riskyportfolio and the risk-free asset, must be chosen by each investor based on preferences. Use the following to answer questions 47-50:Consider the following probability distribution for stocks A and B:47. The expected rates of return of stocks A and B are _____ and _____, respectively.A) 13.2%; 9%.B) 13%; 8.4%C) 13.2%; 7.7%D) 7.7%; 13.2%E) none of the aboveAnswer: B Difficulty: EasyRationale: E(RA) = 0.15(8%) + 0.2(13%) + 0.15(12%) + 0.3(14%) + 0.2(16%) = 13%;E(RB) = 0.15(8%) + 0.2(7%) + 0.15(6%) + 0.3(9%) + 0.2(11%) = 8.4%.48. The standard deviations of stocks A and B are _____ and _____, respectively.A) 1.56%; 1.99%B) 2.45%; 1.68%C) 3.22%; 2.01%D) 1.54%; 1.11%E) none of the aboveAnswer: B Difficulty: ModerateRationale: s A = [0.15(8% - 13%)2 + 0.2(13% - 13%)2 + 0.15(12% - 13%)2 + 0.3(14% - 13%)2 + 0.2(16% - 13%)2] 1/2 = 2.449%; s B = [0.15(8% - 8.4%)2 + 0.2(7% - 8.4%)2 +0.15(6% - 8.4%)2 + 0.3(9% - 8.4%)2 + 0.2(11% - 8.4%)2 ] 1/2= 1.676%.49. The coefficient of correlation between A and B isA) 0.474.B) 0.612.C) 0.583.D) 1.206.E) none of the above.Answer: C Difficulty: DifficultRationale: covA,B = 0.15(8% - 13%)(8% - 8.4%) + 0.2(13% - 13%)(7% - 8.4%) +0.15(12% - 13%)(6% - 8.4%) + 0.3(14% - 13%)(9% - 8.4%) + 0.2(16% - 13%)(11% -8.4%) = 2.40; rA,B = 2.40/[(2.45)(1.68)] = 0.583.50. If you invest 35% of your money in A and 65% in B, what would be your portfolio'sexpected rate of return and standard deviation?A) 9.9%; 3%B) 9.9%; 1.1%C) 10%; 1.7%D) 10%; 3%E) none of the aboveAnswer: C Difficulty: DifficultRationale: E(R P) = 0.35(13%) + 0.65(8.4%) = 10.01%; s P = [(0.35)2(2.45%)2 +(0.65)2(1.68)2 + 2(0.35)(0.65)(2.45)(1.68)(0.583)]1/2 = 1.7%.Use the following to answer questions 51-52:Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of 9% and a standard deviation of 14%.。
投资学第7版testbank答案
Multiple Choice Questions1. Which one of the following statements regarding open-end mutual funds isfalseA) The funds redeem shares at net asset value.B) The funds offer investors professional management.C) The funds offer investors a guaranteed rate of return.D) B and C.E) A and B.Answer: C Difficulty: ModerateRationale: No investment offers a guaranteed rate of return.2. Which one of the following statements regarding closed-end mutual fundsis falseA) The funds always trade at a discount from NAV.B) The funds redeem shares at their net asset value.C) The funds offer investors professional management.D) A and B.E) None of the above.Answer: D Difficulty: ModerateRationale: Closed-end funds are sold at the prevailing market price.3. Which of the following functions do mutual fund companies perform for theirinvestorsA) Record keeping and administrationB) Diversification and divisibilityC) Professional managementD) Lower transaction costsE) All of the above.Answer: E Difficulty: EasyRationale: Mutual funds are attractive to investors because they offer all of the listed services.4. Multiple Mutual Funds had year-end assets of $457,000,000 and liabilitiesof $17,000,000. There were 24,300,000 shares in the fund at year-end.What was Multiple Mutual's Net Asset ValueA) $B) $C) $D) $E) $Answer: A Difficulty: ModerateRationale: (457,000,000 - 17,000,000) / 24,300,000 = $5. Growth Fund had year-end assets of $862,000,000 and liabilities of$12,000,000. There were 32,675,254 shares in the fund at year-end. What was Growth Fund's Net Asset ValueA) $B) $C) $D) $E) $Answer: D Difficulty: ModerateRationale: (862,000,000 - 12,000,000) / 32,675,254 = $6. Diversified Portfolios had year-end assets of $279,000,000 andliabilities of $43,000,000. If Diversified's NAV was $, how many shares must have been held in the fundA) 43,000,000B) 6,488,372C) 5,601,709D) 1,182,203E) None of the above.Answer: C Difficulty: ModerateRationale: ($279,000,000 - 43,000,000) / $ = 5,601,.7. Pinnacle Fund had year-end assets of $825,000,000 and liabilities of$25,000,000. If Pinnacle's NAV was $, how many shares must have been held in the fundA) 21,619,346,92B) 22,930,C) 24,860,D) 25,693,E) None of the above.Answer: C Difficulty: ModerateRationale: ($825,000,000 - 25,000,000) / $ = 24,860,.8. Most actively managed mutual funds, when compared to a market index suchas the Wilshire 5000,A) beat the market return in all years.B) beat the market return in most years.C) exceed the return on index funds.D) do not outperform the marketE) None of the above is a correct statement.Answer: D Difficulty: EasyRationale: Most actively managed mutual funds fail to equal the return earned by index funds, possibly due to higher transactions costs.9. Pools of money invested in a portfolio that is fixed for the life of thefund are calledA) closed-end funds.B) open-end funds.C) unit investment trusts.D) REITS.E) redeemable trust certificates.Answer: C Difficulty: EasyRationale: Unit investment trusts are funds that invest in a portfolio, often fixed-income securities, and hold it to maturity.10. Investors in closed-end funds who wish to liquidate their positions mustA) 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.Answer: A Difficulty: ModerateRationale: Closed-end fund shares are sold on organized exchanges through a broker.11. Closed end funds are frequently issued at a ______ to NAV and subsequentlytrade at a __________ to NAV.A) discount, discountB) discount, premiumC) premium, premiumD) premium, discountE) No consistent relationship has been observed.Answer: D Difficulty: ModerateRationale: Closed-end funds are typically issued at a premium to Net Asset Value and subsequently trade at a discount.12. At issue, offering prices of open-end funds will often beA) less than NAV due to loads and commissions.B) greater than NAV due to loads and commissions.C) less than NAV due to limited demand.D) greater than NAV due to excess demand.E) less than or greater than NAV with no apparent pattern.Answer: B Difficulty: DifficultRationale: Open-end funds are redeemable on demand at NAV so they should never sell for less than NAV. However, loads and commissions can increase the price above NAV.13. Which of the following statements about Real Estate Investment Trusts istrueA) REITS invest in real estate or loans secured by real estate.B) REITS raise capital by borrowing from banks and issuing mortgages.C) REITS are similar to open-end funds, with shares redeemable at NAV.D) All of the above are true.E) Both A and B are true.Answer: E Difficulty: ModerateRationale: Real Estate Investment Trusts invest in real estate orreal-estate-secured loans. They may raise capital from banks and by issuing mortgages. They are similar to closed-end funds and shares are typically exchange traded.14. In 2004 the proportion of mutual funds specializing in common stocks wasA) %B) %C) %D) %E) %Answer: C Difficulty: ModerateRationale: See Table .15. In 2004 the proportion of mutual funds specializing in bonds wasA) %B) %C) %D) %E) %Answer: A Difficulty: ModerateRationale: See Table .16. In 2004 the proportion of mutual funds specializing in money marketsecurities wasA) %B) %C) %D) %E) %Answer: C Difficulty: ModerateRationale: See Table .17. Management fees and other expenses of mutual funds may includeA) front-end loads.B) back-end loads.C) 12b-1 charges.D) A and B only.E) A, B and C.Answer: E Difficulty: EasyRationale: All of the listed expenses may be included in the cost of owninga mutual fund.18. The Profitability Fund had NAV per share of $ on January 1, 2005. OnDecember 31 of the same year the fund's NAV was $. Income distributions were $ and the fund had capital gain distributions of $. Withoutconsidering taxes and transactions costs, what rate of return did an investor receive on the Profitability fund last yearA) %B) %C) %D) %E) %Answer: D Difficulty: ModerateRationale: R = ($ - + .75 + / $ = %19. The Yachtsman Fund had NAV per share of $ on January 1, 2005. On December31 of the same year the fund's NAV was $. Income distributions were $ andthe fund had capital gain distributions of $. Without considering taxes and transactions costs, what rate of return did an investor receive on the Yachtsman Fund last yearA) %B) %C) %D) %E) %Answer: E Difficulty: ModerateRationale: R = ($ - + .64 + / $ = %20. Investors' Choice Fund had NAV per share of $ on January 1, 2005. OnDecember 31 of the same year the fund's rate of return for the year was %.Income distributions were $ and the fund had capital gain distributions of $. Without considering taxes and transactions costs, what ending NAV would you calculate for Investors' ChoiceA) $B) $C) $D) $E) $Answer: A Difficulty: ModerateRationale: .173 = (P - $ + + / $; P = $21. Which of the following is not an advantage of mutual fundsA) They offer a variety of investment styles.B) They offer small investors the benefits of diversification.C) They treat income as "passed through" to the investor for tax purposes.D) A, B and C are all advantages of mutual funds.E) Neither A nor B nor C are advantages of mutual funds.Answer: C Difficulty: EasyRationale: A disadvantage of mutual funds is that investment income is passed through for tax purposes and investors may therefore lose the ability to engage in tax management.22. Which of the following would increase the net asset value of a mutual fundshare, assuming all other things remain unchangedA) an increase in the number of fund shares outstandingB) an increase in the fund's accounts payableC) a change in the fund's managementD) an increase in the value of one of the fund's stocksE) a decrease in the fund's 12b-1 feeAnswer: D Difficulty: Easy23. Which of the following characteristics apply to unit investment trustsI)Most are invested in fixed-income portfolios.II)They are actively managed portfolios.III)The sponsor pools securities, then sells public shares in the trust.IV)The portfolio is fixed for the life of the fund.A) I and IVB) I and IIC) I, III, and IVD) I, II, and IIIE) I, II, III, and IVAnswer: C Difficulty: Moderate24. Jargon Rapid Growth is a mutual fund that has traditionally accepted fundsfrom new investors and issued new shares at net asset value. Jeremy Jargon manages the fund himself and has become concerned that its level of assets has become too high for his management abilities. He issues a statement that Jargon will no longer accept funds from new investors, but will continue to accept additional investments from current shareholders.Which of the following is true about Jargon Rapid Growth fundA) Jargon used to be an open-end fund but has now become a closed-end fund.B) Jargon has always been an open-end fund and will remain an open-endfund.C) Jargon has always been a closed-end fund and will remain a closed-endfund.D) Jargon is an open-end fund but would change to a closed-end fund ifit wouldn't accept additional funds from current investors.E) Jargon is violating SEC policy by refusing to accept new investors.Answer: B Difficulty: Moderate25. As of December 31, 2004, which class of mutual funds had the largest amountof assets investedA) stock fundsB) bond fundsC) mixed asset classes such as asset allocation fundsD) money market fundsE) global fundsAnswer: A Difficulty: EasyRationale: See Table .26. Commingled funds areA) amounts invested in equity and fixed-income mutual funds.B) funds that may be purchased at intervals of 3, 6, or 12 month intervalsat the discretion of management.C) amounts invested in domestic and global equities.D) closed-end funds that may be repurchased only once every two years atthe discretion of mutual fund management.E) partnerships of investors that pool their funds, which are then managedfor a fee.Answer: E Difficulty: Easy27. Which of the following is true regarding equity mutual fundsI)They invest primarily in stock.II)They may hold fixed-income securities as well as stock.III)Most hold money market securities as well as stock.IV)Two types of equity funds are income funds and growth funds.A) I and IVB) I, III, and IVC) I, II, and IVD) I, II, and IIIE) I, II, III, and IVAnswer: E Difficulty: Moderate28. The fee that mutual funds use to help pay for advertising and promotionalliterature is called aA) front-end load fee.B) back-end load fee.C) operating expense fee.D) 12b-1 fee.E) structured fee.Answer: D Difficulty: Easy29. Patty O'Furniture purchased 100 shares of Green Isle mutual fund at a netasset value of $42 per share. During the year Patty received dividend income distributions of $ per share and capital gains distributions of $ per share. At the end of the year the shares had a net asset value of $40 per share. What was Patty's rate of return on this investmentA) %B) %C) %D) %E) %Answer: B Difficulty: ModerateRationale: R = ($40-42+2+/$42 = %30. Assume that you purchased 200 shares of Super Performing mutual fund ata net asset value of $21 per share. During the year you received dividendincome distributions of $ per share and capital gains distributions of $ per share. At the end of the year the shares had a net asset value of $23 per share. What was your rate of return on this investmentA) %B) %C) %D) %E) %Answer: A Difficulty: ModerateRationale: R = ($23-21++/$21 = %31. Assume that you purchased shares of High Flying mutual fund at a net assetvalue of $ per share. During the year you received dividend incomedistributions of $ per share and capital gains distributions of $ per share.At the end of the year the shares had a net asset value of $ per share.What was your rate of return on this investmentA) %B) %C) %D) %E) %Answer: B Difficulty: ModerateRationale: R = ($ = %32. Assume that you purchased shares of a mutual fund at a net asset valueof $ per share. During the year you received dividend income distributions of $ per share and capital gains distributions of $ per share. At the end of the year the shares had a net asset value of $ per share. What was your rate of return on this investmentA) %B) %C) %D) %E) %Answer: C Difficulty: ModerateRationale: R = ($ = %33. Assume that you purchased shares of a mutual fund at a net asset valueof $ per share. During the year you received dividend income distributions of $ per share and capital gains distributions of $ per share. At the end of the year the shares had a net asset value of $ per share. What was your rate of return on this investmentA) %B) %C) %D) %E) %Answer: D Difficulty: ModerateRationale: R = ($ = %34. A mutual fund had year-end assets of $560,000,000 and liabilities of$26,000,000. There were 23,850,000 shares in the fund at year end. What was the mutual fund's Net Asset ValueA) $B) $C) $D) $E) $Answer: B Difficulty: ModerateRationale: (560,000,000 - 26,000,000) / 23,850,000 = $35. A mutual fund had year-end assets of $250,000,000 and liabilities of$4,000,000. There were 3,750,000 shares in the fund at year-end. What was the mutual fund's Net Asset ValueA) $B) $C) $D) $E) $Answer: D Difficulty: ModerateRationale: (250,000,000 - 4,000,000) / 3,750,000 = $36. A mutual fund had year-end assets of $700,000,000 and liabilities of$7,000,000. There were 40,150,000 shares in the fund at year-end. What was the mutual fund's Net Asset ValueA) $B) $C) $D) $E) $Answer: E Difficulty: ModerateRationale: (700,000,000 - 7,000,000) / 40,150,000 = $37. A mutual fund had year-end assets of $465,000,000 and liabilities of$37,000,000. If the fund NAV was $, how many shares must have been held in the fundA) 4,300,000B) 6,488,372C) 8,601,709D) 7,626,515E) None of the above.Answer: D Difficulty: ModerateRationale: ($465,000,000 - 37,000,000) / $ = 7,626,515.38. A mutual fund had year-end assets of $521,000,000 and liabilities of$63,000,000. If the fund NAV was $, how many shares must have been held in the fundA) 17,534,456B) 16,488,372C) 18,601,742D) 17,542,515E) None of the above.Answer: A Difficulty: ModerateRationale: ($521,000,000 - 63,000,000) / $ = 17,534,456.39. A mutual fund had year-end assets of $327,000,000 and liabilities of$46,000,000. If the fund NAV was $, how many shares must have been held in the fundA) 11,354,751B) 8,412,642C) 10,165,476D) 9,165,414E) 9,219,160Answer: E Difficulty: ModerateRationale: ($327,000,000 - 46,000,000) / $ = 9,219,160.40. A mutual fund had NAV per share of $ on January 1, 2005. On December 31of the same year the fund's NAV was $. Income distributions were $ and the fund had capital gain distributions of $. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last yearA) %B) %C) %D) %E) %Answer: E Difficulty: ModerateRationale: R = ($ - + .57 + / $ = %41. A mutual fund had NAV per share of $ on January 1, 2005. On December 31of the same year the fund's rate of return for the year was %. Income distributions were $ and the fund had capital gain distributions of $.Without considering taxes and transactions costs, what ending NAV would you calculateA) $B) $C) $D) $E) $Answer: A Difficulty: ModerateRationale: .164 = (P - $ + + / $; P = $42. A mutual fund had NAV per share of $ on January 1, 2005. On December 31of the same year the fund's rate of return for the year was %. Income distributions were $ and the fund had capital gain distributions of $.Without considering taxes and transactions costs, what ending NAV would you calculateA) $B) $C) $D) $E) $Answer: E Difficulty: ModerateRationale: .266 = (P - $ + + / $; P = $43. A mutual fund had NAV per share of $ on January 1, 2005. On December 31of the same year the fund's rate of return for the year was %. Income distributions were $ and the fund had capital gain distributions of $.Without considering taxes and transactions costs, what ending NAV would you calculateA) $B) $C) $D) $E) $Answer: A Difficulty: ModerateRationale: .14 = (P - $ + + / $; P = $44. Differences between hedge funds and mutual funds are thatA) hedge funds are only subject to minimal SEC regulation.B) hedge funds are typically open only to wealthy or institutionalinvestors.C) hedge funds managers can pursue strategies not available to mutualfunds such as short selling, heavy use of derivatives, and leverage.D) hedge funds attempt to exploit temporary misalignments in securityvaluations.E) all of the aboveAnswer: E Difficulty: Moderate45. Of the following types of mutual funds, an investor that wishes to investin a diversified portfolio of stocks worldwide (including the .) should chooseA) international funds.B) global funds.C) regional funds.D) emerging market funds.E) none of the above.Answer: B Difficulty: Moderate46. Of the following types of mutual funds, an investor that wishes to investin a diversified portfolio of foreign stocks (excluding the .) should chooseA) International fundsB) Global fundsC) Regional fundsD) Emerging market fundsE) None of the aboveAnswer: A Difficulty: Moderate47. Of the following types of EFTs, an investor that wishes to invest in adiversified portfolio that tracks the S&P 500 should chooseA) SPY.B) DIA.C) QQQ.D) IWM.E) VTI.Answer: A Difficulty: Moderate48. Of the following types of EFTs, an investor that wishes to invest in adiversified portfolio that tracks the Dow Jones Industrials should chooseA) SPY.B) DIA.C) QQQ.D) IWM.E) VTI.Answer: B Difficulty: Moderate49. Of the following types of EFTs, an investor that wishes to invest in adiversified portfolio that tracks the Nasdaq 100 should chooseA) SPY.B) DIA.C) QQQ.D) IWM.E) VTI.Answer: C Difficulty: Moderate50. Of the following types of EFTs, an investor that wishes to invest in adiversified portfolio that tracks the Russell 2000 should chooseA) SPY.B) DIA.C) QQQ.D) IWM.E) VTI.Answer: D Difficulty: Moderate51. Of the following types of EFTs, an investor that wishes to invest in adiversified portfolio that tracks the Wilshire 5000 should chooseA) SPY.B) DIA.C) QQQ.D) IWM.E) VTI.Answer: E Difficulty: Moderate52. A mutual funds had average daily assets of $ billion in 2005. The fundsold $600 million worth of stock and purchased $700 million worth of stock during the year. The funds turnover ratio is ___.A) %B) 12%C) 15%D) 25%E) 20%Answer: E Difficulty: ModerateRationale: 600,000,000 / 3,000,000,000 = 20%53. A mutual funds had average daily assets of $ billion on 2005. The fundsold $500 million worth of stock and purchased $600 million worth of stock during the year. The funds turnover ratio is ___.A) %B) 12%C) 15%D) 25%E) 20%Answer: D Difficulty: ModerateRationale: 500,000,000 / 2,000,000,000 = 25%54. A mutual funds had average daily assets of $ billion on 2005. The fundsold $ billion worth of stock and purchased $ billion worth of stock during the year. The funds turnover ratio is ____________.A) %B) 22%C) 15%D) 45%E) 20%Answer: A Difficulty: ModerateRationale: 1,500,000,000 / 4,000,000,000 = %55. You purchased shares of a mutual fund at a price of $20 per share at thebeginning of the year and paid a front-end load of %. If the securities in which the find invested increased in value by 11% during the year, and the funds expense ratio was %, your return if you sold the fund at the end of the year would be ____________.A)B)C)D)E) None of the aboveAnswer: B Difficulty: DifficultRationale: {[$20 * .9425* / $20 = %56. You purchased shares of a mutual fund at a price of $12 per share at thebeginning of the year and paid a front-end load of %. If the securities in which the fund invested increased in value by 9% during the year, and the funds expense ratio was %, your return if you sold the fund at the end of the year would be ____________.A)B)C)D)E) None of the aboveAnswer: D Difficulty: DifficultRationale: {[$12 * .9525* / $12 = %57. You purchased shares of a mutual fund at a price of $17 per share at thebeginning of the year and paid a front-end load of %. If the securities in which the find invested increased in value by 12% during the year, and the funds expense ratio was %, your return if you sold the fund at the end of the year would be ____________.A)B)C)D)E) None of the aboveAnswer: B Difficulty: DifficultRationale: {[$17 * .95* / $17 = %Essay Questions58. List and describe the more important types of mutual funds according totheir investment policy and use.Difficulty: ModerateAnswer:Some of the more important fund types, classified by investment policy, are:Money Market Funds - These funds invest in money market securities. They usually offer check-writing features and NAV is fixed at $1 per share, so that there are no tax implications associated with redemption of shares.They provide low risk, relatively low return and high liquidity.Equity Funds - These funds invest primarily in stock, although they may hold other types of securities at the manager's discretion. They may also hold some money market securities to provide liquidity for shareredemption. Typical objectives are capital gain, growth, growth andincome, income, and income and security.Bond Funds - These funds specialize in fixed-income securities such as corporate bonds, Treasury bonds, mortgage-backed securities or municipal bonds. These funds may specialize by maturity or credit risk as well.Balanced Funds - These funds may substitute for an investor's entireportfolio. They hold a mix of fixed-income and equity securities. Income funds try to maintain safety of principal but achieve liberal current income, while balanced funds seek to minimize risk.Asset Allocation Funds- These funds also hold both stocks and bonds, but vary the proportions in accord with the portfolio manager's forecast of the relative performance of each sector. These funds are engaged in market timing and are therefore higher risk.Index Funds - These funds try to match the performance of a broad market index. They buy shares in securities included in a particular index in proportion to the security's representation in that index. Index funds are a low-cost way for small investors to pursue a passive investment strategy.Specialized Sector Funds - These funds concentrate on a particularindustry or industries. Held alone, they are not well diversified and may be higher risk.The question is designed to test the student's knowledge of the various types of funds available and their suitability for different needs.59. Discuss the taxation of mutual fund income.Difficulty: DifficultAnswer:Investment returns of mutual funds are granted "pass-through status" under the . tax code, meaning that taxes are paid only by the investor in the mutual fund, not by the fund itself. The income is treated as passed through to the investor as long as all income is distributed toshareholders.Investors will pay taxes at the appropriate rate depending on the type of income. One drawback is that investors cannot time the sale ofsecurities for maximum tax advantage, unless the funds are held intax-deferred retirement accounts.The purpose of the question is to determine whether students understand the tax differences of owning mutual funds as compared to individualinvestments.60. What is an Exchange-traded fund Give two examples of specific ETFs. Whatare some advantages they have over ordinary open-end mutual funds What are some disadvantagesDifficulty: DifficultAnswer:ETFs allow investors to trade index portfolios. Some examples are spiders (SPDR), which track the S&P500 index, diamonds (DIA), which track the Dow Jones Industrial Average, and qubes (QQQ), which track the NASDAQ 100 index.Other examples are listed in Table 4-3. (It is anticipated that there may soon be ETFs that track actively managed funds as well ad the current ones that track indexes.)Advantages -1.ETFs may be bought and sold during the trading day at prices that reflectthe current value of the underlying index. This is different fromordinary open-end mutual funds, which are bought or sold only at theend of the day NAV.2.ETFs can be sold short.3.ETFs can be purchased on margin.4.ETFs may have tax advantages. Managers are not forced to sellsecurities from a portfolio to meet redemption demands, as they would be with open-end funds. Small investors simply sell their ETF shares to other traders without affecting the composition of the underlying portfolio. Institutional investors who want to sell their shares receive shares of stock in the underlying portfolio.5.ETFs may be cheaper to buy than mutual funds because they are purchasedfrom brokers. The fund doesn't have to incur the costs of marketing itself, so the investor incurs lower management fees.Disadvantages -1.ETF prices can differ from NAV by small amounts because of the way theytrade. This can lead to arbitrage opportunities for large traders.2.ETFs must be purchased from brokers for a fee. This makes them moreexpensive than mutual funds that can be purchased at NAV.61. Discuss the consistency of mutual fund performance results, as studiedby Goetzmann and Ibbotson (1994) and Malkiel (1995).Difficulty: ModerateAnswer:Goetzmann and Ibbotson found that, of mutual funds that performed in the top half of their categories during an initial period, 62% remained “winners” during the subsequent two-year period. The other 38% became “losers”. Of the funds that performed in the bottom half of their categories during the initial period, % remained “losers” in thesubsequent two-year period, while % became “winners”. If performance were purely random, the percentages would be 50%. If performance were due entirely to the skill of the managers, all winners should remain winners and all losers should remain losers. The results of the study indicate that there seems to be some skill involved in fund performance trends.Malkiel broke his study into two time periods. For the 1970s he found results similar to Goetzmann and Ibbotson. For the 1980s his percentages were much closer to 50%, which indicates that performance seemed to be more random during this period. Malkiel used one-year returns rather than two-year returns.。
投资学第7版Test-Bank答案
'Multiple Choice Questions1. The current yield on a bond is equal to ________.A) annual interest divided by the current market priceB) the yield to maturityC) annual interest divided by the par valueD) the internal rate of return￥E) none of the aboveAnswer: A Difficulty: EasyRationale: A is current yield and is quoted as such in the financial press.2. If a 7% coupon bond is trading for $, it has a current yield of ____________percent.A)B)￥C)D)E)Answer: E Difficulty: EasyRationale: 70/975 = .3. If a 6% coupon bond is trading for $, it has a current yield of ____________percent.|A)B)C)D)E)Answer: B Difficulty: EasyRationale: 60/950 = .\4. If an 8% coupon bond is trading for $, it has a current yield of ____________percent.A)B)C)D)E):Answer: A Difficulty: EasyRationale: 80/1025 = .5. If a % coupon bond is trading for $, it has a current yield of ____________percent.A)B)C)D))E)Answer: C Difficulty: EasyRationale: 75/1050 = .6. A coupon bond pays annual interest, has a par value of $1,000, maturesin 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%.The current yield on this bond is ___________.A) %B) %{C) %D) %E) none of the aboveAnswer: A Difficulty: ModerateRationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= ; $100 / $ = %.7. A coupon bond pays annual interest, has a par value of $1,000, maturesin 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%.The current yield on this bond is ___________.(A) %B) %C) %D) %E) none of the aboveAnswer: D Difficulty: ModerateRationale: FV = 1000, n = 12, PMT = 110, i = 12, PV= ; $100 / $ = %.<8. Of the following four investments, ________ is considered the safest.A) commercial paperB) corporate bondsC) U. S. Agency issuesD) Treasury bondsE) Treasury bills：Answer: E Difficulty: EasyRationale: Only Treasury issues are insured by the U. S. government; the shorter-term the instrument, the safer the instrument.9. To earn a high rating from the bond rating agencies, a firm should haveA) a low times interest earned ratioB) a low debt to equity ratioC) a high quick ratioD) B and C；E) A and CAnswer: D Difficulty: EasyRationale: High values for the times interest and quick ratios and a low debt to equity ratio are desirable indicators of safety.10. At issue, coupon bonds typically sell ________.A) above par valueB) below par%C) at or near par valueD) at a value unrelated to parE) none of the aboveAnswer: C Difficulty: EasyRationale: If the investment banker has appraised the market and the quality of the bond correctly, the bond will sell at or near par (unless interest rates have changed very dramatically and very quickly around the time of issuance).11. Accrued interest、A) is quoted in the bond price in the financial press.B) must be paid by the buyer of the bond and remitted to the seller ofthe bond.C) must be paid to the broker for the inconvenience of selling bondsbetween maturity dates.D) A and B.E) A and C.Answer: B Difficulty: ModerateRationale: Accrued interest must be paid by the buyer, but is not included in the quotations page price.￥12. The invoice price of a bond that a buyer would pay is equal toA) the asked price plus accrued interest.B) the asked price less accrued interest.C) the bid price plus accrued interest.D) the bid price less accrued interest.E) the bid price.'Answer: A Difficulty: EasyRationale: The buyer of a bond will buy at the asked price and will also be invoiced for any accrued interest due to the seller.13. An 8% coupon U. S. Treasury note pays interest on May 30 and November 30and is traded for settlement on August 15. The accrued interest on the $100,000 face value of this note is _________.A) $B) $C) $D) $1,;E) none of the aboveAnswer: D Difficulty: ModerateRationale: 76/183($4,000) = $1,. Approximation: .08/12*100,000= per month.month * months = 14. A coupon bond is reported as having an ask price of 113% of the $1,000 par value in the Wall Street Journal. If the last interest payment was made two months ago and the coupon rate is 12%, the invoice price of the bond will be ____________.A) $1,100B) $1,110C) $1,150D) $1,160…E) none of the aboveAnswer: C Difficulty: ModerateRationale: $1,130 + $20 (accrued interest) = $1,150.15. The bonds of Ford Motor Company have received a rating of "D" by Moody's.The "D" rating indicatesA) the bonds are insuredB) the bonds are junk bonds）C) the bonds are referred to as "high yield" bondsD) A and BE) B and CAnswer: E Difficulty: EasyRationale: D ratings are risky bonds, often called junk bonds (or high yield bonds by those marketing such bonds).16. The bond market【A) can be quite "thin".B) primarily consists of a network of bond dealers in the over the countermarket.C) consists of many investors on any given day.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: The bond market, unlike the stock market, can be a very thinly traded market. In addition, most bonds are traded by dealers.￥17. Ceteris paribus, the price and yield on a bond areA) positively related.B) negatively related.C) sometimes positively and sometimes negatively related.E) not related.E) indefinitely related.、Answer: B Difficulty: EasyRationale: Bond prices and yields are inversely related.18. The ______ is a measure of the average rate of return an investor willearn if the investor buys the bond now and holds until maturity.A) current yieldB) dividend yieldC) P/E ratioD) yield to maturity—E) discount yieldAnswer: D Difficulty: EasyRationale: The current yield is the annual interest as a percent of current market price; the other choices do not apply to bonds.19. The _________ gives the number of shares for which each convertible bondcan be exchanged.A) conversion ratioB) current ratio…C) P/E ratioD) conversion premiumE) convertible floorAnswer: A Difficulty: EasyRationale: The conversion premium is the amount for which the bond sells above conversion value; the price of bond as a straight bond provides the floor.The other terms are not specifically relevant to convertible bonds.20. A coupon bond is a bond that _________.|A) pays interest on a regular basis (typically every six months)B) does not pay interest on a regular basis but pays a lump sum at maturityC) can always be converted into a specific number of shares of common stockin the issuing companyD) always sells at parE) none of the aboveAnswer: A Difficulty: EasyRationale: A coupon bond will pay the coupon rate of interest on a semiannual basis unless the firm defaults on the bond. Convertible bonds are specific types of bonds.·21. A ___________ bond is a bond where the bondholder has the right to cashin the bond before maturity at a specified price after a specific date.A) callableB) couponC) putD) TreasuryE) zero-coupon:Answer: C Difficulty: EasyRationale: Any bond may be redeemed prior to maturity, but all bonds other than put bonds are redeemed at a price determined by the prevailing interest rates.22. Callable bondsA) are called when interest rates decline appreciably.B) have a call price that declines as time passes.C) are called when interest rates increase appreciably.D) A and B.—E) B and C.Answer: D Difficulty: EasyRationale: Callable bonds often are refunded (called) when interest rates decline appreciably. The call price of the bond (approximately par and one year's coupon payment) declines to par as time passes and maturity is reached.23. A Treasury bond due in one year has a yield of %; a Treasury bond due in5 years has a yield of %. A bond issued by Ford Motor Company due in 5years has a yield of %; a bond issued by Shell Oil due in one year hasa yield of %. The default risk premiums on the bonds issued by Shell andFord, respectively, areA) % and %B) % and %{C) % and %D) % and %E) none of the aboveAnswer: D Difficulty: ModerateRationale: Shell: % - % = .8%; Ford: % - % = %.24. A Treasury bond due in one year has a yield of %; a Treasury bond due in5 years has a yield of %. A bond issued by Lucent Technologies due in5 years has a yield of %; a bond issued by Mobil due in one year has ayield of %. The default risk premiums on the bonds issued by Mobil and Lucent Technologies, respectively, are:》A) % and %B) % and .7%C) % and %D) % and %E) none of the aboveAnswer: A Difficulty: ModerateRationale: Mobil: % - % = %; Lucent Technologies: % - % = %.、25. A Treasury bond due in one year has a yield of %; a Treasury bond due in5 years has a yield of %. A bond issued by Xerox due in 5 years has ayield of %; a bond issued by Exxon due in one year has a yield of %. The default risk premiums on the bonds issued by Exxon and Xerox, respectively, areA) % and %B) % and .7%C) % and %D) % and %E) none of the above，Answer: A Difficulty: ModerateRationale: Exxon: % - % = %; Xerox: 7. 9% - % = %.26. Floating-rate bonds are designed to ___________ while convertible bondsare designed to __________.A) minimize the holders' interest rate risk; give the investor the abilityto share in the price appreciation of the company's stockB) maximize the holders' interest rate risk; give the investor the abilityto share in the price appreciation of the company's stockC) minimize the holders' interest rate risk; give the investor the abilityto benefit from interest rate changesD) maximize the holders' interest rate risk; give investor the abilityto share in the profits of the issuing company￥E) none of the aboveAnswer: A Difficulty: ModerateRationale: Floating rate bonds allow the investor to earn a rate of interest income tied to current interest rates, thus negating one of the major disadvantages of fixed income investments. Convertible bonds allow the investor to benefit from the appreciation of the stock price, either by converting to stock or holding the bond, which will increase in price as the stock price increases.27. A coupon bond that pays interest annually is selling at par value of $1,000,matures in 5 years, and has a coupon rate of 9%. The yield to maturity on this bond is:A) %B) %-C) %D) %E) none of the aboveAnswer: C Difficulty: EasyRationale: When a bond sells at par value, the coupon rate is equal to the yield to maturity.28. A coupon bond that pays interest annually has a par value of $1,000, maturesin 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ______ if the coupon rate is 7%.#A) $B) $C) $1,D) $E) $1,Answer: D Difficulty: ModerateRationale: FV = 1000, PMT = 70, n = 5, i = 10, PV = .！29. A coupon bond that pays interest annually, has a par value of $1,000,matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be _________if the coupon rate is 12%.A) $B) $C) $1,D) $1,E) none of the above`Answer: C Difficulty: ModerateRationale: FV = 1000, PMT = 120, n = 5, i = 10, PV =30. A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be __________if the coupon rate is 8%.A) $B) $C) $1,D) $1,%E) none of the aboveAnswer: A Difficulty: ModerateRationale: FV = 1000, PMT = 40, n = 10, i = 5, PV =31. A coupon bond that pays interest semi-annually has a par value of $1,000,matures in 5 years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be ________if the coupon rate is 12%.A) $B) $(C) $1,D) $1,E) none of the aboveAnswer: D Difficulty: ModerateRationale: FV = 1000, PMT = 60, n = 10, i = 5, PV =32. A coupon bond that pays interest of $100 annually has a par value of $1,000,matures in 5 years, and is selling today at a $72 discount from par value.The yield to maturity on this bond is __________.?A) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: FV = 1000, PMT = 100, n = 5, PV = -928, i = %，33. You purchased an annual interest coupon bond one year ago that now has6 years remaining until maturity. The coupon rate of interest was 10%and par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. The amount you paid for this bond one year ago wasA) $1,.B) $1,.C) $1,.D) $E) $1,.、Answer: E Difficulty: ModerateRationale: FV = 1000, PMT = 100, n = 7, i = 8, PV =34. You purchased an annual interest coupon bond one year ago that had 6 yearsremaining 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) %B) %C) %D) %·E) none of the aboveAnswer: C Difficulty: DifficultRationale: FV = 1000, PMT = 100, n = 6, i = 8, PV = ; FV = 1000, PMT = 100, n = 5, i = 8, PV = ; HPR = - + 100) / = 8%35. Consider two bonds, A and B. Both bonds presently are selling at theirpar value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 10%, ____________.A) both bonds will increase in value, but bond A will increase more thanbond BB) both bonds will increase in value, but bond B will increase more thanbond A【C) both bonds will decrease in value, but bond A will decrease more thanbond BD) both bonds will decrease in value, but bond B will decrease more thanbond AE) none of the aboveAnswer: B Difficulty: ModerateRationale: The longer the maturity, the greater the price change when interest rates change.36. A zero-coupon bond has a yield to maturity of 9% and a par value of $1,000.If the bond matures in 8 years, the bond should sell for a price of _______ today.$A)B) $C) $D) $E) none of the aboveAnswer: B Difficulty: ModerateRationale: $1,000/8 = $￥37. You have just purchased a 10-year zero-coupon bond with a yield to maturityof 10% and a par value of $1,000. What would your rate of return at the end of the year be if you sell the bond Assume the yield to maturity on the bond is 11% at the time you sell.A) %B) %C) %D) %E) none of the above~Answer: D Difficulty: ModerateRationale: $1,000/10 = $; $1,000/9 = $; ($ - $/$ = %.38. A Treasury bill with a par value of $100,000 due one month from now isselling today for $99,010. The effective annual yield is __________.A) %B) %C) %D) %-E) none of the aboveAnswer: D Difficulty: ModerateRationale: $990/$99,010 = ; 12 - = %.39. A Treasury bill with a par value of $100,000 due two months from now isselling today for $98,039, with an effective annual yield of _________.A) %B) %》C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: $1,961/$98,039 = ; 6 - 1 = %.40. A Treasury bill with a par value of $100,000 due three months from nowis selling today for $97,087, with an effective annual yield of _________. ]A) %B) %C) %D) %E) none of the aboveAnswer: B Difficulty: ModerateRationale: $2,913/$97,087 = ; 4 - = %.,41. A coupon bond pays interest semi-annually, matures in 5 years, has a parvalue of $1,000 and a coupon rate of 12%, and an effective annual yield to maturity of %. The price the bond should sell for today is ________.A) $B) $C) $1,D) $1,E) none of the above：Answer: D Difficulty: ModerateRationale: 1/2 - 1 = 5%, N=10, I=5%, PMT=60, FV=1000, PV=1,.42. A convertible bond has a par value of $1,000 and a current market priceof $850. The current price of the issuing firm's stock is $29 and the conversion ratio is 30 shares. The bond's market conversion value is ______.A) $729B) $810C) $870D) $1,000&E) none of the aboveAnswer: C Difficulty: EasyRationale: 30 shares X $29/share = $870.43. A convertible bond has a par value of $1,000 and a current market valueof $850. The current price of the issuing firm's stock is $27 and theconversion ratio is 30 shares. The bond's conversion premium is _________.A) $40B) $150；C) $190D) $200E) none of the aboveAnswer: A Difficulty: ModerateRationale: $850 - $810 = $40.Use the following to answer questions 44-47:?Consider the following $1,000 par value zero-coupon bonds:44. The yield to maturity on bond A is ____________.A) 10%B) 11%$C) 12%D) 14%E) none of the aboveAnswer: A Difficulty: ModerateRationale: ($1,000 - $/$ = 10%.45. The yield to maturity on bond B is _________.,A) 10%B) 11%C) 12%D) 14%E) none of the aboveAnswer: B Difficulty: ModerateRationale: ($1,000 - $/$ = ; 1/2 - = 11%.{46. The yield to maturity on bond C is ____________.A) 10%B) 11%C) 12%D) 14%E) none of the above、Answer: C Difficulty: ModerateRationale: ($1,000 - $/$ = ; 1/3 - = 12%.47. The yield to maturity on bond D is _______.A) 10%B) 11%C) 12%D) 14%%E) none of the aboveAnswer: C Difficulty: ModerateRationale: ($1,000 - $/$ = ; 1/4 - = 12%.48. A 10% coupon bond, annual payments, 10 years to maturity is callable in3 years at a call price of $1,100. If the bond is selling today for $975,the yield to call is _________.A) %B) %~C) %D) %E) none of the aboveAnswer: D Difficulty: ModerateRationale: FV = 1100, n = 3, PMT = 100, PV = -975, i = %.49. A 12% coupon bond, semiannual payments, is callable in 5 years. The callprice is $1,120; if the bond is selling today for $1,110, what is the yield to call》A) %.B) %.C) %.D) %.E) none of the above.Answer: C Difficulty: ModerateRationale: YTC = FV = 1120, n = 10, PMT = 60, PV = -1,110m i = %, *2=—50. A 10% coupon, annual payments, bond maturing in 10 years, is expected tomake all coupon payments, but to pay only 50% of par value at maturity.What is the expected yield on this bond if the bond is purchased for $975A) %.B) %.C) %.D) %.E) none of the above.&Answer: B Difficulty: ModerateRationale: FV = 500, PMT = 100, n = 10, PV = -975, i = %51. You purchased an annual interest coupon bond one year ago with 6 yearsremaining to maturity at the time of purchase. The coupon interest rate is 10% and par value is $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 bond's yield to maturity had changed to 7%, your annual total rate of return on holding the bond for that year would have been _________.A) %B) %C) %D) %,E) none of the aboveAnswer: D Difficulty: DifficultRationale: FV = 1000, PMT = 100, n = 6, i = 8, PV = ; FV = 1000, PMT = 100, n = 5, i = 7, PV = ; HPR = - + 100) / = %.52. The ________is used to calculate the present value of a bond.A) nominal yieldB) current yield*C) yield to maturityD) yield to callE) none of the aboveAnswer: C Difficulty: EasyRationale: Yield to maturity is the discount rate used in the bond valuationformula. For callable bonds, yield to call is sometimes the moreappropriate calculation for the investor (if interest rates are expected to decrease).53. The yield to maturity on a bond is ________.…A) below the coupon rate when the bond sells at a discount, and equal tothe coupon rate when the bond sells at a premium.B) the discount rate that will set the present value of the payments equalto the bond price.C) based on the assumption that any payments received are reinvested atthe coupon rate.D) none of the above.E) A, B, and C.Answer: B Difficulty: EasyRationale: The reverse of A is true; for C to be true payments must be reinvested at the yield to maturity.。
投资学第7版Test Bank答案可编辑版
Multiple Choice Questions1. In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of riskisA) unique risk.B) beta.C) standard deviation of returns.D) variance of returns.E) none of the above.Answer: B Difficulty: EasyRationale: Once, a portfolio is diversified, the only risk remaining is systematic risk,which is measured by beta.2. According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rateof return is a function ofA) market riskB) unsystematic riskC) unique risk.D) reinvestment risk.E) none of the above.Answer: A Difficulty: EasyRationale: With a diversified portfolio, the only risk remaining is market, or systematic, risk. This is the only risk that influences return according to the CAPM.3. The market portfolio has a beta ofA) 0.B) 1.C) -1.D) 0.5.E) none of the aboveAnswer: B Difficulty: EasyRationale: By definition, the beta of the market portfolio is 1.4. The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal toA) 0.06.B) 0.144.C) 0.12.D) 0.132E) 0.18Answer: D Difficulty: EasyRationale: E(R) = 6% + 1.2(12 - 6) = 13.2%.5. The risk-free rate and the expected market rate of return are 0.056 and 0.125,respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal toA) 0.1225B) 0.144.C) 0.153.D) 0.134E) 0.117Answer: A Difficulty: EasyRationale: E(R) = 5.6% + 1.25(12.5 - 5.6) = 14.225%.6. Which statement is not true regarding the market portfolio?A) It includes all publicly traded financial assets.B) It lies on the efficient frontier.C) All securities in the market portfolio are held in proportion to their market values.D) It is the tangency point between the capital market line and the indifference curve.E) All of the above are true.Answer: D Difficulty: ModerateRationale: The tangency point between the capital market line and the indifference curve is the optimal portfolio for a particular investor.7. Which statement is not true regarding the Capital Market Line (CML)?A) The CML is the line from the risk-free rate through the market portfolio.B) The CML is the best attainable capital allocation line.C) The CML is also called the security market line.D) The CML always has a positive slope.E) The risk measure for the CML is standard deviation.Answer: C Difficulty: ModerateRationale: Both the Capital Market Line and the Security Market Line depict risk/return relationships. However, the risk measure for the CML is standard deviation and the risk measure for the SML is beta (thus C is not true; the other statements are true).8. The market risk, beta, of a security is equal toA) the covariance between the security's return and the market return divided by thevariance of the market's returns.B) the covariance between the security and market returns divided by the standarddeviation of the market's returns.C) the variance of the security's returns divided by the covariance between the securityand market returns.D) the variance of the security's returns divided by the variance of the market's returns.E) none of the above.Answer: A Difficulty: ModerateRationale: Beta is a measure of how a security's return covaries with the market returns, normalized by the market variance.9. According to the Capital Asset Pricing Model (CAPM), the expected rate of return onany security is equal toA) R f+ β [E(R M)].B) R f + β [E(R M) - R f].C) β [E(R M) - R f].D) E(R M) + R f.E) none of the above.Answer: B Difficulty: ModerateRationale: The expected rate of return on any security is equal to the risk free rate plus the systematic risk of the security (beta) times the market risk premium, E(R M - R f).10. The Security Market Line (SML) isA) the line that describes the expected return-beta relationship for well-diversifiedportfolios only.B) also called the Capital Allocation Line.C) the line that is tangent to the efficient frontier of all risky assets.D) the line that represents the expected return-beta relationship.E) the line that represents the relationship between an individual security's return andthe market's return.Answer: D Difficulty: ModerateRationale: The SML is a measure of expected return per unit of risk, where risk isdefined as beta (systematic risk).11. According to the Capital Asset Pricing Model (CAPM), fairly priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: B Difficulty: ModerateRationale: A zero alpha results when the security is in equilibrium (fairly priced for the level of risk).12. According to the Capital Asset Pricing Model (CAPM), under priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: D Difficulty: Moderate13. According to the Capital Asset Pricing Model (CAPM), over priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: C Difficulty: ModerateRationale: A zero alpha results when the security is in equilibrium (fairly priced for the level of risk).14. According to the Capital Asset Pricing Model (CAPM),A) a security with a positive alpha is considered overpriced.B) a security with a zero alpha is considered to be a good buy.C) a security with a negative alpha is considered to be a good buy.D) a security with a positive alpha is considered to be underpriced.E) none of the above.Answer: D Difficulty: ModerateRationale: A security with a positive alpha is one that is expected to yield an abnormal positive rate of return, based on the perceived risk of the security, and thus isunderpriced.15. According to the Capital Asset Pricing Model (CAPM), which one of the followingstatements is false?A) The expected rate of return on a security decreases in direct proportion to a decreasein the risk-free rate.B) The expected rate of return on a security increases as its beta increases.C) A fairly priced security has an alpha of zero.D) In equilibrium, all securities lie on the security market line.E) All of the above statements are true.Answer: A Difficulty: ModerateRationale: Statements B, C, and D are true, but statement A is false.16. In a well diversified portfolioA) market risk is negligible.B) systematic risk is negligible.C) unsystematic risk is negligible.D) nondiversifiable risk is negligible.E) none of the above.Answer: C Difficulty: ModerateRationale: Market, or systematic, or nondiversifiable, risk is present in a diversified portfolio; the unsystematic risk has been eliminated.17. Empirical results regarding betas estimated from historical data indicate thatA) betas are constant over time.B) betas of all securities are always greater than one.C) betas are always near zero.D) betas appear to regress toward one over time.E) betas are always positive.Answer: D Difficulty: ModerateRationale: Betas vary over time, betas may be negative or less than one, betas are not always near zero; however, betas do appear to regress toward one over time.18. Your personal opinion is that a security has an expected rate of return of 0.11. It has abeta 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 isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 11% = 5% + 1.5(9% - 5%) = 11.0%; therefore, the security is fairly priced.19. The risk-free rate is 7 percent. The expected market rate of return is 15 percent. If youexpect a stock with a beta of 1.3 to offer a rate of return of 12 percent, you shouldA) buy the stock because it is overpriced.B) sell short the stock because it is overpriced.C) sell the stock short because it is underpriced.D) buy the stock because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 12% < 7% + 1.3(15% - 7%) = 17.40%; therefore, stock is overpriced and should be shorted.20. You invest $600 in a security with a beta of 1.2 and $400 in another security with a betaof 0.90. The beta of the resulting portfolio isA) 1.40B) 1.00C) 0.36D) 1.08E) 0.80Answer: D Difficulty: ModerateRationale: 0.6(1.2) + 0.4(0.90) = 1.08.21. A security has an expected rate of return of 0.10 and a beta of 1.1. The market expectedrate of return is 0.08 and the risk-free rate is 0.05. The alpha of the stock isA) 1.7%.B) -1.7%.C) 8.3%.D) 5.5%.E) none of the above.Answer: A Difficulty: ModerateRationale: 10% - [5% +1.1(8% - 5%)] = 1.7%.22. Your opinion is that CSCO has an expected rate of return of 0.13. It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: B Difficulty: ModerateRationale: 11.5% - 4% + 1.3(11.5% - 4%) = -2.25%; therefore, the security isoverpriced.23. Your opinion is that CSCO has an expected rate of return of 0.1375. It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 13.75% - 4% + 1.3(11.5% - 4%) = 0.0%; therefore, the security is fairlypriced.24. Your opinion is that CSCO has an expected rate of return of 0.15. It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 15% - 4% + 1.3(11.5% - 4%) = 1.25%; therefore, the security is under priced.25. Your opinion is that Boeing has an expected rate of return of 0.112. It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 11.2% - 4% + 0.92(10% - 4%) = 1.68%; therefore, the security is underpriced.26. Your opinion is that Boeing has an expected rate of return of 0.0952. It has a beta of0.92. The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 9.52% - 4% + 0.92(10% - 4%) = 0.0%; therefore, the security is fairly priced.27. Your opinion is that Boeing has an expected rate of return of 0.08. It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 8.0% - 4% + 0.92(10% - 4%) = -1.52%; therefore, the security is overpriced.28. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of 1.0 to offer a rate of return of 10 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 10% < 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is overpriced andshould be shorted.29. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: E Difficulty: ModerateRationale: 11% = 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is fairly priced. 30. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: D Difficulty: ModerateRationale: 13% > 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is under priced. 31. You invest 55% of your money in security A with a beta of 1.4 and the rest of yourmoney in security B with a beta of 0.9. The beta of the resulting portfolio isA) 1.466B) 1.157C) 0.968D) 1.082E) 1.175Answer: E Difficulty: ModerateRationale: 0.55(1.4) + 0.45(0.90) = 1.175.32. Given the following two stocks A and BIf the expected market rate of return is 0.09 and the risk-free rate is 0.05, which security would be considered the better buy and why?A) A because it offers an expected excess return of 1.2%.B) B because it offers an expected excess return of 1.8%.C) A because it offers an expected excess return of 2.2%.D) B because it offers an expected return of 14%.E) B because it has a higher beta.Answer: C Difficulty: ModerateRationale: A's excess return is expected to be 12% - [5% + 1.2(9% - 5%)] = 2.2%. B's excess return is expected to be 14% - [5% + 1.8(9% - 5%)] = 1.8%.33. Capital Asset Pricing Theory asserts that portfolio returns are best explained by:A) economic factors.B) specific risk.C) systematic risk.D) diversification.E) none of the above.Answer: C Difficulty: EasyRationale: The risk remaining in diversified portfolios is systematic risk; thus, portfolio returns are commensurate with systematic risk.34. According to the CAPM, the risk premium an investor expects to receive on any stockor portfolio increases:A) directly with alpha.B) inversely with alpha.C) directly with beta.D) inversely with beta.E) in proportion to its standard deviation.Answer: C Difficulty: EasyRationale: The market rewards systematic risk, which is measured by beta, and thus, the risk premium on a stock or portfolio varies directly with beta.35. What is the expected return of a zero-beta security?A) The market rate of return.B) Zero rate of return.C) A negative rate of return.D) The risk-free rate.E) None of the above.Answer: D Difficulty: ModerateRationale: E(R S) = r f + 0(R M - r f) = r f.36. Standard deviation and beta both measure risk, but they are different in thatA) beta measures both systematic and unsystematic risk.B) beta measures only systematic risk while standard deviation is a measure of totalrisk.C) beta measures only unsystematic risk while standard deviation is a measure of totalrisk.D) beta measures both systematic and unsystematic risk while standard deviationmeasures only systematic risk.E) beta measures total risk while standard deviation measures only nonsystematic risk.Answer: B Difficulty: EasyRationale: B is the only true statement.37. The expected return-beta relationshipA) is the most familiar expression of the CAPM to practitioners.B) refers to the way in which the covariance between the returns on a stock and returnson the market measures the contribution of the stock to the variance of the marketportfolio, which is beta.C) assumes that investors hold well-diversified portfolios.D) all of the above are true.E) none of the above is true.Answer: D Difficulty: ModerateRationale: Statements A, B and C all describe the expected return-beta relationship.38. The security market line (SML)A) can be portrayed graphically as the expected return-beta relationship.B) can be portrayed graphically as the expected return-standard deviation of marketreturns relationship.C) provides a benchmark for evaluation of investment performance.D) A and C.E) B and C.Answer: D Difficulty: ModerateRationale: The SML is a measure of expected return-beta (the CML is a measure of expected return-standard deviation of market returns). The SML provides the expected return-beta relationship for "fairly priced" securities; thus if a portfolio manager selects securities that are underpriced and produces a portfolio with a positive alpha, thisportfolio manager would receive a positive evaluation.39. Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficientpricing factor by suggesting that managers should use beta to estimateA) long-term returns but not short-term returns.B) short-term returns but not long-term returns.C) both long- and short-term returns.D) book-to-market ratios.E) None of the above was suggested by Stein.Answer: A Difficulty: Difficult40. Studies of liquidity spreads in security markets have shown thatA) liquid stocks earn higher returns than illiquid stocks.B) illiquid stocks earn higher returns than liquid stocks.C) both liquid and illiquid stocks earn the same returns.D) illiquid stocks are good investments for frequent, short-term traders.E) None of the above is true.Answer: B Difficulty: Difficult41. An underpriced security will plotA) on the Security Market Line.B) below the Security Market Line.C) above the Security Market Line.D) either above or below the Security Market Line depending on its covariance withthe market.E) either above or below the Security Market Line depending on its standard deviation.Answer: C Difficulty: EasyRationale: An underpriced security will have a higher expected return than the SML would predict; therefore it will plot above the SML.42. The risk premium on the market portfolio will be proportional toA) the average degree of risk aversion of the investor population.B) the risk of the market portfolio as measured by its variance.C) the risk of the market portfolio as measured by its beta.D) both A and B are true.E) both A and C are true.Answer: D Difficulty: ModerateRationale: The risk premium on the market portfolio is proportional to the averagedegree of risk aversion of the investor population and the risk of the market portfolio measured by its variance.43. In equilibrium, the marginal price of risk for a risky security must beA) 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 above is true.Answer: A Difficulty: ModerateRationale: In equilibrium, the marginal price of risk for a risky security must be equal to the marginal price of risk for the market. If not, investors will buy or sell the security until they are equal.44. The capital asset pricing model assumesA) all investors are price takers.B) all investors have the same holding period.C) investors pay taxes on capital gains.D) both A and B are true.E) A, B and C are all true.Answer: D Difficulty: EasyRationale: The CAPM assumes that investors are price-takers with the same single holding period and that there are no taxes or transaction costs.45. If investors do not know their investment horizons for certainA) the CAPM is no longer valid.B) the CAPM underlying assumptions are not violated.C) the implications of the CAPM are not violated as long as investors' liquidity needsare not priced.D) the implications of the CAPM are no longer useful.E) none of the above is true.Answer: C Difficulty: ModerateRationale: This is discussed in the chapter's section about extensions to the CAPM. It examines what the consequences are when the assumptions are removed.46. The value of the market portfolio equalsA) the sum of the values of all equity securities.B) the sum of the values of all equity and fixed income securities.C) the sum the values of all equity, fixed income, and derivative securities.D) the sum of the values of all equity, fixed income, and derivative securities plus thevalue of all mutual funds.E) the entire wealth of the economy.Answer: E Difficulty: ModerateRationale: The market portfolio includes all assets in existence.47. The amount that an investor allocates to the market portfolio is negatively related toI)the expected return on the market portfolio.II)the investor's risk aversion coefficient.III)the risk-free rate of return.IV)the variance of the market portfolioA) I and IIB) II and IIIC) II and IVD) II, III, and IVE) I, III, and IVAnswer: D Difficulty: ModerateRationale: The optimal proportion is given by y = (E(R M)-r f)/(.01xAσ2M). This amount will decrease as r f, A, and σ2M decrease.48. One of the assumptions of the CAPM is that investors exhibit myopic behavior. Whatdoes this mean?A) They plan for one identical holding period.B) They are price-takers who can't affect market prices through their trades.C) They are mean-variance optimizers.D) They have the same economic view of the world.E) They pay no taxes or transactions costs.Answer: A Difficulty: ModerateRationale: Myopic behavior is shortsighted, with no concern for medium-term orlong-term implications.49. The CAPM applies toA) portfolios of securities only.B) individual securities only.C) efficient portfolios of securities only.D) efficient portfolios and efficient individual securities only.E) all portfolios and individual securities.Answer: E Difficulty: ModerateRationale: The CAPM is an equilibrium model for all assets. Each asset's risk premium is a function of its beta coefficient and the risk premium on the market portfolio.50. Which of the following statements about the mutual fund theorem is true?I)It is similar to the separation property.II)It implies that a passive investment strategy can be efficient.III)It implies that efficient portfolios can be formed only through active strategies.IV)It means that professional managers have superior security selection strategies.A) I and IVB) I, II, and IVC) I and IID) III and IVE) II and IVAnswer: C Difficulty: ModerateRationale: The mutual fund theorem is similar to the separation property. The technical task of creating mutual funds can be delegated to professional managers; thenindividuals combine the mutual funds with risk-free assets according to theirpreferences. The passive strategy of investing in a market index fund is efficient.51. The expected return -- beta relationship of the CAPM is graphically represented byA) the security market line.B) the capital market line.C) the capital allocation line.D) the efficient frontier with a risk-free asset.E) the efficient frontier without a risk-free asset.Answer: A Difficulty: EasyRationale: The security market line shows expected return on the vertical axis and beta on the horizontal axis. It has an intercept of r f and a slope of E(R M) - r f.52. A “fairly priced” asset liesA) 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.Answer: B Difficulty: EasyRationale: Securities that lie on the SML earn exactly the expected return generated by the CAPM. Their prices are proportional to their beta coefficients and they have alphas equal to zero.53. For the CAPM that examines illiquidity premiums, if there is correlation among assetsdue to common systematic risk factors, the illiquidity premium on asset i is a function ofA) the market's volatility.B) asset i's volatility.C) the trading costs of security i.D) the risk-free rate.E) the money supply.Answer: C Difficulty: ModerateRationale: The formula for this extension to the CAPM relaxes the assumption thattrading is costless.54. Your opinion is that security A has an expected rate of return of 0.145. It has a beta of1.5. The risk-free rate is 0.04 and the market expected rate of return is 0.11. Accordingto the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 14.5% = 4% + 1.5(11% - 4%) = 14.5%; therefore, the security is fairlypriced.55. Your opinion is that security C has an expected rate of return of 0.106. It has a beta of1.1. The risk-free rate is 0.04 and the market expected rate of return is 0.10. Accordingto the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 4% + 1.1(10% - 4%) = 10.6%; therefore, the security is fairly priced.56. The risk-free rate is 4 percent. The expected market rate of return is 12 percent. If youexpect stock X with a beta of 1.0 to offer a rate of return of 10 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 10% < 4% + 1.0(12% - 4%) = 12.0%; therefore, stock is overpriced and should be shorted.57. The risk-free rate is 5 percent. The expected market rate of return is 11 percent. If youexpect stock X with a beta of 2.1 to offer a rate of return of 15 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 15% < 5% + 2.1(11% - 5%) = 17.6%; therefore, stock is overpriced and should be shorted.58. You invest 50% of your money in security A with a beta of 1.6 and the rest of yourmoney in security B with a beta of 0.7. The beta of the resulting portfolio isA) 1.40B) 1.15C) 0.36D) 1.08E) 0.80Answer: B Difficulty: ModerateRationale: 0.5(1.6) + 0.5(0.70) = 1.15.。
(完整word版)投资学第7版Test Bank答案09
Multiple Choice Questions1. In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of riskisA) unique risk.B) beta.C) standard deviation of returns.D) variance of returns.E) none of the above.Answer: B Difficulty: EasyRationale: Once, a portfolio is diversified, the only risk remaining is systematic risk,which is measured by beta.2. According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rateof return is a function ofA) market riskB) unsystematic riskC) unique risk.D) reinvestment risk.E) none of the above.Answer: A Difficulty: EasyRationale: With a diversified portfolio, the only risk remaining is market, or systematic, risk. This is the only risk that influences return according to the CAPM.3. The market portfolio has a beta ofA) 0.B) 1.C) -1.D) 0.5.E) none of the aboveAnswer: B Difficulty: EasyRationale: By definition, the beta of the market portfolio is 1.4. The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal toA) 0.06.B) 0.144.C) 0.12.D) 0.132E) 0.18Answer: D Difficulty: EasyRationale: E(R) = 6% + 1.2(12 - 6) = 13.2%.5. The risk-free rate and the expected market rate of return are 0.056 and 0.125,respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal toA) 0.1225B) 0.144.C) 0.153.D) 0.134E) 0.117Answer: A Difficulty: EasyRationale: E(R) = 5.6% + 1.25(12.5 - 5.6) = 14.225%.6. Which statement is not true regarding the market portfolio?A) It includes all publicly traded financial assets.B) It lies on the efficient frontier.C) All securities in the market portfolio are held in proportion to their market values.D) It is the tangency point between the capital market line and the indifference curve.E) All of the above are true.Answer: D Difficulty: ModerateRationale: The tangency point between the capital market line and the indifference curve is the optimal portfolio for a particular investor.7. Which statement is not true regarding the Capital Market Line (CML)?A) The CML is the line from the risk-free rate through the market portfolio.B) The CML is the best attainable capital allocation line.C) The CML is also called the security market line.D) The CML always has a positive slope.E) The risk measure for the CML is standard deviation.Answer: C Difficulty: ModerateRationale: Both the Capital Market Line and the Security Market Line depict risk/return relationships. However, the risk measure for the CML is standard deviation and the risk measure for the SML is beta (thus C is not true; the other statements are true).8. The market risk, beta, of a security is equal toA) the covariance between the security's return and the market return divided by thevariance of the market's returns.B) the covariance between the security and market returns divided by the standarddeviation of the market's returns.C) the variance of the security's returns divided by the covariance between the securityand market returns.D) the variance of the security's returns divided by the variance of the market's returns.E) none of the above.Answer: A Difficulty: ModerateRationale: Beta is a measure of how a security's return covaries with the market returns, normalized by the market variance.9. According to the Capital Asset Pricing Model (CAPM), the expected rate of return onany security is equal toA) R f+ β [E(R M)].B) R f + β [E(R M) - R f].C) β [E(R M) - R f].D) E(R M) + R f.E) none of the above.Answer: B Difficulty: ModerateRationale: The expected rate of return on any security is equal to the risk free rate plus the systematic risk of the security (beta) times the market risk premium, E(R M - R f).10. The Security Market Line (SML) isA) the line that describes the expected return-beta relationship for well-diversifiedportfolios only.B) also called the Capital Allocation Line.C) the line that is tangent to the efficient frontier of all risky assets.D) the line that represents the expected return-beta relationship.E) the line that represents the relationship between an individual security's return andthe market's return.Answer: D Difficulty: ModerateRationale: The SML is a measure of expected return per unit of risk, where risk isdefined as beta (systematic risk).11. According to the Capital Asset Pricing Model (CAPM), fairly priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: B Difficulty: ModerateRationale: A zero alpha results when the security is in equilibrium (fairly priced for the level of risk).12. According to the Capital Asset Pricing Model (CAPM), under priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: D Difficulty: Moderate13. According to the Capital Asset Pricing Model (CAPM), over priced securitiesA) have positive betas.B) have zero alphas.C) have negative betas.D) have positive alphas.E) none of the above.Answer: C Difficulty: ModerateRationale: A zero alpha results when the security is in equilibrium (fairly priced for the level of risk).14. According to the Capital Asset Pricing Model (CAPM),A) a security with a positive alpha is considered overpriced.B) a security with a zero alpha is considered to be a good buy.C) a security with a negative alpha is considered to be a good buy.D) a security with a positive alpha is considered to be underpriced.E) none of the above.Answer: D Difficulty: ModerateRationale: A security with a positive alpha is one that is expected to yield an abnormal positive rate of return, based on the perceived risk of the security, and thus isunderpriced.15. According to the Capital Asset Pricing Model (CAPM), which one of the followingstatements is false?A) The expected rate of return on a security decreases in direct proportion to a decreasein the risk-free rate.B) The expected rate of return on a security increases as its beta increases.C) A fairly priced security has an alpha of zero.D) In equilibrium, all securities lie on the security market line.E) All of the above statements are true.Answer: A Difficulty: ModerateRationale: Statements B, C, and D are true, but statement A is false.16. In a well diversified portfolioA) market risk is negligible.B) systematic risk is negligible.C) unsystematic risk is negligible.D) nondiversifiable risk is negligible.E) none of the above.Answer: C Difficulty: ModerateRationale: Market, or systematic, or nondiversifiable, risk is present in a diversified portfolio; the unsystematic risk has been eliminated.17. Empirical results regarding betas estimated from historical data indicate thatA) betas are constant over time.B) betas of all securities are always greater than one.C) betas are always near zero.D) betas appear to regress toward one over time.E) betas are always positive.Answer: D Difficulty: ModerateRationale: Betas vary over time, betas may be negative or less than one, betas are not always near zero; however, betas do appear to regress toward one over time.18. Your personal opinion is that a security has an expected rate of return of 0.11. It has abeta 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 isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 11% = 5% + 1.5(9% - 5%) = 11.0%; therefore, the security is fairly priced.19. The risk-free rate is 7 percent. The expected market rate of return is 15 percent. If youexpect a stock with a beta of 1.3 to offer a rate of return of 12 percent, you shouldA) buy the stock because it is overpriced.B) sell short the stock because it is overpriced.C) sell the stock short because it is underpriced.D) buy the stock because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 12% < 7% + 1.3(15% - 7%) = 17.40%; therefore, stock is overpriced and should be shorted.20. You invest $600 in a security with a beta of 1.2 and $400 in another security with a betaof 0.90. The beta of the resulting portfolio isA) 1.40B) 1.00C) 0.36D) 1.08E) 0.80Answer: D Difficulty: ModerateRationale: 0.6(1.2) + 0.4(0.90) = 1.08.21. A security has an expected rate of return of 0.10 and a beta of 1.1. The market expectedrate of return is 0.08 and the risk-free rate is 0.05. The alpha of the stock isA) 1.7%.B) -1.7%.C) 8.3%.D) 5.5%.E) none of the above.Answer: A Difficulty: ModerateRationale: 10% - [5% +1.1(8% - 5%)] = 1.7%.22. Your opinion is that CSCO has an expected rate of return of 0.13. It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: B Difficulty: ModerateRationale: 11.5% - 4% + 1.3(11.5% - 4%) = -2.25%; therefore, the security isoverpriced.23. Your opinion is that CSCO has an expected rate of return of 0.1375. It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 13.75% - 4% + 1.3(11.5% - 4%) = 0.0%; therefore, the security is fairlypriced.24. Your opinion is that CSCO has an expected rate of return of 0.15. It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 15% - 4% + 1.3(11.5% - 4%) = 1.25%; therefore, the security is under priced.25. Your opinion is that Boeing has an expected rate of return of 0.112. It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 11.2% - 4% + 0.92(10% - 4%) = 1.68%; therefore, the security is underpriced.26. Your opinion is that Boeing has an expected rate of return of 0.0952. It has a beta of0.92. The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 9.52% - 4% + 0.92(10% - 4%) = 0.0%; therefore, the security is fairly priced.27. Your opinion is that Boeing has an expected rate of return of 0.08. It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10. According to the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 8.0% - 4% + 0.92(10% - 4%) = -1.52%; therefore, the security is overpriced.28. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of 1.0 to offer a rate of return of 10 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 10% < 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is overpriced andshould be shorted.29. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: E Difficulty: ModerateRationale: 11% = 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is fairly priced. 30. The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If youexpect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: D Difficulty: ModerateRationale: 13% > 4% + 1.0(11% - 4%) = 11.0%; therefore, stock is under priced. 31. You invest 55% of your money in security A with a beta of 1.4 and the rest of yourmoney in security B with a beta of 0.9. The beta of the resulting portfolio isA) 1.466B) 1.157C) 0.968D) 1.082E) 1.175Answer: E Difficulty: ModerateRationale: 0.55(1.4) + 0.45(0.90) = 1.175.32. Given the following two stocks A and BIf the expected market rate of return is 0.09 and the risk-free rate is 0.05, which security would be considered the better buy and why?A) A because it offers an expected excess return of 1.2%.B) B because it offers an expected excess return of 1.8%.C) A because it offers an expected excess return of 2.2%.D) B because it offers an expected return of 14%.E) B because it has a higher beta.Answer: C Difficulty: ModerateRationale: A's excess return is expected to be 12% - [5% + 1.2(9% - 5%)] = 2.2%. B's excess return is expected to be 14% - [5% + 1.8(9% - 5%)] = 1.8%.33. Capital Asset Pricing Theory asserts that portfolio returns are best explained by:A) economic factors.B) specific risk.C) systematic risk.D) diversification.E) none of the above.Answer: C Difficulty: EasyRationale: The risk remaining in diversified portfolios is systematic risk; thus, portfolio returns are commensurate with systematic risk.34. According to the CAPM, the risk premium an investor expects to receive on any stockor portfolio increases:A) directly with alpha.B) inversely with alpha.C) directly with beta.D) inversely with beta.E) in proportion to its standard deviation.Answer: C Difficulty: EasyRationale: The market rewards systematic risk, which is measured by beta, and thus, the risk premium on a stock or portfolio varies directly with beta.35. What is the expected return of a zero-beta security?A) The market rate of return.B) Zero rate of return.C) A negative rate of return.D) The risk-free rate.E) None of the above.Answer: D Difficulty: ModerateRationale: E(R S) = r f + 0(R M - r f) = r f.36. Standard deviation and beta both measure risk, but they are different in thatA) beta measures both systematic and unsystematic risk.B) beta measures only systematic risk while standard deviation is a measure of totalrisk.C) beta measures only unsystematic risk while standard deviation is a measure of totalrisk.D) beta measures both systematic and unsystematic risk while standard deviationmeasures only systematic risk.E) beta measures total risk while standard deviation measures only nonsystematic risk.Answer: B Difficulty: EasyRationale: B is the only true statement.37. The expected return-beta relationshipA) is the most familiar expression of the CAPM to practitioners.B) refers to the way in which the covariance between the returns on a stock and returnson the market measures the contribution of the stock to the variance of the marketportfolio, which is beta.C) assumes that investors hold well-diversified portfolios.D) all of the above are true.E) none of the above is true.Answer: D Difficulty: ModerateRationale: Statements A, B and C all describe the expected return-beta relationship.38. The security market line (SML)A) can be portrayed graphically as the expected return-beta relationship.B) can be portrayed graphically as the expected return-standard deviation of marketreturns relationship.C) provides a benchmark for evaluation of investment performance.D) A and C.E) B and C.Answer: D Difficulty: ModerateRationale: The SML is a measure of expected return-beta (the CML is a measure of expected return-standard deviation of market returns). The SML provides the expected return-beta relationship for "fairly priced" securities; thus if a portfolio manager selects securities that are underpriced and produces a portfolio with a positive alpha, thisportfolio manager would receive a positive evaluation.39. Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficientpricing factor by suggesting that managers should use beta to estimateA) long-term returns but not short-term returns.B) short-term returns but not long-term returns.C) both long- and short-term returns.D) book-to-market ratios.E) None of the above was suggested by Stein.Answer: A Difficulty: Difficult40. Studies of liquidity spreads in security markets have shown thatA) liquid stocks earn higher returns than illiquid stocks.B) illiquid stocks earn higher returns than liquid stocks.C) both liquid and illiquid stocks earn the same returns.D) illiquid stocks are good investments for frequent, short-term traders.E) None of the above is true.Answer: B Difficulty: Difficult41. An underpriced security will plotA) on the Security Market Line.B) below the Security Market Line.C) above the Security Market Line.D) either above or below the Security Market Line depending on its covariance withthe market.E) either above or below the Security Market Line depending on its standard deviation.Answer: C Difficulty: EasyRationale: An underpriced security will have a higher expected return than the SML would predict; therefore it will plot above the SML.42. The risk premium on the market portfolio will be proportional toA) the average degree of risk aversion of the investor population.B) the risk of the market portfolio as measured by its variance.C) the risk of the market portfolio as measured by its beta.D) both A and B are true.E) both A and C are true.Answer: D Difficulty: ModerateRationale: The risk premium on the market portfolio is proportional to the averagedegree of risk aversion of the investor population and the risk of the market portfolio measured by its variance.43. In equilibrium, the marginal price of risk for a risky security must beA) 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 above is true.Answer: A Difficulty: ModerateRationale: In equilibrium, the marginal price of risk for a risky security must be equal to the marginal price of risk for the market. If not, investors will buy or sell the security until they are equal.44. The capital asset pricing model assumesA) all investors are price takers.B) all investors have the same holding period.C) investors pay taxes on capital gains.D) both A and B are true.E) A, B and C are all true.Answer: D Difficulty: EasyRationale: The CAPM assumes that investors are price-takers with the same single holding period and that there are no taxes or transaction costs.45. If investors do not know their investment horizons for certainA) the CAPM is no longer valid.B) the CAPM underlying assumptions are not violated.C) the implications of the CAPM are not violated as long as investors' liquidity needsare not priced.D) the implications of the CAPM are no longer useful.E) none of the above is true.Answer: C Difficulty: ModerateRationale: This is discussed in the chapter's section about extensions to the CAPM. It examines what the consequences are when the assumptions are removed.46. The value of the market portfolio equalsA) the sum of the values of all equity securities.B) the sum of the values of all equity and fixed income securities.C) the sum the values of all equity, fixed income, and derivative securities.D) the sum of the values of all equity, fixed income, and derivative securities plus thevalue of all mutual funds.E) the entire wealth of the economy.Answer: E Difficulty: ModerateRationale: The market portfolio includes all assets in existence.47. The amount that an investor allocates to the market portfolio is negatively related toI)the expected return on the market portfolio.II)the investor's risk aversion coefficient.III)the risk-free rate of return.IV)the variance of the market portfolioA) I and IIB) II and IIIC) II and IVD) II, III, and IVE) I, III, and IVAnswer: D Difficulty: ModerateRationale: The optimal proportion is given by y = (E(R M)-r f)/(.01xAσ2M). This amount will decrease as r f, A, and σ2M decrease.48. One of the assumptions of the CAPM is that investors exhibit myopic behavior. Whatdoes this mean?A) They plan for one identical holding period.B) They are price-takers who can't affect market prices through their trades.C) They are mean-variance optimizers.D) They have the same economic view of the world.E) They pay no taxes or transactions costs.Answer: A Difficulty: ModerateRationale: Myopic behavior is shortsighted, with no concern for medium-term orlong-term implications.49. The CAPM applies toA) portfolios of securities only.B) individual securities only.C) efficient portfolios of securities only.D) efficient portfolios and efficient individual securities only.E) all portfolios and individual securities.Answer: E Difficulty: ModerateRationale: The CAPM is an equilibrium model for all assets. Each asset's risk premium is a function of its beta coefficient and the risk premium on the market portfolio.50. Which of the following statements about the mutual fund theorem is true?I)It is similar to the separation property.II)It implies that a passive investment strategy can be efficient.III)It implies that efficient portfolios can be formed only through active strategies.IV)It means that professional managers have superior security selection strategies.A) I and IVB) I, II, and IVC) I and IID) III and IVE) II and IVAnswer: C Difficulty: ModerateRationale: The mutual fund theorem is similar to the separation property. The technical task of creating mutual funds can be delegated to professional managers; thenindividuals combine the mutual funds with risk-free assets according to theirpreferences. The passive strategy of investing in a market index fund is efficient.51. The expected return -- beta relationship of the CAPM is graphically represented byA) the security market line.B) the capital market line.C) the capital allocation line.D) the efficient frontier with a risk-free asset.E) the efficient frontier without a risk-free asset.Answer: A Difficulty: EasyRationale: The security market line shows expected return on the vertical axis and beta on the horizontal axis. It has an intercept of r f and a slope of E(R M) - r f.52. A “fairly priced” asset liesA) 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.Answer: B Difficulty: EasyRationale: Securities that lie on the SML earn exactly the expected return generated by the CAPM. Their prices are proportional to their beta coefficients and they have alphas equal to zero.53. For the CAPM that examines illiquidity premiums, if there is correlation among assetsdue to common systematic risk factors, the illiquidity premium on asset i is a function ofA) the market's volatility.B) asset i's volatility.C) the trading costs of security i.D) the risk-free rate.E) the money supply.Answer: C Difficulty: ModerateRationale: The formula for this extension to the CAPM relaxes the assumption thattrading is costless.54. Your opinion is that security A has an expected rate of return of 0.145. It has a beta of1.5. The risk-free rate is 0.04 and the market expected rate of return is 0.11. Accordingto the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: C Difficulty: ModerateRationale: 14.5% = 4% + 1.5(11% - 4%) = 14.5%; therefore, the security is fairlypriced.55. Your opinion is that security C has an expected rate of return of 0.106. It has a beta of1.1. The risk-free rate is 0.04 and the market expected rate of return is 0.10. Accordingto the Capital Asset Pricing Model, this security isA) underpriced.B) overpriced.C) fairly priced.D) cannot be determined from data provided.E) none of the above.Answer: A Difficulty: ModerateRationale: 4% + 1.1(10% - 4%) = 10.6%; therefore, the security is fairly priced.56. The risk-free rate is 4 percent. The expected market rate of return is 12 percent. If youexpect stock X with a beta of 1.0 to offer a rate of return of 10 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 10% < 4% + 1.0(12% - 4%) = 12.0%; therefore, stock is overpriced and should be shorted.57. The risk-free rate is 5 percent. The expected market rate of return is 11 percent. If youexpect stock X with a beta of 2.1 to offer a rate of return of 15 percent, you shouldA) buy stock X because it is overpriced.B) sell short stock X because it is overpriced.C) sell stock short X because it is underpriced.D) buy stock X because it is underpriced.E) none of the above, as the stock is fairly priced.Answer: B Difficulty: ModerateRationale: 15% < 5% + 2.1(11% - 5%) = 17.6%; therefore, stock is overpriced and should be shorted.58. You invest 50% of your money in security A with a beta of 1.6 and the rest of yourmoney in security B with a beta of 0.7. The beta of the resulting portfolio isA) 1.40B) 1.15C) 0.36D) 1.08E) 0.80Answer: B Difficulty: ModerateRationale: 0.5(1.6) + 0.5(0.70) = 1.15.。
投资学第7版Test Bank答案
Multiple Choice Questions1. The term structure of interest rates is:A) The relationship between the rates of interest on all securities.B) The relationship between the interest rate on a security and its time to maturity.C) The relationship between the yield on a bond and its default rate.D) All of the above.E) None of the above.Answer: B Difficulty: EasyRationale: The term structure of interest rates is the relationship between two variables, years and yield to maturity (holding all else constant).2. The yield curve shows at any point in time:A) The relationship between the yield on a bond and the duration of the bond.B) The relationship between the coupon rate on a bond and time to maturity of thebond.C) The relationship between yield on a bond and the time to maturity on the bond.D) All of the above.E) None of the above.Answer: C Difficulty: Easy3. An inverted yield curve implies that:A) Long-term interest rates are lower than short-term interest rates.B) Long-term interest rates are higher than short-term interest rates.C) Long-term interest rates are the same as short-term interest rates.D) Intermediate term interest rates are higher than either short- or long-term interestrates.E) none of the above.Answer: A Difficulty: EasyRationale: The inverted, or downward sloping, yield curve is one in which short-term rates are higher than long-term rates. The inverted yield curve has been observedfrequently, although not as frequently as the upward sloping, or normal, yield curve.4. An upward sloping yield curve is a(n) _______ yield curve.A) normal.B) humped.C) inverted.D) flat.E) none of the above.Answer: A Difficulty: EasyRationale: The upward sloping yield curve is referred to as the normal yield curve, probably because, historically, the upward sloping yield curve is the shape that has been observed most frequently.5. According to the expectations hypothesis, a normal yield curve implies thatA) 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.Answer: C Difficulty: EasyRationale: An upward sloping yield curve is based on the expectation that short-term interest rates will increase.6. Which of the following is not proposed as an explanation for the term structure ofinterest ratesA) The expectations theory.B) The liquidity preference theory.C) The market segmentation theory.D) Modern portfolio theory.E) A, B, and C.Answer: D Difficulty: EasyRationale: A, B, and C are all theories that have been proposed to explain the term structure.7. The expectations theory of the term structure of interest rates states thatA) forward rates are determined by investors' expectations of future interest rates.B) forward rates exceed the expected future interest rates.C) yields on long- and short-maturity bonds are determined by the supply and demandfor the securities.D) all of the above.E) none of the above.Answer: A Difficulty: EasyRationale: The forward rate equals the market consensus expectation of future short interest rates.8. Which of the following theories state that the shape of the yield curve is essentiallydetermined by the supply and demands for long-and short-maturity bondsA) Liquidity preference theory.B) Expectations theory.C) Market segmentation theory.D) All of the above.E) None of the above.Answer: C Difficulty: EasyRationale: Market segmentation theory states that the markets for different maturities are separate markets, and that interest rates at the different maturities are determined by the intersection of the respective supply and demand curves.9. According to the "liquidity preference" theory of the term structure of interest rates, theyield curve usually should be:A) inverted.B) normal.C) upward slopingD) A and B.E) B and C.Answer: E Difficulty: EasyRationale: According to the liquidity preference theory, investors would prefer to be liquid rather than illiquid. In order to accept a more illiquid investment, investors require a liquidity premium and the normal, or upward sloping, yield curve results.Use the following to answer questions 10-13:Suppose that all investors expect that interest rates for the 4 years will be as follows:10. What is the price of 3-year zero coupon bond with a par value of $1,000A) $B) $C) $D) $E) none of the aboveAnswer: B Difficulty: ModerateRationale: $1,000 / = $11. If you have just purchased a 4-year zero coupon bond, what would be the expected rateof return on your investment in the first year if the implied forward rates stay the same (Par value of the bond = $1,000)A) 5%B) 7%C) 9%D) 10%E) none of the aboveAnswer: A Difficulty: ModerateRationale: The forward interest rate given for the first year of the investment is given as 5% (see table above).12. What is the price of a 2-year maturity bond with a 10% coupon rate paid annually (Parvalue = $1,000)A) $1,092B) $1,054C) $1,000D) $1,073E) none of the aboveAnswer: D Difficulty: ModerateRationale: []1/2 - 1 = 6%; FV = 1000, n = 2, PMT = 100, i = 6, PV = $1,13. What is the yield to maturity of a 3-year zero coupon bondA) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: []1/3 - 1 = .Use the following to answer questions 14-16:The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000.14. What is, according to the expectations theory, the expected forward rate in the thirdyearA) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: / - 1 = 9%15. What is the yield to maturity on a 3-year zero coupon bondA) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: (1000 / 1/3 -1 = %16. What is the price of a 4-year maturity bond with a 12% coupon rate paid annually (Parvalue = $1,000)A) $B) $1,C) $1,D) $1,E) none of the aboveAnswer: D Difficulty: DifficultRationale: (1000 / 1/4 -1 = %; FV = 1000, PMT = 120, n = 4, i = , PV = $1,17. The market segmentation theory of the term structure of interest ratesA) theoretically can explain all shapes of yield curves.B) definitely holds in the "real world".C) assumes that markets for different maturities are separate markets.D) A and B.E) A and C.Answer: E Difficulty: EasyRationale: Although this theory is quite tidy theoretically, both investors and borrows will depart from their "preferred maturity habitats" if yields on alternative maturities are attractive enough.18. An upward sloping yield curveA) may be an indication that interest rates are expected to increase.B) may incorporate a liquidity premium.C) may reflect the confounding of the liquidity premium with interest rateexpectations.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: One of the problems of the most commonly used explanation of termstructure, the expectations hypothesis, is that it is difficult to separate out the liquidity premium from interest rate expectations.19. The "break-even" interest rate for year n that equates the return on an n-periodzero-coupon bond to that of an n-1-period zero-coupon bond rolled over into a one-year bond in year n is defined asA) the forward rate.B) the short rate.C) the yield to maturity.D) the discount rate.E) None of the above.Answer: A Difficulty: EasyRationale: The forward rate for year n, fn, is the "break-even" interest rate for year n that equates the return on an n-period zero- coupon bond to that of an n-1-periodzero-coupon bond rolled over into a one-year bond in year n.20. When computing yield to maturity, the implicit reinvestment assumption is that theinterest payments are reinvested at the:A) Coupon rate.B) Current yield.C) Yield to maturity at the time of the investment.D) Prevailing yield to maturity at the time interest payments are received.E) The average yield to maturity throughout the investment period.Answer: C Difficulty: ModerateRationale: In order to earn the yield to maturity quoted at the time of the investment, coupons must be reinvested at that rate.21. Which one of the following statements is trueA) The expectations hypothesis indicates a flat yield curve if anticipated futureshort-term rates exceed the current short-term rate.B) The basic conclusion of the expectations hypothesis is that the long-term rate isequal to the anticipated long-term rate.C) The liquidity preference hypothesis indicates that, all other things being equal,longer maturities will have lower yields.D) The segmentation hypothesis contends that borrows and lenders are constrained toparticular segments of the yield curve.E) None of the above.Answer: D Difficulty: ModerateRationale: A flat yield curve indicates expectations of existing rates. Expectations hypothesis states that the forward rate equals the market consensus of expectations of future short interest rates. The reverse of C is true.22. The concepts of spot and forward rates are most closely associated with which one ofthe following explanations of the term structure of interest rates.A) Segmented Market theoryB) Expectations HypothesisC) Preferred Habitat HypothesisD) Liquidity Premium theoryE) None of the aboveAnswer: B Difficulty: ModerateRationale: Only the expectations hypothesis is based on spot and forward rates. A andC assume separate markets for different maturities; liquidity premium assumes higheryields for longer maturities.Use the following to answer question 23:23. Given the bond described above, if interest were paid semi-annually (rather thanannually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be:A) Less than 12%B) More than 12%C) 12%D) Cannot be determinedE) None of the aboveAnswer: B Difficulty: ModerateRationale: FV = 1000, PV = -850, PMT = 50, n = 40, i = (semi-annual); 2 - 1 = %.24. Interest rates might declineA) because real interest rates are expected to decline.B) because the inflation rate is expected to decline.C) because nominal interest rates are expected to increase.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: The nominal rate is comprised of the real interest rate plus the expectedinflation rate.25. Forward rates ____________ future short rates because ____________.A) are equal to; they are both extracted from yields to maturity.B) are equal to; they are perfect forecasts.C) differ from; they are imperfect forecasts.D) differ from; forward rates are estimated from dealer quotes while future short ratesare extracted from yields to maturity.E) are equal to; although they are estimated from different sources they both are usedby traders to make purchase decisions.Answer: C Difficulty: EasyRationale: Forward rates are the estimates of future short rates extracted from yields to maturity but they are not perfect forecasts because the future cannot be predicted with certainty; therefore they will usually differ.26. The pure yield curve can be estimatedA) by using zero-coupon bonds.B) by using coupon bonds if each coupon is treated as a separate "zero."C) by using corporate bonds with different risk ratings.D) by estimating liquidity premiums for different maturities.E) A and B.Answer: E Difficulty: ModerateRationale: The pure yield curve is calculated using zero coupon bonds, but coupon bonds may be used if each coupon is treated as a separate "zero."27. The on the run yield curve isA) a plot of yield as a function of maturity for zero-coupon bonds.B) a plot of yield as a function of maturity for recently issued coupon bonds trading ator near par.C) a plot of yield as a function of maturity for corporate bonds with different riskratings.D) a plot of liquidity premiums for different maturities.E) A and B.Answer: B Difficulty: Moderate28. The market segmentation and preferred habitat theories of term structureA) are identical.B) vary in that market segmentation is rarely accepted today.C) vary in that market segmentation maintains that borrowers and lenders will notdepart from their preferred maturities and preferred habitat maintains that marketparticipants will depart from preferred maturities if yields on other maturities areattractive enough.D) A and B.E) B and C.Answer: E Difficulty: ModerateRationale: Borrowers and lenders will depart from their preferred maturity habitats if yields are attractive enough; thus, the market segmentation hypothesis is no longerreadily accepted.29. The yield curveA) is a graphical depiction of term structure of interest rates.B) is usually depicted for U. S. Treasuries in order to hold risk constant acrossmaturities and yields.C) is usually depicted for corporate bonds of different ratings.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: The yield curve (yields vs. maturities, all else equal) is depicted for U. S.Treasuries more frequently than for corporate bonds, as the risk is constant acrossmaturities for Treasuries.Use the following to answer questions 30-32:30. What should the purchase price of a 2-year zero coupon bond be if it is purchased at thebeginning of year 2 and has face value of $1,000A) $B) $C) $D) $E) $Answer: A Difficulty: DifficultRationale: $1,000 / [] = $31. What would the yield to maturity be on a four-year zero coupon bond purchased todayA) %B) %C) %D) %E) none of the above.Answer: C Difficulty: ModerateRationale: [ ]1/4 - 1 = %32. Calculate the price at the beginning of year 1 of a 10% annual coupon bond with facevalue $1,000 and 5 years to maturity.A) $1,105B) $1,132C) $1,179D) $1,150E) $1,119Answer: B Difficulty: DifficultRationale: i = [ ]1/5 - 1 = %; FV = 1000, PMT = 100, n = 5, i = , PV = $1,33. Given the yield on a 3 year zero-coupon bond is % and forward rates of % in year 1and % in year 2, what must be the forward rate in year 3A) %B) %C) %D) %E) none of the above.Answer: B Difficulty: ModerateRationale: f3 = 3 / [ ] - 1 = %34. An inverted yield curve is oneA) with a hump in the middle.B) constructed by using convertible bonds.C) that is relatively flat.D) that plots the inverse relationship between bond prices and bond yields.E) that slopes downward.Answer: E Difficulty: EasyRationale: An inverted yield curve occurs when short-term rates are higher thanlong-term rates.35. Investors can use publicly available financial date to determine which of the followingI)the shape of the yield curveII)future short-term ratesIII)the direction the Dow indexes are headingIV)the actions to be taken by the Federal ReserveA) I and IIB) I and IIIC) I, II, and IIID) I, III, and IVE) I, II, III, and IVAnswer: A Difficulty: ModerateRationale: Only the shape of the yield curve and future inferred rates can be determined.The movement of the Dow Indexes and Federal Reserve policy are influenced by term structure but are determined by many other variables also.36. Which of the following combinations will result in a sharply increasing yield curveA) increasing expected short rates and increasing liquidity premiumsB) decreasing expected short rates and increasing liquidity premiumsC) increasing expected short rates and decreasing liquidity premiumsD) increasing expected short rates and constant liquidity premiumsE) constant expected short rates and increasing liquidity premiumsAnswer: A Difficulty: ModerateRationale: Both of the forces will act to increase the slope of the yield curve.37. The yield curve is a component ofA) the Dow Jones Industrial Average.B) the consumer price index.C) the index of leading economic indicators.D) the producer price index.E) the inflation index.Answer: C Difficulty: EasyRationale: Since the yield curve is often used to forecast the business cycle, it is used as one of the leading economic indicators.38. The most recently issued Treasury securities are calledA) on the run.B) off the run.C) on the market.D) off the market.E) none of the above.Answer: A Difficulty: EasyUse the following to answer questions 39-42:Suppose that all investors expect that interest rates for the 4 years will be as follows:39. What is the price of 3-year zero coupon bond with a par value of $1,000A) $B) $C) $D) $E) none of the aboveAnswer: A Difficulty: ModerateRationale: $1,000 / = $40. If you have just purchased a 4-year zero coupon bond, what would be the expected rateof return on your investment in the first year if the implied forward rates stay the same (Par value of the bond = $1,000)A) 5%B) 3%C) 9%D) 10%E) none of the aboveAnswer: B Difficulty: ModerateRationale: The forward interest rate given for the first year of the investment is given as 3% (see table above).41. What is the price of a 2-year maturity bond with a 5% coupon rate paid annually (Parvalue = $1,000)A) $1,B) $1,C) $1,D) $1,E) none of the aboveAnswer: C Difficulty: ModerateRationale: []1/2 - 1 = %; FV = 1000, n = 2, PMT = 50, i = , PV = $1,42. What is the yield to maturity of a 3-year zero coupon bondA) %B) %C) %D) 4%E) none of the aboveAnswer: D Difficulty: ModerateRationale: []1/3 - 1 = 4%.Use the following to answer questions 43-46:The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000.43. What is, according to the expectations theory, the expected forward rate in the thirdyearA)B) %C) %D) %E) none of the aboveAnswer: B Difficulty: ModerateRationale: / - 1 = %44. What is the yield to maturity on a 3-year zero coupon bondA) %B) %C) %D) %E) none of the aboveAnswer: D Difficulty: ModerateRationale: (1000 / 1/3 -1 = %45. What is the price of a 4-year maturity bond with a 10% coupon rate paid annually (Parvalue = $1,000)A) $B) $1,C) $1,D) $1,E) none of the aboveAnswer: C Difficulty: DifficultRationale: (1000 / 1/4 -1 = %; FV = 1000, PMT = 100, n = 4, i = , PV = $1,46. You have purchased a 4-year maturity bond with a 9% coupon rate paid annually. Thebond has a par value of $1,000. What would the price of the bond be one year from now if the implied forward rates stay the sameA) $B) $1,C) $1,D) $1,E) none of the aboveAnswer: A Difficulty: DifficultRationale: / ]1/3 - = %; FV = 1000, PMT = 90, n = 3, i = , PV = $Use the following to answer question 47:47. Given the bond described above, if interest were paid semi-annually (rather thanannually), and the bond continued to be priced at $, the resulting effective annual yield to maturity would be:A) Less than 10%B) More than 10%C) 10%D) Cannot be determinedE) None of the aboveAnswer: B Difficulty: ModerateRationale: FV = 1000, PV = , PMT = 45, n = 36, i = (semi-annual); 2 - 1 = %.Use the following to answer questions 48-50:48. What should the purchase price of a 2-year zero coupon bond be if it is purchased at thebeginning of year 2 and has face value of $1,000A) $B) $C) $D) $E) $Answer: D Difficulty: DifficultRationale: $1,000 / [] = $49. What would the yield to maturity be on a four-year zero coupon bond purchased todayA) %B) %C) %D) %E) none of the above.Answer: A Difficulty: ModerateRationale: [ ]1/4 - 1 = %50. Calculate the price at the beginning of year 1 of an 8% annual coupon bond with facevalue $1,000 and 5 years to maturity.A) $1,B) $1,C) $1,D) $1,E) $Answer: C Difficulty: DifficultRationale: i = [ ]1/5 - 1 = 6%; FV = 1000, PMT = 80, n = 5, i = 6, PV = $51. Given the yield on a 3 year zero-coupon bond is 7% and forward rates of 6% in year 1and % in year 2, what must be the forward rate in year 3A) %B) %C) %D) %E) none of the above.Answer: C Difficulty: ModerateRationale: f3 = 3 / [ ] - 1 = %Use the following to answer questions 52-61:52. What should the purchase price of a 1-year zero coupon bond be if it is purchased todayand has face value of $1,000A) $B) $C) $D) $E) $Answer: D Difficulty: DifficultRationale: $1,000 / = $53. What should the purchase price of a 2-year zero coupon bond be if it is purchased todayand has face value of $1,000A) $B) $C) $D) $E) $Answer: B Difficulty: DifficultRationale: $1,000 / [] = $54. What should the purchase price of a 3-year zero coupon bond be if it is purchased todayand has face value of $1,000A) $B) $C) $D) $E) $Answer: E Difficulty: DifficultRationale: $1,000 / [] = $55. What should the purchase price of a 4-year zero coupon bond be if it is purchased todayand has face value of $1,000A) $B) $C) $D) $E) $Answer: B Difficulty: DifficultRationale: $1,000 / [] = $56. What should the purchase price of a 5-year zero coupon bond be if it is purchased todayand has face value of $1,000A) $B) $C) $D) $E) $Answer: A Difficulty: DifficultRationale: $1,000 / [] = $57. What is the yield to maturity of a 1-year bondA) %B) %C) %D) %E) %Answer: A Difficulty: ModerateRationale: % (given in table)58. What is the yield to maturity of a 5-year bondA) %B) %C) %D) %E) %Answer: C Difficulty: ModerateRationale: []1/5 -1 = %59. What is the yield to maturity of a 4-year bondA) %B) %C) %D) %E) %Answer: C Difficulty: ModerateRationale: []1/4 -1 = %60. What is the yield to maturity of a 3-year bondA) %B) %C) %D) %E) %Answer: B Difficulty: ModerateRationale: []1/3 -1 = %61. What is the yield to maturity of a 2-year bondA) %B) %C) %D) %E) %Answer: D Difficulty: ModerateRationale: []1/2 -1 = %Essay Questions62. Discuss the three theories of the term structure of interest rates. Include in yourdiscussion the differences in the theories, and the advantages/disadvantages of each.Difficulty: ModerateAnswer:The expectations hypothesis is the most commonly accepted theory of term structure.The theory states that the forward rate equals the market consensus expectation of future short-term rates. Thus, yield to maturity is determined solely by current and expected future one-period interest rates. An upward sloping, or normal, yield curve wouldindicate that investors anticipate an increase in interest rates. An inverted, or downward sloping, yield curve would indicate an expectation of decreased interest rates. Ahorizontal yield curve would indicate an expectation of no interest rate changes.The liquidity preference theory of term structure maintains that short-term investorsdominate the market; thus, in general, the forward rate exceeds the expected short-term rate. In other words, investors prefer to be liquid to illiquid, all else equal, and willdemand a liquidity premium in order to go long term. Thus, liquidity preference readily explains the upward sloping, or normal, yield curve. However, liquidity preferencedoes not readily explain other yield curve shapes.Market segmentation and preferred habitat theories indicate that the markets fordifferent maturity debt instruments are segmented. Market segmentation maintains that the rates for the different maturities are determined by the intersection of the supply and demand curves for the different maturity instruments. Market segmentation readilyexplains all shapes of yield curves. However, market segmentation is not observed in the real world. Investors and issuers will leave their preferred maturity habitats if yields are attractive enough on other maturities.The purpose of this question is to ascertain that students understand the variousexplanations (and deficiencies of these explanations) of term structure.63. Term structure of interest rates is the relationship between what variables What isassumed about other variables How is term structure of interest rates depictedgraphicallyDifficulty: ModerateAnswer:Term structure of interest rates is the relationship between yield to maturity and term to maturity, all else equal. The "all else equal" refers to risk class. Term structure ofinterest rates is depicted graphically by the yield curve, which is usually a graph of .governments of different yields and different terms to maturity. The use of .governments allows one to examine the relationship between yield and maturity,holding risk constant. The yield curve depicts this relationship at one point in time only.This question is designed to ascertain that students understand the relationshipsinvolved in term structure, the restrictions on the relationships, and how therelationships are depicted graphically.64. Although the expectations of increases in future interest rates can result in an upwardsloping yield curve; an upward sloping yield curve does not in and of itself imply the expectations of higher future interest rates. Explain.Difficulty: ModerateAnswer:The effects of possible liquidity premiums confound any simple attempt to extractexpectation from the term structure. That is, the upward sloping yield curve may be due to expectations of interest rate increases, or due to the requirement of a liquiditypremium, or both. The liquidity premium could more than offset expectations ofdecreased interest rates, and an upward sloping yield would result.The purpose of this question is to assure that the student understands the confounding of the liquidity premium with the expectations hypothesis, and that the interpretations of term structure are not clear-cut.65. Explain what the following terms mean: spot rate, short rate, and forward rate. Whichof these is (are) observable todayDifficulty: ModerateAnswer:From the answer to Concept Check 2, on page 516: “The n-period spot rate is the yield to maturity on a zero-coupon bond with a maturity of n periods. The short rate forperiod n is the one-period interest rate that will prevail in period n. The forward rate for period n is the short rate that would satisfy a “break-even condition” equating the total returns on two n-period investment strategies. The first strategy is an investment in an n-period zero-coupon bond. The second is an investment in an n-1 period zero-coupon bond “rolled over” into an investment in a one-period zero. Spot rates and forward rates are observable today, but because interest rates evolve with uncertainty, future short rates are not. In the special case in which there is no uncertainty in future interest rates, the forward rate calculated from the yield curve would equal the short rate that will prevail in that period.”This question checks whether the student understands the difference between each kind of rate.66. Answer the following questions that relate to bonds.• A 2-year zero-coupon bond is selling for $. What is the yield to maturity of this bond•The price of a 1-year zero coupon bond is $. What is the yield to maturity of this bond•Calculate the forward rate for the second year.•How can you construct a synthetic one-year forward loan (you are agreeing now to loan in one year) State the strategy and show the corresponding cash flows.Assume that you can purchase and sell fractional portions of bonds. Show allcalculations and discuss the meaning of the transactions.Difficulty: Difficult。
投资学第7版Test-Bank答案07
投资学第7版Test-Bank答案07Multiple Choice Questions1. Market risk is also referred to asA) systematic risk, diversifiable risk.B) systematic risk, nondiversifiable risk.C) unique risk, nondiversifiable risk.D) unique risk, diversifiable risk.E) none of the above.Answer: B Difficulty: EasyRationale: Market, systematic, and nondiversifiable risk are synonyms referring to the risk that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.2. The risk that can be diversified away isA) firm specific risk.B) beta.C) systematic risk.D) market risk.E) none of the above.Answer: A Difficulty: EasyRationale: See explanations for 1 and 2 above.3. The variance of a portfolio of risky securitiesA) is a weighted sum of the securities' variances.B) is the sum of the securities' variances.C) is the weighted sum of the securities' variances and covariances.D) is the sum of the securities' covariances.E) none of the above.Answer: C Difficulty: ModerateRationale: The variance of a portfolio of risky securities is a weighted sum taking into account both the variance of the individual securities and the covariances betweensecurities.4. The expected return of a portfolio of risky securitiesA) is a weighted average of the securities' returns.B) is the sum of the securities' returns.C) is the weighted sum of the securities' variances and covariances.D) A and C.E) none of the above.Answer: A Difficulty: Easy5. Other things equal, diversification is most effective whenA) securities' returns are uncorrelated.B) securities' returns are positively correlated.C) securities' returns are high.D) securities' returns are negatively correlated.E) B and C.Answer: D Difficulty: ModerateRationale: Negative correlation among securities results in the greatest reduction of portfolio risk, which is the goal of diversification.6. The efficient frontier of risky assets isA) the portion of the investment opportunity set that lies above the global minimumvariance portfolio.B) the portion of the investment opportunity set that represents the highest standarddeviations.C) the portion of the investment opportunity set which includes the portfolios with thelowest standard deviation.D) the set of portfolios that have zero standard deviation.E) both A and B are true.Answer: A Difficulty: ModerateRationale: Portfolios on the efficient frontier are those providing the greatest expected return for a given amount of risk. Only those portfolios above the global minimum variance portfolio meet this criterion.7. The Capital Allocation Line provided by a risk-free security and N risky securities isA) the line that connects the risk-free rate and the global minimum-variance portfolioof the risky securities.B) the line that connects the risk-free rate and the portfolio of the risky securities thathas the highest expected return on the efficient frontier.C) the line tangent to the efficient frontier of risky securities drawn from the risk-freerate.D) the horizontal line drawn from the risk-free rate.E) none of the above.Answer: C Difficulty: ModerateRationale: The Capital Allocation Line represents the most efficient combinations of the risk-free asset and risky securities. OnlyC meets that definition.8. Consider an investment opportunity set formed with two securities that are perfectlynegatively correlated. The global minimum variance portfolio has a standard deviation that is alwaysA) greater than zero.B) equal to zero.C) equal to the sum of the securities' standard deviations.D) equal to -1.E) none of the above.Answer: B Difficulty: DifficultRationale: If two securities were perfectly negatively correlated, the weights for the minimum variance portfolio for those securities could be calculated, and the standard deviation of the resulting portfolio would be zero.9. Which of the following statements is (are) true regarding the variance of a portfolio oftwo risky securities?A) The higher the coefficient of correlation between securities, the greater thereduction in the portfolio variance.B) There is a linear relationship between the securities' coefficient of correlation andthe portfolio variance.C) The degree to which the portfolio variance is reduced depends on the degree ofcorrelation between securities.D) A and B.E) A and C.Answer: C Difficulty: ModerateRationale: The lower the correlation between the returns of the securities, the more portfolio risk is reduced.10. Efficient portfolios of N risky securities are portfolios thatA) are formed with the securities that have the highest rates of return regardless of theirstandard deviations.B) have the highest rates of return for a given level of risk.C) are selected from those securities with the lowest standard deviations regardless oftheir returns.D) have the highest risk and rates of return and the highest standard deviations.E) have the lowest standard deviations and the lowest rates of return.Answer: B Difficulty: ModerateRationale: Portfolios that are efficient are those that provide the highest expected return for a given level of risk.11. Which of the following statement(s) is (are) true regarding the selection of a portfoliofrom those that lie on the Capital Allocation Line?A) Less risk-averse investors will invest more in the risk-free security and less in theoptimal risky portfolio than more risk-averse investors.B) More risk-averse investors will invest less in the optimal risky portfolio and more inthe risk-free security than less risk-averse investors.C) Investors choose the portfolio that maximizes their expected utility.D) A and C.E) B and C.Answer: E Difficulty: ModerateRationale: All rational investors select the portfolio that maximizes their expectedutility; for investors who are relatively more risk-averse, doing so means investing less in the optimal risky portfolio and more in the risk-free asset.Use the following to answer questions 12-18:Consider the following probability distribution for stocks A and B:12. The expected rates of return of stocks A and B are _____ and _____ , respectively.A) 13.2%; 9%B) 14%; 10%C) 13.2%; 7.7%D) 7.7%; 13.2%E) none of the aboveAnswer: C Difficulty: EasyRationale: E(RA) = 0.1(10%) + 0.2(13%) + 0.2(12%) + 0.3(14%) + 0.2(15%) = 13.2%;E(RB) = 0.1(8%) + 0.2(7%) + 0.2(6%) + 0.3(9%) + 0.2(8%) = 7.7%.13. The standard deviations of stocks A and B are _____ and _____, respectively.A) 1.5%; 1.9%B) 2.5%; 1.1%C) 3.2%; 2.0%D) 1.5%; 1.1%E) none of the aboveAnswer: D Difficulty: ModerateRationale: s A = [0.1(10% - 13.2%)2 + 0.2(13% - 13.2%)2 + 0.2(12% - 13.2%)2 +0.3(14% - 13.2%)2 + 0.2(15% - 13.2%)2]1/2 = 1.5%; s B = [0.1(8% - 7.7%)2 + 0.2(7% -7.7%)2 + 0.2(6% - 7.7%)2 + 0.3(9% - 7.7%)2 + 0.2(8% - 7.7%)2 = 1.1%.14. The coefficient of correlation between A and B isA) 0.47.B) 0.60.C) 0.58D) 1.20.E) none of the above.Answer: A Difficulty: DifficultRationale: covA,B = 0.1(10% - 13.2%)(8% - 7.7%) + 0.2(13% - 13.2%)(7% - 7.7%) +0.2(12% - 13.2%)(6% - 7.7%) + 0.3(14% - 13.2%)(9% - 7.7%) + 0.2(15% - 13.2%)(8%- 7.7%) = 0.76; rA,B = 0.76/[(1.1)(1.5)] = 0.47.15. If you invest 40% of your money in A and 60% in B, what would be your portfolio'sexpected rate of return and standard deviation?A) 9.9%; 3%B) 9.9%; 1.1%C) 11%; 1.1%D) 11%; 3%E) none of the aboveAnswer: B Difficulty: DifficultRationale: E(R P) = 0.4(13.2%) + 0.6(7.7%) = 9.9%; s P = [(0.4)2(1.5)2 + (0.6)2(1.1)2 + 2(0.4)(0.6)(1.5)(1.1)(0.46)]1/2 = 1.1%.16. Let G be the global minimum variance portfolio. The weights of A and B in G are__________ and __________, respectively.A) 0.40; 0.60B) 0.66; 0.34C) 0.34; 0.66D) 0.76; 0.24E) 0.24; 0.76Answer: E Difficulty: DifficultRationale: w A = [(1.1)2 - (1.5)(1.1)(0.46)]/[(1.5)2 + (1.1)2 - (2)(1.5)(1.1)(0.46) = 0.23;w B = 1 - 0.23 = 0.77.Note that the above solution assumes the solutions obtained in question 13 and 14.17. The expected rate of return and standard deviation of the global minimum varianceportfolio, G, are __________ and __________, respectively.A) 10.07%; 1.05%B) 9.04%; 2.03%C) 10.07%; 3.01%D) 9.04%; 1.05%E) none of the aboveAnswer: D Difficulty: ModerateRationale: E(R G) = 0.23(13.2%) + 0.77(7.7%) = 8.97% . 9%; s G = [(0.23)2(1.5)2 +(0.77)2(1.1)2 + (2)(0.23)(0.77)(1.5)(1.1)(0.46)]1/2 = 1.05%.18. Which of the following portfolio(s) is (are) on the efficient frontier?A) The portfolio with 20 percent in A and 80 percent in B.B) The portfolio with 15 percent in A and 85 percent in B.C) The portfolio with 26 percent in A and 74 percent in B.D) The portfolio with 10 percent in A and 90 percent in B.E) A and B are both on the efficient frontier.Answer: C Difficulty: DifficultRationale: The Portfolio's E(Rp), sp, Reward/volatility ratios are 20A/80B: 8.8%,1.05%, 8.38; 15A/85B: 8.53%, 1.06%, 8.07; 26A/74B: 9.13%, 1.05%, 8.70; 10A/90B:8.25%, 1.07%, 7.73. The portfolio with 26% in A and 74% in B dominates all of theother portfolios by the mean-variance criterion.Use the following to answer questions 19-21:Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%.19. The weights of A and B in the global minimum variance portfolio are _____ and _____,respectively.A) 0.24; 0.76B) 0.50; 0.50C) 0.57; 0.43D) 0.43; 0.57E) 0.76; 0.24Answer: D Difficulty: ModerateRationale: wA = 12 /(16 + 12) = 0.4286; wB = 1 - 0.4286 = 0.5714.20. The risk-free portfolio that can be formed with the two securities will earn _____ rate ofreturn.A) 8.5%B) 9.0%C) 8.9%D) 9.9%E) none of the aboveAnswer: C Difficulty: DifficultRationale: E(R P) = 0.43(10%) + 0.57(8%) = 8.86%.21. Which of the following portfolio(s) is (are) most efficient?A) 45 percent in A and 55 percent in B.B) 65 percent in A and 35 percent in B.C) 35 percent in A and 65 percent in B.D) A and B are both efficient.E) A and C are both efficient.Answer: D Difficulty: DifficultRationale: The Portfolio E(Rp), sp, and Reward/volatility ratios are 45A/55B: 8.9%,0.6%, 14.83; 65A/35B: 9.3%, 6.2%, 1.5; 35A/65B: 8.7%, 2.2%, 3.95. Both A and B areefficient according to the mean-variance criterion. A has a much higherReward/volatility ratio.22. An investor who wishes to form a portfolio that lies to the right of the optimal riskyportfolio on the Capital Allocation Line must:A) lend some of her money at the risk-free rate and invest the remainder in the optimalrisky portfolio.B) borrow some money at the risk-free rate and invest in the optimal risky portfolio.C) invest only in risky securities.D) such a portfolio cannot be formed.E) B and CAnswer: E Difficulty: ModerateRationale: The only way that an investor can create portfolios to the right of the Capital Allocation Line is to create a borrowing portfolio (buy stocks on margin). In this case, the investor will not hold any of the risk-free security, but will hold only risky securities.23. Which one of the following portfolios cannot lie on the efficient frontier as describedby Markowitz?A) Only portfolio W cannot lie on the efficient frontier.B) Only portfolio X cannot lie on the efficient frontier.C) Only portfolio Y cannot lie on the efficient frontier.D) Only portfolio Z cannot lie on the efficient frontier.E) Cannot tell from the information given.Answer: A Difficulty: ModerateRationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higher standard deviation than Z with a lower expected return.24. Which one of the following portfolios cannot lie on the efficient frontier as describedby Markowitz?A) Only portfolio A cannot lie on the efficient frontier.B) Only portfolio B cannot lie on the efficient frontier.C) Only portfolio C cannot lie on the efficient frontier.D) Only portfolio D cannot lie on the efficient frontier.E) Cannot tell from the information given.Answer: D Difficulty: ModerateRationale: When plotting the above portfolios, only W lies below the efficient frontier as described by Markowitz. It has a higherstandard deviation than Z with a lower expected return.25. Portfolio theory as described by Markowitz is most concerned with:A) the elimination of systematic risk.B) the effect of diversification on portfolio risk.C) the identification of unsystematic risk.D) active portfolio management to enhance returns.E) none of the above.Answer: B Difficulty: ModerateRationale: Markowitz was concerned with reducing portfolio risk by combining risky securities with differing return patterns.26. The measure of risk in a Markowitz efficient frontier is:A) specific risk.B) standard deviation of returns.C) reinvestment risk.D) beta.E) none of the above.Answer: B Difficulty: ModerateRationale: Markowitz was interested in eliminating diversifiable risk (and thuslessening total risk) and thus was interested in decreasing the standard deviation of the returns of the portfolio.27. A statistic that measures how the returns of two risky assets move together is:A) variance.B) standard deviation.C) covariance.D) correlation.E) C and D.Answer: E Difficulty: ModerateRationale: Covariance measures whether security returns move together or inopposition; however, only the sign, not the magnitude, of covariance may be interpreted.Correlation, which is covariance standardized by the product of the standard deviations of the two securities, may assume values only between +1 and -1; thus, both the sign and the magnitude may be interpreted regarding the movement of one security's returnrelative to that of another security.28. The unsystematic risk of a specific securityA) is likely to be higher in an increasing market.B) results from factors unique to the firm.C) depends on market volatility.D) cannot be diversified away.E) none of the above.Answer: B Difficulty: ModerateRationale: Unsystematic (or diversifiable or firm-specific) risk refers to factors unique to the firm. Such risk may be diversified away; however, market risk will remain.29. Which statement about portfolio diversification is correct?A) Proper diversification can reduce or eliminate systematic risk.B) The risk-reducing benefits of diversification do not occur meaningfully until at least50-60 individual securities have been purchased.C) Because diversification reduces a portfolio's total risk, it necessarily reduces theportfolio's expected return.D) Typically, as more securities are added to a portfolio, total risk would be expectedto decrease at a decreasing rate.E) None of the above statements is correct.Answer: D Difficulty: ModerateRationale: Diversification can eliminate only nonsystematic risk; relatively fewsecurities are required to reduce this risk, thus diminishing returns result quickly.Diversification does not necessarily reduce returns.30. The individual investor's optimal portfolio is designated by:A) The point of tangency with the indifference curve and the capital allocation line.B) The point of highest reward to variability ratio in the opportunity set.C) The point of tangency with the opportunity set and the capital allocation line.D) The point of the highest reward to variability ratio in the indifference curve.E) None of the above.Answer: A Difficulty: ModerateRationale: The indifference curve represents what is acceptable to the investor; the capital allocation line represents what is available in the market. The point of tangency represents where the investor can obtain the greatest utility from what is available.31. For a two-stock portfolio, what would be the preferred correlation coefficient betweenthe two stocks?A) +1.00.B) +0.50.C) 0.00.D) -1.00.E) none of the above.Answer: D Difficulty: ModerateRationale: The correlation coefficient of -1.00 provides the greatest diversificationbenefits.32. In a two-security minimum variance portfolio where the correlation between securitiesis greater than -1.0A) the security with the higher standard deviation will be weighted more heavily.B) the security with the higher standard deviation will be weighted less heavily.C) the two securities will be equally weighted.D) the risk will be zero.E) the return will be zero.Answer: B Difficulty: DifficultRationale: The security with the higher standard deviation will be weighted less heavily to produce minimum variance. The return will not be zero; the risk will not be zero unless the correlation coefficient is -1.33. Which of the following is not a source of systematic risk?A) the business cycle.B) interest rates.C) personnel changesD) the inflation rate.E) exchange rates.Answer: C Difficulty: EasyRationale: Personnel changes are a firm-specific event that is a component ofnon-systematic risk. The others are all sources of systematic risk.34. The global minimum variance portfolio formed from two risky securities will beriskless when the correlation coefficient between the two securities isA) 0.0B) 1.0C) 0.5D) -1.0E) negativeAnswer: D Difficulty: ModerateRationale: The global minimum variance portfolio will have a standard deviation of zero whenever the two securities are perfectly negatively correlated.35. Security X has expected return of 12% and standard deviation of 20%. Security Y hasexpected return of 15% and standard deviation of 27%. If the two securities have a correlation coefficient of 0.7, what is their covariance?A) 0.038B) 0.070C) 0.018D) 0.013E) 0.054Answer: A Difficulty: ModerateRationale: Cov(r X, r Y) = (.7)(.20)(.27) = .037836. When two risky securities that are positively correlated but not perfectly correlated areheld in a portfolio,A) the portfolio standard deviation will be greater than the weighted average of theindividual security standard deviations.B) the portfolio standard deviation will be less than the weighted average of theindividual security standard deviations.C) the portfolio standard deviation will be equal to the weighted average of theindividual security standard deviations.D) the portfolio standard deviation will always be equal to the securities' covariance.E) none of the above is true.Answer: B Difficulty: ModerateRationale: Whenever two securities are less than perfectly positively correlated, the standard deviation of the portfolio of the two assets will be less than the weightedaverage of the two securities' standard deviations. There is some benefit todiversification in this case.37. The line representing all combinations of portfolio expected returns and standarddeviations that can be constructed from two available assets is called theA) risk/reward tradeoff lineB) Capital Allocation LineC) efficient frontierD) portfolio opportunity setE) Security Market LineAnswer: D Difficulty: EasyRationale: The portfolio opportunity set is the line describing all combinations ofexpected returns and standard deviations that can be achieved by a portfolio of risky assets.38. Given an optimal risky portfolio with expected return of 14% and standard deviation of22% and a risk free rate of 6%, what is the slope of the best feasible CAL?A) 0.64B) 0.14C) 0.08D) 0.33E) 0.36Answer: E Difficulty: ModerateRationale: Slope = (14-6)/22 = .363639. The risk that can be diversified away in a portfolio is referred to as ___________.I)diversifiable riskII)unique riskIII)systematic riskIV)firm-specific riskA) I, III, and IVB) II, III, and IVC) III and IVD) I, II, and IVE) I, II, III, and IVAnswer: D Difficulty: ModerateRationale: All of these terms are used interchangeably to refer to the risk that can be removed from a portfolio through diversification.40. As the number of securities in a portfolio is increased, what happens to the averageportfolio standard deviation?A) It increases at an increasing rate.B) It increases at a decreasing rate.C) It decreases at an increasing rate.D) It decreases at a decreasing rate.E) It first decreases, then starts to increase as more securities are added.Answer: D Difficulty: ModerateRationale: Statman's study showed that the risk of the portfolio would decrease asrandom stocks were added. At first the risk decreases quickly, but then the rate ofdecrease slows substantially, as shown in Figure 7.2. The minimum portfolio risk in the study was 19.2%.41. In words, the covariance considers the probability of each scenario happening and theinteraction betweenA) securities' returns relative to their variances.B) securities' returns relative to their mean returns.C) securities' returns relative to other securities' returns.D) the level of return a security has in that scenario and the overall portfolio return.E) the variance of the security's return in that scenario and the overall portfoliovariance.Answer: B Difficulty: DifficultRationale: As written in equation 7.4, the covariance of the returns between twosecurities is the sum over all scenarios of the product of three things. The first item is the probability that the scenario will happen. The second and third terms represent the deviations of the securities' returns in that scenario from their own expected returns. 42. The standard deviation of a two-asset portfolio is a linear function of the assets' weightswhenA) the assets have a correlation coefficient less than zero.B) the assets have a correlation coefficient equal to zero.C) the assets have a correlation coefficient greater than zero.D) the assets have a correlation coefficient equal to one.E) the assets have a correlation coefficient less than one.Answer: D Difficulty: ModerateRationale: When there is a perfect positive correlation (or a perfect negative correlation), the equation for the portfolio variance simplifies to a perfect square. The result is that the portfolio's standard deviation is linear relative to the assets' weights in the portfolio.43. A two-asset portfolio with a standard deviation of zero can be formed whenA) the assets have a correlation coefficient less than zero.B) the assets have a correlation coefficient equal to zero.C) the assets have a correlation coefficient greater than zero.D) the assets have a correlation coefficient equal to one.E) the assets have a correlation coefficient equal to negative one.Answer: E Difficulty: ModerateRationale: When there is a perfect negative correlation, the equation for the portfolio variance simplifies to a perfect square. The result is that the portfolio’s standarddeviation equals |w AσA– w BσB|, which can be set equal to zero. The solution w A = σB/(σA+ σB) and w B = 1 – w A will yielda zero-standard deviation portfolio.44. When borrowing and lending at a risk-free rate are allowed, which Capital AllocationLine (CAL) should the investor choose to combine with the efficient frontier?I)with the highest reward-to-variability ratio.II)that will maximize his utility.III)with the steepest slope.IV)with the lowest slope.A) I and IIIB) I and IVC) II and IVD) I onlyE) I, II, and IIIAnswer: E Difficulty: DifficultRationale: The optimal CAL is the one that is tangent to the efficient frontier. This CAL offers the highest reward-to-variability ratio, which is the slope of the CAL. It will also allow the investor to reach his highest feasible level of utility.45. Which Excel tool can be used to find the points along an efficient frontier?A) RegressionB) SolverC) ScenariosD) Goal SeekE) Data AnalysisAnswer: B Difficulty: ModerateRationale: Even if the student isn't familiar with Excel's Solver tool, he shouldrecognize it from the discussion in the text.46. The separation property refers to the conclusion thatA) the determination of the best risky portfolio is objective and the choice of the bestcomplete portfolio is subjective.B) the choice of the best complete portfolio is objective and the determination of thebest risky portfolio is objective.C) the choice of inputs to be used to determine the efficient frontier is objective and thechoice of the best CAL is subjective.D) the determination of the best CAL is objective and the choice of the inputs to beused to determine the efficient frontier is subjective.E) investors are separate beings and will therefore have different preferences regardingthe risk-return tradeoff.Answer: A Difficulty: DifficultRationale: The determination of the optimal risky portfolio is purely technical and can be done by a manager. The complete portfolio, which consists of the optimal riskyportfolio and the risk-free asset, must be chosen by each investor based on preferences. Use the following to answer questions 47-50:Consider the following probability distribution for stocks A and B:47. The expected rates of return of stocks A and B are _____ and _____, respectively.A) 13.2%; 9%.B) 13%; 8.4%C) 13.2%; 7.7%D) 7.7%; 13.2%E) none of the aboveAnswer: B Difficulty: EasyRationale: E(RA) = 0.15(8%) + 0.2(13%) + 0.15(12%) + 0.3(14%) + 0.2(16%) = 13%;E(RB) = 0.15(8%) + 0.2(7%) + 0.15(6%) + 0.3(9%) + 0.2(11%) = 8.4%.48. The standard deviations of stocks A and B are _____ and _____, respectively.A) 1.56%; 1.99%B) 2.45%; 1.68%C) 3.22%; 2.01%D) 1.54%; 1.11%E) none of the aboveAnswer: B Difficulty: ModerateRationale: s A = [0.15(8% - 13%)2 + 0.2(13% - 13%)2 + 0.15(12% - 13%)2 + 0.3(14% - 13%)2 + 0.2(16% - 13%)2] 1/2 = 2.449%; sB = [0.15(8% - 8.4%)2 + 0.2(7% - 8.4%)2 +0.15(6% - 8.4%)2 + 0.3(9% - 8.4%)2 + 0.2(11% - 8.4%)2 ] 1/2= 1.676%.49. The coefficient of correlation between A and B isA) 0.474.B) 0.612.C) 0.583.D) 1.206.E) none of the above.Answer: C Difficulty: DifficultRationale: covA,B = 0.15(8% - 13%)(8% - 8.4%) + 0.2(13% - 13%)(7% - 8.4%) +0.15(12% - 13%)(6% - 8.4%) + 0.3(14% - 13%)(9% - 8.4%) + 0.2(16% - 13%)(11% -8.4%) = 2.40; rA,B = 2.40/[(2.45)(1.68)] = 0.583.50. If you invest 35% of your money in A and 65% in B, what would be your portfolio'sexpected rate of return and standard deviation?A) 9.9%; 3%B) 9.9%; 1.1%C) 10%; 1.7%D) 10%; 3%E) none of the aboveAnswer: C Difficulty: DifficultRationale: E(R P) = 0.35(13%) + 0.65(8.4%) = 10.01%; s P = [(0.35)2(2.45%)2 +(0.65)2(1.68)2 + 2(0.35)(0.65)(2.45)(1.68)(0.583)]1/2 = 1.7%.Use the following to answer questions 51-52:Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of 9% and a standard deviation of 14%.51. The weights of A and B in the global minimum variance portfolio are _____ and _____,respectively.A) 0.24; 0.76B) 0.50; 0.50C) 0.57; 0.43D) 0.45; 0.55E) 0.76; 0.24Answer: D Difficulty: ModerateRationale: wA = 14 /(17 + 14) = 0.45; wB = 1 - 0.45 = 0.55.52. The risk-free portfolio that can be formed with the two securities will earn _____ rate ofreturn.。
投资学第7版TestBank答案解析15
投资学第7版TestBank答案解析15Multiple Choice Questions1. The term structure of interest rates is:A) The relationship between the rates of interest on all securities.B) The relationship between the interest rate on a security and its timeto maturity.C) The relationship between the yield on a bond and its default rate.D) All of the above.E) None of the above.Answer: B Difficulty: EasyRationale: The term structure of interest rates is the relationshipbetween two variables, years and yield to maturity (holding all elseconstant).2. The yield curve shows at any point in time:A) The relationship between the yield on a bond and the duration of thebond.B) The relationship between the coupon rate on a bond and time to maturityof the bond.C) The relationship between yield on a bond and the time to maturity onthe bond.D) All of the above.E) None of the above.Answer: C Difficulty: Easy3. An inverted yield curve implies that:A) Long-term interest rates are lower than short-term interest rates.B) Long-term interest rates are higher than short-term interest rates.C) Long-term interest rates are the same as short-term interest rates.D) Intermediate term interest rates are higher than either short- orlong-term interest rates.E) none of the above.Answer: A Difficulty: EasyRationale: The inverted, or downward sloping, yield curve is one in which short-term rates are higher than long-term rates. The inverted yield curve has been observed frequently, although not as frequently as the upwardsloping, or normal, yield curve.4. An upward sloping yield curve is a(n) _______ yield curve.A) normal.B) humped.C) inverted.D) flat.E) none of the above.Answer: A Difficulty: EasyRationale: The upward sloping yield curve is referred to as the normal yield curve, probably because, historically, the upward sloping yield curve is the shape that has been observed most frequently.5. According to the expectations hypothesis, a normal yield curve impliesthatA) 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.Answer: C Difficulty: EasyRationale: An upward sloping yield curve is based on the expectation that short-term interest rates will increase.6. Which of the following is not proposed as an explanation for the termstructure of interest rates?A) The expectations theory.B) The liquidity preference theory.C) The market segmentation theory.D) Modern portfolio theory.E) A, B, and C.Answer: D Difficulty: EasyRationale: A, B, and C are all theories that have been proposed to explain the term structure.7. The expectations theory of the term structure of interest rates statesthatA) forward rates are determined by investors' expectations of futureinterest rates.B) forward rates exceed the expected future interest rates.C) yields on long- and short-maturity bonds are determined by the supplyand demand for the securities.D) all of the above.E) none of the above.Answer: A Difficulty: EasyRationale: The forward rate equals the market consensus expectation of future short interest rates.8. Which of the following theories state that the shape of the yield curveis essentially determined by the supply and demands for long-andshort-maturity bonds?A) Liquidity preference theory.B) Expectations theory.C) Market segmentation theory.D) All of the above.E) None of the above.Answer: C Difficulty: EasyRationale: Market segmentation theory states that the markets fordifferent maturities are separate markets, and that interest rates at the different maturities are determined by the intersection of the respective supply and demand curves.9. According to the "liquidity preference" theory of the term structure ofinterest rates, the yield curve usually should be:A) inverted.B) normal.C) upward slopingD) A and B.E) B and C.Answer: E Difficulty: EasyRationale: According to the liquidity preference theory, investors wouldprefer to be liquid rather than illiquid. In order to accept a more illiquid investment, investors require a liquidity premium and the normal, or upward sloping, yield curve results.Use the following to answer questions 10-13:Suppose that all investors expect that interest rates for the 4 years will be as follows:10. What is the price of 3-year zero coupon bond with a par value of $1,000?A) $863.83B) $816.58C) $772.18D) $765.55E) none of the aboveAnswer: B Difficulty: ModerateRationale: $1,000 / (1.05)(1.07)(1.09) = $816.5811. If you have just purchased a 4-year zero coupon bond, what would be theexpected rate of return on your investment in the first year if the implied forward rates stay the same? (Par value of the bond =A) 5%B) 7%C) 9%D) 10%E) none of the aboveAnswer: A Difficulty: ModerateRationale: The forward interest rate given for the first year of theinvestment is given as 5% (see table above).12. What is the price of a 2-year maturity bond with a 10% coupon rate paidannually? (Par value = $1,000)A) $1,092B) $1,054C) $1,000D) $1,073E) none of the aboveAnswer: D Difficulty: ModerateRationale: [(1.05)(1.07)]1/2 - 1 = 6%; FV = 1000, n = 2, PMT = 100, i = 6, PV = $1,073.3413. What is the yield to maturity of a 3-year zero coupon bond?A) 7.00%B) 9.00%C) 6.99%D) 7.49%E) none of the aboveAnswer: C Difficulty: ModerateRationale: [(1.05)(1.07)(1.09)]1/3 - 1 = 6.99.Use the following to answer questions 14-16:The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000.14. What is, according to the expectations theory, the expected forward ratein the third year?A) 7.00%B) 7.33%C) 9.00%E) none of the aboveAnswer: C Difficulty: ModerateRationale: 881.68 / 808.88 - 1 = 9%15. What is the yield to maturity on a 3-year zero coupon bond?A) 6.37%B) 9.00%C) 7.33%D) 10.00%E) none of the aboveAnswer: C Difficulty: ModerateRationale: (1000 / 808.81)1/3 -1 = 7.33%16. What is the price of a 4-year maturity bond with a 12% coupon rate paidannually? (Par value = $1,000)A) $742.09B) $1,222.09C) $1,000.00D) $1,141.92E) none of the aboveAnswer: D Difficulty: DifficultRationale: (1000 / 742.09)1/4 -1 = 7.74%; FV = 1000, PMT = 120, n = 4, i = 7.74, PV = $1,141.9217. The market segmentation theory of the term structure of interest ratesA) theoretically can explain all shapes of yield curves.B) definitely holds in the "real world".C) assumes that markets for different maturities are separate markets.D) A and B.E) A and C.Answer: E Difficulty: EasyRationale: Although this theory is quite tidy theoretically, bothinvestors and borrows will depart from their "preferred maturity habitats"if yields on alternative maturities are attractive enough.18. An upward sloping yield curveA) may be an indication that interest rates are expected to increase.B) may incorporate a liquidity premium.C) may reflect the confounding of the liquidity premium with interest rateexpectations.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: One of the problems of the most commonly used explanation of term structure, the expectations hypothesis, is that it is difficult to separate out the liquidity premium from interest rate expectations.19. The "break-even" interest rate for year n that equates the return on ann-period zero-coupon bond to that of an n-1-period zero-coupon bond rolled over into a one-year bond in year n is defined asA) the forward rate.B) the short rate.C) the yield to maturity.D) the discount rate.E) None of the above.Answer: A Difficulty: EasyRationale: The forward rate for year n, fn, is the "break-even" interest rate for year n that equates the return on an n-period zero-coupon bond to that of an n-1-period zero-coupon bond rolled over into a one-year bond in year n.20. When computing yield to maturity, the implicit reinvestment assumptionis that the interest payments are reinvested at the:A) Coupon rate.B) Current yield.C) Yield to maturity at the time of the investment.D) Prevailing yield to maturity at the time interest payments arereceived.E) The average yield to maturity throughout the investment period.Answer: C Difficulty: ModerateRationale: In order to earn the yield to maturity quoted at the time of the investment, coupons must be reinvested at that rate.21. Which one of the following statements is true?A) The expectations hypothesis indicates a flat yield curve ifanticipated future short-term rates exceed the current short-termrate.B) The basic conclusion of the expectations hypothesis is that thelong-term rate is equal to the anticipated long-term rate.C) The liquidity preference hypothesis indicates that, all other thingsbeing equal, longer maturities will have lower yields.D) The segmentation hypothesis contends that borrows and lenders areconstrained to particular segments of the yield curve.E) None of the above.Answer: D Difficulty: ModerateRationale: A flat yield curve indicates expectations of existing rates.Expectations hypothesis states that the forward rate equals the market consensus of expectations of future short interest rates. The reverse of C is true.22. The concepts of spot and forward rates are most closely associated withwhich one of the following explanations of the term structure of interest rates.A) Segmented Market theoryB) Expectations HypothesisC) Preferred Habitat HypothesisD) Liquidity Premium theoryE) None of the aboveAnswer: B Difficulty: ModerateRationale: Only the expectations hypothesis is based on spot and forward rates. A and C assume separate markets for different maturities; liquidity premium assumes higher yields for longer maturities.Use the following to answer question 23:23. Given the bond described above, if interest were paid semi-annually(rather than annually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be:A) Less than 12%B) More than 12%C) 12%D) Cannot be determinedE) None of the aboveAnswer: B Difficulty: ModerateRationale: FV = 1000, PV = -850, PMT = 50, n = 40, i = 5.9964 (semi-annual);(1.059964)2 - 1 = 12.35%.24. Interest rates might declineA) because real interest rates are expected to decline.B) because the inflation rate is expected to decline.C) because nominal interest rates are expected to increase.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: The nominal rate is comprised of the real interest rate plus the expected inflation rate.25. Forward rates ____________ future short rates because ____________.A) are equal to; they are both extracted from yields to maturity.B) are equal to; they are perfect forecasts.C) differ from; they are imperfect forecasts.D) differ from; forward rates are estimated from dealer quotes whilefuture short rates are extracted from yields to maturity.E) are equal to; although they are estimated from different sources theyboth are used by traders to make purchase decisions.Answer: C Difficulty: EasyRationale: Forward rates are the estimates of future short rates extracted from yields to maturity but they are not perfect forecasts because the future cannot be predicted with certainty; therefore they will usually differ.26. The pure yield curve can be estimatedA) by using zero-coupon bonds.B) by using coupon bonds if each coupon is treated as a separate "zero."C) by using corporate bonds with different risk ratings.D) by estimating liquidity premiums for different maturities.E) A and B.Answer: E Difficulty: ModerateRationale: The pure yield curve is calculated using zero coupon bonds, but coupon bonds may be used if each coupon is treated as a separate "zero."27. The on the run yield curve isA) a plot of yield as a function of maturity for zero-coupon bonds.B) a plot of yield as a function of maturity for recently issued couponbonds trading at or near par.C) a plot of yield as a function of maturity for corporate bonds withdifferent risk ratings.D) a plot of liquidity premiums for different maturities.E) A and B.Answer: B Difficulty: Moderate28. The market segmentation and preferred habitat theories of term structureA) are identical.B) vary in that market segmentation is rarely accepted today.C) vary in that market segmentation maintains that borrowers and lenderswill not depart from their preferred maturities and preferred habitatmaintains that market participants will depart from preferredmaturities if yields on other maturities are attractive enough.D) A and B.E) B and C.Answer: E Difficulty: ModerateRationale: Borrowers and lenders will depart from their preferred maturity habitats if yields are attractive enough; thus, the market segmentation hypothesis is no longer readily accepted.29. The yield curveA) is a graphical depiction of term structure of interest rates.B) is usually depicted for U. S. Treasuries in order to hold risk constantacross maturities and yields.C) is usually depicted for corporate bonds of different ratings.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: The yield curve (yields vs. maturities, all else equal) is depicted for U. S. Treasuries more frequently than for corporate bonds, as the risk is constant across maturities for Treasuries.Use the following to answer questions 30-32:30. What should the purchase price of a 2-year zero coupon bond be if it ispurchased at the beginning of year 2 and has face value of $1,000?A) $877.54B) $888.33C) $883.32D) $893.36E) $871.80Answer: A Difficulty: DifficultRationale: $1,000 / [(1.064)(1.071)] = $877.5431. What would the yield to maturity be on a four-year zero coupon bondpurchased today?A) 5.80%B) 7.30%C) 6.65%D) 7.25%E) none of the above.Answer: C Difficulty: ModerateRationale: [(1.058) (1.064) (1.071) (1.073)]1/4 - 1 = 6.65%32. Calculate the price at the beginning of year 1 of a 10% annual coupon bondwith face value $1,000 and 5 years to maturity.A) $1,105B) $1,132C) $1,179D) $1,150E) $1,119Answer: B Difficulty: DifficultRationale: i = [(1.058) (1.064) (1.071) (1.073) (1.074)]1/5 - 1 = 6.8%; FV = 1000, PMT = 100, n = 5, i = 6.8, PV = $1,131.91 33. Given the yield on a 3 year zero-coupon bond is 7.2% and forward ratesof 6.1% in year 1 and 6.9% in year 2, what must be the forward rate in year 3?A) 8.4%B) 8.6%C) 8.1%D) 8.9%E) none of the above.Answer: B Difficulty: ModerateRationale: f3 = (1.072)3 / [(1.061) (1.069)] - 1 = 8.6%34. An inverted yield curve is oneA) with a hump in the middle.B) constructed by using convertible bonds.C) that is relatively flat.D) that plots the inverse relationship between bond prices and bondyields.E) that slopes downward.Answer: E Difficulty: EasyRationale: An inverted yield curve occurs when short-term rates are higher than long-term rates.35. Investors can use publicly available financial date to determine whichof the following?I)the shape of the yield curveII)future short-term ratesIII)the direction the Dow indexes are headingIV)the actions to be taken by the Federal ReserveA) I and IIB) I and IIIC) I, II, and IIID) I, III, and IVE) I, II, III, and IVAnswer: A Difficulty: ModerateRationale: Only the shape of the yield curve and future inferred rates can be determined. The movement of the Dow Indexes and Federal Reserve policy are influenced by term structure but are determined by many other variables also.36. Which of the following combinations will result in a sharply increasingyield curve?A) increasing expected short rates and increasing liquidity premiumsB) decreasing expected short rates and increasing liquidity premiumsC) increasing expected short rates and decreasing liquidity premiumsD) increasing expected short rates and constant liquidity premiumsE) constant expected short rates and increasing liquidity premiumsAnswer: A Difficulty: ModerateRationale: Both of the forces will act to increase the slope of the yield curve.37. The yield curve is a component ofA) the Dow Jones Industrial Average.B) the consumer price index.C) the index of leading economic indicators.D) the producer price index.E) the inflation index.Answer: C Difficulty: EasyRationale: Since the yield curve is often used to forecast the business cycle, it is used as one of the leading economic indicators.38. The most recently issued Treasury securities are calledA) on the run.B) off the run.C) on the market.D) off the market.E) none of the above.Answer: A Difficulty: EasyUse the following to answer questions 39-42:Suppose that all investors expect that interest rates for the 4 years will be as follows:。
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投资学第7版T e s t-B a n k答案22-CAL-FENGHAI.-(YICAI)-Company One1Multiple Choice Questions1. A futures contractA) is an agreement to buy or sell a specified amount of an asset at the spot price onthe expiration date of the contract.B) is an agreement to buy or sell a specified amount of an asset at a predeterminedprice on the expiration date of the contract.C) gives the buyer the right, but not the obligation, to buy an asset some time in thefuture.D) is a contract to be signed in the future by the buyer and the seller of thecommodity.E) none of the above.Answer: B Difficulty: EasyRationale: A futures contract locks in the price of a commodity to be delivered atsome future date. Both the buyer and seller of the contract are committed.2. The terms of futures contracts __________ standardized, and the terms of forwardcontracts __________ standardized.A) are; areB) are not; areC) are; are notD) are not; are notE) are; may or may not beAnswer: C Difficulty: EasyRationale: Futures contracts are standardized and are traded on organized exchanges;forward contracts are not traded on organized exchanges, the participant negotiates for the delivery of any quantity of goods, and banks and brokers negotiate contracts as needed.3. Futures contracts __________ traded on an organized exchange, and forwardcontracts __________ traded on an organized exchange.A) are not; areB) are; areC) are not; are notD) are; are notE) are; may or may not beAnswer: D Difficulty: EasyRationale: See rationale for test bank question 22.2.4. In a futures contract the futures price isA) determined by the buyer and the seller when the delivery of the commodity takesplace.B) determined by the futures exchange.C) determined by the buyer and the seller when they initiate the contract.D) determined independently by the provider of the underlying asset.E) none of the above.Answer: C Difficulty: ModerateRationale: The futures exchanges specify all the terms of the contracts except price; asa result, the traders bargain over the futures price.5. The buyer of a futures contract is said to have a __________ position and the seller ofa futures contract is said to have a __________ position in futures.A) long; shortB) long; longC) short; shortD) short; longE) margined; longAnswer: A Difficulty: ModerateRationale: The trader taking the long position commits to purchase the commodity on the delivery date. The trader taking the short position commits to delivering thecommodity at contract maturity. The trader in the long position is said to "buy" the contract; the trader in the short position is said to "sell" the contract. However, no money changes hands at this time.6. Investors who take long positions in futures agree to __________ of the commodityon the delivery date, and those who take the short positions agree to __________ of the commodity.A) make delivery; take deliveryB) take delivery; make deliveryC) take delivery; take deliveryD) make delivery; take deliveryE) negotiate the price; pay the priceAnswer: B Difficulty: ModerateRationale: See explanation for test bank question 22.5.7. The terms of futures contracts such as the quality and quantity of the commodity andthe delivery date areA) specified by the buyers and sellers.B) specified only by the buyers.C) specified by the futures exchanges.D) specified by brokers and dealers.E) none of the above.Answer: C Difficulty: ModerateRationale: See rationale for test bank question 22.4.8. A trader who has a __________ position in wheat futures believes the price of wheatwill __________ in the future.A) long; increaseB) long; decreaseC) short; increaseD) long; stay the sameE) short; stay the sameAnswer: A Difficulty: ModerateRationale: The trader holding the long position (the person who will purchase the goods) will profit from a price increase. Profit to long position = Spot price atmaturity--Original futures price.9. A trader who has a __________ position in gold futures wants the price of gold to__________ in the future.A) long; decreaseB) short; decreaseC) short; stay the sameD) short; increaseE) long; stay the sameAnswer: B Difficulty: ModerateRationale: Profit to short position = Original futures price--Spot price at maturity.Thus, the person in the short position profits if the price of the commodity declines in the future.10. The open interest on silver futures at a particular time is theA) number of silver futures contracts traded during the day.B) number of outstanding silver futures contracts for delivery within the next month.C) number of silver futures contracts traded the previous day.D) number of all silver futures outstanding contracts.E) none of the above.Answer: D Difficulty: ModerateRationale: Open interest is the number of contracts outstanding. When contracts begin trading, open interest is zero; as time passes more contracts are entered. Mostcontracts are liquidated before the maturity date.11. Which one of the following statements regarding delivery is trueA) Most futures contracts result in actual delivery.B) Only one to three percent of futures contracts result in actual delivery.C) Only fifteen percent of futures contracts result in actual delivery.D) Approximately fifty percent of futures contracts result in actual delivery.E) Futures contracts never result in actual delivery.Answer: B Difficulty: ModerateRationale: Virtually all traders enter reversing trades to cancel their original positions, thereby realizing profits or losses on the contract.12. You hold one long corn futures contract that expires in April. To close your positionin corn futures before the delivery date you mustA) buy one May corn futures contract.B) buy two April corn futures contract.C) sell one April corn futures contract.D) sell one May corn futures contract.E) none of the above.Answer: C Difficulty: ModerateRationale: The long position is considered the buyer; to close out the position onemust take a reversing position, or sell the contract.13. Which one of the following statements is trueA) The maintenance margin is the amount of money you post with your broker whenyou buy or sell a futures contract.B) The maintenance margin determines the value of the margin account below whichthe holder of a futures contract receives a margin call.C) A margin deposit can only be met with cash.D) All futures contracts require the same margin deposit.E) The maintenance margin is set by the producer of the underlying asset.Answer: B Difficulty: ModerateRationale: The maintenance margin applies to the value of the account after theaccount is opened; if the value of this account falls below the maintenance margin requirement and the holder of the contract will receive a margin call. A margindeposit can be made with cash or interest-earning securities; the margin depositamounts depend on the volatility of the underlying asset.14. Financial futures contracts are actively traded on the following indices exceptA) the S&P 500 Index.B) the New York Stock Exchange Index.C) the Nikkei Index.D) the Dow Jones Industrial Index.E) all of the above indices have actively traded futures contracts.Answer: E Difficulty: ModerateRationale: The indices are listed in Table 22.1.15. To exploit an expected increase in interest rates, an investor would most likelyA) sell Treasury bond futures.B) take a long position in wheat futures.C) buy S&P 500 index futures.D) take a long position in Treasury bond futures.E) none of the above.Answer: A Difficulty: DifficultRationale: If interest rates rise, bond prices decrease. As bond prices decrease, the short position gains. Thus, if you are bearish about bond prices, you might speculate by selling T-bond futures contracts.16. An investor with a long position in Treasury notes futures will profit ifA) interest rates decline.B) interest rate increase.C) the prices of Treasury notes increase.D) the price of the long bond increases.E) none of the above.Answer: A Difficulty: ModerateRationale: Profit to long position = Spot price at maturity--original futures price.17. To hedge a long position in Treasury bonds, an investor most likely wouldA) buy interest rate futures.B) sell S&P futures.C) sell interest rate futures.D) buy Treasury bonds in the spot market.E) none of the above.Answer: C Difficulty: DifficultRationale: By taking the short position, the hedger is obligated to deliver T-bonds at the contract maturity date for the current futures price, which locks in the sales price for the bonds and guarantees that the total value of the bond-plus-futures position at the maturity date is the futures price.18. An increase in the basis will __________ a long hedger and __________ a shorthedger.A) hurt; benefitB) hurt; hurtC) benefit; hurtD) benefit; benefitE) benefit; have no effect uponAnswer: C Difficulty: DifficultRationale: If a contract and an asset are to be liquidated early, basis risk exists and futures price and spot price need not move in lockstep before delivery date. Anincrease in the basis will hurt the short hedger and benefit the long hedger.19. Which one of the following statements regarding "basis" is not trueA) 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.E) none of the above.Answer: C Difficulty: DifficultRationale: See explanation for test bank question 22.20.20. If you determine that the S&P 500 Index futures is overpriced relative to the spot S&P500 Index you could make an arbitrage profit byA) buying all the stocks in the S&P 500 and selling put options on the S&P 500 index.B) selling short all the stocks in the S&P 500 and buying S&P Index futures.C) selling all the stocks in the S&P 500 and buying call options on the S&P 500index.D) selling S&P 500 Index futures and buying all the stocks in the S&P 500.E) none of the above.Answer: D Difficulty: ModerateRationale: If you think one asset is overpriced relative to another, you sell theoverpriced asset and buy the other one.21. On January 1, the listed spot and futures prices of a Treasury bond were 93.8 and93.13. You purchased $100,000 par value Treasury bonds and sold one Treasury bondfutures contract. One month later, the listed spot price and futures prices were 94 and94.09, respectively. If you were to liquidate your position, your profits would beA) $125 loss.B) $125 profit.C) $12.50 loss.D) $1,250 loss.E) none of the above.Answer: A Difficulty: DifficultRationale: On bonds: $94,000 - $93,250 = $750; On futures: $93,406.25 - $94,281.25 = -$875; Net profits: $750 - $875 = -$125.22. You purchased 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 profitB) $5,500 profitC) $5.50 lossD) $5,500 lossE) none of the above.Answer: B Difficulty: ModerateRationale: $4.10 - $3.00 = $1.10 X 5,000 = $5,500.23. 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 profitB) $5,500 profitC) $5.50 lossD) $5,500 lossE) none of the above.Answer: D Difficulty: ModerateRationale: $3.00 - $4.10 = -$1.10 X 5,000 = -$5,500.24. You purchased one corn future contract at $2.29 per bushel. What would be yourprofit (loss) at maturity if the corn spot price at that time were $2.10 per bushelAssume the contract size is 5,000 ounces and there are no transactions costs.A) $950 profitB) $95 profitC) $950 lossD) $95 lossE) none of the above.Answer: C Difficulty: ModerateRationale: $2.10 - $2.29 = -$0.19 X 5,000 = -$950.25. You sold one corn future contract at $2.29 per bushel. What would be your profit(loss) at maturity if the corn spot price at that time were $2.10 per bushel Assume the contract size is 5,000 ounces and there are no transactions costs.A) $950 profitB) $95 profitC) $950 lossD) $95 lossE) none of the above.Answer: A Difficulty: ModerateRationale: $2.29 - $2.10 = $0.19 X 5,000 = $950.26. You sold one wheat future contract at $3.04 per bushel. What would be your profit(loss) at maturity if the wheat spot price at that time were $2.98 per bushel Assume the contract size is 5,000 ounces and there are no transactions costs.A) $30 profitB) $300 profitC) $300 lossD) $30 lossE) none of the above.Answer: B Difficulty: ModerateRationale: $3.04 - $2.98 = $0.06 X 5,000 = $300.27. You purchased one wheat future contract at $3.04 per bushel. What would be yourprofit (loss) at maturity if the wheat spot price at that time were $2.98 per bushelAssume the contract size is 5,000 ounces and there are no transactions costs.A) $30 profitB) $300 profitC) $300 lossD) $30 lossE) none of the above.Answer: C Difficulty: ModerateRationale: $2.98 - $3.04 = -$0.06 X 5,000 = -$300.28. On January 1, you sold one April S&P 500 index futures contract at a futures price of420. If on February 1 the April futures price were 430, what would be your profit (loss) if you closed your position (without considering transactions costs)A) $2,500 lossB) $10 lossC) $2,500 profitD) $10 profitE) none of the aboveAnswer: A Difficulty: DifficultRationale: $420 - $430 = -$10 X 250 = -$2,50029. On January 1, you bought one April S&P 500 index futures contract at a futures priceof 420. If on February 1 the April futures price were 430, what would be your profit (loss) if you closed your position (without considering transactions costs)A) $2,500 lossB) $10 lossC) $2,500 profitD) $10 profitE) none of the aboveAnswer: C Difficulty: DifficultRationale: $430 - $420 = $10 X 250 = $2,50030. You sold one soybean future contract at $5.13 per bushel. What would be your profit(loss) at maturity if the wheat spot price at that time were $5.26 per bushel Assume the contract size is 5,000 ounces and there are no transactions costs.A) $65 profitB) $650 profitC) $650 lossD) $65 lossE) none of the above.Answer: C Difficulty: ModerateRationale: $5.13 - $5.26 = -$0.13 X 5,000 = -$650.31. You bought one soybean future contract at $5.13 per bushel. What would be yourprofit (loss) at maturity if the wheat spot price at that time were $5.26 per bushel Assume the contract size is 5,000 ounces and there are no transactions costs.A) $65 profitB) $650 profitC) $650 lossD) $65 lossE) none of the above.Answer: B Difficulty: ModerateRationale: $5.26 - $5.13 = $0.13 X 5,000 = $650.32. On April 1, you bought one S&P 500 index futures contract at a futures price of 950.If on June 15th the futures price were 1012, what would be your profit (loss) if you closed your position (without considering transactions costs)A) $1,550 lossB) $15,550 lossC) $15,550 profitD) $1,550 profitE) none of the aboveAnswer: C Difficulty: DifficultRationale: $1012 - $950 = $62 X 250 = $15,50033. On April 1, you sold one S&P 500 index futures contract at a futures price of 950. Ifon June 15th the futures price were 1012, what would be your profit (loss) if youclosed your position (without considering transactions costs)A) $1,550 lossB) $15,550 lossC) $15,550 profitD) $1,550 profitE) none of the aboveAnswer: B Difficulty: DifficultRationale: $950 - $1012 = -$62 X 250 = -$15,50034. The expectations hypothesis of futures pricingA) is the simplest theory of futures pricing.B) states that the futures price equals the expected value of the future spot price of theasset.C) is not a zero sum game.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: The expectations hypothesis relies on the concept of risk neutrality; i.e., if all market participants are risk neutral, they should agree on a futures price thatprovides an expected profit of zero to all parties.35. Normal backwardationA) maintains that for most commodities, there are natural hedgers who desire to shedrisk.B) maintains that speculators will enter the long side of the contract only if thefutures price is below the expected spot price.C) assumes that risk premiums in the futures markets are based on systematic risk.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: Risk premiums in this theory are based on total variability.36. ContangoA) holds that the natural hedgers are the purchasers of a commodity, not the suppliers.B) is a hypothesis polar to backwardation.C) holds that F O must be less than (P T).D) A and C.E) A and B.Answer: E Difficulty: Easy37. Delivery of stock index futuresA) is never made.B) is made by a cash settlement based on the index value.C) requires delivery of 1 share of each stock in the index.D) is made by delivering 100 shares of each stock in the index.E) is made by delivering a value-weighted basket of stocks.Answer: B Difficulty: ModerateRationale: Stock index futures are cash-settled, similar to the procedure used for index options.38. The establishment of a futures market in a commodity should not have a major impacton spot prices becauseA) the futures market is small relative to the spot market.B) the futures market is illiquid.C) futures are a zero-sum gameD) the futures market is large relative to the spot market.E) most futures contracts do not take delivery.Answer: C Difficulty: ModerateRationale: Losses and gains to futures contracts net to zero, and thus should not impact spot prices.39. The most recently established category of futures contracts isA) agricultural commodities.B) metals and minerals.C) foreign currencies.D) financial futures.E) both B and C.Answer: D Difficulty: ModerateRationale: Financial futures were first introduced in 1975, and this segment of themarket has seen rapid innovation.40. If a trader holding a long position in corn futures fails to meet the obligations of afutures contract, the party that is hurt by the failure isA) the offsetting short trader.B) the corn farmer.C) the clearinghouse.D) the broker.E) the commodities dealer.Answer: C Difficulty: ModerateRationale: The clearinghouse acts as a middle party to every transaction, and bears any losses arising from failure to meet contractual obligations.41. Open interest includesA) only contracts with a specified delivery date.B) the sum of short and long positions.C) the sum of short, long and clearinghouse positions.D) the sum of long or short positions and clearinghouse positions.E) only long or short positions but not both.Answer: E Difficulty: ModerateRationale: Open interest is the number of contracts outstanding across all deliverydates for a given contract. Long and short positions are not counted separately, and the clearinghouse position is not counted because it nets to zero.42. The process of marking-to-marketA) posts gains or losses to each account daily.B) may result in margin calls.C) impacts only long positions.D) all of the above are true.E) both A and B are true.Answer: E Difficulty: EasyRationale: Marking-to-market effectively puts futures contracts on a "pay as you go"basis.43. Futures contracts are regulated byA) the Commodity Futures Trading Corporation.B) the Chicago Board of Trade.C) the Chicago Mercantile Exchange.D) the Federal Reserve.E) the Securities and Exchange Commission.Answer: A Difficulty: EasyRationale: The CFTC, a federal agency, sets rules and requirements for futures trading.44. Taxation of futures trading gains and lossesA) is based on cumulative year-end profits or losses.B) occurs based on the date contracts are sold or closed.C) can be timed to offset stock portfolio gains and losses.D) is based on the contract holding period.E) none of the above.Answer: A Difficulty: ModerateRationale: Futures profits and losses are taxed based on cumulative year-end value due to marking-to-market procedures.45. Speculators may use futures markets rather than spot markets becauseA) transactions costs are lower in futures markets.B) futures markets provide leverage.C) spot markets are less efficient.D) futures markets are less efficient.E) both A and B are true.Answer: E Difficulty: ModerateRationale: Futures markets allow speculators to benefit from leverage and minimize transactions costs. Both markets should be equally price-efficient.46. Given a stock index with a value of $1,000, an anticipated dividend of $30 and a risk-free rate of 6%, what should be the value of one futures contract on the indexA) $943.40B) $970.00C) $913.40D) $915.09E) $1000.00Answer: C Difficulty: DifficultRationale: F = 1000/(1.06) - 30; F = 913.40.47. Given a stock index with a value of $1,125, an anticipated dividend of $33 and a risk-free rate of 4%, what should be the value of one futures contract on the indexA) $1048.73B) $1070.00C) $993.40D) $995.09E) $1000.00Answer: A Difficulty: DifficultRationale: F = 1125/(1.04) - 33; F = 1048.73.48. Given a stock index with a value of $1100, an anticipated dividend of $27 and a risk-free rate of 3%, what should be the value of one futures contract on the indexA) $943.40B) $970.00C) $913.40D) $1040.96E) $1000.00Answer: D Difficulty: DifficultRationale: F = 1100/(1.03) - 27; F = 1040.96.49. Given a stock index with a value of $1,200, an anticipated dividend of $45 and a risk-free rate of 6%, what should be the value of one futures contract on the indexA) $1087.08B) $1070.00C) $993.40D) $995.09E) $1000.00Answer: A Difficulty: DifficultRationale: F = 1200/(1.06) - 45; F = 1087.08.50. Which of the following items is specified in a futures contract?I)the contract sizeII)the maximum acceptable price range during the life of the contractIII)the acceptable grade of the commodity on which the contract is heldIV)the market price at expirationV)the settlement priceA) I, II, and IVB) I, III, and VC) I and VD) I, IV, and VE) I, II, III, IV, and VAnswer: B Difficulty: ModerateRationale: The maximum price range and the market price at expiration will bedetermined by the market rather than specified in the contract.51. With regard to futures contracts, what does the word “margin” m eanA) It is the amount of the money borrowed from the broker when you buy thecontract.B) It is the maximum percentage that the price of the contract can change before it ismarked to market.C) It is the maximum percentage that the price of the underlying asset can changebefore it is marked to market.D) It is a good-faith deposit made at the time of the contract's purchase or sale.E) It is the amount by which the contract is marked to market.Answer: D Difficulty: EasyRationale: The exchange guarantees the performance of each party, so it requires a good-faith deposit. This helps avoid the cost of credit checks.52. Which of the following is true about profits from futures contractsA) The person with the long position gets to decide whether to exercise the futurescontract and will only do so if there is a profit to be made.B) It is possible for both the holder of the long position and the holder of the shortposition to earn a profit.C) The clearinghouse makes most of the profit.D) The amount that the holder of the long position gains must equal the amount thatthe holder of the short position loses.E) Holders of short positions can recognize profits by making delivery early.Answer: D Difficulty: ModerateRationale: The net profit on the contract is zero it is a zero-sum game.53. Some of the newer futures contracts includeI)fashion futures.II)weather futures.III)electricity futures.IV)entertainment futures.A) I and IIB) II and IIIC) III and IVD) I, II, and IIIE) I, III, and IVAnswer: B Difficulty: EasyRationale: Weather and electricity futures are mentioned in the textbook as recent innovations.54. Who guarantees that a futures contract will be fulfilledA) the buyerB) the sellerC) the brokerD) the clearinghouseE) nobodyAnswer: D Difficulty: EasyRationale: Once two parties have agreed to enter the transaction, the clearinghouse becomes the buyer and seller of the contract and guarantees its completion.55. If you took a long position in a pork bellies futures contract and then forgot about it,what would happen at the expiration of the contractA) Nothing--the seller understands that these things happen.B) You would wake up to find the pork bellies on your front lawn.C) Your broker would send you a nasty letter.D) You would be notified that you owe the holder of the short position a certainamount of cash.E) You would be notified that you have to pay a penalty in addition to the regularcost of the pork bellies.Answer: D Difficulty: EasyRationale: The item is usually not delivered, but cash settlement can be made through the use of warehouse receipts. You are still obligated to fulfill the contract and give the holder of the short position the value of the pork bellies.56. Hedging a position using futures on another commodity is calledA) surrogate hedging.B) cross hedging.C) alternative hedging.D) correlative hedging.E) proxy hedging.Answer: B Difficulty: EasyRationale: Cross-hedging is used in some cases because no futures contract exists for the item you want to hedge. The two commodities should be highly correlated. 57. A trader who has a __________ position in oil futures believes the price of oil will__________ in the future.A) short; increaseB) long; increaseC) short; decreaseD) long; stay the sameE) B and CAnswer: E Difficulty: ModerateRationale: The trader holding the long position (the person who will purchase thegoods) will profit from a price increase. Profit to long position = Spot price atmaturity--Original futures price.58. A trader who has a __________ position in gold futures wants the price of gold to__________ in the future.A) long; decreaseB) short; decreaseC) short; stay the sameD) short; increaseE) long; stay the sameAnswer: B Difficulty: ModerateRationale: Profit to short position = Original futures price - Spot price at maturity.Thus, the person in the short position profits if the price of the commodity declines in the future.59. You hold one long oil futures contract that expires in April. To close your position inoil futures before the delivery date you mustA) buy one May oil futures contract.B) buy two April oil futures contract.C) sell one April oil futures contract.D) sell one May oil futures contract.E) none of the above.Answer: C Difficulty: ModerateRationale: The long position is considered the buyer; to close out the position one must take a reversing position, or sell the contract.60. Financial futures contracts are actively traded on the following indices exceptA) the All ordinary index.B) the DAX 30 index.C) the CAC 40 Index.D) the Toronto 35 Index.E) all of the above indices have actively traded futures contracts.Answer: E Difficulty: ModerateRationale: The indices are listed in Table 22.1.。