投资学英文第7版TestBank谜底chap024[资料]
投资学第7版Test Bank答案完整可编辑
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 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 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 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 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 $1,000?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 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: [(1.05)(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 rate in the thirdyear?A) 7.00%B) 7.33%C) 9.00%D) 11.19%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 paid annually? (Parvalue = $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, 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 true?A) 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 = 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 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 $1,000?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 bond purchased 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 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 = [(1.058) (1.064) (1.071) (1.073) (1.074)]1/5 - 1 = 6.8%; FV = 1000, PMT = 100, n = 5, i = 6.8, PV = $1,131.9133. Given the yield on a 3 year zero-coupon bond is 7.2% and forward rates of 6.1% in year1 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 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 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 increasing yield 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:39. What is the price of 3-year zero coupon bond with a par value of $1,000?A) $889.08B) $816.58C) $772.18D) $765.55E) none of the aboveAnswer: A Difficulty: ModerateRationale: $1,000 / (1.03)(1.04)(1.05) = $889.0840. 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) $1,092.97B) $1,054.24C) $1,028.51D) $1,073.34E) none of the aboveAnswer: C Difficulty: ModerateRationale: [(1.03)(1.04)]1/2 - 1 = 3.5%; FV = 1000, n = 2, PMT = 50, i = 3.5, PV =$1,028.5142. What is the yield to maturity of a 3-year zero coupon bond?A) 7.00%B) 9.00%C) 6.99%D) 4%E) none of the aboveAnswer: D Difficulty: ModerateRationale: [(1.03)(1.04)(1.05)]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 thirdyear?A) 7.23B) 9.37%C) 9.00%D) 10.9%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 862.57 / 788.66 - 1 = 9.37%44. What is the yield to maturity on a 3-year zero coupon bond?A) 6.37%B) 9.00%C) 7.33%D) 8.24%E) none of the aboveAnswer: D Difficulty: ModerateRationale: (1000 / 788.66)1/3 -1 = 8.24%45. What is the price of a 4-year maturity bond with a 10% coupon rate paid annually? (Parvalue = $1,000)A) $742.09B) $1,222.09C) $1,035.66D) $1,141.84E) none of the aboveAnswer: C Difficulty: DifficultRationale: (1000 / 711.00)1/4 -1 = 8.9%; FV = 1000, PMT = 100, n = 4, i = 8.9, PV =$1,035.6646. 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 same?A) $995.63B) $1,108.88C) $1,000.00D) $1,042.78E) none of the aboveAnswer: A Difficulty: DifficultRationale: (925.16 / 711.00)]1/3 - 1.0 = 9.17%; FV = 1000, PMT = 90, n = 3, i = 9.17, PV = $995.63Use 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 $917.99, 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 = -917.99, PMT = 45, n = 36, i = 4.995325 (semi-annual);(1.4995325)2 - 1 = 10.24%.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 $1,000?A) $877.54B) $888.33C) $883.32D) $894.21E) $871.80Answer: D Difficulty: DifficultRationale: $1,000 / [(1.055)(1.06)] = $894.2149. What would the yield to maturity be on a four-year zero coupon bond purchased today?A) 5.75%B) 6.30%C) 5.65%D) 5.25%E) none of the above.Answer: A Difficulty: ModerateRationale: [(1.05) (1.055) (1.06) (1.065)]1/4 - 1 = 5.75%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) $1,105.47B) $1,131.91C) $1,084.25D) $1,150.01E) $719.75Answer: C Difficulty: DifficultRationale: i = [(1.05) (1.055) (1.06) (1.065) (1.07)]1/5 - 1 = 6%; FV = 1000, PMT = 80, n = 5, i = 6, PV = $1084.2551. Given the yield on a 3 year zero-coupon bond is 7% and forward rates of 6% in year 1and 6.5% in year 2, what must be the forward rate in year 3?A) 7.2%B) 8.6%C) 8.5%D) 6.9%E) none of the above.Answer: C Difficulty: ModerateRationale: f3 = (1.07)3 / [(1.06) (1.065)] - 1 = 8.5%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 $1,000?A) $966.37B) $912.87C) $950.21D) $956.02E) $945.51Answer: D Difficulty: DifficultRationale: $1,000 / (1.046) = $956.0253. What should the purchase price of a 2-year zero coupon bond be if it is purchased todayand has face value of $1,000?A) $966.87B) $911.37C) $950.21D) $956.02E) $945.51Answer: B Difficulty: DifficultRationale: $1,000 / [(1.046)(1.049)] = $911.3754. What should the purchase price of a 3-year zero coupon bond be if it is purchased todayand has face value of $1,000?A) $887.42B) $871.12C) $879.54D) $856.02E) $866.32Answer: E Difficulty: DifficultRationale: $1,000 / [(1.046)(1.049)(1.052)] = $866.3255. What should the purchase price of a 4-year zero coupon bond be if it is purchased todayand has face value of $1,000?A) $887.42B) $821.15C) $879.54D) $856.02E) $866.32Answer: B Difficulty: DifficultRationale: $1,000 / [(1.046)(1.049)(1.052)(1.055)] = $821.1556. What should the purchase price of a 5-year zero coupon bond be if it is purchased todayand has face value of $1,000?A) $776.14B) $721.15C) $779.54D) $756.02E) $766.32Answer: A Difficulty: DifficultRationale: $1,000 / [(1.046)(1.049)(1.052)(1.055)(1.058)] = $776.1457. What is the yield to maturity of a 1-year bond?A) 4.6%B) 4.9%C) 5.2%D) 5.5%E) 5.8%Answer: A Difficulty: ModerateRationale: 4.6% (given in table)58. What is the yield to maturity of a 5-year bond?A) 4.6%B) 4.9%C) 5.2%D) 5.5%E) 5.8%Answer: C Difficulty: ModerateRationale: [(1.046)(1.049)(1.052)(1.055)(1.058)]1/5 -1 = 5.2%59. What is the yield to maturity of a 4-year bond?A) 4.69%B) 4.95%C) 5.02%D) 5.05%E) 5.08%Answer: C Difficulty: ModerateRationale: [(1.046)(1.049)(1.052)(1.055)]1/4 -1 = 5.05%60. What is the yield to maturity of a 3-year bond?A) 4.6%B) 4.9%C) 5.2%D) 5.5%E) 5.8%Answer: B Difficulty: ModerateRationale: [(1.046)(1.049)(1.052)]1/3 -1 = 4.9%61. What is the yield to maturity of a 2-year bond?A) 4.6%B) 4.9%C) 5.2%D) 4.7%E) 5.8%Answer: D Difficulty: ModerateRationale: [(1.046)(1.049)]1/2 -1 = 4.7%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 depictedgraphically?Difficulty: 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 U.S.governments of different yields and different terms to maturity. The use of U.S.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.。
投资学第7版Test Bank答案14
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 returnE) 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 $975.00, it has a current yieldof ____________ percent.A) 7.00B) 6.53C) 7.24D) 8.53E) 7.18Answer: E Difficulty: EasyRationale: 70/975 = 7.18.3. If a 6% coupon bond is trading for $950.00, it has a current yieldof ____________ percent.A) 6.5B) 6.3C) 6.1D) 6.0E) 6.6Answer: B Difficulty: EasyRationale: 60/950 = 6.3.4. If an 8% coupon bond is trading for $1025.00, it has a current yield of ____________ percent.A) 7.8B) 8.7C) 7.6D) 7.9E) 8.1Answer: A Difficulty: EasyRationale: 80/1025 = 7.8.5. If a 7.5% coupon bond is trading for $1050.00, it has a current yield of ____________ percent.A) 7.0B) 7.4C) 7.1D) 6.9E) 6.7Answer: C Difficulty: EasyRationale: 75/1050 = 7.1.6. A coupon bond pays annual interest, has a par value of $1,000, matures in 4 years, has a coupon rate of 10%, and has a yield to maturity of 12%. The current yield on this bond is ___________.A) 10.65%B) 10.45%C) 10.95%D) 10.52%E) none of the aboveAnswer: A Difficulty: ModerateRationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= 939.25; $100 / $939.25 = 10.65%.7. A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. The current yield on this bond is ___________.A) 10.39%B) 10.43%C) 10.58%D) 10.66%E) none of the aboveAnswer: D Difficulty: ModerateRationale: FV = 1000, n = 12, PMT = 110, i = 12, PV= 938.06; $100 / $938.06 = 10.66%.8. Of the following four investments, ________ is considered the safest.A) commercial paperB) corporate bondsC) U. S. Agency issuesD) Treasury bondsE) Treasury billsAnswer: 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 CE) 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 parC) 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 interestA) is quoted in the bond price in the financial press.B) must be paid by the buyer of the bond and remitted to the sellerof the 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 30 and is traded for settlement on August 15. The accrued interest on the $100,000 face value of this note is _________.A) $491.80B) $800.00C) $983.61D) $1,661.20E) none of the aboveAnswer: D Difficulty: ModerateRationale: 76/183($4,000) = $1,661.20. Approximation:.08/12*100,000=666.67 per month. 666.67/month * 2.5 months =1.666.67.14. 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) $1,160E) 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 bondsC) 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 marketA) can be quite "thin".B) primarily consists of a network of bond dealers in the over thecounter market.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 will earn if the investor buys the bond now and holds until maturity.A) current yieldB) dividend yieldC) P/E ratioD) yield to maturityE) 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 bond can be exchanged.A) conversion ratioB) current ratioC) 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 atmaturityC) can always be converted into a specific number of shares ofcommon stock in 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 cash in the bond before maturity at a specified price after a specific date.A) callableB) couponC) putD) TreasuryE) zero-couponAnswer: 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 5.7%; a Treasury bond due in 5 years has a yield of 6.2%. A bond issued by Ford Motor Company due in 5 years has a yield of 7.5%; a bond issued by Shell Oil due in one year has a yield of 6.5%. The default risk premiums on the bonds issued by Shell and Ford, respectively, areA) 1.0% and 1.2%B) 0.7% and 1.5%C) 1.2% and 1.0%D) 0.8% and 1.3%E) none of the aboveAnswer: D Difficulty: ModerateRationale: Shell: 6.5% - 5.7% = .8%; Ford: 7.5% - 6.2% = 1.3%. 24. A Treasury bond due in one year has a yield of 4.6%; a Treasury bond due in 5 years has a yield of 5.6%. A bond issued by Lucent Technologies due in 5 years has a yield of 8.9%; a bond issued by Mobil due in one year has a yield of 6.2%. The default risk premiums on the bonds issued by Mobil and Lucent Technologies, respectively, are:A) 1.6% and 3.3%B) 0.5% and .7%C) 3.3% and 1.6%D) 0.7% and 0.5%E) none of the aboveAnswer: A Difficulty: ModerateRationale: Mobil: 6.2% - 4.6% = 1.6%; Lucent Technologies: 8.9% - 5.6% = 3.3%.25. A Treasury bond due in one year has a yield of 6.2%; a Treasury bond due in 5 years has a yield of 6.7%. A bond issued by Xerox due in 5 years has a yield of 7.9%; a bond issued by Exxon due in one year has a yield of 7.2%. The default risk premiums on the bonds issued by Exxon and Xerox, respectively, areA) 1.0% and 1.2%B) 0.5% and .7%C) 1.2% and 1.0%D) 0.7% and 0.5%E) none of the aboveAnswer: A Difficulty: ModerateRationale: Exxon: 7.2% - 6.2% = 1.0%; Xerox: 7. 9% - 6.7% =1.2%.26. Floating-rate bonds are designed to ___________ while convertible bonds are designed to __________.A) minimize the holders' interest rate risk; give the investor theability to share in the price appreciation of the company's stockB) maximize the holders' interest rate risk; give the investor theability to share in the price appreciation of the company's stockC) minimize the holders' interest rate risk; give the investor theability to benefit from interest rate changesD) maximize the holders' interest rate risk; give investor the abilityto share in the profits of the issuing companyE) 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) 8.0%B) 8.3%C) 9.0%D) 10.0%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, 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 7%.A) $712.99B) $620.92C) $1,123.01D) $886.28E) $1,000.00Answer: D Difficulty: ModerateRationale: FV = 1000, PMT = 70, n = 5, i = 10, PV = 886.28. 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) $922.77B) $924.16C) $1,075.82D) $1,077.20E) none of the aboveAnswer: C Difficulty: ModerateRationale: FV = 1000, PMT = 120, n = 5, i = 10, PV = 1075.82 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) $922.78B) $924.16C) $1,075.80D) $1,077.20E) none of the aboveAnswer: A Difficulty: ModerateRationale: FV = 1000, PMT = 40, n = 10, i = 5, PV = 922.7831. 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) $922.77B) $924.16C) $1,075.80D) $1,077.22E) none of the aboveAnswer: D Difficulty: ModerateRationale: FV = 1000, PMT = 60, n = 10, i = 5, PV = 1077.2232. 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) 6.00%B) 8.33%C) 12.00%D) 60.00%E) none of the aboveAnswer: C Difficulty: ModerateRationale: FV = 1000, PMT = 100, n = 5, PV = -928, i = 11.997% 33. You purchased an annual interest coupon bond one year ago that now has 6 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) $1,057.50.B) $1,075.50.C) $1,088.50.D) $1.092.46.E) $1,104.13.Answer: E Difficulty: ModerateRationale: FV = 1000, PMT = 100, n = 7, i = 8, PV = 1104.1334. You purchased an annual interest coupon bond one year ago that had 6 years remaining to maturity at that time. The coupon interest rate was 10% and the par value was $1,000. At the time you purchased the bond, the yield to maturity was 8%. If you sold the bond after receiving the first interest payment and the yield to maturity continued to be 8%, your annual total rate of return on holding the bond for that year would have been _________.A) 7.00%B) 7.82%C) 8.00%D) 11.95%E) none of the aboveAnswer: C Difficulty: DifficultRationale: FV = 1000, PMT = 100, n = 6, i = 8, PV = 1092.46; FV = 1000, PMT = 100, n = 5, i = 8, PV = 1079.85; HPR = (1079.85 -1092.46 + 100) / 1092.46 = 8%35. Consider two bonds, A and B. Both bonds presently are selling at their par 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 morethan bond BB) both bonds will increase in value, but bond B will increase morethan bond AC) both bonds will decrease in value, but bond A will decrease morethan bond BD) both bonds will decrease in value, but bond B will decrease morethan bond 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 parvalue of $1,000. If the bond matures in 8 years, the bond should sell for a price of _______ today.A) 422.41B) $501.87C) $513.16D) $483.49E) none of the aboveAnswer: B Difficulty: ModerateRationale: $1,000/(1.09)8 = $501.8737. You have just purchased a 10-year zero-coupon bond with a yield to maturity of 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) 10.00%B) 20.42%C) 13.8%D) 1.4%E) none of the aboveAnswer: D Difficulty: ModerateRationale: $1,000/(1.10)10 = $385.54; $1,000/(1.11)9 = $390.92; ($390.92 - $385.54)/$385.54 = 1.4%.38. A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010. The effective annual yield is__________.A) 12.40%B) 12.55%C) 12.62%D) 12.68%E) none of the aboveAnswer: D Difficulty: ModerateRationale: $990/$99,010 = 0.01; (1.01)12 - 1.0 = 12.68%.39. A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039, with an effective annual yield of _________.A) 12.40%B) 12.55%C) 12.62%D) 12.68%E) none of the aboveAnswer: C Difficulty: ModerateRationale: $1,961/$98,039 = 0.02; (1.02)6 - 1 = 12.62%.40. A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087, with an effective annual yield of _________.A) 12.40%B) 12.55%C) 12.62%D) 12.68%E) none of the aboveAnswer: B Difficulty: ModerateRationale: $2,913/$97,087 = 0.03; (1.03)4 - 1.00 = 12.55%.41. A coupon bond pays interest semi-annually, matures in 5 years, has a par value of $1,000 and a coupon rate of 12%, and an effective annual yield to maturity of 10.25%. The price the bond should sell for today is ________.A) $922.77B) $924.16C) $1,075.80D) $1,077.20E) none of the aboveAnswer: D Difficulty: ModerateRationale: (1.1025)1/2 - 1 = 5%, N=10, I=5%, PMT=60, FV=1000, PV=1,077.22.42. A convertible bond has a par value of $1,000 and a current market price of $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) $1,000E) 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 currentmarket value of $850. The current price of the issuing firm's stock is $27 and the conversion ratio is 30 shares. The bond's conversionpremium is _________.A) $40B) $150C) $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 - $909.09)/$909.09 = 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 - $811.62)/$811.62 = 0.2321; (1.2321)1/2 - 1.0 = 11%.46. The yield to maturity on bond C is ____________.A) 10%B) 11%C) 12%D) 14%E) none of the aboveAnswer: C Difficulty: ModerateRationale: ($1,000 - $711.78)/$711.78 = 0.404928; (1.404928)1/3 -1.0 = 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 - $635.52)/$635.52 = 0.573515; (1.573515)1/4 -1.0 = 12%.48. A 10% coupon bond, annual payments, 10 years to maturity is callable in 3 years at a call price of $1,100. If the bond is selling today for $975, the yield to call is _________.A) 10.26%B) 10.00%C) 9.25%D) 13.98%E) none of the aboveAnswer: D Difficulty: ModerateRationale: FV = 1100, n = 3, PMT = 100, PV = -975, i = 13.98%.49. A 12% coupon bond, semiannual payments, is callable in 5 years. The call price is $1,120; if the bond is selling today for $1,110, what is the yield to call?A) 12.03%.B) 10.86%.C) 10.95%.D) 9.14%.E) none of the above.Answer: C Difficulty: ModerateRationale: YTC = FV = 1120, n = 10, PMT = 60, PV = -1,110m i = 5.48%, 5.48*2=10.9550. A 10% coupon, annual payments, bond maturing in 10 years, is expected to make 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 $975?A) 10.00%.B) 6.68%.C) 11.00%.D) 8.68%.E) none of the above.Answer: B Difficulty: ModerateRationale: FV = 500, PMT = 100, n = 10, PV = -975, i = 6.68% 51. You purchased an annual interest coupon bond one year ago with 6 years remaining 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) 7.00%B) 8.00%C) 9.95%D) 11.95%E) none of the aboveAnswer: D Difficulty: DifficultRationale: FV = 1000, PMT = 100, n = 6, i = 8, PV = 1092.46; FV = 1000, PMT = 100, n = 5, i = 7, PV = 1123.01; HPR = (1123.01 -1092.46 + 100) / 1092.46 = 11.95%.52. The ________ is used to calculate the present value of a bond.A) nominal yieldB) current yieldC) yield to maturityD) yield to callE) none of the aboveAnswer: C Difficulty: EasyRationale: Yield to maturity is the discount rate used in the bond valuation formula. For callable bonds, yield to call is sometimes the more appropriate 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, andequal to the coupon rate when the bond sells at a premium.B) the discount rate that will set the present value of the paymentsequal to the bond price.C) based on the assumption that any payments received arereinvested at the 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.54. A bond will sell at a discount when __________.A) the coupon rate is greater than the current yield and the currentyield is greater than yield to maturityB) the coupon rate is greater than yield to maturityC) the coupon rate is less than the current yield and the current yieldis greater than the yield to maturityD) the coupon rate is less than the current yield and the current yieldis less than yield to maturityE) none of the above is true.Answer: D Difficulty: ModerateRationale: In order for the investor to earn more than the current yield the bond must be selling for a discount. Yield to maturity will be greater than current yield as investor will have purchased the bond at discount and will be receiving the coupon payments over the life of the bond.55. Consider a 5-year bond with a 10% coupon that has a present yield to maturity of 8%. If interest rates remain constant, one year from now the price of this bond will be _______.A) higherB) lowerC) the sameD) cannot be determinedE) $1,000Answer: B Difficulty: ModerateRationale: This bond is a premium bond as interest rates have declined since the bond was issued. If interest rates remain constant, the price of a premium bond declines as the bond approaches maturity.56. A bond has a par value of $1,000, a time to maturity of 20 years,a coupon rate of 10% with interest paid annually, a current price of $850 and a yield to maturity of 12%. Intuitively and without the use calculations, if interest payments are reinvested at 10%, the realized compound yield on this bond must be ________.A) 10.00%B) 10.9%C) 12.0%D) 12.4%E) none of the aboveAnswer: B Difficulty: DifficultRationale: In order to earn yield to maturity, the coupons must be reinvested at the yield to maturity. However, as the bond is selling at discount the yield must be higher than the coupon rate. Therefore, B is the only possible answer.57. A bond with a 12% coupon, 10 years to maturity and selling at88 has a yield to maturity of _______.A) over 14%B) between 13% and 14%C) between 12% and 13%D) between 10% and 12%E) less than 12%Answer: A Difficulty: ModerateRationale: YTM = 14.33%.58. Using semiannual compounding, a 15-year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at approximately ______.A) $308B) $315C) $464D) $555E) none of the aboveAnswer: A Difficulty: ModerateRationale: FV = 1000, n = 30, I = 4, PV = 308.3259. The yield to maturity of a 20-year zero coupon bond that is selling for $372.50 with a value at maturity of $1,000 is ________.A) 5.1%B) 8.8%C) 10.8%D) 13.4%E) none of the aboveAnswer: A Difficulty: ModerateRationale: [$1,000/($372.50]1/20 - 1 = 5.1%.60. Which one of the following statements about convertibles is true?A) The longer the call protection on a convertible, the less thesecurity is worth.B) The more volatile the underlying stock, the greater the value ofthe conversion feature.C) The smaller the spread between the dividend yield on the stockand the yield-to-maturity on the bond, the more the convertible is worth.D) The collateral that is used to secure a convertible bond is onereason convertibles are more attractive than the underlying stock. E) Convertibles are not callable.Answer: B Difficulty: ModerateRationale: The longer the call protection the more attractive the bond. The smaller the spread (c), the less the bond is worth. Convertibles are debentures (unsecured bonds). All convertibles are callable at the option of the issuer.61. Consider a $1,000 par value 20-year zero coupon bond issued ata yield to maturity of 10%. If you buy that bond when it is issued and continue to hold the bond as yields decline to 9%, the imputed interest income for the first year of that bond isA) zero.B) $14.87.C) $45.85.D) $7.44.E) none of the above.Answer: B Difficulty: ModerateRationale: $1,000/(1.10)20 = $148.64; $1,000/(1.10)19 = $163.51; $194.49 - $148.64 = $14.87.62. The bond indenture includesA) the coupon rate of the bond.B) the par value of the bond.C) the maturity date of the bond.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: The bond indenture includes the coupon rate, par value and maturity date of the bond as well as any other contractual features.63. A Treasury bond quoted at 107:16 107:18 has a bid price of_______ and an asked price of _____.A) $107.16, $107.18B) $1,071.60, $1,071.80C) $1,075.00, $1,075.63D) $1,071.80, $1,071.60E) $1,070.50, $1,070.56Answer: C Difficulty: ModerateRationale: Treasury bonds are quoted as a percentage of par value ($1,000) with the number after the colon representing the fractions of a point in 32nds. The bid price is quoted first and is the lower of the two.64. Bearer bonds areA) bonds traded without any record of ownership.B) helpful to tax authorities in the enforcement of tax collection.C) rare in the United States today.D) all of the above.E) both A and C.Answer: E Difficulty: ModerateRationale: Bearer bonds are not registered so there is no record of ownership. They are rare in the United States today. Tax authorities find registered bonds helpful in tax enforcement but not bearer bonds.65. Most corporate bonds are tradedA) on a formal exchange operated by the New York StockExchange.B) by the issuing corporation.C) over the counter by bond dealers linked by a computer quotationsystem.D) on a formal exchange operated by the American Stock Exchange.E) on a formal exchange operated by the Philadelphia StockExchange.Answer: C Difficulty: ModerateRationale: Most corporate bonds are traded in a loosely organized network of bond dealers linked by a computer quote system. Only a small proportion is traded on the New York Exchange.66. The process of retiring high-coupon debt and issuing new bonds at a lower coupon to reduce interest payments is calledA) deferral.B) reissue.C) repurchase.D) refunding.E) none of the above.Answer: D Difficulty: ModerateRationale: The process of refunding refers to calling high-coupon bonds and issuing new, lower coupon debt.67. Convertible bondsA) give their holders the ability to share in price appreciation of theunderlying stock.B) offer lower coupon rates than similar nonconvertible bonds.C) offer higher coupon rates than similar nonconvertible bonds.D) both A and B are true.E) both A and C are true.Answer: D Difficulty: ModerateRationale: Convertible bonds offer appreciation potential through the ability to share in price appreciation of the underlying stock but。
(完整word版)投资学第7版TestBank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。
投资学第7版TestBank答案
投资学第7版TestBank答案Multiple Choice Questions1. Shares of several foreign firms are traded in the . markets in the formofA) ADRsB) ECUsC) single-country fundsD) all of the aboveE) none of the aboveAnswer: A Difficulty: EasyRationale: American Depository Receipts (ADRs) allow U. S. investors to invest in foreign stocks via transactions on the . stock exchanges.2. __________ refers to the possibility of expropriation of assets, changesin tax policy, and the possibility of restrictions on foreign exchange transactions.A) default riskB) foreign exchange riskC) market riskD) political riskE) none of the aboveAnswer: D Difficulty: EasyRationale: All of the above factors are political in nature, and thus are examples of political risk.3. __________ are mutual funds that invest in one country only.A) ADRsB) ECUsC) single-country fundsD) all of the aboveE) none of the aboveAnswer: C Difficulty: EasyRationale: Mutual funds that invest in the stocks of one country only are called single-country funds.4. The performance of an internationally diversified portfolio may beaffected byA) country selectionB) currency selectionC) stock selectionD) all of the aboveE) none of the aboveAnswer: D Difficulty: EasyRationale: All of the above factors may affect the performance of an international portfolio.5. Over the period 2001-2005, most correlations between the . stock indexand stock-index portfolios of other countries wereA) negativeB) positive but less than .9C) approximately zeroD) .9 or aboveE) none of the aboveAnswer: B Difficulty: ModerateRationale: Correlation coefficients were typically below .9, while correlations between well-diversified U. S. market portfolios were typically above .9. See Table .6. The __________ index is a widely used index of . stocks.A) CBOEB) Dow JonesC) EAFED) all of the aboveE) none of the aboveAnswer: C Difficulty: EasyRationale: The Europe, Australia, Far East (EAFE) index computed by Morgan Stanley is a widely used index of . stocks.7. The __________ equity market had the highest average local currency returnbetween 2001 and 2005.A) RussianB) NorwegianC) .D) .E) none of the aboveAnswer: A Difficulty: ModerateRationale: See Table .8. The __________ equity market had the highest average . dollar returnbetween 2001 and 2005.A) RussianB) FinnishC) ColumbianD) .E) none of the aboveAnswer: C Difficulty: ModerateRationale: See Table .9. The __________ equity market had the highest average . dollar standarddeviation between 2001 and 2005.A) TurkishB) FinnishC) IndonesianD) .E) none of the aboveAnswer: A Difficulty: ModerateRationale: See Table .10. The __________ equity market had the highest average local currencystandard deviation between 2001 and 2005.A) TurkishB) FinnishC) IndonesianD) .E) none of the aboveAnswer: A Difficulty: ModerateRationale: See Table .11. In 2005, the . equity market represented __________ of the world equitymarket.A) 19%B) 60%C) 43%D) 39%E) none of the aboveAnswer: D Difficulty: ModerateRationale: See Table .12. The straightforward generalization of the simple CAPM to internationalstocks is problematic because __________.A) inflation risk perceptions by different investors in differentcountries will differ as consumption baskets differB) investors in different countries view exchange rate risk from theperspective of different domestic currenciesC) taxes, transaction costs and capital barriers across countries makeit difficult for investor to hold a world index portfolioD) all of the aboveE) none of the above.Answer: D Difficulty: ModerateRationale: All of the above factors make a broad generalization of the CAPM to international stocks problematic.13. The yield on a 1-year bill in the . is 8% and the present exchange rateis 1 pound = U. S. $. If you expect the exchange rate to be 1 pound - U. S. $ a year from now, the return a U. S. investor can expect to earn by investing in . bills isA) %B) 0%C) 8%D) %E) none of the aboveAnswer: D Difficulty: ModerateRationale: r(US) = [1 + r(UK)]F0/E0 - 1; [][] - 1 = %.14. Suppose the 1-year risk-free rate of return in the U. S. is 5%. The currentexchange rate is 1 pound = U. S. $. The 1-year forward rate is 1 pound = $. What is the minimum yield on a 1-year risk-freesecurity in Britain that would induce a U. S. investor to invest in the British security?A) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: = (1 + r) X [] - 1; r = %.15. The interest rate on a 1-year Canadian security is 8%. The current exchangerate is C$ = US $. The 1-year forward rate is C$ = US $. The return (denominated in . $) that a . investor can earn by investing in the Canadian security is __________.A) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: [] = x - 1; x = %.16. Suppose the 1-year risk-free rate of return in the . is 4% and the 1-yearrisk-free rate of return in Britain is 7%. The current exchange rate is1 pound = . $. A 1-year future exchange rate of __________ for the poundwould make a U. S. investor indifferent between investing in the U. S.security and investing the British security.A)B)C)D)E) none of the aboveAnswer: A Difficulty: ModerateRationale: = x/; x = .17. The present exchange rate is C$ = U. S. $. The one year future rate isC$ = U. S. $. The yield on a 1-year . bill is 4%. A yield of __________ on a 1-year __________ Canadian bill will make investor indifferentbetween investing in the . bill and the Canadian bill.A) %B) %C) %D) %E) none of the aboveAnswer: D Difficulty: ModerateRationale: = [($$(1 + r)] - 1; r = %.Use the following to answer questions 18-19:Assume there is a fixed exchange rate between the Canadian and . dollar. The expected return and standard deviation of return on the . stock market are 18% and 15%, respectively. The expected return and standard deviation on the Canadian stock market are 13% and 20%, respectively. The covariance of returns between the . and Canadian stock markets is %.18. If you invested 50% of your money in the Canadian stock market and 50%in the . stock market, the expected return on your portfoliowould be __________.A) %B) %C) %D) %E) none of the aboveAnswer: D Difficulty: ModerateRationale: 18% + 13% = %.19. If you invested 50% of your money in the Canadian stock market and 50%in the . stock market, the standard deviation of return of your portfolio would be __________.A) %B) %C) %D) %E) none of the aboveAnswer: A Difficulty: Difficult= [2(15%)2 + 2(20%)2 + 2]1/2 = %.Rationale: sP20. The major concern that has been raised with respect to the weighting ofcountries within the EAFE index isA) currency volatilities are not considered in the weighting.B) cross-correlations are not considered in the weighting.C) inflation is not represented in the weighting.D) the weights are not proportional to the asset bases of the respectivecountries.Answer: D Difficulty: ModerateRationale: Some argue that countries should be weighted in proportion to their GDP to properly adjust for the true size of their corporate sectors, since many firms are not publicly traded.21. You are a U. S. investor who purchased British securities for 2,000 poundsone year ago when the British pound cost $. No dividends were paid on the British securities in the past year. Your total return based on U. S.dollars was __________ if the value of the securities is now 2,400 pounds and the pound is worth $.A) %B) %C) %D) %E) none of the aboveAnswer: C Difficulty: ModerateRationale: ($3,840 - $3,000)/$3,000 = , or %.22. . investorsA) can trade derivative securities based on prices in foreign securitymarkets.B) cannot trade foreign derivative securities.C) can trade options and futures on the Nikkei stock index of 225 stockstraded on the Tokyo stock exchange and on FTSE (Financial Times ShareExchange) indexes of . and European stocks.D) A and C.Answer: D Difficulty: ModerateRationale: U. S. investors can invest as indicated in A, examples of which are given in C.23. Exchange rate riskA) results from changes in the exchange rates in the currencies of theinvestor and the country in which the investment is made.B) can be hedged by using a forward or futures contract in foreignexchange.C) cannot be eliminated.D) A and C.E) A and B.Answer: E Difficulty: ModerateRationale: Although international investing involves risk resulting from the changing exchange rates between currencies, this risk can be hedged by using a forward or futures contract in foreign exchange.24. International investingA) cannot be measured against a passive benchmark, such as the S&P 500.B) can be measured against a widely used index of non-U. S. stocks, theEAFE index (Europe, Australia, Far East).C) can be measured against international indexes computed by MorganStanley, Salomon Brothers, First Boston and Goldman, Sachs, amongothers.D) B and C.E) none of the above.Answer: D Difficulty: ModerateRationale: International investments can be evaluated against aninternational index, such as EAFE, created by Morgan Stanley, and others that have become available in recent years.25. Investors looking for effective international diversification shouldA) invest about 60% of their money in foreign stocks.B) invest the same percentage of their money in foreign stocks thatforeign equities represent in the world equity market.C) frequently hedge currency exposure.D) both A and B.E) none of the above.Answer: E Difficulty: ModerateUse the following to answer questions 26-28:The manager of Quantitative International Fund uses EAFE as a benchmark. Last year's performance for the fund and the benchmark were as follows:26. Calculate Quantitative's currency selection return contribution.A) +20%B) -5%C) +15%D) +5%E) -10%Answer: B Difficulty: DifficultRationale: EAFE: (.30)(10%) + (.10)(-10%) + (.60)(30%) = 20%appreciation;Diversified: (.25)(10%) + (.25)(-10%) + (.50)(30%) = 15% appreciation;Loss of 5% relative to EAFE.27. Calculate Quantitative's country selection return contribution.A) %B) %C) %D) %E) %Answer: D Difficulty: DifficultRationale: EAFE: (.30)(10%) + (.10)(5%) + (.60)(15%) = %; Diversified: (.25)(10%) + (.25)(5%) + (.50)(15%) = %; Loss of % relative to EAFE.28. Calculate Quantitative's stock selection return contribution.A) %B) %C) %D) %E) none of the above.Answer: A Difficulty: ModerateRationale: (9% - 10%).25 + (8% - 5%).25 + (16% - 15%).50 = %29. Using the S&P500 portfolio as a proxy of the market portfolioA) is appropriate because . securities represent more than 60% of worldequities.B) is appropriate because most . investors are primarilyinterested in .securities.C) is appropriate because most . and . investors are primarily interestedin . securities.D) is inappropriate because . securities make up less than 40% of worldequities.E) is inappropriate because the average . investor has less than 20% ofher portfolio in . equities.Answer: D Difficulty: EasyRationale: It is important to take a global perspective when making investment decisions. The S&P500 is increasingly inappropriate.30. The average country equity market share isA) less than 2%B) between 3% and 4%C) between 5% and 7%D) between 7% and 8%E) greater than 8%Answer: A Difficulty: ModerateRationale: This is stated in the text and confirmed by Table .31. When an investor adds international stocks to her portfolioA) it will raise her risk relative to the risk she would face just holding .stocks.B) she can reduce its risk relative to the risk she would face just holding .stocks.C) she will increase her expected return, but must also take on more risk.D) it will have no significant impact on either the risk or the returnof her portfolio.E) she needs to seek professional management because she doesn't haveaccess to international stocks on her own.Answer: B Difficulty: EasyRationale: See Figure .32. Which of the following countries has an equity index that lies on theefficient frontier generated by allowing international diversification?A) the United StatesB) the United KingdomC) JapanD) NorwayE) none of the above--each of these countries' indexes fall inside theefficient frontier.Answer: E Difficulty: ModerateRationale: See Figure . To get to the efficient frontier you would need to combine the countries' indexes.33. “ADRs” stands for ___________ and “WEBS” stands for ____________.A) Additional Dollar Returns; Weekly Equity and Bond SurveyB) Additional Daily Returns; World Equity and Bond SurveyC) American Dollar Returns; World Equity and Bond StatisticsD) American Depository Receipts; World Equity Benchmark SharesE) Adjusted Dollar Returns; Weighted Equity Benchmark SharesAnswer: D Difficulty: EasyRationale: The student should be familiar with these basic terms that relate to international investing.34. WEBS portfoliosA) are passively managed.B) are shares that can be sold by investors.C) are free from brokerage commissions.D) A and BE) A, B, and CAnswer: D Difficulty: ModerateRationale: They are passively managed and when holders want to divest their shares they sell them rather than redeeming them with the company that issued them. There are brokerage commissions, however.35. The EAFE isA) the East Asia Foreign Equity index.B) the Economic Advisor's Foreign Estimator index.C) the European and Asian Foreign Equity index.D) The European, Asian, French Equity index.E) the European, Australian, Far East index.Answer: E Difficulty: EasyRationale: The index is one of several world equity indices that exist.It is computed by Morgan Stanley.36. Home bias refers toA) the tendency to vacation in your home country instead oftravelingabroad.B) the tendency to believe that your home country is better than othercountries.C) the tendency to give preferential treatment to people from your homecountry.D) the tendency to overweight investments in your home country.E) none of the above.Answer: DEssay Questions37. Discuss performance evaluation of international portfolio managers interms of potential sources of abnormal returns.Difficulty: ModerateAnswer:The following factors may be measured to determine the performance of an international portfolio manager.(A)C urrency selection: a benchmark might be the weighted average of thecurrency appreciation of the currencies represented in the EAFEportfolio.(B)C ountry selection measures the contribution to performanceattributable to investing in the better-performing stock markets ofthe world. Country selection can be measured as theweighted averageof the equity index returns of each country using as weights the shareof the manager's portfolio in each country.(C)S tock selection ability may be measured as the weighted average ofequity returns in excess of the equity index in each country.(D)C ash/bond selection may be measured as the excess return derived fromweighting bonds and bills differently from some benchmark weights.The rationale for this question is to determine the student's understanding of evaluating the various components of potential abnormal returns resulting from actively managing an international portfolio. 38. Discuss some of the factors that might be included in a multifactor modelof security returns in an international application of arbitrage pricing theory (APT).Difficulty: ModerateAnswer:Some of the factors that might be considered in a multifactor international APT model are:(A)A world stock index(B)A national (domestic) stock index(C)Industrial/sector indexes(D)Currency movements.Studies have indicated that domestic factors appear to be the dominant influence on stock returns. However, there is clear evidence of a world market factor during the market crash of October 1987.The rationale for this question is to determine the student's understanding of the possible effects of various factors on aninternational portfolio.39. Marla holds her portfolio 100% in . securities. She tells you that shebelieves foreign investing can be extremely hazardous to her portfolio.She's not sure abou t the details, but has “heard some things”. Discuss this idea with Marla by listing three objections you have heard from your clients who have similar fears. Explain each of the objections is subject to faulty reasoning.Difficulty: ModerateAnswer:A few of the factors students may mention areClient: “The . markets have done extremely well in the past few years,so I should stay 100% invested in them.” Your Reply: You can explainthat there are other times when foreign markets have beat the .substantially in performance. You can't tell easily beforehand whatmarkets will do the best. It is important to consider that there aremany times when countries' markets move in different directions andyou can buffer your risk to some extent by investing globally.Client: “You should keep your money at home.” Your Reply: Don'tconfuse familiarity with good portfolio management. Even though thereis a lot of information available on . companies, it can be difficultto use the information to make good forecasts. Most professionalmanagers aren't even good at this.Client: “There's too much currency risk.” Your Reply: It is truethat there may be times when both a security's value in its own currencyand the currency exchange rate may lead to poor returns. But theopposite is also true. And there are cases when security price movements and currency movements will have opposite impacts on yourportfolio's return. This may have a smoothing effect on your portfolio.Client: “Invest with the best.” Your Reply: Even if . mark ets havebeen the best performers in recent periods there is no guarantee thatthings will stay that way. If you diversify internationally you will benefit when other markets take the lead.40. You are managing a portfolio that consists of . equities. You have prepareda presentation to use when you discuss the possibility of addinginternational stocks to your client's portfolio.Draw a graph that shows the risk of the portfolio relative tothe number of stocks held in the portfolio.When your client arrives, he is surprised at your suggestion that he add international stocks, but is willing to listen to your statements to justify your recommendations. State two reasons why he shouldconsider the international stocks and briefly explain each.Difficulty: ModerateAnswer:The graph should look like the one that is shown in figure .Two important reasons for adding international securities are thefavorable diversification effects due to the less than perfect positive correlations among countries' returns and the possible benefit from currency risk.This question tests the student's knowledge of the basic ideas behind investing in international stocks and other classes of equities.。
(完整版)投资学第7版TestBank答案12
Multiple Choice Questions1. Conventional theories presume that investors ____________ and behavioral financepresumes that they ____________.A) are irrational; are irrationalB) are rational; may not be rationalC) are rational; are rationalD) may not be rational; may not be rationalE) may not be rational; are rationalAnswer: B Difficulty: Easy2. The premise of behavioral finance is thatA) conventional financial theory ignores how real people make decisions and thatpeople make a difference.B) conventional financial theory considers how emotional people make decisions butthe market is driven by rational utility maximizing investors.C) conventional financial theory should ignore how the average person makesdecisions because the market is driven by investors that are much moresophisticated than the average person.D) B and CE) none of the aboveAnswer: A Difficulty: Easy3. Some economists believe that the anomalies literature is consistent with investors’____________ and ____________.A) ability to always process information correctly and therefore they infer correctprobability distributions about future rates of return; given a probability distributionof returns, they always make consistent and optimal decisionsB) inability to always process information correctly and therefore they infer incorrectprobability distributions about future rates of return; given a probability distributionof returns, they always make consistent and optimal decisionsC) ability to always process information correctly and therefore they infer correctprobability distributions about future rates of return; given a probability distributionof returns, they often make inconsistent or suboptimal decisionsD) inability to always process information correctly and therefore they infer incorrectprobability distributions about future rates of return; given a probability distributionof returns, they often make inconsistent or suboptimal decisionsE) none of the aboveAnswer: D Difficulty: Moderate4. Information processing errors consist ofI)forecasting errorsII)overconfidenceIII)conservatismIV)framingA) I and IIB) I and IIIC) III and IVD) IV onlyE) I, II and IIIAnswer: E Difficulty: Moderate5. Forecasting errors are potentially important becauseA) research suggests that people underweight recent information.B) research suggests that people overweight recent information.C) research suggests that people correctly weight recent information.D) either A or B depending on whether the information was good or bad.E) none of the above.Answer: B Difficulty: Moderate6. DeBondt and Thaler believe that high P/E result from investorsA) earnings expectations that are too extreme.B) earnings expectations that are not extreme enough.C) stock price expectations that are too extreme.D) stock price expectations that are not extreme enough.E) none of the above.Answer: A Difficulty: Moderate7. If a person gives too much weight to recent information compared to prior beliefs, theywould make ________ errors.A) framingB) selection biasC) overconfidenceD) conservatismE) forecastingAnswer: E Difficulty: Moderate8. Single men trade far more often than women. This is due to greater ________ amongmen.A) framingB) regret avoidanceC) overconfidenceD) conservatismE) none of the aboveAnswer: C Difficulty: Moderate9. ____________ may be responsible for the prevalence of active versus passiveinvestments management.A) Forecasting errorsB) OverconfidenceC) Mental accountingD) ConservatismE) Regret avoidanceAnswer: B Difficulty: Moderate10. Barber and Odean (2000) ranked portfolios by turnover and report that the difference inreturn between the highest and lowest turnover portfolios is 7% per year. They attribute this toA) overconfidenceB) framingC) regret avoidanceD) sample neglectE) all of the aboveAnswer: A Difficulty: Moderate11. ________ bias means that investors are too slow in updating their beliefs in response toevidence.A) framingB) regret avoidanceC) overconfidenceD) conservatismE) none of the aboveAnswer: D Difficulty: Moderate12. Psychologists have found that people who make decisions that turn out badly blamethemselves more when that decision was unconventional. The name for thisphenomenon isA) regret avoidanceB) framingC) mental accountingD) overconfidenceE) obnoxicityAnswer: A Difficulty: ModerateRationale: An investments example given in the text is buying the stock of a start-up firm that shows subsequent poor performance, versus buying blue chip stocks that perform poorly. Investors tend to have more regret if they chose the less conventional start-up stock. DeBondt and Thaler say that such regret theory is consistent with the size effect and the book-to-market effect.13. An example of ________ is that a person may reject an investment when it is posed interms of risk surrounding potential gains but may accept the same investment if it is posed in terms of risk surrounding potential losses.A) framingB) regret avoidanceC) overconfidenceD) conservatismE) none of the aboveAnswer: A Difficulty: Moderate14. Statman (1977) argues that ________ is consistent with some investors' irrationalpreference for stocks with high cash dividends and with a tendency to hold losingpositions too long.A) mental accountingB) regret avoidanceC) overconfidenceD) conservatismE) none of the aboveAnswer: A Difficulty: Moderate15. An example of ________ is that it is not as painful to have purchased a blue-chip stockthat decreases in value, as it is to lose money on an unknown start-up firm.A) mental accountingB) regret avoidanceC) overconfidenceD) conservatismE) none of the aboveAnswer: B Difficulty: Moderate16. Arbitrageurs may be unable to exploit behavioral biases due to ____________.I)fundamental riskII)implementation costsIII)model riskIV)conservatismV)regret avoidanceA) I and II onlyB) I, II, and IIIC) I, II, III, and VD) II, III, and IVE) IV and VAnswer: B Difficulty: Moderate17. ____________ are good examples of the limits to arbitrage because they show that thelaw of one price is violated.I)Siamese Twin CompaniesII)Unit trustsIII)Closed end fundsIV)Open end fundsV)Equity carve outsA) I and IIB) I, II, and IIIC) I, III, and VD) IV and VE) VAnswer: C Difficulty: Moderate18. __________ was the grandfather of technical analysis.A) Harry MarkowitzB) William SharpeC) Charles DowD) Benjamin GrahamE) none of the aboveAnswer: C Difficulty: EasyRationale: Charles Dow, the originator of the Dow Theory, was the grandfather of technical analysis. Benjamin Graham might be considered the grandfather offundamental analysis. Harry Markowitz and William Sharpe might be considered the grandfathers of modern portfolio theory.19. The goal of the Dow theory is toA) identify head and shoulder patterns.B) identify breakaway points.C) identify resistance levels.D) identify support levels.E) identify long-term trends.Answer: E Difficulty: EasyRationale: The Dow theory uses the Dow Jones Industrial Average as an indicator of long-term trends in market prices.20. A long-term movement of prices, lasting from several months to years is called_________.A) a minor trendB) a primary trendC) an intermediate trendD) trend analysisE) B and DAnswer: B Difficulty: EasyRationale: Minor trends are merely day-to-day price movements; intermediate trends are or offsetting movements in one direction after longer-term movements in another direction; trends lasting for the period described above are primary trends.21. A daily fluctuation of little importance is called ____________A) a minor trendB) a primary trendC) an intermediate trendD) a market trendE) none of the aboveAnswer: A Difficulty: Easy22. Price movements that are caused by short-term deviations of prices from the underlyingtrend line are calledA) primary trends.B) secondary trends.C) tertiary trends.D) Dow trends.E) contrary trends.Answer: B Difficulty: EasyRationale: The secondary trend is caused by these deviations, which are eliminated by corrections that bring the prices back to the trend lines.23. The Dow theory posits that the three forces that simultaneously affect stock prices are____________.I)primary trendII)intermediate trendIII)momentum trendIV)minor trendV)contrarian trendA) I, II, and IIIB) II, III, and IVC) III, IV and VD) I, II, and IVE) I, III, and VAnswer: D Difficulty: Moderate24. The Elliot Wave Theory ____________.A) is a recent variation of the Dow TheoryB) suggests that stock prices can be described by a set of wave patternsC) is similar to the Kondratieff Wave theoryD) A and BE) A, B, and CAnswer: E Difficulty: EasyRationale: Both the Elliot Wave Theory and the Kondratieff Wave Theory are recent variations on the Dow Theory, which suggests that stock prices move in identifiable wave patterns.25. A trin ratio of less than 1.0 is considered as a _________.A) bearish signalB) bullish signalC) bearish signal by some technical analysts and a bullish signal by other technicalanalystsD) bullish signal by some fundamentalistsE) C and DAnswer: B Difficulty: EasyRationale: A trin ratio of less than 1.0 is considered bullish because the declining stocks have lower average volume than the advancing stocks, indicating net buying pressure.26. On October 29, 1991 there were 1,031 stocks that advanced on the NYSE and 610 thatdeclined. The volume in advancing issues was 112,866,000 and the volume in declining issues was 58,188,000. The trin ratio for that day was ________ and technical analysts were likely to be ________.A) 0.87, bullishB) 0.87, bearishC) 1.15, bullishD) 1.15, bearishE) none of the aboveAnswer: A Difficulty: ModerateRationale: (1,031/610) / (112,866,000/58,388,000) = 0.87. A trin ratio less than 1 is considered bullish because advancing stocks have a higher volume than decliningstocks, indicating a buying pressure.27. In regard to moving averages, it is considered to be a ____________ signal whenmarket price breaks through the moving average from ____________.A) bearish; belowB) bullish: belowC) bearish; aboveD) bullish aboveE) B and CAnswer: E Difficulty: Moderate28. Two popular moving average periods areA) 90-day and 52 weekB) 180-day and three yearC) 180-day two yearD) 200-day and 53 weekE) 200-day and two yearAnswer: D Difficulty: Moderate29. ____________ is a measure of the extent to which a movement in the market index isreflected in the price movements of all stocks in the market.A) put-call ratioB) trin ratioC) BreadthD) confidence indexE) all of the aboveAnswer: C Difficulty: Moderate30. Then confidence index is computed from ____________ and higher values areconsidered ____________ signals.A) bond yields; bearishB) odd lot trades; bearishC) odd lot trades; bullishD) put/call ratios; bullishE) bond yields; bullishAnswer: E Difficulty: Moderate31. The put/call ratio is computed as ____________ and higher values are considered____________ signals.A) the number of outstanding put options divided by outstanding call options; bullishor bearishB) the number of outstanding put options divided by outstanding call options; bullishC) the number of outstanding put options divided by outstanding call options; bearishD) the number of outstanding call options divided by outstanding put options; bullishE) the number of outstanding call options divided by outstanding put options; bullishAnswer: A Difficulty: Moderate32. The efficient market hypothesis ____________.A) implies that security prices properly reflect information available to investorsB) has little empirical validityC) implies that active traders will find it difficult to outperform a buy-and-hold strategyD) B and CE) A and CAnswer: E Difficulty: Moderate33. Tests of market efficiency have focused on ____________.A) the mean-variance efficiency of the selected market proxyB) strategies that would have provided superior risk-adjusted returnsC) results of actual investments of professional managersD) B and CE) A and BAnswer: D Difficulty: Moderate34. The anomalies literature ____________.A) provides a conclusive rejection of market efficiencyB) provides a conclusive support of market efficiencyC) suggests that several strategies would have provided superior returnsD) A and CE) none of the aboveAnswer: C Difficulty: Moderate35. Behavioral finance argues that ____________.A) even if security prices are wrong it may be difficult to exploit themB) the failure to uncover successful trading rules or traders cannot be taken as proof ofmarket efficiencyC) investors are rationalD) A and BE) all of the aboveAnswer: D Difficulty: Moderate36. Markets would be inefficient if irrational investors __________ and actions ifarbitragers were __________.A) existed; unlimitedB) did not exist; unlimitedC) existed; limitedD) did not exist; limitedE) none of the aboveAnswer: C Difficulty: Moderate37. If prices are correct __________ and if prices are not correct __________.A) there are no easy profit opportunities; there are no easy profit opportunitiesB) there are no easy profit opportunities; there are easy profit opportunitiesC) there are easy profit opportunities; there are easy profit opportunitiesD) there are easy profit opportunities; there are no easy profit opportunitiesE) none of the aboveAnswer: A Difficulty: Moderate38. __________ can lead investors to misestimate the true probabilities of possible eventsor associated rates of return.A) Information processing errorsB) Framing errorsC) Mental accounting errorsD) Regret avoidanceE) all of the aboveAnswer: A Difficulty: Moderate39. Kahneman and Tversky (1973) report that people __________ and __________.A) people give too little weight to recent experience compared to prior beliefs; tend tomake forecasts that are too extreme given the uncertainty of their informationB) people give too much weight to recent experience compared to prior beliefs; tend tomake forecasts that are too extreme given the uncertainty of their informationC) people give too little weight to recent experience compared to prior beliefs; tend tomake forecasts that are not extreme enough given the uncertainty of theirinformationD) people give too much weight to recent experience compared to prior beliefs; tend tomake forecasts that are not extreme enough given the uncertainty of theirinformationE) none of the aboveAnswer: B Difficulty: Difficult40. Errors in information processing can lead investors to misestimate __________.A) true probabilities of possible events and associated rates of returnB) true probabilities of possible eventsC) rates of returnD) the ability to uncover accounting manipulationE) fraudAnswer: A Difficulty: Moderate41. DeBondt and Thaler (1990) argue that the P/E effect can be explained by __________.A) forecasting errorsB) earnings expectations that are too extremeC) earnings expectations that are not extreme enoughD) regret aviodanceE) A and BAnswer: E Difficulty: Moderate42. Barber and Odean (2001) report that men trade __________ frequently than women andthe frequent trading leads to __________ returns.A) less; superiorB) less; inferiorC) more; superiorD) more; inferiorE) none of the aboveAnswer: D Difficulty: Moderate43. Conservatism implies that investors are too __________ in updating their beliefs inresponse to new evidence and that they initially __________ react to news.A) quick; overreactB) quick; under reactC) slow; overreactD) slow; under reactE) none of the aboveAnswer: D Difficulty: Moderate44. If information processing were perfect, many studies conclude that individuals wouldtend to make __________ decision using that information due to __________.A) less-than-fully rational; behavioral biasesB) fully rational; behavioral biasesC) less-than-fully rational; fundamental riskD) fully rational; fundamental riskE) fully rational; utility maximizationAnswer: A Difficulty: Moderate45. The assumptions concerning the shape of utility functions of investors differ betweenconventional theory and prospect theory. Conventional theory assumes that utilityfunctions are __________ whereas prospect theory assumes that utility functions are __________.A) concave and defined in terms of wealth; s-shaped (convex to losses and concave togains) and defined in terms of loses relative to current wealthB) convex and defined loses relative to current wealth; s-shaped (convex to losses andconcave to gains) and defined in terms of loses relative to current wealthC) s-shaped (convex to losses and concave to gains) and defined in terms of losesrelative to current wealth; concave and defined in terms of wealthD) s-shaped (convex to losses and concave to gains) and defined in terms of wealth;concave and defined in terms of loses relative to current wealthE) convex and defined in terms of wealth; concave and defined in terms of gainsrelative to current wealthAnswer: A Difficulty: Difficult46. The law-of-one-price posits that ability to arbitrage would force prices of identicalgoods to trade at equal prices. However, empirical evidence suggests that __________ are often mispriced.A) Siamese Twin CompaniesB) equity carve outsC) closed-end fundsD) A and CE) all of the aboveAnswer: E Difficulty: DifficultEssay Questions47. Compare and contrast the efficient market hypothesis with the school of thought termedbehavioral finance.Difficulty: DifficultAnswer:The efficient market hypothesis posits that investors are fully informed, rational, utility maximizers. Thus, security prices will fully reflect all information available to theinvestors. If any security becomes mispriced, the collective buying and selling actions of investors will quickly cause prices to change. Given an efficient market, it would be difficult to find a trading rule that would consistently outperform the market. Moreover, failure to uncover profitable trading strategies may be taken as proof of marketefficiency. Behavioral finance argues that conventional theory ignores how real people make decisions and that people make a difference. Behavioral finance says thatinvestors possess two “irrationalities”. First, investors do not always processinformation correctly and secondly they often make systematically suboptimaldecisions. Given less than perfectly rational investors, prices may be wrong and it still may be hard to exploit them. Thus, failure to uncover profitable trading strategies may not be taken as proof of market efficiency.48. Behavioral finance posits that investors possess information processing errors. Discussthe importance of information processing errors then list and explain the fourinformation processing errors discussed in the text.Difficulty: DifficultAnswer:Information processing errors are important because they can lead investors tomisestimate the true probabilities of possible events or associated rates of return. The four information processing errors are forecasting errors, overconfidence, conservatism, and sample size neglect. Forecasting errors arise when people give too much weight to recent experience. This leads to forecasts that are too extreme. Overconfidence refers to traders believing that they are better than average. This belief that they are superior leads to frequent trading (and according to empirical evidence, lower returns).Conservatism refers investors being slow in responding to new information rather than acting immediately. Sample size neglect refers to investors ignoring the size of a sample and making inferences based on a small sample.49. Behavioral finance posits that investors possess behavioral biases. Discuss theimportance of behavioral biases then list and explain the four behavioral biasesdiscussed in the text.Difficulty: DifficultAnswer:Behavioral biases are important because even if information processing was perfect, individuals may tend to make less-than-fully rational decisions using that information.The four behavioral biases are framing, mental accounting, regret avoidance, andprospect theory (or loss aversion). Framing refers to the tendency of investors to change prefe rences due to the way an investment is “framed” (i.e., in terms of risk or in terms of return). Mental accounting is a specific form of framing where an investor takes a lot of risk with one investment account but little risk with another account. Regret avoidance refers to the tendency of investors to blame themselves more for an unconventional investment that was unsuccessful than a conventional investment that was unsuccessful.Prospect theory (loss avoidance) suggests that the investor's utility curve is not concave and defined in terms of wealth. Instead, the investor's utility function would be defined in terms of losses relative to current wealth. Thus, the utility curve is convex to losses and concave to gains giving rise to an s-shaped utility curve.50. Discuss what technical analysis is, what technical analysts do, and the relationshipbetween technical analysis, fundamental analysis, and behavioral finance.Difficulty: DifficultAnswer:Technical analysis attempts to exploit recurring and predictable patterns in stock prices to generate superior portfolio performance. To determine recurring patterns, technical analysts examine historical returns by means of charts and or time-series analysis (such as moving averages). Technical analysts do not deny fundamental analysis but believe that prices adjust slowly to new information. Therefore, the key is to exploit the slow adjustment to the correct new price when information is released. Technical analysts also use volume and other data to assess market sentiment in an attempt to ascertain the future direction of the market. Behaviorists believe that behavioral biases may berelated to both price and volume data. Thus, technical analysis can be related tobehavioral finance.。
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-04
Multiple Choice Questions1. Which one of the following statements regarding open-end mutual funds isfalse?A) 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 false?A) 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 theirinvestors?A) 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 Value?A) $18.11B) $18.81C) $69.96D) $7.00E) $181.07Answer: A Difficulty: ModerateRationale: (457,000,000 - 17,000,000) / 24,300,000 = $18.115. 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 Value?A) $28.17B) $25.24C) $19.62D) $26.01E) $21.56Answer: D Difficulty: ModerateRationale: (862,000,000 - 12,000,000) / 32,675,254 = $26.016. Diversified Portfolios had year-end assets of $279,000,000 andliabilities of $43,000,000. If Diversified's NAV was $42.13, how many shares must have been held in the fund?A) 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) / $42.13 = 5,601,708.996.7. Pinnacle Fund had year-end assets of $825,000,000 and liabilities of$25,000,000. If Pinnacle's NAV was $32.18, how many shares must have been held in the fund?A) 21,619,346,92B) 22,930,546.28C) 24,860,161.59D) 25,693,645.25E) None of the above.Answer: C Difficulty: ModerateRationale: ($825,000,000 - 25,000,000) / $32.18 = 24,860,161.59.8. 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 istrue?A) 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) 21.7%B) 28.0%C) 54.1%D) 73.4%E) 63.5%Answer: C Difficulty: ModerateRationale: See Table 4.1.15. In 2004 the proportion of mutual funds specializing in bonds wasA) 15.9%B) 28.0%C) 54.1%D) 73.4%E) 63.5%Answer: A Difficulty: ModerateRationale: See Table 4.1.16. In 2004 the proportion of mutual funds specializing in money marketsecurities wasA) 21.7%B) 28.0%C) 54.1%D) 73.4%E) 23.6%Answer: C Difficulty: ModerateRationale: See Table 4.1.17. 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 owning a mutual fund.18. The Profitability Fund had NAV per share of $17.50 on January 1, 2005.On December 31 of the same year the fund's NAV was $19.47. Incomedistributions were $0.75 and the fund had capital gain distributions of $1.00. Without considering taxes and transactions costs, what rate of return did an investor receive on the Profitability fund last year?A) 11.26%B) 15.54%C) 16.97%D) 21.26%E) 9.83%Answer: D Difficulty: ModerateRationale: R = ($19.47 - 17.50 + .75 + 1.00) / $17.50 = 21.26%19. The Yachtsman Fund had NAV per share of $36.12 on January 1, 2005. OnDecember 31 of the same year the fund's NAV was $39.71. Incomedistributions were $0.64 and the fund had capital gain distributions of $1.13. Without considering taxes and transactions costs, what rate of return did an investor receive on the Yachtsman Fund last year?A) 22.92%B) 17.68%C) 14.39%D) 18.52%E) 14.84%Answer: E Difficulty: ModerateRationale: R = ($39.71 - 36.12 + .64 + 1.13) / $36.12 = 14.84%20. Investors' Choice Fund had NAV per share of $37.25 on January 1, 2005.On December 31 of the same year the fund's rate of return for the year was 17.3%. Income distributions were $1.14 and the fund had capital gain distributions of $1.35. Without considering taxes and transactions costs, what ending NAV would you calculate for Investors' Choice?A) $41.20B) $33.88C) $43.69D) $42.03E) $46.62Answer: A Difficulty: ModerateRationale: .173 = (P - $37.25 + 1.14 + 1.35) / $37.25; P = $41.2021. Which of the following is not an advantage of mutual funds?A) 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 unchanged?A) 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 trusts?I)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 fund?A) 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 invested?A) stock fundsB) bond fundsC) mixed asset classes such as asset allocation fundsD) money market fundsE) global fundsAnswer: A Difficulty: EasyRationale: See Table 4.1.26. 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 funds?I)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 $2.00 per share and capital gains distributions of $4.30 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 investment?A) 5.43%B) 10.24%C) 7.19%D) 12.44%E) 9.18%Answer: B Difficulty: ModerateRationale: R = ($40-42+2+4.3)/$42 = 10.238%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 $1.50 per share and capital gains distributions of $2.85 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 investment?A) 30.24%B) 25.37%C) 27.19%D) 22.44%E) 29.18%Answer: A Difficulty: ModerateRationale: R = ($23-21+1.5+2.85)/$21 = 30.238%31. Assume that you purchased shares of High Flying mutual fund at a net assetvalue of $12.50 per share. During the year you received dividend income distributions of $0.78 per share and capital gains distributions of $1.67 per share. At the end of the year the shares had a net asset value of $13.87 per share. What was your rate of return on this investment?A) 29.43%B) 30.56%C) 31.19%D) 32.44%E) 29.18%Answer: B Difficulty: ModerateRationale: R = ($13.87-12.50+0.78+1.67)/$12.50 = 30.56%32. Assume that you purchased shares of a mutual fund at a net asset valueof $14.50 per share. During the year you received dividend incomedistributions of $0.27 per share and capital gains distributions of $0.65 per share. At the end of the year the shares had a net asset value of $13.74 per share. What was your rate of return on this investment?A) 2.91%B) 3.07%C) 1.10%D) 1.78%E) -1.18%Answer: C Difficulty: ModerateRationale: R = ($13.74-14.50+0.27+0.65)/$14.50 = 1.103%33. Assume that you purchased shares of a mutual fund at a net asset valueof $10.00 per share. During the year you received dividend incomedistributions of $0.05 per share and capital gains distributions of $0.06 per share. At the end of the year the shares had a net asset value of $8.16 per share. What was your rate of return on this investment?A) -18.24%B) -16.1%C) 16.10%D) -17.3%E) 17.3%Answer: D Difficulty: ModerateRationale: R = ($8.16-10.00+0.05+0.06)/$10.00 = -17.3%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 Value?A) $22.87B) $22.39C) $22.24D) $17.61E) $19.25Answer: B Difficulty: ModerateRationale: (560,000,000 - 26,000,000) / 23,850,000 = $22.38935. 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 Value?A) $92.53B) $67.39C) $63.24D) $65.60E) $17.46Answer: D Difficulty: ModerateRationale: (250,000,000 - 4,000,000) / 3,750,000 = $65.6036. 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 Value?A) $9.63B) $57.71C) $16.42D) $17.87E) $17.26Answer: E Difficulty: ModerateRationale: (700,000,000 - 7,000,000) / 40,150,000 = $17.2637. A mutual fund had year-end assets of $465,000,000 and liabilities of$37,000,000. If the fund NAV was $56.12, how many shares must have been held in the fund?A) 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) / $56.12 = 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 $26.12, how many shares must have been held in the fund?A) 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) / $26.12 = 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 $30.48, how many shares must have been held in the fund?A) 11,354,751B) 8,412,642C) 10,165,476D) 9,165,414E) 9,219,160Answer: E Difficulty: ModerateRationale: ($327,000,000 - 46,000,000) / $30.48 = 9,219,160.40. A mutual fund had NAV per share of $19.00 on January 1, 2005. On December31 of the same year the fund's NAV was $19.14. Income distributions were$0.57 and the fund had capital gain distributions of $1.12. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last year?A) 11.26%B) 10.54%C) 7.97%D) 8.26%E) 9.63%Answer: E Difficulty: ModerateRationale: R = ($19.14 - 19.00 + .57 + 1.12) / $19.00 = 9.63%41. A mutual fund had NAV per share of $26.25 on January 1, 2005. On December31 of the same year the fund's rate of return for the year was 16.4%. Incomedistributions were $1.27 and the fund had capital gain distributions of $1.85. Without considering taxes and transactions costs, what ending NAV would you calculate?A) $27.44B) $33.88C) $24.69D) $42.03E) $16.62Answer: A Difficulty: ModerateRationale: .164 = (P - $26.25 + 1.27 + 1.85) / $26.25; P = $27.43542. A mutual fund had NAV per share of $16.75 on January 1, 2005. On December31 of the same year the fund's rate of return for the year was 26.6%. Incomedistributions were $1.79 and the fund had capital gain distributions of $2.80. Without considering taxes and transactions costs, what ending NAV would you calculate?A) $17.44B) $13.28C) $14.96D) $17.25E) $16.62Answer: E Difficulty: ModerateRationale: .266 = (P - $16.75 + 1.79 + 2.80) / $16.75; P = $16.61543. A mutual fund had NAV per share of $36.15 on January 1, 2005. On December31 of the same year the fund's rate of return for the year was 14.0%. Incomedistributions were $1.16 and the fund had capital gain distributions of $2.12. Without considering taxes and transactions costs, what ending NAV would you calculate?A) $37.93B) $34.52C) $44.69D) $47.25E) $36.28Answer: A Difficulty: ModerateRationale: .14 = (P - $36.15 + 1.16 + 2.12) / $36.15; P = $37.93144. 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 U.S.) 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 U.S.) 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 $3.0 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) 27.5%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 $2.0 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) 27.5%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 $4.0 billion on 2005. The fundsold $1.5 billion worth of stock and purchased $1.6 billion worth of stock during the year. The funds turnover ratio is ____________.A) 37.5%B) 22%C) 15%D) 45%E) 20%Answer: A Difficulty: ModerateRationale: 1,500,000,000 / 4,000,000,000 = 37.5%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 5.75%. If the securities in which the find invested increased in value by 11% during the year, and the funds expense ratio was 1.25%, your return if you sold the fund at the end of the year would be ____________.A) 4.33B) 3.44C) 2.45D) 6.87E) None of the aboveAnswer: B Difficulty: DifficultRationale: {[$20 * .9425*(1.11-.0125)]-$20} / $20 = 3.44%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 4.75%. If the securities in which the fund invested increased in value by 9% during the year, and the funds expense ratio was 1.5%, your return if you sold the fund at the end of the year would be ____________.A) 4.75B) 3.54C) 2.65D) 2.39E) None of the aboveAnswer: D Difficulty: DifficultRationale: {[$12 * .9525*(1.09-.015)]-$12} / $12 = 2.39%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 5.0%. If the securities in which the find invested increased in value by 12% during the year, and the funds expense ratio was 1.0%, your return if you sold the fund at the end of the year would be ____________.A) 4.75B) 5.45C) 5.65D) 4.39E) None of the aboveAnswer: B Difficulty: DifficultRationale: {[$17 * .95*(1.12-.01)]-$17} / $17 = 5.45%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 U.S. 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 disadvantages?Difficulty: 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.。
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%.。
(完整word版)投资学第7版Test Bank答案24
Multiple Choice Questions1. Trading activity by mutual funds just prior to quarterly reporting dates is known asA) insider trading.B) program trading.C) passive security selection.D) window dressing.E) none of the above.Answer: D Difficulty: ModerateRationale: Mutual funds must disclose portfolio composition quarterly, and tradingactivity that immediately precedes the reporting date is referred to as "window dressing".The speculation is that window dressing involves changes in portfolio composition,which gives the appearance of successful stock selection.2. The comparison universe is __________.A) a concept found only in astronomyB) the set of all mutual funds in the worldC) the set of all mutual funds in the U. S.D) a set of mutual funds with similar risk characteristics to your mutual fundE) none of the aboveAnswer: D Difficulty: EasyRationale: A mutual fund manager is evaluated against the performance of managers of funds of similar risk characteristics.3. __________ did not develop a popular method for risk-adjusted performanceevaluation of mutual funds.A) Eugene FamaB) Michael JensenC) William SharpeD) Jack TreynorE) A and BAnswer: A Difficulty: EasyRationale: Michael Jensen, William Sharpe, and Jack Treynor developed popularmodels for mutual fund performance evaluation.4. Henriksson (1984) found that, on average, betas of funds __________ during marketadvancesA) increased very significantlyB) increased slightlyC) decreased slightlyD) decreased very significantlyE) did not changeAnswer: C Difficulty: ModerateRationale: Portfolio betas should have a large value if the market is expected to perform well and a small value if the market is not expected to perform well; thus, these results reflect the poor timing ability of mutual fund managers.5. Most professionally managed equity funds generally __________.A) outperform the S&P 500 index on both raw and risk-adjusted return measuresB) underperform the S&P 500 index on both raw and risk-adjusted return measuresC) outperform the S&P 500 index on raw return measures and underperform the S&P500 index on risk-adjusted return measuresD) underperform the S&P 500 index on raw return measures and outperform the S&P500 index on risk-adjusted return measuresE) match the performance of the S&P 500 index on both raw and risk-adjusted returnmeasuresAnswer: B Difficulty: ModerateRationale: Most mutual funds do not consistently, over time, outperform the S&P 500 index on the basis of either raw or risk-adjusted return measures.6. Suppose two portfolios have the same average return, the same standard deviation ofreturns, but portfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance of portfolio A __________.A) is better than the performance of portfolio BB) is the same as the performance of portfolio BC) is poorer than the performance of portfolio BD) cannot be measured as there is no data on the alpha of the portfolioE) none of the above is true.Answer: B Difficulty: ModerateRationale: The Sharpe index is a measure of average portfolio returns (in excess of the risk free return) per unit of total risk (as measured by standard deviation).7. Consider the Sharpe and Treynor performance measures. When a pension fund is largeand has many managers, the __________ measure is better for evaluating individual managers while the __________ measure is better for evaluating the manager of a small fund with only one manager responsible for all investments.A) Sharpe, SharpeB) Sharpe, TreynorC) Treynor, SharpeD) Treynor, TreynorE) Both measures are equally good in both cases.Answer: C Difficulty: ModerateRationale: The Treynor measure is the superior measure if the portfolio is a smallportion of many portfolios combined into a large investment fund. The Sharpe measure is superior if the portfolio represents the investor's total risky investment position.8. Suppose you purchase 100 shares of GM stock at the beginning of year 1, and purchaseanother 100 shares at the end of year 1. You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________; your time-weighted return on the stock.A) higher thanB) the same asC) less thanD) exactly proportional toE) more information is necessary to answer this questionAnswer: A Difficulty: ModerateRationale: In the dollar-weighted return, the stock's performance in the second year, when 200 shares are held, has a greater influence on the overall dollar-weighted return.The time-weighted return ignores the number of shares held.9. Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is1%, and the average return is 14%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio asA) 11.5%B) 14%C) 15%D) 16%E) none of the aboveAnswer: A Difficulty: DifficultRationale: 1% = 14% - [4% + 1.2(x - 4%)]; x = 11.5%.10. Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is0%, and the average return is 16%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio asA) 12.3%B) 10.4%C) 15.1%D) 16.7%E) none of the aboveAnswer: B Difficulty: DifficultRationale: 0% = 16% - [3% + 1.75(x - 3%)]; x = 10.4%.11. Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio asA) 12%B) 14%C) 15%D) 16%E) none of the aboveAnswer: A Difficulty: DifficultRationale: 3% = 18% - [6% + 1.5(x - 6%)]; x = 12%.12. Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% inyear 2 and 30% in year 3. The geometric average return for the year period will be __________.A) greater than the arithmetic average returnB) equal to the arithmetic average returnC) less than the arithmetic average returnD) equal to the market returnE) cannot tell from the information givenAnswer: C Difficulty: ModerateRationale: The geometric mean will always be less than the arithmetic mean unless the returns in all periods are equal (in which case the two means will be equal).13. Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning ofyear 1 for $80. Abolishing Dividend Corporation pays no dividends. The stock price at the end of year 1 is $100, the price $120 at the end of year 2, and the price is $150 at the end of year 3. The stock price declines to $100 at the end of year 4, and you sell your 100 shares. For the four years, your geometric average return isA) 0.0%B) 1.0%C) 5.7%D) 9.2%E) 34.5%Answer: C Difficulty: DifficultRationale: [(1.25)(1.20)(1.25)(0.6667)]1/4 - 1.0 = 5.7%14. You want to evaluate three mutual funds using the information ratio measure forperformance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 19%. The average returns, residual standard deviations, and betas for the three funds are given below.The fund with the highest information ratio measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: B Difficulty: DifficultRationale: Information ratio = αP/σ(e P); A: αP = 20 - 6 - .8(19 - 6) = 3.6; 3.6/4 = 0.9; B: αP = 21 - 6 - 1(19 - 6) = 2.0; 2/1.25 = 1.6; C: αP = 23 - 6 - 1.2(19 - 6) = 1.4; 1.4/1.20 =1.16.15. You want to evaluate three mutual funds using the Sharpe measure for performanceevaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations and betas for the three funds are given below, as is the data for the S&P 500 index.The fund with the highest Sharpe measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: C Difficulty: ModerateRationale: A: (24% - 6%)/30% = 0.60; B: (12% - 6%)/10% = 0.60; C: (22% - 6%)/20% = 0.80; S&P 500: (18% - 6%)/16% = 0.75.16. You want to evaluate three mutual funds using the Sharpe measure for performanceevaluation. The risk-free return during the sample period is 4%. The average returns, standard deviations and betas for the three funds are given below, as is the data for the S&P 500 index.The fund with the highest Sharpe measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: B Difficulty: ModerateRationale: A: (18% - 4%)/38% = 0.368; B: (15% - 4%)/27% = 0.407; C: (11% -4%)/24% = 0.292; S&P 500: (10% - 4%)/22% = 0.273.17. You want to evaluate three mutual funds using the Sharpe measure for performanceevaluation. The risk-free return during the sample period is 5%. The average returns, standard deviations and betas for the three funds are given below, as is the data for the S&P 500 index.The investment with the highest Sharpe measure is __________.A) Fund AB) Fund BC) Fund CD) the indexE) Funds A and C are tied for highestAnswer: D Difficulty: ModerateRationale: A: (23% - 5%)/30% = 0.60; B: (20% - 5%)/19% = 0.789; C: (19% - 5%)/17% = 0.824; S&P 500: (18% - 5%)/15% = 0.867.18. You want to evaluate three mutual funds using the Treynor measure for performanceevaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations, and betas for the three funds are given below, in addition toinformation regarding the S&P 500 index.The fund with the highest Treynor measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: A Difficulty: DifficultRationale: A: (13% - 6%)/0.5 = 14; B: (19% - 6%)/1.0 = 13; C: (25% - 6%)/1.5 = 12.7;S&P 500: (18% - 6%)/1.0 = 12.19. You want to evaluate three mutual funds using the Jensen measure for performanceevaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 18%. The average returns, standard deviations, and betas for the three funds are given below.The fund with the highest Jensen measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: C Difficulty: DifficultRationale: A: 17.6% -[6% + 1.2(18% - 6%)] = - 2.8%; B: 17.5% - [6% + 1.0(18% - 6%)] = - 0.5; C: 17.4% - [6% + 0.8(18% - 6%)] = + 1.8.20. Suppose you purchase one share of the stock of Volatile Engineering Corporation at thebeginning of year 1 for $36. At the end of year 1, you receive a $2 dividend, and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share), and sell the shares for $36.45 each. The time-weighted return on your investment is ________.A) -1.75%B) 4.08%C) 8.53%D) 11.46%E) 12.35%Answer: C Difficulty: ModerateRationale: Year 1: ($30 + $2 - $36)/$36 = - 11.11%; Year 2: ($36.45 + $2 - $30)/$30 =28.17%; Average: 8.53%.21. Suppose you purchase one share of the stock of Volatile Engineering Corporation at thebeginning of year 1 for $36. At the end of year 1, you receive a $2 dividend, and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share), and sell the shares for $36.45 each. The dollar-weighted return on your investment is _______.A) -1.75%B) 4.08%C) 8.53%D) 8.00%E) 12.35%Answer: E Difficulty: ModerateRationale: $36 + $30/(1 + r) = $2/(1 + r) + $4/(1 + r)2 + $72.90/(1 + r)2; r = 12.35%.22. Suppose you purchase one share of the stock of Cereal Correlation Company at thebeginning of year 1 for $50. At the end of year 1, you receive a $1 dividend, and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share), and sell the shares for $67.20 each. The time-weighted return on your investment is __________.A) 10.00%B) 8.78%C) 19.71%D) 20.36%E) none of the aboveAnswer: D Difficulty: ModerateRationale: Year 1: ($72 + $1 - $50)/$50 = 46%; Year 2: ($67.20 + $1 - $72)/$72 = -5.28%; Average: 20.36%.23. Suppose you purchase one share of the stock of Cereal Correlation Company at thebeginning of year 1 for $50. At the end of year 1, you receive a $1 dividend, and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share), and sell the shares for $67.20 each. The dollar-weighted return on your investment is __________.A) 10.00%B) 8.78%C) 19.71D) 20.36%E) none of the aboveAnswer: B Difficulty: ModerateRationale: $50 + $72 /(1 + r) = $1/(1 + r) + $2/(1 + r)2 + $134.40/(1 + r)2; r = 8.78%.24. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock Bearns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. __________ has the higher arithmetic average return.A) stock AB) stock BC) the two stocks have the same arithmetic average returnD) at least three periods are needed to calculate the arithmetic average returnE) none of the aboveAnswer: C Difficulty: ModerateRationale: A: (2% + 18%)/2 = 10%; B: (9% + 11%)/2 = 10%.25. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock Bearns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. Which stock has the higher geometric average return?A) stock AB) stock BC) the two stocks have the same geometric average returnD) at least three periods are needed to calculate the geometric average return.E) none of the aboveAnswer: B Difficulty: ModerateRationale: A: [(1.02)(1.18)]1/2 - 1 = 9.71%; B: [(1.09)(1.11)]1/2 - 1 = 10.00%.Use the following to answer questions 26-29:The following data are available relating to the performance of Sooner Stock Fund and the market portfolio:26. What is the Sharpe measure of performance evaluation for Sooner Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 38.6%E) 37.14%Answer: D Difficulty: ModerateRationale: (20% - 3%)/44% = 0.386, or 38.6%.27. What is the Treynor measure of performance evaluation for Sooner Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 9.44%E) 37.14%Answer: D Difficulty: ModerateRationale: (20% - 3%)/1.8 = 9.44%.28. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.A) 2.6%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: A Difficulty: ModerateRationale: αP = 20% - [3% + 1.8(11% - 3%)] = 2.6%.29. Calculate the information ratio for Sooner Stock Fund.A) 1.53B) 1.30C) 8.67D) 31.43E) 37.14Answer: B Difficulty: ModerateRationale: αP = 20% - [3% + 1.8(11% - 3%)] = 2.6%, 2.6% / 2.00% = 1.3.Use the following to answer questions 30-33:The following data are available relating to the performance of Monarch Stock Fund and the market portfolio:30. What is the information ratio measure of performance evaluation for Monarch StockFund?A) 1.00%B) 280.00%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: αP = 16% - [4% +1.15(12% - 4%)] = 2.8%; αP/σ(e P) = 2.8%/1% = 2.8, or 280%.31. Calculate Sharpe's measure of performance for Monarch Stock Fund.A) 1.00%B) 46.00%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: (16 - 4)/ 26 = .4632. Calculate Treynor's measure of performance for Monarch Stock Fund.A) 10.40%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: A Difficulty: ModerateRationale: (16 - 4)/1.15 = 10.433. Calculate Jensen's measure of performance for Monarch Stock Fund.A) 1.00%B) 2.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 16 - [4 + 1.15 (12 - 4)] = 2.80%Use the following to answer questions 34-37:The following data are available relating to the performance of Seminole Fund and the market portfolio:34. If you wanted to evaluate the Seminole Fund using the M2 measure, what percent of theadjusted portfolio would need to be invested in T-Bills?A) -36% (borrow)B) 50%C) 8%D) 36%E) 73%Answer: E Difficulty: ModerateRationale: 22/30 = .733335. Calculate the M2 measure for the Seminole Fund.A) 4.0%B) 20.0%C) 2.86%D) 0.8%E) 40.0%Answer: D Difficulty: ModerateRationale: 22/30 = .7333; 1 - .7333 = .2667; M2 = [.7333 (18) + .2667 (6)] - 14 = 0.8%.36. If the Seminole Fund is actively managed, fairly priced, and will be mixed with themarket index portfolio, calculate the value of the measure that should be used forevaluation.A) 4.0%B) 20.0%C) 2.86%D) 0.8%E) 40%Answer: E Difficulty: DifficultRationale: The Sharpe ratio is the correct measure to use in this case. (18 - 6) / 30 = 40%37. If the Seminole Fund is actively managed and will be mixed with the market indexportfolio, but you suspect it may be mispriced, calculate the value of the measure that should be used for evaluation.A) 4.0%B) 20.0%C) 2.86%D) 0.8%E) 40%Answer: B Difficulty: DifficultRationale: The information ratio is the correct measure to use in this case. AP=18% - [6%+1.4*(14%-6%)] = 0.8%, Information Ratio= 0.8%/4.0%=.20= 20%Use the following to answer questions 38-41:The following data are available relating to the performance of Wildcat Fund and the market portfolio:38. What is the information ratio measure of performance evaluation for Wildcat Fund?A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: D Difficulty: ModerateRationale: αP = 18% - [7% +1.25(15% - 7%)] = 1%; αP/σ(e P) = 1%/2% = 0.50, or50.00%.39. Calculate Sharpe's measure of performance for Wildcat Fund.A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: C Difficulty: ModerateRationale: (18 - 7)/ 25 = .4440. Calculate Treynor's measure of performance for Wildcat Fund.A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: (18 - 7)/1.25 = 8.841. Calculate Jensen's measure of performance for Wildcat Fund.A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: A Difficulty: ModerateRationale: 18 - [7 + 1.25 (15 - 7)] = 1.00%Use the following to answer questions 42-45:The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio:42. What is the Sharpe measure of performance evaluation for Long Horn Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: E Difficulty: ModerateRationale: (19% - 6%)/35% = 0.3714, or 37.14%.43. What is the Treynor measure of performance evaluation for Long Horn Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: C Difficulty: ModerateRationale: (19% - 6%)/1.5 = 8.67%.44. Calculate the Jensen measure of performance evaluation for Long Horn Stock Fund.A) 1.33%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: B Difficulty: ModerateRationale: αP = 19% - [6% + 1.5(12% - 6%)] = 4.00%.45. Calculate the information ratio for Long Horn Stock Fund.A) 1.33B) 4.00C) 8.67D) 31.43E) 37.14Answer: A Difficulty: ModerateRationale: αP = 19% - [6% + 1.5(12% - 6%)] = 4.00%, 4.00% / 3.00% = 1.33.Use the following to answer questions 46-48:In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes:46. The total excess return on the Razorback Fund's managed portfolio was __________.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 1% - 2% = -1%.47. The contribution of asset allocation across markets to the Razorback Fund's total excessreturn was __________.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: A Difficulty: DifficultRationale: See table below.48. The contribution of selection within markets to the Razorback Fund's total excess returnwas __________.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: C Difficulty: DifficultRationale: See table below.Use the following to answer questions 49-51:In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes49. The total excess return on the Aggie managed portfolio was __________.A) 1%B) 3%C) 4%D) 5%E) none of the aboveAnswer: D Difficulty: EasyRationale: 15% - 10% = 5%.50. The contribution of asset allocation across markets to the total excess return wasA) 1%B) 3%C) 4%D) 5%E) none of the aboveAnswer: C Difficulty: DifficultRationale: See table below.51. The contribution of selection within markets to total excess return wasA) 1%B) 3%C) 4%D) 5%E) none of the aboveAnswer: A Difficulty: DifficultRationale: See table below.52. In measuring the comparative performance of different fund managers, the preferredmethod of calculating rate of return is __________.A) internal rate of returnB) arithmetic averageC) dollar-weightedD) time-weightedE) none of the aboveAnswer: D Difficulty: EasyRationale: For the investor, the internal rate of return (or dollar-weighted rate of return) is the preferred measure because if the investor chooses to invest heavily in oneinvestment vehicle that performs extremely well, an increased return results, which is reflected in A (or C). However, the mutual fund manager does not usually make the decision as to the amount to invest in a particular vehicle; therefore, the time-weighted rate of return is usually used to evaluate these managers. Arithmetic average is a good measure for estimating future returns (if expectations are unchanged).53. The __________ measures the reward to volatility trade-off by dividing the averageportfolio excess return by the standard deviation of returns.A) Sharpe measureB) Treynor measureC) Jensen measureD) information ratioE) none of the aboveAnswer: A Difficulty: EasyRationale: The Sharpe measure is a measure of excess average portfolio returns over time per unit of total risk of the portfolio returns (standard deviation).54. A pension fund that begins with $500,000 earns 15% the first year and 10% the secondyear. At the beginning of the second year, the sponsor contributes another $300,000.The dollar-weighted and time-weighted rates of return, respectively, wereA) 11.7% and 12.5%B) 12.1% and 12.5%C) 12.5% and 11.7%D) 12.5% and 12.1%E) none of the aboveAnswer: B Difficulty: ModerateRationale: $500,000 + $300,000/(1 + r) = $75,000/(1 + r) + $880,000/(1 + r)2; r =12.059%; (15 + 10)/2 = 12.5%55. The Value Line Index is an equally weighted geometric average of the returns of about1,700 firms. The value of an index based on the geometric average returns of 3 stocks where the returns on the 3 stocks during a given period were 32%, 5%, and -10%,respectively, is __________.A) 4.3%B) 7.6%C) 9.0%D) 13.4%E) 5.0%Answer: B Difficulty: ModerateRationale: [(1.32)(1.05)(0.90)]1/3 - 1.0 = 7.6%.56. Risk-adjusted mutual fund performance measures have decreased in popularity becauseA) in nearly efficient markets it is extremely difficult for portfolio managers tooutperform the market.B) the measures usually result in negative performance results for the portfoliomanagers.C) the high rates of return earned by the mutual funds in recent years have made themeasures useless.D) A and B.E) none of the above.Answer: D Difficulty: ModerateRationale: C is not true because the overall market has performed extremely well in the recent years of mutual fund growth and positive performance. In fact, the funds have grown and performed well because of the sustained market rally, and still do not show superior performance when compared to the market.57. The Sharpe, Treynor, and Jensen portfolio performance measures are derived from theCAPM,A) therefore, it does not matter which measure is used to evaluate a portfolio manager.B) however, the Sharpe and Treynor measures use different risk measures, thereforethe measures vary as to whether or not they are appropriate, depending on theinvestment scenario.C) therefore, all measure the same attributes.D) A and B.E) none of the above.Answer: B Difficulty: ModerateRationale: The Sharpe measure uses standard deviation, or total risk, as the risk measure;the Treynor measure uses beta, or systematic risk, as the risk measure.58. The Jensen portfolio evaluation measureA) is a measure of return per unit of risk, as measured by standard deviation.B) is an absolute measure of return over and above that predicted by the CAPM.C) is a measure of return per unit of risk, as measured by beta.D) A and B.E) B and C.Answer: B Difficulty: ModerateRationale: A is the Sharpe measure, C is the Treynor measure.59. The M-squared measureA) considers only the return when evaluating mutual funds.B) considers the risk-adjusted return when evaluating mutual funds.C) considers only the total risk when evaluating mutual funds.D) considers only the market risk when evaluating mutual funds.E) none of the above.Answer: B Difficulty: ModerateRationale: The M-squared measure adjusts the fund by hypothetically borrowing or lending until the total portfolio matches the risk level of an index, then ranks the fund on the basis of this risk-adjusted return. .60. The dollar-weighted return on a portfolio is equivalent toA) the time-weighted return.B) the geometric average return.C) the arithmetic average return.D) the portfolio's internal rate of return.E) none of the above.Answer: D Difficulty: EasyRationale: The dollar-weighted return on a portfolio is equivalent to finding the internal rate of return on the cash flows to the portfolio.61. A portfolio manager's ranking within a comparison universe may not provide a goodmeasure of performance becauseA) portfolio returns may not be calculated in the same way.B) portfolio durations can vary across managers.C) if managers follow a particular style or subgroup, portfolios may not be comparable.D) both B and C.E) all of the above.Answer: D Difficulty: ModerateRationale: Returns are typically time-weighted for all portfolios and broad risk classes or styles are grouped together, but particular subgroups and differences in duration are typically not considered.62. The geometric average rate of return is based onA) the market's volatility.B) the concept of expected return.C) the standard deviation of returns.D) the CAPME) the principle of compounding.Answer: E Difficulty: EasyRationale: The geometric average is the rate that would give the same result if applied over an n-year period as the individual years’ returns. The present value can becompounded by r1, r2, … ,r n or compounded by r G for n periods to yield the same future value.63. The M2 measure was developed byA) Merton and Miller.B) Miller and Miller.C) Modigliani and Miller.D) Modigliani and Modigliani.E) the M&M Mars Company.Answer: D Difficulty: EasyRationale: The model was developed by Leah Modigliani of Morgan Stanley DeanWitter and Franco Modigliani, her grandfather who is a Nobel laureate.。
投资学第7版TestBank答案11资料
Multiple Choice Questions1. If you believe in the ________ form of the EMH, you believe that stock prices reflect allrelevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.semistr ongstrongweakA, B, and Cnone of the above Answer: A Difficulty: Easy Ration ale: The semistr ong form of EMH maintains that stock prices immediately reflect all historical and current public in formation, but not in side informati on. 2 Proponents of the EMH typically advocate an active trading strategy. investing in an index fund, a passive investment strategy. A and B B and CAnswer: E Difficulty: EasyRation ale: Believers of market efficiency advocate passive investment strategies, and an investme nt in an in dex fund is one of the most practical passive in vestment strategies,especially for small investors.3. If you believe in the _______ form of the EMH, you believe that stock prices reflect allinformation that can be derived by examining market trading data such as the history of past stock prices, trading volume or short interest.A) semistrongB) strongC) weakD) all of the aboveE) none of the aboveAnswer: C Difficulty: EasyRationale: The information described above is market data, which is the data set for theweak form of market efficie ncy. The semistr ong form in eludes the above plus all otherpublic information. The strong form includes all public and private information.4. If you believe in the ________ form of the EMH, you believe that stock prices reflectall available information, including information that is available only to insiders.A) semistrong\)/ \)/ \m/ \)/ \n/ A B c\)/ \n/ \n/ \)/ \—/ A Bstrongweakall of the above none of the aboveAnswer: B Difficulty: Easy Rationale: The strong form includes all public and private information.5. If you believe in the reversal effect, you shouldA) buy bonds in this period if you held stocks in the last period.B) buy stocks in this period if you held bonds in the last period.C) buy stocks this period that performed poorly last period.D) go short.E) Cand DAnswer: C Difficulty: EasyRationale: The reversal effect states that stocks that do well in one period tend to performpoorly in the subsequent period, and vice versa.6. _______ focus more on past price movements of a firm f s stock than on theunderlying determinants of future profitability.A) Credit analystsB) Fundamental analystsC) Systems analystsD) Technical analystsE) All of the aboveAnswer: D Difficulty: EasyRationale: Technicians attempt to predict future stock prices based on historical stock prices.____ above which it is difficult for the market to rise.Book value is a valueResista nee level is a valueSupport level is a valueA and BA and C Answer:B Difficulty: EasyRation ale: Whe n stock prices have remained stable for a long period, these prices aretermed resistance levels; technicians believe it is difficult for the stock prices to penetratethese resista nee levels.\)/ \)/ \)/ \J/ B c D E \J/ \J/ \J/ \1/ \n/ A B c8. ________ the return on a stock beyond what would be predicted from marketmovements alone.An excess economic return isAn economic return isAn abnormal return isA and BA and CAnswer: E Difficulty: EasyRation ale: An economic retur n is the expected retur n, based on the perceived level of risk and market factors. When returns exceed these levels, the returns are called abnormal orexcess economic returns.9. The debate over whether markets are efficient will probably never be resolved because ofthe lucky eve nt issue. the magnitude issue. the selection bias issue, all of the above. none of the above. Answer: D Difficulty: Easy Rationale: Factors A, B, and C all exist make rigid testing of market efficiency difficult or impossible. 10. A common strategy for passive management is _____________creating an index fund creating a small firm fund creating an in vestment clubA and CB andC Answer: A Difficulty: Easy Rationale: The index fund is, by definition, passively managed. The other investment alternatives may or may not be managed passively.11 ・ Arbel (1985) found thatthe January effect was highest for neglected firms.the book-to-market value ratio effect was highest in January the liquidity effect washighest for small firms ・the neglected firm effect was independent of the small firm effect, small firms had higherbook-to-market value ratios.Answer: A Difficulty: Moderate \)/ \)/ \J/ \—/ \J/ A B \u/ \lz \)/ \1/ \—/■A B \)/ \1/ \J/ \n/ A B c D E\)/ \1/ \J/ \n/ A B c D Edid not changein creasedbecame extremely volatile became much less volatileAn swer: C Difficulty: ModerateRati on ale: In sider trad ing may sig nal private in formati on.16. Banz (1981) found that, on average, the risk-adjusted returns of small firms were higher thanthe risk-adjusted returns of large firms, were the same as the risk-adjusted returns oflarge firms. were lower than the risk-adjusted returns of large firms. were unrelated to therisk-adjusted returns of large firms. were negative. Answer: A Difficulty: Moderate Ration ale: Banz found A to be true, although subsequent studies have attempted to explain the small firm effect as the January effect, the neglected firm effect, etc.17. Proponents of the EMH think technical analysts should focus on relative strength. shouldfocus on resistance levels. should focus on support levels. should focus on financialstatements. are wasting their time.Answer: E Difficulty: ModerateRation ale: Tech nical an alysts attempt to predict future stock prices from historic stockprices; proponents of EMH believe that stock price changes are random variables.18. Studies of positive earnings surprises have shown that there isA) a positive abnormal return on the day positive earnings surprises are announced.B) a positive drift in the stock price on the days following the earnings surprise announcement.C) a negative drift in the stock price on the days following the earnings surpriseannounceme nt.D) both A and B are true.E) both A and C are true.Answer: D Difficulty: ModerateRationale: The market appears to adjust to earnings information gradually, resulting in asustained period of abnormal returns.19. On November 22, 2005 the stock price of Walmart was $39.50 and the retailer stock indexwas 600.30. On November 25, 2005 the stock price of Walmart was $40.25 and the \n/ \n/ \1/ \—/ B \n/ \)/ \1/ \—/ A B c D\n/ \)/ \1/ \—/ A B c Dretailer stock index was 605.20. Consider the ratio of Walmart to the retailer index onNovember 22 and November 25. Walmart is __________ the retail industry andtechnical analysts who follow relative strength would advise ________ the stock.A) outperforming, buyingB) outperforming, sellingC) underperforming, buyingD) underperforming, sellingE) equally performing, neither buying nor sellingAnswer: A Difficulty: Moderate Rationale: 11/22: $39.50/600.30 = 0.0658; 11/25:$40.25/605.20 = 0.0665; Thus, K-Marfs relative strength is improving and technicians using this technique would recommend buying.20. Work by Amihud and Mendelson (1986,1991)A) argues that investors will demand a rate of return premium to in vest in less liquid stocks.B) may help explain the small firm effect.C) may be related to the neglected firm effect.D) B and C ・E) A, B, and C.An swer: E Difficulty: Moderate Ration ale: Lack of liquidity may affect the returns of smalland neglected firms; however the theory does not explain why the abnormal returns areconcentrated in January.21. Fama and French (1992) found that the stocks of firms within the highest decile ofmarket/book ratios had average monthly returns of ________ while the stocks of firmswithin the lowest decile of market/book ratios had average monthly returns of. greater than1%, greater than 1% greater than 1%, less than 1% less than 1 %, greater than 1 % lessthan 1%, less than 1% less than 0.5%, greater than 0.5% Answer: C Difficulty: Moderate Rationale: This finding suggests either that low market-to-book ratio firms are relatively underpriced, or that the market-to-book ratio is serving as aproxy for a risk factor that affects expected equilibrium returns.22 A market decline of 23% on a day when there is no significant macroeconomic eventconsistent with the EMH because ______________ .A) would be, it was a clear response to macroeconomic news.B) would be, it was not a clear response to macroeconomic news.C) would not be, it was a clear response to macroeconomic news.\—/ \J/ \)/ \]/ \—/ A BD) would not be, it was not a clear response to macroeconomic news.E) none of the above.Answer: D Difficulty: ModerateRationale: This happened on October 19, 1987. Although this specific eve nt is not mentioned in this edition of the book, it is an example of something that would be considered a violation of the EMH.23. In an efficient market, ___________ .security prices react quickly to new informationsecurity prices are seldom far above or below their justified levelssecurity analysts will not enable investors to realize superior returns consistently onecannot make moneyA, B, and CAnswer: E Difficulty: EasyRationale: A, B, and C are true; however, even in an efficient market one should be able to earn the appropriate risk-adjusted rate of return.24. The weak form of the efficient market hypothesis asserts thatA) stock prices do not rapidly adjust to new information contained in past prices or past data.future changes in stock prices cannot be predicted from past prices, technicians cannotexpect to outperform the market.A and BB and CAnswer: E Difficulty: EasyRationale: Stock prices do adjust rapidly to new information.25. A support level is the price range at which a technical analyst would expect the supply of astock to in crease dramaticall y. supply of a stock to decrease substantially. dema nd for a stock to in crease substantial! y. dema nd for a stock to decrease substantial! y.price of a stock to fall ・Answer: C Difficulty: EasyRation ale: A support level is considered to be a level below that the price of the stock isunlikely to fall and is believed to be determined by market psychology.26. A finding that ________ would provide evidence against the semistrong form of theefficient market theory.A) low P/E stocks tend to have positive abnormal returns \J/ \n/ \)/ \J/ B\J/ \—/ V)/ \n/ A B c D EAnswer: D Difficulty: ModerateRation ale: As leakage of informatio n occurs, the accumulated abnormal returns that areabnormal returns summed over the period of interest (around the event date) are bettermeasures of the effect of firm-specific events.30. Studies of mutual fund performanceindicate that one should not randomly select a mutual fund.indicate that historical performance is not n ecessarily in dicative of future performs nee.indicate that the professional management of the fund insures above market returns. A andB.B and C. Answer: D Difficulty: Easy Ration ale: Studies show that all funds do not outperform the market and that historical performance is not necessarily an indicator of future performanee. 31. The likelihood of an in vestment newsletter's successfully predicting the di recti on of the market for three consecutive years by chance should be between 50% and 70%. between 25% and 50%. between 10% and 25%. less than 10%. greater than 70%. Answer:C Difficulty: Moderate Ration ale: The probability of successful predicti on for 3 consecutive years is 23, or 12.5%. 32 In an efficient market the correlation coefficient between stock returns for two nonoverlapping time periods should be positive and large. positive and small.zero.negative and small.negative and large.An swer: C Difficulty: Moderate Ration ale: In an efficient market there should be no serial correlation between returns from non-overlapping periods.33. The weather report says that a devastating and unexpected freeze is expected to hit Floridatonight, during the peak of the citrus harvest. In an efficient market one would expect the price of Florida Orange's stock toA) drop immediately.B) remain unchanged.C) increase immediately.D) gradually decline for the next several weeks.E) gradually in crease for the next several weeks.\)/ \)/ \)/ \)/ \—/ A B c\1/ \)/ \n/ \)/ \—/ A B\)/ \)/ \)/ \)/ \n/ A B cAnswer: A Difficulty: Moderate Rationale: In an efficient market the price of the stock should drop immediately when the bad news is announced. If later news changes the perceivedimpact to Florida Orange, the price may once again adjust quickly to the new information. A gradual change is a violation of the EMH.34. Matthews Corporation has a beta of 1.2. The annualized market return yesterday was 13%,and the risk-free rate is currently 5%. You observe that Matt hews had an arm ualized return yesterday of 17%. Assuming that markets are efficient, this suggests thatA) bad news about Matthews was announced yesterday.B) good news about Matthews was announced yesterday.C) no news about Matthews was announced yesterday.D) interest rates rose yesterday.E) interest rates fell yesterday.Answer: B Difficulty: ModerateRationale: AR = 17% - (5% + 1.2 (8%)) = +2.4%. A positive abnormal return suggests that there was firm-specific good news.35. Nicholas Manufacturing just announced yesterday that its {4h quarter earnings will be 10%higher than last year*s 4th quarter. You observe that Nicholas had an abnormal return of -1.2% yesterday. This suggests thatA) the market is not efficient.B) Nicholas' stock will probably rise in value tomorrow.C) investors expected the earnings increase to be larger than what was actually announced.D) investors expected the earnings increase to be smaller than what was actually announced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateRation ale: An ticipated earnings cha nges are impounded into a security's price as soon as expectations are formed. Therefore a negative market response indicates that the earnings surprise was negative, that is, the increase was less than anticipated.36. When Maurice Kendall first examined stock price patterns in 1953, he found thatA) certain patter ns ten ded to repeat within the busi ness cycle.B) there were no predictable patterns in stock prices.C) stocks whose prices had increased consistently for one week tended to have a netdecrease the following week.D) stocks whose prices had in creased con siste ntly for one week tended to have a netincrease the following week ・E) the di recti on of cha nge in stock prices was un predictable, but the amount of cha ngefollowed a distinet pattern.Answer: B Difficulty: EasyRation ale: The first studies in this area were made possible by the developme nt of computer technology. Kendall's study was the first to indicate that markets were efficient.If stock prices follow a random walkit implies that investors are irrational.it means that the market cannot be efficient, price levels are not random.price changes are random.price movements are predictable ・ Answer: D Difficulty: Easy Ration ale: A ran dom walk means that the changes in prices are ran dom and in dependent. Answer: D Difficulty: ModerateRation ale: The main differe nee is that weak form encompasses historical data, semistr ong form encompasses historical data and current public information, and strong form encompasses historical data, current public information, and inside information. All of the other definitions remain the same.Chartists practiceA) technical analysis.B) fundamental analysis.C) r egression analysis.D) i nsider analysis.E) psychoanalysis.Answer: A Difficulty: Easy Rationale: Chartist is another name for a technical analyst.Which of the following are used by fundamental analysts to determine proper stock prices?I) trendlines37. \)/ \)/ \1/ \1/ \)/ A B c38. The \—/ \J/ \—/ \—/ main differenee between the three forms of market efficiency is that the definition of efficiency differs. the definition of excess return differs. the definition of prices differs. the defi nition of in formation differs.they were discovered by different people ・39. 40.earningsdividend prospectsexpectations of future interest rates resista nee levelsI, IV, and VI, II, and IIIII, III, and IVD) II, IV, and VE) All of the items are used by fundamental analysts.Answer: C Difficulty: ModerateRationale: Analysts look at fundamental factors such as earnings, dividend prospects,expectation of future interest rates, and risk of the firm. The information is used to determine the present value of future cash flows to stockholders ・ Technical analysts use trendlines and resistance levels.41. According to proponents of the efficient market hypothesis, the best strategy for a small investorwith a portfolio worth $40,000 is probably toperform fundamental analysis.exploit market anomalies.invest in Treasury securities.invest in derivative securities.in vest in mutual funds. Answer: E Difficulty: ModerateRation ale: In dividual in vestors tend to have relatively small portfolios and are usually un able to realize economies of size. The best strategy is to pool funds with other small investors and allow professional managers to in vest the funds.42. Which of the following are investment superstars who have consistently shown superiorperformance?Warren Buffet Phoebe Buffet Peter Lynch Merrill Lynch Jimmy BuffetmHDlv V )A )B )G \J/ \)/ \>/ \—/ \—/ A BDEIIDIVV ) \)/ \l7 \—/ \)/ \)/ A B c IVIV ndnd—ana H ，一T d H H n I 5 aAnswer: C Difficulty: ModerateRation ale: Warren Buffet manages Berkshire Hathaway and Peter Lynch man aged Fidelity's Magellan Fund. Phoebe Buffet is a character on NBC's and Jimmy Buffet is Away inMargaritaville. Merrill Lynch isn't a person.43. Google has a beta of 1.0. The annualized market return yesterday was 11%, and the riskfreerate is currently 5%. You observe that Google had an annualized return yesterday of 14%. Assuming that markets are efficient, this suggests thatbad news about Google was announced yesterday. good news about Google wasannounced yesterday. no news about Google was announced yesterday. interest rates rose yesterday. interest rates fell yesterday. Answer: B Difficulty: ModerateRationale: AR = 14% ・(5% + 1.0 (6%)) = +3.0%. A positive abnormal return suggests that there was firm-specific good news.44. Music Doctors has a beta of 2.25. The annualized market return yesterday was 12%, and therisk-free rate is currently 4%. You observe that Music Doctors had an annualized returnyesterday of 15%. Assuming that markets are efficient, this suggests thatA) bad news about Music Doctors was announced yesterday.B) good news about Music Doctors was announced yesterday.C) no news about Music Doctors was announced yesterday.D) interest rates rose yesterday.E) interest rates fell yesterday.Answer: A Difficulty: ModerateRationale: AR = 15% - (4% + 2.25 (8%)) = -7.0%. A negative abnormal return suggests that there was firm-specific bad news.45. QQAG has a beta of 1.7. The annuahzed market return yesterday was 13%, and the riskfree rateis currently 3%. You observe that QQAG had an annualized return yesterday of 20%. Assuming that markets are efficient, this suggests thatbad news about QQAG was announced yesterday. good news about QQAG was announced yesterday. no signifies nt news about QQAG was announ ced yesterda y. interest rates rose yesterday.interest rates fell yesterday. Answer: C Difficulty: ModerateRationale: AR = 20% - (3% + 1.7 (10%)) = 0.0%. A positive abnormal return suggests that there was firm-specific good news and a negative abnormal return suggests that there was firm-specific bad news.\—/ \—/ \]/ \J/ A B c D E \)/ \J/ \)/ \)/ \|7 A B c49.QQAG just announced yesterday that its !4h quarter earnings will be 35% higher than last year*s 4th quarter. You observe that QQAG had an abnormal return of .7% yesterday. This suggests thatA) the market is not efficient.B) QQAG stock will probably rise in value tomorrow.C) investors expected the earnings increase to be larger than what was actually announced.D) investors expected the earnings increase to be smaller than what was actually announced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateRation ale: An ticipated earnings changes are impo un ded into a security's price as soon as expectations are formed. Therefore a negative market response indicates that the earnings surprise was negative, that is, the increase was less than anticipated.LJP Corporation just announced yesterday that it would undertake an international joint venture. You observe that LJP had an abnormal return of 3% yesterday. This suggests that the market is not efficient.LJP stock will probably rise in value again tomorrow. investors view the inter national joint venture as bad news. investors view the international joint venture as good news. earnings are expected to decrease next quarter.Answer: D Difficulty: ModerateMusic Doctors just announced yesterday that its S V quarter sales were 35% higher than last year's 1st quarter. You observe that Music Doctors had an abnormal return of -2% yesterday. This suggests thatA) the market is not efficient.B) Music Doctors stock will probably rise in value tomorrow.C) investors expected the sales in crease to be larger than what was actually announced.D) investors expected the sales in crease to be smaller than what was actually announ ced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateThe Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from King. You observe that King had an abnormal return of 0% yesterday. This suggests thatA) the market is not efficient.B) King stock will probably rise in value tomorrow.C) King stock will probably fall in value tomorrow.46.47.48. \)/ \)/ \)/ \)/ \|7 A B cD) the approval was already anticipated by the marketE) none of the above.Answer: D Difficulty: Moderate50. Your professor finds a stock-trading rule that generates excess risk-adjusted returns. Instead ofpublishing the results, she keeps the trading rule to herself. This is most closely associated with ______________________ .regret avoidanceselection biasframinginsider tradi ngnone of the above Answer: B Difficulty: Moderate 51. At freshman orientation, 1,500 students are asked to flip a coin 20 times. One student is crowned the winner (tossed 20 heads). This is most closely associated with ________ . regret avoidance selection bias overconfide nee the lucky eve nt issue none of the above Answer: D Difficulty: Moderate52 Sehun (1986) finds that the practice of monitoring insider trade disclosures, and trading on thatinformation, would be ______________ .extremely profitable for long-term traders extremely profitable for short-term tradersmarginally profitable for Iong-term traders marginally profitable for short-term traders notsufficiently profitable to cover trading costsAnswer: E53. If you believe in the reversal effect, you shouldA) sell bonds in this period if you held stocks in the last period.B) sell stocks in this period if you held bonds in the last period.C) sell stocks this period that performed well last period.D) go long.E) Cand D\J/ \)/ \>/ \/ \J/ A B c\1/ \)/ \)z \)/ \)/ A B cAnswer: C Difficulty: EasyRationale: The reversal effect states that stocks that do well in one period tend to performpoorly in the subsequent period, and vice versa.54. Patell and Woflson (1984) report that most of the stock price response to corporatedividend or earnings announcements occurs within ____________ of theannounceme nt.10 minutes45 minutes2 hours4 hours2 trading days Answer: C Difficulty: ModerateEssay Questions55. Include in your discussion the informatio n sets in volved in each form and the relati on shipsacross information sets and across forms of market efficiency. Also discuss the implications for the various forms of market efficiency for the various types of securities* analysts.Difficulty: ModerateAn swer:The weak form of the efficient markets hypothesis (EMH) states that stock prices immediately reflect market data. Market data refers to stock prices and trading volume ・ Techniciansattempt to predict future stock prices based on historic stock price movements. Thus, if the weak form of the EMH holds, the work of the technician is of no value.The semistr ong form of the EMH states that stock prices in elude all public informatio n. This public information includes market data and all other publicly available information, such as financial statements, and all information reported in the press relevant to the firm. Thus,market in format! on is a subset of all public in formation ・ As a result, if the semistrong form of the EMH holds, the weak form must hold also. If the semistrong form holds, then thefundamentalist, who attempts to identify undervalued securities by analyzi ng publicinformation, is unlikely to do so con sistently over time .In fact, the work of the fundamentalist may make the markets even more efficient!The strong form of the EMH states that all information (public and private) is immediatelyreflected in stock prices. Public in formation is a subset of all information, thus if the strong form of the EMH holds, the semistrong form must hold also. The strong form of EMH states that even with inside (legal or illegal) information, one cannot expect to outperform the market consistently over time.\—/ \n/ \1/ \)/ \—/ A BStudies have shown the weak form to hold, when transactions costs are considered・ Studies have shown the semistrong form to hold in general, although some anomalies have beenobserved. Studies have shown that some insiders (specialists, major shareholders, majorcorporate officers) do outperform the market・The purpose of this question is to assure that the stude nt un dersta nds the in terrelati on ships across different forms of the EMH, across the information sets, and the implications of each form for different types of analysts.56. What is an eve nt study? It is a test of what form of market efficiency? Discuss the process ofconducting an eve nt study, including the best variable(s) to observe as tests of market efficie ncy.Difficulty: DifficultAnswer:A event study is an empirical test which allows the researcher to assess the impact of aparticular event on a firm's stock price. To do so, one often uses the index model andestimateset, the residual term which measures the firm-specific comp orient of the stock'sreturn. This variable is the differenee between the return the stock would ordinarily earn for a given level of market performance and the actual rate of return on the stock・ This measure is often referred to as the abnormal return of the stock. However, it is very difficult to identify the exact point in time that an event becomes public information; thus, the better measure is the cumulative abnormal return, which is the sum of abnormal returns over a period of time (awindow around the event date).This technique may be used to study the effect of any public eve nt on a firm's stock price; thus, this technique is a test of the semistrong form of the EMH.The rationale for this question is to ascertain if the student understands the methodology most commonly used as a test of the semistrong form of market efficiency.57. Discuss the small firm effect, the neglected firm effect, and the January effect, the tax effect andhow the four effects may be related・Difficulty: ModerateAnswer:Studies have shown that small firms earn a risk-adjusted rate of return greater than that oflarger firms. Additional studies have shown that firms that are not followed by analysts(neglected firms) also have a risk-adjusted return greater than that of larger firms. However, the neglected firms tend to be small firms; thus, the neglected firm effect may be a manifestation of the small firm effect. Fin ally, studies have show n that returns in January tend to be higher than in other months of the year. This effect has been shown to persist consistently over the years.。
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。
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投资学英文第7版TestBank谜底chap024[资料] Multiple Choice Questions1. Trading activity by mutual funds just prior to quarterly reporting dates is known asA) insider trading.B) program trading.C) passive security selection.D) window dressing.E) none of the above.Answer: D Difficulty: ModerateRationale: Mutual funds must disclose portfolio composition quarterly, and tradingctivity that immediately precedes the reporting date is referred to as "window dressing". aThe speculation is that window dressing involves changes in portfolio composition,which gives the appearance of successful stock selection.2. The comparison universe is __________.A) a concept found only in astronomyB) the set of all mutual funds in the worldC) the set of all mutual funds in the U. S.D) a set of mutual funds with similar risk characteristics to your mutual fundE) none of the aboveAnswer: D Difficulty: EasyRationale: A mutual fund manager is evaluated against the performance of managers offunds of similar risk characteristics.3. __________ did not develop a popular method for risk-adjusted performanceevaluation of mutual funds.A) Eugene FamaB) Michael JensenC) William SharpeD) Jack TreynorE) A and BAnswer: A Difficulty: EasyRationale: Michael Jensen, William Sharpe, and Jack Treynor developed popularmodels for mutual fund performance evaluation.4. Henriksson (1984) found that, on average, betas of funds__________ during marketadvancesA) increased very significantlyB) increased slightlyC) decreased slightlyD) decreased very significantlyE) did not changeAnswer: C Difficulty: ModerateRationale: Portfolio betas should have a large value if the marketis expected to performwell and a small value if the market is not expected to perform well; thus, these resultsreflect the poor timing ability of mutual fund managers.5. Most professionally managed equity funds generally __________.A) outperform the S&P 500 index on both raw and risk-adjusted return measuresB) underperform the S&P 500 index on both raw and risk-adjustedreturn measuresC) outperform the S&P 500 index on raw return measures and underperform the S&P500 index on risk-adjusted return measuresD) underperform the S&P 500 index on raw return measures and outperform the S&P500 index on risk-adjusted return measuresE) match the performance of the S&P 500 index on both raw and risk-adjusted returnmeasuresAnswer: B Difficulty: ModerateRationale: Most mutual funds do not consistently, over time, outperform the S&P 500index on the basis of either raw or risk-adjusted return measures.6. Suppose two portfolios have the same average return, the same standard deviation ofreturns, but portfolio A has a higher beta than portfolio B. According to the Sharpemeasure, the performance of portfolio A __________.A) is better than the performance of portfolio BB) is the same as the performance of portfolio BC) is poorer than the performance of portfolio BD) cannot be measured as there is no data on the alpha of the portfolioE) none of the above is true.Answer: B Difficulty: ModerateRationale: The Sharpe index is a measure of average portfolio returns (in excess of therisk free return) per unit of total risk (as measured by standard deviation).7. Consider the Sharpe and Treynor performance measures. When a pension fund is largeand has many managers, the __________ measure is better for evaluating individualmanagers while the __________ measure is better for evaluating the manager of a smallfund with only one manager responsible for all investments.A) Sharpe, SharpeB) Sharpe, TreynorC) Treynor, SharpeD) Treynor, TreynorE) Both measures are equally good in both cases.Answer: C Difficulty: ModerateRationale: The Treynor measure is the superior measure if the portfolio is a smallportion of many portfolios combined into a large investment fund. The Sharpe measureis superior if the portfolio represents the investor's total risky investment position.8. Suppose you purchase 100 shares of GM stock at the beginning of year 1, and purchaseanother 100 shares at the end of year 1. You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end ofyear 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________; your time-weightedreturn on the stock.A) higher thanB) the same asC) less thanD) exactly proportional toE) more information is necessary to answer this questionAnswer: A Difficulty: ModerateRationale: In the dollar-weighted return, the stock's performance in the second year,when 200 shares are held, has a greater influence on the overall dollar-weighted return.The time-weighted return ignores the number of shares held.9. Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is1%, and the average return is 14%. Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio asA) 11.5%B) 14%C) 15%D) 16%E) none of the aboveAnswer: A Difficulty: DifficultRationale: 1% = 14% - [4% + 1.2(x - 4%)]; x = 11.5%.10. Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is0%, and the average return is 16%. Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio asA) 12.3%B) 10.4%C) 15.1%D) 16.7%E) none of the aboveAnswer: B Difficulty: DifficultRationale: 0% = 16% - [3% + 1.75(x - 3%)]; x = 10.4%.11. Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is3%, and the average return is 18%. Based on Jensen's measure of portfolio performance,you would calculate the return on the market portfolio asA) 12%B) 14%C) 15%D) 16%E) none of the aboveAnswer: A Difficulty: DifficultRationale: 3% = 18% - [6% + 1.5(x - 6%)]; x = 12%.12. Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% inyear 2 and 30% in year 3. The geometric average return for the year period will be__________.A) greater than the arithmetic average returnB) equal to the arithmetic average returnC) less than the arithmetic average returnD) equal to the market returnE) cannot tell from the information givenAnswer: C Difficulty: ModerateRationale: The geometric mean will always be less than thearithmetic mean unless theturns in all periods are equal (in which case the two means will be equal).re13. Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning ofyear 1 for $80. Abolishing Dividend Corporation pays no dividends. The stock price atthe end of year 1 is $100, the price $120 at the end of year 2, and the price is $150 at theend of year 3. The stock price declines to $100 at the end of year 4, and you sell your100 shares. For the four years, your geometric average return isA) 0.0%B) 1.0%C) 5.7%D) 9.2%E) 34.5%Answer: C Difficulty: Difficult 1/4 Rationale:[(1.25)(1.20)(1.25)(0.6667)] - 1.0 = 5.7%14. You want to evaluate three mutual funds using the information ratio measure forperformance evaluation. The risk-free return during the sample period is 6%, and theaverage return on the market portfolio is 19%. The average returns, residual standarddeviations, and betas for the three funds are given below.The fund with the highest information ratio measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: B Difficulty: DifficultRationale: Information ratio = α/σ(e); A: α = 20 - 6 - .8(19 - 6) = 3.6; 3.6/4 = 0.9; B: PPPα = 21 - 6 - 1(19 - 6) = 2.0; 2/1.25 = 1.6; C: α = 23 - 6 - 1.2(19 - 6) = 1.4; 1.4/1.20 = PP1.16.15. You want to evaluate three mutual funds using the Sharpe measure for performanceevaluation. The risk-free return during the sample period is 6%. The average returns,standard deviations and betas for the three funds are given below, as is the data for theS&P 500 index.The fund with the highest Sharpe measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: C Difficulty: ModerateRationale: A: (24% - 6%)/30% = 0.60; B: (12% - 6%)/10% = 0.60; C: (22% - 6%)/20%= 0.80; S&P 500: (18% - 6%)/16% = 0.75.16. You want to evaluate three mutual funds using the Sharpe measure for performanceevaluation. The risk-free return during the sample period is 4%. The average returns,standard deviations and betas for the three funds are given below, as is the data for theS&P 500 index.The fund with the highest Sharpe measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: B Difficulty: ModerateRationale: A: (18% - 4%)/38% = 0.368; B: (15% - 4%)/27% = 0.407; C: (11% -4%)/24% = 0.292; S&P 500: (10% - 4%)/22% = 0.273.17. You want to evaluate three mutual funds using the Sharpe measure for performanceevaluation. The risk-free return during the sample period is 5%. The average returns,standard deviations and betas for the three funds are given below, as is the data for theS&P 500 index.The investment with the highest Sharpe measure is __________.A) Fund AB) Fund BC) Fund CD) the indexE) Funds A and C are tied for highestAnswer: D Difficulty: ModerateRationale: A: (23% - 5%)/30% = 0.60; B: (20% - 5%)/19% = 0.789; C: (19% - 5%)/17%= 0.824; S&P 500: (18% - 5%)/15% = 0.867.18. You want to evaluate three mutual funds using the Treynor measure for performanceevaluation. The risk-free return during the sample period is 6%. The average returns,standard deviations, and betas for the three funds are given below, in addition toinformation regarding the S&P 500 index.The fund with the highest Treynor measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: A Difficulty: DifficultRationale: A: (13% - 6%)/0.5 = 14; B: (19% - 6%)/1.0 = 13; C: (25% - 6%)/1.5 = 12.7;S&P 500: (18% - 6%)/1.0 = 12.19. You want to evaluate three mutual funds using the Jensen measure for performanceevaluation. The risk-free return during the sample period is 6%, and the average returnon the market portfolio is 18%. The average returns, standard deviations, and betas forthe three funds are given below.The fund with the highest Jensen measure is __________.A) Fund AB) Fund BC) Fund CD) Funds A and B are tied for highestE) Funds A and C are tied for highestAnswer: C Difficulty: DifficultRationale: A: 17.6% -[6% + 1.2(18% - 6%)] = - 2.8%; B: 17.5% - [6% + 1.0(18% - 6%)]= - 0.5; C: 17.4% - [6% + 0.8(18% - 6%)] = + 1.8.20. Suppose you purchase one share of the stock of Volatile Engineering Corporation at thebeginning of year 1 for $36. At the end of year 1, you receive a $2 dividend, and buyone more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2for each share), and sell the shares for $36.45 each. The time-weighted return on yourinvestment is ________.A) -1.75%B) 4.08%C) 8.53%D) 11.46%E) 12.35%Answer: C Difficulty: ModerateRationale: Year 1: ($30 + $2 - $36)/$36 = - 11.11%; Year 2: ($36.45 + $2 - $30)/$30 =28.17%; Average: 8.53%.21. Suppose you purchase one share of the stock of Volatile Engineering Corporation at thebeginning of year 1 for $36. At the end of year 1, you receive a $2 dividend, and buyone more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2for each share), and sell the shares for $36.45 each. The dollar-weighted return on yourinvestment is _______.A) -1.75%B) 4.08%C) 8.53%D) 8.00%E) 12.35%Answer: E Difficulty: Moderate 2 Rationale: $36 + $30/(1 + r) =$2/(1 + r) + $4/(1 + r) + $72.90/(1 + r)2; r = 12.35%.22. Suppose you purchase one share of the stock of Cereal Correlation Company at thebeginning of year 1 for $50. At the end of year 1, you receive a $1 dividend, and buyone more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1for each share), and sell the shares for $67.20 each. The time-weighted return on yourinvestment is __________.A) 10.00%B) 8.78%C) 19.71%D) 20.36%E) none of the aboveAnswer: D Difficulty: ModerateRationale: Year 1: ($72 + $1 - $50)/$50 = 46%; Year 2: ($67.20 + $1 - $72)/$72 =-5.28%; Average: 20.36%.23. Suppose you purchase one share of the stock of Cereal Correlation Company at thebeginning of year 1 for $50. At the end of year 1, you receive a $1 dividend, and buyone more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1for each share), and sell the shares for $67.20 each. The dollar-weighted return on yourinvestment is __________.A) 10.00%B) 8.78%C) 19.71D) 20.36%E) none of the aboveAnswer: B Difficulty: ModerateRationale: $50 + $72 /(1 + r) = $1/(1 + r) + $2/(1 + r)2 +$134.40/(1 + r)2; r = 8.78%.24. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock Bearns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11%return. __________ has the higher arithmetic average return.A) stock AB) stock BC) the two stocks have the same arithmetic average returnD) at least three periods are needed to calculate the arithmetic average returnE) none of the aboveAnswer: C Difficulty: ModerateRationale: A: (2% + 18%)/2 = 10%; B: (9% + 11%)/2 = 10%.25. Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock Bearns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11%return. Which stock has the higher geometric average return?A) stock AB) stock BC) the two stocks have the same geometric average returnD) at least three periods are needed to calculate the geometric average return.E) none of the aboveAnswer: B Difficulty: Moderate 1/21/2 Rationale: A: [(1.02)(1.18)] - 1 = 9.71%; B: [(1.09)(1.11)] - 1 = 10.00%.Use the following to answer questions 26-29:The following data are available relating to the performance of Sooner Stock Fund and themarket portfolio:26. What is the Sharpe measure of performance evaluation for Sooner Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 38.6%E) 37.14%Answer: D Difficulty: ModerateRationale: (20% - 3%)/44% = 0.386, or 38.6%.27. What is the Treynor measure of performance evaluation for Sooner Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 9.44%E) 37.14%Answer: D Difficulty: ModerateRationale: (20% - 3%)/1.8 = 9.44%.28. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.A) 2.6%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: A Difficulty: ModerateRationale: α = 20% - [3% + 1.8(11% - 3%)] = 2.6%. P29. Calculate the information ratio for Sooner Stock Fund.A) 1.53B) 1.30C) 8.67D) 31.43E) 37.14Answer: B Difficulty: ModerateRationale: α = 20% - [3% + 1.8(11% - 3%)] = 2.6%, 2.6% / 2.00% = 1.3.PUse the following to answer questions 30-33:The following data are available relating to the performance of Monarch Stock Fund and themarket portfolio:30. What is the information ratio measure of performance evaluation for Monarch StockFund?A) 1.00%B) 280.00%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: α = 16% - [4% +1.15(12% - 4%)] = 2.8%; α/σ(e) =2.8%/1% = 2.8, or PPP280%.31. Calculate Sharpe's measure of performance for Monarch Stock Fund.A) 1.00%B) 46.00%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: (16 - 4)/ 26 = .4632. Calculate Treynor's measure of performance for Monarch Stock Fund.A) 10.40%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: A Difficulty: ModerateRationale: (16 - 4)/1.15 = 10.433. Calculate Jensen's measure of performance for Monarch Stock Fund.A) 1.00%B) 2.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 16 - [4 + 1.15 (12 - 4)] = 2.80%Use the following to answer questions 34-37:The following data are available relating to the performance of Seminole Fund and the marketportfolio:2 34. If you wanted to evaluate the Seminole Fund using the M measure, what percent of theadjusted portfolio would need to be invested in T-Bills?A) -36% (borrow)B) 50%C) 8%D) 36%E) 73%Answer: E Difficulty: ModerateRationale: 22/30 = .73332 35. Calculate the M measure for the Seminole Fund.A) 4.0%B) 20.0%C) 2.86%D) 0.8%E) 40.0%Answer: D Difficulty: ModerateRationale: 22/30 = .7333; 1 - .7333 = .2667; M2 = [.7333 (18)+ .2667 (6)] - 14 = 0.8%.36. If the Seminole Fund is actively managed, fairly priced, and will be mixed with themarket index portfolio, calculate the value of the measure that should be used forevaluation.A) 4.0%B) 20.0%C) 2.86%D) 0.8%E) 40%Answer: E Difficulty: DifficultRationale: The Sharpe ratio is the correct measure to use in this case. (18 - 6) / 30 = 40%37. If the Seminole Fund is actively managed and will be mixed with the market indexportfolio, but you suspect it may be mispriced, calculate the value of the measure thatshould be used for evaluation.A) 4.0%B) 20.0%C) 2.86%D) 0.8%E) 40%Answer: B Difficulty: DifficultRationale: The information ratio is the correct measure to use in this case. AP=18% -6%+1.4*(14%-6%)] = 0.8%, Information Ratio= 0.8%/4.0%=.20= 20%[ Use the following to answer questions 38-41:The following data are available relating to the performance of Wildcat Fund and the marketportfolio:38. What is the information ratio measure of performance evaluation for Wildcat Fund?A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: D Difficulty: ModerateRationale: α = 18% - [7% +1.25(15% - 7%)] = 1%; α/σ(e) = 1%/2% = 0.50, or PPP50.00%.39. Calculate Sharpe's measure of performance for Wildcat Fund.A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: C Difficulty: ModerateRationale: (18 - 7)/ 25 = .4440. Calculate Treynor's measure of performance for Wildcat Fund.A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: (18 - 7)/1.25 = 8.841. Calculate Jensen's measure of performance for Wildcat Fund.A) 1.00%B) 8.80%C) 44.00%D) 50.00%E) none of the aboveAnswer: A Difficulty: ModerateRationale: 18 - [7 + 1.25 (15 - 7)] = 1.00%Use the following to answer questions 42-45:The following data are available relating to the performance of Long Horn Stock Fund and themarket portfolio:42. What is the Sharpe measure of performance evaluation for Long Horn Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: E Difficulty: ModerateRationale: (19% - 6%)/35% = 0.3714, or 37.14%.43. What is the Treynor measure of performance evaluation for Long Horn Stock Fund?A) 1.33%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: C Difficulty: ModerateRationale: (19% - 6%)/1.5 = 8.67%.44. Calculate the Jensen measure of performance evaluation for Long Horn Stock Fund.A) 1.33%B) 4.00%C) 8.67%D) 31.43%E) 37.14%Answer: B Difficulty: ModerateRationale: α = 19% - [6% + 1.5(12% - 6%)] = 4.00%. P45. Calculate the information ratio for Long Horn Stock Fund.A) 1.33B) 4.00C) 8.67D) 31.43E) 37.14Answer: A Difficulty: ModerateRationale: α = 19% - [6% + 1.5(12% - 6%)] = 4.00%, 4.00% / 3.00% = 1.33.PUse the following to answer questions 46-48:In a particular year, Razorback Mutual Fund earned a return of 1% by making the followinginvestments in asset classes:46. The total excess return on the Razorback Fund's managedportfolio was __________.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: B Difficulty: ModerateRationale: 1% - 2% = -1%.47. The contribution of asset allocation across markets to the Razorback Fund's total excessreturn was __________.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: A Difficulty: DifficultRationale: See table below.48. The contribution of selection within markets to the Razorback Fund's total excess returnwas __________.A) -1.80%B) -1.00%C) 0.80%D) 1.00%E) none of the aboveAnswer: C Difficulty: DifficultRationale: See table below.Use the following to answer questions 49-51:In a particular year, Aggie Mutual Fund earned a return of 15% by making the followinginvestments in the following asset classes49. The total excess return on the Aggie managed portfolio was__________.A) 1%B) 3%C) 4%D) 5%E) none of the aboveAnswer: D Difficulty: EasyRationale: 15% - 10% = 5%.50. The contribution of asset allocation across markets to the total excess return wasA) 1%B) 3%C) 4%D) 5%E) none of the aboveAnswer: C Difficulty: DifficultRationale: See table below.51. The contribution of selection within markets to total excess return wasA) 1%B) 3%C) 4%D) 5%E) none of the aboveAnswer: A Difficulty: DifficultRationale: See table below.52. In measuring the comparative performance of different fund managers, the preferredmethod of calculating rate of return is __________.A) internal rate of returnB) arithmetic averageC) dollar-weightedD) time-weightedE) none of the aboveAnswer: D Difficulty: EasyRationale: For the investor, the internal rate of return (or dollar-weighted rate of return)is the preferred measure because if the investor chooses to invest heavily in oneinvestment vehicle that performs extremely well, an increased return results, which isreflected in A (or C). However, the mutual fund manager does not usually make thedecision as to the amount to invest in a particular vehicle; therefore, the time-weightedrate of return is usually used to evaluate these managers. Arithmetic average is a goodmeasure for estimating future returns (if expectations are unchanged).53. The __________ measures the reward to volatility trade-off by dividing the averageportfolio excess return by the standard deviation of returns.A) Sharpe measureB) Treynor measureC) Jensen measureD) information ratioE) none of the aboveAnswer: A Difficulty: EasyRationale: The Sharpe measure is a measure of excess average portfolio returns overtime per unit of total risk of the portfolio returns (standard deviation).54. A pension fund that begins with $500,000 earns 15% the firstyear and 10% the secondyear. At the beginning of the second year, the sponsor contributes another $300,000.The dollar-weighted and time-weighted rates of return, respectively, wereA) 11.7% and 12.5%B) 12.1% and 12.5%C) 12.5% and 11.7%D) 12.5% and 12.1%E) none of the aboveAnswer: B Difficulty: Moderate 2 Rationale: $500,000 + $300,000/(1 + r) = $75,000/(1 + r) + $880,000/(1 + r); r =12.059%; (15 + 10)/2 = 12.5%55. The Value Line Index is an equally weighted geometric average of the returns of about1,700 firms. The value of an index based on the geometric average returns of 3 stockswhere the returns on the 3 stocks during a given period were 32%, 5%, and -10%,respectively, is __________.A) 4.3%B) 7.6%C) 9.0%D) 13.4%E) 5.0%Answer: B Difficulty: Moderate 1/3 Rationale: [(1.32)(1.05)(0.90)] - 1.0 = 7.6%.56. Risk-adjusted mutual fund performance measures have decreased in popularity becauseA) in nearly efficient markets it is extremely difficult forportfolio managers tooutperform the market.B) the measures usually result in negative performance results forthe portfoliomanagers.C) the high rates of return earned by the mutual funds in recentyears have made themeasures useless.D) A and B.E) none of the above.Answer: D Difficulty: ModerateRationale: C is not true because the overall market has performed extremely well in therecent years of mutual fund growth and positive performance. In fact, the funds havegrown and performed well because of the sustained market rally, and still do not showsuperior performance when compared to the market.57. The Sharpe, Treynor, and Jensen portfolio performance measuresare derived from theCAPM,A) therefore, it does not matter which measure is used to evaluate a portfolio manager.B) however, the Sharpe and Treynor measures use different risk measures, thereforethe measures vary as to whether or not they are appropriate, depending on theinvestment scenario.C) therefore, all measure the same attributes.D) A and B.E) none of the above.Answer: B Difficulty: ModerateRationale: The Sharpe measure uses standard deviation, or total risk, as the risk measure;the Treynor measure uses beta, or systematic risk, as the risk measure.58. The Jensen portfolio evaluation measureA) is a measure of return per unit of risk, as measured by standard deviation.B) is an absolute measure of return over and above that predicted by the CAPM.C) is a measure of return per unit of risk, as measured by beta.D) A and B.E) B and C.Answer: B Difficulty: ModerateRationale: A is the Sharpe measure, C is the Treynor measure.59. The M-squared measureA) considers only the return when evaluating mutual funds.B) considers the risk-adjusted return when evaluating mutual funds.C) considers only the total risk when evaluating mutual funds.D) considers only the market risk when evaluating mutual funds.E) none of the above.Answer: B Difficulty: ModerateRationale: The M-squared measure adjusts the fund by hypothetically borrowing orlending until the total portfolio matches the risk level of an index, then ranks the fund onthe basis of this risk-adjusted return. .60. The dollar-weighted return on a portfolio is equivalent toA) the time-weighted return.B) the geometric average return.C) the arithmetic average return.D) the portfolio's internal rate of return.E) none of the above.Answer: D Difficulty: EasyRationale: The dollar-weighted return on a portfolio is equivalent to finding the internalrate of return on the cash flows to the portfolio.61. A portfolio manager's ranking within a comparison universe may not provide a goodmeasure of performance becauseA) portfolio returns may not be calculated in the same way.B) portfolio durations can vary across managers.C) if managers follow a particular style or subgroup, portfolios may not be comparable.D) both B and C.E) all of the above.Answer: D Difficulty: ModerateRationale: Returns are typically time-weighted for all portfolios and broad risk classesstyles are grouped together, but particular subgroups and differences in duration are ortypically not considered.62. The geometric average rate of return is based onA) the market's volatility.B) the concept of expected return.C) the standard deviation of returns.。