投资学第7版Test-Bank答案(20210203080336)
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.。
(完整版)投资学第7版TestBank答案11
Multiple Choice Questions1.If you believe in the ________ form of the EMH, you believe that stock prices reflectall relevant information including historical stock prices and current public informationabout the firm, but not information that is available only to insiders.A)semistrongB)strongC)weakD)A, B, and CE)none of the aboveAnswer: A Difficulty: EasyRationale: The semistrong form of EMH maintains that stock prices immediatelyreflect all historical and current public information, but not inside information.2.Proponents of the EMH typically advocateA)an active trading strategy.B)investing in an index fund.C) a passive investment strategy.D) A and BE) B and CAnswer: E Difficulty: EasyRationale: Believers of market efficiency advocate passive investment strategies, andan investment in an index fund is one of the most practical passive investment 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 historyof 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 forthe weak form of market efficiency. The semistrong form includes the above plus allother public 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)semistrongB)strongC)weakD)all of the aboveE)none of the aboveAnswer: B Difficulty: EasyRationale: 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) C and DAnswer: C Difficulty: EasyRationale: The reversal effect states that stocks that do well in one period tend to perform poorly in the subsequent period, and vice versa.6.__________ focus more on past price movements of a firm'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.7._________ above which it is difficult for the market to rise.A)Book value is a valueB)Resistance level is a valueC)Support level is a valueD) A and BE) A and CAnswer: B Difficulty: EasyRationale: When stock prices have remained stable for a long period, these prices are termed resistance levels; technicians believe it is difficult for the stock prices to penetrate these resistance levels.8.___________ the return on a stock beyond what would be predicted frommarket movements alone.A)An excess economic return isB)An economic return isC)An abnormal return isD) A and BE) A and CAnswer: E Difficulty: EasyRationale: An economic return is the expected return, based on the perceived level of risk and market factors. When returns exceed these levels, the returns are called abnormal or excess economic returns.9.The debate over whether markets are efficient will probably never be resolvedbecause of ________.A)the lucky event issue.B)the magnitude issue.C)the selection bias issue.D)all of the above.E)none of the above.Answer: D Difficulty: EasyRationale: Factors A, B, and C all exist make rigid testing of market efficiencydifficult or impossible.10. A common strategy for passive management is ____________.A)creating an index fundB)creating a small firm fundC)creating an investment clubD) A and CE) B and CAnswer: A Difficulty: EasyRationale: The index fund is, by definition, passively managed. The other investment alternatives may or may not be managed passively.11.Arbel (1985) found thatA)the January effect was highest for neglected firms.B)the book-to-market value ratio effect was highest in JanuaryC)the liquidity effect was highest for small firms.D)the neglected firm effect was independent of the small firm effect.E)small firms had higher book-to-market value ratios.Answer: A Difficulty: ModerateRationale: Arbel divided firms into highly researched, moderately researched,and neglected groups based on the number of institutions holding the stock.12.Researchers have found that most of the small firm effect occursA)during the spring months.B)during the summer months.C)in December.D)in January.E)randomly.Answer: D Difficulty: ModerateRationale: Much of the so-called small firm effect simply may be the tax-effect as investors sell stocks on which they have losses in December and reinvest the funds in January. As small firms are especially volatile, these actions affect small firms in a more dramatic fashion.13.Malkiel (1995) calculated that the average alphas, or abnormal returns, on alarge sample of mutual funds between 1972 and 1991 wereA)significantly positive.B)significantly negative.C)statistically indistinguishable from zero.D)positive before 1981 and negative thereafter.E)negative before 1981 and positive thereafter.Answer: C Difficulty: ModerateRationale: Malkiel's study suggests that fund managers do not beat the market on a risk-adjusted basis.14.Basu (1977, 1983) found that firms with low P/E ratiosA)earned higher average returns than firms with high P/E ratios.B)earned the same average returns as firms with high P/E ratios.C)earned lower average returns than firms with high P/E ratios.D)had higher dividend yields than firms with high P/E ratios.E)none of the above.Answer: A Difficulty: ModerateRationale: Firms with high P/E ratios already have an inflated price relative toearnings and thus tend to have lower returns than low P/E ratio stocks. However, the P/E ratio may capture risk not fully impounded in market betas so this may represent an appropriate risk adjustment rather than a market anomaly.15.Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.A)decreasedB)did not changeC)increasedD)became extremely volatileE)became much less volatileAnswer: C Difficulty: ModerateRationale: Insider trading may signal private information.16.Banz (1981) found that, on average, the risk-adjusted returns of small firmsA)were higher than the risk-adjusted returns of large firms.B)were the same as the risk-adjusted returns of large firms.C)were lower than the risk-adjusted returns of large firms.D)were unrelated to the risk-adjusted returns of large firms.E)were negative.Answer: A Difficulty: ModerateRationale: Banz found A to be true, although subsequent studies have attemptedto explain the small firm effect as the January effect, the neglected firm effect, etc.17.Proponents of the EMH think technical analystsA)should focus on relative strength.B)should focus on resistance levels.C)should focus on support levels.D)should focus on financial statements.E)are wasting their time.Answer: E Difficulty: ModerateRationale: Technical analysts attempt to predict future stock prices from historic stock prices; 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 earningssurprise announcement.C) a negative drift in the stock price on the days following the earningssurprise announcement.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 ina sustained period of abnormal returns.19.On November 22, 2005 the stock price of Walmart was $39.50 and the retailer stockindex was 600.30. On November 25, 2005 the stock price of Walmart was $40.25 and the retailer stock index was 605.20. Consider the ratio of Walmart to the retailer index on November 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: ModerateRationale: 11/22: $39.50/600.30 = 0.0658; 11/25: $40.25/605.20 = 0.0665; Thus,K-Mart's relative strength is improving and technicians using this technique wouldrecommend buying.20.Work by Amihud and Mendelson (1986,1991)A)argues that investors will demand a rate of return premium to invest in lessliquid 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.Answer: E Difficulty: ModerateRationale: Lack of liquidity may affect the returns of small and neglected firms;however the theory does not explain why the abnormal returns are concentratedin 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 offirms within the lowest decile of market/book ratios had average monthly returnsof________.A)greater than 1%, greater than 1%B)greater than 1%, less than 1%C)less than 1%, greater than 1%D)less than 1%, less than 1%E)less than 0.5%, greater than 0.5%Answer: C Difficulty: ModerateRationale: This finding suggests either that low market-to-book ratio firms arerelatively underpriced, or that the market-to-book ratio is serving as a proxy for arisk factor that affects expected equilibrium returns.22. A market decline of 23% on a day when there is no significant macroeconomic event______ consistent 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.D)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 event 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, __________.A)security prices react quickly to new informationB)security prices are seldom far above or below their justified levelsC)security analysts will not enable investors to realize superior returns consistentlyD)one cannot make moneyE)A, 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 orpast data.B)future changes in stock prices cannot be predicted from past prices.C)technicians cannot expect to outperform the market.D) A and BE) B 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 theA)supply of a stock to increase dramatically.B)supply of a stock to decrease substantially.C)demand for a stock to increase substantially.D)demand for a stock to decrease substantially.E)price of a stock to fall.Answer: C Difficulty: EasyRationale: A support level is considered to be a level below that the price of the stock is unlikely to fall and is believed to be determined by market psychology.26. A finding that _________ would provide evidence against the semistrong form ofthe efficient market theory.A)low P/E stocks tend to have positive abnormal returnsB)trend analysis is worthless in determining stock pricesC)one can consistently outperform the market by adopting the contrarianapproach exemplified by the reversals phenomenonD) A and BE) A and CAnswer: E Difficulty: ModerateRationale: Both A and C are inconsistent with the semistrong form of the EMH.27.The weak form of the efficient market hypothesis contradictsA)technical analysis, but supports fundamental analysis as valid.B)fundamental analysis, but supports technical analysis as valid.C)both fundamental analysis and technical analysis.D)technical analysis, but is silent on the possibility of successfulfundamental analysis.E)none of the above.Answer: D Difficulty: ModerateRationale: The process of fundamental analysis makes the market more efficient, and thus the work of the fundamentalist more difficult. The data set for the weak form of the EMH is market data, which is the only data used exclusively by technicians.Fundamentalists use all public information.28.Two basic assumptions of technical analysis are that security prices adjustA)rapidly to new information and market prices are determined by the interactionof supply and demand.B)rapidly to new information and liquidity is provided by security dealers.C)gradually to new information and market prices are determined by the interactionof supply and demand.D)gradually to new information and liquidity is provided by security dealers.E)rapidly to information and to the actions of insiders.Answer: C Difficulty: ModerateRationale: Technicians follow market data--price changes and volume of trading (asindicator of supply and demand) believing that they can identify price trends assecurity prices adjust gradually.29.Cumulative abnormal returns (CAR)A)are used in event studies.B)are better measures of security returns due to firm-specific events than areabnormal returns (AR).C)are cumulated over the period prior to the firm-specific event.D) A and B.E) A and C.Answer: D Difficulty: ModerateRationale: As leakage of information occurs, the accumulated abnormal returns that are abnormal returns summed over the period of interest (around the event date) are better measures of the effect of firm-specific events.30.Studies of mutual fund performanceA)indicate that one should not randomly select a mutual fund.B)indicate that historical performance is not necessarily indicative offuture performance.C)indicate that the professional management of the fund insures above market returns.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: Studies show that all funds do not outperform the market and thathistorical performance is not necessarily an indicator of future performance.31.The likelihood of an investment newsletter's successfully predicting the direction of themarket for three consecutive years by chance should beA)between 50% and 70%.B)between 25% and 50%.C)between 10% and 25%.D)less than 10%.E)greater than 70%.Answer: C Difficulty: ModerateRationale: The probability of successful prediction for 3 consecutive years is 23,or 12.5%.32.In an efficient market the correlation coefficient between stock returns fortwo non-overlapping time periods should beA)positive and large.B)positive and small.C)zero.D)negative and small.E)negative and large.Answer: C Difficulty: ModerateRationale: In an efficient market there should be no serial correlation betweenreturns from non-overlapping periods.33.The weather report says that a devastating and unexpected freeze is expected to hitFlorida tonight, 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 increase for the next several weeks.Answer: A Difficulty: ModerateRationale: In an efficient market the price of the stock should drop immediatelywhen the bad news is announced. If later news changes the perceived impact toFlorida Orange, the price may once again adjust quickly to the new information. Agradual change is a violation of the EMH.34. Matthews Corporation has a beta of 1.2. The annualized market return yesterday was13%, and the risk-free rate is currently 5%. You observe that Matthews had anannualized 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.th 35. Nicholas Manufacturing just announced yesterday that its 4 quarter earnings will be 10% higher than last year's 4th quarter. You observe that Nicholas had anabnormal 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 actuallyannounced.D) investors expected the earnings increase to be smaller than what was actuallyannounced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateRationale: Anticipated earnings changes 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 patterns tended to repeat within the business cycle.B)there were no predictable patterns in stock prices.C)stocks whose prices had increased consistently for one week tended to have anet decrease the following week.D)stocks whose prices had increased consistently for one week tended to have anet increase the following week.E)the direction of change in stock prices was unpredictable, but the amount ofchange followed a distinct pattern.Answer: B Difficulty: EasyRationale: The first studies in this area were made possible by the development of computer technology. Kendall's study was the first to indicate that marketswere efficient.37.If stock prices follow a random walkA)it implies that investors are irrational.B)it means that the market cannot be efficient.C)price levels are not random.D)price changes are random.E)price movements are predictable.Answer: D Difficulty: EasyRationale: A random walk means that the changes in prices are randomand independent.38.The main difference between the three forms of market efficiency is thatA)the definition of efficiency differs.B)the definition of excess return differs.C)the definition of prices differs.D)the definition of information differs.E)they were discovered by different people.Answer: D Difficulty: ModerateRationale: The main difference is that weak form encompasses historical data,semistrong 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.39.Chartists practiceA)technical analysis.B)fundamental analysis.C)regression analysis.D)insider analysis.E)psychoanalysis.Answer: A Difficulty: EasyRationale: Chartist is another name for a technical analyst.40.Which of the following are used by fundamental analysts to determine properstock prices?I)trendlinesII)earningsIII)dividend prospectsIV) expectations of future interest ratesV)resistance levelsA)I, IV, and VB)I, II, and IIIC)II, 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 todetermine 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 asmall investor with a portfolio worth $40,000 is probably toA)perform fundamental analysis.B)exploit market anomalies.C)invest in Treasury securities.D)invest in derivative securities.E)invest in mutual funds.Answer: E Difficulty: ModerateRationale: Individual investors tend to have relatively small portfolios and are usually unable to realize economies of size. The best strategy is to pool funds with other small investors and allow professional managers to invest the funds.42.Which of the following are investment superstars who have consistently shownsuperior performance?I)Warren BuffetII)Phoebe BuffetIII)Peter LynchIV) Merrill LynchV)Jimmy BuffetA)I, III, and IVB)II, III, and IVC)I and IIID)III and IVE)I, III, IV, and VAnswer: C Difficulty: ModerateRationale: Warren Buffet manages Berkshire Hathaway and Peter Lynch managed Fidelity's Magellan Fund. Phoebe Buffet is a character on NBC's and Jimmy Buffet is Away in Margaritaville. Merrill Lynch isn't a person.43.Google has a beta of 1.0. The annualized market return yesterday was 11%, and therisk-free rate is currently 5%. You observe that Google had an annualized returnyesterday of 14%. Assuming that markets are efficient, this suggests thatA)bad news about Google was announced yesterday.B)good news about Google was announced yesterday.C)no news about Google was announced yesterday.D)interest rates rose yesterday.E)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 the risk-free rate is currently 4%. You observe that Music Doctors had anannualized return yesterday 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 annualized market return yesterday was 13%, and therisk-free rate is currently 3%. You observe that QQAG had an annualized returnyesterday of 20%. Assuming that markets are efficient, this suggests thatA)bad news about QQAG was announced yesterday.B)good news about QQAG was announced yesterday.C)no significant news about QQAG was announced yesterday.D)interest rates rose yesterday.E)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.46.QQAG just announced yesterday that its th4 quarter earnings will be 35% higherthan last year's 4thquarter. You observe that QQAG had an abnormal return of -1.7% 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 wasactually announced.D)investors expected the earnings increase to be smaller than what wasactually announced.E)earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateRationale: Anticipated earnings changes 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.47.LJP Corporation just announced yesterday that it would undertake an international jointventure. You observe that LJP had an abnormal return of 3% yesterday. This suggests thatA)the market is not efficient.B)LJP stock will probably rise in value again tomorrow.C)investors view the international joint venture as bad news.D)investors view the international joint venture as good news.E)earnings are expected to decrease next quarter.Answer: D Difficulty: Moderate48.Music Doctors just announced yesterday that its st1 quarter sales were 35% higherthan last year's 1stquarter. You observe that Music Doctors had an abnormal returnof -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 increase to be larger than what was actually announced.D)investors expected the sales increase to be smaller than what wasactually announced.E)earnings are expected to decrease next quarter.Answer: C Difficulty: Moderate49.The Food and Drug Administration (FDA) just announced yesterday that they wouldapprove 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.D)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 of publishing the results, she keeps the trading rule to herself. This is mostclosely associated with ________.A)regret avoidanceB)selection biasC)framingD)insider tradingE)none of the aboveAnswer: B Difficulty: Moderate51.At freshman orientation, 1,500 students are asked to flip a coin 20 times. One student iscrowned the winner (tossed 20 heads). This is most closely associated with ________.A)regret avoidanceB)selection biasC)overconfidenceD)the lucky event issueE)none of the aboveAnswer: D Difficulty: Moderate52.Sehun (1986) finds that the practice of monitoring insider trade disclosures, andtrading on that information, would be ________.A)extremely profitable for long-term tradersB)extremely profitable for short-term tradersC)marginally profitable for long-term tradersD)marginally profitable for short-term tradersE)not sufficiently 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) C and DAnswer: C Difficulty: EasyRationale: The reversal effect states that stocks that do well in one period tendto perform poorly in the subsequent period, and vice versa.。
矿产
矿产资源开发利用方案编写内容要求及审查大纲
矿产资源开发利用方案编写内容要求及《矿产资源开发利用方案》审查大纲一、概述
㈠矿区位置、隶属关系和企业性质。
如为改扩建矿山, 应说明矿山现状、
特点及存在的主要问题。
㈡编制依据
(1简述项目前期工作进展情况及与有关方面对项目的意向性协议情况。
(2 列出开发利用方案编制所依据的主要基础性资料的名称。
如经储量管理部门认定的矿区地质勘探报告、选矿试验报告、加工利用试验报告、工程地质初评资料、矿区水文资料和供水资料等。
对改、扩建矿山应有生产实际资料, 如矿山总平面现状图、矿床开拓系统图、采场现状图和主要采选设备清单等。
二、矿产品需求现状和预测
㈠该矿产在国内需求情况和市场供应情况
1、矿产品现状及加工利用趋向。
2、国内近、远期的需求量及主要销向预测。
㈡产品价格分析
1、国内矿产品价格现状。
2、矿产品价格稳定性及变化趋势。
三、矿产资源概况
㈠矿区总体概况
1、矿区总体规划情况。
2、矿区矿产资源概况。
3、该设计与矿区总体开发的关系。
㈡该设计项目的资源概况
1、矿床地质及构造特征。
2、矿床开采技术条件及水文地质条件。
完整版投资学第7版TestBank答案08
完整版投资学第7版TestBank答案08Chapter 8 Index ModelsMultiple Choice Questions1. As diversification increases, the total variance of a portfolio approaches____________.A) 0B) 1C) the variance of the market portfolioD) infinityE) none of the aboveAnswer: C Difficulty: EasyRationale: As more and more securities are added to the portfolio, unsystematic risk decreases and most of the remaining risk is systematic, as measured by the variance of the market portfolio.2. The index model was first suggested by ____________.A) GrahamB) MarkowitzC) MillerD) SharpeE) none of the aboveAnswer: D Difficulty: EasyRationale: William Sharpe, building on the work of Harry Markowitz, developed theindex model.3. A single-index model uses __________ as a proxy for the systematic risk factor.A) a market index, such as the S&P 500B) the current account deficitC) the growth rate in GNPD) the unemployment rateE) none of the aboveAnswer: A Difficulty: EasyRationale: The single-index model uses a market index, such as the S&P 500, as a proxyfor the market, and thus for systematic risk.163Chapter 8 Index Models4. The Security Risk Evaluation book published by Merrill Lynch relies on the__________ most recent monthly observations to calculate regression parameters.A) 12B) 36C) 60D) 120E) none of the aboveAnswer: C Difficulty: EasyRationale: Most published betas and other regression parameters, including those published by Merrill Lynch, are based on five years of monthly return data.5. The Security Risk Evaluation book published by Merrill Lynch uses the__________ asa proxy for the market portfolio.A) Dow Jones Industrial AverageB) Dow Jones Transportation AverageC) S&P 500 IndexD) Wilshire 5000E) none of the aboveAnswer: C Difficulty: EasyRationale: The Merrill Lynch data (and much of the other published data sets) are basedon the S&P 500 index as a market proxy.6. According to the index model, covariances among security pairs areA) due to the influence of a single common factor represented by the market index returnB) extremely difficult to calculateC) related to industry-specific eventsD) usually positiveE) A and DAnswer: E Difficulty: EasyRationale: Most securities move together most of the time, and move with a market index, or market proxy.164Chapter 8 Index Models7. The intercept calculated by Merrill Lynch in the regression equations is equal toA) αin the CAPM(1 + β) α+ rB) fC) α+ r (1 -β) fD) 1 -αE) none of the aboveAnswer: C Difficulty: ModerateRationale: The intercept that Merrill Lynch calls alpha is really, using the parameters ofthe CAPM, an estimate of a + rf (1 - b). The apparent justification for this procedure isthat, on a monthly basis, rf(1 - b) is small and is apt to beswamped by the volatility of actual stock returns.8. Analysts may use regression analysis to estimate the index model for a stock. Whendoing so, the slope of the regression line is an estimate of ______________.of the asset A) the αthe βof the asset B)C) the σof the assetD) the of the asset δnone of the above E)Answer: B Difficulty: ModerateRationale: The slope of the regression line, b, measures the volatility of the stock versusthe volatility of the market.9. In a factor model, the return on a stock in a particular period will be related to_________.A) firm-specific eventsB) macroeconomic eventsC) the error termboth A and B D)E) neither A nor BAnswer: D Difficulty: ModerateRationale: The return on a stock is related to both firm-specific and macroeconomic events.165Chapter 8 Index Models10. Rosenberg and Guy found that __________ helped to predict a firm's beta.A) the firm's financial characteristicsB) the firm's industry groupC) firm sizeD) both A and BE) A, B and C all helped to predict betas.Answer: E Difficulty: ModerateRationale: Rosenberg and Guy found that after controlling for the firm's financial characteristics, the firm's industry group was a significant predictor of the firm's beta.11. If the index model is valid, _________ would be helpful in determining the covariancebetween assets K and L.A) βkB) βLC) σMD) all of the aboveE) none of the aboveAnswer: D Difficulty: ModerateRationale: If the index model is valid A, B, and C are determinants of the covariancebetween K and L.12. Rosenberg and Guy found that ___________ helped to predict firms' betas.A) debt/asset ratiosB) market capitalizationC) variance of earningsD) all of the aboveE) none of the aboveAnswer: D Difficulty: ModerateRationale: Rosenberg and Guy found that A, B, and C were determinants of firms' betas.166Chapter 8 Index Models13. If a firm's beta was calculated as 0.6 in a regression equation, Merrill Lynch would statethe adjusted beta at a numberA) less than 0.6 but greater than zero.B) between 0.6 and 1.0.C) between 1.0 and 1.6.D) greater than 1.6.E) zero or less.Answer: B Difficulty: ModerateRationale: Betas, on average, equal one; thus, betas over time regress toward the mean,or 1. Therefore, if historic betas are less than 1, adjusted betas are between 1 and the calculated beta.14. The beta of Exxon stock has been estimated as 1.2 by Merrill Lynch using regressionanalysis on a sample of historical returns. The Merrill Lynch adjusted beta of Exxon stock would be ___________.A) 1.20B) 1.32C) 1.13D) 1.0E) none of the aboveAnswer: C Difficulty: ModerateRationale: Adjusted beta = 2/3 sample beta + 1/3(1); = 2/3(1.2) + 1/3 = 1.13.15. Assume that stock market returns do not resemble a single-index structure. An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100 investments. They will need to calculate _____________expected returns and ___________ variances of returns.A) 100, 100B) 100, 4950C) 4950, 100D) 4950, 4950E) none of the aboveAnswer: A Difficulty: ModerateRationale: The expected returns of each of the 100 securities must be calculated.Inaddition, the 100 variances around these returns must be calculated.167Chapter 8 Index Models16. Assume that stock market returns do not resemble a single-index structure. An investment fund analyzes 100 stocks in order to construct a mean-variance efficient portfolio constrained by 100 investments. They will need to calculate ____________covariances.A) 45B) 100C) 4,950D) 10,000E) none of the aboveAnswer: C Difficulty: ModerateRationale: (n2 - n)/2 = (10,000 - 100)/2 = 4,950 covariances must be calculated. 17. Assume that stock market returns do follow a single-index structure. An investmentfund analyzes 200 stocks in order to construct a mean-variance efficient portfolio constrained by 200 investments. They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.A) 200; 19,900B) 200; 200C) 19,900; 200D) 19,900; 19.900E) none of the aboveAnswer: B Difficulty: ModerateRationale: For a single-index model, n(200), expected returns and n(200) sensitivity coefficients to the macroeconomic factor must be estimated.18. Assume that stock market returns do follow a single-index structure. An investmentfund analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimates for the variance of the macroeconomic factor.A) 500; 1B) 500; 500C) 124,750; 1D) 124,750; 500E) 250,000; 500Answer: A Difficulty: ModerateRationale: For the single-index model, n(500) estimates of firm-specific variances mustbe calculated and 1 estimate for the variance of the common macroeconomic factor. 168Chapter 8 Index Models19. Consider the single-index model. The alpha of a stock is 0%. The return on the marketindex is 16%. The risk-free rate of return is 5%. The stock earns a return that exceedsthe risk-free rate by 11% and there are no firm-specific events affecting the stock performance. The βof the stock is _______.A) 0.67B) 0.75C) 1.0D) 1.33E) 1.50Answer: C Difficulty: ModerateRationale: 11% = 0% + b(11%); b = 1.0.20. Suppose you held a well-diversified portfolio with a very large number of securities,and that the single index model holds. If the óof your portfolio was 0.20 and ówas M0.16, the βof the p ortfolio would be approximately ________.A) 0.64B) 0.80C) 1.25D) 1.56E) none of the aboveAnswer: C Difficulty: Difficult 22222 = 1.56; b = 1.25. m = b Rationale: s; (0.2)p / s/(0.16)21. Suppose the following equation best describes the evolution of βover time: β= 0.25 + 0.75βt-1t If a stock had a βof 0.6 last year, you would forecast the βto be _______ in the comingyear.A) 0.45B) 0.60。
投资学第7版testbank
Multiple Choice Questions1. A purchase of a new issue of stock takes placeA)in the secondary market.B)in the primary market.C)usually with the assistance of an investment banker.D)A and B.E)B and C.Answer: E Difficulty: EasyRationale: Funds from the sale of new issues flow to the issuingcorporation, making this a primary market transaction. Investment bankers usually assist by pricing the issue and finding buyers.2. The following statements regarding the specialist are true :A)Specialists maintain a book listing outstanding unexecutedlimit orders.B) Specialists earn income from commissions and spreads in stock prices.C)Specialists stand ready to trade at quoted bid and ask prices.D)Specialists cannot trade in their own accounts.E)A, B, and C are all true.Answer: E Difficulty: ModerateRationale: The specialists' functions are all of the items listed in A,B, and C. In addition, specialists trade in their own accounts.3.Investment bankersA)act as intermediaries between issuers of stocks and investors.B)act as advisors to companies in helping them analyze theirfinancial needs and find buyers for newly issued securities.C)accept deposits from savers and lend them out to companies.D)A and B.E)A, B, and C.Answer: D Difficulty: ModerateRationale: The role of the investment banker is to assist the firm in issuingnew securities, both in advisory and marketing capacities. The investmentbanker does not have a role comparable to a commercial bank, asindicated in C.4.In a "firm commitment"A) the investment banker buys the stock from the company and resellsthe issue to the public.B)the investment banker agrees to help the firm sell the stock ata favorable price.C)the investment banker finds the best marketing arrangement forthe investment banking firm.D)B and C.E)A and B.Answer: A Difficulty: Moderate5.The secondary market consists ofA)transactions on the AMEX.B)transactions in the OTC market.C)transactions through the investment banker.D)A and B.E)A, B, and C.Answer: D Difficulty: ModerateRationale: The secondary market consists of transactions on the organizedexchanges and in the OTC market. The investment banker is involved inthe placement of new issues in the primary market.6.The use of the Internet to trade and underwrite securitiesA)is illegal under SEC regulations.B)is regulated by the New York Stock Exchange.C)decreases underwriting costs for a new security issue.D)increases underwriting costs for a new security issue.E)is regulated by the National Association of Securities Dealers.Answer: C Difficulty: ModerateRationale: The SEC permits trading and underwriting of securities overthe Internet, but has required firms participating in this activity totake steps to safeguard investment funds. This form of underwriting isexpected to grow quickly due to its lower cost.7.Initial margin requirements are determined byA)the Securities and Exchange Commission.B)the Federal Reserve System.C)the New York Stock Exchange.D)B and C.E)A and BAnswer: B Difficulty: ModerateRationale: The Board of Governors of the Federal Reserve System determinesinitial margin requirements. The New York Stock Exchange determinesmaintenance margin requirements on NYSE-listed stocks; however, brokersusually set maintenance margin requirements above those established bythe NYSE.8. You purchased XYZ stock at $50 per share. The stock is currently selling at $65.Your gains may be protected by placing a __________A)stop-buy orderB)limit-buy orderC)market orderD)limit-sell orderE)none of the above.Answer: D Difficulty: ModerateRationale: With a limit-sell order, your stock will be sold only at aspecified price, or better.Thus, such an order would protect your gains.None of the other orders are applicable to this situation.9. You sold ABCstock short at $80 per share. Your losses could be minimized byplacing a __________:A)limit-sell orderB)limit-buy orderC)stop-buy orderD)day-orderE)none of the above.Answer: C Difficulty: ModerateRationale: With a stop-buy order, the stock would be purchased if the price increased to a specified level, thus limiting your loss. None of the other orders are applicable to this situation.10. Which one of the following statements regarding orders is false ?A)A market order is simply an order to buy or sell a stockimmediately at the prevailing market price.B) A limit sell order is where investors specify prices at which they are willing to sella security.C)If stock ABC is selling at $50, a limit-buy order may instruct thebroker to buy the stock if and when the share price falls below $45.D)A day order expires at the close of the trading day.E)None of the above.Answer: E Difficulty: ModerateRationale: All of the order descriptions above are correct.11.Restrictions on trading involving insider information apply tothe following exceptA)corporate officers and directors.B)relatives of corporate directors and officers.C)major stockholders.D)All of the above are subject to insider trading restrictions.E)None of the above is subject to insider trading restrictions.Answer: D Difficulty: ModerateRationale: A, B, and C are corporate insiders and are subject torestrictions on trading on inside information.Further, held that traders may not trade on nonpublic information the Supreme Court even if they arenot insiders.12.The cost of buying and selling a stock consists of __________.A)broker's commissionsB)dealer's bid-asked spreadC)a price concession an investor may be forced to make.D)A and B.E)A, B, and C.Answer: E Difficulty: ModerateRationale: All of the above are possible costs of buying and sellinga stock.13.Assume you purchased 200 shares of XYZ common stock on margin at $70per share from your broker. If the initial margin is 55%, how much did youborrow from the broker?A)$6,000B)$4,000C)$7,700D)$7,000E)$6,300Answer: E Difficulty: ModerateRationale: 200 shares * $70/share * = $14,000 * = $6,300.14.You sold short 200 shares of common stock at $60 per share. The initialmargin is 60%. Your initial investment wasA)$4,800.B)$12,000.C)$5,600.D)$7,200.E)none of the above.Answer: D Difficulty: ModerateRationale: 200 shares * $60/share * = $12,000 * = $7,20015.You purchased 100 shares of ABC common stock on margin at $70 per share.Assumethe initial margin is 50%and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assumethe stock pays no dividend;ignore interest on margin.A)$21B)$50C)$49D)$80E)none of the aboveAnswer: B Difficulty: DifficultRationale: 100 shares * $70 * .5 = $7,000 * = $3,500 (loan amount); =(100P - $3,500)/100P; 30P = 100P - $3,500; -70P = -$3,500; P = $50.16. You purchased 100 shares of commonstock on margin at $45 per share.Assumethe initial margin is 50% and the stock pays no dividend. What would themaintenance margin be if a margin call is made at a stock price of $30? Ignoreinterest on margin.A)B)C)D)E)Answer: E Difficulty: DifficultRationale: 100 shares * $45/share * = $4,500 * = $2,250 (loan amount);X = [100($30) - $2,250]/100($30); X = .17. You purchased 300 shares of commonstock on margin for $60 per share.Theinitial margin is 60% and the stock pays no dividend. What would yourrate of return be if you sell the stock at $45 per share? Ignore interest on margin.A) 25%B) -33%C) 44%D) -42%E) –54%Answer: D Difficulty: DifficultRationale: 300($60) = $10,800 investment; 300($60) = $18,000 X = $7,200loan; Proceeds after selling stock and repaying loan: $13,500 - $7,200= $6,300; Return = ($6,300 - $10,800)/$10,800 = - %.18.Assume you sell short 100 shares of common stock at $45 per share, withinitial margin at 50%. What would be your rate of return if you repurchase the stock at $40/share? The stock paid no dividends during the period,and you did not remove any money from the account before makingthe offsetting transaction.A)20%B)25%C)22%D)77%E)none of the aboveAnswer: C Difficulty: ModerateRationale: Profit on stock = ($45 - $40) * 100 = $500, $500/$2,250 (initial investment) = %.19.You sold short 300 shares of common stock at $55 per share. The initialmargin is 60%. At what stock price would you receive a margin call if themaintenance margin is 35%?A)$51B)$65C)$35D)$40E)none of the aboveAnswer: B Difficulty: DifficultRationale: Equity = 300($55) * = $26,400; = ($26,400 - 300P)/300P;105P = 26,400 - 300P; 405P = 26,400; P = $20.Assume you sold short 100 shares of common stock at $50 per share. Theinitial margin is 60%. What would be the maintenance margin if a margincall is made at a stock price of $60?A) 40%B) 33%C) 35%D) 25%E) none of the aboveAnswer: B Difficulty: DifficultRationale: $5,000 X = $8,000; [$8,000 - 100($60)]/100($60) = 33%.21.Specialists on stock exchanges perform the followingfunctions A) Act as dealers in their own accounts.B) Analyze the securities in which they specialize.C) Provide liquidity to the market.D) A and B.E) A and C.Answer: E Difficulty: ModerateRationale: Specialists are both brokers and dealers and provide liquidity to themarket; they are not analysts.22.Shares for short transactionsA) are usually borrowed from other brokers.B) are typically shares held by the short seller's broker in street name.C)are borrowed from commercial banks.D)B and C.E)none of the above.Answer: B Difficulty: ModerateRationale: Typically, the only source of shares for shorttransactions is those held by the short seller's broker in street name;often these are margined shares.23.Which of the following orders is most useful to short sellers whowant to limit their potential losses?A)Limit orderB)Discretionary orderC)Limit-loss orderD)Stop-buy orderE)None of the aboveAnswer: D Difficulty: ModerateRationale: By issuing a stop-buy order, the short seller can limitpotential losses by assuring that the stock will be purchased (andthe short position closed) if the price increases to a certain level.24.Shelf registrationA)is a way of placing issues in the primary market.B)allows firms to register securities for sale over a two-year period.C)increases transaction costs to the issuing firm.D)A and B.E)A and C.Answer: D Difficulty: EasyRationale: Shelf registration lowers transactions costs to the firm asthe firm may register issues for a longer period than in the past, andthus requires the services of the investment banker less frequently.25.NASDAQ subscriber levelsA)permit those with the highest level, 3, to "make a market" inthe security.B)permit those with a level 2 subscription to receive all bid andask quotes, but not to enter their own quotes.C)permit level 1 subscribers to receive general informationabout prices.D)include all OTC stocks.E)A, B, and C.Answer: E Difficulty: EasyRationale: NASDAQ links dealers in a loosely organized networkwith different levels of access to meet different needs.26.You want to buy 100 shares of Hotstock Inc. at the best possibleprice as quickly as possible. You would most likely place aA)stop-loss orderB)stop-buy orderC)market orderD)limit-sell orderE)limit-buy orderAnswer: C Difficulty: EasyRationale: A market order is for immediate execution at the best possible price.27.You want to purchase XYZ stock at $60 from your broker using as littleof your own money as possible. If initial margin is 50%and you have $3000 to invest, how many shares can you buy?A)100 sharesB)200 sharesC)50 sharesD)500 sharesE)25 sharesAnswer: A Difficulty: ModerateRationale: .5 = [(Q * $60)-$3,000] / (Q * $60); $30Q = $60Q-$3,000; $30Q = $3,000;Q=100.28. A sale by IBM of new stock to the public would be a(n)A)short sale.B)seasoned new issue offering.C)private placement.D)secondary market transaction.E)initial public offering.Answer: B Difficulty: EasyRationale: Whena firm whose stock already trades in the secondary market issues new shares to the public this is referred to as a seasoned new issue.29.The finalized registration statement for new securities approved bythe SEC is calledA)a red herringB)the preliminary statementC)the prospectusD)a best-efforts agreementE)a firm commitmentAnswer: C Difficulty: ModerateRationale: The prospectus is the finalized registrationstatement approved by the SEC.30.The minimum market value required for an initial listing on the NewYork Stock Exchange isA)$2,000,000B)$2,500,000C)$1,100,000D)$60,000,000E)100,000,000Answer: E Difficulty: ModerateRationale: See Table .31.In 2005, the price of a seat on the NYSE reached a high ofA)$1,000,000B)$4,000,000C)$1,750,000D)$2,225,000E)$3,000,000Answer: B Difficulty: Moderate Rationale: See Table .32.The floor broker is best described asA)an independent member of the exchange who owns a seat andhandles overload work for commission brokers.B)someone who makes a market in one or more securities.C) a representative of a brokerage firm who is on the floor of the exchangeto execute trade.D) a frequent trader who performs no public function but executes tradesfor himself.E) any counter party to a trade executed on the floor of the exchange.Answer: A Difficulty: EasyRationale: The floor broker is an independent member of the exchangewho handles work for commission brokers when they have too many ordersto handle.33. You sell short 100 shares of Loser Co. at a market price of $45 per share. Yourmaximum possible loss isA)$4500B)unlimitedC)zeroD)$9000E)cannot tell from the information givenAnswer: B Difficulty: ModerateRationale: A short seller loses money when the stock price rises. Sincethere is no upper limit on the stock price, the maximum theoretical lossis unlimited.34.You buy 300 shares of Qualitycorp for $30 per share and deposit initialmargin of 50%. The next day Qualitycorp's price drops to $25 per share.What is your actual margin?A)50%B)40%C)33%D)60%E)25%Answer: B Difficulty: ModerateRationale: AM = [300 ($25) - .5 (300) ($30) ] / [300 ($25)] = .4035. Whena firm markets new securities, a preliminary registration statementmust be filed withA)the exchange on which the security will be listed.B)the Securities and Exchange Commission.C)the Federal Reserve.D)all other companies in the same line of business.E)the Federal Deposit Insurance Corporation.Answer: B Difficulty: EasyRationale: The SEC requires the registration statement and mustapprove it before the issue can take place.36.In a typical underwriting arrangement the investment banking firmI)sells shares to the public via an underwriting syndicate.II)purchases the securities from the issuing company.III) assumes the full risk that the shares may not be sold at the offering price.IV) agrees to help the firm sell the issue to the public but does notactually purchase the securities.A)I, II, and IIIB)I, III, and IVC)I and IVD)II and IIIE)I and IIAnswer: A Difficulty: ModerateRationale: A typical underwriting arrangement is madeon a firm commitment basis.37. Which of the following is true regarding private placements of primarysecurity offerings?A) Extensive and costly registration statements are required by the SEC.B)For very large issues, they are better suited than public offerings.C)They trade in secondary markets.D)The shares are sold directly to a small group of institutionalor wealthy investors.E)They have greater liquidity than public offerings.Answer: D Difficulty: ModerateRationale: Firms can save on registration costs, but the result is that the securities cannot trade in the secondary markets and therefore are less liquid. Public offerings are better suited for very large issues.38. A specialist on the AMEXStock Exchange is offering to buy a security for $. Abroker in Oklahoma City wants to sell the security for his client.The Intermarket Trading System shows a bid price of $ on the NYSE. Whatshould the broker do?A)Route the order to the AMEX Stock Exchange.B)Route the order to the NYSE.C)Call the client to see if she has a preference.D)Route half of the order to AMEX and the other half to the NYSE.E)It doesn't matter - he should flip a coin and go with it.Answer: A Difficulty: ModerateRationale: The broker should try to obtain the best price for his client.Since the client wants to sell shares and the bid price is higher on theAMEX, he should route the order there.39.You sold short 100 shares of common stock at $45 per share. The initialmargin is 50%. Your initial investment wasA)$4,800.B)$12,000.C)$2,250.D)$7,200.E)none of the above.Answer: C Difficulty: ModerateRationale: 100 shares * $45/share * = $4,500 * = $2,25040.You sold short 150 shares of common stock at $27 per share. The initialmargin is 45%. Your initial investment wasA)$4,.B)$12,.C)$2,.D)$1,.E)none of the above.Answer: D Difficulty: ModerateRationale: 150 shares * $27/share * = $4,050 * = $1,41.You purchased 100 shares of XON common stock on margin at $60 per share.Assumethe initial margin is 50%and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assumethe stock pays no dividend;ignore interest on margin.A)$B)$C)$D)$E)none of the aboveAnswer: A Difficulty: DifficultRationale: 100 shares * $60 * .5 = $6,000 * = $3,000 (loan amount); =(100P - $3,000)/100P; 30P = 100P - $3,000; -70P = -$3,000; P = $42. You purchased 1000 shares of CSCOcommonstock on margin at $19 per share.Assumethe initial margin is 50%and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assumethe stock pays no dividend;ignore interest on marginA)$B)$C)$D)$E)none of the aboveAnswer: D Difficulty: DifficultRationale: 1000 shares * $19 * .5 = $19,000 * = $9,500 (loan amount);= (1000P - $9,500)/1000P; 300P = 1000P - $9,500; -700P = -$9,500; P = $43.You purchased 100 shares of commonstock on margin at $40 per share. Assumethe initial margin is 50% and the stock pays no dividend. What would themaintenance margin be if a margin call is made at a stock price of $25?Ignore interest on margin.A)B)C)D)E)Answer: C Difficulty: DifficultRationale: 100 shares * $40/share * = $4,000 * = $2,000 (loan amount);X = [100($25) - $2,000]/100($25); X = .44.You purchased 1000 shares of common stock on margin at $30 per share.Assume the initial margin is 50% and the stock pays no dividend. Whatwould the maintenance margin be if a margin call is made at a stock price of $24?Ignore interest on margin.A)B)C)D)E)Answer: B Difficulty: DifficultRationale: 1000 shares * $30/share * = $30,000 * = $15,000 (loan amount); X =[1000($24) - $15,000]/1000($24); X = .45.You purchased 100 shares of commonstock on margin for $50 per share.Theinitial margin is 50% and the stock pays no dividend. What would yourrate of return be if you sell the stock at $56 per share? Ignore interest on margin.A) 28%B) 33%C) 14%D) 42%E) 24%Answer: E Difficulty: DifficultRationale: 100($50) = $2,500 investment; gain on stock sale = (56-50)(100)= $600; Return = ($600/$2,500) = 24%.46.You purchased 100 shares of commonstock on margin for $35 per share.Theinitial margin is 50% and the stock pays no dividend. What would yourrate of return be if you sell the stock at $42 per share? Ignore interest on margin.A) 28%B) 33%C) 14%D) 40%E) 24%Answer: D Difficulty: DifficultRationale: 100($35) = $1,750 investment; gain on stock sale = (42-35)(100) = $700; Return = ($700/$1,750) = 40%.47.Assume you sell short 1000 shares of common stock at $35 per share, withinitial margin at 50%. What would be your rate of return if you repurchase the stock at $25/share? The stock paid no dividends during the period,and you did not remove any money from the account before makingthe offsetting transaction.A)%B)%C)%D)%E)none of the aboveAnswer: C Difficulty: ModerateRationale: Profit on stock = ($35 - $25)(1,000) = $10,000; initialinvestment = ($35)(1,000)(.5) = $17,500; return =$10,000/$17,500 = %.48.Assume you sell short 100 shares of common stock at $30 per share, withinitial margin at 50%. What would be your rate of return if you repurchase the stock at $35/share? The stock paid no dividends during the period,and you did not remove any money from the account before makingthe offsetting transaction.A)%B)%C)%D)%E)none of the aboveAnswer: A Difficulty: ModerateRationale: Profit on stock = ($30 - $35)(100) = -500; initial investment= ($30)(100)(.5) = $1,500; return =$-500/$1,500 = %.49.You want to purchase GM stock at $40 from your broker using as little ofyour own money as possible. If initial margin is 50% and you have $4000to invest, how many shares can you buy?A) 100 sharesB) 200 sharesC) 50 sharesD) 500 sharesE) 25 sharesAnswer: B Difficulty: ModerateRationale: you can buy ($4000/$40) = 100 shares outright and you can borrow$4,000 to buy another 100 shares.50.You want to purchase IBM stock at $80 from your broker using as littleof your own money as possible. If initial margin is 50%and you have $2000 to invest, how many shares can you buy?A)100 sharesB)200 sharesC)50 sharesD)500 sharesE)25 sharesAnswer: C Difficulty: ModerateRationale: You can buy ($2000/$80) = 25 shares outright and you can borrow$2,000 to buy another 25 shares.51.Assume you sold short 100 shares of common stock at $40 per share. Theinitial margin is 50%. What would be the maintenance margin if a margincall is made at a stock price of $50?A)40%B)20%C)35%D)25%E)none of the aboveAnswer: B Difficulty: DifficultRationale: $4,000 X = $6,000; [$6,000 - 100($50)]/100($50) = 20%.52.Assume you sold short 100 shares of common stock at $70 per share. Theinitial margin is 50%. What would be the maintenance margin if a margincall is made at a stock price of $85?A)%B)%C)%D)%E)none of the aboveAnswer: D Difficulty: DifficultRationale: $7,000 X = $10,500; [$10,500 - 100($85)]/100($85) = %.53.You sold short 100 shares of common stock at $45 per share. The initialmargin is 50%. At what stock price would you receive a margin call if the maintenance margin is 35%?A)$50B)$65C)$35D)$40E)none of the aboveAnswer: A Difficulty: DifficultRationale: Equity = 100($45) * = $6,750; = ($6,750 - 100P)/100P; 35P=6,750 - 100P; 135P = 6,750; P = $54.You sold short 100 shares of common stock at $75 per share. The initialmargin is 50%. At what stock price would you receive a margin call if the maintenance margin is 30%?A)$ B)$ C)$ D)$E) none of the aboveAnswer: C Difficulty: DifficultRationale: Equity = 100($75) * = $11,250; = ($11,250 - 100P)/100P; 30P =11,250 - 100P; 130P = 11,250; P = $55.IPO average first-day returns are largest in ____________.A) The United StatesB) DenmarkC) Japan D)China E)FranceAnswer: D Difficulty: EasyRationale: See Figure .56.Despite large first-day IPO returns, average first-year returns inthe US are approximately ____________ percent.A)B)C)D)E)Answer: A Difficulty: EasyRationale: See Figure .57. Average second-year IPO returns in the US are approximately____________percent.A)B)C)D)E)Answer: D Difficulty: EasyRationale: See Figure .58.Average third-year IPO returns in the US are approximately ____________percent.A)B)C)D)E)Answer: E Difficulty: EasyRationale: See Figure .59.The advertisement by the underwriting syndicate to announce annew security issue is referred to as the ____________.A)red herringB)preliminary prospectusC)prospectusD)tombstoneE)headstoneAnswer: D Difficulty: Easy60.The preliminary prospectus is referred to as a ____________.A)red herringB)indentureC)green mailD)tombstoneE)headstoneAnswer: A Difficulty: Easy61. The minimum revenue required for an initial listing on the NewYork StockExchange isA) $2,000,000B) $25,000,000C) $50,000,000D) $75,000,000E) 100,000,000Answer: D Difficulty: ModerateRationale: See Table .62. The annual dollar volume of trading on the NYSEin 2004 was approximately____________ dollars.A)12 trillionB)4 trillionC)12 billionD)4 billionE)none of the aboveAnswer: A Difficulty: EasyRationale: See Figure .63.The ____________ had the largest trading volume of securities in 2004.A)NASDAQB)NYSEC)LondonD)TokyoE)Hong KongAnswer: B Difficulty: EasyRationale: See Figure .64.The securities act of 1933 ____________.I)requires full disclosure of relevant information relating tothe issue of new securitiesII)requires registration of new securitiesIII)requires issuance of a prospectus detailing financial prospects ofthe firmIV) established the SECV)requires periodic disclosure of relevant financial informationVI) empowersSECto regulate exchanges, OTCtrading, brokers,and dealersA)I, II and IIIB)I, II, III, IV, V, and VIC)I, II and VD)I, II and IVE)IV onlyAnswer: A Difficulty: Easy65.The securities act of 1934 ____________.I)requires full disclosure of relevant information relating tothe issue of new securitiesII)requires registration of new securitiesIII)requires issuance of a prospectus detailing financial prospectsof the firmIV) established the SECV)requires periodic disclosure of relevant financial informationVI) empowersSECto regulate exchanges, OTCtrading, brokers,and dealersA)I, II and IIIB)I, II, III, IV, V, and VIC)I, II and VD)I, II and IVE)IV, V, and VIAnswer: E Difficulty: Easy66.Which of the following is not required under the CFA Institute standardsof professional conduct?A) knowledge of all applicable laws, rules and regulationsB) disclosure of all personal investments whether or not they mayconflictwith a client's investmentsC)disclosure of all conflicts to clients and prospectsD)reasonable inquiry into a client's financial situationE)All of the above are required under the CFA Institute standards.Answer: B Difficulty: ModerateRationale: See text box page 87. Personal investments need not bedisclosed unless they are in potential or actual conflict.67.According to the CFA Institute Standards of Professional Conduct, CFAexcept : Institute members have responsibilities to all of the followingA) the governmentB) the professionC) the publicD) the employerE) clients and prospective clientsAnswer: A Difficulty: ModerateRationale: See "Excerpts from CFA Institute Standards of ProfessionalConduct" Box, page 87.。
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11
（完整版）投资学第7版TestBank答案11Multiple 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 informationabout the firm, but not information that is available only to insiders.A) semistrongB) strongC) weakD) A, B, and CE) none of the aboveAnswer: A Difficulty: EasyRationale: The semistrong form of EMH maintains that stock prices immediately reflect all historical and current public information, but not inside information.2. Proponents of the EMH typically advocateA) an active trading strategy.B) investing in an index fund.C) a passive investment strategy.D) A and BE) B and CAnswer: E Difficulty: EasyRationale: Believers of market efficiency advocate passive investment strategies, andan investment in an index fund is one of the most practical passive investment strategies, especially for small investors.3. If you believe in the _______ form of the EMH, you believethat 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 the weak form of market efficiency. The semistrong form includes the above plus all other public 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) semistrongB) strongC) weakD) all of the aboveE) none of the aboveAnswer: B Difficulty: EasyRationale: 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) C and DAnswer: C Difficulty: EasyRationale: The reversal effect states that stocks that do well in one period tend toperform poorly in the subsequent period, and vice versa.6. __________ focus more on past price movements of a firm'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.7. _________ above which it is difficult for the market to rise.A) Book value is a valueB) Resistance level is a valueC) Support level is a valueD) A and BE) A and CAnswer: B Difficulty: EasyRationale: When stock prices have remained stable for a long period, these prices are termed resistance levels; technicians believe it is difficult for the stock prices topenetrate these resistance levels.8. ___________ the return on a stock beyond what would be predicted from marketmovements alone.A) An excess economic return isB) An economic return isC) An abnormal return isD) A and BE) A and CAnswer: E Difficulty: EasyRationale: An economic return is the expected return, based on the perceived level of risk and market factors. When returns exceed these levels, the returns are calledabnormal or excess economic returns.9. The debate over whether markets are efficient will probably never be resolved becauseof ________.A) the lucky event issue.B) the magnitude issue.C) the selection bias issue.D) all of the above.E) none of the above.Answer: D Difficulty: EasyRationale: Factors A, B, and C all exist make rigid testing of market efficiency difficult or impossible.10. A common strategy for passive management is ____________.A) creating an index fundB) creating a small firm fundC) creating an investment clubD) A and CE) B and CAnswer: A Difficulty: EasyRationale: The index fund is, by definition, passively managed. The other investment alternatives may or may not be managed passively.11. Arbel (1985) found thatA) the January effect was highest for neglected firms.B) the book-to-market value ratio effect was highest in JanuaryC) the liquidity effect was highest for small firms.D) the neglected firm effect was independent of the small firm effect.E) small firms had higher book-to-market value ratios.Answer: A Difficulty: ModerateRationale: Arbel divided firms into highly researched, moderately researched, and neglected groups based on the number of institutions holding the stock.12. Researchers have found that most of the small firm effect occursA) during the spring months.B) during the summer months.C) in December.D) in January.E) randomly.Answer: D Difficulty: ModerateRationale: Much of the so-called small firm effect simply may be the tax-effect as investors sell stocks on which they have losses in December and reinvest the funds in January. As small firms are especially volatile, these actions affect small firms in amore dramatic fashion.13. Malkiel (1995) calculated that the average alphas, or abnormal returns, on a largesample of mutual funds between 1972 and 1991 wereA) significantly positive.B) significantly negative.C) statistically indistinguishable from zero.D) positive before 1981 and negative thereafter.E) negative before 1981 and positive thereafter.Answer: C Difficulty: ModerateRationale: Malkiel's study suggests that fund managers do not beat the market on arisk-adjusted basis.14. Basu (1977, 1983) found that firms with low P/E ratiosA) earned higher average returns than firms with high P/E ratios.B) earned the same average returns as firms with high P/E ratios.C) earned lower average returns than firms with high P/E ratios.D) had higher dividend yields than firms with high P/E ratios.E) none of the above.Answer: A Difficulty: ModerateRationale: Firms with high P/E ratios already have an inflated price relative to earnings and thus tend to have lower returns than low P/E ratio stocks. However, the P/E ratio may capture risk not fully impounded in market betas so this may represent an appropriate risk adjustment rather than a market anomaly.15. Jaffe (1974) found that stock prices _________ after insiders intensively bought shares.A) decreasedB) did not changeC) increasedD) became extremely volatileE) became much less volatileAnswer: C Difficulty: ModerateRationale: Insider trading may signal private information.16. Banz (1981) found that, on average, the risk-adjusted returns of small firmsA) were higher than the risk-adjusted returns of large firms.B) were the same as the risk-adjusted returns of large firms.C) were lower than the risk-adjusted returns of large firms.D) were unrelated to the risk-adjusted returns of large firms.E) were negative.Answer: A Difficulty: ModerateRationale: 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 analystsA) should focus on relative strength.B) should focus on resistance levels.C) should focus on support levels.D) should focus on financial statements.E) are wasting their time.Answer: E Difficulty: ModerateRationale: Technical analysts attempt to predict future stock prices from historic stock prices; 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 surpriseannouncement.C) a negative drift in the stock price on the days following the earnings surpriseannouncement.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 a sustained period of abnormal returns.19. On November 22, 2005 the stock price of Walmart was $39.50 and the retailer stockindex was 600.30. On November 25, 2005 the stock price of Walmart was $40.25 and the retailer stock index was 605.20. Consider the ratio of Walmart to the retailer index on November 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: ModerateRationale: 11/22: $39.50/600.30 = 0.0658; 11/25: $40.25/605.20 = 0.0665; Thus,K-Mart's 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 invest in less liquidstocks.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.Answer: E Difficulty: ModerateRationale: Lack of liquidity may affect the returns of small and neglected firms;however the theory does not explain why the abnormal returns are concentrated inJanuary.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 firms within the lowest decile of market/book ratios had average monthly returnsof________.A) greater than 1%, greater than 1%B) greater than 1%, less than 1%C) less than 1%, greater than 1%D) less than 1%, less than 1%E) less than 0.5%, greater than 0.5%Answer: C Difficulty: ModerateRationale: This finding suggests either that low market-to-book ratio firms arerelatively underpriced, or that the market-to-book ratio is serving as a proxy for a risk factor that affects expected equilibrium returns.22. A market decline of 23% on a day when there is no significant macroeconomic event______ consistent 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.D) 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 event is not mentioned in this edition of the book, it is an example of something that would beconsidered a violation of the EMH.23. In an efficient market, __________.A) security prices react quickly to new informationB) security prices are seldom far above or below their justified levelsC) security analysts will not enable investors to realize superior returns consistentlyD) one cannot make moneyE) A, 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-adjustedrate 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 pastdata.B) future changes in stock prices cannot be predicted from past prices.C) technicians cannot expect to outperform the market.D) A and BE) B 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 theA) supply of a stock to increase dramatically.B) supply of a stock to decrease substantially.C) demand for a stock to increase substantially.D) demand for a stock to decrease substantially.E) price of a stock to fall.Answer: C Difficulty: EasyRationale: A support level is considered to be a level below that the price of the stock is unlikely 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 returnsB) trend analysis is worthless in determining stock pricesC) one can consistently outperform the market by adoptingthe contrarian approachexemplified by the reversals phenomenonD) A and BE) A and CAnswer: E Difficulty: ModerateRationale: Both A and C are inconsistent with the semistrong form of the EMH.27. The weak form of the efficient market hypothesis contradictsA) technical analysis, but supports fundamental analysis as valid.B) fundamental analysis, but supports technical analysis as valid.C) both fundamental analysis and technical analysis.D) technical analysis, but is silent on the possibility of successful fundamentalanalysis.E) none of the above.Answer: D Difficulty: ModerateRationale: The process of fundamental analysis makes the market more efficient, and thus the work of the fundamentalist more difficult. The data set for the weak form of the EMH is market data, which is the only data used exclusively by technicians.Fundamentalists use all public information.28. Two basic assumptions of technical analysis are that security prices adjustA) rapidly to new information and market prices are determined by the interaction ofsupply and demand.B) rapidly to new information and liquidity is provided by security dealers.C) gradually to new information and market prices are determined by the interaction ofsupply and demand.D) gradually to new information and liquidity is provided by security dealers.E) rapidly to information and to the actions of insiders.Answer: C Difficulty: ModerateRationale: Technicians follow market data--price changes and volume of trading (as indicator of supply and demand) believing that they can identify price trends as security prices adjust gradually.29. Cumulative abnormal returns (CAR)A) are used in event studies.B) are better measures of security returns due to firm-specific events than are abnormalreturns (AR).C) are cumulated over the period prior to the firm-specific event.D) A and B.E) A and C.Answer: D Difficulty: ModerateRationale: As leakage of information occurs, the accumulated abnormal returns that are abnormal returns summed over the period of interest (around the event date) are better measures of the effect of firm-specific events.30. Studies of mutual fund performanceA) indicate that one should not randomly select a mutual fund.B) indicate that historical performance is not necessarily indicative of futureperformance.C) indicate that the professional management of the fund insures above market returns.D) A and B.E) B and C.Answer: D Difficulty: EasyRationale: Studies show that all funds do not outperform the market and that historical performance is not necessarily an indicator of future performance.31. The likelihood of an investment newsletter's successfully predicting the direction of themarket for three consecutive years by chance should beA) between 50% and 70%.B) between 25% and 50%.C) between 10% and 25%.D) less than 10%.E) greater than 70%.Answer: C Difficulty: ModerateRationale: The probability of successful prediction for 3 consecutive years is 23, or12.5%.32. In an efficient market the correlation coefficient between stock returns for twonon-overlapping time periods should beA) positive and large.B) positive and small.C) zero.D) negative and small.E) negative and large.Answer: C Difficulty: ModerateRationale: 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 hitFlorida tonight, 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 increase for the next several weeks.Answer: A Difficulty: ModerateRationale: In an efficient market the price of the stock should drop immediately when the bad news is announced. If later news changes the perceived impact to FloridaOrange, 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 was13%, and the risk-free rate is currently 5%. You observe that Matthews had anannualized 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 4th quarter earnings will be10% 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 actuallyannounced.D) investors expected the earnings increase to be smaller than what was actuallyannounced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateRationale: Anticipated earnings changes 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 patterns tended to repeat within the business 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 increased consistently for one week tended to have a netincrease the following week.E) the direction of change in stock prices was unpredictable, but the amount of changefollowed a distinct pattern.Answer: B Difficulty: EasyRationale: The first studies in this area were made possible by the development ofcomputer technology. Kendall's study was the first to indicate that markets wereefficient.37. If stock prices follow a random walkA) it implies that investors are irrational.B) it means that the market cannot be efficient.C) price levels are not random.D) price changes are random.E) price movements are predictable.Answer: D Difficulty: EasyRationale: A random walk means that the changes in prices are random andindependent.38. The main difference between the three forms of market efficiency is thatA) the definition of efficiency differs.B) the definition of excess return differs.C) the definition of prices differs.D) the definition of information differs.E) they were discovered by different people.Answer: D Difficulty: ModerateRationale: The main difference is that weak form encompasses historical data,semistrong 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.39. Chartists practiceA) technical analysis.B) fundamental analysis.C) regression analysis.D) insider analysis.E) psychoanalysis.Answer: A Difficulty: EasyRationale: Chartist is another name for a technical analyst.40. Which of the following are used by fundamental analysts to determine proper stockprices?I)trendlinesII)earningsIII)dividend prospectsIV)expectations of future interest ratesV)resistance levelsA) I, IV, and VB) I, II, and IIIC) II, 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 smallinvestor with a portfolio worth $40,000 is probably toA) perform fundamental analysis.B) exploit market anomalies.C) invest in Treasury securities.D) invest in derivative securities.E) invest in mutual funds.Answer: E Difficulty: ModerateRationale: Individual investors tend to have relatively small portfolios and are usually unable to realize economies of size. The best strategy is to pool funds with other small investors and allow professional managers to invest the funds.42. Which of the following are investment superstars who have consistently shown superiorperformance?I)Warren BuffetII)Phoebe BuffetIII)Peter LynchIV)Merrill LynchV)Jimmy BuffetA) I, III, and IVB) II, III, and IVC) I and IIID) III and IVE) I, III, IV, and VAnswer: C Difficulty: ModerateRationale: Warren Buffet manages Berkshire Hathaway and Peter Lynch managedFidelity's Magellan Fund. Phoebe Buffet is a character on NBC's and Jimmy Buffet is Away in Margaritaville. Merrill Lynch isn't a person.43. Google has a beta of 1.0. The annualized market return yesterday was 11%, and therisk-free rate is currently 5%. You observe that Google had an annualized returnyesterday of 14%. Assuming that markets are efficient, this suggests thatA) bad news about Google was announced yesterday.B) good news about Google was announced yesterday.C) no news about Google was announced yesterday.D) interest rates rose yesterday.E) 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 the risk-free rate is currently 4%. You observe that Music Doctors had anannualized return yesterday 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 annualized market return yesterday was 13%, and therisk-free rate is currently 3%. You observe that QQAG had an annualized returnyesterday of 20%. Assuming that markets are efficient, this suggests thatA) bad news about QQAG was announced yesterday.B) good news about QQAG was announced yesterday.C) no significant news about QQAG was announced yesterday.D) interest rates rose yesterday.E) 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.46. QQAG just announced yesterday that its 4th quarter earnings will be 35% higher thanlast year's 4th quarter. You observe that QQAG had an abnormal return of -1.7%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 actuallyannounced.D) investors expected the earnings increase to be smaller than what was actuallyannounced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: ModerateRationale: Anticipated earnings changes 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.47. LJP Corporation just announced yesterday that it would undertake an international jointventure. You observe that LJP had an abnormal return of 3% yesterday. This suggests thatA) the market is not efficient.B) LJP stock will probably rise in value again tomorrow.C) investors view the international joint venture as bad news.D) investors view the international joint venture as good news.E) earnings are expected to decrease next quarter.Answer: D Difficulty: Moderate48. Music Doctors just announced yesterday that its 1st quarter sales were 35% higher thanlast 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 increase to be larger than what was actually announced.D) investors expected the sales increase to be smaller thanwhat was actuallyannounced.E) earnings are expected to decrease next quarter.Answer: C Difficulty: Moderate49. The Food and Drug Administration (FDA) just announced yesterday that they wouldapprove 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.D) 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 of publishing the results, she keeps the trading rule to herself. This is mostclosely associated with ________.A) regret avoidanceB) selection biasC) framingD) insider tradingE) none of the aboveAnswer: B Difficulty: Moderate51. At freshman orientation, 1,500 students are asked to flipa coin 20 times. One student iscrowned the winner (tossed 20 heads). This is most closely associated with ________.A) regret avoidanceB) selection biasC) overconfidenceD) the lucky event issueE) none of the aboveAnswer: D Difficulty: Moderate52. Sehun (1986) finds that the practice of monitoring insider trade disclosures, and tradingon that information, would be ________.A) extremely profitable for long-term tradersB) extremely profitable for short-term tradersC) marginally profitable for long-term tradersD) marginally profitable for short-term tradersE) not sufficiently 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) C and DAnswer: C Difficulty: EasyRationale: The reversal effect states that stocks that do well in one period tend toperform poorly 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。
(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。
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D)Treasury bonds
E)Treasury bills
>
Answer: E Difficulty: Easy
Rati on ale: Only Treasury issues are insured by the U・S・government; the shorter-term the instrument, the safer the instrument.
9.To earn a high rati ng from the bond rating agencies, a firm should have
A)a low times interest earned ratio
\
B)a low debt to equity ratio
C)a high quick ratio
Rati on ale: If the inv estme nt 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)・
2.If a7%coupon bond is trading for $, it has a current yield of
A)—
B)
C)
D)
E)
>
Answer: E Difficulty: Easy
Rationale: 70/975 =・
3.If a6%coupon bond is trading for $, it has a current yield of
10.At issue, coupon bonds typically sell・
A)above par value
)
B)below par
C)at or near par value
D)at a value unrelated to par
E)none of the above
Answer: C Difficulty: Easy
Rationale: 80/1025 =・
5.If a%coupon bond is trading for $, it has a current yield ofpercent.
A)
>
;
Answer: C Difficulty: Easy
Rationale: 75/1050 =.
11.Accrued interest
Multiple Choice Questions
:L The current yield on a bond is equal to・
A)annual interest divided by the current market price
B)the yield to maturity
C)annual interest divided by the par value
Rationale: FV = 1000, n = 12, PMT = 110, i = 12, PV= ; $100/$ = %・
8.Of the following four investments,is considered the safest・
A)commercial paper
B)corporate bonds
6・A coup on bond pays ann ual in terest, has a par value of $1,000, matures in 4 years, has a coupon rate of10%,and has a yield to maturity of12%・The current yield on this bond is.
A)—
B)
C)
D)
E)
A
Answer: B Difficulty: Easy
Rationale: 60/950 =・
4.If an8%coup on bond is tradi ng for $, it has a current yield of _
A)—
B)
C)
D)
E)
Answer: A Difficulty: Easy
A)%
>
B)%
C)%
D)%
E)none of the above
%
Answer: A Difficulty: Moderate
Rationale: FV = 1000, n = 4, PMT = 100, i = 12, PV= ; $100/$ = %・
7.A coup on bond pays annual interest, has a par value of $1,000, matures in 12 years,
D)B and C
E)A and C
J
Answer: D Difficulty: Easy
Rati on ale: High values for the times interest and quick ratios and a low debt to equity ratio are desirable indicators of safety.
has a coupon rate of11%,and has a yield to maturity of12%・The current yield on this bond is.
A)%
B)%
C)%
D)%
E)none of the above
Answer: D Difficulty: Moderate
D)the internal rate of return
E)none of the above
a
Answer: A Difficulty: Easy
Rationale: A is current yield and is quoted as such in the financial press.