Online Quiz

ONLINE QUIZ 2 TERM STRUCTURE OF INTEREST RATES

Question 1

0 out of 1 points

Suppose you want to find the arbitrage-free forward rate between time 1 and 2, 1f2. What information would be sufficient? A - The price of a two-year bond with an annual coupon payment of $10 and a face value of $100.

B - The price of a two-year bond with an annual coupon payment of $20 and a face value of $100.

C - The price of a one-year zero-coupon bond with a face value of $100. Answer

Selected Answer: 1. A and B

Question 2

1 out of 1 points

The expectations theory of the term structure of interest rates states that Answer

Selected Answer:

forward rates are market expectations of future interest rates.

Question 3

1 out of 1 points

Suppose the current term structure of interest rates is as follows: r1 = 4% r2 = 5% r3 = 9% r4 = 10% r5 = 11% What is the arbitrage-free forward rate between times 2 and 4, 2f4? Give your answer in percentage units with two decimal points, e.g. answer 6.34 if you think the forward rate is 0.06342. Answer Selected Answer: 15.24

Question 4

1 out of 1 points

Suppose you observe the following interest rates in the market: r3 = 6% 1f2 = 6% 1f3 = 5% What is the arbitrage-free two-year spot rate, r2? Answer

Selected Answer: 7%

Question 5

1 out of 1 points

Suppose you have an investment horizon of 3 years and hold a 5 year zero-coupon bond. You would be facing: Answer

Selected Answer: B. Liquidity risk

Question 6

1 out of 1 points

Suppose you observe the following two bonds in the market:

A one-year zero-coupon bond with a face value of $1000 trading at $900. A two-year bond paying an annual coupon of $120 and a face value of $1000

trading at par.

What can you conclude about the arbitrage-free forward rate between times 1 and 2, 1f2? Answer

Selected Answer: It is 13%

Question 7

1 out of 1 points

Suppose a zero-coupon bond maturing in one year with a face value of $100 costs

$97 today. A zero-coupon bond maturing in two years time with a face value of $1000 costs $890 today. What is the arbitrage-free price of a bond maturing in two years time with a face value of $100 and an annual coupon of $5? Give your answer with two decimal points precision. Answer Selected Answer: 98.30

Question 8

1 out of 1 points

Which of the following are important differences between the theoretical concept of the term structure of interest as we've discussed it in class, and the zero-coupon interest rates of government bonds we use to approximate it, e.g. in slide two of lecture two? Answer

Selected Answer: D. A and B

Question 9

0 out of 1 points

Which of the following are valid reasons why the yield on bonds with long times to maturity may include a liquidity premium? Answer

Selected Answer: Investors are risk averse

Question 10

1 out of 1 points

Suppose the market does not expect spot rates to change in the future and that issuers of bonds have a shorter investment horizon than buyers of bonds. What shape would you expect the term structure of interest rates to have? Answer

Selected Answer: Downwards sloping

Question 1

1 out of 1 points

Suppose you observe the following interest rates in the market:

r3 = 6% 1f2 = 6% 1f3 = 5% What is the arbitrage-free two-year spot rate, r2? Answer

Selected Answer: 7%

Question 2

1 out of 1 points

Suppose a zero-coupon bond maturing in one year with a face value of $100 costs $97 today. A zero-coupon bond maturing in two years time with a face value of $1000 costs $890 today. What is the arbitrage-free price of a bond maturing in two years time with a face value of $100 and an annual coupon of $5? Give your answer with two decimal points precision. Answer Selected Answer: 98.30

Question 3

1 out of 1 points



trading at par.



Question 4

1 out of 1 points

Suppose the current term structure of interest rates is as follows: r1 = 4% r2 = 5% r3 = 9% r4 = 10%

r5 = 11% What is the arbitrage-free forward rate between times 2 and 4, 2f4? Give your answer in percentage units with two decimal points, e.g. answer 6.34 if you think the forward rate is 0.06342. Answer Selected Answer: 15.24

Question 5

0 out of 1 points

Which of the following are valid reasons why the yield on bonds with long times to maturity may include a liquidity premium? Answer

Selected Answer:

Encourage investors with short investment horizons to invest in long maturity bonds

Question 6

1 out of 1 points


Selected Answer:


Question 7

1 out of 1 points



Question 8

1 out of 1 points

Suppose you have an investment horizon of 3 years and hold a 5 year zero-coupon bond. You would be facing:

Answer


Question 9

1 out of 1 points

One way of interpreting the term structure of interest rates is that it shows the relationship between: Answer

Selected Answer:

the yield on zero-coupon bonds and the time to maturity of those bonds.

Question 10

1 out of 1 points




Selected Answer: 4. Any of the above combinations.

Question 1

1 out of 1 points

Suppose a zero-coupon bond maturing in one year with a face value of $100 costs $97 today. A zero-coupon bond maturing in two years time with a face value of $1000 costs $890 today. What is the arbitrage-free price of a bond maturing in two years time with a face value of $100 and an annual coupon of $5? Give your answer with two decimal points precision. Answer Selected Answer: 98.30

Question 2

1 out of 1 points

Suppose the market does not expect spot rates to change in the future and that issuers of bonds have a shorter investment horizon than buyers of bonds. What shape would you expect the term structure of interest rates to have? Answer

Selected Answer: Downwards sloping

Question 3

1 out of 1 points

Suppose the current term structure of interest rates is as follows: r1 = 4% r2 = 5% r3 = 9% r4 = 10% r5 = 11% What is the arbitrage-free forward rate between times 2 and 4, 2f4? Give your answer in percentage units with two decimal points, e.g. answer 6.34 if you think the forward rate is 0.06342. Answer Selected Answer: 15.24

Question 4

1 out of 1 points



trading at par.



Question 5

1 out of 1 points

Which of the following are valid reasons why the yield on bonds with

long times to maturity may include a liquidity premium? Answer

Selected Answer: All of the above

Question 6

1 out of 1 points


Selected Answer:


Question 7

1 out of 1 points



Question 8

1 out of 1 points

Suppose you observe the three following bonds in the market:

A two-year zero-coupon bond with a face value of $100 trading for $89.00 A two-year bond with a face value of $100 and a $10 coupon trading for

$107.51 A two-year bond with a face value of $100 and a $20 coupon trading for

$127.53

Which of the following statements is true? Answer

Selected Answer:

B. There is a possible arbitrage trade involving a short position in bond C

Question 9

1 out of 1 points




Selected Answer: 4. Any of the above combinations.

Question 10

1 out of 1 points

Suppose you have an investment horizon of 3 years and hold a 5 year zero-coupon bond. You would be facing: Answer


ONLINE QUIZ 3 DURATION

Question 1

1 out of 1 points

Which of the following bonds has the longest duration?

Answer

SelectedAnswer:

A 10-year maturity, 0% coupon bond.

Question 2

1 out of 1 points

The duration of a bond that pays coupon interest annually is 8.05 years. The yield to maturity of the bond is 10%. If the yield falls by 25 basis points, what is the percentage change in the price of the bond?

Answer

SelectedAnswer:

1.83%

Question 3

1 out of 1 points

Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bond's:

Answer

SelectedAnswer:

yield to maturity is lower.

Question 4

1 out of 1 points

Some of the practical problems with immunization are

Answer

SelectedAnswer:

A, B, and C.

Question 5

1 out of 1 points

When immunizing a portfolio, we are typically balancing off

Answer

SelectedAnswer:

liquidity risk and reinvestment risk.

Question 6

1 out of 1 points

Compute the duration of a par value bond with a coupon rate of 8% and a remaining time to maturity of 3 years. Assume coupon interest is paid annually and the bond has a face value $100.

Answer

SelectedAnswer:

2.783 years.

Question 7

1 out of 1 points

Which of the following two bonds is more price sensitive to changes in interest rates? A bond, X, trading at par with 5 years to maturity and a 10% yield to maturity.A zero-coupon bond, Y, with 5 years to maturity and a 10% yield to maturity.

Answer

SelectedAnswer:

Bond Y because of the longer duration.

Question 8

1 out of 1 points

Holding other factors constant, which one of the following bonds has the smallest price volatility?

Answer

SelectedAnswer:

5 year, 14% coupon bond

Question 9

1 out of 1 points

Which of the following is incorrect?

Answer

SelectedAnswer:

The duration of a zero-coupon bond decreases with an increase in time to maturity.

Question 10

1 out of 1 points

When interest rates decline, the duration of a 10-year bond selling at a premium

Answer

SelectedAnswer:

increases.

Question 1

1 out of 1 points


Answer

SelectedAnswer:


Question 2

0 out of 1 points

Duration is important in bond portfolio management because I) it can be used in immunization strategies.II) it provides a gauge of the effective average maturity of the portfolio.III) it is related to the interest rate sensitivity of the portfolio.IV) it is a good predictor of interest rate changes.

Answer

SelectedAnswer:

III and IV

Question 3

1 out of 1 points

Youhaveanobligationtopay$148infouryearsand2months.Inwhichbondwouldyouinvestyour$100toaccumulatethisamount,withrelativecertainty,evenifthethereisaparallelshiftinthetermstructureofinterestrates?Allbondspayinterestannuallyandhaveafacevalueof$100.

Answer

SelectedAnswer:

a 5-year; 10% coupon par value bond

Question 4

1 out of 1 points

The duration of a bond is positively correlated with the bond's

Answer

SelectedAnswer:

time to maturity.

Question 5

1 out of 1 points

The basic purpose of immunization is to

Answer

SelectedAnswer:

B and C.

Question 6

1 out of 1 points


Answer

SelectedAnswer:


Question 7

1 out of 1 points


Answer

SelectedAnswer:


Question 8

1 out of 1 points

Which of the following bonds has the longest duration?

Answer

SelectedAnswer:

A 10-year maturity, 0% coupon bond.

Question 9

1 out of 1 points

The duration of a bond that pays coupon interest annually is 8.05 years. The yield to maturity of the bond is 10%. If the yield falls by 25 basis points, what is the percentage change in the price of the bond?

Answer

SelectedAnswer:

1.83%

Question 10

1 out of 1 points

Holding other factors constant, which one of the following bonds has the smallest price volatility?

Answer

SelectedAnswer:

5 year, 14% coupon bond

Question 1

1 out of 1 points

Which of the following are true about the interest-rate sensitivity of coupon bonds? I Bond prices and yields are inversely related.II Prices of long-term bonds tend to be more sensitive to interestrate changes than prices of short-term bonds.III Interest-rate risk is positively related to the bond's coupon rate.IV The sensitivity of a bond's price to a change in its yield to maturity is inversely related to the yield to maturity at which the bond is currently selling.

Answer

SelectedAnswer:

I, II, and IV

Question 2

1 out of 1 points


Answer

SelectedAnswer:


Question 3

1 out of 1 points

Compute the duration of a par value bond with a coupon rate of 8% and a remaining time to maturity of 3 years. Assume coupon interest is paid annually and the bond has a face value $100.

Answer

SelectedAnswer:

2.783 years.

Question 4

1 out of 1 points

The duration of a bond is positively correlated with the bond's

Answer

SelectedAnswer:

time to maturity.

Question 5

1 out of 1 points


Answer

SelectedAnswer:


Question 6

0 out of 1 points

Duration is important in bond portfolio management because I) it can be used in immunization strategies.II) it provides a gauge of the effective average maturity of the portfolio.III) it is related to the interest rate sensitivity of the portfolio.IV) it is a good predictor of interest rate changes.

Answer

SelectedAnswer:

I and III

Question 7

1 out of 1 points

Some of the practical problems with immunization are

Answer

SelectedAnswer:

A, B, and C.

Question 8

1 out of 1 points

Youhaveanobligationtopay$148infouryearsand2months.Inwhichbondwouldyouinvestyour$100toaccumulatethisamount,withrelativecertainty,evenifthethereisaparallelshiftinthetermstructureofinterestrates?Allbondspayinterestannuallyandhaveafacevalueof$100.

Answer

SelectedAnswer:

a 5-year; 10% coupon par value bond

Question 9

1 out of 1 points


Answer

SelectedAnswer:


Question 10

1 out of 1 points

The basic purpose of immunization is to

Answer

SelectedAnswer:

B and C.

ONLINE QUIZ 4 MARKOWITZ PORTFOLIOS

Question 1

1 out of 1 points

Inareturnstandarddeviationspace,whichofthefollowingstatementsis(are)trueforriskaverseinvestors?

Answer

SelectedAnswer:

BandC

Question 2

1 out of 1 points

ThevariableAintheutilityfunctionrepresentsthe:

Answer

SelectedAnswer:

Investorsaversiontorisk

Question 3

1 out of 1 points

Theexpectedreturnofaportfolioofriskysecurities:

Answer

SelectedAnswer:

Isaweightedaverageofthesecuritiesreturns

Question 4

1 out of 1 points

Assumeaninvestorhasthefollowingutilityfunction,U=E(RP)0.5AP2,whereherdegreeofriskaversionis2.Tomaximiseherexpectedutility,shewouldchoosetheassetwithanexpectedreturnof________andastandarddeviationofreturnsof________,respectively.

Answer

SelectedAnswer:

10%;10%

Question 5

1 out of 1 points

Astatisticthatmeasureshowthereturnsoftworiskyassetsmovetogetheris:

Answer

SelectedAnswer:

CandD

Question 6

1 out of 1 points

SteveismoreriskaversethanEdie.OnagraphthatshowsSteveandEdiesindifferencecurves,whichofthefollowingistrue?

Answer

SelectedAnswer:

StevesindifferencecurveswillhavesteeperslopesthanEdies

Question 7

1 out of 1 points

Whencombiningassetsthatarenotperfectlycorrelatedwemayachieve:

Answer

SelectedAnswer: F.

AandC

Question 8

1 out of 1 points

Otherthingsequal,diversificationismosteffectivewhen:

Answer

SelectedAnswer:

Securitiesreturnsarenegativelycorrelated

Question 9

1 out of 1 points

Whentworiskysecuritiesthatarenotperfectlypositivelycorrelatedareheldinaportfolio,theportfoliostandarddeviationofreturnswillbe____theweightedaverageoftheindividualsecuritystandarddeviations.

Answer

SelectedAnswer:

lessthan

Question 10

1 out of 1 points

Thecovarianceofastochasticvariablewithitselfwillbelowerthanthevarianceofthatvariablebecauseofthediversificationeffect.Isthiscorrect?

Answer

SelectedAnswer:

No

ONLINE QUIZ 6 CAPM

Question 1

1 out of 1 points

Youinvest$600inasecuritywithabetaof1.2and$400inanothersecuritywithabetaof0.90.Thebetaoftheresultingportfoliois

Answer

SelectedAnswer:

1.08

Question 2

1 out of 1 points

YouropinionisthatBoeinghasanexpectedrateofreturnof0.08.Ithasabetaof0.92.Theriskfreerateis0.04andthemarketexpectedrateofreturnis0.10.AccordingtotheCapitalAssetPricingModel,thissecurityis

Answer

SelectedAnswer:

overpriced.

Question 3

1 out of 1 points

TheSecurityMarketLine(SML)is

Answer

SelectedAnswer:

thelinethatrepresentstheexpectedreturnbetarelationship.

Question 4

0 out of 1 points

Inequilibrium,themarginalpriceofriskforariskysecuritymustbe

Answer

SelectedAnswer:

greaterthanthemarginalpriceofriskforthemarketportfolio.

Question 5

1 out of 1 points

GiventhefollowingtwostocksAandB

Security ExpectedRateofReturn Beta

A 0.12 1.20

B 0.14 1.80

Iftheexpectedmarketrateofreturnis0.09andtheriskfreerateis0.05,whichsecuritywouldbeconsideredthebetterbuyandwhy?

Answer

SelectedAnswer:

Abecauseitoffersanexpectedexcessreturnof2.2%.

Question 6

1 out of 1 points

Anoverpricedsecuritywillplot

Answer

SelectedAnswer:

belowtheSecurityMarketLine.

Question 7

1 out of 1 points

Whichstatementisnottrueregardingthemarketportfoliosuggestedbythecapitalassetpricingmodel?

Answer

SelectedAnswer:

Itdependsontheindifferencecurvesofindividualeachinvestor.

Question 8

1 out of 1 points

AccordingtotheCapitalAssetPricingModel,overpricedsecurities

Answer

SelectedAnswer:

havenegativealphas.

Question 9

1 out of 1 points

Theriskfreerateis7percent.Theexpectedmarketrateofreturnis15percent.Ifyouexpectastockwithabetaof1.3toofferarateofreturnof12percent,youshould

Answer

SelectedAnswer:

sellshortthestockbecauseitisoverpriced.

Question 10

1 out of 1 points

Asecurityhasanexpectedrateofreturnof0.10andabetaof1.1.Themarketexpectedrateofreturnis0.08andtheriskfreerateis0.05.Thealphaofthestockis

Answer

SelectedAnswer:

1.7%.

Question 1

1 out of 1 points

TheamountthataninvestorallocatestothemarketportfolioisnegativelyrelatedtoItheexpectedreturnonthemarketportfolio.IItheinvestor'sriskaversioncoefficient.IIIthemarketriskpremium.IVthevarianceofthemarketportfolio

Answer

SelectedAnswer:

IIandIV

Question 2

1 out of 1 points

Asecurityhasanexpectedrateofreturnof0.10andabetaof1.1.Themarketexpectedrateofreturnis0.08andtheriskfreerateis0.05.Thealphaofthestockis

Answer

SelectedAnswer:

1.7%.

Question 3

1 out of 1 points

Thebetaofasecurityisequalto

Answer

SelectedAnswer:

thecovariancebetweenthereturnsofthesecurityandthemarketdividedbythevarianceofreturnsofthemarket.

Question 4

1 out of 1 points

Anoverpricedsecuritywillplot

Answer

SelectedAnswer:

belowtheSecurityMarketLine.

Question 5

1 out of 1 points

YouropinionisthatBoeinghasanexpectedrateofreturnof0.08.Ithasabetaof0.92.Theriskfreerateis0.04andthemarketexpectedrateofreturnis0.10.AccordingtotheCapitalAssetPricingModel,thissecurityis

Answer

SelectedAnswer:

overpriced.

Question 6

1 out of 1 points

Theriskfreerateis7percent.Theexpectedmarketrateofreturnis15percent.Ifyouexpectastockwithabetaof1.3toofferarateofreturnof12percent,youshould

Answer

SelectedAnswer:

sellshortthestockbecauseitisoverpriced.

Question 7

1 out of 1 points

Youinvest$600inasecuritywithabetaof1.2and$400inanothersecuritywithabetaof0.90.Thebetaoftheresultingportfoliois

Answer

SelectedAnswer:

1.08

Question 8

1 out of 1 points

GiventhefollowingtwostocksAandB

Security ExpectedRateofReturn Beta

A 0.12 1.20

B 0.14 1.80

Iftheexpectedmarketrateofreturnis0.09andtheriskfreerateis0.05,whichsecuritywouldbeconsideredthebetterbuyandwhy?

Answer

SelectedAnswer:

Abecauseitoffersanexpectedexcessreturnof2.2%.

Question 9

1 out of 1 points

AccordingtotheCapitalAssetPricingModel,overpricedsecurities

Answer

SelectedAnswer:

havenegativealphas.

Question 10

1 out of 1 points

Whichstatementisnottrueregardingthemarketportfoliosuggestedbythecapitalassetpricingmodel?

Answer

SelectedAnswer:

Itdependsontheindifferencecurvesofindividualeachinvestor.

ONLINE QUIZ 7

Question 1

1 out of 1 points

Accordingtothefourfactormodel

Answer

SelectedAnswer:

Noneoftheaboveanswersaretrue

Question 2

1 out of 1 points

Theoptimalweightintheactiveportfolioincreaseswith(ispositivelycorrelatedwith)

Answer

SelectedAnswer:

themispricing(alpha)oftheportfolio

Question 3

1 out of 1 points

Ifallinvestorsarepassive,marketswillbe

Answer

SelectedAnswer:

unabletoincorporatenewinformation

Question 4

1 out of 1 points

Inpractice,arbitrageursarelikelytoface

Answer

SelectedAnswer:

Morethanoneoftheaboveanswersaretrue

Question 5

1 out of 1 points

Thefourfactormodelis

Answer

SelectedAnswer:

incompatiblewiththeCAPM

Question 6

0 out of 1 points

Anchoringis

Answer

SelectedAnswer:

strongerfortechstocks

Question 7

1 out of 1 points

Aheuristicis

Answer

SelectedAnswer:

aruleofthumb

Question 8

1 out of 1 points

Overconfidentinvestors

Answer

SelectedAnswer:


Question 9

1 out of 1 points

WecanonlyraiseourSharperatiohigherthanthemarket'sby

Answer

SelectedAnswer:

exploitingmispricedstocks

Question 10

1 out of 1 points

Whichstatementistrueaboutmispricedstocks?Mispricedstocks

Answer

SelectedAnswer:


Question 1

1 out of 1 points

Ifallinvestorsarepassive,marketswillbe

Answer

SelectedAnswer:

unabletoincorporatenewinformation

Question 2

1 out of 1 points

Whichstatementistrueaboutmispricedstocks?Mispricedstocks

Answer

SelectedAnswer:


Question 3

1 out of 1 points

Anchoringis

Answer

SelectedAnswer:


Question 4

1 out of 1 points

Inpractice,arbitrageursarelikelytoface

Answer

SelectedAnswer:


Question 5

1 out of 1 points

Theoptimalweightintheactiveportfolioincreaseswith(ispositivelycorrelatedwith)

Answer

SelectedAnswer:

themispricing(alpha)oftheportfolio

Question 6

1 out of 1 points

Aheuristicis

Answer

SelectedAnswer:

aruleofthumb

Question 7

1 out of 1 points

Accordingtothefourfactormodel

Answer

SelectedAnswer:


Question 8

1 out of 1 points

Overconfidentinvestors

Answer

SelectedAnswer:


Question 9

1 out of 1 points

Thefourfactormodelis

Answer

SelectedAnswer:

incompatiblewiththeCAPM

Question 10

1 out of 1 points

WecanonlyraiseourSharperatiohigherthanthemarket'sby

Answer

SelectedAnswer:

exploitingmispricedstocks

EFFICIENT MARKET HYPOTHESIS

Question 1

1 out of 1 points

The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from GlaxoSmithKline. You observe that GlaxoSmithKline had an abnormal return of 0% yesterday. This suggests that

Answer

SelectedAnswer:

the approval was already anticipated by the market

Question 2

0 out of 1 points

If you believe in the form of the EMH, you believe that you can use information that is available only to insiders to earn abnormal returns.

Answer

SelectedAnswer:

strong

Question 3

1 out of 1 points

Proponents of the EMH typically advocate

Answer

SelectedAnswer:

investing in an index fund and a passive investment strategy.

Question 4

1 out of 1 points

focus more on past price movements of a firm's stock than on the underlying fundamentals of future profitability.

Answer

SelectedAnswer:

Technical analysts

Question 5

0 out of 1 points

Apple has a beta of 1.3. The annualized market return yesterday was 8%, and the risk-free rate is currently 3%. You observe that Apple had an annualized return yesterday of 10%. Assuming that markets are efficient, this suggests that

Answer

SelectedAnswer:

bad news about Apple was announced yesterday.

Question 6

1 out of 1 points

Inanefficientmarketthecorrelationcoefficientbetweenstockreturnsfortwononoverlappingtimeperiodsshouldbe

Answer

SelectedAnswer:

zero

Question 7

1 out of 1 points

Studies of negative earnings surprises have shown that there is

Answer

SelectedAnswer:

both A and C are true.

Question 8

1 out of 1 points

If you believe in the form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.

Answer

SelectedAnswer:

semi-strong

Question 9

1 out of 1 points

Cumulative abnormal returns (CAR)

Answer

SelectedAnswer:

A, B and C.

Question 10

1 out of 1 points

Alpha Manufacturing just announced yesterday that its 4th quarter earnings will be 10% higher than last year's 4th quarter. You observe that Alpha had an abnormal return of -1.2% yesterday. This suggests that

Answer

SelectedAnswer:

investors expected the earnings increase to be larger than what was actually announced.

Question 1

1 out of 1 points

A new study explains an anomaly known as the wandering weekday effect. This study finds that the traditional weekday effect changes every 12 to 18 months so that technical analysts cannot make an abnormal profit just by trading on one particular day of the week. The wandering weekday effect __________.

Answer

SelectedAnswer:

supports weak form market efficiency

Question 2

1 out of 1 points

Cumulative abnormal returns (CAR)

Answer

SelectedAnswer:

A, B and C.

Question 3

1 out of 1 points

If you believe in the form of the EMH, you believe that you can use information that is available only to insiders to earn abnormal returns.

Answer

SelectedAnswer:

none of the above

Question 4

1 out of 1 points

The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from GlaxoSmithKline. You observe that GlaxoSmithKline had an abnormal return of 0% yesterday. This suggests that

Answer

SelectedAnswer:

the approval was already anticipated by the market

Question 5

1 out of 1 points

Alpha Manufacturing just announced yesterday that its 4th quarter earnings will be 10% higher than last year's 4th quarter. You observe that Alpha had an abnormal return of -1.2% yesterday. This suggests that

Answer

SelectedAnswer:

investors expected the earnings increase to be larger than what was actually announced.

Question 6

1 out of 1 points

Apple has a beta of 1.3. The annualized market return yesterday was 8%, and the risk-free rate is currently 3%. You observe that Apple had an annualized return yesterday of 10%. Assuming that markets are efficient, this suggests that

Answer

SelectedAnswer:

good news about Apple was announced yesterday.

Question 7

1 out of 1 points

Inanefficientmarketthecorrelationcoefficientbetweenstockreturnsfortwononoverlappingtimeperiodsshouldbe

Answer

SelectedAnswer:

zero

Question 8

1 out of 1 points

In an efficient market, .

Answer

SelectedAnswer:

A, B, and C

Question 9

1 out of 1 points

If you believe in the form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.

Answer

SelectedAnswer:

semi-strong

Question 10

1 out of 1 points

Studies of negative earnings surprises have shown that there is

Answer

SelectedAnswer:

both A and C are true.

PORTFOLIO PERFORMANCE EVALUATION

Question 1

1 out of 1 points

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations and betas for the three funds are given below, as is the data for the S&P 500 index.

Average Return

Standard Deviation

Beta

Fund A 24% 30% 1.5Fund B 12% 10% 0.5Fund C 22% 20% 1.0S&P500 18% 16% 1.0

The fund with the highest Sharpe measure is __________.

Answer

SelectedAnswer:

Fund C

Question 2

1 out of 1 points

The following data relates to the performance of Sooner Stock Fund and the market portfolio:

Sooner Market PortfoliAverage Return 20% 11% Standard Deviation of Returns

44% 19%

Beta 1.8 1.0 Residual Variance 0.02 0

The risk-free return during the sample period was 3%. What is the Treynor measure of performance evaluation for Sooner Stock Fund?

Answer

SelectedAnswer:

0.0944

Question 3

1 out of 1 points

The Jensen portfolio evaluation measure

Answer

SelectedAnswer:

is an absolute measure of abnormal return above or below that predicted by the CAPM.

Question 4

1 out of 1 points

Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%, and the average return is 14%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

Answer

SelectedAnswer:

11.5%

Question 5

1 out of 1 points

Suppose you purchase 100 shares of GM stock at the beginning of year 1, and purchase another 100 shares at the end of year 1. You sell all 200 shares at the end of year 2. Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock. Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.

Answer

SelectedAnswer:

higher than

Question 6

1 out of 1 points

Suppose two portfolios have the same average excess return, the same standard deviation of returns, but portfolio A has a higher beta than

portfolio B. According to the Treynor measure, the performance of portfolio A __________.

Answer

SelectedAnswer:

is poorer than the performance of portfolio B

Question 7

1 out of 1 points

The measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Answer

SelectedAnswer:

Sharpe index

Question 8

1 out of 1 points

Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. Which stock has the higher geometric average return?

Answer

SelectedAnswer:

stock B

Question 9

1 out of 1 points


Sooner Market PortfolioAverage Return 20% 11%

Standard Deviation of Returns 44% 19%Beta 1.8 1.0Residual Variance 0.02 0The risk-free return during the sample period was 3%.What is the Sharpe measure of performance evaluation for Sooner Stock Fund?

Answer

SelectedAnswer:

0.386

Question 10

1 out of 1 points

Suppose two portfolios have the same average excess return, the same standard deviation of returns, but Buckeye Fund has a higher beta than Gator Fund. According to the Sharpe measure, the performance of Buckeye Fund _________.

Answer

SelectedAnswer:

is the same as the performance of Gator Fund.

Question 1

0 out of 1 points



44% 19%


The risk-free return during the sample period was 3%. Calculate the appraisal ratio for Sooner Stock Fund?

Answer

SelectedAnswer:

0.13

Question 2

1 out of 1 points

You want to evaluate three mutual funds using the Treynor measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations, and betas for the three funds are given below, in addition to information regarding the S&P 500 index.

Average Return

Standard Deviation

Beta


The fund with the highest Treynor measure is __________.

Answer

SelectedAnswer:

Fund A

Question 3

1 out of 1 points

Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%, and the average return is 14%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

Answer

SelectedAnswer:

11.5%

Question 4

1 out of 1 points



44% 19%



Answer

SelectedAnswer:

0.0944

Question 5

1 out of 1 points


Average Return

Standard Deviation

Beta



Answer

SelectedAnswer:

Fund C

Question 6

1 out of 1 points


Answer

SelectedAnswer:

higher than

Question 7

1 out of 1 points

Suppose two portfolios have the same average excess return, the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Treynor measure, the performance of portfolio A __________.

Answer

SelectedAnswer:

is poorer than the performance of portfolio B

Question 8

1 out of 1 points


Answer

SelectedAnswer:


Question 9

1 out of 1 points

The measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard

deviation of returns.

Answer

SelectedAnswer:

Sharpe index

Question 10

1 out of 1 points


Sooner Market PortfolioAverage Return 20% 11%Standard Deviation of Returns 44% 19%Beta 1.8 1.0Residual Variance 0.02 0The risk-free return during the sample period was 3%.What is the Sharpe measure of performance evaluation for Sooner Stock Fund?

Answer

SelectedAnswer:

0.386

Question 1

1 out of 1 points


Answer

SelectedAnswer:

higher than

Question 2

1 out of 1 points

Suppose two portfolios have the same average excess return, the same standard deviation of returns, but Buckeye Fund has a higher beta than Gator Fund. According to the Sharpe measure, the performance of Buckeye Fund _________.

Answer

SelectedAnswer:

is the same as the performance of Gator Fund.

Question 3

1 out of 1 points

You want to evaluate three mutual funds using the Treynor measure for performance evaluation. The risk-free return during the sample period is 6%. The average returns, standard deviations, and betas for the three funds are given below, in addition to information regarding the S&P 500 index.

Average Return

Standard Deviation

Beta


The fund with the highest Treynor measure is __________.

Answer

SelectedAnswer:

Fund A

Question 4

1 out of 1 points


Average Return

Standard Deviation

Beta



Answer

SelectedAnswer:

Fund C

Question 5

1 out of 1 points

Suppose you own two stocks, A and B. In year 1, stock A earns a 2% return and stock B earns a 9% return. In year 2, stock A earns an 18% return and stock B earns an 11% return. Which stock has the higher geometric average return?

Answer

SelectedAnswer:

stock B

Question 6

1 out of 1 points


Answer

SelectedAnswer:


Question 7

1 out of 1 points



44% 19%



Answer

SelectedAnswer:

0.0944

Question 8

1 out of 1 points

The measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Answer

SelectedAnswer:

Sharpe index

Question 9

1 out of 1 points

Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning of year 1 for $80. Abolishing Dividend Corporation pays no dividends. The stock price at the end of year 1 is $100, the price $120 at the end of year 2, and the price is $150 at the end of year 3. The stock price declines to $100 at the end of year 4, and you sell your 100 shares. For the four years, your geometric average return per annum is

Answer

SelectedAnswer:

5.7%

Question 10

0 out of 1 points



44% 19%


The risk-free return during the sample period was 3%. Calculate the appraisal ratio for Sooner Stock Fund?

Answer

SelectedAnswer:

0.23

OPTION MARKETS

Question 1

0 out of 1 points

SupposeyoupurchaseoneRIODec100callcontractat$5andwriteoneRIODec105callcontractat$2.Theoptioncontractsizeis1000sharespercontract.Themaximumpotentialprofitofyourstrategyis

Answer

SelectedAnswer:

$5000

Question 2

1 out of 1 points

Theintrinsicvalueofanoutofthemoneycalloptionisequalto

Answer

SelectedAnswer:

zero.

Question 3

1 out of 1 points

AEuropeanputoptionallowstheholderto

Answer

SelectedAnswer:

CandD.

Question 4

0 out of 1 points

You buy one ANZ June 60 call contract and one June 60 put contract. The call premium is $5 and the put premium is $3. The size of the option contract is 1000 shares. The maximum loss from this position could be:

Answer

SelectedAnswer:

$2000

Question 5

0 out of 1 points

SupposeyoupurchaseoneRIOJan100callcontractat$5andwriteoneRIOJan105callcontractat$2.Theoptioncontractsizeis1000sharespercontract.If,atexpiration,thepriceofashareofRIOstockis$103,yourprofitwouldbe

Answer

SelectedAnswer:

$3000

Question 6

1 out of 1 points

Buyersofputoptionswouldprefera____inthevalueoftheunderlyingassetandsellersofcalloptionswouldprefera____inthevalueoftheunderlyingasset.

Answer

SelectedAnswer:

decrease;decrease

Question 7

1 out of 1 points

Themaximumlossforawriterofanakedstockcalloptionis

Answer

SelectedAnswer:

unlimited.

Question 8

1 out of 1 points

YouwriteoneRIOFebruary70putforapremiumof$5.Ignoringtransactionscosts,whatisthebreakevenpriceofthisposition?

Answer

SelectedAnswer:

$65

Question 9

1 out of 1 points

Themaximumlossabuyerofastockcalloption cansufferisequalto

Answer

SelectedAnswer:

thecallpremium.

Question 10

0 out of 1 points

ThesharesofCBAarecurrentlypricedat$50each.IfacalloptiononCBAhasanexercisepriceof$45,thecall

Answer

SelectedAnswer:

isinthemoney.

Question 1

1 out of 1 points

ThesharesofCBAarecurrentlypricedat$50each.IfacalloptiononCBAhasanexercisepriceof$45,thecall

Answer

SelectedAnswer:

BandC.

Question 2

1 out of 1 points

YoupurchaseoneSeptember50putcontractforaputpremiumof$2.Whatisthe

maximumprofitthatyoucouldgainfromthisstrategy?Theoptioncontractsizeis1000sharespercontract.

Answer

SelectedAnswer:

$48,000

Question 3

1 out of 1 points

SupposeyoupurchaseoneRIODec100callcontractat$5andwriteoneRIODec105callcontractat$2.Theoptioncontractsizeis1000sharespercontract.Themaximumpotentialprofitofyourstrategyis

Answer

SelectedAnswer:

$2000

Question 4

1 out of 1 points

Themaximumlossforawriterofanakedstockcalloptionis

Answer

SelectedAnswer:

unlimited.

Question 5

1 out of 1 points

Thepricethatatraderreceivesfromwritingastockoptionisthe

Answer

SelectedAnswer:

premium

Question 6

1 out of 1 points

Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $100. If the risk-free rate is 5%, the stock price is $103, and the put sells for $7.50, what should be the price of the call?

Answer

SelectedAnswer:

$15.26

Question 7

1 out of 1 points

Acalloptiononastockissaidtobeoutofthemoneyif

Answer

SelectedAnswer:

theexercisepriceishigherthanthestockprice.

Question 8

1 out of 1 points

Buyersofputoptionswouldprefera____inthevalueoftheunderlyingassetandsellersofcalloptionswouldprefera____inthevalueoftheunderlyingasset.

Answer

SelectedAnswer:

decrease;decrease

Question 9

1 out of 1 points

AEuropeanputoptionallowstheholderto

Answer

SelectedAnswer:

CandD.

Question 10

1 out of 1 points

YouwriteoneRIOFebruary70putforapremiumof$5.Ignoringtransactionscosts,whatisthebreakevenpriceofthisposition?

Answer

SelectedAnswer:

$65

OPTION MARKET VALUATION

Question 1

1 out of 1 points

If the stock price increases, the price of a put option on that stock __________ and that of a call option __________.

Answer

SelectedAnswer:

decreases, increases

Question 2

1 out of 1 points

A hedge ratio of 0.70 implies that a hedged portfolio should consist

of stocks and options in the following proportion

Answer

SelectedAnswer:

long 0.70 shares for each short call.

Question 3

1 out of 1 points

Delta is defined as

Answer

SelectedAnswer:

the change in the value of an option for a dollar change in the price of the underlying asset.

Question 4

0 out of 1 points

A portfolio consists of 100 shares of stock and 2 call contracts on that stock. If the hedge ratio for the call is 0.7, what would be the dollar change in the value of the portfolio in response to a one dollar decline in the stock price?Eachcallcontracthas1000underlyingshares.

Answer

SelectedAnswer:

-$1400

Question 5

0 out of 1 points

Other things equal, the price of a stock put option is positively correlated with the following factors except

Answer

SelectedAnswer:

none of the above.

Question 6

1 out of 1 points

All the inputs in the Black-Scholes Option Pricing Model are directly observable except

Answer

SelectedAnswer:

the variance of returns of the underlying asset return.

Question 7

1 out of 1 points

An American-style call option with six months to maturity has a strike price of $35. The underlying stock now sells for $43. The call premium is $12. What is the intrinsic value of the call?

Answer

SelectedAnswer:

$8

Question 8

0 out of 1 points

Prior to expiration

Answer

SelectedAnswer:

none of the above.

Question 9

1 out of 1 points

You purchased a call option for a premium of $4. The call has an exercise price of $29 and is expiring today. The current stock price is $31. What would be your best course of action?

Answer

SelectedAnswer:

Exercise the call because the stock price is greater than the exercise price.

Question 10

1 out of 1 points

Portfolio A consists of 150 shares of stock and 300 calls on that stock. Portfolio B consists of 575 shares of stock. The call delta is 0.7. Which portfolio has a higher dollar exposure to a change in stock price?

Answer

SelectedAnswer:

Portfolio B

Question 1

1 out of 1 points

Other things equal, the price of a stock put option is positively correlated with the following factors except

Answer

SelectedAnswer:

the stock price.

Question 2

1 out of 1 points

Portfolio A consists of 150 shares of stock and 300 calls on that stock. Portfolio B consists of 575 shares of stock. The call delta is 0.7. Which portfolio has a higher dollar exposure to a change in stock price?

Answer

SelectedAnswer:

Portfolio B

Question 3

1 out of 1 points

You purchased a call option for a premium of $4. The call has an exercise price of $29 and is expiring today. The current stock price is $31. What would be your best course of action?

Answer

SelectedAnswer:

Exercise the call because the stock price is greater than the exercise price.

Question 4

1 out of 1 points

An American-style call option with six months to maturity has a strike price of $35. The underlying stock now sells for $43. The call premium is $12. What is the intrinsic value of the call?

Answer

SelectedAnswer:

$8

Question 5

1 out of 1 points

Given: S0 = $35; X = $29; T = 180 days; r = 0.08 (annual); N(d1) = 0.7300; N(d2) = 0.6583. The value of the call option is _______.

Answer

SelectedAnswer:

$7.20

Question 6

1 out of 1 points

A normal distribution has the following properties:I. the number of observations above the mean is equal to that below the meanII. if x is normally distributed with mean 0 and standard deviation 1, it is well documented that the probability that x will lie between -1 and 1 is 0.95III. normal distribution has fat tails

Answer

SelectedAnswer:

I only

Question 7

1 out of 1 points

Which one of the following variables influence the value of call options? I) Level of interest rates.II) Time to expiration of the option.III) exercise price.IV) Stock price volatility.

Answer

SelectedAnswer:

I, II, III, and IV.

Question 8

1 out of 1 points

If the stock price increases, the price of a put option on that stock __________ and that of a call option __________.

Answer

SelectedAnswer:

decreases, increases

Question 9

1 out of 1 points

Before expiration, the time value of an in the money call option is always

Answer

SelectedAnswer:

positive.

Question 10

1 out of 1 points

A hedge ratio of 0.70 implies that a hedged portfolio should consist of stocks and options in the following proportion

Answer

SelectedAnswer:

long 0.70 shares for each short call.

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