FIN 311 Final

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FIN 311 Final
2013-12-08 02:31:10
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  1. CAPM

    Which of the following are assumptions of the simple CAPM

    I. Individual trades of investors do not affect a stock’s

    II. All investors plan for one identical holding period

    III. All investors analyze securities in the same way and
    share the same economic view of the world

    IV. All investors have the same level of risk aversion

    a. I, II and IV only

    b. I, II and III only

    c. II, III and IV only

    d. I, II, III and IV
  2. Single Index Model

    The b of
    a stock in the single index model indicates which of the following:

    I. The intercept.

    II. The stock’s idiosyncratic return.

    III. The stock’s return sensitivity to the index.

    IV. The slope.

    a. I only

    b. I and II only

    c. III only

    d. III and IV only
  3. Portfolio Theory

    An investor’s degree of risk aversion will determine his or
    her ______.

    a. optimal risky portfolio

    b. risk-free rate

    c. optimal mix of the risk-free asset and risky asset

    d. capital allocation line
  4. 16

    Alphabet Soup

    The graph of the relationship between expected return and
    beta in the CAPM context is called the


    a. CML

    b. CAL

    c. SML

    d. SCL

  5. CAPM

    In a simple CAPM world which of the following statements
    is/are correct?

    I. All investors will choose to hold the market portfolio,
    which includes all risky assets in the world

    II. Investors’ complete portfolio will vary depending on
    their risk aversion

    III. The return per unit of risk will be identical for all
    individual assets

    IV. The market portfolio will be on the efficient frontier
    and it will be the optimal risky portfolio

    a. I, II and III only

    b. II, III and IV only

    c. I, III and IV only

    d. I, II, III and IV

  6. CAPM

    Consider the CAPM. The risk-free rate is 6% and the
    expected return on the market is 18%. What is the

    expected return on a stock with a beta of 1.3?

    a. 6%

    b. 15.6%

    c. 18%

    d. 21.6%

    _ ANSWER: (ri-6) = 1.3(18-6) ---> ri = 21:6, (D)
  7. SML

    According to the capital asset pricing model, a security
    with a __________.

    a. Negative alpha is considered a good buy

    b. Positive alpha is considered overpriced

    c. Positive alpha is considered underpriced

    d. Zero alpha is considered a good buy
  8. 17


    Which of the following beliefs would not preclude charting
    as a method of portfolio management?

    a. The market is strong form efficient

    b. The market is semi-strong form efficient

    c. The market is weak form efficient

    d. Stock prices follow recurring patterns

  9. EMH

    Random price movements indicate

    a. Irrational markets

    b. That prices cannot equal fundamental values

    c. That technical analysis to uncover trends can be quite

    d. That markets are functioning efficiently

  10. Risk and Return

    When the market risk premium rises, stock prices will

    a. Rise

    b. Fall

    c. Recover

    d. Have excess volatility

  11. ProForma

    The ______________ method of developing a pro forma income
    statement forecasts sales and values

    for the cost of goods sold, operating expenses, and
    interest expense that are expressed as a ratio of projected


    a. accrual

    b. percent-of-sales

    c. judgmental

    d. cash

  12. Top-down Analysis

    A top-down analysis of a firm’s prospects starts with an
    analysis of the ______.

    a. firm’s position in its industry

    b. U.S. economy or even the global economy

    c. industry

    d. specific firm under consideration

  13. 18


    You can earn abnormal returns on your investments via macro
    forecasting ______.

    1. if you can forecast the economy at all

    2. if you can forecast the economy as well as the average

    3. if you can forecast the economy better than the average

    4. only if you can forecast the economy with perfect

  14. Cost of Equity

    The Cost of Equity for a firm can be estimated by which of
    the following techniques?

    a. CAPM assumptions

    b. Ad-hoc

    c. b _(rm􀀀r f )+r f

    d. All of the above

  15. Security Analysts

    The greatest value to an analyst from calculating a stock’s
    intrinsic value is _______.

    a. how easy it is to come up with accurate model inputs

    b. the precision of the value estimate

    c. how the process forces analysts to understand the
    critical variables that have the greatest impact on value

    d. how all the different models typically yield identical
    value results

  16. Intrinsic Value

    A stock has an intrinsic value of $15 and an actual stock
    price of $13.50. You know that this stock


    a. will generate a positive alpha

    b. has an expected return less than its required return

    c. has a beta > 1

    d. is overpriced

  17. 19

    Dividend Discount Model

    Bill, Jim and Shelly are all looking to buy the same stock
    that pays dividends. Bill plans on holding the

    stock for one year. Jim plans on holding the stock for
    three years. Shelly plans on holding the stock until

    she retires in 10 years. Which one of the following
    statements is correct?

    a. Bill will be willing to pay the most for the stock
    because he will get his money back in one year when he


    b. Jim should be willing to pay three times as much for the
    stock as Bill because his expected holding period

    is three times as long as Bill’s.

    c. Shelly should be willing to pay the most for the stock
    because she will hold it the longest and hence she

    will get the most dividends.

    d. All three should be willing to pay the same amount for
    the stock regardless of their holding period.

  18. Dividend Discount Model

    You are considering acquiring a common share of Sahali
    Shopping Center Corporation that you would

    like to hold for one year. You expect to receive both $1.25
    in dividends and $35 from the sale of the share

    at the end of the year. The maximum price you would pay for
    a share today is __________ if you wanted to

    earn a 12% return.

    a. $31.25

    b. $32.37

    c. $38.47

    d. $41.32

  19. Futures Positions

    A person with a long unhedged position in a commodity
    futures contract wants the price of the commodity

    to ______.

    a. decrease substantially

    b. increase substantially

    c. remain unchanged

    d. increase or decrease substantially

  20. Derivative Costs

    Which one of the following contracts requires no cash to
    change hands when initiated?

    a. Listed put option

    b. Short futures contract

    c. Forward contract

    d. Listed call option

  21. 20

    Futures Hedging

    A wheat farmer should __________ in order to reduce his
    exposure to risk associated with fluctuations

    in wheat prices.

    a. sell wheat futures

    b. buy wheat futures

    c. buy a contract for delivery of wheat now, and sell a
    contract for delivery of wheat at harvest time

    d. sell wheat futures if the basis is currently positive
    and buy wheat futures if the basis is currently negative

  22. Futures Trading

    The daily settlement of obligations on futures positions is
    called _____________.

    a. a margin call

    b. marking to market

    c. a variation margin check

    d. initial margin requirement

  23. Option Terminology

    A put option on Snapple Beverage has an exercise price of
    $30. The current stock price of Snapple

    Beverage is $24.25. The put option is __________.

    a. At the money

    b. In the money

    c. Out of the money

    d. Knocked out

  24. Each listed stock option contract gives the holder the
    right to buy or sell __________ shares of stock.

    a. 1

    b. 10

    c. 100

    d. 1,000

  25. 21

    Option Profits

    You purchase one IBM July 120 call contract for a premium
    of $5. You hold the option until the expiration

    date when IBM stock sells for $123 per share. You will
    realize a ______ on the investment.

    a. $200 profit

    b. $200 loss

    c. $300 profit

    d. $300 loss

  26. Futures Contracts

    A person with a long position in a commodity futures
    contract wants the price of the commodity to


    a. decrease substantially

    b. increase substantially

    c. remain unchanged

    d. increase or decrease substantially

  27. Forwards and Futures

    Futures contracts have many advantages over forward
    contracts except that _________.

    a. futures positions are easier to trade

    b. futures contracts are tailored to the specific needs of
    the investor

    c. futures trading preserves the anonymity of the participants

    d. counterparty credit risk is not a concern on futures

  28. Mark to Market

    An investor who goes short in a futures contract will _____
    any increase in value of the underlying asset

    and will _____ any decrease in value in the underlying

    a. pay; pay

    b. pay; receive

    c. receive; pay

    d. receive; receive