- Exhibit 1 presents selected information for five debt securities. All five investments promise only a single payment at maturity. Assume that premiums relating to inflation, liquidity, and default
- Consider the following annual return for Fund Y over the past five years:The geometric mean return for Fund Y is closest to: A. 14.9 percent. B. 15.6 percent. C. 19.5 percent. Exhibit 1: Five-Year
- Which of the following risk premiums is most relevant in explaining the difference in yields between 30-year bonds issued by the US Treasury and 30-year bonds issued by a small, private US corporate
- An analyst obtains the following annual rates of return for a mutual fund, which are presented in Exhibit 3. The fund’s holding period return over the three-year period is closest to:A. 0.18
- An investor purchased 100 shares of a stock for USD34.50 per share at the beginning of the quarter. If the investor sold all of the shares for USD30.50 per share after receiving a USD51.55 dividend
- A portfolio manager invests EUR5,000 annually in a security for four years at the following prices:The average price is best represented as the:A. harmonic mean of EUR76.48.B. geometric mean of
- An analyst observes the following annual rates of return for a hedge fund, which are presented in Exhibit 4. The fund’s geometric mean return over the three-year period is closest to:A. 0.52
- Consider the annual return data for the group of countries in Exhibit 5. Calculate the arithmetic and geometric mean returns over the three years for the following three stock indexes: Country D,
- A fund receives investments at the beginning of each year and generates returns for three years as follows:Which return measure over the three-year period is negative?A. Geometric mean return B.
- Which of the following statements regarding arithmetic and geometric means is correct?A. The geometric mean will exceed the arithmetic mean for a series with non-zero variance.B. The geometric mean
- Suppose an investor invests EUR1,000 each month in a particular stock for n = 2 months. The share prices are EUR10 and EUR15 at the two purchase dates. What was the average price paid for the
- Each year in December, a securities analyst selects her 10 favorite stocks for the next year. Exhibit 7 presents the P/Es, the ratio of share price to projected earnings per share (EPS), for her top
- At the beginning of Year 1, a fund has USD10 million under management; it earns a return of 14 percent for the year. The fund attracts another net USD100 million at the start of Year 2 and earns a
- An investor is evaluating the returns of three recently formed ETFs. Selected return information on the ETFs is presented in Exhibit 20:Which ETF has the highest annualized rate of return?A. ETF 1 B.
- Ulli Lohrmann and his wife, Suzanne Lohrmann, are planning for retirement and want to compare the past performance of a few mutual funds they are considering for investment. They believe that a
- Strubeck Corporation sponsors a pension plan for its employees. It manages part of the equity portfolio in-house and delegates management of the balance to Super Trust Company. As chief investment
- The price of a stock at t = 0 is USD208.25 and at t = 1 is USD186.75. The continuously compounded rate of return, r1,T for the stock from t = 0 to t = 1 is closest to:A. –10.90 percent.B. –10.32
- Your task is to compute the investment performance of the Walbright Fund for the most recent year. The facts are as follows: ■ On 1 January, the Walbright Fund had a market value of USD100
- A USD25 million equity portfolio is financed 20 percent with debt at a cost of 6 percent annual cost. If that equity portfolio generates a 10 percent annual total investment return, then the
- The manager of a Canadian pension fund knows that the fund must make a lump-sum payment of CAD5 million 10 years from today. She wants to invest an amount today in a guaranteed investment contract
- An investment manager’s gross return is:A. an after-tax nominal, risk-adjusted return.B. the return earned by the manager prior to deduction of trading expenses.C. an often used measure of an
- An analyst seeks to evaluate three securities she has held in her portfolio for different periods of time. ■ Over the past 100 days, Security A has earned a return of 6.2 percent. ■ Security B
- An investor is evaluating the returns of three recently formed exchange-traded funds. Selected return information on the exchange-traded funds (ETFs) is presented in Exhibit 16. 1. Which ETF has the
- The strategy of using leverage to enhance investment returns:A. amplifies gains but not losses.B. doubles the net return if half of the invested capital is borrowed.C. increases total investment
- At the beginning of the year, an investor holds EUR10,000 in a hedge fund. The investor borrowed 25 percent of the purchase price, EUR2,500, at an annual interest rate of 6 percent and expects to pay
- An analyst observes the following historic asset class geometric returns: 1. The real rate of return for equities is closest to:A. 5.4 percent.B. 5.8 percent.C. 5.9 percent.2. The real rate of
- Let’s return to Example 8. After reading this section, Mr. Lohrmann decided that he was not being fair to the fund manager by including the asset management fee and other expenses because the small
- Grupo Ignacia issued 10-year corporate bonds two years ago. The bonds pay an annualized coupon of 10.7 percent on a semiannual basis, and the current annualized YTM is 11.6 percent. The current price
- While most governments issue fixed coupon bonds with principal paid at maturity, for many government issuers such as the United States, United Kingdom, or India, investors buy and sell individual
- Grey Pebble Real Estate seeks a fully amortizing fixed-rate five-year mortgage loan to finance 75 percent of the purchase price of a residential building that costs NZD5 million. The annual mortgage
- At the height of the COVID pandemic, the government of Greece issued a 2 percent annual coupon bond maturing in seven years. 1. If the observed YTM at issuance was 2.00 percent, what was the
- Consider the 20-year Republic of India government bond from which the discount bond in Example 1 was separated (or stripped). The bond was issued at an annualized coupon rate of 6.70 percent and a
- Mylandia Corporation pays an annual dividend to its shareholders, and its most recent payment was CAD2.40. Analysts following Mylandia expect the company’s dividend to grow at a constant rate of 3
- Suppose Mylandia announces that it expects significant cash flow growth over the next three years, and now plans to increase its recent CAD2.40 dividend by 10 percent in each of the next three years.
- In 2020, KB Financial (the holding company for Kookmin Bank) issued KRW325 billion in perpetual bonds with a 3.30 percent quarterly coupon. 1. Calculate the bond’s YTM if the market price was
- An investor seeks a fixed-rate 30-year mortgage loan to finance 80 percent of the purchase price of USD1,000,000 for a residential building. 1. Calculate the investor’s monthly payment if the
- Consider a Swiss Confederation zero-coupon bond with a par value of CHF100, a remaining time to maturity of 12 years and a price of CHF89. In three years’ time, the bond is expected to have a price
- Grupo Ignacia issued 10-year corporate bonds four years ago. The bonds pay an annualized coupon of 10.7 percent on a semiannual basis, and the current price of the bonds is MXN97.50 per MXN100 of par
- Shipline PLC is a company that pays regular dividends of GBP1.50 per year, which are expected to continue indefinitely. 1. What is Shipline’s expected stock price if shareholders’ required rate
- Mylandia Corporation stock trades at CAD60.00. The company pays an annual dividend to its shareholders, and its most recent payment of CAD2.40 occurred yesterday. Analysts following Mylandia expect
- Recall that based on a constant GBP1.50 annual dividend and required return of 15 percent, we showed Shipline PLC’s expected stock price to be GBP10.00. Suppose instead that an investment analyst
- An analyst observes the benchmark Indian NIFTY 50 stock index trading at a forward price-to-earnings ratio of 15. The index’s expected dividend payout ratio in the next year is 50 percent, and the
- If you require an 8 percent return and must invest USD500,000, which of the investment opportunities in Exhibit 1 should you prefer?A. Opportunity 1 B. Opportunity 2 C. Indifferent between the two
- In 2016, German 10-year government bond investors faced a price of EUR100.50 per EUR100 principal and an annual YTM of −0.05 percent at issuance. That is, the German 10-year government bond was
- Recall from Example 2 that seven-year Greek government bonds issued in 2020 with a 2.00 percent annual coupon had a price of EUR93.091 per EUR100 principal two years later. 1. What is the implied
- Italian one-year government debt has an interest rate of 0.73 percent; Italian two-year government debt has an interest rate of 1.29 percent. The breakeven one-year reinvestment rate, one year from
- Coca-Cola Company stock trades at a share price of USD63.00 and its annualized expected dividend per share during the next year is USD1.76. 1. If an analyst expects Coca-Cola’s dividend per share
- The current exchange rate between the euro and US dollar is USD/EUR1.025. Risk-free interest rates for one year are 0.75 percent for the euro and 3.25 percent for the US dollar. The one-year USD/EUR
- 1. Suppose Coca-Cola stock trades at a forward price to earnings ratio of 28, its expected dividend payout ratio is 70 percent, and analysts believe that its dividend will grow at a constant rate of
- Let’s assume that you have GBP100 to invest, and have two strategies from which to choose with the following cash flow streams as shown in Exhibit 9. Your required return for both investment
- A stock currently trades at USD25. In one year, it will either increase in value to USD35 or decrease to USD15. An investor sells a call option on the stock, granting the buyer the right, but not the
- The tenth percentile corresponds to observations in bin(s):A. 2.B. 1 and 2.C. 19 and 20.Consider the results of an analysis focusing on the market capitalizations of a sample of 100 firms: Bin 1 2 3
- At its June 2022 meeting, the US Federal Reserve surprised markets by raising its target interest rate by a greater-than-expected 75 bps and suggested further increases in the future in response to
- Central banks responded differently to the sharp rise in inflation during 2022. For example, while the Fed raised rates by 75 bps to 1.75 percent in mid-June, the Bank of England opted for a more
- Using the daily returns on the EAA Equity Index over the past five years and ranking them from lowest to highest daily return, we show the return bins from 1 (the lowest 5 percent) to 20 (the highest
- A put option grants the owner the right, but not the obligation to sell a stock at a predetermined exercise price X. If we assume X = CNY50, then the put option value in one period (p1) is equal to
- The second quintile corresponds to observations in bin(s):A. 8.B. 5, 6, 7, and 8.C. 6, 7, 8, 9, and 10.Consider the results of an analysis focusing on the market capitalizations of a sample of 100
- Consider the monthly returns on a portfolio as shown in Exhibit 11: 1. Calculate the target downside deviation when the target return is 3 percent. 2. If the target return were 4 percent, would
- The fourth quartile corresponds to observations in bin(s):A. 17.B. 17, 18, 19, and 20.C. 16, 17, 18, 19, and 20.Consider the results of an analysis focusing on the market capitalizations of a sample
- 1. Given the data in Example 3, calculate the sample standard deviation. 2. Given the data in Example 3, calculate the target downside deviation if the target is 2 percent. 3. Compare the standard
- The median is closest to:A. 44.86.B. 46.88.C. 49.40.Consider the results of an analysis focusing on the market capitalizations of a sample of 100 firms: Bin 1 2 3 Exhibit 1: Market Capitalization of
- Suppose an analyst collects the return on assets (ROA), in percentage terms, for 10 companies for each of two industries: These data can be represented graphically as shown in Exhibit 13: 1.
- The interquartile range is closest to:A. 20.76.B. 23.62.C. 25.52.Consider the results of an analysis focusing on the market capitalizations of a sample of 100 firms: Bin 1 2 3 Exhibit 1: Market
- Exhibit 12 shows the annual MSCI World Index total returns for a 10-year period.The fourth quintile return for the MSCI World Index is closest to:A. 20.65 percent.B. 26.03 percent.C. 27.37 percent.
- The fund’s standard deviation of returns over the 10 years is closest to:A. 2.40 percent.B. 2.53 percent.C. 7.58 percent.A fund had the following experience over the past 10 years: Year 1 2 3 4567
- The target semideviation of the returns over the 10 years, if the target is 2 percent, is closest to:A. 1.42 percent.B. 1.50 percent.C. 2.01 percent.A fund had the following experience over the past
- Consider the mean monthly return and the standard deviation for three industry sectors, as shown in Exhibit 2:Based on the coefficient of variation (CV), the riskiest sector is:A. utilities.B.
- As part of your work as a banking industry analyst, you build models for forecasting earnings per share of the banks you cover. Today you are studying BankCorp. In Exhibit 1, you have recorded a
- An analyst developed two scenarios with respect to the recovery of USD100,000 principal from defaulted loans:The amount of the expected recovery is closest to which of the following?A. USD36,400.B.
- Continuing with the BankCorp example, you focus now on BankCorp’s cost structure. One model, a simple linear regression model, you are researching for BankCorp’s operating costs isŶ = a + bX,
- The probability distribution for a company’s sales is:The standard deviation of sales is closest to which of the following?A. USD9.81 million.B. USD12.20 million.C. USD32.40 million. Probability
- You are still an investor in DriveMed stock. To review the givens, your prior probabilities are P(EPS exceeded consensus) = 0.45, P(EPS met consensus) = 0.30, and P(EPS fell short of consensus) =
- Anna Cintara is constructing different portfolios from the following two stocks: 1. Calculate the covariance between the returns on the two stocks. 2. What is the portfolio expected return and
- An analyst produces the following joint probability function for a foreign index (FI) and a domestic index (DI).The covariance of returns on the foreign index and the returns on the domesticindex is
- Suppose you are researching Astra International (Indonesia Stock Exchange: ASII) and are interested in Astra’s price action in a week in which international economic news had significantly affected
- The weekly closing prices of Mordice Corporation shares are as follows:The continuously compounded return of Mordice Corporation shares for the period August 1 to August 15 is closest to:A. 6.90
- In contrast to normal distributions, lognormal distributions:A. are skewed to the left.B. have outcomes that cannot be negative.C. are more suitable for describing asset returns than asset prices.
- The lognormal distribution is a more accurate model for the distribution of stockprices than the normal distribution because stock prices are:A. symmetrical.B. unbounded.C. non-negative.
- Analysts performing bootstrap:A. seek to create statistical inferences of population parameters from a single sample.B. repeatedly draw samples of the same size, with replacement, from the original
- Which one of the following statements is true about non-probability sampling?A. There is significant risk that the sample is not representative of the population.B. Every member of the population has
- Suppose you are the manager of a portfolio of bonds indexed to the Bloomberg Barclays US Government/Credit Index, meaning that the portfolio returns should be similar to those of the index. You are
- The best approach for creating a stratified random sample of a population involves:A. drawing an equal number of simple random samples from each subpopulation.B. selecting every kth member of the
- A population has a non-normal distribution with mean µ and variance σ2. The sampling distribution of the sample mean computed from samples of large size from that population will have:A. the same
- A sample mean is computed from a population with a variance of 2.45. The sample size is 40. The standard error of the sample mean is closest to:A. 0.039.B. 0.247.C. 0.387.
- Compared with bootstrap resampling, jackknife resampling:A. is done with replacement.B. usually requires that the number of repetitions is equal to the sample size.C. produces dissimilar results for
- An analyst suspects that, in the most recent year, excess returns on stocks have fallen below 5%. She wants to study whether the excess returns are less than 5%.Designating the population mean as μ,
- Which of the following statements about hypothesis testing is correct?A. The null hypothesis is the condition a researcher hopes to support.B. The alternative hypothesis is the proposition considered
- Which of the following statements regarding the null hypothesis is correct?A. It can be stated as “not equal to” provided the alternative hypothesis is stated as “equal to.”B. Along with the
- Which of the following statements regarding a one-tailed hypothesis test is correct?A. The rejection region increases in size as the level of significance becomes smaller.B. A one-tailed test more
- If a researcher selects a 5 percent level of significance for a hypothesis test, the confidence level is:A. 2.5 percent.B. 5 percent.C. 95 percent.
- A hypothesis test for a normally distributed population, at a 0.05 significance level, implies a:A. 95 percent probability of rejecting a true null hypothesis.B. 95 percent probability of a Type I
- The value of a test statistic is best described as the basis for deciding whether to:A. reject the null hypothesis.B. accept the null hypothesis.C. reject the alternative hypothesis.
- Which of the following best describes a Type I error?A. Rejecting a true null hypothesis B. Rejecting a false null hypothesis C. Failing to reject a false null hypothesis
- A Type II error is best described as:A. rejecting a true null hypothesis.B. failing to reject a false null hypothesis.C. failing to reject a false alternative hypothesis.
- The level of significance of a hypothesis test is best used to:A. calculate the test statistic.B. define the test’s rejection points.C. specify the probability of a Type II error.
- The probability of correctly rejecting the null hypothesis is the:A. p-value.B. power of a test.C. level of significance.
- The power of a hypothesis test is:A. equivalent to the level of significance.B. the probability of not making a Type II error.C. unchanged by increasing a small sample size.
- In the step “stating a decision rule” in testing a hypothesis, which of the following elements must be specified?A. Critical value B. Power of a test C. Value of a test statistic
- A pooled estimator is used when testing a hypothesis concerning the:A. equality of the variances of two normally distributed populations.B. difference between the means of two approximately normally
- When evaluating mean differences between two dependent samples, the most appropriate test is a:A. z-test.B. chi-square test.C. paired comparisons test.

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