midterm test

midterm test - NAME _ Midterm Exam 2 - I Thursday, March...

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NAME _______________________ Midterm Exam 2 - I Thursday, March 27, 200X This exam is divided into three sections. There are a total of 45 points on the exam. Definition (10 points), Multiple Choice (20 points), Short Answer (15 points). The exam counts as 20% of your final grade. You are allowed to use a formula sheet and a calculator. The exam is 1 hour and 15 minutes long. Good luck.

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Part 1. Definitions (1 point each). 1. alpha - the abnormal rate of return on a security in excess of what would be predicted by an equilibrium model such as the CAPM. measures underpricing ( >0) and overpricing ( <0). 2. HML – High Minus Low book-to-market risk factor; calculated as the average return on two value portfolios minus the average return on two growth portfolios 3. Security characteristic line – Plot of a security’s excess return as a function of the excess return of the market R i = i + β i R m + i 4. Capital allocation line – Plot of risk-return combinations available by varying portfolio allocation between a risk-free asset and a risky portfolio; i.e. a graph of expected return vs. standard deviation (risk) 5. SUE – Standardized Unexpected Earnings 6. factor model – Statistical model, such as the CAPM, to measure the firm specific versus systematic risk of a stock’s rate of return; compares a single investment or portfolio to the market as a whole 7. road show – investment bankers organize road shows in which they travel around the country to publicize an imminent securities offering, especially an IPO 8. random walk – A markets theory that says stock price changes are random and unpredictable, and that they are unaffected by past prices 9. efficient portfolio – For a given level of risk, it is the portfolio with the greatest return; for a given return, it is the portfolio with the lowest level of risk 10. value stock – those stocks with characteristics such as: (i) low earnings growth, (ii) low P/E, (iii) high book/market, or (iv) high dividend yield.
Part 2. Multiple Choice.

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This note was uploaded on 06/05/2011 for the course FINA 4310 taught by Professor Staff during the Fall '08 term at UGA.

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midterm test - NAME _ Midterm Exam 2 - I Thursday, March...

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