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Quiz #1 - Finance 355 Investments Fall 2011 Instructor...

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1 Finance 355: Investments Fall 2011 Instructor: Shuming Liu QUIZ 1 QUIZ PAPER A 1 a 6 b 11 b 16 d 2 d 7 b 12 e 17 c 3 c 8 a 13 d 18 c 4 c 9 b 14 e 19 c 5 c 10 b 15 d 20 d QUIZ PAPER B 1 d 6 b 11 b 16 a 2 c 7 e 12 b 17 d 3 c 8 d 13 a 18 c 4 c 9 e 14 b 19 c 5 d 10 d 15 b 20 c See the next few pages for detailed answers.
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2 QUIZ 1 Quiz Paper A 1, Quiz Paper B 16 Black Stone Mines stock returned 8, 16, -8, and 12 percent over the past four years, respectively. What is the geometric average return? a. 6.59 percent b. 7.36 percent c. 7.75 percent d. 9.94 percent e. 10.33 percent Answer: a. Geometric average = [(1 + .08)(1 + .16)(1 - .08)(1 + .12)] 1/4 - 1 = 6.59 percent Quiz Paper A 2, Quiz Paper B 17 Asset allocation is the: a. selection of specific securities within a particular class or industry. b. division of a purchase price between a cash payment and a margin loan. c. division of a portfolio into short and long positions. d. distribution of investment funds among various broad asset classes. e. dividing of assets into those that are hypothecated and those that are not. Answer: d. Quiz Paper A 3, Quiz Paper B 18 Marti purchased 100 shares of Better Foods stock on margin at a price of $43 a share. The initial margin requirement is 60 percent and the maintenance margin is 30 percent. What is the lowest the stock price can go before Marti receives a margin call? a. $17.20 b. $22.36 c. $24.57 d. $26.18 e. $29.90 Answer: c. Level Margin e Maintenanc - 1 Shares of Number Borrowed Amount P * = 57 . 24 $ 7 . 0 2 . 17 $ 0.3 - 1 100 0.6) - $43(1 100 P * = = × =
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