4501 Past Exam

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Advanced Portfolio Management - AK/ADMS 4501 Final Exam – 4501 Winter 2010 April 9, 2010 Instructor: Lois King SOLUTIONS Name: ________________________ Student #: ______________ Section: ____________ M: Thu 4-7pm N: Thu 7-10pm TYPE A Questions Marks Grade PART 1 Q I to 20 - Multiple Choice 40% PART 2 Q 21 – Intrinsic Valuation 20% PART 3 Q 22, 23, 24, 25 –Short Answer 40% Total 100% Instructions: Part 1: Multiple Choice (Q 1- 20): Please use the scantron sheet. Parts 2 & 3: Q 21-25: Please use exam booklet provided. Page 1 of 12

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Part 1: Multiple Choice (Q1- 20): Please use the scantron sheet. 1. (Q4- Type B) Which of the following data series is most likely to be a lagging indicator? a) Average duration of unemployment b) Average weekly initial claims for unemployment insurance. c) Number of employees on nonagricultural payrolls d) Number of employees on financial sector payrolls. e) Average weekly hours of manufacturing workers. 2. (Q5 – Type B) ABC Corporation has a policy of retaining 75% of its earnings for investing in new business opportunities. The most recent earnings per share for the company was \$4. The appropriate discount rate is 12% and the long term growth rate in dividends and earnings is 8%. Using the earnings multiplier model, how much would you be willing to pay for one share of ABC today? a) \$6.25 b) \$25.00 c) \$27.00 d) \$81.00 e) None of the above Solution: P/E = 0.25/(.12-.08) = 6.25 P = P/E x EPS 1 = 6.25 x (4.00 x 1.08) = \$27.00 3. (Q6 -Type B) Which of the following is not characteristic of the "decline" phase of the industry life cycle? a) Little product differentiation b) Substantial manufacturing overcapacity c) Increasing number of competitors d) Falling prices e) None of the above (they all are characteristics of the "decline" phase) 4. (Q7-Type B) Which of the following statements about the business cycle is false ? a) Toward the end of a recession, financial stocks typically increase in value as investment and borrowing activities accelerate. b) In the midst of a recession, consumer staples tend to outperform other sectors. c) Once the economy has recovered and current levels of consumption are sustainable, stocks of capital goods industries become attractive investments. d) Toward the business cycle peak, the inflation rates decreases. e) None of the above (that is, all are true statements) Page 2 of 12
5. (Q8-Type B) Based solely on demographics, which of the following countries has the best chance of maintaining or increasing its current level of GDP growth? a) United States b) Russia c) India d) China e) Canada 6. (Q9-Type B) Which of the following categories of ETFs has the highest risk of large tracking errors? a)

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