CHAPTER 3
TRADING ON SECURITIES MARKETS
1.
Individual solution - answers to this problem will vary.
a. The stock is purchased for 300 $40 = $12,000. Borrowed funds are $4,000.
Therefore, the investor must put up equity or margin of $8,000.
3.
b. If the sh
Assignment 2
Problem 1 (15 marks)
Suppose the return on portfolio P has the following probability distribution:
Bear Market Normal market Bull market
Probability
0.2
0.5
0.3
Return on P
-20%
18%
50%
Assume that the risk-free rate is 9%, and the expected r
FINANCE 401 SAMPLE FINAL EXAMINATION 1
Part 1: Multiple Choice Questions
(40 marks)
Read each question carefully and decide which of the choices best answers the question or completes the
statement.
1.
Financial intermediaries exist because small investor
Assignment 3
Problem 1 (10 marks)
Three years ago, you purchased a bond for $974.69. The bond had three years to maturity,
a coupon rate of 8% paid annually, and a face value of $1,000. Each year you reinvested
all coupon interest at the prevailing reinve
Assignment 4
Instructions
Assignment 4 should be submitted after you have completed Unit 7. This assignment is
worth
15 percent of your final grade.
Assignment 4 contains six problems. The maximum mark for each problem is noted at
the beginning of the pro
FNCE 401 Equations and Formulas
Bond Equivalent Yield
rBEY =
1000 p 365
p
n
Where p is the bond price, n is the maturity of the bill in days.
Bank Discount Yield
rBDY =
1000 p 360
1000
n
Where p is the bond price, n is the maturity of the bill in days.
Bo
Chapter 04 Return and Risk: Analyzing the
Historical Record
Student: _
1.
Over the past year you earned a nominal rate of interest of 10 percent on your
money. The inflation rate was 5 percent over the same period. The exact actual
growth rate of your pur
Chapter 16 Financial Statement Analysis
Student: _
1.
A firm has a higher quick (or acid test) ratio than the industry average, which
implies.
A.
B.
C.
D.
E.
Chapter 08 Index Models and the Arbitrage
Pricing Theory
Student: _
1.
As diversification increases, the total variance of a portfolio approaches
_.
A.
B.
C.
D.
E.
Chapter 15 Security Analysis
Student: _
1.
_ is equal to the total market value of the firm's common stock divided
by (the replacement cost of the firm's assets less liabilities).
A.
B.
C.
D.
E.
Chapter 05 Risk Aversion and Capital Allocation
to Risky Assets
Student: _
1.
A T-bill pays 6 percent rate of return. Would risk-averse investors invest in a
risky portfolio that pays 12 percent with a probability of 40 percent or 2 percent
with a probabi
Chapter 09 Market Efficiency
Student: _
1.
If you believe in the _ form of the EMH, you believe that stock prices
reflect all relevant information including historical stock prices and current
public information about the firm, but not information that is
Part 1: Multiple Choice Questions
1. E
2. D
3. B
4. A
5. D
6. B
7. A
8. B
9. C
10. A
11. E
12. B
13. A
14. C
15. C
16. C
17. E
18. A
19. C
20. E
21. D
22. B
23. D
24. E
25. A
26. D
27. C
28. C
29. D
30. B
31. D
32. B
33. E
34. C
35. A
36. C
37. A
38. A
39
CHAPTER 4
RETURN AND RISK: ANALYZING THE HISTORICAL RECORD
1.
Your holding period return for the next year on the money market fund depends on what
30-day interest rates will be each month when it is time to roll over maturing securities.
The one-year sav
CHAPTER 5
RISK AVERSION AND CAPITAL ALLOCATION TO RISKY
ASSETS
1.
a. The expected cash flow is: (0.5 x $70,000) + (0.5 x 200,000) = $135,000
With a risk premium of 8% over the risk-free rate of 6%, the required rate of return is
14%. Therefore, the presen
CHAPTER 6
OPTIMAL RISKY PORTFOLIOS
1. (a) for sure.
(b) and (d) are firm-specific.
(c) and (e) can be either firm-specific or due to market-wide factors.
3. (a) is true by definition.
(b) is also true: see for instance the example in Figure 6.15.
(c) is f
CHAPTER 2
FINANCIAL MARKETS AND INSTRUMENTS
1.
Money market securities are called cash equivalents because of their great
liquidity. The prices of money market securities are very stable, and they can be
converted to cash (i.e., sold) on very short notice
CHAPTER 1
THE INVESTMENT ENVIRONMENT
1.
a. Cash is a financial asset because it is the liability of the government.
b. No. The cash does not directly add to the productive capacity of the economy.
c. Yes. You can buy more goods and services than previousl
Chapter 06 Optimal Risky Portfolios
Student: _
1.
You are considering investing $1,000 in a T-bill that pays 0.05 and a risky
portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y
in P are 0.60 and 0.40, respectively. X has an
Part 1: Multiple Choice Questions
1. E
2. D
3. B
4. A
5. A
6. B
7. A
8. B
9. C
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
A
E
B
A
C
C
C
E
B
C
E
D
B
D
E
A
D
C
C
D
B
D
B
E
C
A
FINANCE 401 SAMPLE FINAL EXAMINATION 1
Part 1: Multiple Choice Questions
(40 marks)
Read each question carefully and decide which of the choices best answers the question or
completes the statement.
1.
Financial intermediaries exist because small investor
Chapter 10 Behavioural Finance and Technical
Analysis
Student: _
1.
Psychologists have found that people who make decisions that turn out badly
blame themselves more when that decision was unconventional. The name for
this phenomenon is
A.
B.
C.
D.
E.