Quiz Questions Flashcards
1
Q
Jerry has 40% of his portfolio invested in an ETF that tracks the S&P 500 and 40% in a mutual fund that tracks the Dow Jones Industrial Average (DJIA) and 20% in government bonds. In order to evaluate the performance of his portfolio, what is Jerry’s best benchmark to use?
A
A combo of S&P, DOW and Govt Bond indices
2
Q
An investment policy statement (IPS) should include what?
A
Should include broad guidelines for investor preferences for asset allocation
3
Q
Should an IPS include specific security selection?
A
No
4
Q
Whether its determined by client or advisor, the IPS should include what language
A
language dealing with clients risk tolerance
5
Q
A financial adviser that recommends non-actively managed exchange traded funds (ETF’s)is most likely a proponent of which form of the efficient market theory?
A
Strong Form
6
Q
Strong form Efficient Market Theory states what Re: public and insider info?
A
Strong form states all public and insider info is reflected in market prices, Therefore, there is no active strategy that will outperform the market on a consistent basis
7
Q
3 types of Efficient Market Theory
A
Strong, Semi-Strong, and Weak
8
Q
Is there an active strategy that will outperform the market on a consistent basis?
A
No per efficient market theory
9
Q
You are building a portfolio and want to make sure it is properly diversified. Based on correlation, if you are adding one new investment, which one provides the greater diversification benefit?
A. ABC - has a correlation of .50
B. EFG - has correlation of .10
C. RST has corr. of -.27
D. XYZ has corr of -.50
A
D. XYZ has corr of -.50
XYZ provides the best negative correlation so it provides the best diversification
10
Q
People who subscribe to EMT would utilize active of passive management?
A
Passive
11
Q
Efficient Market Theory
A
EMT is the proposition that the securities markets are efficient, with the prices of securities reflecting their current economic value.
12
Q
Maria prefers using index funds in her portfolio. She most likely subscribes to which form of the efficient market theory?
A
Strong - passive investing via index funds will provide equivalent returns at a lower cost than active management
13
Q
Which of the following would result in the largest increase in the price of a diversified common stock mutual fund?
A. Unexpected inflation
B. Expected dividend increases
C. Unexpected corporate earnings growth
D. Expected increase in the prime rate
A
C. Unexpected corp earnings growth
n an efficient market, expected market developments, such as those in B and D, would have little or no impact on securities prices. Unexpected inflation, as in A, might cause some increase or decrease in the price of a diversified common stock mutual fund, but a large increase would be produced by C since the price of a common stock mutual fund will be closely related to the earnings of companies whose common stocks are held by the fund.
14
Q
In an efficient market, do expected changes in markets have a big impact on prices?
A
No, in an efficient market expected moves are priced in and have little or no impact
15
Q
Does the security market line apply to individual securities or portfolios?
A
the security market line applies to both individual securities and portfolios as well
16
Q
The security market line specifies the equilibrium relationship between what and what
A
the equilibrium relationship between expected return and systematic risk
17
Q
CAPM
A
The Capital Asset Pricing Model (CAPM) relates the required rate of return for any security with the risk for that security as measured by beta.
allows us to measure the relevant risk of an individual security as well as to assess the relationship between risk and the returns expected from investing.
18
Q
The market portfolio is
A
the portfolio of all risky assets, with each asset weighted by the ratio of its market value to the market value of all risky assets.
19
Q
Superior performance exists when the funds performance is ____ the CML
A
above
20
Q
Inferior performance exists when the fund is _____ the CML
A
below
21
Q
The best possible combination of risk/reward exists when the funds performance is ___ the CML
A
equal to
22
Q
Beta is a measure of
A
Beta is a measure of systematic, non-diversifiable risk.
23
Q
Rational investors will form portfolios and eliminate what
A
unsystematic risk
24
Q
Systematic risk is the relevant risk for a what
A
well-diversified portfolio
25
In a well-diversified portfolio unsystematic risk has been eliminated, so that what risk is the only relevant risk?
systematic risk
26
To find the required return of the stock using the Capital Asset Pricing Model(CAPM), the equation is
risk free rate + (market return- risk free rate) * beta of stock= required return
27
If T-bills are yielding 3%, T-bonds are yielding 4.5%, and the stock market on the whole is yielding 8%, then one should be willing to buy a stock with a beta of 1.5 only if that stock can be expected to yield at least
10.5%
3% + (8%- 3%)1.5= 10.5%
28
Eight years ago, Justin invested $11,000 in the Gusto Growth Mutual Fund, with all dividends and distributions to be reinvested. Eight years later, Justin liquidated the entire account and received proceeds of $21,000. What was the internal rate of return on this investment?
8.42%
Solve for I
N= 8
PV = 11,000 CHS
FV = 21000
I =
29
Company ABC is currently trading at $35 and pays a dividend of $2.30. Analysts project adividend growth rate of 4%. Your client Tom requires a rate of 9% to meet his stated goal.Tom wants to know if he should purchase stock in Company ABC
Using the constant dividend growth model, this stock has an intrinsic value of $47.80. This is found by dividing next year's dividend, $2.30(1.04), or $2.39,by the difference between the 9% required rate of return and the 4% growth rate. $2.39/0.05= $47.80. Since the stock is selling at $35.00, the stock is undervalued
30
The following set of newly issued debt instruments was purchased for a portfolio:
Treasury bond
Zero-coupon bond
Corporate bond
Municipal bond
The respective maturities of these investments are approximately equivalent.Which one of the investments in the preceding set would be subject to the greatest relative amount of price volatility if interest rates were to change quickly?
The zero-coupon bond has the longest duration (equal to its maturity), so it would have the greatest price volatility
31
Is price a determinant in finding duration?
No - price is a function of the market rate of interest
32
The duration of a bond is a function of its:
(1) current price.
(2) market interest rate.
(3) number of compounding periods until maturity.
(4) coupon rate.
2 3 and 4 - price is not a determinant of duration
33
What 3 things determine the duration of a bond
-Market interest rate
-# of compounding periods to maturity
-Coupon rate
34
Which of these bonds has the greatest interest rate risk?; Which of these bonds has the longest duration?
A. U.S. Treasury bond with an 11.625% coupon, due in 2004 with a price of $142.50 and a YTM of 6.3%
B. U.S. Treasury strip bond (zero coupon) due in 2004 with a price of $46.75 and a YTM of 6.25%
C. Corp B-rated bond with a 9.75% coupon, due in 2004 with a price of $104.75 and a YTM of 8.79%
B and B
The interest rate risk is greatest for the security that has the lowest coupon rate. The longest duration is found in the bond that pays no interest except atthe time of its maturity.
35
ABC stock is selling for $43 per share and a call option with a three-month expiration maybe bought for $4 per share with a strike price of $45. This option may be said to be:
Out of the money
When the strike price is greater than the current stock price, the call option is out of the money.
36
A long strangle is created on a $40 stock with a call with an exercise price of $50 andpremium of $3 and a put with an exercise price of $30 and a premium of $1. If the stock price is $20 at maturity, what is the net before-tax per share dollar return on this position?
$6
A long strangle is the purchase of out-of-the-money call and put options. The cost of the position is $(4) (-3 -1). At a stock price of $20, only the put is exercised. The stock is purchased for $20 in the market to be sold for $30 by exercising the put. The total dollar return is -20 + 30 - 4 = $6
37
Compared to traditional investments, alternative investments are most likely to be categorized by low
liquidity of the underlying investments
Alternative investments generally have the qualities of high use of leverage,higher research costs, and higher fees than traditional investments. Alternative investments generally exhibit low liquidity of the underlying investments
38
A call option with a strike price of 110 is selling for 3.50 when the market price of the underlying stock is 108. The intrinsic value of the call is
0
A call option does not have any intrinsic value until it is "in the money," meaning that the price at which the call may be exercised, or the strike price of 110 in the present case, is lower than the market price of the underlying stock.In this case, the market price is 108, or less than the strike price, so the intrinsic value of the call is zero
39
An investor is most likely to consider adding alternative investments to an investment portfolio that holds traditional asset classes because they
provide lower correlation to a portfolio and may possibly provide higher returns
The historically higher returns to most categories of alternative investments compared with traditional investments result in potentially higher returns to a portfolio containing alternative investments.
40
With the same dollar investment, which of the following strategies can cause the investor to experience the greatest loss?
selling a naked call option
selling a naked call option presents an unlimited potential for loss since the price of the stock may rise dramatically,perhaps doubling, tripling, quadrupling or more in value, before the option expires.
41
A corn farmer wants to protect against the possibility of falling prices. What is the type of hedge position the farmer should enter in corn futures contracts and the reason for that position?
A short position to hedge against lower corn prices
The profit on the short corn position, if corn declines, will help to offset lower corn prices.
42
Jason sells ABC company stock at a loss on July 1. On what date may Jason repurchase ABC stock without his loss being disallowed?
August 1
An investor may place a purchase of a stock at 31 days after the sale to allow the tax loss.
43
On February 1, Sara buys 200 shares of PLM company stock for $50 per share. On August 1, Sara sells all 200 shares of PLM stock for $25 per share. On August 16, Sara buys 100 shares of PLM stock for $30 per share. How much of a loss on PLM stock may she claim for the year?
$2500
When Sara sells the 200 shares of PLM on August 1, she books a loss of $5,000. However, the loss related to half of those shares is disallowed because she re-purchased half of those shares within 31 days of the shares being sold on August 16.
44
Which form of efficient market theory supports technical analysis?
None of them
45
Because a call feature on a bond makes it less attractive, the bond issuer must do what regarding the yield?
Offer a higher yield making it more attractive to buy
46
Out of the following, which will reduce the yield?
1. Put
2. Call
3. Warrant
4. Convertible
Put, Warrant and Convertible
These features make the bond more attractive so the issuer can offer a lower yield
47
Out of the following - which is a disadvantage of owning individual bonds?
A. Excessive transaction costs with buying and selling individual bonds could pose a problem.
B. Bond index funds have essentially replaced the need for individual bond purchases.
C. Bond mutual funds are the superior alternative
D. Yield spreads are difficult to calculate.
A. Excessive transaction costs with buying and selling individual bonds could pose a problem
B is an incorrect statement.
C is a statement that cannot be supported.
D does not address the question in an appropriate manner
48
Have bond index funds replaced the need to own individual bonds?
No per the test
49
If you write a put or call, what happens to the premium when the option is exercised?
You keep the premium no matter what
50
A call writer believes the market will likely be what moving forward
stable
51
Does the writer of a call or put forfeit the premium once it's been exercised?
No they keep the premium no matter what
52
How do you find current yield of a bond?
Current income/current price of bond
53
Is turnover a factor for individual stocks and bonds?
No
54
What type of investment would have you concerned with turnover?
Open end fund
within an open end fund when considering the cost and tax efficiency of the fund
55
Which has lower turnover - index fund or open ended fund?
Index fund
Index funds usually have much lower turnover than open end funds.
56
Bond ladder does what re: maturities
spread the maturities out equally over a long period of time
57
Put/Call Ratio, Relative Strength, 50 Day moving average all fall under what part of EMT?
None - these are all technical analysis terms and are no supported by EMT
58
Assume that a company has total assets of $3.0 million, total liabilities of $1.2 million, preferred stock of$0.5 million and 5,000 shares of common stock. The book value per share of common stock is
$260
3mil - 1.2 mil - .5 mil = 1.3mil/5000 = 260
Total book value = assets - liabilities - preferred
59
Interest rate risk is greatest for the security with the lowest what?
coupon rate
60
Cumulative preferred stock - if a dividend is missed what must happen?
Cumulative preferred stock must pay missed dividends before common shareholders can receive dividends
61
Book value per share formula
Total book val = assets - liabilities - preferred
62
An advantage of owning common stock
participation in the growth of the firm via dividends or capital gains
63
Would common stock have guaranteed cashflow via dividends?
No - common stock can suspend dividend payments
64
If a bond is selling at a discount, what will you receive at maturity?
A capital gain
65
If a bonds coupon is 4.8% and its selling at 5.8%, the bonds price is what vs par
discounted
66
What is the item adjusted on a TIPS?
the principal amount
67
Series I bonds adjust rates how often
every 6 months, tied to inflation
68
Are series EE bonds tied to inflation?
No
69
How often are series EE bonds adjusted?
every 6 months
70
When did the government stop issuing series HH bonds?
August 2004
71
Debenture is
unsecured corporate debt
72
Some risks affecting corporate bonds?
Liquidity risk
interest rate risk
default risk
purchasing power (inflation) risk
73
Will a closed end company redeem its outstanding shares?
not normally
74
Which is riskier sector fund or growth fund?
Sector funds are riskier than growth funds as they give up diversification to invest in a certain sector of the market.
75
Balanced funds have what risk tolerance
Balanced funds are conservative. They usually invest in a mix of bonds and stocks.
76
which is riskiest?
balanced funds, growth funds, sector funds, hedge funds
Hedge funds use leverage,making them the riskiest funds in this group.
77
Orion mutual fund has a portfolio of 300 stocks with a total market value of $700 million. The fund also has$30 million in liabilities. If the mutual fund has 15 million shares outstanding, what is the net asset value(NAV)?
NAV= (market value of portfolio- liability)/shares = (700-30)/15 = $44.67
78
Negative skewness
A bell curve whose left side tail is longer than the right side
79
What is the standard deviation of returns given returns of 9%, 6%, 2%, -5%?
The average return is: (9 + 6 +2-5)/4 = 12/4 = 3%.
The variance is [(9-3)2+ (6-3)2+ (2-3)2+ (-5-3)2]/ (4-1) = [36+9+1+64]/3= 110/3= 36.67.
The standard deviation is 36.67 squared= 6.06%
80
Revenue municipal bonds are subject to which of the following investment risks?
(1)Default risk
(2)Unsystematic risk
(3)Reinvestment rate risk
(4) Sovereign risk
1, 2, and 3
All municipal bonds are subject to reinvestment rate risk because the coupon payments must be reinvested at the same rate in order to maintain the yield-to-maturity. Defaults can happen with revenue municipal bonds.Because there are specific attributes related to the revenue structure that is backing these types of bonds, there is unsystematic risk.
81
If the mean return for Sarconics, Inc. is 16% and the standard deviation is 4%, what will the range of returns be within two standard deviations?
Between 8% and 24%
At two standard deviations, approximately 95% of the outcomes will fall between [16%-(2x4%)] = 8%, and [16%+(2x4)] = 24%
82
A client desires to purchase 500 shares of a stock only when the price gets to a certain level and is worried about a sudden stock movement once the price is near that level. The most appropriate market order for this client would be
Limit order
The client is newly buying the shares, which would point to a Market Order or a Limit Order. The client's concern about sudden price movements makes the Limit Order the correct choice
83
Your client purchased 100 shares of XYZ Corporation stock at $40 per share and deposited 50% of the purchase price for initial margin requirement. If the maintenance margin is 35%, at what price will your client receive a margin call?
2000 / 1 - .35)
2000 / .65 = 3076.9 = $30.77
84
Your client purchased 100 shares of XYZ Corporation stock at $40 per share and deposited 50%of the purchase price for initial margin requirement. If the maintenance margin is 30%, the client will receive a margin call of $28.57. Assume the client enters into the margin loan agreement and buys XYZ stock. If the price drops to $28, how much money will the client have to put up to satisfy the margin agreement?
If the price drops to $28, then the total value= $2,800, and the net equity is ($2,800-$2,000)/$2,800=28.6% equity, less than the 30% maintenance margin required. The additional dollars needed to meet the maintenance margin requirement: 0.30*$2,800=$840-$800= $40
85
Smith invests in a limited partnership which requires an outlay of $9,200 today. At the end of years 1 through 5, he will receive the after-tax cash flows shown below. The partnership will be liquidated at the end of the fifth year. Smith is in the 28% tax bracket.
0 ($9,200) CFo
1 $600 CF1
2 $2,300 CF2
3 $2,200 CF3
4 $6,800 CF4
5 $9,500 CF5.
Which of the following statements is/are correct?
(1)The IRR is the discount rate which equates the present value of an investment's expected costs to the present value of the expected cash inflows.
(2)The IRR is 24.18% and the present value of the investment's expected cash flows is $9,200.(3)The IRR is 24.18%. For Smith to actually realize this rate of return, the investment's cash flows will have to be reinvested at the IRR.(4) If the cost of capital for this investment is 9%, the investment should be rejected because its net present value will be negative
1,2 and 3
(1) is correct, by definition, since the IRR is the rate that equates the present value of theFeedback:project's inflows with the present value of its outflows, thereby producing a new present value of zero. (2) is correct, by definition of the internal rate of return. That is, if the inflows are discounted at a 24.18% rate of interest, they will produce a present value that is equal to the present value of the one outflow of $9,200. (3) is correct. It is an assumption of the IRR methodology that any cash flows spun off by an investment are reinvested at the internal rate of return of that investment. (4) is incorrect. With the same data in the calculator as were entered in Question 21, now enter 9 as the value of "I" and compute the net present value. It is a positive $5,976.77.
86
Smith invests in a limited partnership which requires an outlay of $9,200 today. At the end of years 1 through 5, he will receive the after-tax cash flows shown below. The partnership will be liquidated at the end of the fifth year. Smith is in the 28% tax bracket
0 ($9,200) CFo
1 $600 CF1
2 $2,300 CF2
3 $2,200 CF3
4 $6,800 CF4
5 $9,500 CF5
The after-tax IRR of this investment is?
On the financial calculator, enter a negative $9,200 as the initial cash flow. Then, enter the remaining positive cash flows at the end of years 1,2,3,4 and 5, as indicated the problem.The internal rate of return is 24.18%. Note that the fact that Smith is in the 28% tax bracket is irrelevant to this answer since the cash flows are identified in the question as being after-tax flows.
87
JKL portfolio has a realized return of 15% over the last several years and a beta of 1.10. The 3-month Treasury bill is currently yielding 4%.The S&P Index has a realized return of 12% and a beta of 1.00. If the tracking error is 0.015, what is the information ratio of portfolio JKL?
2
The information ratio is found as follows:
Return of portfolio- Return of benchmark/Tracking error=
(0.15- 0.12)/ (0.015) = (0.03/0.015) = 2.0
88
Bond A has a 6% annual coupon and is due in 2 years. Its value in today's market is $900.
Bond B has a 10% annual coupon and is due in 4 years. It is priced to yield 12%.
Bond C is a 9% zero-coupon bond priced to yield 11% in 8 years.
The yield to maturity of Bond A is closest to
11.9%
To find the yield to maturity of Bond A, on your financial calculator enter$1,000 as the FV, $900 +/- as the PV, $60 as the end-of-period PMT, and 2 as the value of n. Solver for i,which is 11.90%
89
Stock XYZ has a standard deviation of 3% and an expected return of 12%, and Stock ABC has a standard deviation of 5% and an expected return of 16%. Which stock has substantially more risk than the other?
Stock ABC has substantially more risk than XYZ
The coefficient of variation is found by dividing the standard deviation by the expected return.
For Stock XYZ, the coefficient of variation is 3%/12%= 0.25. For Stock ABC, the coefficient of variation is 5%/16%= 0.31. Stock ABC carries more risk per unit of return
90
The coefficient of variation is
standard deviation/expected return
how many units of risk/units of return
91
To immunize a bond portfolio over a specific investment horizon, an investor would do what?
Match the average weighted duration of the bond portfolio to the investment horizon
92
Dollar cost averaging
The essence of dollar-cost averaging is to invest the same dollar amount in each period, regardless of the number of shares that that dollar amount can purchase.
93
When dollar cost averaging, do you buy the same number of shares each time?
No - same $ amount each time. Because the share price will change you most likely will not buy the same amount of shares each time
94
A client has a cash need at the end of seven years. Which of the following investments might initially immunize the portfolio?(1)a 9-year maturity coupon bond
(2) a 7-year maturity coupon Treasury note
(3) a series of Treasury bills
9 year maturity coupon bond
Immunization of a portfolio involves matching the portfolio's duration with the duration of the investor's cash needs. A 7-year maturity coupon Treasury note would have a duration of less than seven years. Similarly, a series of Treasury bills would have a very short duration. A 9-year maturity coupon bond, on the other hand, will have a duration of less than nine years, perhaps something in the neighborhood of seven years
95
Treynor Index
The Treynor index uses beta as the measure of risk and graphically displays the risk/return tradeoff.
96
Does CML use standard deviation or beta?
Standard deviation
97
Which of the following is the benchmark line that corresponds to the graphic display of the Treynor index?
A. Security Market Line
B. Capital Market Line
C. Efficient Frontier
D. All of the Above
A. Security Market Line
The Treynor index uses beta as the measure of risk and graphically displays the risk/return tradeoff.The CML uses the standard deviation, not beta, in estimating expected return and risk displays.
98
The main difference between the three forms of market efficiency is that
The definition of information differs
99
A strategy of buying several bonds with staggered maturities is an example of
Bond ladder
100
Lynn Taylor, an investor from London, has the following portfolio:25% US small cap stocks, 30% laddered US treasuries, 10% US equity REITs, and 35%S&P Index fund. What risks is she exposed to?
Default risk, exchange rate risk, reinvestment rate risk
101
A portfolio has a standard deviation of 25%. The correlation of the portfolio and the market is 1. If the risk-free rate is 3.2%, the expected return on the market portfolio is 11%, and the standard deviation of the market portfolio is 27%, what is the required return on the portfolio?
10.42%
102
Mr. and Mrs. Johnson sold 1000 shares of LPK Corp. stock, with a cost basis of $27 per share for $20 per share. The shares had been held for 4 years after purchase date. How much of the loss can the couple claim for the year, ignoring any other potential transactions?
$3,000
103
Which type of order would be used to stop losses from a short sale? Assume you short sell at the current market price
A stop buy order with the stop price set above the current market price
104
How much does Justina need to deposit at the beginning of the next 8 years to have $100,000, assuming that she is able to earn 6.5% on her investments?
$9,318
105
The appropriate measure of risk for a portfolio that isn't well diversified is
Standard Deviation
106
John saved $40,000 for a down payment on a condominium. He is now actively looking for his dream house and anticipates making an offer on a condo within the next 6 weeks. If the offer is accepted, it will take up to three additional months to close on the condo. John will need to deposit about $1,500 in an escrow account as good faith money when he makes the offer. The rest of the down payment is made at closing. The best place for John to deposit his funds now is
money market mutual fund
107
Jeremy is planning to retire in twenty years and is considering adding bonds to his tax-deferred retirement accounts. The type of fixed income investment that would be best for Jeremy is
Corporate bonds
108
In the accumulation phase of the investor's life
Investors may seek to gain wealth through investing in higher risk investments.
109
A mutual has a beta of 1.2. This means the fund
Is more volatile than the market as a whole
110
Tabatha pays 15% in dividends and capital gain taxes and 35% in ordinary income taxes. In January, she purchased 500 shares of a no-load mutual fund for $36 a share and all distributions are reinvested. In October, she sold 100 shares for $40. At the end of the year, she received a statement stating the fund had distributions to her of $200 in qualified dividend income, $1,000 in long-term capital gains, and $1,500 in short term capital gains. What are Tabatha's taxes on this investment
$845
111
Assume a portfolio is made up of the following securities:
Security A represents 30% of the total and earned 11%
Security B represents 25% of the total and earned 10%
Security C represents 15% of the total and earned 8%
Security D represents 30% of the total and earned 5%
What is the weighted average (mean) rate of return on the portfolio?
For Security A: .3 * .11
For Security B: .25 * .1
For Security C: .15 * .08
For Security D: .3 * .05
Now, add these values:
Therefore, the weighted average rate of return on the portfolio is 8.5%
112
An investment cost $6,500, and will have a cash flow of $1,500 in the first year, $1,800 in the second year and $200 in the third year, at which time the investment will be sold for $8,000. What is the internal rate of return (IRR) of this investment?
25%
113
A mutual fund has a portfolio of 275 stocks with a total market value of $950 million. The fund also has $40 million in liabilities. If the mutual fund has 15 million shares outstanding, what is the net asset value (NAV)?
$60.67
114
A $1,000 par corporate bond with a coupon of 4% that pays interest semiannually is currently selling for $1,050. The current yield on this bond is
3.8%
115
An investor purchases 400 shares of stock at a price of $20 per share. The initial margin requirement is 70%. What is the smallest amount that the investor can put up to satisfy the initial margin requirement?
$5,600
116
What affects the estimated P/E ratio?
Dividend growth rate
Dividends payout ratio
Required rate of return
117
In evaluating an income-producing property, what are some factors to take into account?
Projected rental income
Reinvestment rates
tax consequences
118
Jason's advisor recommended that he purchase 1,000 shares of a mutual fund that is currently priced at $15 per share. The commission on this purchase is 2%, and the fund charges a 1% annual management fee and a $20 annual administrative charge. What is the total cost over the first year to invest in this fund?
$15,470
$15,000 * 1.03 + 20 = 15470
119
A bear spread-put is when the investor sells a(n)
Out-of-the money put and buys an in-the-money put option
120
GFC Corp. is expected to pay $1.65 per share in annual dividends next year. If the anticipated growth rate is 4% and the current stock price of the stock is $25 per share,what is the expected return on this stock?
10.6%
The expected return on a stock can be calculated using the Gordon Growth Model, which is a model used to determine the intrinsic value of a stock, excluding external factors such as market conditions. The formula for the Gordon Growth Model is:
Expected Return = (Dividend per share / Price per share) + Growth rate
In this case, the dividend per share is $1.65, the price per share is $25, and the growth rate is 4% (or 0.04 when expressed as a decimal).
So, the expected return would be calculated as follows:
Expected Return = ($1.65 / $25) + 0.04
This calculation gives us an expected return of 0.106 or 10.6%
121
As of January 1, Audrey owns 5,000 shares of stock in a given company. The company pays $0.50 per share in dividends each quarter. She decides to reinvest her dividends in the company stock. The share prices on the quarterly dividend payment dates are$32, $42, $38, and $43. How many shares does Audrey have at the end of the year?
5266.7 shares
122
Where do you hit to run standard deviation?
Button right next to weird E key
123
Series E and Series I are both adjusted twice a year but what is the difference?
Series I is tied to inflation think I for inflation - Series E is not tied for inflation
124
Are ETFS always equal to NAV?
No - they may be sold at a premium or discount to NAV due to supply and demand
125
If the question is asking about the risk adjusted return of a portfolio which ratio will you use?
Treynor
126
If a question is asking about realized return on a portfolio which ratio would you use?
Treynor
127
One way they will trick you on bond questions is saying the coupon is annual
so you would not do 2x like a regular bond
128
Coefficient of Variation is higher means what
That its more risky
129
A series of T bills would have what duration?
Very short
130
Bond immunization deals with Duration! Not what?
Not maturity!
131
A good Treynor ratio is high or low?
High - just like sharpe
132
Is IRR always equal to time weighted return?
IRR equals dollar weighted return but not time weighted return
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Time weighted return is equal to what average?
geometric average
134
IRR equals dollar weighted return think I$$
IRR = I$$
135
Interest rate risk is highest for the bond with the what coupon?
Lowest - think interest rate is HIGHEST for the LOWEST coupon- opposites
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