1. An examples of an asset being securitized is
a. Mortgages on houses are combined in a portfolio and securities sold based on that portfolio of mortgages
b. Gold held in a vault for safe keeping
c. Any asset sold on a securities market
d. Derivatives
2. Corporate stocks and bonds are the same in that
a. both promise to pay certain amounts every year
b. both are liabilities of the firm issuing them
c. both pay more when earnings are high and less when earnings are lower
d. both have priority over banks if the firm becomes bankrupt
3. A purchase of stock on margin is a stock purchase
a. which is a marginal purchase for an investor
b. partly financed by borrowing funds
c. with lower risk than a non-margin purchase
d. with a higher Sharpe ratio than a non-margin purchase
4. The Sharpe ratio is a. A measure of the systematic risk of a stock b. A measure of the riskiness of a stock c. A measure of the return per unit of risk d. Impossible to calculate in most circumstances
5. Leveraged investments have ____ unleveraged investments
a. Higher Sharpe ratios than
b. The same Sharpe ratios as
c. Lower Sharpe ratios than
d. All of the above are possible
6. A random walk of stock prices implies that
a. stock prices are arbitrary
b. changes in stock prices are unpredictable
c. stock prices do not change when there is news about the firm’s prospects
d. changes in stock prices are arbitrary
7. If the daily standard deviation of the return on a stock is 2 percent per day and there are 20 trading days in a month, the annual standard deviation is
a. 60 percent per month
b. 2 percent per month
c. Less than 2 percent per month
d. More than 2 percent per month and less than 60 percent per month
8. According to Malkiel, the evidence for stocks indicates that firms with low P/E ratios tend to have
a. Higher future returns
b. Average future returns
c. Lower future returns
d. Low dividend yields
9. The present value of $110 a year from now at an interest rate of 10 percent is
a. More than $110
b. More than $100
c. Equal to $100
d. Less than $100
10. The Modigliani-Miller theory says that
a. It does not matter to anyone what a firm’s capital structure is
b. the returns on firm’s bonds and stocks are unaffected by changes in the firm’s ratio of debt to equity
c. a firm’s systematic risk has no effect on the expected return on its stock
d. a firm’s unsystematic risk affects the expected return on the stock.