FIN 360 Final Exam

You want to quit your job and back to school for a law degree 4 years from now, and you plan to save $3,500 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, the amount you will have 4 years from today is closest to:

$16,112

If you buy a stock at the beginning of 2017 for $50.09 per share and sell the stock at the end of 2018 for $49.66 per share, and the stock paid no dividends, what is your annual return on your investment?

-0.0043

Ten years ago, Lucas Inc. earned $0.67 per share. Its earnings this year were $2.11. The growth rate in earnings per share (EPS) over the 10-year period is _________.

0.1216

If a treasury bill has a current price of 96.5 and 98 days to maturity, the discount yield on this bill is _______

0.1286

Five years ago, Weed Go Inc. earned $1.50 per share. Its earnings this year were $3.20. The growth rate in earnings per share (EPS) over the 5-year period is closest to:

16.36%

How long does it take to double your money if the interest rate is 3.6%, compounded annually?

19.6

An investor bought DEF stock for $58 per share, borrowing 42%. If the investor's broker will make a margin call if the account does not meet the maintenance margin requirement of 28%, below what price would the broker make a margin call?

33.8333

The future value of $271 invested for four years at 5.5 percent, compounded continuously is $______________.

337.69

If the average annual return over two years is 4.4 percent and the return in the first year is 4.5 percent, what is the return in the second year?

4.3001

Suppose you pay $3.64 for a call option on a stock that has a current price of $36.95, with an exercise price of $40.41. Not considering any transactions/brokerage costs, what value must the stock price have to exceed for a rational investor to exercise this option?

44.05

You want to buy a new ski boat 2 years from now, and you plan to save $4,302 per year, beginning one year from today. You will deposit your savings in an account that pays 6.2% interest. The amount you have just after you make the 2nd deposit, 2 years from now is $______________

8,870.724

If the APR for an account is 1% with interest compounded continuously, what is the future value of $763 invested for 7 years?

818.32

Which of the following is considered a direct investment?

A US Treasury bond, a corporate bond, and shares of common stock

In a sample of ten observations, and the following information: 3000, -55,000, the sample skewness is closest to: A. -1.255 B. -0.335 C. -0.046

A. -1.255

A normal distribution has excess kurtosis of: A. 0.0 B. 1.0 C. 3.0

A. 0.0

If the return on the market is expected to be 0 percent, the expected return on the stock is expected to be: A. 0.1500 percent B. 1.0395 percent C. 1.2247

A. 0.1500 percent

The coefficient of variation of this sample is closest to: A. 0.5 B. 1.9 C. 82.0 D. 106.0

A. 0.5

An analyst estimated a simple regression with sixty observations. If the standard error of the estimate is 200 and the variance of the independent variable is 700, the standard error of the slope is closest to: A. 0.98 B. 7.56 C. 13.97

A. 0.98

The harmonic mean return is closest to: A. 1.432 percent B. 1.466 percent

A. 1.432 percent

The standard deviation of the return on the market is closest to: A. 1.608 percent B. 1.757 percent C. 1.766 percent

A. 1.608 percent

The harmonic mean is closest to: A. 158 B. 177 C. 200

A. 158

Consider the following regression model: Yt = b0 + b1yt-1 + Et Estimated over 30 periods, the slope is 0.9 and the estimated intercept is 1.5. y30 is 100. Forecasting from this model, what is y32? A. 30.3 B. 81.0 C. 83.9

A. 30.3

The probability of an upward movement is closest to: A. 40% B. 50% C. 60%

A. 40%

If the mean of a sample of 50 value is 653 and the standard deviation is 471, the standard error of the mean is closest to: A. 66.6 B. 67.3 C. 92.3

A. 66.6

An investor bought a 6% coupon bond (paid semiannually) for 95 years ago. At the time the bond had twenty years remaining to maturity. He has been able to reinvest the coupons at 2% per year during this period. He plans to sell the bond today when the yield to maturity on the bond is 4%. His holding period (horizon) yield on this bond is closest to: A. 9.869 percent B. 10.066 percent C. 10.113 percent

A. 9.869 percent

Which of the following increases the risk of buying a stock? A. Buying it on margin B. Buying the call option on the stock

A. Buying it on margin

The ratio of the mean square regression to the mean square error is the: A. F-Ratio B. Coefficient of determination C. Standard error of the estimate

A. F-ratio

Suppose that an analyst estimates the least squares regression line as Y = -3.5 + 2.1X. Which of the following statements regarding the relationship between Y and X is correct? A. If X is zero, Y is -3.5. B. The equation crosses the Y-axis at 3.5. C. If X is 5, the predicted value of Y is 10.5.

A. If X is zero, Y is -3.5.

An analyst gathered a sample of thirty-four stocks and calculated the correlation of the return on assets of these stocks as 0.33. If the analyst uses a five percent level of significance in her tests, is there a significant correlation of the return on assets of these stocks. A. No B. Yes

A. No

Probit and logit are models used when there is a: A. Qualitative dependent variable B. Quantitative dependent variable

A. Qualitative dependent variable

Which of the following is not an assumption of multiple regression? A. The residuals are heteroskedastic B. The expected value of the residuals is zero. C. The residuals are not related to any of the independent variables.

A. The residuals are heteroskedastic.

Time series models are used most often to address which problem of regression analysis? A. autocorrelation B. multicollinearity C. heteroskedasticity

A. autocorrelation

The correlation between the return on the stock and the return on the market is: A. different from zero at the 1 percent level of significance B. not different from zero at the 1 percent level of significance

A. different from zero at the 1 percent level of significance

Proponents of the efficient market hypothesis believe that technical analysts should: A. find another job B. focus on resistance levels C. focus on financial statements

A. find another job

The ___________ the variance of the sample distribution, the greater the difference between the sample's arithmetic mean and the geometric mean. A. larger B. smaller

A. larger

If an investor buys a 91-day US treasury bill with a money market yield of 3 percent, its discount yield is: A. less than 3 percent B. equal to 3 percent C. greater than 3 percent

A. less than 3 percent

We reject the null hypothesis when the p-value of the test statistic is: A. less than the level of significance B. greater than the level of significance

A. less than the level of significance

The capital asset pricing model states that the only priced risk is: A. market risk B. non-market risk C. unsystematic risk

A. market risk

US Treasury Bills are traded in the: A. money markets B. capital markets

A. money markets

The test of the mean of the differences is used when the two samples are: A. paired B. unpaired

A. paired

If the active return for a portfolio is 5 percent and the return from factor tilts is greater than 5 percent, this means that stock selection had the effect of: A. reducing the active return B. enhancing the active return

A. reducing the active return

If the confidence interval for a mean is {2.5, 5.6} and the hypothesized value of the mean is 1.25, this indicates that we must: A. reject the null hypothesis B. accept the null hypothesis C. fail to reject the null hypothesis

A. reject the null hypothesis

An analyst regressed the net profit margin of a cross-section of 50 companies against the acid-test ratio of the companies. The f-statistic for this regression is 45.67. From this information and using a 5% level of significance, the analyst must: A. reject the null hypothesis of H0: b1=0 B. fail to reject the null hypothesis of H0: b1=0

A. reject the null hypothesis of H0: b1=0

The correlation between good governance and macroeconomic stability is: A. significant at the 5% level but not the 1% level B. significant at both the 5% level and the 1% level C. not significantly different from zero the 5% level of significance

A. significant at the 5% level, but not the 1% level

The level of significance is: A. the probability of a type I error B. the probability of a type II error C. 1 - the probability of a type I error D. 1 - the probability of a type II error

A. the probability of a type I error

The standard deviation of the differences between portfolio returns and benchmark return is best described as: A. tracking risk B. deviation risk C. semivariance risk

A. tracking risk

In a two-sided alternative test, we fail to reject the null hypothesis when the calculated value of the test statistic is: A. within the bounds of +_ the critical test value B. outside the bounds +_ the critical test value

A. within the bounds of +_ the critical test value

A company currently pays a dividend of $1.50 per share. Dividends are expected to increase at a rate of 20% per year for the next three years. 10% for the next three years, and then at a constant rate of 5% per year. If the investor's required rate of return is 15%, the value of a share of the stock is closest to: A. $24 B. $25 C. $26

B. $25

The value of the option is closest to: A. $2.71 B. $4.18 C. $4.35

B. $4.18

The geometric mean return is closest to: A. 1.432 percent B. 1.466 percent C. 1.500 percent

B. 1.466 percent

Suppose a company issues bonds that matures in five years. The bonds pay a semi-annual coupon of 8% for the first two years, 6% for the next two years, and then 4% for the last year. If these bonds are priced to yield 4%, their price is closest to: A. 100.00 B. 111.13 C. 113.35

B. 111.13

If the odds of a given event occurring are 1 to 6, the probability of the event occurring is closest to: A. 12.5 percent B. 14.3 percent C. 16.7 percent

B. 14.3 percent

The geometric mean is closest to: A. 158 B. 177 C. 200

B. 177

Consider the following probability distribution: The coefficient of variation of this distribution is closest to: A. -13.823 B. 20.712 C. 46.076

B. 20.712

The AAA bond has a coupon of 5 percent and is priced at 95. The BBB bond has a coupon of 8 percent and is priced at 89. Both bonds have ten years to maturity. Comparing the yields on these bonds, the spread is closest to: A. 4 bp B. 408 bp C. 4,085 bp

B. 408 bp

If the return on the market is expected to be 6 percent, the expected return on the stock is closest to: A. 6.0 percent B. 6.3 percent C. 6.4 percent

B. 6.3 percent

The percentage of the variation of the returns on the stock explained by the variation in the return on the market is closest to: A. 80 percent B. 89 percent C. 95 percent

B. 89 percent

Consider a 4% coupon bond with 2 years to maturity. Pricing the bond according to the following yield curve, the arbitrage value of this bond is closest to: A. 86.42 B. 96.28 C. 96.43

B. 96.28

Suppose an investor buys a 90-day treasury bill when its discount yield is 2 percent. The price of this bill is closest to: A. 98.000 B. 99.500 C. 99.995

B. 99.500

The Sharpe ratio compares the return of a portfolio with the return on the benchmark, standardizing by the standard deviation of the benchmark return. A. True B. False

B. False

The model that most likely best fits the time series of revenues depicted in this graph is a: (image shows a graph with steadily increasing slope left to right) A. Linear trend model B. Log-linear trend model C. Polynomial trend model

B. Log-linear trend model

Which of the following is a nonparametric statistic? A. Pearson correlation coefficient B. Spearman correlation coefficient

B. Spearman correlation coefficient

Which one of the following statements is correct concerning the standard deviation of a portfolio? A. The greater the diversification of a portfolio, the greater the standard deviation of that portfolio. B. The standard deviation of a portfolio can often be lowered by changing the weights of the securities in the portfolio. C. The standard deviation of a portfolio is equal to a weighted average of the standard deviations of the individual securities held within the portfolio.

B. The standard deviation of portfolio can often be lowered by changing the weights of the securities in the portfolio.

The model: Yt = e^b0+b1t is most appropriate when there is: A. a linear trend B. exponential growth C. experiential growth

B. exponential growth

The money-weighted return of a portfolio is calculated using the: A. cost of capital B. internal rate of return of cash flows C. geometric mean return of annual returns

B. internal rate of return of cash flows

A normal yield curve is one in which: A. long-term interest rates are lower than short-term interest rates. B. long-term interest rates are higher than short-term interest rates C. intermediate term interest rates are higher than either short- or long-term interest rates

B. long-term interest rates are higher than short-term interest rates

Suppose a sample has a skewness as -2.50. From this you can conclude that the: A. mean is higher than the median B. median is higher than the mean

B. median is higher than the mean

The slope coefficient is: A. different from one at the 1 percent level of significance B. not different from one at the 1 percent level of significance

B. not different from one at the 1 percent level of significance

The test of the differences in variances is performed using which test statistic? A. s1/s2 B. s1^2/s2^2 C. (n-1)s^2/sdo^2

B. s1^2/s2^2

The weak form of the efficient market hypothesis states that: A. security prices reflect all publicly-available information. B. security prices reflect past prices of assets. C. security prices reflect all publicly available and private information.

B. security prices reflect past prices of assets.

The correlation between market efficiency and good governance is: A. significant at the 5% level, but not the 1% level B. significant at both the 5% level and the 1% level C. not significantly different from zero the 5% level of significance

B. significant at both the 5% level and the 1% level

When computing yield to maturity, the implicit reinvestment assumption is that the interest payments are reinvested at the: A. coupon rate B. yield to maturity at the time of the investment C. prevailing yield to maturity at the time interest payments are received

B. yield to maturity at the time of the investment

The 90% confidence interval for a sample of 45 observations with a mean of 8 and a standard deviation of 2 is best described as: A. {7.3991; 8.6009} B. {7.4991; 8.5009} C. {7.5096; 8.4904}

B. {7.4991; 8.5009}

The correlation between the return on the stock and the return on the market is closest to: A. 0.8886 B. 0.8935 C. 0.9453

C. 0.9453

The number of observations is: A. 22 B. 23 C. 24 (Answer is number of total degrees of freedom + 1)

C. 24

Sam Elliot discovered an arbitrage opportunity among three well-diversified portfolios considering a one-factor model: A: 5%, 1.6. B: 8%, 0.8. C: 4%, 1.0 The arbitrage profit is closest to: A. 1.00 percent B. 2.50 percent C. 3.25 percent

C. 3.25 percent

Given the following: Average return on the portfolio = 6.7 % Average return on the portfolio's benchmark = 5.4% Return attributed to factor tilts = 2.8% Standard deviation of the benchmark's return = 1.3% Standard deviation of the portfolio's return = 4.5% Standard deviation of the difference between the return on the portfolio and the return on the benchmark = 3.5% What is the portfolio's active risk? A. 1.3 percent B. 2.8 percent C. 3.5 percent D. 4.5 percent

C. 3.5 percent

Consider the estimated model of: In yt = 2.34 + 0.04t where t=1,2,...25 The predicted Yt for period t=27 is closest to: A. 1.23 B. 3.42 C. 30.57

C. 30.57

The semivariance for this sample is closest to: A. 64 B. 193 C. 4144 D. 37,300

C. 4144

Consider the following regression model: Yt = b0 + b1yt-1 + Et The estimated slope is 0.75 and the estimated intercept is 1.35. The mean reverting level of this time series is closest to: A. -2.1 B. 1.8 C. 5.4

C. 5.4

In stock quotes from a given dealer, your broker is quoted 54.34 and 54.36. Therefore, if you buy the stock you pay, without considering your broker's commission: A. 54.34 B. 54.35 C. 54.36

C. 54.36

If the odds of the company beating analysts' expectations are 1 in 5, the probability of the company not beating expectations is closest to: A. 20 percent B. 80 percent C. 83 percent

C. 83 percent

The model: Yt = b0 + b1 Yt-1 is best described as: A. a trend model B. a differencing model C. an autoregressive model

C. an autoregressive model

The null and alternative hypotheses, when considered together, must be: A. only exhaustive B. only mutually exclusive C. both exhaustive and mutually exclusive

C. both exhaustive and mutually exclusive

The time-weighted return of a portfolio is calculated using the: A. cost of capital B. internal rate of return of cash flows C. geometric mean return of annual returns

C. geometric mean return of annual returns

If the exercise price were lower than $40, this option would be valued: A. lower B. the same C. higher

C. higher

Suppose that two portfolios have the same average return, the same standard deviation of returns, but portfolio M has a higher beta than portfolio N. According to the Sharpe measure, the performance of portfolio M is: A. worse than the performance of portfolio N. B. better than the performance of portfolio N. C. the same as the performance of portfolio N.

C. the same as the performance of portfolio N.

For a given sample, the 95 percent confidence interval on the sample mean will be __________ the 90 percent confidence interval. A. narrower than B. the same width as C. wider than

C. wider than

Translating a value today into a value sometime in the future is ________ whereas translating a value in the future to a value today is _________

Compounding, discounting

If the annual percentage rate of 12%, ___________ compounding will produce the highest effective annual rate and ___________ compounding will produce the lowest effective annual rate.

Continuous, annual

The power of the test is: A. the probability of a type I error B. the probability of a type II error C. 1 - the probability of a type I error D. 1 - the probability of a type II error

D. 1 - the probability of a type II error

True or False: If a bank compounds savings accounts quarterly, the nominal rate will exceed the effective annual rate.

False

True or False: If you own a stock on the day before the ex-dividend date and then sell the stock on the ex-dividend date, you do not get the forthcoming dividend.

False

Hedge funds typically invest in investments that are ______________ risk and are _______________ entities.

High, unregulated

Which of the following are components of an interest rate?

Liquidity premium, Real risk-free rate, inflation premium, and default risk premium

A ____________ market is a market for short-term securities, and a __________ market is a market for the initial issuance of securities.

Money, Primary

Which of the following will generate a value randomly chosen from a Normal distribution with a mean in cell B4 and a standard deviation in cell B5?

NORM.INV(RAND(),B4,B5)

A stock that trades at a low price is often referred to as a ___________ stock.

Penny

When mortgages are pooled together and interests in the pool are sold as securities, this process is referred to as ___________.

Securitization (securitizing)

We use the F-statistic to test which of the following?

Variance1 = Variance 2 versus Variance1 =/= Variance2