sloppy joe castro

Suppose your expectations regarding the stock price are as follows: Probability: HPR: Boom 0.3 44% Normal growth 0.4 14% Recession 0.3 -16% compute the mean and standard deviation of the HPR on stocks.

[0.3 x (44-14)^2)] + [0.4 x (14-14)^2] + [0.3 x (-16 - 14)^2] = 540 sq root of 540 = 23.24%

If you believe the economy is about to go into a recession, you might change your asset allocation by selling _______ and buying ______. a. growth stocks; long-term bonds b. long-term bonds; growth stocks c. defensive stocks; growth stocks d. defensive stocks; long-term bonds

a

The yield curve spread between the 10-year T-bond yield and the federal funds rate is a _______ economic indicator. a. leading b. lagging c. coincident d. mixed

a

in security markets, there should be a risk-return trade off with higher rick assets having ____________________ expected returns that lower risk assets a. higher b. low c. the same d. the answer cannot be determined from the information given

a

A top-down analysis of a firm's prospects starts with an analysis of the ____. a. firm's position in its industry b. U.S. economy or even the global economy c. industry d. specific firm under consideration

b

echnical analysis focuses on _____________________. a. finding opportunities for risk-free investing b. finding repeating trends and patterns in prices c. changing prospects for earnings growth of particular firms or industries d. forecasting technical regulatory changes

b

The most widely used monetary policy tool is _________. a. altering the discount rate b. altering reserve requirements c. open market operations d. increasing the budget deficit

c

When a stock price breaks through the moving average from below, this is considered to be ______. a. the starting point for a new moving average b. a bearish signal c. a bullish signal d. none of these options

c

Which one of the following stocks represents industries with below-average sensitivity to the state of the economy? a. financials b. technology c. food and beverage d. cyclicals

c

Which one of the following firms would be described as having below-average sensitivity to the state of the economy? a. A stalwart firm. b. A cyclical firm. c. An asset play firm. d. A defensive firm.

d

If you believe the economy is about to go into a recession, you might change your asset allocation by selling _______ and buying ______.

growth stocks, long term bonds

Asset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?

(Expected return - Risk free rate) / standard deviation .2-.1 /.25 = .4

You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ____. Multiple Choice A. 4% B. 3.5% C. 7% D. 11%

.04 + ($3.50 / $50) = 11% D.

Diversification is most effective when security returns are _________. Multiple Choice A. high B. negatively correlated C. positively correlated D. uncorrelated

B

Which of the following is consistent with a steeply upwardly sloping yield curve? A. Monetary policy is restrictive and fiscal policy is restrictive. B. Monetary policy is expansive and fiscal policy is expansive. C. Monetary policy is expansive while fiscal policy is restrictive.

B

A top-down analysis of a firm's prospects starts with an analysis of the ____. Multiple Choice A. firm's position in its industry B. U.S. economy or even the global economy C. industry D. specific firm under consideration

B.

The most widely used monetary policy tool is _________. Multiple Choice A. altering the discount rate B. altering reserve requirements C. open market operations D. increasing the budget deficit

C

Which one of the following firms would be described as having below-average sensitivity to the state of the economy? A. A stalwart firm. B. A cyclical firm. C. An asset play firm. D. A defensive firm.

D. a defensive firm

A municipal bond carries a coupon rate of 4.25% and is trading at par. What would be the equivalent taxable yield of this bond to a taxpayer in a 35% combined tax bracket?

Equivalent taxable yield = Rate on muni bond / (1 - tax rate) 6.54%

FinCorp's free cash flow to the firm is reported as $205 million. The firm's interest expense is $22 million. Assume the corporate tax rate is 21% and the net debt of the firm increases by $3 million. What is the market value of equity if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 12%?

FCFE= FCFF - Interest expense x (1- tax rate) + increase in debt 205mil - 22mil x (1-.21) + 3mil answer= 190.62 mil or 190,620,000

If the offering price of an open-end fund is $12.30 per share and the fund is sold with a front-end load of 5%, what is its net asset value?

NAV = Offering price × (1 - load) = $12.30 × (1 - 0.05) = $11.69

Tri-coat paints has a current market value of $41 per share with earnings of $3.64. what is the present value of its growth opportunities (PVGO) if the required return is 9%?

PVGO= 41- (3.64/ .09) = $0.56

According to the capital asset pricing model, a security with a _________.

positive alpha is considered underpriced

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is 0.7, while that of B is 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31%, and that of the S&P 500 index is 18%. a. Calculate the alphas for the two portfolios. b. b. If you could invest only in T-bills and one of these portfolios, which would you choose?

αA = 12% - [5% + 0.7 × (13% - 5%)] = 1.4%αB = 16% - [5% + 1.4 × (13% - 5%)] = -0.2% SA =0.12 − 0.05= 0.5830.12 SB =0.16 − 0.05= 0.3550.31 sing the Sharpe criterion, Portfolio A is the preferred portfolio.