FIN 380 midterm 1

equally weighted index ROR

a: P1/P2 b: P1/P2 c: P1/P2 Take average^

A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from what?

repurchase agreement

diversifiable risk

portion of the asset's risk that is not correlated with the market portfolio unique, unsystematic, firm specific risk

Sharpe ratio

reward to volatility ratio ratio of excess return to standard deviation

taxt exempt equivalent yield

rm(1-t)

price weighted index of multiple stocks

literally just the mean

asset allocation refers to

the allocation of the investment portfolio across broad asset classes

a share of common stock is not a derivative security

true

Beta is a measure of ______________.

relative systematic risk

short sales

sales of securities you don't own but have borrowed from your broker allows investors to profit from a decline in a security's price you profit when price goes down

A red herring becomes a prospectus when ____.

the preliminary registration statement is approved by the SEC

A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ______ per share.

$0.45

You are considering investing in a no-load mutual fund with an annual expense ratio of .6% and an annual 12b-1 fee of .75%. You could also invest in a bank CD paying 6.5% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD?

7.85%

Some diversification benefits can be achieved by combining securities in a portfolio as long as the correlation between the securities is _____________.

between 0 & 1

The difference between the price at which a dealer is willing to buy and the price at which a dealer is willing to sell is called the _________.

bid-ask spread

market order

buy or sell orders that are to be executed immediately at current prices

earnings per share

close/PE

EAR with continuous compounding

e^(APR)-1

cash on hand is a (real/financial) asset

financial

The risk that can be diversified away is __________.

firm-specific risk, unsystematic

According to multiple studies by Ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the long term.

good, bad

Historical returns have generally been __________ for stocks of small firms as (than) for stocks of large firms.

higher

An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price?

$17.55

You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore interest on the margin loan.)

$35.71

You find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. If you purchase or sell the stock, you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

$55

You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.

$62.50

A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face value, an investor could buy this bill for _____.

$9878.50

arithmetic average return

(mean return) ignores compounding and TMV

geometric average return

(time weighted or annualized return) equal to a single per-period return that would give the same cumulative performance as the sequence of actual returns answers "what was your average compound return per year over a particular period?"

A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ______ per share.

.45 "quarterly" means divide by 4

If the beta of the market index is 1 and the standard deviation of the market index increases from 12% to 18%, what is the new beta of the market index? `

1- market beta always 1 regardless of market volatility

If you require a real growth in the purchasing power of your investment of 8%, and you expect the rate of inflation over the next year to be 3%, what is the lowest nominal return that you would be satisfied with?

11.24%

Consider a mutual fund with $300 million in assets at the start of the year and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year-end value, what is the rate of return on the fund?

15.64%

Consider the multifactor APT with two factors. Portfolio A has a beta of .5 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor 1 and 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.

16.25

You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft is selling at $27? (Ignore any dividends.)

20%

You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.

43%

A benchmark market value index is comprised of three stocks. Yesterday the three stocks were priced at $12, $20, and $60. The number of outstanding shares for each is 600,000 shares, 500,000 shares, and 200,000 shares, respectively. If the stock prices changed to $16, $18, and $62 today respectively, what is the 1-day rate of return on the index?

6.16

Most real estate investment trusts (REITs) have a debt ratio of around _________.

70%

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV?

8.47% discount

The geometric average of -12%, 20%, and 25% is _________.

9.7%

A benchmark index has three stocks priced at $23, $43, and $56. The number of outstanding shares for each is 350,000 shares, 405,000 shares, and 553,000 shares, respectively. If the market value weighted index was 970 yesterday and the prices changed to $23, $41, and $58 today, what is the new index value?

975

The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on SDA Corp. common stock is 16%. The beta of SDA Corp. common stock is 1.25. Within the context of the capital asset pricing model, _________.

alpha=-.75%

risk free asset standard deviation

always 0

limit buy order

an order specifying a price at which an investor is willing to buy or sell a security

APR=

mortgage rate % * 12 months

__________ funds stand ready to redeem or issue shares at their net asset value.

open end

+1 correlation

perfectly positively correlated- move in same direction

__________ often accompany short sales and are used to limit potential losses from the short position.

stop-buy orders

positive covariance

suggests that as the first variable moves in one direction, the second variable moves in the same direction

market value-weighted index ROR

t=0 Pa*Qa+Pb*Qb...Pn*Qn t=1 v1/v2-1

Markowitz Efficient frontier

the set of portfolios with the maximum return for a given standard deviation most efficient is in the northwest of graph

non-diversifiable risk

the portion of the assets risk that is correlated with market portfolio market risk, systematic risk

The return on the risky portfolio is 15%. The risk-free rate, as well as the investor's borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is _________.

16.25

If the nominal rate of return on investment is 6% and inflation is 2% over a holding period, what is the real rate of return on this investment?

3.92%

You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.3% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year?

4.23%

effective annual rate of return

[(par/price)^(12/months)]-1

The ______________ is the most important dealer market in the United States, and the ______________ is the most important auction market.

NASDAQ; NYSE

-1 correlation

assets' returns are perfectly negatively correlated and they move in opposite directions the closer to -1, the further the risk is reduced as the assets returns are offsetting each other

stop buy order

specify that a stock should be bought when its price rises above a limit

A measure of the riskiness of an asset held in isolation is ____________.

standard deviation

Initial margin requirements on stocks are set by _________.

the federal reserve