FIN-375 FALL 23 Test Corrections Worth Earn Up Points

CH5 Investment Decisions and Attribution Analysis

1. An investor notices the price of the small cap index ETF in her portfolio has fallen, while other assets in her portfolio remain stable. She buys more shares of the small cap stock index. This investor is likely employing which strategy?

a. Buy and hold

b. Tactical allocation

c. Dynamic allocation

d. Constant weighting

2. Consider two funds: The Atlantic Fund has a beta of 1.47 and a standard deviation of 20.6%. It has returned 12.8% during the past year when the return on one-year T-bills was 3.2%. The Indian Ocean Fund has a Sharpe Ratio of .52. Using the Sharpe ratio for your comparison, which fund provides the better return based on risk level?

a. Atlantic Fund, because its Sharpe Ratio of 5.75 is higher than the Sharpe Ratio of 0.52 for Indian Ocean Fund

b. Atlantic Fund, because its Sharpe Ratio of 0.47 is lower than the Sharpe Ratio of 0.52 for Indian Ocean Fund

c. Indian Ocean Fund, because its Sharpe Ratio of 0.52 is higher than the Sharpe Ratio of 0.47 for Atlantic Fund

d. Indian Ocean Fund, because its Sharpe Ratio is lower than the 5.75 Sharpe Ratio for Atlantic Fund

CH6 Market Efficiency & Behavioral Finance

3. Perhaps the biggest behavior mistake made by both individual investors and money managers during the dot com bubble was:

a. Loss aversion

b. Mental accounting

c. Assuming market efficiency

d. Herd mentality

4. Paul sits on four boards of directors of publicly held companies, each operating in a different industry. He has an ethical clause in each of her board contracts but ignores them by trading on information she learns during board meetings. Paul generates an average return on these trades that is well above any relevant benchmark. If Pauls strategy was repeatable by all investors over the long term, this would violate which form of the efficient market hypothesis?

a. Inefficient

b. Weak form efficient

c. Semi-strong form efficient

d. Strong form efficient

CH 7 Fixed Income

5. Which of the following statements regarding Treasury bills are most accurate?

1. Non-competitive bids determine the yield at any given auction.

2. Competitive bids determine the yield at any given auction.

3. Non-competitive bidders are guaranteed to have their orders filled up to the auction maximum.

4. Competitive bidders are guaranteed to have their orders fully filled.

5. Regardless of their actual bid, all purchasers, whether competitive or non-competitive bidders, receive the highest accepted bid yield at a given auction.

a. 1, 3 and 4.

b. 1, 3 and 5.

c. 2, 3 and 5.

d. 2, 4 and 5.

6. Which of the following statements regarding bonds are least accurate?

1. A bonds YTM is the return an investor will earn if they reinvest all coupon payments at the expected internal rate of return and hold till maturity.

2. A bonds YTM is the return an investor will earn if they reinvest all coupon payments at the then current market rates and hold till maturity.

3. A debenture is typically backed by an asset that the bond holder can repossess if the debt is not paid.

4. A general obligation bond is backed by the taxing authority of the issuing municipality.

a. 1, 3 and 4

b. 1, 2, and 3

c. 2 and 3

d. None of the above, since all of the statements are true.

7. Chloe is single and in the 24% federal tax bracket and 5% state tax bracket. She is considering the purchase of a municipal bond, with a YTM of 5%. Chloe's tax equivalent yield on the bond (assume that she is not subject to the 3.8% Net Investment Income Tax) is closest to:

a. 6.58%

b. 7.04%

c. 5.26%

d. 10.77%

8. The Alberston bond is a 5.5% coupon bond with semi-annual coupon payments that matures in 10 years. If the YTM for this bond is 4%, what is the value of the bond?

a. $1,081.11

b. $1,081.76

c. $1,122.64

d. $1,125.03

9. The duration of a 10-year bond, selling for $877.11, with an 8% annual coupon is closest to: (HINT: First find YTM)

a. 7.04

b. 7.33

c. 7.62

d. 7.99

10. 40 basis points could be expressed as

a. 0.04%

b. 0.40%

c. 4.00%

d. 40.00%