N 1

Compute the interest and taxable income of following TIPS 10-year note at the end of the first 6 months since issuance. Terms of TIPS 10-year note are: 1) Value at issuance (par amount) = $1,000; 2) Stated rate of interest (annual coupon rate) = 6% payable semiannually. CPI at issuance = 100, 4% annual inflation rate.

N 2

Assume the following information for stocks A and B: Stock A: Expected Return = 10%, Standard Deviation of Returns 30%; Stock B: Expected Return = 15%, Standard Deviation of Returns 25%; Correlation between returns of Stock A and Stock B = +1. The expected return and standard deviation of an equally weighted portfolio of stocks A and B are:

	A.	Expected Return = 12.5%, Standard Deviation = 23%
	B.	Expected Return = 13%, Standard Deviation = 23%
	C.	Expected Return = 12.5%, Standard Deviation = 27.5%
	D.	Expected Return = 13%, Standard Deviation = 27.5% N 3 Using the following information to calculate the standard deviation of a two-stock portfolio. Characteristics for this two-stock portfolio: Caffeine Plus Drink stock: Amount invested $40,000. Expected Return = 11%. Standard Deviation = 15%; Sparkling Drink Stock: Amount invested $60,000. Expected Return = 25%. Standard Deviation = 20%. Correlation between Caffeine Plus Drink stock and Sparkling Drink stock is 0.30.

Suppose you bought 500 shares of a $20 stock and borrowed the maximum amount of money given an initial margin requirement of 50%. If the stock price increase to $30 per share, what will be your equity position in the stock? What would be your percentage return if the price reaches $30 in the earlier example? If the maintenance margin is 25%, what is the margin call price?

QUESTION 5

Both FCFF and DDM use some discount rate to estimate intrinsic value, but DDM is more popular in application. True False

QUESTION 6

The market price of ABC stock is $31 when Jacky places a limit buy order through broker @ $30 for 1,000 shares. At the same time, there are four different sell orders entering into the market: A sell order @ market price for 1,500 shares A sell order @ $30.5 for 600 shares A sell order @ 29.5 for 200 shares A sell order @ limit 30 stop 29.5 for 600 shares What is the average cost of Jackys transaction for each share of ABC stock (assume there is no brokers commission in this case)?

A.

$30

B. $29.875

c. $29.5

d. $29.375

QUESTION 7

Solve the Sharpe ratio of the mutual fund using the following information: 1) Beta of mutual fund = 0.75 2) Return of mutual fund = 10% 3) Standard Deviation of mutual fund = 4% 4) Risk-free rate of return = 3% 5) S&P 500 return = 12%

QUESTION 8

Bronco Inc.'s common stock is currently selling for $40 and just paid an annual dividend of $5. If the investors expect dividends to double in 10 years, what is close number to the required rate of return for Bronco Inc.?

• 10%
• 15%
• 20%
• 30%

QUESTION 9

Even the investors use the same FCFF model to value the same stock, they CAN still arrive at the different estimate of value True False

QUESTION 10

The investor who invest in both bonds and stocks should have more risk than the investor who only invest in bonds. True False

QUESTION 11

For FCFF and FCFE model, we use the income statement and balance sheet to derive the free cash flow to compute stocks fair value, it might be not necessary to look into the capital structure and its adjustment. True False

QUESTION 12

In an efficient market:

• returns tend to be positive on the last trading day before a holiday
• security prices are seldom far above or below their justified level
• stock prices do not rapidly adjust to new information
• firms that are not followed by many analysts tend to yield higher returns

QUESTION 13

Edison Energy NJ, Ltd. just paid an annual dividend $2. Analyst expects the dividends to grow at a rate of 5 percent per year over the foreseeable future. If the required rate of return for this stock is 10 percent, what is its intrinsic value today? If the market price of the stock is $50, why the intrinsic value you solved is not consistent? Could you give several explanations?

QUESTION 14

Solve the Jensen's Alpha of the mutual fund using the following information: 1) Beta of mutual fund = 0.75 2) Return of mutual fund = 10% 3) Standard Deviation of mutual fund = 4% 4) Risk-free rate of return = 3% 5) S&P 500 return = 12%

QUESTION 15

Using the following information to calculate the expected return of a two-stock portfolio. Characteristics for this two-stock portfolio: Caffeine Plus Drink stock: Amount invested $40,000. Expected Return = 11%. Standard Deviation = 15%; Sparkling Drink Stock: Amount invested $60,000. Expected Return = 25%. Standard Deviation = 20%. Correlation between Caffeine Plus Drink stock and Sparkling Drink stock is 0.30.

QUESTION 16

The investor who invest in both bonds and stocks should have more risk than the investor who only invest in bonds. True False