Question 9 Which statement about behavioural effect is True? Not yet saved a. Investors are reluctant to sell stocks with "paper" losses-Mental Accounting Marked out of 1.00 b. Investors are slow to update their beliefs when given new evidence - Regret Avoidance - P Flag question c. Investors disregard sample size when forming views about the future from the past - Representation bias d. Investors are reluctant to bear losses due to their unconventional decisions -Conservatism bias Previous page Next page Question 10 Which of the following statements is False regarding actively managed mutual funds: Not yet saved Marked out of 1.00 a. Tend to charge higher fees than passively managed mutual funds b. Provide record keeping and administrative functions P Flag question C. Attempt to replicate the weightings of the broad market index in their own holdings. O O d. May attempt to identify mispriced assets Previous page Next page Question 11 Not yet saved Bond K has a coupon rate 6% per year (coupons paid out semi-annually), yield to maturity 3.5% per half-year and currently sell at price of $Y. What will be the price of the bond 1 year from now, right after the coupon is paid out (assuming the yields stay unchanged)? Marked out of 1.00 a. Need more information to answer P Flag question b. Unchanged O O O c. More than $Y d. Less than $Y Previous page Next page Question 12 Incumbent company's patent on product X is about to expire. Which of the following is likely to happen following its expiry? Not yet saved Marked out of 1.00 a. Reduction in the price of product X P Flag question b. An increase in profit margins for companies producing product X c. Reduction in sales of Product X d. Reduction in competition in the market for product X o Previous page Next page Question 13 Everything else equal, a decrease in the money supply by the central bank would Not yet saved a. Marked out of 1.00 Decrease the supply of loanable funds, shift the supply of funds curve to the right and increase the interest rate in the economy. P Flag question b. Decrease the supply of loanable funds, shift the supply of funds curve to the left and increase the interest rate in the economy. C. Increase the supply of loanable funds, shift the supply of funds curve to the left and decrease the interest rate in the economy. d. Increase the supply of loanable funds, shift the supply of funds curve to the right and increase the interest rate in the economy. Previous page Next page - Question 14 Not yet saved Marked out of 1.00 0 5 10 15 20 25 30 35 40 45 50 Payoff bubuousto P Flag question -20 -25 -30 -35 -40 Value of underlying asset at contract maturity The above diagram shows the payoff of a position taken in a futures contract. Which of the following statements is False? a. The payoff shows a long position taken in the futures contract. b. The payoff shows a short position taken in the futures contract. The novoffie nositive when price of the underlying is below Question 15 Which of the following statements is true about the use of futures contracts? Not yet saved Marked out of 1.00 a. Futures may amplify or reduce the risk of a portfolio, depending on the position taken. b. Futures do not impact the risk of a portfolio as they are derivative instruments. P Flag question C. Futures always amplify the risk of a portfolio due to the ability of trade on margin. d. Futures always reduce the risk of a portfolio as the accounts are settled daily. Previous page Next page Question 16 All else being equal, how does the hedge ratio of a call option with a high exercise price compare to the hedge ratio of an option with a low exercise price on the same underlying? Not yet saved Marked out of 1.00 a. The two options have identical hedge ratios because the underlying is the same P Flag question b. Exercise price has no effect on the hedge ratio, so the two options have identical hedge ratios C. Option with a high exercise price has a lower hedge ratio than one with a low exercise price d. Option with a high exercise price has a higher hedge ratio than one with a low exercise price Previous page Next page Question 17 Not yet saved Alex aims to achieve an expected return of 18.20% by investing a share portfolio and a risk-free asset. The Sharpe Ratio of the share portfolio is 0.80. The standard deviation of the share portfolio is 35%. What should be the weight invested in risk-free asset if the risk-free rate is 2%? (rounded to 2 decimal places) Marked out of 1.00 P Flag question a. 42.14% b. None of the other choices c. 50.20% d. 55.20% Previous page Next page Question 18 Not yet saved A 10-year bond with face value of $1000 and coupon rate of 5% pays out coupons semi-annually. Market yield on similar securities is 5% per half-year. What should the bond sell for? (rounded to 2 decimal places) Marked out of 1.00 a. $750.76 P Flag question b. $688.44 c. $1000.00 0 d. None of the other choices Previous page Next page Question 19 Not yet saved ShineCorp's free cash flow to the firm for the year that just ended was reported as $85 million. The firm's interest expense was $5 million. Assume the tax rate is 30% and the net debt of the firm increased by $10 million. What is the market value of equity (in millions) if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 15%? (rounded to integral) Marked out of 1.00 P Flag question a. None of the other choices b. $785 million C. $680 million d. $725 million Previous page Next page Question 20 Table below reports information on zero coupon bonds X and Y. Bond Effective Annual Yield Time to Maturity Not yet saved Face Value Marked out of 1.00 x 7.05% 6 months $100.00 Y 8.50% 12 months $100.00 P Flag question Under the expectations hypothesis, in 6 months, price of Bond Y will be Under the liquidity preference theory, its price will be (rounded to 1 decimal place) a. $97.6; higher than $97.6 b. None of the other choices C. $95.4; higher than $95.4 d. $95.4; lower than $95.4 Question 21 a Andrew considers a call option that has a delta of 0.45. If the price of the underlying asset increases by $3, then what is the best estimate of the change in option price? Not yet saved Marked out of 1.00 a. An increase of $4.35 P Flag question b. A decrease of $4.35 c. An increase of $1.35 O d. A decrease of $1.35 Previous page Next page Question 22 Not yet saved Stock M has an expected return of 12%: 10% is the expected capital return, the rest being the dividend yield. Stock M is currently priced at $46. If the risk-free interest rate (effective annual) is 3%, calculate the fair futures price on a five-month contract for stock M. Marked out of 1.00 a. $59.92 P Flag question b. $46.57 c. $44.22 O d. $46.19 Previous page Next page Question 23 Not yet saved Marked out of 1.00 Anthony is planning to buy 5 000 shares of XYZ once funds are available to him in six months' time. Futures contracts on XYZ deliver 100 shares each and expire eight months from now. He buys 50 of these contracts at a price of $40 (per share) to hedge against upward price movements in the stock. Six months later (t=6) the stock price of XYZ is $36 and the futures price is $38 (to expire in two months' time). If Anthony closes out his futures position and then proceeds to buy the shares in the market (both at t=6), calculate his net cost of buying XYZ shares once the futures gain/loss is considered. P Flag question a. None of the other choices b. $172 000 c. $180 000 d. $190 000 Previous page Next page Question 9 Which statement about behavioural effect is True? Not yet saved a. Investors are reluctant to sell stocks with "paper" losses-Mental Accounting Marked out of 1.00 b. Investors are slow to update their beliefs when given new evidence - Regret Avoidance - P Flag question c. Investors disregard sample size when forming views about the future from the past - Representation bias d. Investors are reluctant to bear losses due to their unconventional decisions -Conservatism bias Previous page Next page Question 10 Which of the following statements is False regarding actively managed mutual funds: Not yet saved Marked out of 1.00 a. Tend to charge higher fees than passively managed mutual funds b. Provide record keeping and administrative functions P Flag question C. Attempt to replicate the weightings of the broad market index in their own holdings. O O d. May attempt to identify mispriced assets Previous page Next page Question 11 Not yet saved Bond K has a coupon rate 6% per year (coupons paid out semi-annually), yield to maturity 3.5% per half-year and currently sell at price of $Y. What will be the price of the bond 1 year from now, right after the coupon is paid out (assuming the yields stay unchanged)? Marked out of 1.00 a. Need more information to answer P Flag question b. Unchanged O O O c. More than $Y d. Less than $Y Previous page Next page Question 12 Incumbent company's patent on product X is about to expire. Which of the following is likely to happen following its expiry? Not yet saved Marked out of 1.00 a. Reduction in the price of product X P Flag question b. An increase in profit margins for companies producing product X c. Reduction in sales of Product X d. Reduction in competition in the market for product X o Previous page Next page Question 13 Everything else equal, a decrease in the money supply by the central bank would Not yet saved a. Marked out of 1.00 Decrease the supply of loanable funds, shift the supply of funds curve to the right and increase the interest rate in the economy. P Flag question b. Decrease the supply of loanable funds, shift the supply of funds curve to the left and increase the interest rate in the economy. C. Increase the supply of loanable funds, shift the supply of funds curve to the left and decrease the interest rate in the economy. d. Increase the supply of loanable funds, shift the supply of funds curve to the right and increase the interest rate in the economy. Previous page Next page - Question 14 Not yet saved Marked out of 1.00 0 5 10 15 20 25 30 35 40 45 50 Payoff bubuousto P Flag question -20 -25 -30 -35 -40 Value of underlying asset at contract maturity The above diagram shows the payoff of a position taken in a futures contract. Which of the following statements is False? a. The payoff shows a long position taken in the futures contract. b. The payoff shows a short position taken in the futures contract. The novoffie nositive when price of the underlying is below Question 15 Which of the following statements is true about the use of futures contracts? Not yet saved Marked out of 1.00 a. Futures may amplify or reduce the risk of a portfolio, depending on the position taken. b. Futures do not impact the risk of a portfolio as they are derivative instruments. P Flag question C. Futures always amplify the risk of a portfolio due to the ability of trade on margin. d. Futures always reduce the risk of a portfolio as the accounts are settled daily. Previous page Next page Question 16 All else being equal, how does the hedge ratio of a call option with a high exercise price compare to the hedge ratio of an option with a low exercise price on the same underlying? Not yet saved Marked out of 1.00 a. The two options have identical hedge ratios because the underlying is the same P Flag question b. Exercise price has no effect on the hedge ratio, so the two options have identical hedge ratios C. Option with a high exercise price has a lower hedge ratio than one with a low exercise price d. Option with a high exercise price has a higher hedge ratio than one with a low exercise price Previous page Next page Question 17 Not yet saved Alex aims to achieve an expected return of 18.20% by investing a share portfolio and a risk-free asset. The Sharpe Ratio of the share portfolio is 0.80. The standard deviation of the share portfolio is 35%. What should be the weight invested in risk-free asset if the risk-free rate is 2%? (rounded to 2 decimal places) Marked out of 1.00 P Flag question a. 42.14% b. None of the other choices c. 50.20% d. 55.20% Previous page Next page Question 18 Not yet saved A 10-year bond with face value of $1000 and coupon rate of 5% pays out coupons semi-annually. Market yield on similar securities is 5% per half-year. What should the bond sell for? (rounded to 2 decimal places) Marked out of 1.00 a. $750.76 P Flag question b. $688.44 c. $1000.00 0 d. None of the other choices Previous page Next page Question 19 Not yet saved ShineCorp's free cash flow to the firm for the year that just ended was reported as $85 million. The firm's interest expense was $5 million. Assume the tax rate is 30% and the net debt of the firm increased by $10 million. What is the market value of equity (in millions) if the FCFE is projected to grow at 3% indefinitely and the cost of equity is 15%? (rounded to integral) Marked out of 1.00 P Flag question a. None of the other choices b. $785 million C. $680 million d. $725 million Previous page Next page Question 20 Table below reports information on zero coupon bonds X and Y. Bond Effective Annual Yield Time to Maturity Not yet saved Face Value Marked out of 1.00 x 7.05% 6 months $100.00 Y 8.50% 12 months $100.00 P Flag question Under the expectations hypothesis, in 6 months, price of Bond Y will be Under the liquidity preference theory, its price will be (rounded to 1 decimal place) a. $97.6; higher than $97.6 b. None of the other choices C. $95.4; higher than $95.4 d. $95.4; lower than $95.4 Question 21 a Andrew considers a call option that has a delta of 0.45. If the price of the underlying asset increases by $3, then what is the best estimate of the change in option price? Not yet saved Marked out of 1.00 a. An increase of $4.35 P Flag question b. A decrease of $4.35 c. An increase of $1.35 O d. A decrease of $1.35 Previous page Next page Question 22 Not yet saved Stock M has an expected return of 12%: 10% is the expected capital return, the rest being the dividend yield. Stock M is currently priced at $46. If the risk-free interest rate (effective annual) is 3%, calculate the fair futures price on a five-month contract for stock M. Marked out of 1.00 a. $59.92 P Flag question b. $46.57 c. $44.22 O d. $46.19 Previous page Next page Question 23 Not yet saved Marked out of 1.00 Anthony is planning to buy 5 000 shares of XYZ once funds are available to him in six months' time. Futures contracts on XYZ deliver 100 shares each and expire eight months from now. He buys 50 of these contracts at a price of $40 (per share) to hedge against upward price movements in the stock. Six months later (t=6) the stock price of XYZ is $36 and the futures price is $38 (to expire in two months' time). If Anthony closes out his futures position and then proceeds to buy the shares in the market (both at t=6), calculate his net cost of buying XYZ shares once the futures gain/loss is considered. P Flag question a. None of the other choices b. $172 000 c. $180 000 d. $190 000 Previous page Next page