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fundamentals of asset management
Terms in this set (15)
A client is looking to achieve equity-type returns but is concerned about tax consequences. Which of the following investments would you recommend?
a stock-index fund as they are tax efficient.
A stock recently paid a dividend of $3.25. The market price is $45.00 and the company's growth rate is 6%. Your investor requires an 11% return on all investments. What is the intrinsic value of this stock?
V = D1 / (r - g)
($3.25 * 1.06) / (.11 - .06) = $68.90
If an investor expects interest rates to decrease, which type of bond would the investor prefer if the investor wants to maximize her maximum gains?
Bond A: AAA rate, 10-year maturity, 8.86 duration
Bond B: AA rated, 5-year maturity, 4.2 duration
Bond C: AA rated, zero-coupon maturity
Bond C
Bob's portfolio experiences the following returns over a 3-year period: 12%, -5%, 8%. What is his geometric average return?
take the three numbers and add 1 to each. Then, multiply each one to each other. Finally, take the product to the root of how many numbers you had to begin with, subtract 1, then multiply result by 100 to receive the geometric average. ( 1 + .12 ) x ( 1 - .05 ) x ( 1 + .08 ) = 1.1491
yx, 3, 1/x = ^.333
1.1491 = 1.0474 - 1 = .0474 x 100 = 4.7422 or 4.7%.
Which of the following forms of the efficient market hypothesis supports the notion that historical information will not help investors achieve above-average market returns?
weak form says that historical data will not help increase returns for investors. semi-strong suggest this too, but weak form is the direct opposite to technical analysis.
Which of the following fixed income instruments provide both inflation and purchasing power protection?
x
A few years ago, Bob bought Starbucks stock for $7 per share. Today the stock is trading at $100 per share. Bob is concerned about locking in his profit and giving back his gains. Which of the following strategies would you recommend?
buying a put option would be the safest bet for Bob here because it allows him the maximum amount of profit with less risk than selling a put and or buying and selling a call
Which of the following statement about correlation is correct?
a.
A correlation of -1 denotes that 2 assets are perfectly positively correlated.
b.
A correlation of 0 denotes that assets are completely uncorrelated.
c.
A correlation of +1 denotes that 2 assets are perfectly negatively correlated.
d.
Diversification benefits begin anytime correlation is greater than 1.
A correlation of 0 denotes that assets are completely uncorrelated.
Maria is considering purchasing a security with a risk-free rate of 3%, beta equal to 1.5, and a market risk premium equal to 9%, what is her expected return?
expected rate of return is just using the capital asset pricing model to determine the value of the stock.
ri = rf + (rm - rf)*Bi
.03 + (.09)*1.5 = 16.5%
the risk free premium is given in the question facts (rm - rf). We do not need to calculate it.
Bob purchased 100 shares of Starbucks trading at $50 per share with an initial margin requirement of 75% and a maintenance margin of 25%. At what price would Bob receive a margin call?
Bob paid 75% of his entire purchase so ($50 x .25 loan amt) / (1 - .025 maintenance margin) = $16.67
What does the term undervalued refer to regarding the Security Market Line (SML)?
the portfolio is above the SML.
Which broad market index would be more appropriate to use when conducting comparisons between a large-cap, blue chip portfolio, and the securities market?
S&P 500
Systematic Risk is______________?
non-diversified risk, market risk and economy-based risk.
What is the taxable equivalent yield on a Treasury security paying 3.5% if the marginal federal rate is 35% and the state income tax rate is 5%?
.035
(
tax-exempt yield) / ( 1 - .05*
)
*state income tax rate. = 3.68%
All of the following statements regarding closed-end funds are true except?
they do not have an unlimited initial market capitalization. their initial market capitalization is fixed.
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