1. The duration of a bond is determined by a combination of the maturity date and value, and:
a. None of the above
b. the call premium.
c. the pattern of coupon payments.
d. the put premium.
2. Duration is:
a. always shorter than maturity.
b. always longer than maturity.
c. always the same as maturity.
d. normally shorter than maturit
3. Duration equals maturity if:
a. the bond is a zero-coupon bond.
b. all cash flows are paid at the end of the year.
c. More than one of the above
d. the coupon rate equals the market rate.
4. The duration of a 20-year, $1,000 bond at a COUPON rate of 8% is _________ the duration of an identical bond at a coupon rate of 6%.
a. greater than
b. less than
c. there is not enough information to tell
d. equal to
5. Hedge funds are: (choose the best answer)
a. Both B and C
b. private limited partnerships.
c. unregulated by the SEC.
d. regulated by the SEC.
6. Hedge funds:
a. are open about their trading strategies.
b. are secretive about their strategies.
c. None of the above
d. trade using only one brokerage.
7. Hedge fund managers today construct a portfolio with a beta that:
a. is lower in rising markets and a higher in falling markets.
b. is higher in rising markets and lower in falling markets.
c. is market neutral.
d. is not relevant.
8. A fund which invests in companies that are in or close to bankruptcy is called:
a. a sloan fund.
b. a distressed fund
c. a short/long bias fund.
d. a market neutral fund.
9. A fund which invests in companies that are in or close to bankruptcy is called:
a. a sloan fund.
b. a market neutral fund.
c. a distressed fund
d. a short/long bias fund.
10. Relative to other asset classes, hedge funds are:
a. not highly correlated.
b. related only to the currencies.
c. negatively correlated
d. not correlated at all.
11. According to the text, a risk-averse investor:
a. will only participate in low-risk or risk-free investments.
b. is one of a small minority in the United States.
c. demands a premium for assuming risk.
d. More than one of the above
12. Under Markowitz's theory, the ideal portfolio for an investor is represented by:
a. the point of tangency between the efficient frontier and the investor's indifference curve.
b. the highest possible indifference curve.
c. the highest possible point on the efficient frontier.
d. None of the above
13. The capital market line (CML) as defined by the capital asset pricing model is characterized by all of the following except:
a. All of the above are characteristics of the capital market line
b. a point on the efficient frontier above which higher returns can be generated by borrowing funds without assuming more risk.
c. a straight line tangent to the efficient frontier.
d. a straight line which includes the rate of return on a risk-free asset.
14. Risk is generally associated only with loss from possible investments.
True/False
15. Duration analysis is subject to the assumption that all interest income can be reinvested at the market rate of interest.
True/False
16. The greater the negative correlation between two (or more) securities, the lower the portfolio standard deviation (all else being equal).
True/False
17. Points below the efficient frontier have less desirable risk-return characteristics than those along the efficient frontier.
True/False
18. In general, the greater the dispersion of outcomes, the lower the risk.
True/False
19. There is an inverse relationship between interest rates and bond values, and between the amount of coupon payments and weighted average life.
True/False
20. Macaulay duration is a bond's weighted average life based on present value of cash flows.
True/False