Multiple Mutual's Net Asset Value? A) $18.11 B) $18.81 C) $69.96 D) $7.00 E) $181.07
Answer: A Difficulty: Moderate
Rationale: (457,000,000 - 17,000,000) / 24,300,000 = $18.11
2. Diversified Portfolios had year-end assets of $279,000,000 and liabilities of
$43,000,000. If Diversified's NAV was $42.13, how many shares must have been held in the fund? A) 43,000,000 B) 6,488,372 C) 5,601,709 D) 1,182,203 E) None of the above.
Answer: C Difficulty: Moderate
Rationale: ($279,000,000 - 43,000,000) / $42.13 = 5,601,708.996.
3. Pinnacle Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If
Pinnacle's NAV was $32.18, how many shares must have been held in the fund? A) 21,619,346,92 B) 22,930,546.28 C) 24,860,161.59 D) 25,693,645.25 E) None of the above.
Answer: C Difficulty: Moderate
Rationale: ($825,000,000 - 25,000,000) / $32.18 = 24,860,161.59.
4. The Profitability Fund had NAV per share of $17.50 on January 1, 2005. On
December 31 of the same year the fund's NAV was $19.47. Income distributions were $0.75 and the fund had capital gain distributions of $1.00. Without considering taxes and transactions costs, what rate of return did an investor receive on the Profitability fund last year? A) 11.26% B) 15.54% C) 16.97% D) 21.26% E) 9.83%
Answer: D Difficulty: Moderate
Rationale: R = ($19.47 - 17.50 + .75 + 1.00) / $17.50 = 21.26%
5. Patty O'Furniture purchased 100 shares of Green Isle mutual fund at a net asset value
of $42 per share. During the year Patty received dividend income distributions of $2.00 per share and capital gains distributions of $4.30 per share. At the end of the year the shares had a net asset value of $40 per share. What was Patty's rate of return on this investment? A) 5.43% B) 10.24%
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C) 7.19% D) 12.44% E) 9.18%
（40-42+2+4.3）/42=10.24%
6. A mutual fund had year-end assets of $560,000,000 and liabilities of $26,000,000.
There were 23,850,000 shares in the fund at year end. What was the mutual fund's Net Asset Value? A) $22.87 B) $22.39 C) $22.24 D) $17.61 E) $19.25
Answer: B Difficulty: Moderate
Rationale: (560,000,000 - 26,000,000) / 23,850,000 = $22.389
7. A mutual fund had year-end assets of $465,000,000 and liabilities of $37,000,000. If
the fund NAV was $56.12, how many shares must have been held in the fund? A) 4,300,000 B) 6,488,372 C) 8,601,709 D) 7,626,515 E) None of the above.
Answer: D Difficulty: Moderate
Rationale: ($465,000,000 37,000,000) / $56.12 = 7,626,515
8. A mutual fund had NAV per share of $26.25 on January 1, 2005. On December 31 of
the same year the fund's rate of return for the year was 16.4%. Income distributions were $1.27 and the fund had capital gain distributions of $1.85. Without considering taxes and transactions costs, what ending NAV would you calculate? A) $27.44 B) $33.88 C) $24.69 D) $42.03 E) $16.62
Answer: A Difficulty: Moderate
Rationale: .164 = (P - $26.25 + 1.27 + 1.85) / $26.25; P = $27.435
9. A mutual funds had average daily assets of $2.0 billion on 2005. The fund sold $500
million worth of stock and purchased $600 million worth of stock during the year. The funds turnover ratio is ___. A) 27.5% B) 12% C) 15% D) 25% E) 20%
Answer: D Difficulty: Moderate
Rationale: 500,000,000 / 2,000,000,000 = 25%
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10. You purchased shares of a mutual fund at a price of $20 per share at the beginning of
the year and paid a front-end load of 5.75%. If the securities in which the find
invested increased in value by 11% during the year, and the funds expense ratio was 1.25%, your return if you sold the fund at the end of the year would be ____________. A) 4.33 B) 3.44 C) 2.45 D) 6.87 E) None of the above
[20*(1-5.75%)*(1+11%-1.25%)-20]/20=0.0343
11. List and describe the more important types of mutual funds according to their
investment policy and use.
CHAPTER 05
1. Over the past year you earned a nominal rate of interest of 10 percent on your money.
The inflation rate was 5 percent over the same period. The exact actual growth rate of your purchasing power was A) 15.5%. B) 10.0%. C) 5.0%. D) 4.8%. E) 15.0%
Answer: D Difficulty: Moderate
Rationale: r = (1+R) / (1+I) - 1; 1.10% / 1.5% - 1 = 4.8%.
2. You purchased a share of stock for $20. One year later you received $1 as dividend
and sold the share for $29. What was your holding period return? A) 45% B) 50% C) 5% D) 40% E) none of the above
Answer: B Difficulty: Moderate
Rationale: ($1 + $29 - $20)/$20 = 0.5000, or 50%.
Use the following to answer questions 3-5:
You have been given this probability distribution for the holding period return for KMP stock:
3. What is the expected holding period return for KMP stock? A) 10.40% B) 9.32% C) 11.63% D) 11.54%
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E) 10.88%
Answer: A Difficulty: Moderate
Rationale: HPR = .30 (18%) + .50 (12%) + .20 (-5%) = 10.4%
4. What is the expected standard deviation for KMP stock? A) 6.91% B) 8.13% C) 7.79% D) 7.25% E) 8.85%
Answer: B Difficulty: Difficult
Rationale: s = [.30 (18 - 10.4)2 + .50 (12 - 10.4)2 + .20 (-5 - 10.4)2]1/2 = 8.13%
5. What is the expected variance for KMP stock? A) 66.04% B) 69.96% C) 77.04% D) 63.72% E) 78.45% A Difficulty: Difficult
Rationale: s = [.30 (18 - 10.4)2 + .50 (12 - 10.4)2 + .20 (5 - 10.4)2] = 66.04%
6. You purchase a share of Boeing stock for $90. One year later, after receiving a
dividend of $3, you sell the stock for $92. What was your holding period return? A) 4.44% B) 2.22% C) 3.33% D) 5.56% E) none of the above
Answer: D Difficulty: Moderate
Rationale: HPR = (92 - 90 + 3) / 90 = 5.56%
7.
An investor purchased a bond 45 days ago for $985. He received $15 in interest and sold the bond for $980. What is the holding period return on his investment? A) 1.52% B) 0.50% C) 1.02% D) 0.01% E) None of the above Answer: C Difficulty: Easy
Rationale: HPR = ($15+980-985)/$985 = .010152284 = approximately 1.02%.
8. Over the past year you earned a nominal rate of interest of 8 percent on your money.
The inflation rate was 3.5 percent over the same period. The exact actual growth rate of your purchasing power was A) 15.55%. B) 4.35%. C) 5.02%. D) 4.81%. E) 15.04%
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Answer: B Difficulty: Moderate
Rationale: r = (1+R) / (1+I) - 1 ; 1.08 / 1.035 - 1 = 4.35%.
9. Over the past year you earned a nominal rate of interest of 14 percent on your money.
The inflation rate was 2 percent over the same period. The exact actual growth rate of your purchasing power was A) 11.76%. B) 16.00%. C) 15.02%. D) 14.32%. E) none of the above.
10. An investment provides a 2% return semi-annually, its effective annual rate is A) 2%. B) 4%. C) 4.02% D) 4.04% E) none of the above (1.02)2 -1 = 4.04%
11. Discuss the relationships between interest rates (both real and nominal), expected inflation
rates, and tax rates on investment returns.
12. Discuss why common stocks must earn a risk premium.
CHAPTER 07
1. Market risk is also referred to as A) systematic risk, diversifiable risk. B) systematic risk, nondiversifiable risk. C) unique risk, nondiversifiable risk. D) unique risk, diversifiable risk. E) none of the above. Answer: B Difficulty: Easy
Rationale: Market, systematic, and nondiversifiable risk are synonyms referring to the risk
that cannot be eliminated from the portfolio. Diversifiable, unique, nonsystematic, and firm-specific risks are synonyms referring to the risk that can be eliminated from the portfolio by diversification.
2. The variance of a portfolio of risky securities A) is a weighted sum of the securities' variances. B) is the sum of the securities' variances. C) is the weighted sum of the securities' variances and covariances. D) is the sum of the securities' covariances. E) none of the above.
Answer: C Difficulty: Moderate
Rationale: The variance of a portfolio of risky securities is a weighted sum taking into accou
nt both the variance of the individual securities and the covariances between securities.
3. Other things equal, diversification is most effective when
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