Question 1

Hedging is a technique used by investors to:

Accepted Answer

A)  Reduce the risk and simultaneously increase the rate of return of a portfolio of assets. 
B)  Reduce the risk without affecting the rate of return of portfolio assets. 
C)  Reduce the risk by stabilizing the value of the portfolio of assets. 
D)  All of these. 
E)  None of these. 
A)  Reduce the risk and simultaneously increase the rate of return of a portfolio of assets. 
B)  Reduce the risk without affecting the rate of return of portfolio assets. 
C)  Reduce the risk by stabilizing the value of the portfolio of assets. 
D)  All of these. 
E)  None of these.

Question 2

You hold a $10 million bond portfolio with a modified duration of 8 years.How would you,using T-bond futures,hedge this portfolio? Assume that the bond to be delivered has a modified duration of 9 years and that the futures price is currently $92 for $100 par value.

Accepted Answer

A)  Sell approximately 97 contracts 
B)  Buy approximately 97 contracts 
C)  Sell approximately 90 contracts 
D)  Buy approximately 90 contracts 
E)  None of these 
A)  Sell approximately 97 contracts 
B)  Buy approximately 97 contracts 
C)  Sell approximately 90 contracts 
D)  Buy approximately 90 contracts 
E)  None of these

Question 3

Delta

Accepted Answer

A)  is the slope of the option-pricing curve. 
B)  tells how many shares of underlying stock one must hold to offset the exposure from an option position. 
C)  is meaningful in terms of U.S.southern geography and in the naming of social organizations,but has no financial connotation. 
D)  a and b. 
E)  none of these. 
A)  is the slope of the option-pricing curve. 
B)  tells how many shares of underlying stock one must hold to offset the exposure from an option position. 
C)  is meaningful in terms of U.S.southern geography and in the naming of social organizations,but has no financial connotation. 
D)  a and b. 
E)  none of these.

Question 4

Consider the Treynor-Black model.The alpha of an active portfolio is 1%.The expected return on the market index is 16%.The variance of the return on the market portfolio is 4%.The nonsystematic variance of the active portfolio is 1%.The risk-free rate of return is 8%.The beta of the active portfolio is 1.05.The optimal proportion to invest in the active portfolio is _________.

Accepted Answer

A)  48.7% 
B)  50.0% 
C)  51.3% 
D)  100.0% 
E)  none of these 
A)  48.7% 
B)  50.0% 
C)  51.3% 
D)  100.0% 
E)  none of these

Question 5

Passive portfolio management consists of _________.

Accepted Answer

A)  market timing 
B)  security analysis 
C)  indexing 
D)  market timing and security analysis 
E)  None of these is true. 
A)  market timing 
B)  security analysis 
C)  indexing 
D)  market timing and security analysis 
E)  None of these is true.

Question 6

The security selection form of active portfolio management relies on __________ forecasting and the market timing form of active portfolio management relies on __________ forecasting.

Accepted Answer

A)  macroeconomic,macroeconomic 
B)  macroeconomic,microeconomic 
C)  microeconomic,macroeconomic 
D)  microeconomic,microeconomic 
E)  perfect,imperfect 
A)  macroeconomic,macroeconomic 
B)  macroeconomic,microeconomic 
C)  microeconomic,macroeconomic 
D)  microeconomic,microeconomic 
E)  perfect,imperfect

Question 7

Perfect timing ability is equivalent to having __________ on the market portfolio.

Accepted Answer

A)  a call option 
B)  a futures contract 
C)  a put option 
D)  a commodities contract 
E)  None of these is true. 
A)  a call option 
B)  a futures contract 
C)  a put option 
D)  a commodities contract 
E)  None of these is true.

Question 8

Active portfolio managers try to construct a risky portfolio with _________.

Accepted Answer

A)  a higher Sharpe measure than a passive strategy 
B)  a lower Sharpe measure than a passive strategy 
C)  the same Sharpe measure as a passive strategy 
D)  very few securities 
E)  none of these 
A)  a higher Sharpe measure than a passive strategy 
B)  a lower Sharpe measure than a passive strategy 
C)  the same Sharpe measure as a passive strategy 
D)  very few securities 
E)  none of these

Question 9

A purely passive strategy

Accepted Answer

A)  uses only index funds. 
B)  uses weights that change in response to market conditions. 
C)  uses only risk-free assets 
D)  is best if there is "noise" in realized returns. 
E)  is useless if abnormal returns are available. 
A)  uses only index funds. 
B)  uses weights that change in response to market conditions. 
C)  uses only risk-free assets 
D)  is best if there is "noise" in realized returns. 
E)  is useless if abnormal returns are available.

Question 10

To hedge a portfolio of medium to large cap stocks,an investor would use:

Accepted Answer

A)  Futures contracts written on each stock in the portfolio. 
B)  Futures contracts written on Treasury securities. 
C)  Futures contracts written on British pounds. 
D)  Futures contracts written on the TSX 60. 
E)  None of these. 
A)  Futures contracts written on each stock in the portfolio. 
B)  Futures contracts written on Treasury securities. 
C)  Futures contracts written on British pounds. 
D)  Futures contracts written on the TSX 60. 
E)  None of these.

Hedging is a technique used by investors to:

You hold a $10 million bond portfolio with a modified duration of 8 years.How would you,using T-bond futures,hedge this portfolio? Assume that the bond to be delivered has a modified duration of 9 years and that the futures price is currently $92 for $100 par value.

Delta

Passive portfolio management consists of _________.

The security selection form of active portfolio management relies on forecasting and the market timing form of active portfolio management relies on forecasting.

Perfect timing ability is equivalent to having __________ on the market portfolio.

Active portfolio managers try to construct a risky portfolio with _________.

A purely passive strategy

To hedge a portfolio of medium to large cap stocks,an investor would use:

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Exam 21: Investors and the Investment Process

Hedging is a technique used by investors to:

You hold a $10 million bond portfolio with a modified duration of 8 years.How would you,using T-bond futures,hedge this portfolio? Assume that the bond to be delivered has a modified duration of 9 years and that the futures price is currently $92 for $100 par value.

Delta

Passive portfolio management consists of _________.

The security selection form of active portfolio management relies on __________ forecasting and the market timing form of active portfolio management relies on __________ forecasting.

Perfect timing ability is equivalent to having __________ on the market portfolio.

Active portfolio managers try to construct a risky portfolio with _________.

A purely passive strategy

To hedge a portfolio of medium to large cap stocks,an investor would use:

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

The security selection form of active portfolio management relies on forecasting and the market timing form of active portfolio management relies on forecasting.