Question 76

Which of the following practices is most likely to be permitted by a strong corporate code of ethics?

A)    Board members that simultaneously serve on the board of more than one firm.

B)   Paying finders fees for merger or acquisition targets to relatives of board members.

C)   The personal use of company assets by board members.

D)   Awarding consultancy contracts to board members.

Returns on firms’ investments in short-term securities are best stated as which of the following types of yields?

A)    Discount-basis yields.

B)   Money market yields.

C)   Discount-basis yields × (365/360).

D)   Bond equivalent yields.

A country risk premium must be added to the CAPM when estimating the cost of equity in a developing country. Which of the following is least likely to be useful to U.S. investors when computing a developing country risk premium?

A)    The annualized standard deviation of the S& 500 Index.

B)   The 10-year government bond yield for the developing country.

C)   The U.S. Treasury bond yield.

D)   The annualized standard deviation of the U.S. dollar return on sovereign bonds.

The following information is available for the stock of Park Street Holdings:

• The price today (P₀) equals $45.00.

• The expected price in one year (P₁) is $55.00.

• The stock's beta is 2.31.

• The firm typically pays no dividend.

• The 3-month Treasury bill is yielding 4.25%.

• The historical average S& 500 return is 12.5%.

Park Street Holdings stock is:

A)    undervalued by 1.1%.

B)   overvalued by 1.1%.

C)   overvalued by 3.7%.

D)   undervalued by 3.7%.

Which of the following statements about portfolio management is most accurate?

A)    The order of the four step investment process is: analyze current financial and economic conditions, specify goals and constraints, allocate assets across asset classes, and monitor and rebalance the portfolio as needed.

B)   An investor's portfolio should contain a sizable portion of equities to preserve capital over the long term.

C)   Investment constraints include liquidity, time horizon, taxes, legal and regulatory concerns, and unique characteristics such as concern for social issues.

D)   Investment performance should be judged based on the raw portfolio return minus fees.

[此贴子已经被作者于2008-11-7 17:40:27编辑过]

答案和详解如下！

Question 76

Which of the following practices is most likely to be permitted by a strong corporate code of ethics?

A)    Board members that simultaneously serve on the board of more than one firm.

B)   Paying finders fees for merger or acquisition targets to relatives of board members.

C)   The personal use of company assets by board members.

D)   Awarding consultancy contracts to board members.

The correct answer was A ) Board members that simultaneously serve on the board of more than one firm.

It is neither uncommon nor unacceptable for individuals to be members of the board of directors of more than one firm, as long as they may maintain independence and act for the benefit of the firms’ shareholders. In the U.S. and many other countries, information regarding related-party transactions and personal use of company assets is included in the notes to firm’s financial statement, the annual corporate governance report, or in proxy statements.

This question tested from Session 11, Reading 48, LOS e

Question 77

Returns on firms’ investments in short-term securities are best stated as which of the following types of yields?

A)    Discount-basis yields.

B)   Money market yields.

C)   Discount-basis yields × (365/360).

D)   Bond equivalent yields.

The correct answer was D) Bond equivalent yields.

The returns on investments in short-term securities should be stated as bond equivalent yields (BEYs), and returns on portfolios of these securities should be stated as a weighted average of BEYs. The BEY allows fixed-income securities whose payments are not annual to be compared with securities with annual yields.

This question tested from Session 11, Reading 46, LOS e, (Part 1)

Question 78

A country risk premium must be added to the CAPM when estimating the cost of equity in a developing country. Which of the following is least likely to be useful to U.S. investors when computing a developing country risk premium?

A)    The annualized standard deviation of the S& 500 Index.

B)   The 10-year government bond yield for the developing country.

C)   The U.S. Treasury bond yield.

D)   The annualized standard deviation of the U.S. dollar return on sovereign bonds.

The correct answer was A) The annualized standard deviation of the S& 500 Index.

The country risk premium (CRP) that is added to the market risk premium in the CAPM when the CAPM is used to determine the cost of equity in a developing country is computed as:

Note that the CRP calculation uses the annualized standard deviation of the developing country’s equity market index, not the annualized standard deviation of the developed country’s equity market index.

This question tested from Session 11, Reading 45, LOS i

Question 79

The following information is available for the stock of Park Street Holdings:

• The price today (P₀) equals $45.00.

• The expected price in one year (P₁) is $55.00.

• The stock's beta is 2.31.

• The firm typically pays no dividend.

• The 3-month Treasury bill is yielding 4.25%.

• The historical average S& 500 return is 12.5%.

Park Street Holdings stock is:

A)    undervalued by 1.1%.

B)   overvalued by 1.1%.

C)   overvalued by 3.7%.

D)   undervalued by 3.7%.

The correct answer was B ) overvalued by 1.1%.

To determine whether a stock is overvalued or undervalued, we need to compare the expected return (or holding period return) and the required return (from Capital Asset Pricing Model, or CAPM).

Step 1: Calculate Expected Return (Holding period return):

The formula for the (one-year) holding period return is:

HPR = (D₁ + S₁ – S₀) / S₀, where D = dividend and S = stock price.

Here, HPR = (0 + 55 – 45) / 45 = 22.2%

Step 2: Calculate Required Return:

The formula for the required return is from the CAPM:

RR = R_f + (ER_M – R_f) × Beta
RR = 4.25% + (12.5 – 4.25%) × 2.31 = 23.3%.

Step 3: Determine over/under valuation:

The required return is greater than the expected return, so the security is overvalued.
The amount = 23.3% − 22.2% = 1.1%.

This question tested from Session 12, Reading 51, LOS e

Question 80

Which of the following statements about portfolio management is most accurate?

A)    The order of the four step investment process is: analyze current financial and economic conditions, specify goals and constraints, allocate assets across asset classes, and monitor and rebalance the portfolio as needed.

B)   An investor's portfolio should contain a sizable portion of equities to preserve capital over the long term.

C)   Investment constraints include liquidity, time horizon, taxes, legal and regulatory concerns, and unique characteristics such as concern for social issues.

D)   Investment performance should be judged based on the raw portfolio return minus fees.

The correct answer was C) Investment constraints include liquidity, time horizon, taxes, legal and regulatory concerns, and unique characteristics such as concern for social issues.

Investment constraints include liquidity, time horizon, taxes, legal and regulatory concerns, and unique characteristics.

The steps of the investment process are listed in the incorrect order. The order should be as follows: specify goals and constraints (write a policy statement), analyze current financial and economic conditions (develop investment strategy), allocate assets across asset classes (implement the plan), monitor and rebalance the portfolio as needed (monitor and update). A sizable portion of equities is not appropriate for all investors. Performance should be judged relative to an objective, benchmark standard, not on the raw portfolio return.

This question tested from Session 12, Reading 49, LOS d

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