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Final exam

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Final exam

  1. 1. University of Douala ENSET Marchés Financiers Final Exam 2011 CFA4 Lecturer: Dr. Ayou Bene Marius Instructions. The exam lasts 02h30: Student must answer to multiple choice questions (1 through 10)by selecting the right answer(s). Each right answer worth 1point and student will lose 1 point for any wrong 4answer. Student must also de…ne the required expressions (De…nitions) and solve the exercise. 1. Investors in closed-end funds who wish to liquidate their positions must_________ A) sell their shares through a broker. B) sell their shares to the issuer at a discount to Net Asset Value. C) sell their shares to the issuer at a premium to Net Asset Value. D) sell their shares to the issuer for Net Asset Value. E) hold their shares to maturity. 2. A mutual fund had year-end assets of $250,000,000 and liabilities of $4,000,000. There were 3,750,000 shares in the fund at year-end. What was the mutual fund’ Net Asset Value?________ s A) $92.53 B) $67.39 C) $63.24 D) $65.60 E) $17.46 3. Which of the following are mechanisms that have evolved to mitigate potential agency problems?_________ I) compensation in the form of the …rm’ stock options s II) hiring bickering family members as corporate spies III) underperforming management teams being forced out by boards of directors IV) security analysts monitoring the …rm closely A) II and V B) I, III, and IV C) I, III, and IV D) III, IV, and V 4. Treasury bills are commonly viewed as risk-free assets because_______ A) their short-term nature makes their values insensitive to interest rate ‡uctuations. B) the in‡ation uncertainty over their time to maturity is negligible. C) their term to maturity is identical to most investors’desired holding periods. D) Both A and B are true. E) Both B and C are true. 1
  2. 2. 5. In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called _____________. A) the Security Market Line B) the Capital Allocation Line C) the Indi¤erence Curve D) the investor’ utility line s E) none of the above 6. A T-bill pays 6 percent rate of return. Would risk-averse investors invest in a risky portfolio that pays 12 percent with a probability of 40 percent or 2 percent with a probability of 60 percent?________ A) Yes, because they are rewarded with a risk premium. B) No, because they are not rewarded with a risk premium. C) No, because the risk premium is small. D) Cannot be determined. E) None of the above. Use the following to answer questions 7-8: Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The expected return on the risky portfolio P is 12%, its standard deviation is 7.20%, and the risk-free rate of return is 3.60%. Bo’ complete portfolio is has weights equal to 80% for the risky s portfolio P and 20% for T-Bills. 7. What is the slope of Bo’ Capital Allocation Line?______ s A) 3.6 B) 1.167 C) 12.0 D) 0.2 E) 0.857 8. What is the standard deviation of Bo’ complete portfolio?________ s A) 7.20% B) 5.40% C) 6.92% D) 4.98% E) 5.76% 9. Which statement is not true regarding the market portfolio?________ A) It includes all publicly traded …nancial assets. B) It lies on the e¢ cient frontier. C) All securities in the market portfolio are held in proportion to their market values. D) It is the tangency point between the capital market line and the indi¤erence curve. E) All of the above are true.10. Assume that you purchased 200 shares of Super Performing mutual fund at a net asset value of $21 per share. During the year you received dividend income distributions of $1.50 per share and capital gains distributions of $2.85 per share. At the end of the year the shares had a net asset value of $23 per share. What was your rate of return on this investment?________ A) 30.24% B) 25.37% 2
  3. 3. C) 27.19% D) 22.44% E) 29.18%De…nitions De…ne and discuss the following terms (graphical illustrations can be used). (6pts) Separation principle (Portfolio theory). E¢ cient Frontier (Portfolio theory) Beta (CAPM)Exercise: (4pts) The rate of return on short-term government securities (perceived to be risk-free) isabout 5%. Suppose the expected rate of return required by the market for a portfolio with a beta of 1 is13%. According to the CAPM (hint: E (ri ) = rf + i [E (rM ) rf ]): What is the expected rate of return on the market portfolio? (1pt) What would be the expected rate of return on a stock with = 0? (1pt) Suppose you consider buying a share of stock at 100. The stock is expected to pay 2 dividend next year and you expect it to sell then for 105. You calculated the of the stock to be 0:5. Is the stock overpriced or underpriced? (2pts) 3

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