闪电代写 -代写CS作业_CS代写_Finance代写_Economic代写_Statistics代写_代码代做_IT代写_加急帮助

Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

FIN 3300

Spring 2020

Final Exam

1. Which of the following statements about the CAPM is false?

(a) Stocks with a beta of zero should have an expected total return of zero

under the CAPM

(b) The CAPM implies that investors require a higher return (total not excess)

when the risk-free rate is higher

(d) All of the above

(e) None of the above

2. The return on short-term treasury bills is 3% and the market risk premium is 7%. You generate return forecasts based on your own proprietary model as well as risk measures on the following two stocks:

Stock X Stock Y

Forecasted return	14%	7%
β	2	1
Std. Dev	20%	15%

What would be the fair expected return for each stock under the CAPM?

(a) E(rX ) = 17%, E(rY ) = 7%

(b) E(rX ) = 17%, E(rY ) = 10%

(d) E(rX ) = 14%, E(rY ) = 7%

(e) None of the above

3. Using the same data as 2, are either of the stocks mispriced relative to the CAPM? Assume you trust your return forecasts.

(a) Y is overpriced, X is underpriced

(b) X is overpriced, Y is underpriced

(d) Both stocks are fairly priced

(e) Both stocks are underpriced

4. The following are scatter plots of the excess returns on stock X and Y vs. those on the S&P 500. Which stock has more diversifiable risk?

(a) Stock Y

(b) Stock X

(d) We can not tell from this plot

(e) None of the above

(A) Stock X

(B) Stock Y

5. Your fund manager earned a large negative CAPM α over the past ten days. Should you withdraw all of your money?

(a) Yes, this CAPM α is strong evidence that the fund manager is doing a poor job

(b) No, α is never an appropriate measure of fund-manager performance

(d) No, your sample period is way to short to make a strong conclusion (e) Yes; for reasons not listed above

6. If you find an asset with a statistically significant CAPM α, MUST that asset be mispriced?

(a) Yes, CAPM α means the asset is earning return that is not explained by exposure to the market

(b) Yes, assuming you have enough data to generate reliable estimates of α and β

(d) No, it depends on the beta of the stock (e) No; for reasons not listed above

7. You are considering adding a small-cap value fund (SV) to your portfolio, which currently consists only of a mutual fund that tracks the S&P500. You run the following regression (monthly data):

TSV,t − Tf,t = αSV + βSV (TSP500,t − Tf,t ) + eSV,t .

You estimate α = 0.5% βSV = 0.89, σ(TSV ) = 5%, σ(eSV ) = 4.4%, E(TSP500 − Tf ) = 0.6%, and σ(TSP500) = 4.2%. If your goal is to maximize the Sharpe ratio of your whole portfolio, which of the following is closest to the weight you should put in fund BF (with the rest in the SP500 fund)?

(a) 0.00

(b) 0.25

(d) 0.75 (e) 1

8. Which of the following is an important reason to know the economic theory behind patterns in returns you trade on or recommend to clients? MARK ALL THAT APPLY (e.g., if you think A and B are right, mark AB on the answer key)

(a) Impressing your friends with your knowledge

(b) Understanding whether your trading strategy will persist into the future (c) Deciding which clients you should recommend a strategy to

(d) Identifying whether the economic conditions are right for your strategy to succeed

(e) Knowing the theory increases the statistical significance of your αs

9. You are assessing the average performance of two mutual fund managers with the Fama-French 3-factor model. The fund managers and the Fama-French factors had the following performance over this period of time:

Manager 1		Manager 2	rm − rf	smb	hml
Avg. (total) Ret	18%	13%	8%	2%	6%
βmkt	1.5	1	1	0	0
s	0.5	-0.5	0	1	0
h	0.5	0.5	0	0	1

The risk-free rate is 2%. Based on the Fama French 3-factor model, which manager is better?

(a) Manager 1 did better

(b) Their performance was equally good

(d) Not enough information

10. Based on the exposures to the Fama-French factors in problem 9, what kinds of stocks does manager 1 invest in?

(a) Small-cap value stocks

(b) Small-cap growth stocks

(d) Large-cap value stocks

(e) Not enough information

11. Which of the following stocks would be considered a “value” stock given the adjacent information?

(a) Stock XYZ; prior-year return=5%, book-to-market ratio = 1

(b) Stock ABC; prior-year return=5%, book-to-market ratio = 2

(d) Stock IBQ; prior-year return=20%, book-to-market ratio = 1

12. Which of the following segments of the stock market are likely to exhibit the greatest degree of mispricing?

(a) Highly liquid stocks

(b) Stocks with a great deal of analyst coverage

(d) Small-cap stocks

(e) Stocks of companies that have been around for many years

13. A famous anomaly in stock returns is called short-term reversal (STR). The STR anomaly is that stocks with the highest returns in one month tend to have very low returns the following month and stocks with very low returns in one month tend to have very high returns the following month. Assuming prior- month returns have no obvious association with risk, does the STR anomaly appear to violate market efficiency?

(a) Yes; if markets are efficient, then stocks whose prices go up one month should go back down the next month, and vice versa.

(b) No; if markets are efficient, then stocks whose prices go up one month

should go back down the next month, and vice versa.

(c) Yes; if markets are efficient, then they should rapidly incorporate new information leaving no short-term predictability in returns immediately after.

(d) No; this just means that the stock market does not incorporate the news in past returns very quickly.

(e) None of the above

14. What should equity traders do at the end of the month if the STR anomaly in question 13 represents mispricing? (Select all that apply)

(a) Short-sell stocks with the highest returns over the month that just ended (b) Buy stocks with the lowest returns over the month that just ended (c) Buy stocks with the highest returns over the month that just ended (d) Short stocks with the lowest returns over the month that just ended (e) Not enough information or none of the above

15. If enough traders execute the trade in 14, what should happen to the profitabil-

ity of the strategy for future traders, assuming STR represents mispricing?

(a) The trade will become unprofitable

(b) More traders doing the same trade will increase the mispricing

(d) All of the above

16. You estimate a CAPM regression for stock XYZ. The estimated β is 1.3 and the t-statistics for the null hypothesis that β = 0 is 6.5. Which of the following is closest to the t-statistic for the null hypothesis that β = 1?

(a) 1

(b) 2

(d) 2.5 (e) 3

17. You estimate the alphas for a bond fund manager and a equity fund manager. You estimate an alpha of 2% (per year) for the bond manager and a 4% (per year) alpha for the equity fund manager. Assuming you trust both alphas, which manager would you invest more in?

(a) The bond fund manager, because their alpha is lower

(b) The equity fund manager, because their alpha is higher

(d) It depends on the diversifiable/non-systematic risk of each fund (e) None of the above

18. What is one reason most CFO’s still rely on the CAPM to estimate cost of capital in spite of the fact that it fails to explain the returns on all stocks?

(a) They simply do not know that the CAPM has problems

(b) There is not necessarily a reliably better/generally accepted alternative

model, and they have to use something

(c) The CAPM estimates always underestimate the cost-of-capital, so CFOs can use the CAPM to deceive shareholders into believing their companies are worth more than is actually true

(d) CFOs lack the technical ability to use anything more sophisticated than the CAPM

(e) None of the above

19. If a company has cash earnings of $300 million per year, assets of $1.5 billion, and interest expense on debt of $10 million per year, which of the following is most likely true about the credit ratings of their existing bonds?

(a) These bonds are probably in default

(b) These bonds are barely investment grade

(d) These bonds are “high yield” bonds

20. Company X would like to issue bonds to finance the purchase of a new factory, but they are having financial difficulties, negatively impacting the credit rating of their existing bonds. Which of the following options could they realistically have to issue new bonds at a favorable interest rate?

(a) Let the new bonds be senior to the old bonds

(b) Pledge the new factory as collateral for the new bonds

(d) Issue bonds without promising any collateral, but market the fact that the new factory is projected to substantially increase profitability

21. Which of the following is false about agency mortgage-backed securities? (a) They offer investors an ability to invest in a diversified pool of mortgages (b) They are more liquid than high-yield corporate bonds

(d) They have very high default risk

22. Corporation X issues three bonds, A, B, and C, with the same par value, coupon rate, seniority, and maturity. Bond A is convertible, that is it can be exchanged by the bond holder for a specified number of shares of X’s stock. Bond B has no special features. Bond C is callable for 105% of par value, that is X can buy back the bonds for 105% of par value at any time. Rank the bonds from highest to lowest in order of their value to investors.

(a) A, B, C

(b) A, C, B

(d) B, A, C

(e) B, C, A

23. A hedge fund currently invests in $10 billion of non-agency mortgage-backed securities (MBS) that have a duration of 7. Which of the following is closest to how much money the fund would gain or lose if yields increased by 3%?

(a) Gain $2.1 billion

(b) Gain $3 billion

(d) Lose $2.1 billion

(e) Lose $0.7 billion

24. A $100-face value bond that pays semi-annual coupons at a rate of 4% per year paid its last coupon on April 30th, 2020. The next coupon payment will be on October 31st. Today is June 8th. Which of the following is closest to the accrued interest on the bond?

(a) $0.30

(b) $0.40

(d) $0.80

(e) $2

Formulas and facts:

• Accrued interest = (#days since last coupon/number of days per coupon period)*coupon

• CAPM: E(ra ) = rf + βa (E(rm ) − rf ) or E(ra − rf ) = βa (E(rm ) − rf )

• CAPM test regression: rit − rft = αi + βi (rmt − rft ) + ϵit

• Fama French 3-factor model: E(ra − rf ) = βa * E(rm − rf ) + sa * E(SMBt ) + ha * E(HMLt )

• Fama French test regression: rat − rft = αa + βa * (rmt − rft ) + sa * (SMBt ) + ha * (HMLt ) + ϵit

• Carhart 4-factor model:

E(ra − rf ) = βa *E(rm − rf )+sa *E(SMBt )+ha *E(HMLt )+ma E(MOMt )

• Carhart 4-factor test regression:

rat −rft = αa +βa * (rmt −rft )+sa * (SMBt )+ha * (HMLt )+ma * (MOMt )+ϵit • mktrft = rmt − rft is the excess return on the US stock market.

• SMBt = rsmall,t − rbig,t is the return on the portfolio of small-cap US stocks in excess of the return on a portfolio of large-cap US stocks.

• HMLt = rhigh,t − rlow,t is the return on the portfolio of high book-to-market (value) stocks in excess of the return on the portfolio of low book-to-market (growth) stocks.

• MOMt = rWinners,t − rLosers,t is the return on stocks with high returns over the prior 12 months in excess of the return on stocks with low returns over the prior 12 months.

• return = =