投资学第7版test bank答案5.docx

投资学第7版test bank答案5.docx

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投资学第7版testbank答案5

MultipleChoiceQuestions

1.SharesofseveralforeignfirmsaretradedintheU.S.marketsintheformof

A）ADRs

B）ECUs

C）single-countryfunds

D）alloftheabove

E）noneoftheabove

Answer:

ADifficulty:

Easy

Rationale:

AmericanDepositoryReceipts（ADRs）allowU.S.investorstoinvestinforeignstocksviatransactionsontheU.S.stockexchanges.

2.__________referstothepossibilityofexpropriationofassets,changesintaxpolicy,andthepossibilityofrestrictionsonforeignexchangetransactions.

A）defaultrisk

B）foreignexchangerisk

C）marketrisk

D）politicalrisk

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

Alloftheabovefactorsarepoliticalinnature,andthusareexamplesofpoliticalrisk.

3.__________aremutualfundsthatinvestinonecountryonly.

A）ADRs

B）ECUs

C）single-countryfunds

D）alloftheabove

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

Mutualfundsthatinvestinthestocksofonecountryonlyarecalledsingle-countryfunds.

4.Theperformanceofaninternationallydiversifiedportfoliomaybeaffectedby

A）countryselection

B）currencyselection

C）stockselection

D）alloftheabove

E）noneoftheabove

Answer:

DDifficulty:

Easy

Rationale:

Alloftheabovefactorsmayaffecttheperformanceofaninternationalportfolio.

5.Overtheperiod2001-2005,mostcorrelationsbetweentheU.S.stockindexandstock-indexportfoliosofothercountrieswere

A）negative

B）positivebutlessthan.9

C）approximatelyzero

D）.9orabove

E）noneoftheabove

Answer:

BDifficulty:

Moderate

Rationale:

Correlationcoefficientsweretypicallybelow.9,whilecorrelationsbetweenwell-diversifiedU.S.marketportfoliosweretypicallyabove.9.SeeTable25.10.

6.The__________indexisawidelyusedindexofnon-U.S.stocks.

A）CBOE

B）DowJones

C）EAFE

D）alloftheabove

E）noneoftheabove

Answer:

CDifficulty:

Easy

Rationale:

TheEurope,Australia,FarEast（EAFE）indexcomputedbyMorganStanleyisawidelyusedindexofnon-U.S.stocks.

7.The__________equitymarkethadthehighestaveragelocalcurrencyreturnbetween2001and2005.

A）Russian

B）Norwegian

C）U.K.

D）U.S.

E）noneoftheabove

Answer:

ADifficulty:

Moderate

Rationale:

SeeTable25.9.

8.The__________equitymarkethadthehighestaverageU.S.dollarreturnbetween2001and2005.

A）Russian

B）Finnish

C）Columbian

D）U.S.

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

SeeTable25.9.

9.The__________equitymarkethadthehighestaverageU.S.dollarstandarddeviationbetween2001and2005.

A）Turkish

B）Finnish

C）Indonesian

D）U.S.

E）noneoftheabove

Answer:

ADifficulty:

Moderate

Rationale:

SeeTable25.9.

10.The__________equitymarkethadthehighestaveragelocalcurrencystandarddeviationbetween2001and2005.

A）Turkish

B）Finnish

C）Indonesian

D）U.S.

E）noneoftheabove

Answer:

ADifficulty:

Moderate

Rationale:

SeeTable25.9.

11.In2005,theU.S.equitymarketrepresented__________oftheworldequitymarket.

A）19%

B）60%

C）43%

D）39%

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

SeeTable25.1.

12.ThestraightforwardgeneralizationofthesimpleCAPMtointernationalstocksisproblematicbecause__________.

A）inflationriskperceptionsbydifferentinvestorsindifferentcountrieswilldifferasconsumptionbasketsdiffer

B）investorsindifferentcountriesviewexchangerateriskfromtheperspectiveofdifferentdomesticcurrencies

C）taxes,transactioncostsandcapitalbarriersacrosscountriesmakeitdifficultforinvestortoholdaworldindexportfolio

D）alloftheabove

E）noneoftheabove.

Answer:

DDifficulty:

Moderate

Rationale:

AlloftheabovefactorsmakeabroadgeneralizationoftheCAPMtointernationalstocksproblematic.

13.Theyieldona1-yearbillintheU.K.is8%andthepresentexchangerateis1pound=U.S.$1.60.Ifyouexpecttheexchangeratetobe1pound-U.S.$1.50ayearfromnow,thereturnaU.S.investorcanexpecttoearnbyinvestinginU.K.billsis

A）-6.7%

B）0%

C）8%

D）1.25%

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

r（US）=[1+r（UK）]F0/E0-1;[1.08][1.50/1.60]-1=1.25%.

14.Supposethe1-yearrisk-freerateofreturnintheU.S.is5%.Thecurrentexchangerateis1pound=U.S.$1.60.The1-yearforwardrateis1pound=$1.57.Whatistheminimumyieldona1-yearrisk-freesecurityinBritainthatwouldinduceaU.S.investortoinvestintheBritishsecurity?

A）2.44%

B）2.50%

C）7.00%

D）7.62%

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

1.05=（1+r）X[1.57/1.60]-1;r=7.0%.

15.Theinterestrateona1-yearCanadiansecurityis8%.ThecurrentexchangerateisC$=US$0.78.The1-yearforwardrateisC$=US$0.76.Thereturn（denominatedinU.S.$）thataU.S.investorcanearnbyinvestingintheCanadiansecurityis__________.

A）3.59%

B）4.00%

C）5.23%

D）8.46%

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

1.08[0.76/0.78]=x-1;x=5.23%.

16.Supposethe1-yearrisk-freerateofreturnintheU.S.is4%andthe1-yearrisk-freerateofreturninBritainis7%.Thecurrentexchangerateis1pound=U.S.$1.65.A1-yearfutureexchangerateof__________forthepoundwouldmakeaU.S.investorindifferentbetweeninvestingintheU.S.securityandinvestingtheBritishsecurity.

A）1.6037

B）2.0411

C）1.7500

D）2.3369

E）noneoftheabove

Answer:

ADifficulty:

Moderate

Rationale:

1.04/1.07=x/1.65;x=1.6037.

17.ThepresentexchangerateisC$=U.S.$0.78.TheoneyearfuturerateisC$=U.S.$0.76.Theyieldona1-yearU.S.billis4%.Ayieldof__________ona1-year__________CanadianbillwillmakeinvestorindifferentbetweeninvestingintheU.S.billandtheCanadianbill.

A）2.4%

B）1.3%

C）6.4%

D）6.7%

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

1.04=[（$0.76/$0.78）（1+r）]-1;r=6.7%.

Usethefollowingtoanswerquestions18-19:

AssumethereisafixedexchangeratebetweentheCanadianandU.S.dollar.TheexpectedreturnandstandarddeviationofreturnontheU.S.stockmarketare18%and15%,respectively.TheexpectedreturnandstandarddeviationontheCanadianstockmarketare13%and20%,respectively.ThecovarianceofreturnsbetweentheU.S.andCanadianstockmarketsis1.5%.

18.Ifyouinvested50%ofyourmoneyintheCanadianstockmarketand50%intheU.S.stockmarket,theexpectedreturnonyourportfoliowouldbe__________.

A）12.0%

B）12.5%

C）13.0%

D）15.5%

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

18%（0.5）+13%（0.5）=15.5%.

19.Ifyouinvested50%ofyourmoneyintheCanadianstockmarketand50%intheU.S.stockmarket,thestandarddeviationofreturnofyourportfoliowouldbe__________.

A）12.53%

B）15.21%

C）17.50%

D）18.75%

E）noneoftheabove

Answer:

ADifficulty:

Difficult

Rationale:

sP=[（0.5）2（15%）2+（0.5）2（20%）2+2（0.5）（0.5）（1.5）]1/2=12.53%.

20.ThemajorconcernthathasbeenraisedwithrespecttotheweightingofcountrieswithintheEAFEindexis

A）currencyvolatilitiesarenotconsideredintheweighting.

B）cross-correlationsarenotconsideredintheweighting.

C）inflationisnotrepresentedintheweighting.

D）theweightsarenotproportionaltotheassetbasesoftherespectivecountries.

E）noneoftheabove

Answer:

DDifficulty:

Moderate

Rationale:

SomearguethatcountriesshouldbeweightedinproportiontotheirGDPtoproperlyadjustforthetruesizeoftheircorporatesectors,sincemanyfirmsarenotpubliclytraded.

21.YouareaU.S.investorwhopurchasedBritishsecuritiesfor2,000poundsoneyearagowhentheBritishpoundcost$1.50.NodividendswerepaidontheBritishsecuritiesinthepastyear.YourtotalreturnbasedonU.S.dollarswas__________ifthevalueofthesecuritiesisnow2,400poundsandthepoundisworth$1.60.

A）16.7%

B）20.0%

C）28.0%

D）40.0%

E）noneoftheabove

Answer:

CDifficulty:

Moderate

Rationale:

（$3,840-$3,000）/$3,000=0.28,or28.0%.

22.U.S.investors

A）cantradederivativesecuritiesbasedonpricesinforeignsecuritymarkets.

B）cannottradeforeignderivativesecurities.

C）cantradeoptionsandfuturesontheNikkeistockindexof225stockstradedontheTokyostockexchangeandonFTSE（FinancialTimesShareExchange）indexesofU.K.andEuropeanstocks.

D）AandC.

E）noneoftheabove.

Answer:

DDifficulty:

Moderate

Rationale:

U.S.investorscaninvestasindicatedinA,examplesofwhicharegiveninC.

23.Exchangeraterisk

A）resultsfromchangesintheexchangeratesinthecurrenciesoftheinvestorandthecountryinwhichtheinvestmentismade.

B）canbehedgedbyusingaforwardorfuturescontractinforeignexchange.

C）cannotbeeliminated.

D）AandC.

E）AandB.

Answer:

EDifficulty:

Moderate

Rationale:

Althoughinternationalinvestinginvolvesriskresultingfromthechangingexchangeratesbetweencurrencies,thisriskcanbehedgedbyusingaforwardorfuturescontractinforeignexchange.

24.Internationalinvesting

A）cannotbemeasuredagainstapassivebenchmark,suchastheS&P500.

B）canbemeasuredagainstawidelyusedindexofnon-U.S.stocks,theEAFEindex（Europe,Australia,FarEast）.

C）canbemeasuredagainstinternationalindexescomputedbyMorganStanley,SalomonBro