---
**Exam Name:** Quantitative Analysis in Investment Strategies
**Exam Time:** 2 Hours
**Total Score:** 100 Points
**Instructions:**
1. Please answer all questions.
2. Calculators are allowed for calculations.
3. Show all your work for calculation questions.
4. Multiple-choice questions should be answered by circling the correct answer.
5. For essay questions, please provide a concise and clear explanation.
---
**Question 1: (5 Points) Multiple Choice**
Which of the following best describes the Capital Asset Pricing Model (CAPM)?
a) A model that describes the relationship between the expected return and risk of a
security.
b) A model that describes the relationship between the market price and the intrinsic value
of a security.
c) A model that describes the relationship between the expected return and the company's
financial leverage.
d) A model that describes the relationship between the expected return and the company's
asset structure.
**Answer:**
a) A model that describes the relationship between the expected return and risk of a
security.
---
**Question 2: (7 Points) Calculation Question**
Suppose you are analyzing a potential investment in a company. The risk-free rate is 3%,
the market risk premium is 5%, and the company's beta is 1.5. Calculate the expected return
for this investment using the CAPM.
**Answer:**
Expected Return = Risk-Free Rate + (Beta * Market Risk Premium)
Expected Return = 3% + (1.5 * 5%)
Expected Return = 3% + 7.5%
, Expected Return = 10.5%
---
**Question 3: (5 Points) Multiple Choice**
Which of the following is NOT a type of financial derivative?
a) Futures
b) Options
c) Bonds
d) Swaps
**Answer:**
c) Bonds
---
**Question 4: (8 Points) Calculation Question**
A call option on a stock has a strike price of $50 and a premium of $5. The current market
price of the stock is $48. What is the intrinsic value of the call option?
**Answer:**
The intrinsic value of a call option is the difference between the current market price and
the strike price, but it cannot be negative. Since the market price ($48) is below the strike
price ($50), the intrinsic value is $0.
---
**Question 5: (6 Points) Multiple Choice**
Which of the following is NOT a component of the risk management process?
a) Risk identification
b) Risk assessment
c) Risk mitigation
d) Risk ignoring
**Answer:**
d) Risk ignoring
---
**Question 6: (7 Points) Calculation Question**
A company has a beta of 1.2, a debt-to-equity ratio of 0.5, and a cost of debt of 6%. The risk-
free rate is 2% and the market risk premium is 5%. What is the company's cost of equity
using the Security Market Line (SML)?
**Exam Name:** Quantitative Analysis in Investment Strategies
**Exam Time:** 2 Hours
**Total Score:** 100 Points
**Instructions:**
1. Please answer all questions.
2. Calculators are allowed for calculations.
3. Show all your work for calculation questions.
4. Multiple-choice questions should be answered by circling the correct answer.
5. For essay questions, please provide a concise and clear explanation.
---
**Question 1: (5 Points) Multiple Choice**
Which of the following best describes the Capital Asset Pricing Model (CAPM)?
a) A model that describes the relationship between the expected return and risk of a
security.
b) A model that describes the relationship between the market price and the intrinsic value
of a security.
c) A model that describes the relationship between the expected return and the company's
financial leverage.
d) A model that describes the relationship between the expected return and the company's
asset structure.
**Answer:**
a) A model that describes the relationship between the expected return and risk of a
security.
---
**Question 2: (7 Points) Calculation Question**
Suppose you are analyzing a potential investment in a company. The risk-free rate is 3%,
the market risk premium is 5%, and the company's beta is 1.5. Calculate the expected return
for this investment using the CAPM.
**Answer:**
Expected Return = Risk-Free Rate + (Beta * Market Risk Premium)
Expected Return = 3% + (1.5 * 5%)
Expected Return = 3% + 7.5%
, Expected Return = 10.5%
---
**Question 3: (5 Points) Multiple Choice**
Which of the following is NOT a type of financial derivative?
a) Futures
b) Options
c) Bonds
d) Swaps
**Answer:**
c) Bonds
---
**Question 4: (8 Points) Calculation Question**
A call option on a stock has a strike price of $50 and a premium of $5. The current market
price of the stock is $48. What is the intrinsic value of the call option?
**Answer:**
The intrinsic value of a call option is the difference between the current market price and
the strike price, but it cannot be negative. Since the market price ($48) is below the strike
price ($50), the intrinsic value is $0.
---
**Question 5: (6 Points) Multiple Choice**
Which of the following is NOT a component of the risk management process?
a) Risk identification
b) Risk assessment
c) Risk mitigation
d) Risk ignoring
**Answer:**
d) Risk ignoring
---
**Question 6: (7 Points) Calculation Question**
A company has a beta of 1.2, a debt-to-equity ratio of 0.5, and a cost of debt of 6%. The risk-
free rate is 2% and the market risk premium is 5%. What is the company's cost of equity
using the Security Market Line (SML)?
