Q41: Financial disclosure regulations affecting the brokerage industry are a type of
- A. Market risk
- B. Financial risk
- C. Business risk
- D. Liquidity risk
Answer
Answer C. Business risk
Q42: If interest rates rose, you would expect to also rise
- A. Business risk
- B. Financial risk
- C. Liquidity risk
- D. Inflation risk
Answer
Answer C. Liquidity risk
Q43: Total return as defined in the text is
- A. The difference between the sale price and the purchase price of an investment
- B. Measured by dividing the sum of all cash flows received by the amount invested
- C. The reciprocal of a return relative
- D. Measured by dividing all cash flows received by its selling price
Answer
Answer B. Measured by dividing the sum of all cash flows received by the amount invested
Q44: The is stated on the basis of 1.0
- A. Total return
- B. Return relative
- C. Cumulative wealth index
- D. Geometric mean
Answer
Answer A. Total return
Q45: The return relative solves the problem of
- A. Inflation
- B. Negative returns
- C. Interest rates
- D. Tax differences
Answer
Answer A. Inflation
Q46: In order to determine the compound growth rate of an investment over some period, an investor would calculate the
- A. Arithmetic mean
- B. Geometric mean
- C. Calculus mean
- D. Arithmetic median
Answer
Answer A. Arithmetic mean
Q47: A major difference between real and nominal returns is that
- A. Real returns adjust for inflation and nominal returns do not
- B. Real returns use actual cash flows and nominal returns use expected cash flows
- C. Real returns adjust for commissions and nominal returns do not
- D. Real returns show the highest possible return and nominal returns show the lowest possible return
Answer
Answer B. Real returns use actual cash flows and nominal returns use expected cash flows
Q48: When most people refer to the mean, they are referring to the
- A. Median
- B. Arithmetic mean
- C. Geometric mean
- D. Cumulative mean
Answer
Answer B. Arithmetic mean
Q49: Portfolio weights are found by
- A. Dividing standard deviation by expected value
- B. Calculating the percentage each asset is to the total portfolio value
- C. Calculating the return of each asset to total portfolio return
- D. Dividing expected value by the standard deviation
Answer
Answer B. Calculating the percentage each asset is to the total portfolio value
Q50: In order to determine the expected return of a portfolio, all of the following must be Known except
- A. Probabilities of expected returns of individual assets
- B. Weight of each individual asset to total portfolio value
- C. Expected return of each individual asset
- D. All of the above must be known in order to determine the expected return of a portfolio
Answer
Answer D. All of the above must be known in order to determine the expected return of a portfolio
Q51: Which of the following is true regarding the expected return of a portfolio?
- A. It is a weighted average only for stock portfolios
- B. It can only be positive
- C. It can never be above the highest individual return
- D. All of the above are true
Answer
Answer C. It can never be above the highest individual return
Q52: The relevant risk for a well-diversified portfolio is
- A. Interest rate risk
- B. Inflation risk
- C. Business risk
- D. Market risk
Answer
Answer D. Market risk
Q53: Which of the following portfolios has the least reduction of risk?
- A. A portfolio with securities all having positive correlation with each other
- B. A portfolio with securities all has zero correlation with each other
- C. A portfolio with securities all having negative correlation with each other
- D. A portfolio with securities all has skewed correlation with each other
Answer
Answer A. A portfolio with securities all having positive correlation with each other
Q54: Portfolio risk is best measured by the
- A. Expected value
- B. Portfolio beta
- C. Weighted average of individual risk
- D. Standard deviation
Answer
Answer C. Weighted average of individual risk
Q55: The major problem with the Markowitz model is its
- A. Lack of accuracy
- B. Predictability flaws
- C. Complexity
- D. Inability to handle large number of inputs
Answer
Answer A. Lack of accuracy
Q56: According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on
- A. Expected return
- B. Risk
- C. Expected return and risk
- D. Transactions costs
Answer
Answer C. Expected return and risk
Q57: Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by
- A. Aggressive investors
- B. Conservative investors
- C. Risk-averse investors
- D. Defensive investors
Answer
Answer B. Conservative investors
Q58: Market risk is best measured by the
- A. Alpha
- B. Beta
- C. Standard deviation
- D. Coefficient of variation
Answer
Answer D. Coefficient of variation
Q59: Book value is
- A. The same as market value
- B. A more accurate valuation technique than the dividend models
- C. The accounting value of the firm as reflected in the financial statements
- D. The same as liquidation value
Answer
Answer C. The accounting value of the firm as reflected in the financial statements
Q60: The price to book value ratio tends to be close for
- A. High-tech companies
- B. Banks
- C. Utilities
- D. Service companies
Answer
Answer D. Service companies
Q61: The central issue of efficient markets concerns
- A. Regulations
- B. Information
- C. Participants
- D. Structure
Answer
Answer A. Regulations
Q62: A bond issue is broken up so that some investors will receive only interest payments while others will receive only principal payments, which is an example of
- A. bundling
- B. un-bundling
- C. financial engineering
- D. B & D
Answer
Answer D. B & D
Q63: The highest level of market efficiency is
- A. Weak form efficiency
- B. Semi-strong form efficiency
- C. Random walk efficiency
- D. Strong form efficiency
Answer
Answer D. Strong form efficiency
Q64: Money market funds were a financial innovation partly inspired to circumvent
- A. Regulation Q, which is no longer in existence
- B. Regulation M
- C. Regulation D
- D. Regulation B, which is still in existence
Answer
Answer A. Regulation Q, which is no longer in existence
Q65: In which of the following sections of a balance sheet are “Inventories” listed?
- A. Current assets
- B. Property, plant and equipment, at cost
- C. Current liabilities
- D. Shareholders’ Equity
Answer
Answer A. Current assets
Q66: The key item for investors on the income statement is
- A. Sales
- B. Gross profit
- C. Operating expenses
- D. After-tax net income
Answer
Answer D. After-tax net income
Q67: Are a way U. S. investor can invest in foreign companies?
- A. ADRs
- B. IRAs
- C. SDRs
- D. GNMAs
Answer
Answer A. ADRs
Q68: A model for optimizing the selection of securities is the model
- A. Miller-Orr
- B. Black-Sholes
- C. Markowitz
- D. Gordon
Answer
Answer C. Markowitz
Q69: Which of the following is not normally one of the reasons for a change in an investor’s circumstances?
- A. Change in market conditions
- B. Change in legal considerations
- C. Change in time horizon
- D. Change in tax circumstances
Answer
Answer A. Change in market conditions
Q70: The material wealth of a society is equal to the sum of
- A. All financial assets
- B. All real assets
- C. All financial and real assets
- D. All physical assets
Answer
Answer C. All financial and real assets
Q71: Is example of financial intermediaries?
- A. Commercial banks
- B. Insurance companies
- C. Insurance companies
- D. Credit unions
Answer
Answer C. Insurance companies
Q72: Investment bankers perform the following role
- A. Market new stock and bond issues for firms
- B. Provide advice to the firms as to market conditions, price, etc
- C. Design securities with desirable properties
- D. All of the above
Answer
Answer B. Provide advice to the firms as to market conditions, price, etc
Q73: Asset allocation affects the investor’s return by
- A. Altering the returns on individual assets
- B. Weighting the portfolio return by the allocation
- C. Assuring diversification
- D. Increasing the investor’s use of mutual funds
Answer
Answer B. Weighting the portfolio return by the allocation
Q74: The expected return on an investment in stock is
- A. The expected dividend payments
- B. The anticipated capital gains
- C. The sum of expected dividends and capital gains
- D. Less than the realized return
Answer
Answer D. Less than the realized return
Q75: Investment professionals whose jobs may depend on their performance relative to the market are the
- A. Registered representatives
- B. Security analysts
- C. Investment bankers
- D. Portfolio managers
Answer
Answer A. Registered representatives
Q76: Mumbai stock exchange was recognized on a permanent basis in
- A. 1950
- B. 1956
- C. 1957
- D. 1965
Answer
Answer C. 1957
Q77: International investing is
- A. Is only practical for institutional investors
- B. Increases the overall risk of a stock portfolio
- C. Always leads to higher returns than a domestic portfolio
- D. Can reduce risk due to increased
Answer
Answer C. Always leads to higher returns than a domestic portfolio
Q78: Mr. A is a daring portfolio manager. He wants to increase the return in his portfolio. He should choose stocks from
- A. Defensive industry
- B. Industry at a growth stage
- C. Industry in the maturity period
- D. Industry with more export potential
Answer
Answer B. Industry at a growth stage
Q79: in the weekly efficient market, the stock price reflects
- A. the company’s financial performance
- B. the past price of the scrip
- C. the demand for the scrip
- D. the past price and traded volumes
Answer
Answer D. the past price and traded volumes
Q80: What is the primary goal of financial management?
- A. To minimize the risk
- B. To maximize the return
- C. To maximize the owner’s wealth
- D. To raise profit
Answer
Answer B. To maximize the return
