41. Which of the following is not a form of real asset?
A. Rare paintings
B. Baseball cards
C. Diamonds
D. Real estate
Answer
B. Baseball cards
42. Under the Economic Growth and Tax Reconciliation Act of 2001, when will estate taxes be eliminated?
A. 2008
B. 2009
C. 2010
D. 2019
Answer
D. 2019
43. Program trading decreases market efficiency by exaggerating price discrepancies between the cash and futures markets
A. True
B. False
C. all
D. none
Answer
D. none
44. Capital Market Line is firstly initiated by
A. Mohsin
B. Linter
C. Markowitz
D. William Sharpe
Answer
B. Linter
45. Most favourable portfolio is proficient portfolio with the
A. lowest risk
B. highest risk
C. highest utility
D. least investment
Answer
D. least investment
46. Ambiguity introduced by way by which organization finances its investments is
A. country risk
B. liquidity risk
C. financial risk
D. business risk
Answer
C. financial risk
47. If generally interest rates in nation increase, a corporate bond with a fixed interest rate will usually
A. increase in value
B. remain unchanged
C. decrease in value.
D. be returned to corporation.
Answer
C. decrease in value.
48. Inferior investment alternatives are identified when:
A. a < 0.
B. ß = 0.
C. ß > 1.
D. ß < 1.
Answer
C. ß > 1.
49. Systematic risk is higher when:
A. a > 0.
B. a < 0.
C. a > 1.
D. ß > 1
Answer
A. a > 0.
50. In the stock-price beta estimation for the Coca-Cola Company, the dependent variable is the:
A. return on Coca-Cola.
B. price of Coca-Cola stock.
C. return on the S&P 500.
D. value of the S&P 500 Index.
Answer
D. value of the S&P 500 Index.
51. If the beta of a stock is 1.8 and the overall market declines 20%, the expected return is:
A. -36%
B. -18%.
C. -20%.
D. -28%
Answer
A. -36%
52. The SML depicts the tradeoff between risk and required return for:
A. inefficient portfolios.
B. all assets.
C. efficient portfolios.
D. individual securities only.
Answer
A. inefficient portfolios.
53. In the stock-price beta estimation for the Coca-Cola Company, the independent variable is the:
A. value of the S&P 500 Index.
B. return on the S&P 500.
C. return on Coca-Cola.
D. price of Coca-Cola stock.
Answer
D. price of Coca-Cola stock.
54. The chance of loss due to fluctuations in the stock market is:
A. market risk.
B. interest rate risk.
C. business risk.
D. inflation risk.
Answer
B. interest rate risk.
55. Empirical research concludes that betas for:
A. individual securities and large portfolios are unstable.
B. individual securities and large portfolios are stable.
C. large portfolios are unstable.
D. individual securities are unstable.
Answer
A. individual securities and large portfolios are unstable.
56. Future on fixed Income securities are known as
A. Stock Index futures
B. Interest rate futures
C. Mutual fund futures
D. Stock market futures
Answer
D. Stock market futures
57. Serials bonds are
A. Large bond issues carrying fixed maturity date
B. Small bond issues carrying many maturity dates.
C. Small bond issues carrying single maturity date.
D. Large bond issues carrying many maturity dates.
Answer
B. Small bond issues carrying many maturity dates.
58. Indenture is a
A. A detailed securities contract
B. Abbreviated version of a securities contract
C. Abbreviated version of a debt contract
D. A detailed bond contract
Answer
B. Abbreviated version of a securities contract
59. Tax sheltered variable annuity is
A. A device for availing tax exemption in an Investment
B. A device for avoiding tax payment
C. A device deferring the payment of federal income taxes
D. A device for earning tax deduction.
Answer
D. A device for earning tax deduction.
60. REITs stand for
A. Real estate investment trades
B. Real estate investing trades
C. Real estate investment trusts
D. Real estate investment trusts
Answer
C. Real estate investment trusts
61. The person within the brokerage office with whom an investor will have the most contact is
A. Authorized representative
B. Registered representative
C. Authorized person
D. Registered authority
Answer
C. Authorized person
62. The commission received by investment banker is known as
A. Additive
B. Differential
C. Difference
D. Increment
Answer
B. Differential
63. The ___ is the indicated dividend divided by the closing price of the stock.
A. Income
B. Share
C. Yield
D. Earning
Answer
B. Share
64. ___ refers to the highest priced transaction for an issue on a particular day.
A. Close
B. High
C. Large
D. Net change
Answer
C. Large
65. Total risk for common stocks is:
A. the sum of systematic risk and diversifiable risk.
B. measured by beta.
C. the sum of market risk and systematic risk.
D. the sum of diversifiable risk and unsystematic risk
Answer
A. the sum of systematic risk and diversifiable risk.
66. Alpha is:
A. the intercept of the SML line.
B. the intercept of the CML line.
C. the actual excess return on a portfolio during one peri
Answer
B. the intercept of the CML line.
67. Which statement is not true regarding the market portfolio?
A. It includes all publicly traded financial assets.
B. It lies on the efficient 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 indifference curve.
Answer
D. It is the tangency point between the capital market line and the indifference curve.
68. As diversification increases, the total variance of a portfolio approaches ___
A. 0
B. 1
C. The variance of the market portfolio
D. Infinity
Answer
C. The variance of the market portfolio
69. The Security Risk Evaluation book published by Merrill Lynch uses the ___ as a proxy for the market portfolio.
A. Dow Jones Industrial Average
B. Dow Jones Transportation Average
C. S&P 500 Index
D. Wilshire 5000
Answer
C. S&P 500 Index
70. The market portfolio has a beta of
A. 0.
B. 1.
C. -1.
D. 0.5.
Answer
B. 1.
71. If a firm’s beta was calculated as 0.6 in a regression equation, Merrill Lynch would state the adjusted beta at a number
A. Less than 0.6 but greater than zero.
B. Between 0.6 and 1.0.
C. Between 1.0 and 1.6.
D. Greater than 1.6.
Answer
B. Between 0.6 and 1.0.
72. Rosenberg and Guy found that ___ helped to predict a firm’s beta.
A. the firm’s financial characteristics
B. the firm’s industry group
C. firm size
D. A, B andC all helped to predict betas.
Answer
D. A, B andC all helped to predict betas.
73. A stock has an expected return of 15 percent. The market risk premium is 10 percent and the risk-free rate is 4 percent. What is the stock’s beta? (C)
A. 0.50
B. 0.75
C. 1.1
D. 1.8
Answer
C. 1.1
74. What is the beta of a portfolio that is invested 25 percent in the market portfolio, 25 percent in an asset with twice as much systematic risk as the market portfolio and the rest in a risk-free asset?
A. 0.25
B. 0.50
C. 0.75
D. 1.00
Answer
C. 0.75
75. Which statement is not true regarding the Capital Market Line (CML)?
A. The CML is the line from the risk-free rate through the market portfolio.
B. CML is the best attainable capital allocation line.
C. The CML is also called the security market line.
D. The CML always has a positive slope.
Answer
C. The CML is also called the security market line.
76. The market risk, beta, of a security is equal to
A. the covariance between the security’s return and the market return divided by the variance of the market’s returns.
B. the covariance between the security and market returns divided by the standard deviation of the market’s returns.
C. the variance of the security’s returns divided by the covariance between the security and market returns.
D. the variance of the security’s returns divided by the variance of the market’s returns.
Answer
A. the covariance between the security’s return and the market return divided by the variance of the market’s returns.
77. According to the Capital Asset Pricing Model (CAPM), over priced securities
A. have positive betas.
B. have zero alphas.
C. have negative betas.
D. have positive alphas.
Answer
C. have negative betas.
78. In a well diversified portfolio
A. market risk is negligible.
B. systematic risk is negligible.
C. unsystematic risk is negligible.
D. nondiversifiable risk is negligible.
Answer
C. unsystematic risk is negligible.
79. What is the expected return of a zero-beta security?
A. The market rate of return.
B. Zero rate of return.
C. A negative rate of return.
D. The risk-free rate.
Answer
D. The risk-free rate.
80. Standard deviation and beta both measure risk, but they are different in that
A. beta measures both systematic and unsystematic risk.
B. beta measures only systematic risk while standard deviation is a measure of total risk.
C. beta measures only unsystematic risk while standard deviation is a measure of total risk.
D. beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk.
Answer
B. beta measures only systematic risk while standard deviation is a measure of total risk.
