121. The random walk hypothesis posits that:
A. historical returns follow a random walk.
B. historical prices follow a random walk.
C. firm size follows a random walk.
D. short-run investment returns are inherently unpredictable.
Answer
D. short-run investment returns are inherently unpredictable.
122. Positive abnormal returns for corporate insiders constitute a violation of:
A. weak form efficiency.
B. semi-strong form efficiency.
C. strong-form efficiency.
D. none of these.
Answer
C. strong-form efficiency.
123. On the day following big “up days,” the DJIA tends to:
A. rise substantially.
B. fall precipitously.
C. rise moderately.
D. none of the above.
Answer
D. none of the above.
124. Stock market value can deviate from its fundamental value because of strong:
A. earnings news.
B. investor mood.
C. semi-strong form efficiency.
D. data-snooping.
Answer
B. investor mood.
125. If security prices exhibits semi-strong form of efficiency, one will not gain if he
A. Depicts the prices in the form of charts to identify pattern which will beat the market.
B. Buys stock of a company which has declared a bonus issue or has gone for a stock split
C. Refers to insiders’ advice
D. Both (a) and (b) above.
Answer
D. Both (a) and (b) above.
126. Stock fraud perpetrators sometimes dupe respected community (or group) leaders and these leaders unwittingly cause community members to be victimized too. This scheme is called:
A. leader-led fraud.
B. a cold call.
C. affinity fra
Answer
C. affinity fra
127. ___ market encompasses all securities not traded on national organizedexchanges.
A. Primary
B. Money
C. Capital
D. Over the counter
Answer
D. Over the counter
128. Which of the following is not a part of systematic risk
A. Economic changes
B. Management capability
C. Political changes
D. Sociological changes
Answer
B. Management capability
129. Primarily Inflation gives rise to
A. Market risk
B. Purchasing power risk
C. Business risk
D. Financial risk
Answer
B. Purchasing power risk
130. Unsystematic risk is known as
A. Non diversifiable risk
B. Total risk
C. Market risk
D. Diversifiable risk
Answer
D. Diversifiable risk
131. characteristic line is associated with
A. Standard deviation
B. Beta
C. Variance
D. Portfolio
Answer
B. Beta
132. Graphical presentation of CAPM is known as
A. Capital asset line
B. Pricing line
C. Assets pricing line
D. Security market line
Answer
D. Security market line
133. ___ is defined as the nth root of the product resulting from multiplying a series of returns together.
A. Arithmetic mean
B. Geometric mean
C. Harmonic mean
D. None of the above
Answer
B. Geometric mean
134. An order to buy or sell at the most advantageous price obtainable after the order is represented in the trading crowd.
A. Scale order
B. Sell ‘plus’ order
C. Market order
D. Day order.
Answer
C. Market order
135. ___ refers to capitalize on downward movement in stock prices.
A. Long selling
B. small selling
C. Large selling
D. Short selling
Answer
D. Short selling
136. ___ is a device to overcome the uncertainty connected with a stop order.
A. Stop limit order
B. Stay limit order
C. Halt limit order
D. End limit order
Answer
A. Stop limit order
137. ___ is a function of the operating conditions faced by a firm and the variability these conditions inject into operating income and expected dividends.
A. Market risk
B. Business risk
C. Interest rate risk
D. Systematic risk
Answer
D. Systematic risk
138. A top down analysis of a firm starts with ___
A. the relative value of the firm
B. the absolute value of the firm
C. the domestic economy
D. the global economy
Answer
D. the global economy
139. The most widely used monetary tool is ___
A. altering the discount rate
B. altering the reserve requirements
C. open market operations
D. altering marginal tax rates
Answer
C. open market operations
140. The “real”, or inflation-adjusted, exchange rate, is
A. the balance of trade.
B. the budget deficit.
C. the purchasing power ratio.
D. unimportant to the U. S economy.
Answer
C. the purchasing power ratio.
141. The “normal” range of price-earnings ratios for the S&P500 Index is
A. between 2 and 10.
B. between 5 and 15.
C. less than 8.
D. between 12 and 25
Answer
D. between 12 and 25
142. A peak is ___
A. a transition from an expansion in the business cycle to the start of a contraction
B. a transition from a contraction in the business cycle to the start of an expansion
C. a depression that lasts more than three years.
D. only something used by farmers to feed pigs and not an investment term
Answer
A. a transition from an expansion in the business cycle to the start of a contraction
143. A long-term movement of prices, lasting from several months to years is called ___
A. a minor trend
B. a primary trend
C. an intermediate trend
D. trend analysis
Answer
B. a primary trend
144. Two popular moving average periods are
A. 90-day and 52 week
B. 180-day and three year
C. 180-day two year
D. 200-day and 53 week
Answer
D. 200-day and 53 week
145. The most extreme form(s) of the Efficient Market Hypothesis (EMH) is
A. Weak form
B. Semi-Strong form
C. Super Strong form
D. Near Strong form
Answer
C. Super Strong form
146. An example of a highly cyclical industry is ___
A. the automobile industry
B. the tobacco industry
C. the food industry
D. A and B
Answer
A. the automobile industry
147. Conventional theories presume that investors ___ and behavioral finance presumes that they ___
A. are irrational; are irrational
B. are rational; may not be rational
C. are rational; are rational
D. may not be rational; may not be rational
Answer
B. are rational; may not be rational
148. Information processing errors consist ofI. forecasting errors II. overconfidence III. conservatism IV. framing
A. I and II
B. I and III
C. III and IV
D. I, II and III
Answer
D. I, II and III
149. ___ was the grandfather of technical analysis.
A. Harry Markowitz
B. William Sharpe
C. Charles Dow
D. Benjamin Graham
Answer
C. Charles Dow
150. The goal of the Dow theory is to
A. identify head and shoulder patterns.
B. identify breakaway points.
C. identify resistance levels.
D. identify long-term trends.
Answer
D. identify long-term trends.
151. Which of the following statements pertaining to the Efficient Market Hypothesis (EMH) is/ are true?
A. Successive short run absolute price changes are independent
B. Market comprises of rational investors
C. Weak Form of EMH is also known as random walk model
D. All of (a), (b) and (c) above
Answer
D. All of (a), (b) and (c) above
152. Which of the following statements is false with respect to different features of an efficient market?
A. Information arbitrage efficiency is said to exist, if the participants do not have any scope to reap abnormal profits using information that is of common knowledge
B. Fundamental valuation efficiency is said to exist, if the price of an asset is neither undervalued nor overvalued
C. Full insurance efficiency is said to exist, if participants can adopt hedging as an effective tool against possible risk in future
D. Allocation efficiency is said to exist, if the market channelizes resources into projects where the marginal efficiency of capital adjusted for risk differences is lowest
Answer
D. Allocation efficiency is said to exist, if the market channelizes resources into projects where the marginal efficiency of capital adjusted for risk differences is lowest
Unit 3
153. According to the Efficient Market Hypothesis (EMH)I. Stocks with smaller beta will be consistently overpriced. II. Stocks with higher beta will be consistently underpriced. III. Positive alphas on stocks will not remain for a longer period.
A. Only (I) above
B. Only (III) above
C. Both (I) and (II) above
D. Both (II) and (III) above
Answer
B. Only (III) above
154. Which one of the following is the exponential factor for a 100-day Exponential Moving Average?
A. 0.01
B. 0.2
C. 0.02
D. 0.002
Answer
C. 0.02
155. Which of the following patterns is the most reliable and widely used for indicating trend reversal?
A. Gap Analysis
B. Stochastics
C. Moving Averages
D. Head and Shoulders
Answer
D. Head and Shoulders
156. A stock with a relative strength of 3.0 will have a relative strength index of
A. 125
B. 66.67
C. 75
D. 26
Answer
C. 75
157. ___ would mean that no investor would be able to outperform the market with trading strategies based on publicly available information.
A. Semi strong form efficiency
B. Weak-form efficiency
C. Strong form efficiency
D. all
Answer
A. Semi strong form efficiency
158. The need to have an understanding about the ability of themarket to imbibe information into the prices has led to countless attempts to study and characterize the levels of efficiency of different segments of the financial markets.
A. True
B. False
C. none
D. all
Answer
A. True
159. If the market is ___ , the period after a favorable (unfavorable) event would not generate returns beyond (less than) what is suggested by an equilibrium model such as CAPM
A. Semi strong form efficiency
B. Weak-form efficiency
C. Strong form efficiency
D. all
Answer
A. Semi strong form efficiency
160. Markets are inefficient when prices of securities assimilate and reflect information about them.
A. True
B. False
C. none
D. all
Answer
B. False
