201. ___ above which it is difficult for the market to rise.
A. A book value is a value
B. A resistance level is a value
C. A support level is a value
D. A book value and a resistance level are values
Answer
B. A resistance level is a value
202. ___ below which it is difficult for the market to fall.
A. An intrinsic value is a value
B. A resistance level is a value
C. A support level is a value
D. An intrinsic value and a resistance level are values
Answer
C. A support level is a value
203. On November 22, 2009 the stock price of WalMart was $39.50 and the retailer stock index was 600.30. On November 25, 2009 the stock price of WalMart was $40.25 and the retailer stock index was 605.20. Consider the ratio of WalMart to the retailer index on November 22 and November 25. WalMart is ___ the retail industry and technical analysts who follow relative strength would advise ___ the stock.
A. outperforming, buying
B. outperforming, selling
C. underperforming, buying
D. underperforming, selling
Answer
B. outperforming, selling
204. Studies of stock price reactions to news are called
A. reaction studies.
B. event studies.
C. drift studies.
D. both reaction studies and drift studies.
Answer
B. event studies.
205. In the Treynor-Black model
A. Portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.
B. Portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.
C. Portfolio weight are sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers.
D. Portfolio weight are not sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers.
Answer
A. Portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.
206. Benchmark portfolio risk is defined as
A. the return difference between the portfolio and the benchmark
B. the variance of the return of the benchmark portfolio
C. the variance of the return difference between the portfolio and the benchmark
D. the variance of the return of the actively-managed portfolio
Answer
C. the variance of the return difference between the portfolio and the benchmark
207. ___ can be used to measure forecast quality and guide in the proper adjustment of forecasts.
A. Regression analysis
B. Exponential smoothing
C. ARIMA
D. Moving average models
Answer
A. Regression analysis
208. Even low-quality forecasts have proven to be valuable because R-squares of only ___ in regressions of analysts’ forecasts can be used to substantially improve portfolio performance.
A. 0.656
B. 0.452
C. 0.258
D. 0.001
Answer
D. 0.001
209. The ___ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure.
A. Black-Litterman
B. Treynor-Black
C. Treynor-Mazuy
D. Black-Scholes
Answer
A. Black-Litterman
210. The Black-Litterman model and Treynor-Black model are
A. nice in theory but practically useless in modern portfolio management.
B. complementary tools that should be used in portfolio management.
C. contradictory models can not be use together; therefore, portfolio managers must choose which one suits their needs.
D. not useful due to their complexity.
Answer
B. complementary tools that should be used in portfolio management.
211. Alpha forecasts must be ___ to account for less-than-perfect forecasting quality. When alpha forecasts are ___ to account for forecast imprecision, the resulting portfolio position becomes ___
A. shrunk, shrunk, far less moderate
B. shrunk, shrunk, far more moderate
C. grossed up, grossed up, far less moderate
D. grossed up, grossed up, far more moderate
Answer
B. shrunk, shrunk, far more moderate
212. Tracking error is defined as
A. the difference between the returns on the overall risky portfolio versus the benchmark return.
B. the variance of the return of the benchmark portfolio
C. the variance of the return difference between the portfolio and the benchmark
D. the variance of the return of the actively-managed portfolio
Answer
A. the difference between the returns on the overall risky portfolio versus the benchmark return.
213. The tracking error of an optimized portfolio can be expressed in terms of the ___ ofthe portfolio and thus reveal ___
A. return; portfolio performance
B. total risk; portfolio performance
C. beta; portfolio performance
D. beta; benchmark risk
Answer
D. beta; benchmark risk
214. If a portfolio manager consistently obtains a high Sharpe measure, the manager’s forecasting ability ___
A. is above average
B. is average
C. is below average
D. does not exist.
Answer
A. is above average
215. Active portfolio management consists of ___
A. market timing
B. security analysis
C. indexing
D. Aand B
Answer
D. Aand B
216. The critical variable in the determination of the success of the active portfolio is ___
A. alpha/systematic risk
B. alpha/nonsystematic risk
C. gamma/systematic risk
D. gamma/nonsystematic risk
Answer
B. alpha/nonsystematic risk
217. Active portfolio managers try to construct a risky portfolio with ___
A. a higher Sharpe measure than a passive strategy
B. a lower Sharpe measure than a passive strategy
C. the same Sharpe measure as a passive strategy
D. very few securities
Answer
A. a higher Sharpe measure than a passive strategy
218. The beta of an active portfolio is 1.20. The standard deviation of the returns on the market index is 20%. The nonsystematic variance of the active portfolio is 1%. The standard deviation of the returns on the active portfolio is ___
A. 3.84%
B. 5.84%
C. 19.60%
D. 26.0%
Answer
D. 26.0%
219. A purely passive strategy is defined as
A. one that uses only index funds.
B. one that allocates assets in fixed proportions that do not vary with market conditions.
C. one that is mean-variance efficient.
D. both A and B.
Answer
D. both A and B.
220. According to the index model, covariances among security pairs are
A. Due to the influence of a single common factor represented by the market index return
B. Extremely difficult to calculate
C. Usually positive
D. A and c
Answer
D. A and c
221. The intercept calculated by Merrill Lynch in the regression equations is equal to
A. a in the CAPM
B. a + rf (1 + ß)
C. a + rf (1 – ß)
D. 1 – a
Answer
C. a + rf (1 – ß)
222. Analysts may use regression analysis to estimate the index model for a stock. When doing so,the slope of the regression line is an estimate of ___
A. the a of the asset
B. the ß of the asset
C. the s of the asset
D. the d of the asset
Answer
B. the ß of the asset
223. In a factor model, the return on a stock in a particular period will be related to ___
A. firm-specific events
B. macroeconomic events
C. the error term
D. both A and B
Answer
D. both A and B
224. Merrill Lynch estimates the index model for a stock using regression analysis involving total returns. They estimated the intercept in the regression equation at 6% and the ß at 0.5. The risk-free rate of return is 12%. The true ß of the stock is ___
A. 0%
B. 3%
C. 6%
D. 9%
Answer
A. 0%
225. Depending upon the investor’s preferences and the market opportunities an investor’s portfolio is the portfolio thatI. Maximizes her expected utility. II. Maximizes her risk. III. Minimizes both her risk and return. IV. Maximizes her expected profit.
A. Only (I) above
B. Only (II) above
C. Only (III) above
D. Only (IV) above
Answer
A. Only (I) above
226. Particulars Falcon International Triumph International Average Return (%) 10 8 Average Volatility (%) 12 15 For the portfolio to yield lower risk than the individual stocks, the correlation coefficient of stocks should be
A. Less than 1.25
B. Less than 0.85
C. Less than 0.80
D. More than 0.83
Answer
C. Less than 0.80
227. An Investor can form a portfolio that lies to the right of the optimal risky portfolio on asset allocation line byI. Lend some money at the risk free rate and invest the remainder in the optimal risky portfolio. II. Borrow some money at the risk free rate and invest in the optimal risky portfolio III. Such a portfolio cannot be formed IV. Invest only in risky assets
A. Only (I) above
B. Only (II) above
C. Only (III) above
D. Only (IV) above
Answer
B. Only (II) above
228. Analysis carried out on the performance of a fund for last year is compiled as under:Total selectivity 2.50% Net selectivity 1.53% of portfolio 0.90 Return on market index 13.00% Standard deviation of market returns 13.50% Risk free return, Rf 8.00% The total risk ( i) of portfolio is
A. 11.1%
B. 12.2%
C. 13.8%
D. 14.8%
Answer
D. 14.8%
229. Mr. Zaffar has following scrips in his portfolio: Scrip Beta Proportion of investment (%) Reliance. 83. 25 Infosys. 8. 25 Reymond 1.4. 35 IndiaBulls 1.2. 15 If the risk free rate is 6% and return on the market is 16%, what will be the expected return on his portfolio?
A. 12.54%
B. 13.28%
C. 14.12%
D. 16.80%
Answer
D. 16.80%
230. Which of the following is/are disadvantage(s) of indexing of bond portfolio? I. Advisory fee schedule is high II. In past, returns earned by most active fund managers has much exceeded those of index portfolio III. Loss of opportunity for incremental returns.
A. Only (I) above
B. Only (II) above
C. Only (III) above
D. Both (II) and (III) above
Answer
C. Only (III) above
231. Which of the following statements regarding portfolio revisions is/are incorrect?
A. For effective implementation of constant Dollar value plan, it is necessary to estimate the possibility and extent of downward fluctuation of the aggressive portfolio
B. Constant ratio plan becomes less aggressive in sales when the stock price rise
C. During a sustained rise or fall of stock prices the constant ratio plan gives higher profit than other two formula plans.
D. Variable ratio plan stock portfolio becomes more aggressive when stock prices rise and vice versa.
Answer
D. Variable ratio plan stock portfolio becomes more aggressive when stock prices rise and vice versa.
232. The alpha of an active portfolio is 1%. The expected return on the market index is 16%. The variance of the return on the market portfolio is 4%. The nonsystematic variance of the active portfolio is 1%. The risk-free rate of return is 8%. The beta of the active portfolio is 1.05. The optimal proportion to invest in the active portfolio is ___
A. 48.7%
B. 50.0%
C. 51.3%
D. 100.0%
Answer
C. 51.3%
233. A portfolio comprises of two stocks A and B. Stock A gives a return of 8%and stock B gives a return of 7%. Stock A has a weight of 60% in the portfolio. What is the portfolio return?
A. 9%
B. 11%
C. 10%
D. 8%
Answer
B. 11%
234. Price movement between two Steel company stocks would generally have a ___ co- variance
A. Positive
B. Negative
C. Zero
D. all
Answer
A. Positive
235. The CAPM is founded on the following two assumptions (1) in the equilibrium every mean variance investor holds the same market portfolio and (2) the only risk the investor faces is the beta
A. True
B. False
C. none
D. all
Answer
A. True
236. If a Portfolio manager consistently obtains a high Sharpe’s measure, the portfolio manager has exhibited
A. Above average forecasting ability
B. Above average selection ability
C. The market supports market efficiency in strong form
D. Both (a) and (b) above.
Answer
D. Both (a) and (b) above.
237. The critical variable in the determination of the success of the active portfolio is
A. Jensen’s Alpha / Non-Systematic Risk
B. Jensen’s Alpha / Systematic Risk
C. Gamma / Non-Systematic Risk
D. Gamma / Systematic Risk
Answer
A. Jensen’s Alpha / Non-Systematic Risk
238. Ms. Kiran wrote a European call option on a stock. The premium was Rs.5 per share and the market price and exercise price of the share were Rs.39 and Rs.45 respectively. If on expiry date, the price of the share was Rs. 42, the profit/loss to Ms. Kiran was
A. Rs.3
B. –Rs.4
C. –Rs.5
D. Rs.4
Answer
D. Rs.4
239. Other things being same, the price of American call option on a stock is positively correlated with the following factors, except
A. The exercise price
B. The time to expiration
C. The stock volatility
D. The stock price
Answer
A. The exercise price
240. What is a call?
A. An option to sell stock at a specified price
B. An option to buy stock at a specified price
C. An option to sell stock on a specified date
D. An option to buy stock on a specified date
Answer
B. An option to buy stock at a specified price
