241. The intrinsic value of an out-of-the-money call option is
A. The Call Premium
B. The stock price minus the exercise price
C. Negative
D. Zero
Answer
D. Zero
242. The commitment of current funds in anticipation of receiving a larger future flow of funds iscalled
A. A financial asset
B. A real asset
C. An investment
D. Gambling
Answer
C. An investment
243. A(n) ___ is a legally documented claim on an asset, while a ___ is an actual, tangible asset which may be seen, felt, held, or collected.
A. Real asset; financial asset
B. Financial asset; real asset
C. Indirect equity claim; direct equity claim
D. Direct equity claim; indirect equity claim
Answer
B. Financial asset; real asset
244. When ranking security returns, the data shows that the annualized returns are as follows, ranked from highest return to lowest return.
A. Large stocks, small stocks, long-term corporate bonds, long-term government bonds, treasury bills
B. Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills
C. Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds
D. Treasury bills, long-term government bonds, long-term corporate bonds, large stocks, small stocks
Answer
B. Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills
245. When ranking the riskiness of securities using the standard deviation, the highest risk security to the lowest risk security is as follows:
A. Small stocks, large stocks, long-term government bonds, U.S. treasury bills
B. Long-term government bonds, small stocks, large stocks, U.S. treasury bills
C. Large stocks, small stocks, long-term government bonds, U.S. treasury bills
D. Small stocks, long-term government bonds, large stocks, U.S. treasury bills
Answer
A. Small stocks, large stocks, long-term government bonds, U.S. treasury bills
246. Which of the following statements is the most accurate concerning security returns over The eight decades since the 1920’s?
A. Returns on large common stocks were very stable
B. Returns on long-term corporate bonds were very stable
C. Returns on long-term corporate bonds were very stable
D. All securities exhibited very unstable returns over the eight decades in question.
Answer
D. All securities exhibited very unstable returns over the eight decades in question.
247. A direct equity claim arises through investment in
A. Bonds and other debt instruments
B. Common stocks, warrants and options
C. Preferred stock and commodity futures
D. Mutual funds
Answer
B. Common stocks, warrants and options
248. Investment in a mutual fund results in
A. An indirect equity claim
B. A direct equity claim
C. A creditor claim
D. None of the above.
Answer
A. An indirect equity claim
249. What factors must be considered in choosing between investment alternatives?
A. Risk and liquidity
B. Interest or dividends vs. capital gains
C. Time frame for managing funds and evaluating performance and tax effects
D. Safety of principle
Answer
D. Safety of principle
250. Which of the following examples involves objective probabilities?
A. Common stock rates of return.
B. Coin-flipping experiment.
C. Bond rates of return.
D. Both the first and second answer.
Answer
B. Coin-flipping experiment.
251. The expected return is determined by:
A. probabilities.
B. rates of return on an asset.
C. correlations.
D. both a and b.
Answer
D. both a and b.
252. If the future were known with certainty, which of the following statements would be wrong?
A. There is no dependency with other assets.
B. The risk premium is zero.
C. The mean return equals the riskless interest rate.
D. The variance is greater than zero.
Answer
D. The variance is greater than zero.
253. Which of the following statements about arbitrage is correct?
A. A risk averter will arbitrage because profits can be made with no risk and no investment.
B. A risk averter will never arbitrage because of the risk involved.
C. Arbitrage opportunity arises when profits can be made with low level of risk.
D. Arbitrage opportunities continue to exist in equilibrium.
Answer
A. A risk averter will arbitrage because profits can be made with no risk and no investment.
254. Which of the following statements about the mean-variance criterion is correct?
A. Investors select assets that provide the highest rate of return.
B. Investors select assets that provide the highest variance for the same or higher expected return.
C. Investors select assets that provide the lowest variance for the same or higher expected return.
D. The mean return equals the riskless interest.
Answer
C. Investors select assets that provide the lowest variance for the same or higher expected return.
255. Which of the following is not a characteristic of a risk averter?
A. A risk averter will not buy lottery tickets because the expected payoffs are less than the cost of the tickets.
B. A risk averter will be ready to pay a higher price for an asset whose variance increases.
C. A risk averter always prefers a certain investment over an uncertain investment if the expected returns on the two investments are identical.
D. To be induced to take risk, a risk averter must be offered a risk premium.
Answer
B. A risk averter will be ready to pay a higher price for an asset whose variance increases.
256. Which of the following statements is incorrect?
A. The variance is the square root of the standard deviation.
B. All assets would have the same rate of return if the future were known with certainty.
C. The risk of the investment is the uncertainty concerning the expected return.
D. The geometric mean cannot be larger than the arithmetic mean.
Answer
A. The variance is the square root of the standard deviation.
257. Arbitrage trading strategy implies that:
A. profits are made by investing in riskless securities.
B. large profits are made by undertaking high risk investments.
C. profits are made with no risk and no investment.
D. arbitrage opportunities will continue to exist in equilibrium.
Answer
C. profits are made with no risk and no investment.
258. Which of the following is a measure of the dispersion of returns around the mean?
A. Variance.
B. Risk premium.
C. Correlation.
D. Expected return.
Answer
A. Variance.
259. Investors who completely ignore an asset’s variance and only consider the asset’s expectedreturn are called:
A. value-seeking investors.
B. growth-oriented investors.
C. risk-neutral investors.
D. risk averters.
Answer
C. risk-neutral investors.
260. Underlying all investments is the tradeoff between
A. Expected return and actual return
B. Low risk and high risk
C. Actual return and high risk
D. Expected return and risk.
Answer
A. Expected return and actual return
261. Which of the following investment areas is heavily tied to work using mathematical and statistical models?
A. Security analysis
B. Portfolio management
C. Institutional investing
D. Retirement planning.
Answer
A. Security analysis
262. This type of risk is avoidable through proper diversification.
A. portfolio risk
B. systematic risk
C. unsystematic risk
D. total risk
Answer
C. unsystematic risk
263. Liquidity risk
A. The risk that investment bankers normally face
B. Lower for small OTCEI stocks than for large NSE stocks
C. The risk associated with secondary market transactions
D. The risk increases whenever interest rates increase
Answer
D. The risk increases whenever interest rates increase
264. If interest rates are expected to rise, you would expect
A. Bond prices to fall more than stock prices
B. Bond prices to rise more than stock prices
C. Stock prices to fall more than bond prices
D. Stock prices to rise and bond prices to fall
Answer
A. Bond prices to fall more than stock prices
265. The one-period rate of return from a stock or bond which may or may not be realized canbe described by using the term
A. Holding-period return.
B. Yield.
C. Random variable
D. Market return
Answer
A. Holding-period return.
266. If the dispersion around a security’s return is larger
A. The expected return is smaller
B. The standard deviation is smaller
C. The stock’s price is higher
D. The security’s risk is higher
Answer
A. The expected return is smaller
267. Who popularized the dividend discount model, which is sometimes referred to by his name?
A. Myron Gordon
B. Frederick Macaulay
C. Harry Markowitz
D. Marshall Blume
Answer
A. Myron Gordon
268. A group of mutual funds with a common management are known as:
A. Fund syndicates.
B. Fund conglomerates
C. Fund families.
D. Fund complexes
Answer
C. Fund families.
269. Markowitz’s main contribution to portfolio theory is
A. That risk is the same for each type of financial asset
B. That risk is a function of credit, liquidity and market Factors
C. Risk is not quantifiable
D. Insight about the relative importance of variances and co variances in determining portfolio risk
Answer
B. That risk is a function of credit, liquidity and market Factors
270. Information about return on an investment is as follows: (a) Risk free rate 10% (b) Market Return is 15% (c) Beta is 1.2 What would be the return from this investment?
A. 12%
B. 14%
C. 16%
D. 18%
Answer
C. 16%
271. If the current market price is considered as a basis of CAPM, then what would happen if Actual Market Price < CAPM,
A. stock is undervalued
B. stock is overvalued
C. stock is correctly valued
D. none
Answer
A. stock is undervalued
272. What should be the investment decision When CAPM < Expected Return ?
A. Hold
B. Buy
C. Sell
D. Sale later
Answer
B. Buy
273. If the Required rate of Return as per CAPM is 18% and expected return is 12%, what should be the investment decision?
A. Hold
B. Buy
C. Sell
D. Buy later
Answer
C. Sell
274. Which amongst the following is not included in the Phases of Portfolio Management?
A. Security Analysis
B. Capital Market theory
C. Portfolio analysis
D. Portfolio selection
Answer
B. Capital Market theory
275. Technical analyst concentrates more on price movements and ignores the fundamentals of the shares:
A. True
B. False
C. Partially true
D. all
Answer
A. True
276. Fundamental analysis, does not concentrate on the fundamental factors affecting the company such as
A. the dividend pay-out ratio,
B. the competition faced by the company,
C. Price Charts and Patterns
D. the EPS of the company
Answer
C. Price Charts and Patterns
277. The fundamental analyst compares this intrinsic value (true worth of a security based on its fundamentals) with the
A. Historical Market price
B. Past intrinsic value
C. Current market price.
D. Expected Intrinsic value
Answer
C. Current market price.
278. Sharpe ratio and Treynor ratio measures which of the following:
A. Standard Deviation
B. Risk adjusted returns
C. Beta
D. Alpha factor
Answer
B. Risk adjusted returns
279. The return expected = ___ + Beta portfolio (Return of Market – Risk Free Return)
A. Standard Deviation
B. Risk adjusted returns
C. Risk Free Return
D. Beta
Answer
C. Risk Free Return
280. Alpha = Return of Portfolio- ___ ?
A. Beta
B. Expected Return
C. Standard Deviation
D. Risk Free Return
Answer
B. Expected Return
