Dow Jones - Investment Theory - Past Solved Exam , Exams of Investment Management and Portfolio Theory

Download Dow Jones - Investment Theory - Past Solved Exam and more Exams Investment Management and Portfolio Theory in PDF only on Docsity! INVESTMENT THEORY MULTIPLE CHOICE QUESTIONS (100 pts, 1 pt ea) 1. Changes in the composition of the Dow Jones Industrial Average are made solely at the discretion of: > a. the editors of The Wall Street Journal b. the Board of Governors of the NYSE. c. the SEC. d. the NASD. 2. The oldest continuous barometer of the U.S. stock market is the: a. Russell 3,000 Index. b. Wilshire 5,000 Index. > c. Dow Jones Industrial Average. d. S&P 500 Index. 3. The DJIA rises or falls by one point with every: a. $1 dollar change in the value of any component stock. b. 1% change in the price of any component stock. c. 1% change in the market capitalization of any component stock. > d. none of these. 4. Assuming a divisor of 0.15, when the DJIA is at 12,000 a round lot of all 30 component stocks has an investment cost of: a. $1,800. b. $80,000. > c. $180,000. d. $8 million. 5. Assuming a divisor of 0.15, a 100-point rise in the DJIA reflects an average increase in the price of each component stock of: a. $3.33 b. $15. > c. $0.50 d. none of these. 6. The S&P 500: a. dates from 1896. b. is comprised mainly of Nasdaq stocks.. c. accounts for roughly 30% of the market capitalization of the overall stock market. > d. a market cap weighted index. 7. Small-capitalization, or small-cap, stocks are generally described.: a. by the Nasdaq 100 Index. b. by the Wilshire (5000) Index. c. by the Russell 3,000. > d. as those publicly traded corporations with less than $1.5 billion in total market capitalization 8. ROE is the product of profit margin times leverage times: > a. total asset turnover. b. sales. c. total assets. d. stock holders’ equity. 9. After taxes and inflation, bonds and money market instruments return: a. 5-6% per year. b. 8-10% per year. c. 12-14% per year. > d. none of these. docsity.com 2 10. Holding all else equal, ROE will rise with an increase in: a. total assets. b. sales. c. stockholders’ equity. > d. none of these. 11. Assume EPS = $2, P = $50 and P/B = 8. A retention rate of 100% implies sustainable growth of: a. 4%. b. 12%. c. 25%. > d. 32%. 12. Assume EPS = $3, P = $60, P/B = 5, and zero dividends. Expected EPS is: a. $2.85 b. $3.00 c. $3.15 > d. $3.75 13. Holding all else equal, EBITDA will rise with an increase in: a. assets. > b. profit margins. c. interest expense. d. depreciation. 14. Holding all else equal, the rate of growth made possible by internally generated funds rises with the: a. P/E ratio. b. P/B ratio. c. price-sales ratio. > d. none of these. 15. Free cash flow rises with an increase in: a. interest expenses. b. amortization costs. > c. gross income. d. capital expenditures. 16. Fully diluted earnings per share fall with a rise in: a. the stock price. b. basic earnings per share. > c. employee stock option exercises. d. employee stock option expirations. 17. Stock market investment is the: a. purchase or sale of securities on the expectation of capturing short-term trading profits from share-price fluctuations tied to the temporary good fortune of a given company. b. sharing in the unpredictable good fortune of companies. > c. buying and holding for dividend income and long-term capital appreciation the shares of companies with inherently attractive economic prospects. d. means by which one benefits from a short-term or fundamental change in the economic prospects facing a company. 18. When the yield to maturity for short-term bonds is less than that for long-term bonds, the term structure of interest is said to be: a. inverted. b. flat. > c. normal. d. none of these. docsity.com 5 c. federal agency securities. d. corporate bonds. 38. The three-year compound annual rate of return on a stock earning 25%, 100% and -60% is: > a. 0%. b. 16.7%. c. 21.6%. d. 25%. 39. The probability of outperforming a portfolio of stocks with long-term bonds over a 30-year holding period is roughly: > a. 0%. b. 67%. c. 90%. d. 100%. 40. The probability of outperforming a portfolio of stocks with short-term bonds over a 5-year holding period is about: a. 0%. > b. 20%. c. 80%. d. 100%. 41. The highest annual rates of return on common stocks during the post World War II period were earned during the: a. 1950s. b. 1970s. c. 1980s. > d. 1990s. 42. The late-1990s were an especially attractive investment environment for: a. foreign stocks. > b. large cap growth stocks. c. large cap value stocks. d. small cap stocks. 43. The geometric mean return for a stock with a four-year performance history of +25%, +40%, -20% and +25% is: a. 0%. > b. 15%. c. 17.5%. d. 75%. 44. The arithmetic mean return for a stock with a three-year performance history of +14%, +26%, -2% is: a. 0%. > b. 12.7%. c. 40.8%. d. 43.6%. 45. Debt obligations of the U. S. Treasury that have maturities of more than one year but less than 10 years are called: a. Treasury bills. > b. Treasury notes. c. Treasury bonds. d. none of these. 46. From 1950 to the present, the annual rate of return on common stocks is roughly: a. 0-3%. b. 4-6%. > c. 12-14%. d. 20-25%. 47. Which among the following statements is true? docsity.com 6 a. Outstanding long-term bond returns coincide with periods of rising interest rates. > b. Outstanding stock return performance tends to follow years of sub-par performance. c. Nominal returns are adjusted to reflect the effects of inflation. d. Treasury bills seldom provide a before-tax return sufficient to offset the effects of inflation. 48. The purchase of a stock at 50 with 50% initial margin would result in a margin call (for 30% maintenance margin) if the stock falls in price to: > a. $35.70 b. $35 c. $25 d. $15 49. The process under which an issuing company can sell new securities over a period of time under favorable conditions is known as: > a. the shelf rule. b. a private placement. c. NASDAQ. d. forming a syndicate. 50. If the initial margin requirement is 40%, an investor buying 100 shares at $100 per share must furnish equity of: > a. $4,000. b. $6,000. c. $10,000. d. $100. 51. Superior risk-adjusted performance can result from the short sale of: > a. overvalued securities. b. low-risk securities. c. high-risk securities. d. undervalued securities. 52. The quoted ask price is the: > a. lowest price an investor presently active in the market will accept to sell a stock. b. lowest price an investor presently active in the market will accept to buy a stock. c. highest price an investor presently active in the market will accept to buy a stock. d. highest price an investor presently active in the market will accept to sell a stock. 53. A short sale of 1,000 America Online at 65 that is covered at 60 results in a total: > a. profit of $5,000. b. loss of $5,000. c. profit of $65,000. d. loss of $60,000. 54. An inverted bid-ask spread: > a. is a bearish indication. b. is a bullish indication. c. involves a quoted ask price that is actually higher, not lower, than the quoted bid price. d. indicates a deep market. 55. A market order is an instruction to: a. immediately buy a security at the current bid price. b. buy if the market price at least reaches the specified price target. c. sell at or above a specified price target. > d. none of these. 56. An order to buy or sell a certain quantity of a security at a specified price or better, but only after a specified price has been reached, is called a: > a. stop-limit order. docsity.com 7 b. stop-loss order. c. stop order. d. none of these. 57. A stipulation to a buy or sell order that instructs the broker to either fill the entire order or don't fill it at all is called a: a. day order. b. good ‘til canceled order. c. fill-or-kill order. > d. none of these. 58. Portfolio management always involves: a. focusing on securities considered to be temporarily undervalued or unpopular for various reasons. b. seeking bargains described in terms of a market price that is below the economic value of assets in place. c. focusing on companies expected to have above-average rates of growth in earnings and dividends. > d. bargains selling at prices below their actual economic value. 59. Attractive growth stocks feature: a. rapid historical EPS growth. > b. rapid expected EPS growth. c. below average P/E ratios. d. below average P/B ratios. 60. Ideally, growth stocks are characterized by low: a. reliance on equity financing. b. ROE. c. earnings retention. > d. leverage. 61. Attractive value stocks feature: a. rapid historical EPS growth. b. rapid expected EPS growth. c. above average P/E ratios. > d. below average P/B ratios. 62. When compared with growth stock investors, value stock investors place a greater emphasis on: a. management quality. b. high profit margins. c. low dividend payout ratios. > d. tangible assets. 63. TROW has a current price of 40, an expected dividend per share of $0.50, expected EPS of $2, expected EPS growth of 15% per year, and a typical P/E ratio of 20. According to the Discounted Present Value Model, what is the expected price for TROW in five years? a. $84.92 b. $82.95 > c. $80.45 d. $42.50 64. TROW has a current price of 40, an expected dividend per share of $0.50, expected EPS of $2, expected EPS growth of 15% per year, and a typical P/E ratio of 20. According to the Discounted Present Value Model, what is the expected price for TROW in five years? According to the Discounted Present Value Model, what is the expected rate of return on TROW over the next five years? > a. 16.25% b. 15% c. 12% d. 10% 65. INTC has a current price of 50, an expected dividend per share of $0.10, expected EPS of $1, expected EPS growth of 20% per year, and a typical P/E ratio of 25. According to the Discounted Present Value Model, what is the expected price for INTC in five years? a. $124.92 docsity.com 10 84. Following the investment experience of the late-1990s, reversion to the mean theory predicts: a. higher stock prices due to falling dividend yields in the new millennium. b. higher stock prices due to rising P/B ratios in the new millennium. c. higher stock prices due to rising economic growth in the new millennium. > d. none of these. 85. Following the investment experience of the late-1990s, reversion to the mean theory predicts: a. higher rates of return for growth stock investors in the new millennium. b. lower rates of return for value stock investors in the new millennium. > c. higher stock market dividend yields in the new millennium. d. higher stock market P/E ratios in the new millennium. 86. Holding all else equal, EBITDA will rise with: a. the prime rate. b. capital spending. > c. net income. d. tangible assets. 87. Holding all else equal, EBITDA will fall with a rise in: a. sales. > b. the average collection period. c. capital spending. d. the awarding of managerial stock options. 88. A contrarian investment philosophy tends to rely upon rapid: a. earnings growth. b. dividend growth. c. P/E expansion. > d. changes in investor psychology. 89. The value of ROE is defined as: > a. ROE ÷ P/E. b. ROE ÷ P/B. c. profit margin × total asset turnover × leverage. d. profit margin ÷ total asset turnover ÷ leverage. 90. According to the value of ROE criteria: a. If VRE #1, the stock may be worthy of investment attention and possible purchase. b. If 2 # VRE # 3, the stock is apt to represent an extraordinarily attractive investment opportunity. c. If VRE # 3, the stock is definitely worthy of investment attention and may represent a very attractive investment. > d. none of these. 91. The value of ROE criteria: a. is inconsistent with the “growth at a reasonable price” concept. > b. can be biased upward in the case of firms with little book value per share. c. tends to be biased in favor of high P/E stocks. d. none of these. 92. Reversion (regression) to the mean theory argues that the potential of high profit-margin firms is amplified by: a. entry. b. imitation. c. exit. > d. none of these. 93. High P/E ratios are typically associated with stocks that display: a. below-average risk. > b. below-average dividend payout ratios. docsity.com 11 c. below-average historical returns. d. below-average historical EPS growth. 94. In a Value Line regression, relevant X-variables might include: a. stock price. > b. earnings per share. c. stock-price beta. d. the prime lending rate. 95. If the predicted price in a Value Line regression is above the current market price, the stock is: > a. undervalued. b. fairly valued. c. overvalued. d. none of these. docsity.com 12 96. Security analyst EPS forecasts tend to be most: > a. relevant for investors in high P/E stocks. b. relevant for investors in low P/E stocks. c. accurate for high P/E stocks. d. accurate for low P/E stocks. 97. Graham & Dodd investors tend to favor stocks with low: a. EBITDA. b. dividend yields. > c. capital spending. d. liquidity. 98. Wall Street analysts who study trading volume to develop successful trading strategies are called: > a. chartists. b. momentum-based investors. c. value investors. d. growth-stock investors. 99. Technicians consider a head and shoulders stock-price formation to be: a. bullish. > b. bearish. c. neutral. d. none of the above. 100. Significant historical evidence suggests that technical analysis can lead to: a. significantly above-average profits over time. b. slightly above-average profits over time. c. significantly below-average profits over time. > d. none of the above. docsity.com