Financial Markets and Instruments: Concepts and Calculations, Exams of Investment Management and Portfolio Theory

Download Financial Markets and Instruments: Concepts and Calculations and more Exams Investment Management and Portfolio Theory in PDF only on Docsity! INVESTMENT ANALYSIS MULTIPLE CHOICE QUESTIONS (100 pts, 1 pt ea) 1. On February 28, 1996, the DJIA reflected a divisor of 0.346, and closed down 43.0 points at 5506.21. At that time, a round lot of all 30 component stocks cost: A. $1,905.14 > B. $190,514.87 C. $477,417.05 D. $1,591,390.20 2. On February 28, 1996, the DJIA reflected a divisor of 0.346, and closed down 43.0 points at 5506.21. At that time, the average share price of a DJIA component stock was: > A. $63.50 B. $30.00 C. $53.04 D. $183.54 3. On February 28, 1996, the DJIA reflected a divisor of 0.346, and closed down 43.0 points at 5506.21. This change reflects an average decrease in the price of each component stocks of: > A. 49.6¢ B. $1.49 C. 43.0¢ D. 14.87¢ 4. On February 28, 1996, the DJIA reflected a divisor of 0.346, and closed down 43.0 points at 5506.21. The effect on the DJIA of Johnson & Johnson's 3/8 point gain was: A. 1.084 B. 0.130 C. 0.375 > D. zero. 5. "Dogs of the Dow" refer to DJIA stocks that have low: A. price-earnings ratios. > B. price-dividend ratios. C. price-book ratios. D. price-sales ratios. 6. According to the "Rule of 72," a 9% rate of return will double your money in: > A. 8 years. B. 9 years. C. 27 years. D. 72 years. 7. At a 6% annual rate of return, an annuity of $10,000 per month has an investment cost of: A. $16.7 million. > B. $2 million. C. $1 million. D. $120,000. 8. The present value of $1 million to be received in 36 years at a discount rate of 6% is: A. $67,500. > B. $125,000. C. $500,000. D. $8 million. 9. The expected annual rate of return on common stocks is: A. 20%. B. 14%. > C. 10%. D. 6%. docsity.com 2 10. The expected annual rate of return on common stocks after inflation is: A. 20%. B. 14%. C. 10%. > D. 6%. 11. The expected annual real after-tax rate of return on long-term bonds is: A. 10%. B. 6%. > C. 0%. D. -4%. 12. For the 1926-90 time frame, the probability of outperforming broadly diversified common stocks with a portfolio of long-term bonds over a 30-year holding period was: A. 100%. B. 80%. C. 67%. > D. 0%. 13. The standard deviation of the annual rate of return on common stocks over the period 1926-1989 is roughly: > A. 20%. B. 10%. C. 6%. D. 3%. 14. The market for equities is predominantly a: A. primary market. B. market dominated by individual investors. C. market dominated by foreign investors. > D. secondary market. 15. 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%. 16. The P/E ratio is inversely related to the: > A. required rate of return. B. expected growth of dividends. C. expected growth of earnings. D. payout ratio. 17. The arithmetic mean of annual stock returns is: A. downward biased. > B. upward biased. C. the square root of geometric returns. D. unbiased. 18. The coefficient of variation is: A. the chance of loss. B. the mean geometric return. > C. a relative risk/reward measure. D. the square root of variance. 19. Correlation is: A. an absolute measure of comovement that varies between -4 and +4. > B. a relative measure of comovement that varies between -1 and +1. C. a relative measure of comovement that varies between -4 and +4. D. an absolute measure of comovement that varies between -1 and +1. docsity.com 5 37. NYSE composite volume does not include trading on: A. the floor of the NYSE. B. regional exchanges. C. the NASD system. > D. the ASE. 38. On the London Stock Exchange, the least actively traded stocks are called: A. alpha stocks. B. beta stocks. > C. gamma stocks. D. omega stocks. 39. The NYSE is: > A. an auction market. B. dealer-only market. C. broker-only market. D. negotiated market. 40. On February 28, 1996, the Wilshire (5000) Index value of 6342.10 signified: A. a total market capitalization for U.S. stocks of $6.34 billion. > B. a total market capitalization for U.S. stocks of $6.34 trillion. C. an increase of 634.1% from the index base of 10 in 1956-58. D. an increase of 63.41% from the index base of 100 in 1956-58. 41. If the average price of DJIA component stocks increases in a bull market, the effect of a given percentage decline in stock prices on the DJIA will: > A. rise. B. fall. C. stay the same. D. have no influence on the DJIA. 42. An R2 = 25.13% in the stock-price beta estimation for the Coca-Cola Company implies that 25.13% of the variation in the: A. S&P Index can be explained by variation in the Coca-Cola stock return. B. Coca-Cola stock price can be explained by variation in the S&P Index. > C. return on Coca-Cola can be explained by variation in the S&P Index return. D. S&P Index can be explained by variation in the Coca-Cola stock price. 43. An intercept estimate of 0 in the stock-price beta estimation for the Coca-Cola Company implies: A. zero total return on Coca-Cola during the estimation period. > B. zero excess returns on Coca-Cola during the estimation period. C. α = 1. D. β = 1. 44. A slope coefficient estimate of 1.15 in the stock-price beta estimation for the Coca-Cola Company implies: > A. slightly above-market risk. B. slightly below-market risk. C. a market risk level. D. none of the above. 45. In the stock-price beta estimation for the Coca-Cola Company, the dependent variable is the: A. price of Coca-Cola stock. > B. return on Coca-Cola. C. return on the S&P 500. D. value of the S&P 500 Index. 46. Median annual income per household in the U.S. is roughly: A. $100,000. > B. $30,000. C. $20,000. D. $10,000. docsity.com 6 47. Median wealth per household in the U.S. is roughly: > A. $35,000. B. $100,000. C. $1,000,000. D. $10,000. 48. An original issue deep-discount bond that pays no interest is called a: A. CMO. B. PIK. C. convertible. > D. zero. 49. Dividend income represents roughly what share of the long-term total return on common stocks: A. one-third. B. one-quarter. > C. one-half. D. none. 50. The coupon divided by the current price of a bond is called the: A. yield to maturity. > B. current yield. C. approximate yield to maturity. D. internal rate of return. 51. The relation of yield to maturity with term to maturity at a given point in time is called the: A. yield spread. B. liquidity preference hypothesis. > C. term structure of interest rates. D. segmented market hypothesis. 52. Yield spreads rise with a: A. fall in term to maturity. B. rise in term to maturity. > C. rise in coupon reinvestment risk. D. fall in coupon reinvestment risk. 53. When the yield to maturity for short-term bonds exceeds that for long-term bonds, yield spreads are said to be: A. inverted. B. flat. C. normal. > D. none of these. 54. The purchase of a stock at 10 with 50% initial margin would result in a margin call (for 30% maintenance margin) if the stock falls in price to: > A. $7.14 B. $7 C. $5 D. $3 55. Asset prices are determined by: A. future possibilities. B. historical experience. C. future probabilities. > D. investor expectations. 56. The taxable equivalent yield for an investor in the 33% marginal tax bracket holding a 9% municipal bond is: A. 3%. B. 9%. C. 6%. > D. 13.4%. docsity.com 7 57. Preferred stock: A. has a specified life. B. has a price that does not fluctuate. > C. dividends are not tax-deductible for issuers. D. is a debt security. 58. Zero coupon bonds: A. are free from taxes until maturity. > B. eliminate reinvestment rate risk. C. must be issued at face (or par) value. D. are free from price volatility. 59. Zero-coupon bonds: A. pay coupon interest only. B. are issued only by corporations. > C. are sold at a discount to par value. D. promise to pay par value prior to maturity. 60. The rate of return on money market securities: A. is slightly below the Treasury bill rate. B. is set by regulation. > C. is slightly above the Treasury bill rate. D. is slightly below the insured bank CD rate. 61. If the initial margin requirement is 40%, an investor buying 100 shares at $100 per share must furnish equity of: A. $6,000. > B. $4,000. C. $10,000. D. $100. 62. The expected return on a security with possible outcomes of X1 = 10%; X2 = 20%; X3 = 25% and associated probabilities of P(X1) = 0.2; P(X2) = 0.5; P(X3) = 0.3 is: A. 25%. B. 20%. C. 17.5%. > D. 19.5%. 63. In general, the link between equity prices and interest rates is: A. direct. > B. inverse. C. exponential. D. not material. 64. The present value of $200 to be received in 8 years at a discount rate of 9% is: > A. $100. B. $200. C. $400. D. $56. 65. Duration is measured in: A. percent. > B. years. C. dollars. D. dollars squared. 66. The duration of a bond A. is directly related to coupon yield. B. decreases with maturity. > C. is always less than maturity for bonds paying coupon interest. D. and yield to maturity are directly related. docsity.com 10 81. Empirical research concludes that betas for: A. individual securities and large portfolios are unstable. > B. individual securities are unstable. C. individual securities and large portfolios are stable. D. large portfolios are unstable. 82. The SML depicts the tradeoff between risk and required return for: > A. all assets. B. inefficient portfolios. C. efficient portfolios. D. individual securities only. 83. The Reward-to-Variability Measure is the: A. return above the risk-free rate. > B. excess return per unit of total risk. C. systematic risk per unit of excess return. D. return above the risk-free rate relative to the risk-free rate. 84. In comparing the Reward-to-Variability Measure (RVAR) and the Reward-to-Volatility Measure (RVOL), it is important to remember that: A. RVOL is based on total risk while RVAR is based on systematic risk. > B. RVAR is based on total risk while RVOL is based on systematic risk. C. RVAR is based on unsystematic risk while RVOL is based on systematic risk. D. RVOL is based on systematic risk while RVAR is based on unsystematic risk. 85. The percentage of the variance in portfolio returns that is explained by the market returns is given by: A. the standard deviation. > B. the coefficient of determination. C. beta. D. alpha. 86. If RF = 6%, RM = 12%, ß = 2, portfolio performance of 18% is: A. 6% inferior. B. 12% inferior. C. 6% superior. > D. a risk-adjusted market return. 87. A well-known market anomaly is found between: A. money supply growth and stock prices. > B. P/E ratios and subsequent stock returns. C. P/E ratios and earnings momentum. D. stock prices and auditor changes. 88. According to the Markowitz model, investors base investment decisions on: A. expected return. > B. expected return and risk. C. expected return, risk and the diminishing marginal utility of money. D. expected return, risk and the increasing marginal utility of money. 89. Using the Markowitz model, the efficient frontier is: > A. an upward sloping curved line. B. a downward sloping curved line. C. an upward sloping straight line. D. a downward sloping curved line. 90. The SCL is: A. an upward sloping curved line. B. a downward sloping curved line. > C. an upward sloping straight line. D. a downward sloping curved line. docsity.com 11 91. Portfolio risk is reduced by combining securities with: A. perfect correlation. > B. less than perfect correlation. C. high standard deviations. D. low standard deviations. 92. Weak form market efficiency: A. is identical to the random walk hypothesis. B. incorporates semi-strong form efficiency. > C. involves only price and volume information. D. is compatible with technical analysis. 93. The highest level of market efficiency is: A. weak form efficiency. B. semi-strong form efficiency. C. random walk efficiency. > D. strong form efficiency. 94. According to Jensen's Differential Return Measure, alpha is: A. the intercept of a SML line. B. the intercept of the CML line. > C. a means of identifying superior or inferior portfolio performance. D. the actual excess return on a portfolio during one period. 95. The alpha for a particular mutual fund for a particular period: A. must be positive. B. must be negative. C. must always be zero. > D. can be positive, negative or zero. 96. RVAR: A. is an absolute measure of performance. > B. measures the slope of a line from RF to the portfolio being evaluated. C. indicates better performance as its value approaches zero. D. does not take into account portfolio diversification. 97. The slope of the CML is: A. the amount of return expected for bearing the risk of an individual portfolio. > B. the market price of risk for efficient portfolios. C. the market price of risk for any given security. D. none of the above. 98. Beta is: A. an absolute measure of risk. B. a measure of total risk. > C. a relative measure of risk. D. a measure of unsystematic risk. docsity.com 12 99. A security with a beta of 1.5 is: A. 150% more volatile than the overall market. B. approximately as risky as the average security. > C. 50% more volatile than the overall market. D. 50% less volatile than the overall market. 100. The difference between the return on common stocks and the return on riskless assets is the: A. total return. B. systematic return. > C. equity risk premium. D. market model. docsity.com