1) As the correlation coefficient between two assets decreases, the shape of the efficient
frontier
a. approaches a horizontal straight line.
b. bends out.
c. bends in.
d. approaches a vertical straight line.
e. none of the above.
2) The dividend payout ratio for the aggregate market is 65 percent, the required rate of
return is 13 percent, and the expected growth rate for dividends is 8 percent. Compute
the current earnings multiple.
a. 7
b. 13
c. 4.61
d. 14.61
e. None of the above
3) Market value-added is a measure of ____ performance.
a. External
b. Internal
c. Competitive
d. Economic
e. None of the above
4) Exhibit 5.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
Refer to Exhibit 5.5. Calculate the unweighted index (geometric mean) for Dec 31,
2004. Assume a base index value of 100. The base year is Dec 31, 2003.
a.119.25
b.121.25
c.151.25
d.95.25
e.100.25
5) The expected rate of return on Rewind Industries is 2.5 times the 12 percent expected
rate of return from the market. What is Rewind’s beta if the risk free rate is 6 percent?
a. 2
b. 3
c. 4
d. 5
e. 6
6) A manager’s superior returns could have occurred due to:
a. an insightful asset allocation strategy, over weighting an asset class that earned high
returns.
b. investing in undervalued sectors.
c. selecting individual securities that earned above average returns.
d. Choices a and c
e. All of the above
7) An advantage of technical analysis over fundamental analysis is technical analysis
a. Has an increased amount of data that allows the analyst to process the information
b. Can more thoroughly investigate accounting information
c. Adjusts for differences in GAAP accounting procedures across the industry
d. Can capture non-quantifiable variables such as psychological factors
e. None of the above
8) Which of the following is not a typical characteristic of a convertible preferred
stock?
a. They are cumulative but not participating.
b. The conversion privilege normally expires before maturity.
c. They have no sinking fund or purchase fund.
d. They have a fixed conversion rate.
e. There is generally no waiting period before conversion can take place.
9) Researchers have found a positive relationship between default spread and stock
returns in the long run because a large default spread implies
a.a high risk premium and higher expected returns.
b.a high risk premium and lower expected returns.
c.a low risk premium and higher expected returns.
d.a low risk premium and lower expected returns.
e.none of the above.
10) The multiplier approach for estimating the intrinsic market value of a major stock
market series requires the following step(s):
a. Estimating the future earnings per share for the stock market series
b. Estimating the appropriate earnings multiplier for the stock market series
c. Estimating long-run required rates of return and growth rates
d. Both a and b
e. All of the above
11) In an efficient market all securities should have:
a.Equal returns for the same time period
b.Equal risk-adjusted returns
c.Equal inflation-adjusted returns
d.All of the above
e.None of the above
12) The economic factor assumed to be closely related to stock prices is productivity.
13) An advantage of sampling is that portfolio returns will not track the index as closely
as with full replication.
14) The expected return and standard deviation of a portfolio of risky assets is equal to
the weighted average of the individual asset’s expected returns and standard deviation.
15) A portfolio is generally managed by the board of directors of an investment
company.
16) There can be only one zero-beta portfolio.
17) Correlation of the market portfolio and the zero-beta portfolio will be linear.
18) Long-term, high-priority goals include some form of financial independence.
19) The number of future contracts needed to hedge a unit of the spot assets is solely a
function of the variance of the spot prices.
20) It is required by law that a stock market must have a physical location.
21) A primary function of futures markets is to allow investors to transfer risk.