Other things equal,
a. the higher the expected growth rate, the lower the P/E ratio.
b. if the risk-free rate rises, the required rate will decline.
c. as the required rate rises, the P/E ratio declines.
d. if the risk premium rises, the required rate will fall.
If a firm’s ROA and ROE are equal, it can be concluded that the firm is
a. losing money.
b. liquid enough to pay some extra dividends.
c. financed by all equity.
d. financed by a high proportion of debt.
Which of the following statements about the difference between the SML and the CML
is TRUE?
a. The intercept of the CML is the origin while the intercept of the SML is RF. b. CML
consists of efficient portfolios, while the SML is concerned with all
portfolios or securities.
c. CML could be downward sloping while that is impossible for the SML.
d. CML and the SML are essentially the same except in terms of the
securities represented.
Of the following statements about futures trading, which one is INCORRECT?
a. There are no specialists on futures exchanges.
b. All futures contracts are eligible for margin trading.
c. Trading is halted for the day if the prices reach the daily limit.
d. The uptick rule applies to the shorting of futures contracts.
Which of the following models incorporates debt financing, including both the
repayment and interest on existing debt as the sale of new debt, as well as preferred
stock financing?
a. FCFE model
b. FCFF model
c. constant growth rate model
d. multiple growth rate model
P/E ratios are generally depressed when interest rates are _____ and inflation is
________.
a. high; low
b. low; high
c. high; high
d. low: low
Many market participants believe that when the dividend yield on the Standard and
Poor’s 500 is ____, the market is in for a downward correction.
a. above 6 percent
b. below 6 percent
c. above 3 percent
d. below 3 percent
Portfolio objectives are always going to center on _______and_______, because these
are the two aspects of most interest to investors.
a. accumulation; consolidation.
b. return; taxes.
c. return; risk.
d. spending; gifting.
Which of the following situations indicates a signal to buy a stock?
a. IV > CMP
b. IV < CMP
c. IV = CMP
d. Impossible to determine.
The most important point of Michael Porter’s analysis is that industry profitability is a
function of
a. economy.
b. interest-rate level.
c. industry structure.
d. industry bet
a.
According to Markowitz, rational investors will seek efficient portfolios because these
portfolios are optimal based on:
a. expected return.
b. risk.
c. expected return and risk.
d. transactions costs.
An international index commonly used as a proxy for international equities that
correlates approximately 80 percent with the S&P 500:
a. MSCI EAFE Index
b. MSCI Emerging Markets Index
c. Russell 1000 Index
d. FTSE NAREIT Index
An investor who pays taxes at the 28% marginal tax rate would need to earn what
coupon rate on a corporate bond similar in all respects other than taxes to a 5% coupon
municipal bond:
a. 1.40%
b. 2.50%
c. 5.00%
d. 6.94%
Under the Market Model, the regression line that results when the return of a security is
plotted against the market index return is the:
a. SML.
b. CML.
c. characteristic line.
d. slope.
Which of the following is not one of the tests of a technical trading rule?
a. Transaction and other costs
b. Consistency
c. Return
d. Risk
If a call option has a $10 strike price, and the underlying stock is trading at $11, then
the option is considered:
a. in the money.
b. at the money.
c. out of the money.
d. worthless.
Buy side analysts will more likely have a potential conflict of interest in a stock than a
sell-side analyst.
Loaded funds generally outperform the no-load funds.
An investor who short sold 120 shares of stock at $150 per share wishes to realize a
gross profit of $2400. At what price must the investor cover the short sale?
A 12b-1 fee is a:
redemption fee.sales chargedistribution fee.loading fee.
Companies with significant intangible assets on their balance sheets may receive a
slightly lower P/E ratio versus companies with Difficult assets.