Under the P/E model, stock price is a product of:
a. EPS and DPS
b. P/E ratio and EPS
c. EPS and required return
d. P/E ratio and required return
The disposition effect relates to the fact that:
a. investors tend to overconfident regarding potential stock prices.
b. investors often experience regrets about trading decisions.
c. investors are more likely to sell winners than losers.
d. investors tend to dispose of stocks at the end of the year.
Which of the following changes will likely lead to a higher P/E, assuming other factors
are equal?
a. A decrease in the dividend payout ratio
b. An increase in growth rate of earnings
c. An increase in the required rate of return
d. A decrease in the dividend yield
The open-outcry system for trading securities is utilized in the:
a. futures market
b. municipal bond market
c. Treasury bond market
d. options market
Which of the following is TRUE regarding fluctuations in both individual stock prices
and portfolios of stocks?
a. aggregate market movements are the largest single factor explaining these
fluctuations
b. beta is the largest single factor explaining these fluctuations
c. standard deviation of returns is the largest single factor explaining these fluctuations
d. financial risk is the largest single factor explaining these fluctuations
According to the semi-strong form of the EMH, investors who invest in a stock after a
highly positive announcement concerning the stock can expect to earn
a. normal return because the stock will be fairly priced when purchased.
b. extraordinary return because the new information will not affect the price
until later.
c. extraordinary loss because insiders possess
non-public information.
d. zero return because the next price is expected to be the same as the last price.
Positive theory refers to a theory that
a. explains how economic participants should act
b. describes how economic participants act
c. is optimistic
d. has been shown to have high explanatory power as a result of empirical testing
The ___________ summarizes information about a new security issue.
a. syndicate offer
b. IPO
c. prospectus
d. shelf rule
Most financial advisors are registered with the Securities and Exchange Commission as:
a. registered representatives.
b. registered investment advisors.
c. registered financial planners.
d. registered securities consultants.
The S&P 500 showed the following TRs for a 6 year period: 11.1 percent, -5.2 percent,
20.3 percent, 26.7 percent, -14 percent, and 2 percent. (a) Calculate the arithmetic mean
return for the 6 year period.
(b) Calculate the geometric mean return for the 6 year period.
If the price of the common stock exceeds the exercise price of a call for the holder the
call is said to be
a. naked.
b. out of the money.
c. in the money.
d. covered.
Which of the following is not among the usual constraints and preferences considered
when formulating an investment policy?
a. Avoidance of so-called ‘sin” stocks (alcohol, tobacco, firearms, etc.)
b. Liquidity needs
c. Economic assessment
d. Time horizon
Which of the following is not one of the characteristics of the primary nonmarketable
financial assets owned by most individuals?
a. high liquidity
b. high return
c. often issued by the U.S. government
d. low risk
Which of the following measures uses the standard deviation, and evaluates portfolio
performance on the basis of both return and diversification.
a. Jensen’s Alpha.
b. Treynor’s Reward to Volatility.
c. M2.
d. Sharpe Ratio.
The separation theorem states that:
a. systematic risk is separate from unsystematic risk.
b. individual security risk is separate from portfolio risk.
c. the investment decision is separate from the financing decision.
d. borrowing portfolio is separate from the lending portfolio.
The Global Investment Performance Standards (GIPS®) were created by:
a. CFA Institute, the successor to AIMR.
b. Russell/Mellon Financial, now Bank of New York Mellon Financial
c. Morningstar.
d.
The __________ indicates the percentage of the variance in the portfolio’s returns
explained by the market’s returns.
a. standard deviation
b. coefficient of determination
c. beta
d. alpha
The 2 largest fund supermarkets are:
a. Merrill Lynch and Charles Schwab
b. Edward D. Jones and Vanguard
c. Vanguard and Fidelity
d. Charles Schwab and Fidelity
Which of the following is not one of the assumptions of portfolio theory?
a. Liquidity of positions
b. Investor preferences are based only on expected return and risk
c. Low transactions costs
d. A single investment period
All U. S. government securities are considered marketable securities.
Rebalancing is Difficult for many investors because it represents a contrarian strategy.
Which of the following would be considered a strong bearish signal?
a. High mutual fund liquidity
b. Bullish advisory opinion
c. Low short interest ratio
d. Bearish advisory opinion
Are futures – commodity, interest-rate, stock-index, or currency – appropriate for
most individual investors?
The “New Economy” stocks of the 1990s, such as the experience of eToys, proved
conclusively that old valuation principles do not apply today.
Asset allocation accounts for less than 50 percent of the variance in quarterly returns for
a typical pension fund.