Infinite growth is a problem with the dividend discount model because:
a. The expected stream of dividends is infinite
b. At reasonably high discount rates, such as 12 percent, dividends received in the
distant future (40 or 50 years from now) are worth very little today
c. Dividend growth rates eventually become very small
d. The statement is incorrect – infinite growth is not a problem with the dividend
discount model because at reasonably high discount rates, such as 12 percent, dividends
received in the distant future are worth very little today
Which of the following statements about NYSE is true?
a. The NYSE is the oldest and most prominent primary market in the U.S.
b. Specialists account for over 50 percent of the seats on the NYSE.
c. The NYSE is the oldest and most prominent secondary market in the U.S.
d. Institutional investors do not trade on the NYSE
Stock investors pay attention to the bond market because:
a. it is more stable than the stock market.
b. it can provide daily signals whereas stock market data tends to trend weekly, monthly
or quarterly.
c. it is a more accurate measure of overall economic activity.
d. it is privy to more government information, especially from the Federal Reserve.
The APT is based on the:
a. law of averages.
b. law of attraction.
c. law of accelerating return.
d. law of one price.
To hedge a short sale, an investor could
a. buy a call.
b. write a call.
c. buy a put.
d. write a put.
The yields on corporate bonds issued in the primary market should be___________the
yields on similar corporate bonds trading in the secondary market.
a. much less than
b. exactly the same as
c. slightly higher than
d. similar to
One form of interest rate forecasting has the investor evaluating bonds being considered
for purchase over a selected holding period in order to determine which will perform
the best and is known as:
a. holding-period analysis.
b. time-series analysis.
c. horizon analysis.
d. duration planning.
Which of the following is not one of the parts of the cashflow statement?
a. cashflow from operating activities.
b. cashflow from sales activities.
c. cashflow from investing activities.
d. cashflow from financing activities.
The premium on an option is the:
a. par value of the option.
b. price of the option.
c. book value of the option.
d. price at which a security may be bought or sold using the option.
Which of the following statements is true regarding the efficiency of foreign securities
and foreign markets?
a. Foreign securities tend to be more analyzed than U.S. securities.
b. Foreign markets tend to be less efficient than U.S. markets.
c. Foreign markets often lag behind U.S. markets as much as 6 months.
d. Foreign markets tend to be as efficient as U.S. markets.
Portfolio weights are found by:
a. dividing standard deviation by expected value
b. calculating the percentage each asset’s value to the total portfolio value
c. calculating the return of each asset to total portfolio return
d. dividing expected value by the standard deviation
Three types of equity securities derivatives are:
a. puts and calls created by corporations, and warrants created by investors.
b. puts and calls created by investors, and warrants created by corporations.
c. options, preferred stock, and commons stock created by corporations.
d. options, stock, and warrants, created by corporations.
An investor has three sources of dollar returns from a bond investment. Which of the
following is NOT included among the three sources?
a) The semi-annual coupon payments.
b) The interest earned on reinvesting the coupon payments.
c) The principal paid at maturity.
d) The interest earned on reinvesting the last coupon and the principal.
Superior portfolio performance can result from
a. the ability to select undervalued securities.
b. the ability to time market turns.
c. superior selectivity or timing performance.
d. neither superior selection nor timing. The market is too efficient.
The central focus of a security analyst’s job is to:
a. ascertain the accuracy of financial statements of selected companies.
b. find growth stocks.
c. forecast a specific company’s return.
d. determine the market demand for a specific company’s stock.
Monitoring and rebalancing a portfolio over time involves all of the following costs
EXCEPT
a. commissions.
b. possible impact on market price.
c. holding a portfolio that is no longer adequately diversified.
d. time involved in decision making.
Futures contracts were first traded on
a. stock indexes.
b. foreign currencies.
c. commodities.
d. government bonds.
Economic value added is the difference between:
a. operating profits and cost of capital.
b. operating profits and cost of equity.
c. net profits and cost of capital.
d. net profits and cost of equity.
What is the difference between the Yield-to-Maturity and the Realized Compound
Yield?
a) They are actually the same concept.
b) The yield to maturity is the actual return, calculated at the end of the investment; the
realized compound yield is the expected return at the beginning of the investment.
c) The realized compound yield is the actual return, calculated at the end of the
investment; the yield to maturity is the expected return at the beginning of the
investment.
d) The yield to maturity continues as far as the first call, the realized compound yield
continues until final payment is made.
The constant growth rate model of the DDM implies that:
a. earnings are not relevant to stock prices.
b. the payout ratio remains fixed.
c. the stock price grows at the same rate as dividends.
d. the growth rate in dividends equates to zero (i.e., dividends remain a ‘constant’ dollar
amount over time).
Markowitz’s main contribution to portfolio theory is:
a. that risk is the same for each type of financial asset
b. that risk is a function of credit, liquidity and market
factors
c. risk is not quantifiable
d. insight about the relative importance of variance and covariance in determining
portfolio risk
Value Line’s estimated dividends on its Industrial Composite for 199X are $00 while
estimated earnings are $4.30. The expected spread between k and g is .04. (a) What is
the P/E ratio?
(b) What is the estimated price for this Index?
Investment company managers seek to increase the size of the funds being managed
since the cost of overseeing additional amounts of money rises less than the revenue
rate.
CFt + (PE – PB) CFt + PC
TR = ————– = ———
PB PB
where
CFt = ______________________________________________
PE = ______________________________________________
PB = ______________________________________________
PC = ______________________________________________
The DJIA is a ______________-weighted index.
Secondary movements are often termed technical corrections.
In which stage of the industry life cycle is it easiest for the analyst to assess industry
prospects and identify the leading companies?