An example of indirect investing would be buying shares in a mutual fund.
Investors always seek to minimize their risk of investing.
Holding maturity constant, a decrease in rates will raise bond prices on a percentage
basis more than a corresponding increase in rates will lower bond prices.
Investors enjoyed the best 5 consecutive years in the stock market history over the
period 1996-2000.
Some recent research shows technical analysis may have some value. For example,
Brown and Jennings (1989) show investors can learn something about other investors
by observing prices at which securities trade ‘ i.e., prices reveal information and convey
it. What other kinds of today’s models open up the possibility of profitable trading
strategies using technical analysis?
a. Arbitrage.
b. Trading Rules.
c. Short-interest.
d. Behavioral.
Value stocks, such as those considered the Dogs of the Dow, will generally have:
a. no dividend payments
b. a low P/E ratio
c. a low payout ratio
d. a high required return
The cash flow statement consists of the following parts:
a. cash holdings from revenue, operations, investing, and financing activities.
b. cash flows from revenue, operations, investing, and financing activities.
c. cash holdings from operations, investing, and financing activities.
d. cash flows from operations, investing, and financing activities.
A general consensus of analysts is that a typical investor should have between ___ and
______ percent of his/her portfolio in international markets.
a. 5: 10
b. 10: 20
c. 20: 30
d. 30: 40
The risk-free rate of return is 10 percent, and the expected return for the stock market is
16 percent. Evergreen Industries has a beta of 1. 1, and investors expect dividends and
earnings to grow at an 8 percent rate per year. The current dividend is $1.20, and the
payout ratio is 50 percent.
(a)Calculate the P/E ratio for Evergreen Industries.
(b)Estimate the price of the stock for the next year using the multiplier model.
The initial margin required for futures trading
a. is only put up by the seller.
b. is only put up by the buyer.
c. can be put up by either party, whoever initiates the transaction.
d. must be put up by both the buyer and the seller.
Which of the following statements regarding specialists is FALSE? Specialists:
a. are expected to maintain a fair and orderly market in their assigned stocks.
b. perform a dual role as brokers and dealers.
c. must be approved by the Federal Reserve Board.
d. must often go “against the market.”
Select the CORRECT statement regarding basis risk associated with futures.
a. Basis risk can be completely eliminated.
b. Although the basis fluctuates over time, it can be precisely predicted.
c. The basis must be zero on the maturity date of the contract.
d. A hedge will reduce risk as long as basis fluctuations are positive.
A company has a price to sales ratio of 1.0, annual sales of $1 billion and 100 million
shares of common stock outstanding. Its stock price is:
a. $10
b. $20
c. $17.52
d. $22.00
If stock prices reflect their approximate fair value after transactions costs are taken into
account, this is known as:
a. after-cost efficiency.
b. economic efficiency.
c. a market in equilibrium.
d. an efficient market.
Investment bankers operate in the:
a. primary market
b. secondary market
c. tertiary market
d. fourth market
Which of the following statements is FALSE?
a. An in-the-money call occurs if the stock price exceeds the exercise price.
b. An out-of -the money call occurs if the stock price is less than the exercise
price.
c. If a call is out of the money, the intrinsic value is zero.
d. If a call is in the money, the intrinsic value is zero.
When conducting industry analysis, investors should consider the historical record of
all the following except:
a. sales growth.
b. earnings growth.
c. interest rates.
d. price performance.
The federal agency most involved with the money supply and interest rates is
a. the Treasury Department
b. the Federal Reserve
c. the Department of Commerce
d. the U. S. Mint
If markets are truly efficient and in equilibrium
a. all securities would lie on the SML.
b. any security that plots below the SML would be considered undervalued.
c. any security that lies above the SML would be considered overvalued.
d. no security would lie on the SML..
The recent housing bubble and resulting credit crisis of 2008 is a perfect example of:
a. nonsystematic risk
b. systematic risk
c. inflation risk
d. political risk
The relationship between the stock market and the business cycle is generally
considered reliable, but the stock market tends to give false signals about:
a. business cycle peaks (booms).
b. business cycle troughs (recessions).
c. business cycle inflection points between peaks and troughs, and between troughs and
peaks (i.e., when the rates of decline in growth change from increasing to decreasing
rates, and vice versa).
d. ex post stock market returns.
A major difference between the Standard & Poor ‘s 500 Index (S&P) and the
Dow-Jones Industrial Average (DJIA) is that:
a. the S&P 500 is more dominated by OTC stocks than the DJIA
b. the S&P 500 is more difficult to calculate than the DJIA
c. the DJIA is a price-weighted rather than value-weighted index like the S&P 500 d.
the S&P 500 is more stable than the DJIA
If the intrinsic value of stock is greater than the current stock price, the stock is
overvalued and should be sold short.
The NYSE maintains circuit breakers to protect investors from unusual market activity.
One of these circuit breakers is:
a. trading halt
b. strict adherence to market opening
c. strict adherence to market closing
d. Stockwatch
Algorithmic trading is:
a. technical analysis, also called charting
b. high frequency trading in ECNs
c. analysisarbitrage
d. involve the use of computer programs to initiate trade orders, including
decision-making on security, quantity, price, and timing
It would be impossible to combine an asset allocation plan with Markowitz analysis.
Why is there an inverse relationship between P/Es and dividend yield?
Stock prices have almost always risen as the business cycle is approaching a trough.
Tests of the strong-form EMH include studies of corporate insiders and event studies.