Which of the following statements concerning index funds and actively managed funds
is true?
a. Their performance is about equal.
b. They tend to have an inverse relationship.
c. Actively managed funds tend to outperform index funds.
d. Index funds tend to outperform actively managed funds.
The generally accepted accounting principles (GAAP) require that the EPS be
calculated using a
a. conservative treatment.
b. liberal treatment.
c. standard set of rules developed by the accounting profession.
d. standard set of rules developed by the SEC.
Each point on a bond quote represents:
a. $100
b. 1 percent of $100
c. 1 percent of $1000
d. $1000
Which of the following statements regarding P/E ratios is true?
a. Generally, the riskier the stock, the higher the P/E ratio.
b. In recent years, the small capitalization stocks had the highest P/E ratios.
c. As interest rates increase, P/E ratios are expected to decline.
d. Higher growth prospects often lead to lower P/E ratios.
The NYSE is now part of a:
a. not-for-profit corporation.
b. a quasi-federal agency.
c. a publicly-owned company.
d. a multinational company.
Given an expected return for the market of 12 percent, with a standard deviation of 20
percent, and a risk-free rate of 8 percent, consider the following data:
Stock Beta Ri(%)
1 0.8 12
2 1.2 13
3 0.6 11
(a) Calculate the required return for each stock using the SML.
(b) Assume that an analyst, using fundamental analysis, develops the estimates labeled
Ri for these stocks. Which stock would be recommended for purchase?
A call option written against stock owned by the writer is said to be
a. naked.
b. in the money.
c. out of the money.
d. covered.
Small changes in the put/call ratio are considered unimportant, whereas extreme
changes convey information. Two rules of thumb are that a ratio greater than
_________ based on a 10-day moving average would be excessively bearish and thus a
buy signal, and a ratio of less than _____________ would be excessively bullish, and
therefore a sell signal.
a. 0.70, 0.65
b. 0.80, 0.45
c. 0.90, 0.25
d. 0.95, 0.05
How can investors reasonably justify buy actively managed funds instead of index
funds?
a. higher management fees usually suggests better performance
b. the fund consistently outperformed the market, net of fees, and is expected to
continue to do so
c. the fund outperformed the S&P 500 by 4% last year
d. the portfolio manager is new and considered a star analyst
Which of the following statements is true regarding short sales?
a. An investor can only remain in a short sale 6 months or less.
b. Short sales can be done on either a cash or margin account.
c. Short sellers borrow the stock sold short from the exchanges.
d. Dividends paid during the short sale must be covered by the seller.
Interest rate futures are not currently available on which of the following securities?
a. Corporate bonds
b. Treasury notes
c. one-month LIBOR rate
d. Treasury bonds
Which of the following 10-year, AAA rated bonds would have the lowest yield?
a. corporate bond.
b. insured municipal bond.
c. U.S. Treasury bond.
d. mortgage-backed bond.
Which of the following statements concerning price to book value is true?
a. There is an inverse relationship between price to book values and market prices.
b. It is calculated as the ratio of price to the book value of assets.
c. There is supporting evidence that stocks with low price to book values significantly
outperform the market.
d. Price to book value ratios for many stocks range from 5.5 to 10.5.
All of the following are benefits of geographic diversification in investment portfolios
EXCEPT:
a. Gaining exposure to currencies other than the U.S. dollar.
b. Some global markets have growth rates higher than the U.S., offering potentially
higher returns.
c. Global markets behave completely independently of U.S. markets.
d. Many global markets are not highly correlated with U.S. markets.
What is meant by “Yield to Maturity”?
a) The coupon interest rate paid each year, divided by the face value of the bond.
b) The coupon interest rate paid each, divided by the current price of the bond.
c) The periodic interest rate that equates the current price with the expected future
flows.
d) The periodic interest rate that equates the current price with the expected future
flows, up to the time of the first call.
Which of the following is not true regarding the Markowitz theory?
a. Markowitz portfolio theory is considered a three-parameter model
b. Under the Markowitz model, no portfolio on the efficient frontier dominates any
other portfolio on the efficient frontier
c. The Markowitz model is cumbersome to work with due to the large
variance-covariance matrix needed for a set of stocks
d. Markowitz portfolio theory is a multi-period model generates an entire set, or
efficient frontier, of portfolios
The price that some seller is trying to sell a stock for is known at the:
a. the bid quote
b. the ask quote
c. the closing price
d. the specialist price
The January effect concerns:
a. large cap stocks.
b. mid-cap stocks.
c. small cap stocks.
d. foreign stocks.
A portfolio which lies below the efficient frontier is described as
a. optimal
b. unattainable
c. dominant
d. dominated
What are “earnings surprises?” How do they affect stock prices?
Which forms of the Efficient Market Hypothesis addresses the information used in
technical and fundamental analysis? Do studies of technical analysis methods tend to
support or refute the EMH?
Buying shares of a mutual fund is an example of indirect investing.
Which of the following statements is true regarding American and European options?
American options can be exercised only at expiration.American options can be
exercised only in the last week prior to expiration.European options can be exercised
only at expiration.European options can be exercised any time prior to expiration.
Almost 70 percent of all U.S. households owned mutual funds as of 2005.
An investor buys 100 shares of Walmart at $45 per share on margin with an initial
margin of 70 percent and a maintenance margin of 25% percent. In two months, the
stock goes to $56. Below what price will a margin call occur?
1. $13.50$54.00$42.00$18.00
The longest peacetime expansion ran from 1991 to 2000.
The equity risk premium is:
the difference between the expected return on stocks and bondsthe difference between
the expected return on high-grade stocks and low-grade stocksthe difference between
the expected return on stocks and the risk-free ratethe difference between the expected
return on a stock market index and the inflation rate