A less restrictive form of the Single Index Model is the:
a. Risk-free Model.
b. CAPM.
c. CML.
d. Market Model.
The expected return on the market for next period is 11 percent. The risk free rate of
return is 4 percent, and Alpha Company has a beta of 1.1. The market risk premium is
a. 7.7 percent.
b. 7 percent.
c. 11 percent.
d. 12.1 percent.
The Fed model, which uses the E/P ratio in its calculations, :
a. is relatively complex.
b. uses the yield on the 3-month Treasury bill as the risk-free rate.
c. assumes investors can easily switch between stocks and bonds.
d. all of the above
The investment professionals that arrange the sale of new securities are called:
a. arbitragers
b. traders
c. investment bankers
d. specialists
Which of the following statements regarding money market instruments is not true?
a. They tend to be highly marketable.
b. They have maturities from 1 to 3 years.
c. They tend to have a low probability of default.
d. Their rates tend to move together.
Market timers attempt to earn excess returns by:
a. adjusting the ratio of aggressive equity securities to defensive equity securities.
b. shifting the mix of short-term securities to long-term securities.
c. varying the percentage of portfolio assets in equity securities.
d. adjusting the ratio of primary market securities to capital market securities.
Which of the following is NOT a test of semi-strong form efficiency?
a. Insider transactions
b. Stock splits
c. Accounting changes
d. Dividend announcements
The law that requires that all new issues being offered for public sale to be
registered with the SEC is the:
a. Securities Act of 1933
b. Securities Exchange Act of 1934
c. Maloney Act of 1936
d. Securities Investor Protection Act of 1970
It is recommended that investors interested in the EVA approach should seek companies
that have a return of capital in excess of ——- because this will likely exceed the cost
of capital and the company is, therefore, adding value.
a. 10
b. 20
c. 30
d. 40
Regarding the qualitative aspects of industry analysis, the breakup of AT&T in 1984
would be considered a:
a. structural change.
b. government effect.
c. competitive effect.
d. cyclical effect.
Historically, sell-side equity research has typically been _________to the target
company?
a. very unfavorable
b. unfavorable
c. favorable
d. neutral
The S&P 500 typically is usually correlated at what percent with the
a. 70%
b. 80%
c. 90%
d. 95%
Nonmarketable financial assets that protect against inflation include:
a. Nonnegotiable certificates of deposit (CDs)
b. Money market deposit accounts (MMDAs)
c. Series EE US government savings bonds
d. US government savings bonds, I bonds
Based on PSR rule of thumb, if PSR is less than 1, the stock is:
a. over-priced
b. a candidate for short-sale
c. a bargain
d. about to default
Evidence concerning the “overreaction hypothesis ” indicates that
a. most overreactions occur within the first two days of an economic event.
b. investors are consistently risk-averse value maximizers.
c. the market is even more efficient than the weak-form EMH proposes.
d. investors sometimes act rationally.
An aggressive asset allocation would contain larger proportions of __________ than a
conservative allocation.
a. cash and bonds
b. bonds and large-cap stocks
c. small-cap and international stocks
d. bonds
Internet Industries expects to earn $5. 00 for the coming year, and pay a $ 00 dividend.
Its ROA is 13 percent, while its leverage factor is 1.7
(a) Calculate the expected growth rate in dividends.
(b) Given a required rate of return of 17 percent, determine the estimated price for High
Tech, Inc. , common stock.
(c)Calculate the expected dollar dividend two periods from now.
The period from a peak to a trough is:
a. a cycle.
b. an inflection point.
c. a recession.
d. a depression.
A newer variation of the wrap account is the:
a. mutual fund wrap account
b. asset allocation wrap account
c. small-cap wrap account
d. index wrap account
Assume an investor buys a newly issued 8 percent, semi-annual 10 year bond at par. He
sells it two years later, when market interest rates have decreased to 6 percent. How
much is the investor’s capital gain or loss?
a) $1,000 gain
b) $1,125.44 gain
c) $125.44 gain
d) $377.00 loss
The Merrill Lynch case in 2002 confirmed that many analysts:
a. were paid too much.
b. were unable to accurately pinpoint earnings.
c. gave buy recommendations to win investment banking business.
d. shared private information about companies with investors.
All of the following represent requirements for conducting effective sector rotation,
EXCEPT
a. an accurate assessment of current economic conditions.
b. a knowledge and understanding of the phases of the business cycle.
c. an understanding of the political environment.
d. expertise in technical analysis.
If someone was to tell you that “the market” was up by two percent, they are usually
referring to:
a. the DJIA.
b. the NYSE.
c. the NASDAQ.
d. GDP.
If business risk decreases for Megabucks, Inc. , the P/E will __________, other things
the same.
a. increase
b. stay the same
c. decrease
d. increase or decrease but not stay the same
The “lockup” problem involved in rebalancing refers to the:
a. problem that investors face in retirement accounts that cannot be liquidated prior to
retirement.
b. trust accounts that are not managed by the investor and cannot be traded without
incurring administrative costs.
c. taxable accounts subject to capital gains taxes if investments are traded.
d. problem of fixed-income securities that have little liquidity and therefore, must be
held till maturity.
The NASDAQ 100 Composite Index is a value-weighted index.
If you deposit $1,000 today at 12 percent, how much will you have in 10 years?
The par value on common stock sets the value that stockholders will
receive in case of bankruptcy.
Stocks traded on NASDAQ are bought and sold from specialists, who are often
affiliated with brokerage firms.
Under the Markowitz model, the risk of a portfolio is measured by the standard
deviation of the portfolio return.
What industries do you think will be the growth industries of the next
decade?
To qualify as a regulated investment company, a fund must distribute at least 50 percent
of its taxable income to the shareholders.
The primary emphasis in fundamental security analysis is on expected sales of the
company.
Common stocks are not always an inflationary hedge, but have a long history of strong
performance over time.