One form of interest rate forecasting is:
a. horizon analysis, which requires projections of bond performance over a planned
investment period.
b. yield-to-maturity analysis, which requires expectations about reinvestment rates and
future market rates to be calculated in expected returns.
c. yield curve analysis, which requires comparisons of different yield curves at different
times to maturity.
d. bond immunization analysis, which requires the use of barbells to protect against
interest rate risk.
When analyzing stocks, the major variable of interest to a majority of investors is:
a. sales.
b. profit margins.
c. dividend yield.
d. earnings per share.
The following information is to be used to answer questions
SD_ Beta alpha R 2
_
Fund 1 1.97 1.0 1.3 0.95
Fund 2 2.94 0.8 0.6* 0.80
Fund 3 3.82 1.2 -3.5 0.90
Fund 4 4.70 1.4 4.2 0.65
*Significant at the 5 percent level
Which of these four funds had the largest market risk?
a. Fund 1
b. Fund 2
c. Fund 3
d. Fund 4
Under the Multi-Index Model, the industry relationship to stock prices would be
assessed by the:
a. market factor
b. nonmarket factor
c. beta
d. unique part
Which of the following statements regarding defensive stocks is true?
a. They are often expected to have above-average future growth.
b. They often have high P/E multiples.
c. They are expected to be adversely affected by high interest rates.
d. They often produce necessary items such as food and prescription drugs.
A computerized trading network that matches buy and sell orders electronically entered
by customers is a:
a. National Markets System
b. Electronic Communications Network
c. Internet Investment Service
d. Global Investment Network
If security prices fully reflect all relevant information available and usable, a securities
market is said to be:
a. rational.
b. in equilibrium.
c. effective.
d. efficient.
The relevant risk for a well-diversified portfolio is:
a. interest rate risk
b. inflation risk
c. business risk
d. market risk
Ms. Brown sold short 100 shares of common stock at $78 per share. The price has
declined to $69. The outlook for the stock is mixed, so she would cover her short
position if the stock moves up as much as $1 but hold if it continues down. Ms. Brown
should place a
a. sell stop order at $70.
b. buy stop order at $70.
c. sell limit order at $70.
d. buy limit order at $70.
A market timing approach that increases the proportion of funds in stocks when the
stock market is expected to be rising, and increases cash when the stock market is
expected to be falling is a:
a. strategic asset allocation.
b. tactical asset allocation.
c. portfolio optimization.
d. liquidity expectation timing.
Which of the following is true regarding the size anomaly?
a. As much as 50% of small cap outperformance is associated with the January effect.
b. Small cap stocks underperform large cap stocks in recent years.
c. Small cap stock outperformance is a NASDAQ phenomenon, not NYSE.
d. Small cap stock outperformance is unaffected by micro-cap, commission, or liquidity
(i.e., bid-ask spread) concerns.
The two components of EPS are
a. ROA and leverage.
b. book value per share and leverage.
c. ROE and book value per share.
d. leverage and profit margin.
What does it mean when the CAPM is called “robust?”
a. The CAPM requires no assumptions.
b. Even if most of the assumptions of the CAPM are relaxed, most of the
conclusions will still hold.
c. The CAPM is based on realistic assumptions.
d. No other model can represent stock returns better than the CAPM.
An option is a wasting asset because as its expiration date approaches, its
a. intrinsic value approaches zero.
b. time value approaches zero.
c. intrinsic value approaches its time value.
d. price approaches zero.
Securities with betas greater than l should have:
a. expected returns higher than the market.:::::
b. required returns higher than the market return.
c. required returns lower than the market return.
d. no systematic risk.
Which life cycle stage generally sees industries improving their products, lowering
prices, and start to attract considerable investment funds?
a. pioneering stage
b. expansion stage
c. stabilization stage
d. maturity stage
_______ is a publication that compiles consensus economic forecasts.
a. The Wall Street Journal’s Economic Letter
b. The Conference Board’s Economic Forecast
c. The Kiplinger Letter
d. Blue Chip Economic Indicators
Which of the following is NOT considered a passive equity investment:
a. investing in a sector ETF.
b. investing in a S&P 500 index mutual fund.
c. investing in a multi-strategy hedge fund.
d. investing in a Russell 2000 index mutual fund.
Which of the following would be considered a random variable:
a. expected value.
b. correlation coefficient between two assets
c. one-period rate of return for an asset.
d. beta.
In the mutual fund industry, the most common performance measure is a hypothetical
rate of return which assumes performance is constant over the entire period and is
known as the:
a. cumulative total return.
b. average annual total return.
c. total indexed return.
d. compounded geometric return.
What is the biggest difference between an option and a futures contract?
a. Options are traded on exchanges whereas futures are not
b. Options give investors a way to manage portfolio risk while futures do not
c. Options can be used by speculators to profit from price fluctuations while futures
cannot
d. Options give their holders the right to buy or sell whereas futures contract are
obligations to buy or sell
Select the INCORRECT statement regarding the CML.
a. The CML is an equilibrium relationship for efficient portfolios and individual
securities.
b. The CML represents the risk-return tradeoff in equilibrium for efficient portfolios.
c. The intercept of the CML is the reward per unit of time available to investors for
deferring consumption.
d. Standard deviation is the measure of risk which determines a portfolio’s equilibrium
return.
To implement the single-index model, estimates of the _______for each stock are
needed.
a. expected return
b. standard deviation
c. beta
d. covariance
Smaller companies with fewer publicly held shares are more likely to meet the listing
requirements of the NYSE.
Correct bond calculations in the United States usually involve semiannual periods
because bond interest is typically paid twice a year.
n ct FV
P = ∑ ———— + ————
t=1 (1 + ytm)t (1 + ytm)n
where
P = the current market price of the bond
n= the number of semiannual periods to maturity
ytm = the semiannual yield to maturity to be solved for
c = the semiannual coupon in dollars
FV = the face value (or maturity value or par value) which in this discussion is always
$1,000
What does this formula imply about the term structure of interest rates? How would
real-world bond investors price bonds to correct for this?
Investors desiring no-load funds must generally seek them out since there is no sales
force.
The Specialist’s Electronic Book, which is part of the SuperDot system, records and
reports limit and market orders.
How is the total book value of equity affected by stock splits?
Define risk in the context of investments?