Finance Exam - Learn IT All

38 Questions | By Irish788 | Updated: Mar 21, 2022 | Attempts: 286

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The study of finance mainly revolves around planning and analyzing usage of finance ie money, it is very important to study finance and be good at it because it can prepare you not only for a career in the financial sector but also help you in tasks in your everyday life. Take this finance quiz and know it all about finance. Best of luck!

Questions and Answers

1.

1. Risk averse people only take risks when
- A.
  
  They believe they will be rewarded for doing so
- B.
  
  They have to
- C.
  
  It is necessary to guarantee an additional realized return
- D.
  
  Actual returns are below expected return
2.

The collection of eligible investments is called the
- A.
  
  Eligible set
- B.
  
  Efficient set
- C.
  
  Security universe
- D.
  
  Principal components
3.

A security dominates another if
- A.
  
  It offers the same expected return with less risk
- B.
  
  It offers higher expected return for the same risk
- C.
  
  Both a and b
- D.
  
  None of the above
4.

In the absence of a riskfree rate, the minimum variance portfolio
- A.
  
  Is usually efficient
- B.
  
  Is always efficient
- C.
  
  Is never efficient
- D.
  
  Is usually the optimal portfolio
5.

Portfolios that are not dominated
- A.
  
  Lie on the efficient frontier
- B.
  
  Are minimum risk portfolios
- C.
  
  Have maximum expected returns
- D.
  
  Have low correlations
6.

With the availability of a riskfree rate, the efficient frontier becomes
- A.
  
  Linear
- B.
  
  Curved
- C.
  
  Shaped like a letter S
- D.
  
  Less attractive by moving down and to the right
7.

Portfolios _____ do not exist.
- A.
  
  At the far right of the efficient frontier
- B.
  
  At the far left of the efficient frontier
- C.
  
  Above the efficient frontier
- D.
  
  Below the efficient frontier
8.

The line passing through the risk free rate and the market portfolio is called the
- A.
  
  Market line
- B.
  
  Optimum combination line
- C.
  
  Dominant line
- D.
  
  Unlevered investment line
9.

According to the separation theorem, all investors should hold
- A.
  
  As many securities as possible
- B.
  
  As many uncorrelated securities as possible
- C.
  
  Only the risk-free rate and the market portfolio
- D.
  
  Only two risky portfolios on the efficient frontier
10.

Efficient portfolios to the left of the market portfolio are called
- A.
  
  Borrowing portfolios
- B.
  
  Fully invested portfolios
- C.
  
  Dominant portfolios
- D.
  
  Lending portfolios
11.

Most computer output of efficient portfolios lists only the
- A.
  
  Corner portfolios
- B.
  
  Odd-numbered portfolios
- C.
  
  Low variance portfolios
- D.
  
  Maximum return portfolios
12.

The Markowitz algorithm is an application of
- A.
  
  Linear programming
- B.
  
  Goal programming
- C.
  
  Integer programming
- D.
  
  Quadratic programming
13.

What is the beta of the risk-free asset?
- A.
  
  –1.0
- B.
  
  –0.5
- C.
  
  0
- D.
  
  1.0
14.

The value of a negative beta asset is
- A.
  
  The higher expected return of this asset
- B.
  
  The risk reducing properties when added to a portfolio
- C.
  
  That it is a necessary component to have a fully diversified portfolio
- D.
  
  Non-existent because negative beta assets are theoretically impossible
15.

The Security Market Line relates expected return to
- A.
  
  Standard deviation
- B.
  
  Variance
- C.
  
  Beta
- D.
  
  There is no relationship of the SML with expected returns
16.

The Security Market Line is a
- A.
  
  Curved line which passes through the risk-free rate and the Market portfolio
- B.
  
  Straight line which passes through the risk-free rate and the Market portfolio
- C.
  
  Line which dominates all assets except those on the efficient frontier
- D.
  
  Line tangent to the efficient frontier
17.

Beta is usually calculated using the
- A.
  
  Market model
- B.
  
  SML
- C.
  
  CML
- D.
  
  Security variances
18.

In the U.S., a typical allocation to international stocks would be
- A.
  
  1-2%
- B.
  
  5-7%
- C.
  
  10-20%
- D.
  
  30-50%
19.

U.S. equities represent about _________ of the world’s equity capitalization.
- A.
  
  8%
- B.
  
  17%
- C.
  
  51%
- D.
  
  83%
20.

When the Evans and Archer study is repeated with a security universe that includes international securities, the level of systematic risk
- A.
  
  Increases
- B.
  
  Decreases
- C.
  
  Remains unchanged
- D.
  
  There is no relation between systematic risk and the Evans and Archer study
21.

For a portfolio with only U. S. securities, market risk accounts for about ___ of a security's total risk.
- A.
  
  5%
- B.
  
  17%
- C.
  
  27%
- D.
  
  54%
22.

A study by Solnik indicates that systematic risk could be reduced to about ______ for a portfolio including both U.S. and international stocks
- A.
  
  6.2%
- B.
  
  11.7%
- C.
  
  19.6%
- D.
  
  27.1%
23.

The correlation among securities on European exchanges is generally
- A.
  
  Decreasing
- B.
  
  Increasing
- C.
  
  Remaining unchanged
- D.
  
  Cannot be determined
24.

According to a study by Bruno Solnik, what percentage of total risk can be diversified away by holding international securities?
- A.
  
  One half
- B.
  
  Five eighths
- C.
  
  Three fourths
- D.
  
  Seven eighths
25.

Globally, the number of equity securities is about
- A.
  
  100,000
- B.
  
  250,000
- C.
  
  1 million
- D.
  
  100 million