Security Analysis And Portfolio Management (Sapm) - Quiz 1

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Security Analysis And Portfolio Management (Sapm) - Quiz 1

One of the ways in which a company or a person uses their income or profit is through taking up investments. The acquisition of shares is one of the essential methods people choose to use. When it comes to buying security as taught during the topic of security analysis and portfolio management, there are some things we always need to consider. Take this quiz and test how well you understood the topic.


Questions and Answers
  • 1. 
    • A. 

      All real assets.

    • B. 

      All financial assets.

    • C. 

      All physical assets.

    • D. 

      All real and financial assets.

    • E. 

      None of the above

  • 2. 
    Asset allocation refers to ____________.
    • A. 

      Choosing which securities to hold based on their valuation

    • B. 

      Investing only in "safe" securities

    • C. 

      The allocation of assets into broad asset classes

    • D. 

      Bottom-up analysis

    • E. 

      All of the above

  • 3. 
    • A. 

      Illiquid.

    • B. 

      Owned by government.

    • C. 

      Real.

    • D. 

      Financial.

    • E. 

      Regulated.

  • 4. 
    • A. 

      Hedge.

    • B. 

      Offset debt.

    • C. 

      Appease stockholders.

    • D. 

      Attract customers.

    • E. 

      Enhance their balance sheets.

  • 5. 
    • A. 

      Contribute to the country's productive capacity both directly and indirectly.

    • B. 

      Do not contribute to the country's productive capacity either directly or indirectly

    • C. 

      Directly contribute to the country's productive capacity.

    • D. 

      Indirectly contribute to the country's productive capacity.

    • E. 

      Are of no value to anyone.

  • 6. 
    In what roles do investment bankers perform?
    • A. 

      Design securities with desirable properties

    • B. 

      Market new stock and bond issues for firms

    • C. 

      Provide advice to the firms as to market conditions, price, etc

    • D. 

      None of them

    • E. 

      All of them

  • 7. 
    • A. 

      The price at which the dealer in T-bills is willing to sell the bill.

    • B. 

      The price at which the dealer in T-bills is willing to buy the bill.

    • C. 

      Greater than the asked price of the T-bill.

    • D. 

      The price at which the investor can buy the T-bill.

    • E. 

      Never quoted in the financial press.

  • 8. 
    • A. 

      I, III, and IV

    • B. 

      I, II, and III

    • C. 

      I and III

    • D. 

      I, II, and IV

    • E. 

      I, II, III, and IV

  • 9. 
    With regard to a futures contract, the long position is held by
    • A. 

      The trader who bought the contract at the largest discount.

    • B. 

      The trader who has to travel the farthest distance to deliver the commodity

    • C. 

      The trader who plans to hold the contract open for the lengthiest time period

    • D. 

      The trader who commits to purchasing the commodity on the delivery date

    • E. 

      The trader who commits to delivering the commodity on the delivery date

  • 10. 
    • A. 

      A) The funds redeem shares at net asset value.

    • B. 

      B) The funds offer investors professional management

    • C. 

      C) The funds offer investors a guaranteed rate of return

    • D. 

      B and C.

    • E. 

      A and B.

  • 11. 
    Which one of the following statements regarding closed-end mutual funds is false?
    • A. 

      A) The funds always trade at a discount from NAV.

    • B. 

      B) The funds redeem shares at their net asset value.

    • C. 

      C) The funds offer investors diversification.

    • D. 

      A and B.

    • E. 

      None of the above

  • 12. 
    Which of the following functions do mutual fund companies perform for their investors?
    • A. 

      Record keeping and administration

    • B. 

      Professional management

    • C. 

      Diversification and divisibility

    • D. 

      Lower transaction costs

    • E. 

      All of the above

  • 13. 
    Skewness is a measure of ____________.
    • A. 

      How fat the tails of a distribution are

    • B. 

      The downside risk of a distribution

    • C. 

      The normality of a distribution

    • D. 

      The dividend yield of the distribution

    • E. 

      A and C

  • 14. 
    • A. 

      Standard deviation overestimates risk

    • B. 

      Standard deviation correctly estimates risk

    • C. 

      Standard deviation underestimates risk

    • D. 

      The tails are fatter than in a normal distribution

    • E. 

      None of the above

  • 15. 
    • A. 

      The nominal rate times the inflation rate.

    • B. 

      The inflation rate minus the nominal rate.

    • C. 

      The nominal rate minus the inflation rate.

    • D. 

      The inflation rate divided by the nominal rate.

    • E. 

      The nominal rate plus the inflation rate.

  • 16. 
    DFI, Inc. has the following probability distribution of holding period returns on its stock. State of Economy Probability HPR Boom.2525%Normal Growth.4515%Recession.309% The expected return on DFI's stock is
    • A. 

      15.7%.

    • B. 

      12.4%

    • C. 

      16.5%

    • D. 

      17.8%

    • E. 

      11.6%

  • 17. 
    An investment provides a 3% return semi-annually, its effective annual rate is
    • A. 

      3%

    • B. 

      6%

    • C. 

      6.06%

    • D. 

      6.09%

    • E. 

      None of above

  • 18. 
    • A. 

      They only accept risky investments that offer risk premiums over the risk-free rate.

    • B. 

      They accept investments that are fair games.

    • C. 

      They only care about rate of return.

    • D. 

      They are willing to accept lower returns and high risk.

    • E. 

      A and B.

  • 19. 
    - QOlivia is a risk-averse investor. Alex is a less risk-averse investor than Olivia. Therefore,
    • A. 

      For the same risk, Alex requires a higher rate of return than Olivia.

    • B. 

      For the same return, Alex tolerates higher risk than Olivia.

    • C. 

      For the same risk, Olivia requires a lower rate of return than Alex.

    • D. 

      For the same return, Olivia tolerates higher risk than Alex.

    • E. 

      Cannot be determined.

  • 20. 
    Which statement about portfolio diversification is correct?
    • A. 

      Proper diversification can reduce or eliminate systematic risk.

    • B. 

      The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased.

    • C. 

      Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.

    • D. 

      Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate.

    • E. 

      None of the above statements are correct.

  • 21. 
    All things equal, diversification is most effective when...
    • A. 

      Securities' returns are positively correlated.

    • B. 

      Securities' returns are uncorrelated.

    • C. 

      Securities' returns are high.

    • D. 

      Securities' returns are negatively correlated.

    • E. 

      A and C.

  • 22. 
    When an investment opportunity set is formed with two securities that are perfectly negatively correlated, the global minimum variance portfolio has a standard deviation that is always.....
    • A. 

      Equal to zero.

    • B. 

      Greater than zero.

    • C. 

      Equal to the sum of the securities' standard deviations

    • D. 

      Equal to -1.

    • E. 

      None of the above

  • 23. 
    An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Allocation Line must....
    • A. 

      Lend some of her money at the risk-free rate and invest the remainder in the optimal risky portfolio.

    • B. 

      Borrow some money at the risk-free rate and invest in the optimal risky portfolio.

    • C. 

      Such a portfolio cannot be formed

    • D. 

      Invest only in risky securities.

    • E. 

      B and D

  • 24. 
    Portfolio theory as described by Markowitz is most concerned with
    • A. 

      The elimination of systematic risk.

    • B. 

      The identification of unsystematic risk

    • C. 

      The effect of diversification on portfolio risk.

    • D. 

      Active portfolio management to enhance returns.

    • E. 

      None of the above

  • 25. 
    A statistic that measures how the returns of two risky assets move together is
    • A. 

      Correlation.

    • B. 

      Standard deviation.

    • C. 

      Covariance.

    • D. 

      Variance.

    • E. 

      A and C.