36 Questions
| Attempts: 11959

Questions and Answers

- 1.The net wealth of the aggregate economy is equal to the sum of:
- A.
All real assets.

- B.
All financial assets.

- C.
All physical assets.

- D.
All real and financial assets.

- E.
None of the above

- 2.Although derivatives can be used as speculative instruments, businesses most often use them to:
- A.
Hedge.

- B.
Offset debt.

- C.
Appease stockholders.

- D.
Attract customers.

- E.
Enhance their balance sheets.

- 3.Financial assets _____________.
- A.
Directly contribute to the country's productive capacity.

- B.
Are of no value to anyone.

- C.
Indirectly contribute to the country's productive capacity.

- D.
None

- 4.In what roles do investment bankers perform?
- A.
Design securities with desirable properties.

- B.
Provide advice to the firms as to market conditions, price, etc.

- C.
All of them

- D.
None of them

- 5.Skewness is a measure of ____________.
- A.
The dividend yield of the distribution

- B.
The downside risk of a distribution

- C.
The normality of a distribution

- D.
A and C

- 6.When a distribution is positively skewed, ____________.
- A.
Standard deviation overestimates risk

- B.
Standard deviation correctly estimates risk

- C.
Standard deviation underestimates risk

- D.
None of the above

- 7.DFI, Inc. has the following probability distribution of holding period returns on its stock. State of Economy Probability HPR Boom .25 25% Normal Growth .45 15% Recession .30 9% The expected return on DFI's stock is
- A.
15.7%.

- B.
12.4%

- C.
16.5%

- D.
17.8%

- E.
11.6%

- 8.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.

- 9.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 -1.

- D.
None of the above

- 10.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

- 11.A statistic which measures how the returns of two risky assets move together is ______________.
- A.
Correlation.

- B.
Standard deviation.

- C.
Covariance.

- D.
Variance.

- E.
A and C.

- 12.What is the relevant measure of risk according to the context of the Capital Asset Pricing Model (CAPM)?
- A.
Unique risk.

- B.
Beta.

- C.
Standard deviation of returns.

- D.
Variance of returns.

- E.
None of the above.

- 13.In a well diversified portfolio
- A.
Market risk is negligible.

- B.
Unsystematic risk is negligible.

- C.
Systematic risk is negligible.

- D.
Nondiversifiable risk is negligible.

- E.
None of the above

- 14.Consider this example- Security is fairly priced and has an expected rate of return of 0.13. The market expected rate of return is 0.13 and the risk-free rate is 0.04. What will be the beta of the stock?
- A.
1.25

- B.
1.7

- C.
1.0

- D.
0.95

- E.
None of the above

- 15.Name the pricing model that provides no guidance concerning the determination of the risk premium on factor portfolios.
- A.
The multifactor APT.

- B.
The CAPM.

- C.
Both the CAPM and the multifactor APT.

- D.
Neither the CAPM nor the multifactor APT.

- E.
None of the above is a true statement.

- 16.A zero-investment portfolio with a positive expected return arises when
- A.
An investor has downside risk only.

- B.
The opportunity set is not tangent to the capital allocation line.

- C.
A risk-free arbitrage opportunity exists.

- D.
The law of prices is not violated.

- E.
None of the above

- 17.The APT differs from the CAPM because the APT...
- A.
Places more emphasis on market risk.

- B.
Recognizes multiple systematic risk factors.

- C.
Recognizes multiple unsystematic risk factors.

- D.
Minimizes the importance of diversification.

- E.
All of the above

- 18.The following factors might affect stock returns:
- A.
Interest rate fluctuations.

- B.
The business cycle.

- C.
Inflation rates.

- D.
A and B

- E.
All of the above

- 19.Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 6%, the risk premium on the first-factor portfolio is 4% and the risk premium on the second-factor portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and.8 on the second factor, what is its expected return?
- A.
7.0%

- B.
8.0%

- C.
9.2%

- D.
13.0%

- E.
13.2%

- 20.If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.
- A.
Semistrong

- B.
Strong

- C.
Weak

- D.
All of them

- E.
None of them

- 21.UiProponents of the EMH typically advocate:
- A.
A) an active trading strategy.

- B.
B) investing in an index fund.

- C.
C) a passive investment strategy.

- D.
A and B

- E.
B and C

- 22.Name the analyst process that focuses more on past price movements of a firm's stock than on the underlying determinants of future profitability.
- A.
Credit analysts

- B.
Fundamental analysts

- C.
Systems analysts

- D.
Technical analysts

- E.
All of the above

- 23._________ above which it is difficult for the market to rise.
- A.
Book value is a value

- B.
Resistance level is a value

- C.
Support level is a value

- D.
None

- 24.The debate over whether markets are efficient will probably never be resolved because of ________.
- A.
The lucky event issue.

- B.
The magnitude issue.

- C.
The selection bias issue.

- D.
All of the above.

- E.
None of the above

- 25.Conventional theories presume that investors ____________ and behavioral finance presumes that they ____________.
- A.
Are irrational; are irrational

- B.
Are rational; may not be rational

- C.
Are rational; are rational

- D.
May not be rational; may not be rational

- E.
May not be rational; are rational

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