McqMate
Chapters
| 1. |
A liquid asset may |
| A. | be converted into cash |
| B. | be converted into cash with little chance of loss |
| C. | not be converted into cash |
| D. | not be converted without loss |
| Answer» B. be converted into cash with little chance of loss | |
| 2. |
A negatively sloped yield curve suggests that |
| A. | short-term rates exceed long-term rates, and the Federal Reserve is following a tight monetary policy |
| B. | short-term rates exceed long-term rates, and the Federal Reserve is following an easy monetary policy |
| C. | long-term rates exceed short-term rates, and the Federal Reserve is following a tight monetary policy |
| D. | long-term rates exceed short-term rates, and the Federal Reserve is following an easy monetary policy |
| Answer» A. short-term rates exceed long-term rates, and the Federal Reserve is following a tight monetary policy | |
| 3. |
The market price of a bond depends on the |
| A. | coupon rate, and terms of the indenture |
| B. | coupon rate, and maturity date |
| C. | terms of the indenture, and maturity date |
| D. | coupon rate, terms of the indenture, and maturity date |
| Answer» D. coupon rate, terms of the indenture, and maturity date | |
| 4. |
While bond prices fluctuate, |
| A. | yields are constant |
| B. | coupons are constant |
| C. | the spread between yields is constant |
| D. | short-term bond prices fluctuate even more |
| Answer» B. coupons are constant | |
| 5. |
If interest rates rise, the price of preferred stock |
| A. | is not affected |
| B. | rises |
| C. | falls |
| D. | may rise or fall |
| Answer» C. falls | |
| 6. |
Municipal government debt |
| A. | pays more interest than corporate debt |
| B. | is often purchased by individuals with high incomes |
| C. | is exempt from estate taxation |
| D. | is not subject to interest rate risk |
| Answer» B. is often purchased by individuals with high incomes | |
| 7. |
The use of financial leverage by a firm may be measured by the |
| A. | ratio of debt to total assets |
| B. | firm’s beta coefficient |
| C. | firm’s retention of earnings |
| D. | ratio of the price of the firm’s stock price to its earnings |
| Answer» A. ratio of debt to total assets | |
| 8. |
An example of a depreciable asset is |
| A. | Land |
| B. | Cash |
| C. | Accounts receivable |
| D. | Equipment |
| Answer» D. Equipment | |
| 9. |
As the debt ratio increases, |
| A. | Fewer assets are debt-financed, and the ratio of debt-to-equity increases |
| B. | Fewer assets are debt-financed, and the ratio of debt-to-equity decreases |
| C. | More assets are debt-financed, and the ratio of debt-to-equity increases |
| D. | More assets are debt-financed, and the ratio of debt-to-equity decreases |
| Answer» C. More assets are debt-financed, and the ratio of debt-to-equity increases | |
| 10. |
The net asset value of a mutual fund investing in stock rises with |
| A. | Higher stock prices |
| B. | Lower equity values |
| C. | An increased number of shares |
| D. | Increased liabilities |
| Answer» A. Higher stock prices | |
| 11. |
Which of the following helps determine the relationship between the expected return and risk for individual securities? |
| A. | Security market line |
| B. | Capital market line |
| C. | Markowitz model |
| D. | (a) and (b) |
| Answer» A. Security market line | |
| 12. |
A call is an option to |
| A. | Sell stock at a specified price |
| B. | Buy stock at a specified price |
| C. | Sell stock on a specified date |
| D. | Buy stock on a specified date |
| Answer» B. Buy stock at a specified price | |
| 13. |
Which of the following is on the horizontal axis of the Security Market Line? |
| A. | Standard deviation |
| B. | Beta |
| C. | Expected return |
| D. | Required return |
| Answer» B. Beta | |
| 14. |
You own a large orange grove and will be harvesting from November through April. To hedge against price risks you should |
| A. | sell orange juice contracts with a November delivery |
| B. | buy orange juice contracts with a November delivery |
| C. | sell orange juice contracts with delivery dates between November and April |
| D. | buy orange juice contracts with delivery dates between November and April |
| Answer» C. sell orange juice contracts with delivery dates between November and April | |
| 15. |
Financial leverage may increase a corporation’s risk because |
| A. | operating income may stabilize |
| B. | the firm has fixed obligations to meet |
| C. | more common stock is outstanding |
| D. | dividends must be paid |
| Answer» B. the firm has fixed obligations to meet | |
| 16. |
What is the value of a call on the expiration date, if on that date the price of the stock is Rs.25 and the exercise price is Rs.26? |
| A. | Rs.-1 |
| B. | Rs 0 |
| C. | Rs 1 |
| D. | Rs 25 |
| Answer» B. Rs 0 | |
| 17. |
Equity does NOT include |
| A. | cash and paid-in capital |
| B. | common stock and paid-in capital |
| C. | paid-in capital and retained earnings |
| D. | common stock, paid-in capital and retained earnings |
| Answer» A. cash and paid-in capital | |
| 18. |
What is the price of a stock estimated to pay a dividend of Rs.60 next year, if the dividend growth rate is 5% and the appropriate discount rate is 8%? |
| A. | Rs.18 |
| B. | Rs.19 |
| C. | Rs.20 |
| D. | Rs.21 |
| Answer» C. Rs.20 | |
| 19. |
If you were confident that the price of stock X would drop dramatically within two Months ,which of the following investment transactions would yield the highest return on your investment? |
| A. | Purchase stock X |
| B. | Sell stock X short |
| C. | Purchase a call on stock X |
| D. | Purchase a put on stock X |
| Answer» D. Purchase a put on stock X | |
| 20. |
In a private limited company, the maximum number ofmembers are limited to: |
| A. | 20 |
| B. | 50 |
| C. | 100 |
| D. | 200 |
| Answer» B. 50 | |
| 21. |
Shares which are not affected by market movements are known as: |
| A. | Offensive shares |
| B. | Growth shares |
| C. | Defensive shares |
| D. | Income shares |
| Answer» C. Defensive shares | |
| 22. |
Exposure indicates |
| A. | Sensitivity to changes in risk |
| B. | Sensitivity to changes in asset prices |
| C. | Sensitivity to changes in portfolio |
| D. | Sensitivity to changes in assets |
| Answer» D. Sensitivity to changes in assets | |
| 23. |
Which of the following securities is most liquid? |
| A. | Money market instruments |
| B. | Capital market instruments |
| C. | Gilt-edged securities |
| D. | Index Futures |
| Answer» B. Capital market instruments | |
| 24. |
Which of the following goals will be considered by the individuals who invest in upcoming companies and wait till the companies to grow and then harvest their profits and move on to other company? |
| A. | Short-term high priority goals |
| B. | Money making goals |
| C. | Long-term high priority goals |
| D. | Lower priority goals |
| Answer» C. Long-term high priority goals | |
| 25. |
A purely passive strategy is defined as |
| A. | One that uses only index funds. |
| B. | One that allocates assets in fixed proportions that do not vary with market conditions. |
| C. | One that is mean-variance efficient. |
| D. | Both A and B. |
| Answer» B. One that allocates assets in fixed proportions that do not vary with market conditions. | |
| 26. |
An industry in the expansion stage of its life cycle is indicated by its |
| A. | Low P/E Ratio. |
| B. | High P/E Ratio. |
| C. | High Dividend Pay-Out Ratio |
| D. | High Default |
| Answer» D. High Default | |
| 27. |
Which of the following is true of municipal government debt? |
| A. | It pays more interest than corporate debt. |
| B. | It is often purchased by individuals with high incomes. |
| C. | It is exempt from estate taxation. |
| D. | It is not subject to interest rate risk. |
| Answer» B. It is often purchased by individuals with high incomes. | |
| 28. |
The net asset value of a mutual fund investing in stock rises with |
| A. | Higher stock prices |
| B. | Lower equity values |
| C. | An increased number of shares |
| D. | Increased liabilities |
| Answer» B. Lower equity values | |
| 29. |
Which of the following is not among the important categories of real assets? |
| A. | Land and house property |
| B. | Art objects |
| C. | Units of UTI |
| D. | Bullion |
| Answer» A. Land and house property | |
| 30. |
Which of the following statements is true of Insured Asset Allocation? |
| A. | It is aimed at benefiting from short-term under pricing and over pricing of assets. |
| B. | In this strategy the risk tolerance of the investor are ignored. |
| C. | In this strategy long-term predictions regarding the capital markets are us |
| Answer» C. In this strategy long-term predictions regarding the capital markets are us | |
| 31. |
______ are a fixed income security. |
| A. | Equities |
| B. | Forex |
| C. | Derivatives |
| D. | Bonds |
| Answer» D. Bonds | |
| 32. |
Which of the following is/are true if a firm has a required rate of return equal to the ROE? I. The amount of earnings retained by the firm does not affect market price or the P/E. II. The firm can increase market price and P/E by increasing the growth rate. III. The P/E ratio is inversely proportional to the ROE of the firm. |
| A. | Only (I) above |
| B. | Both (I) and (II) above |
| C. | Both (I) and (III) above |
| D. | Both (II) and (III) above |
| Answer» D. Both (II) and (III) above | |
| 33. |
Consider these two investment strategies: Strategy ___ is the dominant strategy because __________. |
| A. | 1, it is riskless |
| B. | 1, it has the highest reward/risk ratio |
| C. | 2, its return is at least equal to Strategy 1 and sometimes greater |
| D. | 2, it has the highest reward/risk ratio |
| Answer» B. 1, it has the highest reward/risk ratio | |
| 34. |
Which of the following statements is/are not correct with respect to the ‘Constant Mix Strategies’ of asset allocation? I. Investors adopting these strategies tend to maintain an exposure to stocks that are in constant proportion of their wealth. II. The risk-tolerance level of the investors varies proportionately with the level of theirwealth. III. Reversals in stock markets oppose constant mix strategies over the buy and hold IV. strategies. |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Both (I) and (II) above |
| Answer» C. Only (III) above | |
| 35. |
The tracking error of an optimized portfolio can be expressed in terms of the ____________ of the portfolio and thus reveal ____________. |
| A. | return; portfolio performance |
| B. | total risk; portfolio performance |
| C. | beta; portfolio performance |
| D. | beta; benchmark risk |
| Answer» C. beta; portfolio performance | |
| 36. |
A portfolio comprises of two stocks A and B. Stock A gives a return of 8%and stock B gives a return of 7%. Stock A has a weight of 60% in the portfolio. What is the portfolio return? |
| A. | 9% |
| B. | 11% |
| C. | 10% |
| D. | 8% |
| Answer» D. 8% | |
| 37. |
Price movement between two Information Technology stocks would generally have a ______ co-variance. |
| A. | zero |
| B. | positive |
| C. | negative |
| D. | none |
| Answer» D. none | |
| 38. |
The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are |
| A. | Large company stocks; U.S. treasury bills |
| B. | Large company stocks; Long-term government bonds |
| C. | Small company stocks; U.S. Treasury bills |
| D. | Small company stocks; preferred stock |
| Answer» B. Large company stocks; Long-term government bonds | |
| 39. |
Which of the following is not a form of a financial asset? |
| A. | Commercial paper |
| B. | Commodity futures |
| C. | Warrants |
| D. | Personal residence |
| Answer» C. Warrants | |
| 40. |
Historically, the real rate of return in the U.S. economy has been |
| A. | 1-2% |
| B. | 2-3% |
| C. | 3-4% |
| D. | 4-5% |
| Answer» D. 4-5% | |
| 41. |
Which of the following is not a form of real asset? |
| A. | Rare paintings |
| B. | Baseball cards |
| C. | Diamonds |
| D. | Real estate |
| Answer» B. Baseball cards | |
| 42. |
Under the Economic Growth and Tax Reconciliation Act of 2001, when will estate taxes be eliminated? |
| A. | 2008 |
| B. | 2009 |
| C. | 2010 |
| D. | 2019 |
| Answer» D. 2019 | |
| 43. |
Program trading decreases market efficiency by exaggerating price discrepancies between the cash and futures markets |
| A. | True |
| B. | False |
| C. | all |
| D. | none |
| Answer» D. none | |
| 44. |
Capital Market Line is firstly initiated by |
| A. | Mohsin |
| B. | Linter |
| C. | Markowitz |
| D. | William Sharpe |
| Answer» B. Linter | |
| 45. |
Most favourable portfolio is proficient portfolio with the |
| A. | lowest risk |
| B. | highest risk |
| C. | highest utility |
| D. | least investment |
| Answer» D. least investment | |
| 46. |
Ambiguity introduced by way by which organization finances its investments is |
| A. | country risk |
| B. | liquidity risk |
| C. | financial risk |
| D. | business risk |
| Answer» C. financial risk | |
| 47. |
If generally interest rates in nation increase, a corporate bond with a fixed interest rate will usually |
| A. | increase in value |
| B. | remain unchanged |
| C. | decrease in value. |
| D. | be returned to corporation. |
| Answer» C. decrease in value. | |
| 48. |
Inferior investment alternatives are identified when: |
| A. | α < 0. |
| B. | β = 0. |
| C. | β > 1. |
| D. | β < 1. |
| Answer» C. β > 1. | |
| 49. |
Systematic risk is higher when: |
| A. | α > 0. |
| B. | α < 0. |
| C. | α > 1. |
| D. | β > 1 |
| Answer» A. α > 0. | |
| 50. |
In the stock-price beta estimation for the Coca-Cola Company, the dependent variable is the: |
| A. | return on Coca-Cola. |
| B. | price of Coca-Cola stock. |
| C. | return on the S&P 500. |
| D. | value of the S&P 500 Index. |
| Answer» D. value of the S&P 500 Index. | |
| 51. |
If the beta of a stock is 1.8 and the overall market declines 20%, the expected return is: |
| A. | -36% |
| B. | -18%. |
| C. | -20%. |
| D. | -28% |
| Answer» A. -36% | |
| 52. |
Total risk for common stocks is: |
| A. | the sum of systematic risk and diversifiable risk. |
| B. | measured by beta. |
| C. | the sum of market risk and systematic risk. |
| D. | the sum of diversifiable risk and unsystematic risk |
| Answer» A. the sum of systematic risk and diversifiable risk. | |
| 53. |
The SML depicts the tradeoff between risk and required return for: |
| A. | inefficient portfolios. |
| B. | all assets. |
| C. | efficient portfolios. |
| D. | individual securities only. |
| Answer» A. inefficient portfolios. | |
| 54. |
Alpha is: |
| A. | the intercept of the SML line. |
| B. | the intercept of the CML line. |
| C. | the actual excess return on a portfolio during one peri |
| Answer» B. the intercept of the CML line. | |
| 55. |
In the stock-price beta estimation for the Coca-Cola Company, the independent variable is the: |
| A. | value of the S&P 500 Index. |
| B. | return on the S&P 500. |
| C. | return on Coca-Cola. |
| D. | price of Coca-Cola stock. |
| Answer» D. price of Coca-Cola stock. | |
| 56. |
The chance of loss due to fluctuations in the stock market is: |
| A. | market risk. |
| B. | interest rate risk. |
| C. | business risk. |
| D. | inflation risk. |
| Answer» B. interest rate risk. | |
| 57. |
Empirical research concludes that betas for: |
| A. | individual securities and large portfolios are unstable. |
| B. | individual securities and large portfolios are stable. |
| C. | large portfolios are unstable. |
| D. | individual securities are unstable. |
| Answer» A. individual securities and large portfolios are unstable. | |
| 58. |
Future on fixed Income securities are known as |
| A. | Stock Index futures |
| B. | Interest rate futures |
| C. | Mutual fund futures |
| D. | Stock market futures |
| Answer» D. Stock market futures | |
| 59. |
Serials bonds are |
| A. | Large bond issues carrying fixed maturity date |
| B. | Small bond issues carrying many maturity dates. |
| C. | Small bond issues carrying single maturity date. |
| D. | Large bond issues carrying many maturity dates. |
| Answer» B. Small bond issues carrying many maturity dates. | |
| 60. |
Indenture is a |
| A. | A detailed securities contract |
| B. | Abbreviated version of a securities contract |
| C. | Abbreviated version of a debt contract |
| D. | A detailed bond contract |
| Answer» B. Abbreviated version of a securities contract | |
| 61. |
Tax sheltered variable annuity is |
| A. | A device for availing tax exemption in an Investment |
| B. | A device for avoiding tax payment |
| C. | A device deferring the payment of federal income taxes |
| D. | A device for earning tax deduction. |
| Answer» D. A device for earning tax deduction. | |
| 62. |
REITs stand for |
| A. | Real estate investment trades |
| B. | Real estate investing trades |
| C. | Real estate investment trusts |
| D. | Real estate investment trusts |
| Answer» C. Real estate investment trusts | |
| 63. |
The person within the brokerage office with whom an investor will have the most contact is |
| A. | Authorized representative |
| B. | Registered representative |
| C. | Authorized person |
| D. | Registered authority |
| Answer» C. Authorized person | |
| 64. |
The commission received by investment banker is known as |
| A. | Additive |
| B. | Differential |
| C. | Difference |
| D. | Increment |
| Answer» B. Differential | |
| 65. |
The __________ is the indicated dividend divided by the closing price of the stock. |
| A. | Income |
| B. | Share |
| C. | Yield |
| D. | Earning |
| Answer» B. Share | |
| 66. |
__________ refers to the highest priced transaction for an issue on a particular day. |
| A. | Close |
| B. | High |
| C. | Large |
| D. | Net change |
| Answer» C. Large | |
| 67. |
As diversification increases, the total variance of a portfolio approaches ____________. |
| A. | 0 |
| B. | 1 |
| C. | The variance of the market portfolio |
| D. | Infinity |
| Answer» C. The variance of the market portfolio | |
| 68. |
The Security Risk Evaluation book published by Merrill Lynch uses the __________ as a proxy for the market portfolio. |
| A. | Dow Jones Industrial Average |
| B. | Dow Jones Transportation Average |
| C. | S&P 500 Index |
| D. | Wilshire 5000 |
| Answer» C. S&P 500 Index | |
| 69. |
The market portfolio has a beta of |
| A. | 0. |
| B. | 1. |
| C. | -1. |
| D. | 0.5. |
| Answer» B. 1. | |
| 70. |
If a firm's beta was calculated as 0.6 in a regression equation, Merrill Lynch would state the adjusted beta at a number |
| A. | Less than 0.6 but greater than zero. |
| B. | Between 0.6 and 1.0. |
| C. | Between 1.0 and 1.6. |
| D. | Greater than 1.6. |
| Answer» B. Between 0.6 and 1.0. | |
| 71. |
Rosenberg and Guy found that __________helped to predict a firm's beta. |
| A. | the firm's financial characteristics |
| B. | the firm's industry group |
| C. | firm size |
| D. | A, B andC all helped to predict betas. |
| Answer» D. A, B andC all helped to predict betas. | |
| 72. |
A stock has an expected return of 15 percent. The market risk premium is 10 percent and the risk-free rate is 4 percent. What is the stock's beta? (C) |
| A. | 0.50 |
| B. | 0.75 |
| C. | 1.1 |
| D. | 1.8 |
| Answer» C. 1.1 | |
| 73. |
What is the beta of a portfolio that is invested 25 percent in the market portfolio, 25 percent in an asset with twice as much systematic risk as the market portfolio and the rest in a risk-free asset? |
| A. | 0.25 |
| B. | 0.50 |
| C. | 0.75 |
| D. | 1.00 |
| Answer» C. 0.75 | |
| 74. |
Which statement is not true regarding the market portfolio? |
| A. | It includes all publicly traded financial assets. |
| B. | It lies on the efficient frontier. |
| C. | All securities in the market portfolio are held in proportion to their market values. |
| D. | It is the tangency point between the capital market line and the indifference curve. |
| Answer» D. It is the tangency point between the capital market line and the indifference curve. | |
| 75. |
Which statement is not true regarding the Capital Market Line (CML)? |
| A. | The CML is the line from the risk-free rate through the market portfolio. |
| B. | CML is the best attainable capital allocation line. |
| C. | The CML is also called the security market line. |
| D. | The CML always has a positive slope. |
| Answer» C. The CML is also called the security market line. | |
| 76. |
The market risk, beta, of a security is equal to |
| A. | the covariance between the security's return and the market return divided by the variance of the market's returns. |
| B. | the covariance between the security and market returns divided by the standard deviation of the market's returns. |
| C. | the variance of the security's returns divided by the covariance between the security and market returns. |
| D. | the variance of the security's returns divided by the variance of the market's returns. |
| Answer» A. the covariance between the security's return and the market return divided by the variance of the market's returns. | |
| 77. |
The Security Market Line (SML) is |
| A. | the line that describes the expected return-beta relationship for well-diversified portfolios only. |
| B. | also called the Capital Allocation Line. |
| C. | the line that is tangent to the efficient frontier of all risky assets. |
| D. | the line that represents the expected return-beta relationship. |
| Answer» D. the line that represents the expected return-beta relationship. | |
| 78. |
According to the Capital Asset Pricing Model (CAPM), over priced securities |
| A. | have positive betas. |
| B. | have zero alphas. |
| C. | have negative betas. |
| D. | have positive alphas. |
| Answer» C. have negative betas. | |
| 79. |
In a well diversified portfolio |
| A. | market risk is negligible. |
| B. | systematic risk is negligible. |
| C. | unsystematic risk is negligible. |
| D. | nondiversifiable risk is negligible. |
| Answer» C. unsystematic risk is negligible. | |
| 80. |
Empirical results regarding betas estimated from historical data indicate that |
| A. | betas are constant over time. |
| B. | betas of all securities are always greater than one. |
| C. | betas are always near zero. |
| D. | betas appear to regress toward one over time. |
| Answer» D. betas appear to regress toward one over time. | |
| 81. |
What is the expected return of a zero-beta security? |
| A. | The market rate of return. |
| B. | Zero rate of return. |
| C. | A negative rate of return. |
| D. | The risk-free rate. |
| Answer» D. The risk-free rate. | |
| 82. |
Standard deviation and beta both measure risk, but they are different in that |
| A. | beta measures both systematic and unsystematic risk. |
| B. | beta measures only systematic risk while standard deviation is a measure of total risk. |
| C. | beta measures only unsystematic risk while standard deviation is a measure of total risk. |
| D. | beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk. |
| Answer» B. beta measures only systematic risk while standard deviation is a measure of total risk. | |
| 83. |
If investors do not know their investment horizons for certain |
| A. | the CAPM is no longer valid. |
| B. | the CAPM underlying assumptions are not violated. |
| C. | the implications of the CAPM are not violated as long as investors' liquidity needs are not pric |
| Answer» C. the implications of the CAPM are not violated as long as investors' liquidity needs are not pric | |
| 84. |
One of the assumptions of the CAPM is that investors exhibit myopic behavior. What does this mean? |
| A. | They plan for one identical holding period. |
| B. | They are price-takers who can't affect market prices through their trades. |
| C. | They are mean-variance optimizers. |
| D. | They have the same economic view of the world. |
| Answer» A. They plan for one identical holding period. | |
| 85. |
Passive management is a process of holding a well diversified portfolio for |
| A. | Short term with buy and hold approach |
| B. | Long term with buy and hold approach |
| C. | Short term with buy and sell approach |
| D. | Long term with buy and sell approach |
| Answer» B. Long term with buy and hold approach | |
| 86. |
Aggressive portfolio consists of bonds: stock in the ratio of |
| A. | 60:40 |
| B. | 70:30 |
| C. | 40:60 |
| D. | 50:50 |
| Answer» C. 40:60 | |
| 87. |
Expected value is the: |
| A. | Inverse of the standard deviation |
| B. | Correlation between security’s risk and return |
| C. | Weighted average of all possible outcomes |
| D. | Same as the discrete probability distribution |
| Answer» C. Weighted average of all possible outcomes | |
| 88. |
Which of the following statement(s) is/are true? I. A unique characteristic line is plotted for each security to determine the beta. II. For a characteristic line, the X-axis represents betas for different securities. III. The slope of the characteristic line is the difference between the market returns andrisk-free returns. |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Both (I) and (II) above |
| Answer» A. Only (I) above | |
| 89. |
Which of the following statements is true? |
| A. | A stock with a beta of 2 will always have a higher return than that a stock with a beta of 1 |
| B. | Testing CAPM is done ex-post while CAPM measures required rate of returns |
| C. | The beta of a portfolio is the beta of the individual stocks multiplied by the standard deviation of each stock |
| D. | Generally speaking stocks with higher betas tend to have lower total risk |
| Answer» B. Testing CAPM is done ex-post while CAPM measures required rate of returns | |
| 90. |
Which of the following statements is false about the Security Market Lines (SML)? |
| A. | SML represents normal trade-off between return and risk |
| B. | The vertical distance of the security‘s plot on the graph from the SML is called the security‘s alpha |
| C. | SML is same as the characteristic line for any security |
| D. | Ex-post SMLs are used to evaluate the performance of portfolio managers |
| Answer» C. SML is same as the characteristic line for any security | |
| 91. |
According to the Capital Asset Pricing Model (CAPM), the expected return of a well- diversified portfolio with abeta of 1.0 and positive ex-ante alpha (a) is |
| A. | The risk-free rate, rf |
| B. | ß (rœ r)mf |
| C. | Between rand rmf |
| D. | r+ a |
| Answer» D. r+ a | |
| 92. |
Which of the following assumptions is common between the pricing models of CAPM and APT? |
| A. | A single period investment horizon |
| B. | The investors can freely borrow and lend at risk-free rate |
| C. | The investors select portfolios based on expected mean and variance of return |
| D. | Investors have homogeneous expectations and are expected-utility-of-wealth maximizers. |
| Answer» D. Investors have homogeneous expectations and are expected-utility-of-wealth maximizers. | |
| 93. |
Which of the following statements is/are true with respect Capital Market Line (CML)? I. It is the line passing from risk-free rate through market portfolio. II. The slope of CML is called market price of risk. III. CML fails to express equilibrium pricing relationship between expected return and standard deviation for all efficient portfolios lying along the line. |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Both (I) and (II) above |
| Answer» D. Both (I) and (II) above | |
| 94. |
Which of the statements is/are false regarding Arbitrage Pricing Theory (APT)? I. APT assumes that return on any asset can be expressed as a linear function of a set of market factors or indexes. II. The arbitrage price line indicates relation between unsystematic risk and the expected return of an asset. III. While deriving the APT model, APT assumes that the error term can be reduced to zero through appropriate diversification. |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Both (I) and (II) above |
| Answer» B. Only (II) above | |
| 95. |
If the risk free rate of return (Rf) is 7%, expected return on the market [E(Rm)] is 15%, and the return on stock X is 16%, the beta for the stock X using CAPM is |
| A. | 0.85 |
| B. | 1.00 |
| C. | 1.14 |
| D. | 1.26 |
| Answer» C. 1.14 | |
| 96. |
At the prevailing environment, the Capital Market Line (CML) equation for a portfolio is given as E(ri),% = 8 + 0.36 ?i The ex-ante SML equation for the same portfolio i is E(ri),% = 8 + 5.50 ?i Therefore, the variance of market portfolio is approximately |
| A. | 30(%)2 |
| B. | 64(%)2 |
| C. | 126(%)2 |
| D. | 233(%)2 |
| Answer» D. 233(%)2 | |
| 97. |
A company's __________ provide the most accurate information to its management and shareholders about its operations. |
| A. | advertisements |
| B. | financial statements |
| C. | products |
| D. | vision statement |
| Answer» B. financial statements | |
| 98. |
A ________ provides an account of the total revenue generated by a firm during a period (usually a financial year, or a quarter) |
| A. | Accounting analysis statement |
| B. | financial re-engineering statement |
| C. | promotional expenses statement |
| D. | profit& loss statement |
| Answer» D. profit& loss statement | |
| 99. |
The balance sheet of a company is a snapshot of the ______ of the firm at a point in time. |
| A. | the sources and applications of funds of the company. |
| B. | expenditure structure |
| C. | profit structure |
| D. | income structure |
| Answer» A. the sources and applications of funds of the company. | |
| 100. |
Which of the following accounting statements form the backbone of financial analysis of a company? |
| A. | The income statement (profit & loss), |
| B. | The balance sheet |
| C. | Statement of cash flows |
| D. | All of the above |
| Answer» D. All of the above | |
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