McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Business Administration (MBA) .
Chapters
| 1. |
Information about return on an investment is as follows: (a) Risk free rate 10% (b) Market Return is 15% (c) Beta is 1.2 What would be the return from this investment? |
| A. | 12% |
| B. | 14% |
| C. | 16% |
| D. | 18% |
| Answer» C. 16% | |
| 2. |
If the current market price is considered as a basis of CAPM, then what would happen if Actual Market Price < CAPM, |
| A. | stock is undervalued |
| B. | stock is overvalued |
| C. | stock is correctly valued |
| D. | none |
| Answer» A. stock is undervalued | |
| 3. |
What should be the investment decision When CAPM < Expected Return ? |
| A. | Hold |
| B. | Buy |
| C. | Sell |
| D. | Sale later |
| Answer» B. Buy | |
| 4. |
If the Required rate of Return as per CAPM is 18% and expected return is 12%, what should be the investment decision? |
| A. | Hold |
| B. | Buy |
| C. | Sell |
| D. | Buy later |
| Answer» C. Sell | |
| 5. |
Which amongst the following is not included in the Phases of Portfolio Management? |
| A. | Security Analysis |
| B. | Capital Market theory |
| C. | Portfolio analysis |
| D. | Portfolio selection |
| Answer» B. Capital Market theory | |
| 6. |
Technical analyst concentrates more on price movements and ignores the fundamentals of the shares: |
| A. | True |
| B. | False |
| C. | Partially true |
| D. | all |
| Answer» A. True | |
| 7. |
Fundamental analysis, does not concentrate on the fundamental factors affecting the company such as |
| A. | the dividend pay-out ratio, |
| B. | the competition faced by the company, |
| C. | Price Charts and Patterns |
| D. | the EPS of the company |
| Answer» C. Price Charts and Patterns | |
| 8. |
The fundamental analyst compares this intrinsic value (true worth of a security based on its fundamentals) with the |
| A. | Historical Market price |
| B. | Past intrinsic value |
| C. | Current market price. |
| D. | Expected Intrinsic value |
| Answer» C. Current market price. | |
| 9. |
Sharpe ratio and Treynor ratio measures which of the following: |
| A. | Standard Deviation |
| B. | Risk adjusted returns |
| C. | Beta |
| D. | Alpha factor |
| Answer» B. Risk adjusted returns | |
| 10. |
The return expected = ……….+ Beta portfolio (Return of Market - Risk Free Return) |
| A. | Standard Deviation |
| B. | Risk adjusted returns |
| C. | Risk Free Return |
| D. | Beta |
| Answer» C. Risk Free Return | |
| 11. |
Alpha = Return of Portfolio- ………..? |
| A. | Beta |
| B. | Expected Return |
| C. | Standard Deviation |
| D. | Risk Free Return |
| Answer» B. Expected Return | |
| 12. |
The realized return |
| A. | is what an investor actually obtains from his investment at the end of the investment period. |
| B. | is what an investor expects to obtain from his investment at the end of the investment period. |
| C. | is equivalent to risk free rate of return. |
| D. | is what a creditor actually obtains from his investment at the end of the investment period. |
| Answer» A. is what an investor actually obtains from his investment at the end of the investment period. | |
| 13. |
Possible variation of the actual return from the expected return is termed as ? |
| A. | Adjusted retruns |
| B. | Risk |
| C. | Probability |
| D. | Systematic return |
| Answer» B. Risk | |
| 14. |
Market risk is also called: |
| A. | systematic risk and unique risk. |
| B. | nondiversifiable risk and systematic risk. |
| C. | unique risk and nondiversifiable risk. |
| D. | systematic risk and diversifiable risk. |
| Answer» B. nondiversifiable risk and systematic risk. | |
| 15. |
Suppose you estimate the characteristic line for Stock X. You find that the standard deviation of X’s error term is 7%, X’s beta is 1.4, and the standard deviation of the market is 12%. What is the total standard deviation for Stock X? |
| A. | 18.2% |
| B. | 19.0% |
| C. | 23.8% |
| D. | 30.5% |
| Answer» A. 18.2% | |
| 16. |
The risk-free rate for the next year is 3%, and the market risk premium is expected to be 10%. The beta of Acme’s stock is 1.5. If you believe that Acme’s stock will actually return 18.2% over the next year, then according to the CAPM you should: |
| A. | be indifferent between buying and selling the stock. |
| B. | buy the stock because it is under priced. |
| C. | sell the stock because it is overpric |
| Answer» B. buy the stock because it is under priced. | |
| 17. |
Stock A has a beta of 1.0 and very high unique risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A will be: |
| A. | the answer cannot be found without knowing Stock A’s correlation or covariance with the market. |
| B. | more than 20% because of Stock A’s very high unique risk. |
| C. | exactly 20%. |
| D. | the answer cannot be found without knowing the risk-free rate of interest. |
| Answer» C. exactly 20%. | |
| 18. |
The beta of the market portfolio is: |
| A. | 0.5 |
| B. | –1.0 |
| C. | 0 |
| D. | 1.0 |
| Answer» D. 1.0 | |
| 19. |
If an asset’s expected return plots above the security market line, the asset is: |
| A. | fairly priced (if it has an unusually large amount of unique risk). |
| B. | under priced. |
| C. | overpric |
| Answer» B. under priced. | |
| 20. |
Which one of the following is true? |
| A. | Alpha is the slope of the characteristic line. |
| B. | Beta is the slope of the capital market line. |
| C. | Beta is the slope of the security market line. |
| D. | Alpha is the slope of the opportunity line. |
| Answer» D. Alpha is the slope of the opportunity line. | |
| 21. |
The market risk premium is 15% and the risk-free rate is 5%. The beta of Asset D is 0.2. What is Asset D’s expected return under the CAPM? |
| A. | 8% |
| B. | 20% |
| C. | 7% |
| D. | 30% |
| Answer» A. 8% | |
| 22. |
The market risk premium is the slope of: |
| A. | the efficient frontier. |
| B. | the capital market line. |
| C. | the security market line. |
| D. | the characteristic line. |
| Answer» C. the security market line. | |
| 23. |
According to the CAPM, overpriced securities have: |
| A. | negative betas. |
| B. | positive alphas. |
| C. | negative alphas. |
| D. | zero betas. |
| Answer» C. negative alphas. | |
| 24. |
The beta of the risk-free asset is: |
| A. | 0.5 |
| B. | 0 |
| C. | 2.0 |
| D. | 1.0 |
| Answer» B. 0 | |
| 25. |
Capital asset pricing theory asserts that portfolio returns are best explained by: |
| A. | specific risk. |
| B. | systematic risk. |
| C. | economic factors. |
| D. | diversification. |
| Answer» B. systematic risk. | |
| 26. |
The market portfolio has a beta of: |
| A. | 0.0 |
| B. | –1.0 |
| C. | 1.0 |
| D. | 0.5 |
| Answer» C. 1.0 | |
| 27. |
According to security market line, the expected return of any security is a function of: |
| A. | diversifiable risk. |
| B. | total risk. |
| C. | systematic risk. |
| D. | unsystematic risk. |
| Answer» C. systematic risk. | |
| 28. |
According to the capital market line, the expected return of any efficient portfolio is a function of: |
| A. | unique risk. |
| B. | systematic risk. |
| C. | unsystematic risk. |
| D. | total risk. |
| Answer» D. total risk. | |
| 29. |
Which one of the following is the exponential factor for a 100-day Exponential Moving Average? |
| A. | 0.01 |
| B. | 0.2 |
| C. | 0.02 |
| D. | 0.002 |
| Answer» C. 0.02 | |
| 30. |
Which of the following patterns is the most reliable and widely used for indicating trend reversal? |
| A. | Stochastics |
| B. | Moving Averages |
| C. | Rectangles |
| D. | Head and Shoulders |
| Answer» D. Head and Shoulders | |
| 31. |
In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is |
| A. | unique risk. |
| B. | beta. |
| C. | standard deviation of returns. |
| D. | variance of returns. |
| Answer» B. beta. | |
| 32. |
According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rate of return is a function of |
| A. | market risk |
| B. | unsystematic risk |
| C. | unique risk. |
| D. | reinvestment risk. |
| Answer» A. market risk | |
| 33. |
The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to |
| A. | 0.06. |
| B. | 0.144. |
| C. | 0.12. |
| D. | 0.132 |
| Answer» D. 0.132 | |
| 34. |
The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal to |
| A. | 0.142 |
| B. | 0.144. |
| C. | 0.153. |
| D. | 0.134 |
| Answer» A. 0.142 | |
| 35. |
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. | The 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. | |
| 36. |
Which statement is true regarding the Capital Market Line (CML)? |
| A. | The CML is the line from the risk-free rate through the market portfolio. |
| B. | The CML is the best attainable capital allocation line. |
| C. | The CML always has a positive slope. |
| D. | A, B, and C are true. |
| Answer» D. A, B, and C are true. | |
| 37. |
According to the Capital Asset Pricing Model (CAPM), the expected rate of return on any security is equal to |
| A. | Rf + β [E(RM)]. |
| B. | Rf + β [E(RM) - Rf]. |
| C. | β [E(RM) - Rf]. |
| D. | E(RM) + Rf. |
| Answer» B. Rf + β [E(RM) - Rf]. | |
| 38. |
According to the Capital Asset Pricing Model (CAPM), fairly priced securities |
| A. | have positive betas. |
| B. | have zero alphas. |
| C. | have negative betas. |
| D. | have positive alphas. |
| Answer» B. have zero alphas. | |
| 39. |
In a well diversified portfolio |
| A. | market risk is negligible. |
| B. | systematic risk is negligible. |
| C. | unsystematic risk is negligible. |
| D. | Non diversifiable risk is negligible. |
| Answer» C. unsystematic risk is negligible. | |
| 40. |
You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9. The beta of the resulting portfolio is |
| A. | 1.466 |
| B. | 1.157 |
| C. | 0.968 |
| D. | 1.175 |
| Answer» D. 1.175 | |
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