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. |
In the Treynor-Black model |
| A. | Portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers. |
| B. | Portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers. |
| C. | Portfolio weight are sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers. |
| D. | Portfolio weight are not sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers. |
| Answer» A. Portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers. | |
| 2. |
Benchmark portfolio risk is defined as |
| A. | the return difference between the portfolio and the benchmark |
| B. | the variance of the return of the benchmark portfolio |
| C. | the variance of the return difference between the portfolio and the benchmark |
| D. | the variance of the return of the actively-managed portfolio |
| Answer» C. the variance of the return difference between the portfolio and the benchmark | |
| 3. |
____________ can be used to measure forecast quality and guide in the proper adjustment of forecasts. |
| A. | Regression analysis |
| B. | Exponential smoothing |
| C. | ARIMA |
| D. | Moving average models |
| Answer» A. Regression analysis | |
| 4. |
Even low-quality forecasts have proven to be valuable because R-squares of only ____________ in regressions of analysts' forecasts can be used to substantially improve portfolio performance. |
| A. | 0.656 |
| B. | 0.452 |
| C. | 0.258 |
| D. | 0.001 |
| Answer» D. 0.001 | |
| 5. |
The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure. |
| A. | Black-Litterman |
| B. | Treynor-Black |
| C. | Treynor-Mazuy |
| D. | Black-Scholes |
| Answer» A. Black-Litterman | |
| 6. |
The Black-Litterman model and Treynor-Black model are |
| A. | nice in theory but practically useless in modern portfolio management. |
| B. | complementary tools that should be used in portfolio management. |
| C. | contradictory models can not be use together; therefore, portfolio managers must choose which one suits their needs. |
| D. | not useful due to their complexity. |
| Answer» B. complementary tools that should be used in portfolio management. | |
| 7. |
Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality. When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________. |
| A. | shrunk, shrunk, far less moderate |
| B. | shrunk, shrunk, far more moderate |
| C. | grossed up, grossed up, far less moderate |
| D. | grossed up, grossed up, far more moderate |
| Answer» B. shrunk, shrunk, far more moderate | |
| 8. |
Tracking error is defined as |
| A. | the difference between the returns on the overall risky portfolio versus the benchmark return. |
| B. | the variance of the return of the benchmark portfolio |
| C. | the variance of the return difference between the portfolio and the benchmark |
| D. | the variance of the return of the actively-managed portfolio |
| Answer» A. the difference between the returns on the overall risky portfolio versus the benchmark return. | |
| 9. |
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» D. beta; benchmark risk | |
| 10. |
If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting ability __________. |
| A. | is above average |
| B. | is average |
| C. | is below average |
| D. | does not exist. |
| Answer» A. is above average | |
| 11. |
Active portfolio management consists of __________. |
| A. | market timing |
| B. | security analysis |
| C. | indexing |
| D. | Aand B |
| Answer» D. Aand B | |
| 12. |
The critical variable in the determination of the success of the active portfolio is ________. |
| A. | alpha/systematic risk |
| B. | alpha/nonsystematic risk |
| C. | gamma/systematic risk |
| D. | gamma/nonsystematic risk |
| Answer» B. alpha/nonsystematic risk | |
| 13. |
Active portfolio managers try to construct a risky portfolio with __________. |
| A. | a higher Sharpe measure than a passive strategy |
| B. | a lower Sharpe measure than a passive strategy |
| C. | the same Sharpe measure as a passive strategy |
| D. | very few securities |
| Answer» A. a higher Sharpe measure than a passive strategy | |
| 14. |
The beta of an active portfolio is 1.20. The standard deviation of the returns on the market index is 20%. The nonsystematic variance of the active portfolio is 1%. The standard deviation of the returns on the active portfolio is __________. |
| A. | 3.84% |
| B. | 5.84% |
| C. | 19.60% |
| D. | 26.0% |
| Answer» D. 26.0% | |
| 15. |
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» D. both A and B. | |
| 16. |
According to the index model, covariances among security pairs are |
| A. | Due to the influence of a single common factor represented by the market index return |
| B. | Extremely difficult to calculate |
| C. | Usually positive |
| D. | A and c |
| Answer» D. A and c | |
| 17. |
The intercept calculated by Merrill Lynch in the regression equations is equal to |
| A. | α in the CAPM |
| B. | α + rf (1 + β) |
| C. | α + rf (1 - β) |
| D. | 1 - α |
| Answer» C. α + rf (1 - β) | |
| 18. |
Analysts may use regression analysis to estimate the index model for a stock. When doing so, the slope of the regression line is an estimate of ______________. |
| A. | the α of the asset |
| B. | the β of the asset |
| C. | the σ of the asset |
| D. | the δ of the asset |
| Answer» B. the β of the asset | |
| 19. |
In a factor model, the return on a stock in a particular period will be related to _________. |
| A. | firm-specific events |
| B. | macroeconomic events |
| C. | the error term |
| D. | both A and B |
| Answer» D. both A and B | |
| 20. |
Merrill Lynch estimates the index model for a stock using regression analysis involving total returns. They estimated the intercept in the regression equation at 6% and the β at 0.5. The risk-free rate of return is 12%. The true β of the stock is ________. |
| A. | 0% |
| B. | 3% |
| C. | 6% |
| D. | 9% |
| Answer» A. 0% | |
| 21. |
Depending upon the investor’s preferences and the market opportunities an investor’s portfolio is the portfolio that I. Maximizes her expected utility. II. Maximizes her risk. III. Minimizes both her risk and return. IV. Maximizes her expected profit. |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Only (IV) above |
| Answer» A. Only (I) above | |
| 22. |
Particulars Falcon International Triumph International Average Return (%) 10 8 Average Volatility (%) 12 15 For the portfolio to yield lower risk than the individual stocks, the correlation coefficient of stocks should be |
| A. | Less than 1.25 |
| B. | Less than 0.85 |
| C. | Less than 0.80 |
| D. | More than 0.83 |
| Answer» C. Less than 0.80 | |
| 23. |
An Investor can form a portfolio that lies to the right of the optimal risky portfolio on asset allocation line by I. Lend some money at the risk free rate and invest the remainder in the optimal risky portfolio. II. Borrow some money at the risk free rate and invest in the optimal risky portfolio III. Such a portfolio cannot be formed IV. Invest only in risky assets |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Only (IV) above |
| Answer» B. Only (II) above | |
| 24. |
Analysis carried out on the performance of a fund for last year is compiled as under: Total selectivity 2.50% Net selectivity 1.53% of portfolio 0.90 Return on market index 13.00% Standard deviation of market returns 13.50% Risk free return, Rf 8.00% The total risk ( i) of portfolio is |
| A. | 11.1% |
| B. | 12.2% |
| C. | 13.8% |
| D. | 14.8% |
| Answer» D. 14.8% | |
| 25. |
Mr. Zaffar has following scrips in his portfolio: Scrip Beta Proportion of investment (%) Reliance .83 .25 Infosys .8 .25 Reymond 1.4 .35 IndiaBulls 1.2 .15 If the risk free rate is 6% and return on the market is 16%, what will be the expected return on his portfolio? |
| A. | 12.54% |
| B. | 13.28% |
| C. | 14.12% |
| D. | 16.80% |
| Answer» D. 16.80% | |
| 26. |
Which of the following is/are disadvantage(s) of indexing of bond portfolio? I. Advisory fee schedule is high II. In past, returns earned by most active fund managers has much exceeded those of index portfolio III. Loss of opportunity for incremental returns. |
| A. | Only (I) above |
| B. | Only (II) above |
| C. | Only (III) above |
| D. | Both (II) and (III) above |
| Answer» C. Only (III) above | |
| 27. |
Which of the following statements regarding portfolio revisions is/are incorrect? |
| A. | For effective implementation of constant Dollar value plan, it is necessary to estimate the possibility and extent of downward fluctuation of the aggressive portfolio |
| B. | Constant ratio plan becomes less aggressive in sales when the stock price rise |
| C. | During a sustained rise or fall of stock prices the constant ratio plan gives higher profit than other two formula plans. |
| D. | Variable ratio plan stock portfolio becomes more aggressive when stock prices rise and vice versa. |
| Answer» D. Variable ratio plan stock portfolio becomes more aggressive when stock prices rise and vice versa. | |
| 28. |
The alpha of an active portfolio is 1%. The expected return on the market index is 16%. The variance of the return on the market portfolio is 4%. The nonsystematic variance of the active portfolio is 1%. The risk-free rate of return is 8%. The beta of the active portfolio is 1.05. The optimal proportion to invest in the active portfolio is __________. |
| A. | 48.7% |
| B. | 50.0% |
| C. | 51.3% |
| D. | 100.0% |
| Answer» C. 51.3% | |
| 29. |
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» B. 11% | |
| 30. |
Price movement between two Steel company stocks would generally have a ______ co- variance |
| A. | Positive |
| B. | Negative |
| C. | Zero |
| D. | all |
| Answer» A. Positive | |
| 31. |
The CAPM is founded on the following two assumptions (1) in the equilibrium every mean variance investor holds the same market portfolio and (2) the only risk the investor faces is the beta |
| A. | True |
| B. | False |
| C. | none |
| D. | all |
| Answer» A. True | |
| 32. |
. If a Portfolio manager consistently obtains a high Sharpe’s measure, the portfolio manager has exhibited |
| A. | Above average forecasting ability |
| B. | Above average selection ability |
| C. | The market supports market efficiency in strong form |
| D. | Both (a) and (b) above. |
| Answer» D. Both (a) and (b) above. | |
| 33. |
The critical variable in the determination of the success of the active portfolio is |
| A. | Jensen’s Alpha / Non-Systematic Risk |
| B. | Jensen’s Alpha / Systematic Risk |
| C. | Gamma / Non-Systematic Risk |
| D. | Gamma / Systematic Risk |
| Answer» A. Jensen’s Alpha / Non-Systematic Risk | |
| 34. |
Ms. Kiran wrote a European call option on a stock. The premium was Rs.5 per share and the market price and exercise price of the share were Rs.39 and Rs.45 respectively. If on expiry date, the price of the share was Rs. 42, the profit/loss to Ms. Kiran was |
| A. | Rs.3 |
| B. | –Rs.4 |
| C. | –Rs.5 |
| D. | Rs.4 |
| Answer» D. Rs.4 | |
| 35. |
Other things being same, the price of American call option on a stock is positively correlated with the following factors, except |
| A. | The exercise price |
| B. | The time to expiration |
| C. | The stock volatility |
| D. | The stock price |
| Answer» A. The exercise price | |
| 36. |
What is a call? |
| A. | An option to sell stock at a specified price |
| B. | An option to buy stock at a specified price |
| C. | An option to sell stock on a specified date |
| D. | An option to buy stock on a specified date |
| Answer» B. An option to buy stock at a specified price | |
| 37. |
The intrinsic value of an out-of-the-money call option is |
| A. | The Call Premium |
| B. | The stock price minus the exercise price |
| C. | Negative |
| D. | Zero |
| Answer» D. Zero | |
| 38. |
The commitment of current funds in anticipation of receiving a larger future flow of funds is called |
| A. | A financial asset |
| B. | A real asset |
| C. | An investment |
| D. | Gambling |
| Answer» C. An investment | |
| 39. |
A(n) _____ is a legally documented claim on an asset, while a _____ is an actual, tangible asset which may be seen, felt, held, or collected. |
| A. | Real asset; financial asset |
| B. | Financial asset; real asset |
| C. | Indirect equity claim; direct equity claim |
| D. | Direct equity claim; indirect equity claim |
| Answer» B. Financial asset; real asset | |
| 40. |
When ranking security returns, the data shows that the annualized returns are as follows, ranked from highest return to lowest return. |
| A. | Large stocks, small stocks, long-term corporate bonds, long-term government bonds, treasury bills |
| B. | Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills |
| C. | Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds |
| D. | Treasury bills, long-term government bonds, long-term corporate bonds, large stocks, small stocks |
| Answer» B. Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills | |
| 41. |
When ranking the riskiness of securities using the standard deviation, the highest risk security to the lowest risk security is as follows: |
| A. | Small stocks, large stocks, long-term government bonds, U.S. treasury bills |
| B. | Long-term government bonds, small stocks, large stocks, U.S. treasury bills |
| C. | Large stocks, small stocks, long-term government bonds, U.S. treasury bills |
| D. | Small stocks, long-term government bonds, large stocks, U.S. treasury bills |
| Answer» A. Small stocks, large stocks, long-term government bonds, U.S. treasury bills | |
| 42. |
Which of the following statements is the most accurate concerning security returns over The eight decades since the 1920's? |
| A. | Returns on large common stocks were very stable |
| B. | Returns on long-term corporate bonds were very stable |
| C. | Returns on long-term corporate bonds were very stable |
| D. | All securities exhibited very unstable returns over the eight decades in question. |
| Answer» D. All securities exhibited very unstable returns over the eight decades in question. | |
| 43. |
A direct equity claim arises through investment in |
| A. | Bonds and other debt instruments |
| B. | Common stocks, warrants and options |
| C. | Preferred stock and commodity futures |
| D. | Mutual funds |
| Answer» B. Common stocks, warrants and options | |
| 44. |
Investment in a mutual fund results in |
| A. | An indirect equity claim |
| B. | A direct equity claim |
| C. | A creditor claim |
| D. | None of the above. |
| Answer» A. An indirect equity claim | |
| 45. |
What factors must be considered in choosing between investment alternatives? |
| A. | Risk and liquidity |
| B. | Interest or dividends vs. capital gains |
| C. | Time frame for managing funds and evaluating performance and tax effects |
| D. | Safety of principle |
| Answer» D. Safety of principle | |
| 46. |
Which of the following examples involves objective probabilities? |
| A. | Common stock rates of return. |
| B. | Coin-flipping experiment. |
| C. | Bond rates of return. |
| D. | Both the first and second answer. |
| Answer» B. Coin-flipping experiment. | |
| 47. |
The expected return is determined by: |
| A. | probabilities. |
| B. | rates of return on an asset. |
| C. | correlations. |
| D. | both a and b. |
| Answer» D. both a and b. | |
| 48. |
If the future were known with certainty, which of the following statements would be wrong? |
| A. | There is no dependency with other assets. |
| B. | The risk premium is zero. |
| C. | The mean return equals the riskless interest rate. |
| D. | The variance is greater than zero. |
| Answer» D. The variance is greater than zero. | |
| 49. |
Which of the following statements about arbitrage is correct? |
| A. | A risk averter will arbitrage because profits can be made with no risk and no investment. |
| B. | A risk averter will never arbitrage because of the risk involved. |
| C. | Arbitrage opportunity arises when profits can be made with low level of risk. |
| D. | Arbitrage opportunities continue to exist in equilibrium. |
| Answer» A. A risk averter will arbitrage because profits can be made with no risk and no investment. | |
| 50. |
Which of the following statements about the mean-variance criterion is correct? |
| A. | Investors select assets that provide the highest rate of return. |
| B. | Investors select assets that provide the highest variance for the same or higher expected return. |
| C. | Investors select assets that provide the lowest variance for the same or higher expected return. |
| D. | The mean return equals the riskless interest. |
| Answer» C. Investors select assets that provide the lowest variance for the same or higher expected return. | |
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