McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Business Administration (MBA) .
Chapters
| 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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