McqMate
These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Business Administration (MBA) .
Chapters
| 251. |
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. | |
| 252. |
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. | |
| 253. |
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. | |
| 254. |
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. | |
| 255. |
Which of the following is not a characteristic of a risk averter? |
| A. | A risk averter will not buy lottery tickets because the expected payoffs are less than the cost of the tickets. |
| B. | A risk averter will be ready to pay a higher price for an asset whose variance increases. |
| C. | A risk averter always prefers a certain investment over an uncertain investment if the expected returns on the two investments are identical. |
| D. | To be induced to take risk, a risk averter must be offered a risk premium. |
| Answer» B. A risk averter will be ready to pay a higher price for an asset whose variance increases. | |
| 256. |
Which of the following statements is incorrect? |
| A. | The variance is the square root of the standard deviation. |
| B. | All assets would have the same rate of return if the future were known with certainty. |
| C. | The risk of the investment is the uncertainty concerning the expected return. |
| D. | The geometric mean cannot be larger than the arithmetic mean. |
| Answer» A. The variance is the square root of the standard deviation. | |
| 257. |
Arbitrage trading strategy implies that: |
| A. | profits are made by investing in riskless securities. |
| B. | large profits are made by undertaking high risk investments. |
| C. | profits are made with no risk and no investment. |
| D. | arbitrage opportunities will continue to exist in equilibrium. |
| Answer» C. profits are made with no risk and no investment. | |
| 258. |
Which of the following is a measure of the dispersion of returns around the mean? |
| A. | Variance. |
| B. | Risk premium. |
| C. | Correlation. |
| D. | Expected return. |
| Answer» A. Variance. | |
| 259. |
Investors who completely ignore an asset’s variance and only consider the asset’s expected return are called: |
| A. | value-seeking investors. |
| B. | growth-oriented investors. |
| C. | risk-neutral investors. |
| D. | risk averters. |
| Answer» C. risk-neutral investors. | |
| 260. |
Underlying all investments is the tradeoff between |
| A. | Expected return and actual return |
| B. | Low risk and high risk |
| C. | Actual return and high risk |
| D. | Expected return and risk. |
| Answer» A. Expected return and actual return | |
| 261. |
Which of the following investment areas is heavily tied to work using mathematical and statistical models? |
| A. | Security analysis |
| B. | Portfolio management |
| C. | Institutional investing |
| D. | Retirement planning. |
| Answer» A. Security analysis | |
| 262. |
This type of risk is avoidable through proper diversification. |
| A. | portfolio risk |
| B. | systematic risk |
| C. | unsystematic risk |
| D. | total risk |
| Answer» C. unsystematic risk | |
| 263. |
Liquidity risk |
| A. | The risk that investment bankers normally face |
| B. | Lower for small OTCEI stocks than for large NSE stocks |
| C. | The risk associated with secondary market transactions |
| D. | The risk increases whenever interest rates increase |
| Answer» D. The risk increases whenever interest rates increase | |
| 264. |
If interest rates are expected to rise, you would expect |
| A. | Bond prices to fall more than stock prices |
| B. | Bond prices to rise more than stock prices |
| C. | Stock prices to fall more than bond prices |
| D. | Stock prices to rise and bond prices to fall |
| Answer» A. Bond prices to fall more than stock prices | |
| 265. |
The one-period rate of return from a stock or bond which may or may not be realized can be described by using the term |
| A. | Holding-period return. |
| B. | Yield. |
| C. | Random variable |
| D. | Market return |
| Answer» A. Holding-period return. | |
| 266. |
If the dispersion around a security's return is larger |
| A. | The expected return is smaller |
| B. | The standard deviation is smaller |
| C. | The stock's price is higher |
| D. | The security's risk is higher |
| Answer» A. The expected return is smaller | |
| 267. |
Who popularized the dividend discount model, which is sometimes referred to by his name? |
| A. | Myron Gordon |
| B. | Frederick Macaulay |
| C. | Harry Markowitz |
| D. | Marshall Blume |
| Answer» A. Myron Gordon | |
| 268. |
A group of mutual funds with a common management are known as: |
| A. | Fund syndicates. |
| B. | Fund conglomerates |
| C. | Fund families. |
| D. | Fund complexes |
| Answer» C. Fund families. | |
| 269. |
Markowitz's main contribution to portfolio theory is |
| A. | That risk is the same for each type of financial asset |
| B. | That risk is a function of credit, liquidity and market Factors |
| C. | Risk is not quantifiable |
| D. | Insight about the relative importance of variances and co variances in determining portfolio risk |
| Answer» B. That risk is a function of credit, liquidity and market Factors | |
| 270. |
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% | |
| 271. |
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 | |
| 272. |
What should be the investment decision When CAPM < Expected Return ? |
| A. | Hold |
| B. | Buy |
| C. | Sell |
| D. | Sale later |
| Answer» B. Buy | |
| 273. |
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 | |
| 274. |
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 | |
| 275. |
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 | |
| 276. |
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 | |
| 277. |
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. | |
| 278. |
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 | |
| 279. |
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 | |
| 280. |
Alpha = Return of Portfolio- ………..? |
| A. | Beta |
| B. | Expected Return |
| C. | Standard Deviation |
| D. | Risk Free Return |
| Answer» B. Expected Return | |
| 281. |
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. | |
| 282. |
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 | |
| 283. |
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. | |
| 284. |
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% | |
| 285. |
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. | |
| 286. |
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%. | |
| 287. |
The beta of the market portfolio is: |
| A. | 0.5 |
| B. | –1.0 |
| C. | 0 |
| D. | 1.0 |
| Answer» D. 1.0 | |
| 288. |
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. | |
| 289. |
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. | |
| 290. |
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% | |
| 291. |
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. | |
| 292. |
According to the CAPM, overpriced securities have: |
| A. | negative betas. |
| B. | positive alphas. |
| C. | negative alphas. |
| D. | zero betas. |
| Answer» C. negative alphas. | |
| 293. |
The beta of the risk-free asset is: |
| A. | 0.5 |
| B. | 0 |
| C. | 2.0 |
| D. | 1.0 |
| Answer» B. 0 | |
| 294. |
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. | |
| 295. |
The market portfolio has a beta of: |
| A. | 0.0 |
| B. | –1.0 |
| C. | 1.0 |
| D. | 0.5 |
| Answer» C. 1.0 | |
| 296. |
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. | |
| 297. |
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. | |
| 298. |
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 | |
| 299. |
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 | |
| 300. |
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. | |
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