Investment Management MCQ Questions and Answers Part – 2
51. Financial disclosure regulations affecting the brokerage industry are a type of_________.
A. market risk.
B. financial risk.
C. business risk.
D. liquidity risk.
52. If interest rates rose, you would expect ____________ to also rise.
A. business risk.
B. financial risk.
C. liquidity risk.
D. inflation risk.
53. Total return as defined in the text is________________.
A. the difference between the sale price and the purchase price of an investment.
B. measured by dividing the sum of all cash flows received by the amount invested.
C. the reciprocal of a return relative.
D. measured by dividing all cash flows received by its selling price.
54. The _________is stated on the basis of 1.0.
A. total return.
B. return relative.
C. cumulative wealth index.
D. geometric mean.
55. The return relative solves the problem of______________.
B. negative returns.
C. interest rates.
D. tax differences.
56. If the Dow Jones Industrials had a price appreciation of 6 percent one year and yet Total return for the
year was 11 percent; the difference would be due to___________.
A. the tax treatment of capital gains.
B. the cumulative wealth effect.
57. In order to determine the compound growth rate of an investment over some period, an investor would calculate the________________.
A. arithmetic mean.
B. geometric mean.
C. calculus mean.
D. arithmetic median.
58. A major difference between real and nominal returns is that_______________.
A. real returns adjust for inflation and nominal returns do not.
B. real returns use actual cash flows and nominal returns use expected cash flows.
C. real returns adjust for commissions and nominal returns do not.
D. real returns show the highest possible return and nominal returns show the lowest possible return.
59. When most people refer to the mean, they are referring to the______________.
B. arithmetic mean.
C. geometric mean.
D. cumulative mean.
60. _________________is concerned with the interrelationships between security returns.
A. random diversification.
B. correlating diversification.
C. Friedman diversification.
D. Markowitz diversification.
61. Portfolio weights are found by_________________.
A. dividing the standard deviation by expected value.
B. calculating the percentage each asset is to the total portfolio value.
C. calculating the return of each asset to total portfolio return.
D. dividing expected value by the standard deviation.
62. In order to determine the expected return of a portfolio, all of the following must be Known except______________.
A. probabilities of expected returns of individual assets.
B. weight of each individual asset to total portfolio value.
C. expected return of each individual asset.
D. all of the above must be known in order to determine the expected return of a portfolio.
63. Which of the following is true regarding the expected return of a portfolio?
A. It is a weighted average only for stock portfolios.
B. It can only be positive.
C. It can never be above the highest individual return.
D. All of the above are true.
64. Company-specific risk is also known as_________________.
A. market risk.
B. systematic risk.
C. non-diversifiable risk.
D. idiosyncratic risk
65. The relevant risk for a well-diversified portfolio is________________.
A. interest rate risk.
B. inflation risk.
C. business risk.
D. market risk.
66. Which of the following portfolios has the least reduction of risk?
A. A portfolio with securities all having a positive correlation with each other.
B. A portfolio with securities all has zero correlation with each other.
C. A portfolio with securities all having negative correlation with each other.
D. A portfolio with securities all has skewed correlation with each other.
67. Portfolio risk is best measured by the_________________.
A. expected value.
B. portfolio beta.
C. weighted average of individual risk.
D. standard deviation.
68. 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 covariances in determining portfolio risk.
69. Owning two securities instead of one will not reduce the risk taken by an investor if the two securities are______________.
A. perfectly positively correlated with each other.
B. perfectly independent of each other.
C. perfectly negatively correlated with each other.
D. of the same category, e.g. blue chips.
70. The major problem with the Markowitz model is its_______________.
A. lack of accuracy.
B. predictability flaws.
D. inability to handle large number of inputs.
71. According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on_______________.
A. expected return.
C. expected return and risk.
D. transactions costs.
72. Under the Markowitz model, investors_____________.
A. are assumed to be risk-seekers.
B. are not allowed to use leverage.
C. are assumed to be institutional investors.
D. all of the above.all of the above.
73. The Markowitz model assumes most investors are_____________.
A. risk averse.
B. risk neutral.
C. risk seekers.
D. risk moderators.
74. According to Markowitz, an efficient portfolio is one that has the_________________.
A. largest expected return for the smallest level of risk.
B. largest expected return and zero risk.
C. largest expected return for a given level of risk.
D. smallest level of risk.
75. Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen
A. aggressive investors.
B. conservative investors.
C. risk-averse investors.
D. defensive investors.
76. A portfolio which lies below the efficient frontier is described as________________.
77. The optimal portfolio is the efficient portfolio with the__________________.
A. lowest risk.
B. highest risk.
C. highest utility.
D. least investment.
78. Market risk is best measured by the__________________.
C. standard deviation.
D. coefficient of variation.
79. Non systematic risk is also known as_____________.
A. non diversifiable risk.
B. market risk.
C. random risk.
D. company-specific risk.
80. An example of a derivative security is ______.
A. a common share of General Motors
B. a call option on Mobil stock
C. a commodity futures contract
D. B and C
81. Under the P/E model, stock price is a product of_____________.
A. EPS and DPS.
B. P/E ratio and EPS.
C. EPS and required return.
D. P/E ratio and required return.
82. Book value is_______________.
A. the same as market value.
B. a more accurate valuation technique than the dividend models.
C. the accounting value of the firm as reflected in the financial statements.
D. the same as liquidation value.
83. The price to book value ratio tends to be close for_____________.
A. high-tech companies.
D. service companies.
84. ___________ shifts the weights of securities in the portfolio to take advantage of areas that is expected
to do relatively better than other areas.
A. portfolio management.
B. market timing.
C. momentum strategy.
D. sector rotation.
85. The central issue of efficient markets concerns______________.
86. A bond issue is broken up so that some investors will receive only interest payments while others will receive only principal payments, which is an example of ________.
C. financial engineering
87. If a market is inefficient, as new information is received about a security____________.
A. nothing will happen.
B. the stock price will fall at first and then later rise.
C. there will be a lag in the adjustment of the stock price.
D. there will be negative demand for the stock.
88. Weak form market efficiency_______________.
A. implies that the expected return on any security is zero.
B. incorporates semi-strong form efficiency.
C. involves price and volume information.
D. is compatible with technical analysis.
89. The highest level of market efficiency is_____________.
A. weak form efficiency.
B. semi-strong form efficiency.
C. random walk efficiency.
D. strong form efficiency.
90. The weak form of the EMH is supported if successive price changes over time are________.
A. independent of each other.
91. The random walk hypothesis is most related to the___________.
A. weak-form EMH.
B. semi strong-form EMH.
C. semi weak-form EMH.
D. strong-form EMH.
92. If an investor searches for patterns in security returns by examining various techniques applied to a set
of data, this is known as__________.
A. fundamental analysis.
B. technical analysis.
C. data mining.
D. random-walk theory.
93. The last step in fundamental analysis is__________.
A. economic analysis.
B. industry analysis.
C. company analysis.
D. technical analysis.
94. The value of a derivative security _______.
A. depends on the value of the related primitive security
B. can only cause increased risk.
C. is unrelated to the value of the related primitive security
D. is worthless today
95. Money market funds were a financial innovation partly inspired to circumvent _______.
A. Regulation Q, which is no longer in existence
B. Regulation M
C. Regulation D
D. Regulation B, which is still in existence
96. The auditor’s report is________________.
A. guarantees accuracy.
B. guarantees the quality of the earnings.
C. attests that the statements are a fair presentation of financial position.
D. all of the above are true.
97. Risk lover’s utility curves have
A. Positive slope
B. Negative slope
C. Convex to the origin
D. Negative slope and convex to the origin
98. In which of the following sections of a balance sheet are “Inventories” listed?
A. Current assets.
B. Property, plant and equipment, at cost.
C. Current liabilities.
D. Shareholders’ Equity.
99. The key item for investors on the income statement is______________.
B. gross profit.
C. operating expenses.
D. after-tax net income.
100. Which of the following represents the rate at which a company can grow from internal sources?
A. return on assets.
B. sustainable growth rate.
C. adjusted EPS.
D. return on equity.