Which of the following is an example of a financial asset?
Factories
Options
Commercial properties Gold
Reference
http://books.google.com.pk/books?id=8jfV6nntNPkC&pg=PA7&dq=Options+is+an+exa mple+of+a+financial+asset?&hl=en&ei=eaf0TcWVIoKgAbNsfnxBg&sa=X&oi=book_result&ct=result&resnum=4&ved=0CDcQ6AEwAw#v=onepage&q=An%20example%20of%20this%20financial%20asset%20type%20is%20the %20%27option%27&f=false
The price at which a security dealer sells a security is known as:
Bid price
Market price
Offer price
Order price
Reference
Bid price – highest price at which anyone is willing to buy. Offer (Ask) price – lowest price at which anyone is willing to sell. Difference between the two prices is the spread.
Ask price
A dealer’s price to sell a security; also called the offer price.
__________ is a temporary restriction on program trading in a particular security or market, usually to reduce dramatic price movements.
SuperDot
NYSE direct
Trading curb
Ticker tape
Reference
What Does Trading Curb Mean?
A temporary restriction on program trading in a particular security or market, usually to reduce dramatic price movements. Also known as a collar or circuit breaker.
http://www.investopedia.com/terms/t/tradingcurb.asp
___________ might not have historical perspective in background but it will find a place in the future depending on the product or industry.
Growth company
Value company
Large cap company
Small cap company
Reference
Growth company might not have historical perspective in background but it will find a place in the future depending on the product or industry belong.
The primary purpose of the liquidity ratios is to determine:
The amount of working capital tied up in inventory
The ability of a firm to pay off short-term obligations
The relative level of short-term debt
The amount of earnings paid to shareholders
Which of the following statement is TRUE?
SIC codes have 10 divisions
SIC codes have 11 divisions
SIC codes have 15 divisions
SIC codes have 11 divisions,
Mutual funds pool the funds of savers and can be used to buy _____________.
Shares in mutual savings banks only
A variety of financial instruments
Shares in the Federal Reserve System
None of the given options
Reference
http://highered.mcgraw
hill.com/sites/0073523097/student_view0/chapter1/quiz_2.html
The concept that it is not possible to consistently outperform the market by using any information that the market already knows, except through luck refers to which of the following?
Dow theory
Dividend discount model
Efficient market hypothesis
Prospect theory
Reference
The efficient market hypothesis states that it is not possible to consistently outperform the market by using any information that the market already knows, except through luck.
http://www.moneyscience.com/Information_Base/The_Efficient_Markets_Hypothesis_% 28EMH%29.html
Which of the following index is computed by adding the collective market capitalizations of its members and dividing it by the number of securities in the index?
Price Weighted-Index
Capitalization Weighted-Index
Unweighted Index
Volume Weighted Index
Capitalization-Weighted Index
Reference
• A type of market index whose individual components are weighted according to
their market capitalization, so that larger components carry a larger percentage weighting. The value of a capitalization-weighted index can be computed by
adding up the collective market capitalizations of its members and dividing it by the number of securities in the index.
http://www.dailyfinance.com/glossary/Weighted
Which of the following statement is CORRECT?
The sensitivity of a coupon bond price to a change in its yield is constant whether yield to maturity increases or decreases
The sensitivity of a coupon bond price to a change in its yield is inversely related to the bond’s yield to maturity
The sensitivity of a coupon bond price to a change in its yield is directly related to the bond’s yield to maturity
The sensitivity of a coupon bond price to a change in its yield is greater for increases in yield to maturity
Reference
http://wiki.answers.com/Q/What_is_the_relationship_between_interest_rates_and_bond_ prices
Which of the following measures the sensitivity of an asset’s price to interest rate movements, expressed as a number of years?
Duration
Yield to maturity
Convexity
Immunization
Reference
Bond duration — In finance, the duration of a financial asset measures the sensitivity of the asset s price to interest rate movements, expressed as a number of years. The reason for expressing this sensitivity in years is that the time that will elapse until a…
http://universalium.academic.ru/83867/bond_immunization
Which of the following statement is FALSE regarding bond duration?
Bond duration is inversely related to coupon rate
Duration of a zero-coupon bond equals its time to maturity
Holding maturity constant, a bond’s duration is higher when the coupon rate is lower
Duration is longer than maturity for all bonds except zero coupon bonds
Reference
• Duration is shorter than maturity for all bonds except zero coupon bonds Rule 1 The duration of a zero-coupon bond equals its time to maturity Rule 2 Holding maturity constant, a bond’s duration is higher when the coupon rate is lower
http://www.google.com.pk/#sclient=psy&hl=en&source=hp&q=Holding+maturity+ constant%2C+a+bond%E2%80%99s+duration+is+higher+when+the+coupon+rat e+is+lower&aq=f&aqi=&aql=f&oq=&pbx=1&fp=57d11162c2f83c8f&biw=800&bih =401
(PPT)
Which of the following is referred to as risk-free bond?
Government bond
Municipal bond Sovereign bond Junk bond
Government bonds are usually referred to as risk-free bonds,
Referencehttp://en.wikipedia.org/wiki/Government_bond
The risk inherent to the entire market or entire market segment is known as:
Systematic risk
Issuer risk
Specific risk
Nonsystematic risk
Reference
Systematic Risk – The risk inherent to the entire market or entire market segment. http://en.mimi.hu/business/systematic_risk.html
Which of the following measures the compound growth rate over time?
Geometric mean
Standard deviation Arithmetic mean
Correlation coefficient
Reference
The geometric mean can compute this compounded growth rate over multiple periods http://docs.google.com/viewer?a=v&q=cache:wTqJnrla5CAJ:www.stephenvopni.com/up loads/4/1/3/6/4136271/vopni_2039_
_corporate_finance_assignment_1.docx+Which+of+the+following+measures+the+comp ound+growth+rate+over+time%3F+Geometric+mean+Standard+deviation+Arithmetic+ mean+Correlation+coefficient&hl=en&gl=pk&pid=bl&srcid=ADGEESh00tz1-8ieqREZkCYn_NrQ0EkDkqyGl2ThaoPUuWEqxmOHpyle2I2NHGWqG1KtGmcS2PAMvrgNszl9ukGWJas5TlprwsPycL6d6nfLJREkrwd1SohEFZXxd_iIbdZB-L6FF&sig=AHIEtbQUUfK0Km4xLANxgT8PW4iGHDK_mA
http://books.google.com.pk/books?id=MHGBnZNm5UgC&pg=PA376&dq=The+geomet ric+mean+can+compute+this+compounded+growth+rate+over+multiple+periods&hl=en &ei=m8D0TcrPA4rm
gbsqMmJBw&sa=X&oi=book_result&ct=result&resnum=10&ved=0CFUQ6AEwCTgK #v=onepage&q=rate%20of%20growth%20in%20earnings%20over%20a%20period%20 of%20several%20years&f=false
All of the following statements concerning unsystematic risk are correct EXCEPT:
It cannot be reduced by diversification
It is the portion of total risk unique to the particular firm
It may be affected by the competence of the firm’s management Such risk may be independent of factors affecting other industries
The amount of unsystematic risk can be reduced through appropriate diversification.
Reference
http://www.investopedia.com/terms/u/unsystematicrisk.asp
Which of the following risk is avoidable through proper diversification?
Portfolio risk
Systematic risk
Nonsystematic risk
Total risk
Reference
The amount of unsystematic risk can be reduced through appropriate diversification.
http://www.investopedia.com/terms/u/unsystematicrisk.asp
http://web.utk.edu/~jwachowi/mcquiz/mc5.html
Markowitz diversification is based on:
Random diversification
Non-random diversification
Horizontal diversification
Vertical diversification
Reference
http://golum.riv.csu.edu.au/~hskoko/subjects/fin221/lect03.pdf
Which of the following is defined as a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities?
Security market line
Capital market line Budget line
Value line
What Does Security Market Line – SML Mean?
A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities.
Reference
http://www.investopedia.com/terms/s/sml.asp
When beta of a security >1.0, it indicates that:
Security is more risky than the market
Security is less risky than the market Security is as risky as the market Security is not risky at all
When beta of a security <1.0, it indicates that:
Security is more risky than the market
Security is less risky than the market
Security is as risky as the market
Security is not risky at all
The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called ___________.
Zero
Negative
All of the given options
Positive
The exploitation of security mispricing in such a way that risk-free economic profits may be earned is called ___________.
arbitrage
capital asset pricing
factoring
fundamental analysis
The APT was developed in 1976 by ____________.
Lintner
Modigliani and Miller
Ross
Sharpe
http://bodie.pageout.net/page.dyn/instructor/assessment/display_assessment?qu iz_id=414425
The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.
APT, CAPM
APT, OPM
CAPM, APT
CAPM, OPM
Reference
12. The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.
A. APT, CAPM
B. APT, OPM C. CAPM, APT D. CAPM, OPM E. none of the above
The CAPM is an asset-pricing model based on the risk/return relationship of all assets. The APT implies that this relationship holds for all well-diversified portfolios, and for all but perhaps a few individual securities.
Difficulty: Moderate
Which of the following is a strategy of monitoring and offsetting various risk factors in an investment portfolio with the aim of stabilizing investment returns?
Portfolio management
Project management
Risk management
Investment management
Riskmanagement
Reference
The monitoring and controlling of various risk factors in an investment portfolio with the aim of minimising volatility of investment returns.
http://en.mimi.hu/business/risk_management.html
Which of the following are regulated by Commodity Futures Trading Commission (CFTC)?
Options
Futures
Swaps
Forwards
Reference
Slide (Lesson#41)
Futures contracts are regulated by the Commodity Futures Trading Commission (CFTC).
Which of the following is defined as a trader, who trades or takes position without having exposure in the physical market, with the sole intention of earning profit?
Hedger
Arbitrager
Speculator
Broker
Reference
A trader, who trades or takes position without having exposure in the physical market, with the sole intention of earning profit is a speculator.
http://www.commodityprofit.com/faq.html
Program trading calls for which of the following?
Computerized trigger points for trades
The use of short hedge position
The use of only call option
The use of long hedge position
Reference
(Page 255) Program trading involves the use of computer-generated orders to coordinate buy and sell orders for entire portfolios based on arbitrage opportunities.
(Q#15)http://highered.mcgraw
hill.com/sites/0073405159/student_view0/chapter17/multiple_choice_quiz.html
Which of the following statement is FALSE regarding short hedge?
The value of short hedge contracts is equal the value of the stock portfolio
A short futures hedge is appropriate when you know you will purchase an asset in the future and want to lock in the price
A short futures hedge is appropriate when you know you will sell an asset in the future & want to lock in the price
A short hedge reduces or possibly eliminates the risk taken in a long position
Reference
www.pro-prosperity.com/UIC/Ch03HullFundamentals5thEd.ppt
A long futures hedge is appropriate when you know you will purchase an asset in the future and want to lock in the price
A short futures hedge is appropriate when you know you will sell an asset in the future & want to lock in the price
(Handout page 251)A short hedge reduces, or possibly eliminates, the risk taken in a long position
Which of the following hedge involves an additional source of basis risk due to the difference between the asset being hedged and the asset underlying the futures?
Long hedge
Short hedge
Cross hedge
Stack hedge
Reference
(page 625)
http://books.google.com.pk/books?id=DT0nnLDMYTgC&pg=PA625&lpg=PA625& dq=cross+hedge+involves+an+additional+source+of+basis+risk+due+to+the+differe nce+between+the+asset+being+hedged+and+the+asset+underlying+the+futures&so urce=bl&ots=g5ZCrU0Xwn&sig=5V9vgeDz3h_6xERgGMW2aqmKUBY&hl=en&e i=VZf0TaupAYi5hAeig_TzBg&sa=X&oi=book_result&ct=result&resnum=2&ved= 0CBwQ6AEwAQ#v=onepage&q=cross%20hedge%20involves%20an%20additiona l%20source%20of%20basis%20risk%20due%20to%20the%20difference%20betw een%20the%20asset%20being%20hed&f=false
S & P 500 future stock index closes at $ 275 and spot price is $ 230. What is its basis?
40
45
50
55
Reference
Basis is the difference between spot and future price. So,275 $-230 $=45
At the NYSE, the auction process for each listed stock is assigned to which of the following?
Specialist
Broker
Dealer Member
Reference
(page 8) The specialist system is a distinctive feature of the NYSE and the AMEX
An investor will purchase shares of companies in the development stage for:
Current income
Current income and capital gains Passive losses to offset other income
Capital gains only
Creditor’s claim on the assets of a company is known as:
Liability
Equity
Common Stock Dividend
Claims are divided into two categories:
Reference
• Creditors’ claims that are called liabilities • Owners’ claims that are called equity
http://simplestudies.com/introduction-to-accounting.html/page/3
Which of the formula is TRUE for calculating retained earnings?
Retained Earnings = Net Earnings – Dividends
Retained Earnings = Net Earnings + Long term debt
Retained Earnings = Net Earnings + Short term debt
Retained Earnings = Net Earnings + Dividend
Reference
(Slide # 41) Retained Earnings:
• Retained earnings are the amount of money that a company keeps
for future use or investment.
• Another way to look at it is as the earnings left over after dividends
are paid out.
Retained Earnings = Net Earnings – Dividends
Which of the following is NOT a test of semi-strong form efficiency?
Stock splits
Accounting changes
Dividend announcements
Insider transactions
Reference
(Slide 16 lesson 23)Semi-strong Form Evidence
Announcements and news:
– Little impact on price after release. Initial public offerings:
– Only issues purchased at offer price yield abnormal returns. Accounting changes:
– Quick reaction to real change in value. Stock splits:
– Implications of split reflected in price immediately following the
announcement
(page 146) Studies have investigated the extent to which people can profit by acting on various corporate announcements such as stock splits, cash dividends, and stock dividends
When the bond approaches its maturity, the market value of the bond approaches to which of the following?
Intrinsic value
Book value
Par value
Historic cost
Reference
http://www.auditservices.com/ciabonds.html
Page#163
The par value (face value) of most bonds is ‘will use this number as the amount to be repaid at maturity.
The value of a bond is directly derived from which of the following?
Cash flows
Coupon receipts
Par recovery at maturity
All of the given options
A coupon bond is a bond that?
Pays interest on a regular basis
Does not pay interest on a regular basis but pays a lump sum at maturity
Can always be converted into a specific number of shares of common stock in the issuing company
Can always be converted into a specific number of shares of preffered stock in the issuing
Company
Reference
(Q#4)http://highered.mcgraw
hill.com/sites/007338237x/student_view0/chapter14/multiple_choice_quiz. html
The smaller the coupon of a bond,(other things being equal), the duration of bond will be:
Equal
There is no connection between two
Greater
Smaller
Duration is inversely related to the coupon of a bond- the higher the coupon, the lower the duration for a given maturity.
http://www.efmoody.com/investments/bondreturns.html
The percentage of the purchase price of securities that an investor must pay with his or her own cash is known as:
Margin call
Maintenance margin
Initial margin
SPAN margin
Reference
http://www.investopedia.com/terms/i/initialmargin.asp
Which of the following is a characteristic of line chart?
It is efficient in showing more details
It is simplest and most familiar chart
It show the highest degree of accuracy
It can be used for comparing three values
Which of the following is LEAST likely an assumption behind the semi-strong form of the EMH?
In regard to timings, news and announcements are independent of each other.
All information is cost free and available to everyone at the same time.
Investors adjust their expectations rapidly when confronted with new information
Investors cannot achieve abnormal returns using fundamental analysis.
Reference
(Q#8)http://bbs.cfaspace.com/thread-77479-1-1.html
The implication of the Weak-form EMH is that:
All public and private information is rapidly incorporated into security prices
Technical analyst can make excess returns on filter rules but not runs rules
There should not be any relation between past price changes & future price changes
The investors cannot achieve abnormal returns using fundamental analysis
Reference
(Q#1)Question 1
Autocorrelation tests & tests of predictive power of earnings surprises apply to which forms of the EMH?
Autocorrelation Earnings surprises
1. Semi-strong Strong
2. Weak Semi-strong
3. Semi-strong Weak
4. Strong Weak
1
2
3 4
Autocorrelation tests
Mostly support the weak-form EMH and indicate that price changes are random Some studies using more securities and more complicated tests cast some doubt
Lecture Presentation for Investments, 6e
Which form of the Efficient Market Hypothesis implies that an investor can achieve positive abnormal returns on average by using technical analysis?
Strong form
Weak form
Semi-strong form
None of the given options
(Handout page 268)
The three forms of the efficient markets hypothesis are: 1) Weak form. Market prices reflect information contained in historical prices. Investors are unable to earn abnormal returns using historical prices to predict future price movements. 2) Semi-strong form. In addition to historical data, market prices reflect all publicly-available information. Investors with insider, or private information, are able to earn abnormal returns. 3) Strong form. Market prices reflect all information, public or private. Investors are unable to earn abnormal returns using insider information or historical prices to predict future price movements.
Compared to a public offering, a private placement of the debt securities LIKELY has:
More liquidity and a lower yield
Less liquidity and lower yield
Less liquidity and a higher yield
More liquidity and a higher yield
Reference
Compared to a public offering, a private placement of debt securities likely has:
A.. more liquidity and a lower yield. B. more liquidity and a higher yield. e. less liquidity and a lower yield. D. less liquidity and a higher yield
11. D Investors require a higher yield to compensate for the facr that privately placed debt is not registered for public sale and is therefore less liquid than debt registered for public sale.
http://up.m-e
c.biz/up/books/CFA%20Level%201%20Schweser%20Study%20Notes%2020 08%20-%20Book%205.pdf
Which of the following statements about the risks of the bond investing is MOST accurate?
A bond rated AAA has no credit risk.
A bond with call protection has volatility risk.
A U.S. Treasury bond has no reinvestment risk.
A zero-coupon bond has less interest rate risk
Reference
13. B A Treasury bond pays semiannual coupon interest and, therefore, has reinvestment risk. A triple-A rated bond can lose its AAA rating, so it has downgrade risk, a component of credit risk. Any bond can have exchange rate risk if the security holder’s returns are measured in a different currency. A bond with a call feature has volatility risk even when the call cannot be exercised immediately. The call feature still has value (to the issuer), and its value will be affected by volatility changes
http://up.m-e
c.biz/up/books/CFA%20Level%201%20Schweser%20Study%20Notes%2020 08%20-%20Book%205.pdf
Which of the following statements about exchange traded derivatives is LEAST accurate?
They are liquid.
They are standardized contracts.
They carry significant default risk.
They have no credit risk.
Q#2http://www.palgrave.com/finance/valdez6/students/mcqs/ch12/ch12.htm Derivatives are LEAST likely to provide or improve:
Liquidity
Price information
Inflation reduction
Hedging
Reference
(page 165)http://up.m-e
c.biz/up/books/CFA%20Level%201%20Schweser%20Study%20Notes%202008 %20-%20Book%205.pdf
A futures contract is LEAST likely:
Exchange traded
A contingent claim
Adjusted for profits and losses daily
A standardized instrument
Reference
(page 164)http://up.m-e
c.biz/up/books/CFA%20Level%201%20Schweser%20Study%20Notes%202008 %20-%20Book%205.pdf
Compared to forward contracts, future contacts are LEAST likely to be:
Standardize
Large in size
Less subject to default
Risk Settled daily
Reference
(page 192)http://www.facebook.com/#!/home.php?sk=group_163945183663874 Which of the following statements about covariance and the correlation coefficient is LEAST accurate?
The correlation coefficient is a measure of the linear association between two variables.
Covariance is a measure of the how the returns of the two assets tend to move together. The correlation coefficient is computed by dividing the returns covariance of the assets by the individual return variances for the two assets.
The returns covariance between two assets is equal to the correlation between returns of the two assets, times the product of their returns standard deviation.
http://ci.columbia.edu/ci/premba_test/c0331/s7/s7_5.html
Correlation Coefficient is computed by dividing the covariance by the product of the standard deviation of the two variables
In determining the appropriate asset allocation for client’s investment accounts, the manager should:
Consider only the investor’s risk tolerance
Rely on forecasts of future economic conditions
Consider the investor’s risk tolerance and future needs, but not market conditions
Should consider only the unique needs of the investors
Reference
http://www.equinox.co.za/article_2771.html
Factors to consider in making the asset allocation decision include the investor’s return requirements (current income versus future income), the investor’s risk tolerance, and the time horizon. This is done in conjunction with the investment manager’s expectations about the Capital markets and about individual assets.
Which of the following statements regarding company and stock analysis is LEAST accurate?
A defensive company has earnings relatively insensitive to downturns in economy. Cyclical stocks have betas greater than one.
A growth stock is the stock of a firm with rapidly increasing earnings.
Speculative companies have highly risky assets but have potential to produce huge earnings.
Reference
http://translate.google.com/translate?hl=en&sl=zh
CN&tl=en&u=http%3A%2F%2Fbbs.cfaspace.com%2FTopicOther.asp%3Ft%3D 5%26BoardID%3D103%26id%3D95890&anno=2
The most attractive investment opportunities when the economy is slowing and entering a recession are:
Commodities and commodity-producer stocks Stocks and commercial property
Bonds and interest-sensitive stocks
Cyclical stocks and bonds