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Investment Final Exam

Score 100%
Question 1
1. The best index to assess the performance of a portfolio diversified among
several asset classes such as stocks, bonds and real estate is
the Lipper Index.
the NYSE Composite Index.
the Value Line Index.
No suitable index exists.
4 points
Question 2
1. Lipper indexes are to assess the performance of
I and II only
I and III only
I, II and III only
I, II, III and IV
4 points
Question 3
1. Which one of the following provides the greatest reduction in total risk?
diversification
asset allocation
security selection
beta reduction
4 points
Question 4
1. A moderate asset allocation alternative might include
I and II only
I, III and IV only
I, II and III only
I, II, III and IV
4 points
Question 5
1. To compute the holding period return on a bond investment, the investor
should divide the purchase price of the bond into
any increase or decrease in the bond's price.
the annual coupon payment.
the bond's yield to maturity.

coupon payments received plus or minus any change in the bond's price.
4 points
Question 6
1. Asset allocation should focus on
the investor's financial and family situation.
selection of individual securities within an asset class.
maximization of current income.
maximization of short-term profits.
4 points
Question 7
1. Which of the following is a good reason to invest in convertible bonds?
They often have higher than normal coupon rates.
They offer protection against rising interest rates.
They tend to be issued by stable, low-risk companies.
They offer predictable income and a chance to profit from an increase in the
stock price.
4 points
Question 8
1. Investors who buy mutual funds that have had large gains over the last
few years are exhibiting a tendency known as
overconfidence.
narrow framing.
loss aversion.
representativeness.
4 points
Question 9
1. When a bond is called, the bondholder generally faces a rate of return that
is lower than expected.
True
False
4 points
Question 10
1. Which of the following accurately reflect appropriate investment
guidelines?
I and II only
III and IV only
I, III and IV only
I, II, III and IV
4 points
Question 11
1. One type of mutual fund spreads investors' money across equity markets,
bond markets, and money markets. Moreover, as market conditions change,

the amount of money invested in each market sector will change. This type
of mutual fund is known as a(n)
socially responsible fund.
fiscally responsible fund.
growth-and-income fund.
asset allocation fund.
4 points
Question 12
1. The longer the time to maturity, the less sensitive a bond's price will be to
changes in interest rates.
True
False
4 points
Question 13
1. Which one of the following statements concerning interest rates is correct?
A decrease in the money supply will cause interest rates to decline.
A federal budget surplus will cause interest rates to decline.
Economic expansions will cause interest rates to decline.
Rising interest rates in foreign countries will cause U.S. interest rates to
decline.
4 points
Question 14
1. Mutual fund investors are primarily exposed to ________ and ________ risks.
market; financial
market; inflation
business; financial
business; inflation
4 points
Question 15
1. Baby blues is a term used to refer to telecom stocks.
True
False
4 points
Question 16
1. A portfolio with a beta of 1.06
is 106% more risky than the overall market.
has less risk than the lowest risk security held within that portfolio.
is 6% more risky than a risk-free asset.
is slightly more risky than the overall market.
4 points
Question 17

1. From October 2007 to March 2009, stock prices as measured by the S&P
500 Index
nearly doubled in value.
lost more than half their value.
declined by nearly 10%.
rose by nearly 25%.
4 points
Question 18
1. The Capital Asset Pricing Model (CAPM) includes which of the following in
its base assumptions?
I and III only
II and IV only
I, II and III only
I, III and IV only
4 points
Question 19
1. Jobs in which of the following fields require an understanding of the
investment environment?
I and IV only
I, II and IV only
II, III and IV only
I, II, III and IV
4 points
Question 20
1. Short-term investments generally provide liquidity, safety, and a high rate
of return.
True
False
4 points
Question 21
1. If the S&P 500 index is at 1,461, then the cash value of an S&P 500 index
option is
$14.61.
$1,461.
$14,610.
$146,100.
5 points
Question 22
1. Writing covered calls protects the writer from losses if the price of the
underlying stock declines.
True
False

5 points
Question 23
1. The value of an interest rate call option
varies directly with the price of the underlying corporate bond.
increases when the yield on the underlying Treasury security rises.
is based on the market price of U. S. Treasury securities.
decreases when the price of U.S. Treasuries decreases.
5 points
Question 24
1. ETF options are settled in
cash.
ETF shares.
share of the companies in the index.
The writer has the choice of settling in either cash or ETF shares.
5 points
Question 25
1. The longer the time to expiration, the lower the option time premium
tends to be.
True
False
5 points
Question 26
1. One reason that writing options can be a viable and profitable investment
strategy is that
the option writer collects the quarterly dividends.
most options expire unexercised.
an option writer determines when the option is exercised.
an option writer can exercise the option to avoid a potential loss.
4 points
Question 27
1. LEAPS is an acronym for
Lehman and Ellsworth Authority Strips.
Liability & Equity Asset Securities.
LYONS Earnings Anticipation Stocks.
Long-Term Equity Anticipation Securities.
4 points
Question 28
1. A put has fundamental value as long as
the market price of the underlying financial asset has a positive value.
the market price of the underlying financial asset is less than the strike price.
the strike price of the put is greater than the time premium of the put.

the strike price of the put is less than the market value of the underlying
asset.
4 points
Question 29
1. Which of the following affect the value of puts and calls written on shares
of common stock?
I and II only
I, II and III only
II, III and IV only
I, II, III and IV
4 points
Question 30
1. The buyer of a put expects the price of the underlying stock to rise.
True
False
4 points
Question 31
1. Rights and warrants are the riskiest types of options.
True
False
4 points
Question 32
1. The three steps in determining a stock's intrinsic value are
III and IV only
I, II and IV only
I, III and IV only
4 points
Question 33
1. MBA Inc. will pay a dividend for the first time at the end of 2013. It
projects the following dividend per share:
Beginning with 2016 dividends will grow at 4% per year. The required rate of
return is 12%. The intrinsic value of MBA shares is
$25.37.
$27.85.
$28.96.
$38.50.
4 points
Question 34
1. A company has an annual dividend growth rate of 5% and a retention rate
of 40%. The company's dividend payout ratio is
35%.
40%.

45%.
60%.
4 points
Question 35
1. If the market multiple is 23.0 and the P/E ratio of a company is 27.4, then
the stock's relative P/E is
0.84.
1.19.
3.21.
4.40.
4 points
Question 36
1. The governmental agency that oversees the capital markets is the
Federal Trade Commission.
Federal Reserve.
Securities and Exchange Commission.
Fair Trade and Banking Agency.
4 points
Question 37
1. Crossing markets are those that
trade foreign securities.
conduct transactions between institutional and individual traders.
fill only the orders which have opposing orders at identical prices.
conduct business at locations in varying time zones.
4 points
Question 38
1. Individuals can use the Internet to
I and IV only
II and III only
I, III and IV only
I, II, III and IV
4 points
Question 39
1. Which of the following indexes would best reflect the performance of a
large, diversified portfolio with equal amounts of money invested in each
company.
the S&P 500 Index
the Russell 3000
the NASDAQ 100
the Value Line Composite Index
4 points
Question 40

1. Over a period of time if an investment has not met its return objective, it
should be sold.
True
False
4 points
Question 41
1. Sharpe's measure of portfolio performance compares the risk premium on
a portfolio to
a broad-based market index such as the S&P 500 index.
the portfolio's standard deviation of return.
the portfolio's beta.
the prevailing risk-free rate of return.
4 points
Question 42
1. A portfolio has a total return of 14.5%, a beta of 1.54, and a standard
deviation of 17.6%. If the risk free rate is 4.5% and the market return is
10.2%, then Treynor's measure of this portfolio's performance is
2.8%.
3.7%.
6.5%.
9.4%.
4 points
Question 43
1. Ella owns a stock with a beta of 1.34 and a standard deviation of 16.4%.
The stock has a total return of 14.8%. The market risk premium is 8.5%,
while the return on the market portfolio was 12.0%. What is the value of
Sharpe's measure for Ella's portfolio?
0.21
0.38
0.69
0.90
4 points
Question 44
1. The constant-ratio plan
requires the establishment of trigger points for portfolio rebalancing.
utilizes a predetermined ratio between desired current yield and expected
capital gains.
strictly adheres to a buy-and-hold strategy.
is an attempt to time the cyclical movements of the market.
4 points
Question 45

1. An investor adopts a policy of investing in both an aggressive mutual fund


and a short-term bond fund. When the value of the aggressive fund exceeds
65% of the portfolio value, shares of that fund are sold such that the
aggressive fund represents only 45% of the portfolio. This is an example of a
________ plan.
constant-dollar
dollar-cost averaging
constant-ratio
variable-ratio
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