Correct : A. Short-term rates exceed long-term rates, and the Federal Reserve is following a tight monetary policy
2. The market price of a bond depends on the
Correct : D. Coupon rate, terms of the indenture, and maturity date
3. While bond prices fluctuate,
Correct : B. Coupons are constant
4. If interest rates rise, the price of preferred stock
Correct : C. Falls
5. Municipal government debt
Correct : B. Is often purchased by individuals with high incomes
6. The use of financial leverage by a firm may be measured by the
Correct : A. Ratio of debt to total assets
7. An example of a depreciable asset is
Correct : D. Equipment
8. As the debt ratio increases,
Correct : C. More assets are debt-financed, and the ratio of debt-to-equity increases
9. Which of the following is not a characteristic of an exchange?
Correct : D. It allows exchange-listed issues to trade off the exchange floor with the aid of brokers.
10. Which of the following is a false statement about the over-the-counter market?
Correct : D. It only trades stocks of small firms.
11. The exchange generating the largest volume in the United States is the:
Correct : D. New York Stock Exchange
12. An example of a call market is the:
Correct : B. Hong Kong Stock Exchange
13. An order to buy or sell a specified quantity of a stock at a specified price or better is called a:
Correct : A. limit order
14. The bid-ask spread set by the market maker is determined by the:
Correct : C. stock exchange
15. Which of the following is not an explanation often given for initial price offering under pricing?
Correct : D. Private placement
16. A _____________ is a person who acts as an intermediary between a buyer or seller in the market.
Correct : B. Broker
17. Which of the following statements is false?
Correct : C. Bond prices remain fixed over time.
18. Which of the following statements is true?
Correct : C. Bonds are usually less liquid than stocks.
19. Most bonds:
Correct : A. are interest-bearing obligations of governments or corporations.
20. Which of the following is not an advantage of investing in bonds?
Correct : B. Bonds have unlimited profit potential.
21. Financial assets are also called:
Correct : B. Securities
22. Which of the following types of assets represents ownership interest in a corporation?
Correct : A. Stocks
23. Which of the following types of financial assets represents a creditor relationship with an entity?
Correct : A. Options
24. Which of the following types of assets offers the highest expected return?
Correct : B. Options and futures.
25. Which of the following types of assets is least risky?
Correct : D. Short-term corporate bonds.
26. Which of the following is a money market security?
Correct : A. Repurchase agreements.
27. Which of the following is a capital market security?
Correct : B. Federal agency bonds.
28. Which of the following provides income that is fully exempt from taxation for the individual investor?
Correct : B. Municipal bonds.
29. Bond prices decrease when inflation increases.
Correct : A. True
30. Common stock is an example of a capital market security.
Correct : A. True
31. Commercial paper is riskier than Treasury bills.
Correct : A. True
32. The value of a bond and debenture is
Correct : D. None of the above
33. Required rate of return>Coupon rate, the bond will be valued at
Correct : C. Discount
34. If the coupon rate is constant, the value of bond when close to maturity will be
Correct : C. Redemption value
35. A bond is said to be issued at premium when
Correct : A. Coupon rate>Required returns
36. Value of a bond just depends on the interest payment is offers.
Correct : B. False
37. In a variable growth model, the dividend is believed to grow at a constant pace forever after an initial growth period.
Correct : A. True
38. For a bond YTM is always equal to coupon rate.
Correct : B. False
39. Long period of bond maturity leads to
Correct : A. more price change
40. If coupon rate is equal to going rate of interest then bond will be sold
Correct : A. at par value
41. Falling interest rate leads change to bondholder income which is
Correct : A. reduction in income
42. Bonds issued by corporations and exposed to default risk are classified as
Correct : A. corporation bonds
43. Which of the following might be found in a bond indenture?
Correct : D. All of the above.
44. The contract between a bond issuer and a bondholder is called:
Correct : D. an indenture.
45. Which of the following would cause the required return on a bond to increase, everything else held equal?
Correct : D. The bond is callable
46. “The yield curve will be downward sloping if the market believes that future short-term interest rates will be less than current short-term interest rate.” This statement about the term structure of interest rates is most consistent with the:
Correct : D. unbiased expectations hypothesis
47. Which of the following is another name for an unsecured bond?
Correct : A. Obligation trust bond
48. Which of the following would cause a bond’s required return to increase?
Correct : D. Call provision.
49. Which of the following causes a lower required return on a bond?
Correct : B. The bond is convertible.
50. Which of the following causes a lower required return on a bond?
Correct : A. Dividend restrictions are placed on the company.
51. Lara wants to buy a bond and hold it until it matures. Which of the following must occur if Lara is to realize a holding period return equal to the bond’s yield to maturity?
Correct : D. All of the above must occur.
52. Bonds rated double A and higher are called:
Correct : C. high-grade bonds.
53. A top down analysis of a firm starts with ____________.
Correct : D. the global economy
54. Studies of stock price reactions to news are called
Correct : B. event studies.
55. __________ was the grandfather of technical analysis.
Correct : C. Charles Dow
56. The goal of the Dow theory is to
Correct : D. identify long-term trends.
57. A long-term movement of prices, lasting from several months to years is called _______.
Correct : B. a primary trend
58. Two popular moving average periods are
Correct : D. 200-day and 53 week
59. Which of the following statements is false with respect to different features of an efficient market?
Correct : D. Allocation efficiency is said to exist, if the market channelizes resources into projects where the marginal efficiency of capital adjusted for risk differences is lowest
60. If security prices exhibits semi-strong form of efficiency, one will not gain if he
Correct : D. Both (a) and (b) above.
61. __________ would mean that no investor would be able to outperform the market with trading strategies based on publicly available information.
Correct : A. Semi strong form efficiency
62. The need to have an understanding about the ability of themarket to imbibe information into the prices has led to countless attempts to study and characterize the levels of efficiency of different segments of the financial markets.
Correct : A. True
63. If the market is _______, the period after a favorable (unfavorable) event would not generate returns beyond (less than) what is suggested by an equilibrium model such as CAPM
Correct : A. Semi strong form efficiency
64. Markets are inefficient when prices of securities assimilate and reflect information about
them.
Correct : A. True
65. Stock returns are generally expected to be independent across weekdays, but a number of studies have found returns on Monday to be lower than in the rest of the week. This departure from market efficiency is also sometimes called the _____ effect.
Correct : B. Weekday
66. Fundamental analysis focuses on predicting the future price of a security and Technical analysis on estimating the intrinsic value of a security.
Correct : A. False
67. Which are the popular types of orders placed through an online trading account?
Correct : D. All of the above
68. What are the features of line charts?
Correct : A. It connects closing prices from one period to the next
69. A ________ provides an account of the total revenue generated by a firm during a period
(usually a financial year, or a quarter)
Correct : D. profit& loss statement
70. What is Bottom-Up approach also known as?
Correct : A. Company-industry-economy approach
71. The objective of fundamental analysis for a security in a market is to identify either it is:
Correct : C. Both under priced and over priced
72. The daily opening price is represented on a candlestick chart by the:
Correct : B. real body.
73. This type of risk is avoidable through proper diversification.
Correct : C. unsystematic risk
74. A statistical measure of the degree to which two variables (e.g., securities' returns) move together.
Correct : C. covariance
75. An "aggressive" common stock would have a "beta"
Correct : B. greater than one.
76. The risk-free security has a beta equal to , while the market portfolio's beta is equal to
Correct : C. zero; one.
77. Beta is the slope of
Correct : C. a characteristic line.
78. A measure of "risk per unit of expected return."
Correct : B. coefficient of variation
79. Which of the following securities have potentially the highest risk level, and also have the highest potential return?
Correct : D. Derivative securities
80. The feasibility of converting an asset quickly and without significantly affecting its price is called:
Correct : B. marketability
81. The price of a T-bill today is $97 and its maturity value is $100. The maturity is 6 months from now.
Correct : C. The dollar return to the investor would be $3 if the T-bill is held to maturity
82. Blue chip stocks:
Correct : A. are common stocks of large, financially sound corporations with a good history of dividend payments and consistent earnings growth
83. A ____________________ represents part ownership in a public firm.
Correct : D. common stock
84. Variance calculation and measuring the Standard deviation is one way of measuring the
______
Correct : A. Risk
85. Labour strike, consumer preferences and management policies are making to arises out of
uncertainty is known as ____________
Correct : C. Unsystematic Risk
86. Horse racing, game of cards, lottery are the typical examples of ______________
Correct : C. Gambling
87. Buying low and selling high, making a large capital gain is associated with ________
Correct : B. Speculation
88. The process of holding shares in electronic form is known as
Correct : B. Dematerialisation
89. ___ is the market which helps existing investors to sell their securities.
Correct : B. Secondary market
90. An order to buy or sell a specified quantity of a stock at a specified price or better is called a
Correct : E. limit order
91. The exchange generating the largest volume in the United States is the:
Correct : A. New York Stock Exchange
92. Which of the following is not a characteristic of an exchange?
Correct : D. It allows exchange-listed issues to trade off the exchange floor with the aid of brokers.
93. SENSEX is the index of --------------------.
Correct : A. BOMBAY STOCK EXCHANGE
94. It acts like a bank and keeps securities in electronic form on behalf of the investor,
Correct : B. Depository
95. On this day, the exchange will deliver the share or make payment to the other broker,
Correct : B. PAY-OUT DAY
96. ___ is the institution which provides a platform for trading of existing securities having longterm maturity.
Correct : C. Stock Exchange
97. Which one of the following is not a function of financial market?
Correct : C. Floating of companies
98. A _____________ is a person who acts as an intermediary between a buyer or seller in the market.
Correct : A. broker
99. 100 shares of Reliance Ltd. are purchased on Monday. Provided there are no holidays in between, the settlement should take place on _____ _?