Security Analysis and Investment Management | Set 2
1. _______ measures the percentage of net income not paid to the shareholders in the form of
dividends.
Correct : B. Retention ratio
2. 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.
3. If security prices exhibits semi-strong form of efficiency, one will not gain if he
Correct : D. Both (a) and (b) above.
4. Particulars Falcon International Triumph International
Average Return (%) 10 8 Average Volatility (%) 12 15 For the portfolio to yield lower risk than the individual stocks, the correlation coefficient of stocks should be
Correct : C. Less than 0.80
5. Which of the following statements is/are true with respect to feasible set of portfolio?
I. Feasible set is also known as opportunity set. II. It represents all the portfolios that could be formed from group of N securities. III. Feasible set is also called efficient set
Correct : D. Both (I) and (II) above
6. Fund managers generally want which of following objectives to be optimal?
I. Stability of principle. II. Income. III. Growth of income. IV. Capital appreciation.
Correct : D. All (I), (II), (III) and (IV) above
7. Which of the following is not one of the considerations in setting investment objectives?
Correct : B. Maximize wealth versus minimize expenses
8. One of the reasons a short-term trader has difficulty in beating the market is because of
Correct : D. Commissions
9. The holding period to qualify for a long-term capital gains is
Correct : B. At least 12 months
10. Common stock dividends are now taxed at a maximum rate of
Correct : B. 15 percent
11. Higher bond prices generally signal expectations of
Correct : B. Lower inflation
12. A stock that pays low or no cash dividends is
Correct : A. EBay
13. Deposits in an IRA are
Correct : D. A and C
14. An investment requires a total return that comprises
Correct : B. A real rate of return, compensation for inflation, and a risk premium
15. The investor of a high-yielding utility can expect
Correct : D. Both a and b
16. Because most investors are risk averse
Correct : D. They will require a higher rate of return for a riskier investment
17. An efficient market reflects:
Correct : A. past, current and inferred information.
18. In which form of the efficient market hypothesis do security prices reflect only past stock price and volume information?
Correct : B. semistrong form.
19. Which of the following is not a test of semi-strong form efficiency?
Correct : D. insider transactions.
20. An efficient market does not require that:
Correct : D. each adjustment be perfect.
21. "Filter rules" do not tend to be profitable because of:
Correct : A. transaction costs.
22. The random walk hypothesis posits that:
Correct : D. short-run investment returns are inherently unpredictable.
23. Positive abnormal returns for corporate insiders constitute a violation of:
Correct : C. strong-form efficiency.
24. On the day following big "up days," the DJIA tends to:
Correct : D. none of the above.
25. Stock market value can deviate from its fundamental value because of strong:
Correct : B. investor mood.
26. Stock fraud perpetrators sometimes dupe respected community (or group) leaders and these leaders unwittingly cause community members to be victimized too. This scheme is called:
Correct : C. affinity fra
27. ___________ market encompasses all securities not traded on national organized
exchanges.
Correct : D. Over the counter
28. Which of the following is not a part of systematic risk
Correct : B. Management capability
29. Primarily Inflation gives rise to
Correct : B. Purchasing power risk
30. Unsystematic risk is known as
Correct : D. Diversifiable risk
31. characteristic line is associated with
Correct : B. Beta
32. Graphical presentation of CAPM is known as
Correct : D. Security market line
33. __________ is defined as the nth root of the product resulting from multiplying a series of returns together.
Correct : B. Geometric mean
34. An order to buy or sell at the most advantageous price obtainable after the order is represented in the trading crowd.
Correct : C. Market order
35. __________ refers to capitalize on downward movement in stock prices.
Correct : D. Short selling
36. ___________ is a device to overcome the uncertainty connected with a stop order.
Correct : A. Stop limit order
37. ___________ is a function of the operating conditions faced by a firm and the variability these conditions inject into operating income and expected dividends.
Correct : D. Systematic risk
38. A top down analysis of a firm starts with ____________.
Correct : D. the global economy
39. An example of a highly cyclical industry is ________.
Correct : A. the automobile industry
40. The most widely used monetary tool is ___________.
Correct : C. open market operations
41. The "real", or inflation-adjusted, exchange rate, is
Correct : C. the purchasing power ratio.
42. The "normal" range of price-earnings ratios for the S&P500 Index is
Correct : D. between 12 and 25
43. A peak is ________.
Correct : A. a transition from an expansion in the business cycle to the start of a contraction
44. Conventional theories presume that investors ____________ and behavioral finance presumes that they ____________.
Correct : B. are rational; may not be rational
45. Information processing errors consist of
I. forecasting errors II. overconfidence III. conservatism IV. framing
Correct : D. I, II and III
46. __________ was the grandfather of technical analysis.
Correct : C. Charles Dow
47. The goal of the Dow theory is to
Correct : D. identify long-term trends.
48. A long-term movement of prices, lasting from several months to years is called _________.
Correct : B. a primary trend
49. Two popular moving average periods are
Correct : D. 200-day and 53 week
50. The most extreme form(s) of the Efficient Market Hypothesis (EMH) is
Correct : C. Super Strong form
51. Which of the following statements pertaining to the Efficient Market Hypothesis (EMH) is/ are true?
Correct : D. All of (a), (b) and (c) above
52. According to the Efficient Market Hypothesis (EMH)
I. Stocks with smaller beta will be consistently overpriced. II. Stocks with higher beta will be consistently underpriced. III. Positive alphas on stocks will not remain for a longer period.
Correct : B. Only (III) above
53. 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
54. Which one of the following is the exponential factor for a 100-day Exponential Moving Average?
Correct : C. 0.02
55. Which of the following patterns is the most reliable and widely used for indicating trend reversal?
Correct : D. Head and Shoulders
56. A stock with a relative strength of 3.0 will have a relative strength index of
Correct : C. 75
57. __________ 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
58. 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
59. 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
60. Markets are inefficient when prices of securities assimilate and reflect information about them.
Correct : B. False
61. 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 : D. Weekend
62. 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
63. Under ________ EMH investors cannot earn abnormal/superior profits on securities on a consistent basis.
Correct : C. Semi-strong form efficient
64. Which are the popular types of orders placed through an online trading account?
Correct : D. All of the above
65. What are the features of line charts?
Correct : A. It connects closing prices from one period to the next
66. What is the art of technical analysis?
Correct : A. To identify trend changes at an early stage and maintain investment posture till the trend has reversed
67. What is Bottom-Up approach also known as?
Correct : A. Company-industry-economy approach
68. ________ ratio is the ratio of net profit to the sales.
Correct : A. Net Profit
69. A security is said to be ________ if its current market price is over its intrinsic value.
Correct : B. Over priced
70. 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
71. _______ measures the percentage of net income not paid to the shareholders in the form of dividends.
Correct : B. Retention ratio
72. Which of the following patterns is the most reliable and widely used for indicating trend reversal?
Correct : D. Head and Shoulders
73. Prices of stocks usually move in trends.
Correct : B. True
74. The ability of the investor to convert an investment into cash in a short period of time is called
Correct : C. Liquidity
75. Wealthy investors may prefer the favorable tax treatment of investments such as
Correct : B. Municipal bonds
76. What is the rate of return on a share of common stock that increased in value from $40 to $50?
Correct : D. 25%
77. What would the rate of return for a stock that increased in value from $60 per share to $63 per share and paid a $3.00 dividend?
Correct : C. 10%
78. An investment in common stock carries a higher return than a bank certificate of deposit. The difference in returns is called
Correct : C. The risk premium
79. What are the components in determining the real rate of return?
Correct : D. Neither a) nor b)
80. What is the risk-free rate in an environment where the real rate is 3% and inflation is running at 3%? Use either method found in chapter one.
Correct : C. 6.09% or just 6%
81. Which of the following investments would theoretically always carry the highest risk premium?
Correct : B. Common stock
82. _____, because of increasing replacement value and scarcity, perform best in periods of high inflation.
Correct : A. Real assets
83. The two components that make up the risk-free rate are
Correct : C. Real rate of return and the inflation factor
84. Which of the following terms represents an upper price limit for a stock, based on the quantity of willing sellers?
Correct : D. Resistance.
85. The daily high price is represented on a candlestick chart by the:
Correct : C. shadow.
86. The daily opening price is represented on a candlestick chart by the:
Correct : B. real body.
87. Which of the following do technical analysts believe is a lower bound on a stock’s price?
Correct : D. Support.
88. Which of the following is a sentiment indicator?
Correct : A. Odd-lot trading.
89. Which of the following is a breadth indicator?
Correct : A. Advance-decline line.
90. On which of the following does a hammer sometimes appear?
Correct : C. Candlestick chart.
91. The number of stocks hitting new 52-week highs is a(n):
Correct : B. breadth indicator.
92. Which type of chart includes daily high price, low price, opening price, and closing price?
Correct : B. Candlestick chart.
93. Which of the following contains the real body?
Correct : D. Candlestick chart.
94. If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.
Correct : A. Semi strong
95. When Maurice Kendall examined the patterns of stock returns in 1953 he concluded that the stock market was __________. Now, these random price movements are believed to be _________.
Correct : A. inefficient; the effect of a well-functioning market
96. A hybrid strategy is one where the investor
Correct : D. maintains a passive core and augments the position with an actively managed portfolio.
97. The difference between a random walk and a submartingale is the expected price change in a random walk is ______ and the expected price change for a submartingale is ______.
Correct : D. zero; positive
98. If you believe in the _______ form of the EMH, you believe that stock prices only reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume or short interest.
Correct : C. weak
99. If you believe in the _________ form of the EMH, you believe that stock prices reflect all available information, including information that is available only to insiders.
Correct : B. strong
100. __________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability.