Asset Management
Question Bank
Course Introduction
Asset Management is a comprehensive course that explores the principles, strategies, and tools necessary for effectively managing investment assets to achieve specific financial goals. The course covers key topics such as portfolio construction and diversification, risk assessment, valuation techniques, and performance measurement. Students will gain insights into both traditional and alternative asset classes, the role of asset managers, and the regulatory environment shaping the industry. Through real-world case studies and practical assignments, participants will develop analytical skills to make informed investment decisions and implement robust asset management strategies in dynamic financial markets.
Recommended Textbook
Investments Analysis and Management 12th Edition by Charles P. Jones
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1336 Verified Questions
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Page 2
Chapter 1: Understanding Investments
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Sample Questions
Q1) Briefly explain the difference between expected returns and realized returns and between ex ante returns an ex post returns.
Answer: Expected returns are mean returns based on probability distributions dealing with the future.Realized returns are the returns that actually occurred in the past.Ex ante returns are in the future.Ex post returns are in the past.
Q2) A 25-year old college graduate is participating in a 401(k)retirement plan and wishes to minimize risk by eliminating stock-based mutual funds and other equities from his investment portfolio.What will this probably do to his ending retirement funds in 40 years?
Answer: If he minimizes risk,then he will also minimize return.His retirement fund will likely be much smaller than if he chose to take more risk over the long run.
Q3) Security analysts are typically employed only at brokerage houses.
A)True
B)False
Answer: False
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3
Chapter 2: Investment Alternatives
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Sample Questions
Q1) Treasury bonds generally have maturities of:
A)5 to 15 years
B)5 to 30 years
C)10 to 20 years
D)10 to 30 years
Answer: D
Q2) Which of the following statements regarding money market instruments is not true?
A)They tend to be highly marketable.
B)They have maturities from 1 to 3 years.
C)They tend to have a low probability of default.
D)Their rates tend to move together.
Answer: B
Q3) If a bond has a coupon greater than the current market yield,it should be selling at a premium.
A)True
B)False
Answer: True
Q4) What are some advantages of asset-backed securities to investors?
Answer: High yields with manageable risk.
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Chapter 3: Indirect Investing
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Sample Questions
Q1) Approximately 85 percent of money market assets are in non-taxable funds.
A)True
B)False
Answer: False
Q2) Under its new system,Morningstar ranks funds against comparable funds in approximately 50 categories.
A)True
B)False
Answer: True
Q3) How is the individual investor's income tax position affected by owning investment companies compared to owning securities directly?
Answer: The investor's tax position should be the same whether he/she invests indirectly through an investment company or directly in the securities themselves.The investment companies are intermediaries that pass on income and losses to the shareholder.
Q4) Buying shares of a mutual fund is an example of indirect investing.
A)True
B)False
Answer: True
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Chapter 4: Securities Markets and Market Indexes
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Sample Questions
Q1) Most secondary bond trading takes place on:
A)the NYSE
B)the American Stock Exchange
C)the OTC
D)the Philadelphia Exchange
Q2) The difference between the bid and the ask price is known as the:
A)commission
B)premium
C)quote
D)spread
Q3) A major appeal for U.S.firms selling bonds in private placements is potential:
A)lower interest expense
B)greater regulatory protection
C)savings from not registering with the SEC or incurring an underwriting spread
D)fewer restrictions on subsequent borrowing activities
Q4) The DJIA is a ______________-weighted index.
Q5) A large public offering is often handled by a syndicate of investment banking firms,with one lead managing underwriter.
A)True
B)False
6
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Chapter 5: How Securities Are Traded
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Sample Questions
Q1) Which of the following statements is true regarding short sales?
A)An investor can only remain in a short sale 6 months or less.
B)Short sales can be done on either a cash or margin account.
C)Short sellers borrow the stock sold short from the exchanges.
D)Dividends paid during the short sale must be covered by the seller.
Q2) If maintenance margin is not maintained,the broker will place:
A)a sell order on sufficient securities to ensure the portfolio is compliant with maintenance margin requirements
B)a sell order on sufficient securities to ensure the portfolio is compliant with initial margin requirements
C)contact the investor with a margin put
D)contact the investor with a margin call
Q3) Negotiated commissions are the norm for institutional investors; whereas most individual investors pay specified commissions set by the brokerage firms.
A)True
B)False
Q4) Small investors often pay brokerage commissions according to the firm's chart of fees.How can this be when rates are negotiable?
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Chapter 6: The Risks and Returns From Investing
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Sample Questions
Q1) The most common measure of inflation is the Producer Price Index.
A)True
B)False
Q2) New financial disclosure regulations affecting the brokerage industry are a type of:
A)market risk
B)financial risk
C)business risk
D)liquidity risk
Q3) Which of the following statements regarding the arithmetic mean and the geometric mean is true?
A)The arithmetic mean is always a better measure of average performance
B)The geometric mean is always a better measure of average performance
C)The arithmetic mean is a better measure of performance over single periods
D)The geometric mean is the best estimate of the expected return for the next period
Q4) Calculate the future value of $100,000 at the end of 64 years given an interest rate of 10.38 percent.
Q5) What is the present value of $20,000 to be received in 40 years if the interest rate is 9 percent?
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Chapter 7: Portfolio Theory
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Sample Questions
Q1) The correlation coefficient explains the cause in the relative movement in returns between two securities.
A)True
B)False
Q2) Company specific risk is also known as:
A)market risk
B)systematic risk
C)non-diversifiable risk
D)idiosyncratic risk
Q3) 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)variance of return of each individual asset and correlation of returns between assets
Q4) Why is more Difficult to put Markowitz diversification into effect than random diversification?
Q5) How is the correlation coefficient important in choosing among securities for a portfolio?
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Chapter 8: Portfolio Selection
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Sample Questions
Q1) Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by
A)aggressive investors
B)conservative investors
C)risk-averse investors
D)defensive investors
Q2) Which of the following is not true regarding the Markowitz theory?
A)Markowitz portfolio theory is considered a three-parameter model
B)Under the Markowitz model,no portfolio on the efficient frontier dominates any other portfolio on the efficient frontier
C)The Markowitz model is cumbersome to work with due to the large variance-covariance matrix needed for a set of stocks
D)Markowitz portfolio theory is a multi-period model generates an entire set,or efficient frontier,of portfolios
Q3) Systematic risk is also called:
A)diversifiable risk
B)market risk
C)random risk
D)company-specific risk
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Chapter 9: Asset Pricing Models
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Sample Questions
Q1) Under the CMT,the relevant risk to consider with any security is:
A)its correlation with other securities in the portfolio.
B)its covariance with the market portfolio.
C)its deviation from the portfolio required rate of return.
D)its variance from the risk-free rate of return.
Q2) Suppose the SML has a risk-free rate of 5 percent and an expected market return of 15 percent.Now suppose that the SML shifts,changing slope,so that k<sub>RF</sub> is still 5 percent but k<sub>M</sub> is now 16 percent.What does this shift suggest about investors' risk aversion? If the slope were to change downward,what would that suggest?
Q3) If a certain stock has a beta greater than 1.0,it means that
A)the stock's return is more volatile than that of the market portfolio.
B)an investor can eliminate the risk by combining it with another stock that has a negative beta.
C)an investor will earn a higher return on his stock than that on the market portfolio.
D)the stock is less risky than the market portfolio.
Q4) None of the asset-pricing models assume that the market is perfect.
A)True
B)False
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Chapter 10: Common Stock Valuation
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Sample Questions
Q1) Which of the following models incorporates debt financing,including both the repayment and interest on existing debt as the sale of new debt,as well as preferred stock financing?
A)FCFE model
B)FCFF model
C)constant growth rate model
D)multiple growth rate model
Q2) The dividend model that is most appropriate for a young company that pays small dividends now but is expected to increase dividends in a few years is the:
A)zero-growth model.
B)constant growth model.
C)expansion growth model.
D)multiple growth model.
Q3) The current market price of the stock of a company,Stryker Ltd.is $30 per share.The dividends for the next year are expected to be $4.00 per share and the investor is confident that the selling price of the stock will be $35 at the end of one year.What is the implied rate of return assuming dividends are growing at a constant rate?
Q4) Why have dividends historically been important in the valuation of common stock?
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Chapter 11: Common Stocks: Analysis
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Sample Questions
Q1) How could one invest indirectly in sectors and practice sector rotation?
Q2) Investors following a passive strategy use which of the following as the best estimate of a security's value?
A)the dividend discount model.
B)Fisher model.
C)current market price.
D)current earnings per share.
Q3) If security prices fully reflect all the relevant information that is available and usable,then a securities market is considered to be efficient.
A)True
B)False
Q4) The nominal risk-free rate of return is calculated by subtracting an expected inflation premium from the real risk-free rate of interest.
A)True
B)False
Q5) Under new SEC rules adopted in 2002,price targets for stocks are to be shown.
A)True
B)False
Q6) How is the required rate of return utilized in stock analysis?
Page 13
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Chapter 12: Market Efficiency
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Sample Questions
Q1) Which of the following is true regarding the size anomaly?
A)As much as 50% of small cap outperformance is associated with the January effect.
B)Small cap stocks underperform large cap stocks in recent years.
C)Small cap stock outperformance is a NASDAQ phenomenon,not NYSE.
D)Small cap stock outperformance is unaffected by micro-cap,commission,or liquidity (i.e.,bid-ask spread)concerns.
Q2) The highest level of market efficiency is
A)weak form efficiency.
B)semi-strong form efficiency.
C)random walk efficiency.
D)strong form efficiency.
Q3) Which of the following is frequently used to test the semistrong form of the EMH?
A)statistical tests of stock-price change independence.
B)tests of specific trading rules that use past price data.
C)event studies.
D)insider returns.
Q4) What forms of EMH are strongly supported by economic studies? What is some evidence?
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Page 14
Chapter 13: Economy Market Analysis
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Sample Questions
Q1) The Dow Jones Industrial Average provides the best representation of the performance of U.S.stocks.
A)True
B)False
Q2) Gross Domestic Product (GDP)is a basic measure of the economy,and is defined as the market value of what items produced by an economy for some time period (typically a year)?
A)final goods.
B)final goods and services.
C)final goods,services,and labor.
D)final goods,services,labor,and capital.
Q3) Despite political,cultural and economic differences,foreign markets are driven by the same factors that drive U.S.markets.
A)True
B)False
Q4) When using the P/E valuation model,it is important to remember that the multiplier is more volatile than the earnings component.
A)True
B)False
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Chapter 14: Industry Analysis
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Q1) The North American Industry Classification System (NAICS)was developed using a production-oriented approach,with the result companies are classified into industries based on the activity in which they are primarily engated.
A)True
B)False
Q2) The expansion stage of the industry life cycle is probably of most interest to investors,in which growth is rapid and risk is tolerable.
A)True
B)False
Q3) Which of the following industry categories is said to be "bought to be sold?"
A)cyclical
B)defensive
C)growth
D)countercyclical
Q4) Mature industries typically have much higher P/E ratios than growth industries,which are riskier.
A)True
B)False
Q5) What are four basic aspects of qualitative assessment of industries?
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Chapter 15: Company Analysis
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Sample Questions
Q1) On a company's balance sheet,shareholder's equity is nearly always described by its?
A)Book value
B)Market value
C)Current value
D)Stock value
Q2) Internet Industries expects to earn $5.00 for the coming year,and pay a $2.00 dividend.Its ROA is 13 percent,while its leverage factor is 1.7.
(a)Calculate the expected growth rate in dividends.
(b)Given a required rate of return of 17 percent,determine the estimated price for High Tech,Inc.,common stock.
(c)Calculate the expected dollar dividend two periods from now.
Q3) Which of the following are shown on the balance sheet on a lower of cost or market value basis?
A)cash
B)stockholders' equity
C)marketable securities
D)fixed assets
Q4) How could unexpected inflation affect the P/E ratio?
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Chapter 16: Technical Analysis
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Sample Questions
Q1) A filter rule specifies a breakpoint for a stock or average and trades are made when the price is greater than the filter.
A)True
B)False
Q2) A high short interest ratio is generally interpreted as:
A)a bullish signal.
B)evidence of a downside breakout.
C)a bearish signal.
D)evidence of the presence of odd-lot individual investors.
Q3) Which of the following is not one of the tests of a technical trading rule?
A)Transaction and other costs
B)Consistency
C)Return
D)Risk
Q4) What is the advance-decline line? What does it tell the technician?
Q5) A daily accumulation of stocks advancing or declining is used in:
A)volume of trading analysis.
B)relative strength analysis.
C)breadth of market analysis.
D)short interest analysis.
18
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Chapter 17: Bond Yields
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Q1) Reinvestment risk represents the possibility that future payments cannot be reinvested at the assumed rate.
A)True
B)False
Q2) For most long term bonds,when coupons are reinvested,what is the most important component of the bond's total return?
A)Coupon rate.
B)Interest-on-interest.
C)Yield to Maturity
D)Interest-on-principal.
Q3) The vast majority of corporate bonds pay floating rate interest on a quarterly basis.
A)True
B)False
Q4) A financial crisis or an accounting scandal can just as easily cause yield spreads to widen as weak earnings at a company.
A)True
B)False
Q5) Yield spreads vary inversely with the: ______________________________.
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Chapter 18: Bonds: Analysis and Strategy
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Q1) Holding maturity constant,a decrease in rates will raise bond prices on a percentage basis more than a corresponding increase in rates will lower bond prices.
A)True
B)False
Q2) Active bond management strategies include:
A)Forecasting changes in interest rates,identifying abnormal yield spreads between bond sectors,and identifying relative mispricing between fixed income securities.
B)Passive bond index investing.
C)Buy-and-hold bond investing.
D)Ladder investing.
Q3) A major advantage of bond index funds is their:
A)higher performance than regular bond funds.
B)ability to shelter income from taxes.
C)relatively low expense ratios.
D)all of the above are true.
Q4) Why are upward sloping yield curves more consistent with the usual risk-return tradeoff than downward sloping yield curves?
Q5) What are two passive management strategies? Two active strategies?
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Chapter 19: Options
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Sample Questions
Q1) Three types of equity securities derivatives are:
A)puts and calls created by corporations,and warrants created by investors.
B)puts and calls created by investors,and warrants created by corporations.
C)options,preferred stock,and commons stock created by corporations.
D)options,stock,and warrants,created by corporations.
Q2) ABC,which closed at $151,has call options trading in April,July,and October with the following values:
\[\begin{array} { l l l l c }
& & & \text {---- Calls----- } \\
\text { Options/Strike } & \text { April } & \text { July } & \text { October } \\
\mathrm { ABC } \quad\quad140 & 11 ^ { 1 / 4 } & 11 ^ { 3 / 4 } & 13 \\
151\quad\quad\quad 150 & 11 / 2 & 3 & 4 \\
151 \quad\quad\quad160 & 3 / 4 & 11 / 2 & 2
\end{array}\] (a)Calculate the intrinsic value of the April 150 call.
(b)Calculate the intrinsic value of the April 140 call.
(c)Should the price of ABC rise to $156,what is the minimum value that the April 150 call should trade at?
Q3) List five options exchanges.
Q4) What type of equity derivatives are created by corporations?
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Chapter 20: Futures
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Q1) The cumulative number of futures contracts that are not offset at any point in time is called:
A)margin.
B)open interest.
C)hedged position.
D)marked to the market position.
Q2) Investors in futures can take either a long,short,or neutral position.
A)True
B)False
Q3) An investor with a bond portfolio wishes to protect the value of his position by using futures contracts.This investor should use a A)long hedge.
B)short hedge.
C)time spread.
D)money spread.
Q4) What are the methods of settling a futures contract?
Q5) Are futures - commodity,interest-rate,stock-index,or currency - appropriate for most individual investors?
Q6) What is the difference between hedgers and speculators in the futures markets?
Q7) What is the role of the clearinghouse in futures trading?
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Chapter 21: Portfolio Management
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Q1) The stages of the life cycle for setting individual investment objectives are:
A)Accumulation Phase,Consolidation Phase,Retirement Phase,Estate Phase.
B)Accumulation Phase,Consolidation Phase,Retirement Phase,Gifting Phase.
C)Accumulation Phase,Consolidation Phase,Spending Phase,Retirement Phase,Gifting Phase.
D)Accumulation Phase,Consolidation Phase,Spending Phase,Gifting Phase.
Q2) What are some of the differences between individual investors and institutional investors?
Q3) Conservative retirees likely have ____ than they did early in their careers.
A)more small-cap stocks
B)more international stocks
C)fewer bonds
D)more bonds
Q4) The first step to establishing an investment policy is to state the
A)minimum investment and maximum fees.
B)SEC guidelines for prudent man investing.
C)objectives and constraints and preferences.
D)asset allocation parameters and time horizons.
Q5) Explain the life-cycle theory of portfolio policies.
Q6) What is the portfolio management process outlined by Maginn and Tuttle.
Page 23
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Chapter 22: Evaluation of Investment
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Q1) Which one of the following statements is true? Notation: RVAR: Sharpe's reward-to-variability measure
RVOL: Treynor's reward-to-volatility measure
A)RVOL is based on total risk while RVAR is based on systematic risk.
B)RVAR is based on total risk while RVOL is based on systematic risk.
C)RVAR is based on unsystematic risk while RVOL is based on systematic risk.
D)RVOL is based on systematic risk while RVAR is based on unsystematic risk.
Q2) Under Jensen's differential return approach to portfolio evaluation,superior market timing is exhibited by a
A)statistically significant positive alpha.
B)statistically significant negative alpha.
C)zero alpha.
D)low positive alpha.
Q3) Investors who have all their assets in one portfolio of securities should rely on the Sharpe measure rather than the Treynor measure.
A)True
B)False
Q4) How is regression analysis used to measure portfolio diversification?
Q5) What is performance attribution?
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