Finance Seminar
Exam Questions
Course Introduction
The Finance Seminar course is designed to engage students in advanced discussions of contemporary topics and research within the field of finance. Through a combination of guest lectures, case studies, and student-led presentations, participants explore key issues such as asset valuation, risk management, corporate finance strategies, market efficiency, and emerging trends in global financial markets. The seminar format encourages active participation, critical analysis, and collaborative problem-solving, providing students with opportunities to deepen their understanding of financial theory and practice while developing their analytical and communication skills.
Recommended Textbook
Analysis of Investments and Mangement of Portfolios International 10th Edition by Reilly
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Page 2
Chapter 1: An Overview of the Investment Process
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Sample Questions
Q1) Refer to Exhibit 1.7.Calculate the annual real rate of return for U.S.T-bills.
A) 2.26%
B) 1.81%
C) -0.5%
D) 1.05%
E) None of the above
Answer: D
Q2) Refer to Exhibit 1.2.What was your annual holding period yield?
A) -0.0466
B) -0.1333
C) 0.0333
D) 0.3534
E) 0.8667
Answer: A
Q3) The coefficient of variation is the expected return divided by the standard deviation of the expected return.
A)True
B)False
Answer: False
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Page 3
Chapter 2: The Asset Allocation Decision
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Sample Questions
Q1) Average tax rate is defined as total tax payment divided by total income.
A)True
B)False
Answer: True
Q2) Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.
A)True
B)False
Answer: True
Q3) Which of the following is <b>not </b>a typical portfolio constraint?
A) Liquidity needs
B) Risk tolerance
C) Time horizon
D) Tax concerns
E) Legal factors
Answer: B
Q4) The typical investor's goals rarely change during his/her lifetime.
A)True
B)False
Answer: False
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Chapter 3: The Global Market Investment Decision
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Sample Questions
Q1) A bond provision that specifies payments the issuer must make to redeem a given percentage of the outstanding issue prior to maturity is known as
A) Call provision
B) Indenture
C) Collateralization
D) Sinking fund
E) Collateral trust bond
Answer: D
Q2) The decrease in the standard deviation of returns after adding 40 to 50 securities within a country is known as domestic diversification.
A)True
B)False
Answer: True
Q3) Yields on money market funds are often lower than yields available to individuals investing in CD's because of the fees involved.
A)True
B)False
Answer: False
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Chapter 4: Securities Markets: Organization and Operation
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Sample Questions
Q1) A pure auction market is one in which
A) Dealers provide liquidity by buying and selling shares of stock for themselves.
B) Dealers compete against each other to provide the highest bid and lowest asking prices.
C) Buyers submit bid prices to sellers.
D) Sellers submit ask prices to buyers.
E) Buyers and sellers submit bid and ask prices to a central location to be matched.
Q2) An order that specifies the highest buy or lowest sell price is a
A) Limit order.
B) Short sale.
C) Market order.
D) Margin call.
E) Stop loss.
Q3) Short selling is practiced when an investor borrows part of the cost of the investment,e.g., they are "short" on cash.
A)True
B)False
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Chapter 5: Security-Market Indexes
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Sample Questions
Q1) Refer to Exhibit 5.2.Calculate a value weighted index for January 16th if the initial index value is 100.
A) 123.07
B) 100.00
C) 102.31
D) 111.54
E) None of the above
Q2) Index movements are influenced by differential prices of the components in a(n)
A) Equally-weighted index.
B) Price-weighted index.
C) Unweighted index.
D) Value-weighted index.
E) All of the above
Q3) Unlike the Dow Jones Industrial Average,the Nikkei-Dow Jones Average is price weighted.
A)True
B)False
Q4) The Standard & Poor's 500 index is an example of a value weighted index.
A)True
B)False
Page 7
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Chapter 6: Efficient Capital Markets
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Sample Questions
Q1) Recent studies indicate that due to lower transaction costs intraday patterns of returns and volume persisted and result in profitable momentum trading strategies.
A)True
B)False
Q2) Fusion investing is the integration of the following elements of investment valuation:
A) Fundamental value and investor sentiment.
B) Fads and fashions.
C) Technical analysis and investor sentiment.
D) Historical prices and returns.
E) Transaction costs and fundamental value.
Q3) Which of the following assumptions imply capital markets will be efficient?
A) A large number of independent profit-maximizing participants analyze securities.
B) New information regarding securities comes to the market in a random fashion.
C) Investors adjust security prices rapidly to reflect the effect of new information.
D) Both b and c only.
E) All of the above are assumptions that imply a market will be efficient.
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Chapter 7: An Introduction to Portfolio Management
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Sample Questions
Q1) Risk is defined as the uncertainty of future outcomes.
A)True
B)False
Q2) If the covariance of two stocks is positive,these stocks tend to move together over time.
A)True
B)False
Q3) Refer to Exhibit 7.14.What is the standard deviation of the stock A and B portfolio?
A) 0.0%
B) 0.5%
C) 4.1%
D) 6.9%
E) 20.3%
Q4) A basic assumption of the Markowitz model is that investors base decisions solely on expected return and risk.
A)True
B)False
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Chapter 8: An Introduction to Asset Pricing Models
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Sample Questions
Q1) A completely diversified portfolio would have a correlation with the market portfolio that is
A) Equal to zero because it has only unsystematic risk.
B) Equal to one because it has only systematic risk.
C) Less than zero because it has only systematic risk.
D) Less than one because it has only unsystematic risk.
E) Less than one because it has only systematic risk.
Q2) Tobin's separation theory states that the market is a separate investment from the risk-free security.
A)True
B)False
Q3) Refer to Exhibit 8.4.If the expected return on the market is 11.5% and the risk-free rate of return is 4.5%,then what are the required rates of return for stocks X,Y,and Z based on the CAPM?
    X    Y      Z
A) 4.8%  18.3% 16.9%
B) 7.2%  20.7%  22.3%
C) 10.7%  17.5%  14.4%
D) 10.1%  12.2%  19.2%
E) 11.1%  12.2%  21.3%
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Chapter 9: Multifactor Models of Risk and Return
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Sample Questions
Q1) The equation for the single-index market model is
A) RFR<sub>it</sub> = a<sub>i</sub> + bR<sub>mt</sub> + e<sub>t</sub>
B) R<sub>it</sub> = a<sub>i</sub> + bR<sub>mt</sub> + e<sub>t</sub>
C) R<sub>it</sub> = a<sub>i</sub> + bRFR<sub>t</sub> + e<sub>t</sub>
D) R<sub>mt</sub> = a<sub>i</sub> + bR<sub>it</sub> + e<sub>t</sub>
E) R<sub>it</sub> = a<sub>i</sub> + b(R<sub>mt </sub>- RFR<sub>t</sub>) + e<sub>t</sub>
Q2) Refer to Exhibit 9.2.Assume that you wish to create a portfolio with no net wealth invested.The portfolio that achieves this has 50% in stock X,-100% in stock Y,and 50% in stock Z.The weighted exposure to risk factor 2 for stocks X,Y,and Z are
A) 0.50, -1.0, 0.50
B) -0.50, 1.0, -0.50
C) 0.60, -0.85, 0.25
D) -0.275, 0.10, 0.175
E) None of the above.
Q3) Fama and French suggest a four factor model approach that explains many prior market anomalies.
A)True
B)False
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Page 11
Chapter 10: Analysis of Financial Statements
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Sample Questions
Q1) Refer to Exhibit 10.1.What was BMC'S quick ratio for 2004?
A) 1.72
B) 1.37
C) 1.02
D) 0.85
E) 0.55
Q2) Refer to Exhibit 10.2.What was Star's return on equity in 2004?
Q3) Free cash flow = Cash flow from operations - Capital expenditures + Disposition of property and equipment.
A)True
B)False
Q4) Cash flow from operations = Net Income + Non cash revenue and expensesChanges in net working capital.
A)True
B)False
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Chapter 11: Security Valuation Principles
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Sample Questions
Q1) Which of the following is <b>not</b> a consideration in the three-step valuation process?
A) Analysis of alternative economies
B) Analysis of security markets
C) Analysis of alternative industries
D) Analysis of individual companies
E) None of the above (that is, all are considerations in the three-step valuation process)
Q2) The value of preferred stock can be calculated by dividing its dividend by the required rate of return.
A)True
B)False
Q3) The growth rate in equity without any external financing is determined by multiplying the payout ratio times the return on equity (ROE).
A)True
B)False
Q4) An example of a relative valuation technique is the Price/Cash Flow ratio.
A)True
B)False
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Chapter 12: Macroanalysis and Microvaluation of the Stock Market
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Sample Questions
Q1) The growth rate (g)of dividends is affected by all of the following<b> except</b>
A) Required return
B) Retention rate
C) Total asset turnover
D) Financial leverage
E) Net profit margin
Q2) Estimating net profit margin directly is difficult because it is so volatile.
A)True
B)False
Q3) Which of the following economic series are included in the NBER coincident indicator group?
A) Employees on nonagricultural payrolls.
B) Change in consumer price index for services.
C) Index of consumer expectations.
D) Spread of 10-year Treasury yield less fed funds.
E) Index of stock prices.
Q4) Dividend growth is positively related to the return on equity.
A)True
B)False
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Chapter 13: Industry Analysis
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Sample Questions
Q1) A number of economic variables affect both the economy and industries.Which of the following statements is <b>false</b>?
A) Industries with high levels of operating and financial leverage should benefit from lower inflation rates.
B) Banks generally benefit from volatile interest rates, while stable interest rates reduce margins.
C) Consumers who are optimistic about the economy will spend money on high-priced items, such as autos and houses.
D) The abundance or scarcity of input components can affect the perceived attractiveness of an industry.
E) None of the above (that is, all are true statements)
Q2) Refer to Exhibit 13.1.Calculate industry total assets per share for the year 2004.
A) $450
B) $565.67
C) $513.58
D) $479.07
E) $385.77
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Page 15
Chapter 14: Company Analysis and Stock Valuation
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Sample Questions
Q1) A growth company is one whose stock is undervalued by the market.
A)True
B)False
Q2) Given Gitech's beta of 1.55 and a risk free rate of 8 percent,what is the expected rate of return assuming a 14 percent market return?
A) 12.4%
B) 14.3%
C) 17.3%
D) 20.4%
E) 29.7%
Q3) A firm's competitive strategy can be either defensive or offensive.
A)True
B)False
Q4) A speculative stock possesses a ____ probability of ____ return and is currently ____.
A) High, negative, underpriced.
B) High, negative, overpriced.
C) High, positive, overpriced.
D) Low, negative, overpriced.
E) Low, positive, underpriced.
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Chapter 15: Equity Portfolio Management Stragtegies
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Sample Questions
Q1) Style identification allows an investor to select investment managers that allow his overall portfolio to be properly diversified.
A)True
B)False
Q2) It does not make economic sense for portfolio managers to try to "time" between different investment styles.
A)True
B)False
Q3) The goal of a passive portfolio is to track the index as closely as possible.
A)True
B)False
Q4) Which of the following statements about investment style is <b>false</b>?
A) Growth stocks generally have smaller capitalizations than value stocks.
B) Value stocks have P/E and P/B ratios significantly lower than those of growth stocks.
C) Value stocks dividend yields are much higher than those of growth stocks.
D) Growth and levels of earnings is higher in growth stocks.
E) Value stocks have a higher risk premium.
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17
Chapter 16: Technical Analysis
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Sample Questions
Q1) The relative strength index for a stock is equal to the price of the stock
A) Divided by the value of a stock-market index.
B) Multiplied by the value of a stock-market index.
C) Divided by the value of a group of industry stocks.
D) Multiplied by an industry peer group and divided by a market index.
E) Divided by the 30 day moving average of prior stock movements.
Q2) The relative strength ratio for a stock can be computed by dividing the value of the S&P 500 stock index by the price of a stock.
A)True
B)False
Q3) The majority of technicians follows many trading rules and attempt to arrive at a consensus among their rules.
A)True
B)False
Q4) Most technicians feel that since price patterns repeat themselves,a single trading rule is sufficient.
A)True
B)False
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18
Chapter 17: Bond Fundamentals
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Sample Questions
Q1) When a borrower pledges financial assets as collateral for a bond it is called a(n)
A) Mortgage bond.
B) Equipment trust certificate.
C) Mortgage pass-through security.
D) Collateral trust bond.
E) Collateralized mortgage obligation (CMO).
Q2) The secondary bond market is significantly more active than the stock market.
A)True
B)False
Q3) Issues that provide funds to retire another issue early are known as
A) Bearer bonds
B) Secured debentures
C) Unsecured debentures
D) Revenue bonds
E) Refunding bonds
Q4) Government bond issues require an annual sinking fund payment of not less than one percent of the outstanding issue.
A)True
B)False
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Chapter 18: The Analysis and Valuation of Bonds
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Q1) Calculate the modified duration for a 10-year,12 percent bond with a yield to maturity of 10 percent and a Macaulay duration of 7.2 years.
A) 6.43 years
B) 6.55 years
C) 6.79 years
D) 6.86 years
E) 7.01 years
Q2) According to the segmented-market hypothesis a rising yield curve indicates that A) demand for long term bonds has fallen and demand for short term bonds has fallen.
B) demand for long term bonds has risen and demand for short term bonds has fallen.
C) demand for long term bonds has fallen and demand for short term bonds has risen.
D) demand for long term bonds has risen and demand for short term bonds has risen.
E) none of the above.
Q3) The lower a bond's yield to maturity,the greater its duration.
A)True
B)False
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Chapter 19: Bond Portfolio Management Strategies
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Q1) With a matched funding technique portfolio managers try to match specific liability obligations due at specific times to a portfolio of bonds that minimize the portfolio's interest rate risk.
A)True
B)False
Q2) Refer to Exhibit 19.8.Assume that your investment horizon is 6 years and your portfolio consists only of Bond C and Bond D.Indicate the proportions invested in each bond,so that the portfolio is immunized.
A) 50% in Bond C and 50% in Bond D
B) 64% in Bond C and 36% in Bond D
C) 36% in Bond C and 64% in Bond D
D) 100% in Bond D
E) None of the above
Q3) Credit analysis and core-plus management are examples of active bond portfolio management.
A)True
B)False
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Chapter 20: An Introduction to Derivative Markets and Securities
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Q1) Refer to Exhibit 20.5.If at expiration Peppy is selling for $42.00,what is Sarah's dollar gain or loss?
A) $420 gain
B) $420 loss
C) $475 loss
D) $475 gain
E) None of the above
Q2) The price paid for the option contract is referred to as the
A) Forward price.
B) Exercise price.
C) Striking price.
D) Option premium.
E) Call price.
Q3) Derivative securities can be used
A) By investors in the same way as the underlying security
B) To modify the risk and expected return characteristics of existing investment portfolios
C) To duplicate cash flow patterns for arbitrage opportunities
D) All of the above
E) None of the above
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Chapter 21: Forward and Futures Contracts
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Q1) In the absence of arbitrage opportunities,the forward contract price should be equal to the current price plus
A) Contract price.
B) The cost of carry.
C) Margin requirement.
D) The price discovery rate.
E) The convenience return.
Q2) Refer to Exhibit 21.5.Calculate the price of the futures contract now.
A) 1108.59
B) 1102.75
C) 1139.79
D) 1123.19
E) None of the above
Q3) Refer to Exhibit 21.11.Calculate the overall profit.
A) -$50,000
B) -$150,000
C) $50,000
D) $150,000
E) $550,000
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Page 23
Chapter 22: Option Contracts
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Q1) A price spread (or vertical spread)involves buying and selling an option for the same stock and expiration date but with different exercise prices.
A)True
B)False
Q2) It is always theoretically possible to use options as a perfect hedge against fluctuations in value of the underlying asset.
A)True
B)False
Q3) Stock options expire on the Sunday following the third Saturday of the designated month.
A)True
B)False
Q4) Refer to Exhibit 22.3.Calculate the price of the put option.
A) $1.086
B) $0.862
C) $6.234
D) $0.623
E) $2.317
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Page 24
Chapter 23: Swap Contracts,convertible Securities,and
Other Embedded Derivatives
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Q1) The minimum price of a convertible bond is
A) Min (Bond Value, Conversion Value).
B) Max (Bond Value, Conversion Value).
C) Min (Stock Value, Conversion Value).
D) Max (Stock Value, Conversion Value).
E) None of the above.
Q2) The following are all advantages of having an equity swap market <b>except</b>
A) These agreements allow investors to take advantage of overall price movements in a specific country's stock market.
B) Creating a direct equity investment in a foreign country may be difficult for some investors where it is prohibited by law.
C) These agreements eliminate the need for a counterparty because they are traded on the NYSE.
D) An investment fund wanting to accumulate foreign index returns denominated in their domestic currency may not be legally permitted to obtain sufficient exchange-traded derivative contracts to hedge a direct equity investment.
E) All of the above are advantages of an equity swap market
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Page 25
Chapter 24: Professional Money Management, alternative
Assets, and Industry Ethics
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Q1) The offering price for a share of a load fund equals the net asset value of the share. A)True
B)False
Q2) On January 2,2003,you invest $50,000 in the Lizbiz Mutual Fund,a load fund that charges a fee of 5%.The fund's returns were 14.6% in 2003,-6.4% in 2004,15.2% in 2005.On December 31,2005 you redeem all your shares.The dollar value is
A) $66,722.27
B) $15,200.00
C) $58,695.74
D) $33,366.25
E) $10,000.00
Q3) Management and advisory firms can advise clients on how to structure their own portfolios.
A)True B)False
Q4) An open-end investment company functions like any other public firm. A)True B)False
Page 26
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Chapter 25: Evaluation of Portfolio Performance
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Q1) The ranking differences between the Sharpe,Treynor and Jensen performance measures occur because of the differences in diversification.
A)True
B)False
Q2) Refer to Exhibit 25.4.Compute the Sharpe Measure for the AAA fund. A) 2.01
Q3) Refer to Exhibit 25.11.Based on the Sharpe Measure which portfolio preformed best?
A) A
B) B
C) C
D) D
E) Market
Q4) The Sharpe and Treynor measures always give different rankings.
A)True
B)False
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Chapter 26: Investment Return and Risk Analysis Questions
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Q1) Refer to Exhibit 1A.2.The standard deviation for project X is
A) -1.581 percent
B) 0.000 percent
C) 1.581 percent
D) 2.738 percent
E) 5.000 percent
Q2) An investment has a standard deviation of 12 percent and an expected return of 7 percent.What is the coefficient of variation for this investment?
A) 1.714
B) 1.372
C) 0.714
D) 0.583
E) 0.500
Q3) Refer to Exhibit 1A.1.The expected return from this investment is
A) -0.0752
B) -0.0040
C) 0.00
D) 0.0075
E) 0.4545
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Chapter 27: Investment and Retirement Plans
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Q1) Banks typically
A) Have low liquidity needs.
B) Face very few federal and state regulatory constraints.
C) Don't have to compete for funds.
D) Have high liquidity needs and a short time horizons constraint.
E) Low investment risk.
Q2) Banks typically have short-term investment horizons because
A) They have a strong need for liquidity.
B) They offer short-term deposit accounts.
C) They are required to by federal and state laws.
D) Choices a and b
E) All of the above
Q3) ____ are investment specialists that are responsible for managing the investments of others.There are often legal standards against which they must abide in the performance of their duties.
A) Underwriters
B) Investments bankers
C) Fiduciaries
D) Account executives
E) Trust officers
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Chapter 28: Calculating Covariance and Correlation
Coefficient of Assets
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Q1) Refer to Exhibit 3A.1.Calculate the coefficient of correlation.
A) -0.456
B) -0.354
C) 0.000
D) 0.456
E) 3.538
Q2) What is the correlation coefficient for two assets with a covariance of .0032,if asset 1 has a standard deviation of 12 percent and asset 2 has a standard deviation of 9 percent?
A) 0.2963
B) 0.3456
C) 0.8721
D) 1.5980
Q3) Refer to Exhibit 3A.1.Calculate the covariance.
A) -32.20
B) -23.32
C) 1.00
D) 23.32
E) 32.20
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Chapter 29: Portfolio Variance and Stock Weight
Calculations
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Sample Questions
Q1) Refer to Exhibit 7A.1.Show the minimum portfolio variance for a two stock portfolio when r<sub>1.2</sub> = 1.
A) E(?<sub>2</sub>) ¸ [E(?<sub>1</sub>) - E(?<sub>2</sub>)]
B) E(?<sub>2</sub>) ¸ [E(?<sub>1</sub>) + E(?<sub>2</sub>)]
C) E(?<sub>1</sub>) ¸ [E(?<sub>1</sub>) - E(?<sub>2</sub>)]
D) E(?<sub>1</sub>) ¸ [E(?<sub>1</sub>) + E(?<sub>2</sub>)]
E) None of the above
Q2) Refer to Exhibit 7A.1.What weight of security 1 gives the minimum portfolio variance when r<sub>1.2 </sub>= .60,E(?<sub>1</sub>)= .10 and E(?<sub>2</sub>)= .16?
A) .0244
B) .3679
C) .5697
D) .6309
E) .9756
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Chapter 30: Portfolio Optimization with Negative
Correlation: Finding Minimum Variance and Weight
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Sample Questions
Q1) Refer to Exhibit 7B.1.Show the minimum portfolio variance for a portfolio of two risky assets when r . = -1.
A) E( 1) ¸ [E( 1) + E( 2)]
B) E( 1) ¸ [E( 1) - E( 2)]
C) E( 2) ¸ [E( 1) + E( 2)]
D) E( 2) ¸ [E( 1) - E( 2)]
E) None of the above
Q2) Refer to Exhibit 7B.1.What is the value of W when r . = -1 and E(s )= .10 and E(s )= .12?
A) 45.46%
B) 50.00%
C) 59.45%
D) 54.55%
E) 74.55%
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