Finance Seminar
Mock Exam
Course Introduction
The Finance Seminar is an advanced course designed to deepen students' understanding of key financial theories, practices, and emerging trends within the field. Through a series of interactive discussions, case studies, guest lectures, and research presentations, students explore topics such as corporate finance, investment analysis, financial markets, risk management, and global economic issues. Emphasis is placed on critical thinking, problem-solving, and applying financial concepts to real-world scenarios, preparing students for professional roles and further academic research in finance.
Recommended Textbook
Investment Analysis and Portfolio Management 1st Canadian Edition by Frank K. Reilly
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1829 Verified Questions
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Page 2
Chapter 1: The Investment Setting
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Sample Questions
Q1) The uncertainty of investment returns associated with how a firm finances its investments is known as
A) Business risk.
B) Liquidity risk.
C) Exchange rate risk.
D) Financial risk.
E) Market risk.
Answer: D
Q2) Measures of risk for an investment include
A) Variance of returns and business risk
B) Coefficient of variation of returns and financial risk
C) Business risk and financial risk
D) Variance of returns and coefficient of variation of returns
E) All of the above
Answer: D
Q3) The risk premium is a function of the volatility of operating earnings, sales volatility and inflation.
A)True
B)False
Answer: False
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Chapter 2: The Asset Allocation Decision
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Sample Questions
Q1) Which of the following is not considered to be an investment objective?
A) Capital preservation
B) Capital appreciation
C) Current income
D) Total return
E) None of the above (that is, all are considered investment objectives)
Answer: E
Q2) Asset allocation is the process of dividing funds into different classes of assets.
A)True
B)False
Answer: True
Q3) Which of the following strategies seeks to increase the portfolio value by reinvesting current income in addition to capital gains?
A) Capital appreciation
B) Capital preservation
C) Return preservation
D) Current income
E) Total return
Answer: D
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Page 4
Chapter 3: Selecting Investments in a Global Market
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Sample Questions
Q1) Which of the following are reasons that Canadian investors should consider foreign markets when constructing global portfolios?
A) Ignoring foreign markets reduced their choices of investment opportunities.
B) Foreign markets have low correlations with Canadian markets.
C) Returns on non-Canadian stocks can substantially exceed returns for Canadian securities.
D) All of the above.
E) None of the above.
Answer: D
Q2) Income bonds are considered as safe as debentures because they pay higher rates of interest.
A)True
B)False
Answer: False
Q3) Subordinated bondholders have claim to the assets of the firm only after the firm has satisfied the claims of all senior secured and debenture bondholders.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Securities Markets and the Economy
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Sample Questions
Q1) Refer to Exhibit 4-7. At the end of one year shares of RossCorp stock are selling for $55 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock?
A) 18.08%
B) 23.51%
C) 22.32%
D) 14.96%
E) 19.28%
Q2) Refer to Exhibit 4-8. What is your annual rate of return on this investment?
A) 18%
B) 24%
C) 25%
D) 36%
E) 37%
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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6
Chapter 5: Efficient Capital Markets
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Sample Questions
Q1) Refer to Exhibit 5-4. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)?
A) 3.34
B) 1.75
C) -1.75
D) -3.70
E) -1.70
Q2) Studies of the relationship between P/E ratios and stock returns have found that
A) Low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
B) Low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks.
C) High P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
D) High P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks.
E) None of the above.
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Chapter 6: An Introduction to Portfolio Management
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Sample Questions
Q1) The expected return and standard deviation of a portfolio of risky assets is equal to the weighted average of the individual asset's expected returns and standard deviation.
A)True
B)False
Q2) You are given a two-asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be ____ and the expected portfolio standard deviation would be ____.
A) Nonlinear, elliptical
B) Nonlinear, circular
C) Linear, elliptical
D) Linear, circular
E) Circular, elliptical
Q3) Assuming that everyone agrees on the efficient frontier (given a set of costs), there would be consensus that the optimal portfolio on the frontier would be where the ratio of return per unit of risk was greatest.
A)True
B)False
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Chapter 7: Asset Pricing Models: Capm and Apt
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Sample Questions
Q1) The APT does not require a market portfolio.
A)True
B)False
Q2) Refer to Exhibit 7-4. Which of the following statements is correct?
A) Stocks X, Y, and Z are undervalued.
B) Stocks X, Y and Z are overvalued.
C) Stocks X and Y are overvalued and stock Z is undervalued.
D) Stocks X and Y are undervalued and stock Z is overvalued.
E) Stocks X, Y, and Z are all properly valued.
Q3) Calculate the expected return for B Services which has a beta of 0.83 when the risk free rate is 0.05 and you expect the market return to be 0.12.
A) 14.96%
B) 16.15%
C) 10.81%
D) 17.00%
E) 15.25%
Q4) Studies have shown the beta is more stable for portfolios than for individual securities.
A)True
B)False
Page 9
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Chapter 8: Economic and Industry Analysis
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Sample Questions
Q1) The micro approach to estimating the industry multiple would entail examining specific variables such as: return on equity, earnings growth, and profit margin trend.
A)True
B)False
Q2) A number of economic variables affect both the economy and industries. Which of the following statements is false?
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)
Q3) Structural changes do have a cyclical pattern.
A)True
B)False
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10
Chapter 9: Company Analysis and Stock Valuation
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Sample Questions
Q1) In Berkshire Hathoway annual reports, Warren Buffet highlights financial tenants that he believes are important. Which of the following is not a financial tenant of Warren Buffet?
A) Focus on return on equity (ROE) not earnings per share (EPS).
B) Calculate owner earnings similar to free cash flow after capital expenditures.
C) High profit margins relative to the industry.
D) Company should create at least one dollar of market value for every dollar retained.
E) All of the above are financial tenants of Warren Buffet.
Q2) Given Birdchip's beta of 1.25 and a risk free rate of 6%, what is the expected rate of return assuming a 12% market return?
A) 1%
B) 10%
C) 11%
D) 12%
E) 31%
Q3) The best known measure of relative value for common stock is the P/E ratio.
A)True
B)False
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11
Chapter 10: Technical Analysis
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Sample Questions
Q1) Based on the daily closings for the S&P/TSX Composite Index given in the table below, calculate a four-day moving average for Day 4. \[\begin{array} { c c }
\text { Day } & \text { Price } \\
\hline 1 & 10500 \\
2 & 10025 \\
3 & 10125 \\
4 & 10210
\end{array}\]
A) 10,500
B) 10,210
C) 10,215
D) 10,000
E) 11,000
Q2) A narrowing of the T-bill-Eurodollar and __________ signal, because ___________.
A) Bearish, it signals falling investor confidence
B) Bullish, it signal rising investor confidence
C) Bearish, it signals a flight to quality
D) Bullish, it signals a flight to quality
E) None of the above.
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Page 12
Chapter 11: Bond Fundamentals
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Sample Questions
Q1) When a fixed income security is being traded but the issuer is not meeting interest payments it is trading
A) Stamped.
B) Registered.
C) Flat.
D) Round.
E) No accrual.
Q2) When a fixed income security is being traded at the price above its face value it is trading
A) At a discount.
B) At par.
C) At a premium.
D) Flat.
E) No accrual.
Q3) All U.S. municipalities are required to buy insurance when they issue bonds.
A)True
B)False
Q4) High-yield bonds are considered "investment" grade.
A)True
B)False
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Chapter 12: The Analysis and Valuation of Bonds
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Sample Questions
Q1) The yield to call is a more conservative yield measure whenever the price of a callable bond is quoted at a value
A) Equal to or greater than par plus one year's interest.
B) Equal to par.
C) Equal to par less one year's interest.
D) Less than par.
E) Five percent over par.
Q2) Refer to Exhibit 12-2. If interest rates increase 50 basis points, what will be the approximate price change for the Talmart bond?
A) -17.0%
B) -1.7%
C) 1.7%
D) 1.8%
E) 17.0%
Q3) An interest rate is the price of loanable funds.
A)True
B)False
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Chapter 13: An Introduction to Derivative Markets and Securities
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Sample Questions
Q1) Forward and future contracts, as well as options, are types of derivative securities.
A)True
B)False
Q2) In the forward market both parties are required to post collateral or margin.
A)True
B)False
Q3) A portfolio containing a share of stock and a put option will have the same value as a portfolio containing a call option and the risk-free discount bond.
A)True
B)False
Q4) Refer to Exhibit 13-5. If at expiration Peppy is selling for $47.00, what is Sarah's dollar gain or loss?
A) $25 loss
B) $250 loss
C) $25 gain
D) $250 gain
E) None of the above
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Chapter 14: Derivatives: Analysis and Valuation
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Sample Questions
Q1) A real option is a reference to
A) Options on physical assets.
B) Options on commodity futures.
C) The value of flexibility embedded in a real asset.
D) Choices a and b.
E) Choices b and c.
Q2) The intrinsic value of a warrant = (Market price of common stock + Warrant exercise price) ´ Number of shares specified by warrant.
A)True
B)False
Q3) Index options are settled by delivery of the stocks that make up the index. A)True
B)False
Q4) Refer to Exhibit 14-1. Use the Black-Scholes option pricing model to calculate the price of a call option.
A) $5.19
B) $4.35
C) $3.93
D) $6.19
E) $8.17
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Chapter 15: Equity Portfolio Management Strategies
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Sample Questions
Q1) A fundamental tenet of the contrarian investment strategy is the notion that
A) All stock returns are mean reverting.
B) Certain stocks outperform others during different stages of the business cycle.
C) Value stock investing is superior to growth stock investing.
D) Growth stock investing is superior to value stock investing.
E) None of the above.
Q2) A contrarian investment strategy is based on the belief that
A) Stock returns are mean reverting.
B) The best time to buy is when other investors are bullish.
C) Rising stocks will continue to rise.
D) Passive management is preferred to active management.
E) A long/short portfolio will outperform a long only portfolio.
Q3) Refer to Exhibit 15-1. The recommended portfolio for Tom Luck is
A) Portfolio A because it has expected utility of 9.95
B) Portfolio A because it has expected utility of 4.5
C) Portfolio B because it has expected utility of 5.33
D) Portfolio B because it has expected utility of 7.27
E) Portfolio C because it has expected utility of 6.75
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Chapter 16: Bond Portfolio Management Strategies
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Sample Questions
Q1) Refer to Exhibit 16-3. The interest on one coupon for the candidate bond is
A) $2.40
B) $2.75
C) $9.60
D) $11.00
E) $50.00
Q2) A substitution pickup swap involves swapping out of a
A) Bond to realize capital losses, into a comparable bond.
B) Low coupon bond, into a comparable high coupon bond.
C) High coupon bond, into a comparable low coupon bond.
D) Bond that is underpriced, into a comparable bond that is overpriced.
E) Bond that is overpriced, into a comparable bond that is underpriced.
Q3) Which of the following is a matched funding technique?
A) Classical immunization
B) Contingent immunization
C) Bond swaps
D) Valuation analysis
E) Interest rate anticipation
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18
Chapter 17: Professional Money Management, Alternative
Assets, and Industry Ethics
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Sample Questions
Q1) Which of the following is not an example of an alternative asset class?
A) Hedge funds
B) Private equity
C) Real estate
D) Commodities
E) All of the above are examples of alternative asset classes.
Q2) Which of the following is a characteristic of hedge funds?
A) They are generally less restricted in how and where they can make investments.
B) They are more liquid than mutual fund shares.
C) They have no limitations on when and how often investment capital can be contributed or removed.
D) All of the above.
E) None of the above.
Q3) An open-end investment company is commonly referred to as a(n)
A) Balanced fund.
B) Mutual fund.
C) Money market fund.
D) Accessible fund.
E) Unit trust.
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Chapter 18: Evaluation of Portfolio Performance
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Sample Questions
Q1) Sharpe's performance measure divides the portfolio's risk premium by the
A) Standard deviation of the rate of return.
B) Variance of the rate of return.
C) Slope of the fund's characteristic line.
D) Beta.
E) Risk free rate.
Q2) A negative Treynor measure (negative T) for a portfolio always indicates that the portfolio would plot below the SML.
A)True
B)False
Q3) Investors want their portfolio managers to completely diversify their portfolio, that is, eliminate all systematic risk.
A)True
B)False
Q4) The portfolio performance measure that can be most affected by a benchmark error is the Sharpe measure.
A)True
B)False
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Chapter 19: Analysis of Financial Statements
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Sample Questions
Q1) It is important to compare a firm's performance relative to: the aggregate economy, its industry, its major competitors and its past performance.
A)True
B)False
Q2) Which of the following is not a flow ratio?
A) Interest coverage
B) Fixed charge coverage
C) Debt/equity
D) Cash flow/long term debt
E) Cash flow/total debt
Q3) Refer to Exhibit 19-1. What was BMC's interest coverage for 2009?
A) 6.82
B) 3.04
C) 2.74
D) 2.04
E) 1.41
Q4) Financial ratios are used in stock and bond valuation models.
A)True
B)False
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Chapter 20: An Introduction to Security Valuation
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Sample Questions
Q1) In 2009, Venus Fly Co. issued a $75 par value preferred stock which pays a 7% annual dividend. Due to changes in the overall economy and in the company's financial condition investors are now requiring a 5% return. What price would you be willing to pay for a share of the preferred if you receive your first dividend one year from now?
A) $125
B) $84
C) $91
D) $145
E) $105
Q2) Refer to Exhibit 20-8. Assume that the annual dividend grows at a constant rate of 9% indefinitely instead of the supernormal growth. How much is the stock worth if dividends grow annually at 9%?
A) $40.00
B) $43.60
C) $45.60
D) $47.80
E) $52.40
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Chapter 21: Web Appendix: A Review of Statistics and the
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Sample Questions
Q1) The standard deviation of your expected return from this investment is
A) 0.001
B) 0.004
C) 0.124
D) 1.240
E) None of the above
Q2) The coefficient of variation of this investment is
A) -0.06
B) -0.65
C) 6.60
D) 16.53
E) 165.10
Q3) 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
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Sample Questions
Q1) The standard deviation of your expected return from this investment is
A) 0.001
B) 0.004
C) 0.124
D) 1.240
E) None of the above
Q2) The expected return from this investment is
A) -0.0752
B) -0.0040
C) 0.00
D) 0.0075
E) 0.4545
Q3) The coefficient of variation of this investment is
A) -0.06
B) -0.65
C) 6.60
D) 16.53
E) 165.10
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Chapter 23: Appendix: Objectives and Constraints of Institutional Investors
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Sample Questions
Q1) _________ 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
Q2) Banks face regulatory constraints at both the state and federal level.
A)True
B)False
Q3) Cash flows for nonlife insurance companies, such as property and casualty, are similar to cash flows of life insurance companies.
A)True
B)False
Q4) Banks have high liquidity needs and therefore, have a short time horizon.
A)True
B)False
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