Finance Seminar
Textbook Exam Questions
Course Introduction
The Finance Seminar course offers an in-depth exploration of advanced topics in financial theory and practice, emphasizing current trends, real-world case studies, and emerging issues within the financial sector. Through interactive seminar sessions, students critically analyze and discuss subjects such as corporate finance, investment strategies, risk management, financial markets, and ethical considerations. Students engage with research articles, guest lectures from industry experts, and collaborative projects, developing the analytical, presentation, and research skills essential for careers or further study in finance.
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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Q1) Refer to Exhibit 1.2.What was your annual holding period return?
A) 0.8667
B) -0.1333
C) 0.0333
D) 0.9534
E) -0.0466
Answer: D
Q2) Refer to Exhibit 1.7.Compute the rate of inflation for the year 2009.
A) 2.42%
B) 4.0%
C) 1.69%
D) 1.24%
E) None of the above
Answer: A
Q3) The holding period return (HPR)is equal to the holding period yield (HPY)stated as a percentage.
A)True
B)False
Answer: False
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Page 3
Chapter 2: The Asset Allocation Decision
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Q1) For an investor with a time horizon of 15 years and moderate risk tolerance,an appropriate asset allocation strategy would be
A) 100% stocks
B) 40% cash and 60% stocks
C) 30% cash, 50% bonds, and 20% stocks
D) 50% bonds, and 50% stocks
E) 20% bonds, and 80% stocks
Answer: E
Q2) What would the after-tax yield be on an investment that offers a 6 percent fully taxable yield? Assume a marginal tax rate of 31%.
A) 2.79%
B) 6.48%
C) 4.14%
D) 7.20%
E) 12.50%
Answer: C
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4
Chapter 3: The Global Market Investment Decision
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Q1) In order to diversify risk an investor must have investments that have correlations with other investments in the portfolio that are
A) low positive
B) zero
C) negative
D) any of the above
E) none of the above
Answer: D
Q2) 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
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Page 5
Chapter 4: Securities Markets: Organization and Operation
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Sample Questions
Q1) Refer to Exhibit 4.6.Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price.What is your rate of return on the investment? (Assume a 1.25% commission on the purchase.)
A) -40.64%
B) -25.53%
C) 5.21%
D) 72.7%
E) -71.2%
Q2) Refer to Exhibit 4.4.What is your rate of return on the investment?
A) 10.48%
B) 12.87%
C) 13.98%
D) 15.49%
E) 18.87%
Q3) A good secondary market is important to the efficiency of the primary market.
A)True B)False
Q4) Margin transaction involves borrowing part of the cost of an investment. A)True B)False
6
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Chapter 5: Security-Market Indexes
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Sample Questions
Q1) The Value Line Composite Average is calculated using the ____ of percentage price changes.
A) arithmetic average
B) harmonic average
C) expected value
D) geometric average
E) logarithmic average
Q2) Which of the following is <b>not</b> a U.S.investment-grade bond index?
A) Merrill Lynch
B) Ryan Treasury
C) Salomon Brothers
D) Lehman Brothers
E) None of the above (that is, all are U.S. investment-grade bond indexes)
Q3) A properly selected sample for use in constructing a market indicator series will consider the sample's source,size and
A) Breadth.
B) Average beta.
C) Value.
D) Variability.
E) Dividend record.
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Chapter 6: Efficient Capital Markets
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Q1) Refer to Exhibit 6.4.What is the abnormal rate of return for Stock B during period t using only the aggregate market return (ignore differential systematic risk)?
A) 0.40
B) 1.40
C) -1.10
D) -4.40
E) -6.40
Q2) Refer to Exhibit 6.2.What is the abnormal rate of return for Stock ABC when you consider its systematic risk measure (beta)?
A) 2.4%
B) 1.5%
C) -1.5%
D) 2.0%
E) -3.2%
Q3) There is empirical evidence that low P/E stocks have outperformed high P/E stocks for some historical time periods.
A)True
B)False
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Chapter 7: An Introduction to Portfolio Management
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Q1) Consider two securities,A and B.Security A and B have a correlation coefficient of 0.65.Security A has standard deviation of 12,and security B has standard deviation of 25.Calculate the covariance between these two securities.
A) 300
B) 461.54
C) 261.54
D) 195
E) 200
Q2) For a two stock portfolio containing Stocks i and j,the correlation coefficient of returns (r )is equal to the square root of the covariance (cov ).
A)True
B)False
Q3) When assessing the risk impact of adding a new security to a portfolio,it is necessary to consider the
A) New securities variance
B) Variance of every security in the portfolio
C) Weight of every security in the portfolio
D) Average covariance of the new security with every security in the portfolio
E) All of the above
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Chapter 8: An Introduction to Asset Pricing Models
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Sample Questions
Q1) Your broker has advised you that he believes that the stock of Brat Inc.is going to rise from $20 to $22.15 per share over the next year.You know that the annual return on the S&P 500 has been 11.25% and the 90-day T-bill rate has been yielding 4.75% per year over the past 10 years.If beta for Brat is 1.25,will you purchase the stock?
A) Yes, because it is overvalued
B) No, because it is overvalued
C) No, because it is undervalued
D) Yes, because it is undervalued
E) Yes, because the expected return equals the estimated return
Q2) The standard deviation for the risk-free security is equal to zero.
A)True
B)False
Q3) If you borrow money at the RFR and invest the money in the market portfolio,the rate of return on your portfolio will be higher than the market rate of return.
A)True
B)False
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Chapter 9: Multifactor Models of Risk and Return
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Sample Questions
Q1) Under the following conditions,what are the expected returns for stocks X and Y?
\[\begin{array} { l l }
\lambda ^ { 0 } = 0.04 & b _ { x , 1 } = 1.2 \\
k _ { 1 } = 0.035 & b _ { x , 7 } = 0.75 \\
k _ { \mathbf { z } } = 0.045 & b _ { z , 1 } = 0.65 \\ & b _ { z , z } = 1.45
\end{array}\]
A) 11.58% and 12.8%
B) 15.65% and 18.23%
C) 13.27% and 15.6%
D) 18.2% and 16.45%
E) None of the above
Q2) Refer to Exhibit 9.2.The expected prices one year from now for stocks X,Y,and Z are
A) $53.55, $54.4, $55.25
B) $45.35, $54.4, $55.25
C) $55.55, $56.35, $57.15
D) $50, $50, $50
E) $51.35, $47.79, $51.58.
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Chapter 10: Analysis of Financial Statements
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Q1) Refer to Exhibit 10.2.What was Star's current ratio at year-end 2004?
A) 1.59
B) 1.00
C) 0.82
D) 0.74
E) 0.33
Q2) Refer to Exhibit 10.9.Calculate the return on equity (ROE).
A) 31.3%
B) 23.2%
C) 18.4% D) 13.2%
E) 7.5%
Q3) Inventory turnover,net fixed asst turnover and equity turnover are measures of operating efficiency.
A)True
B)False
Q4) Financial ratios can be used to estimate systematic risk.
A)True
B)False
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Chapter 11: Security Valuation Principles
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Sample Questions
Q1) Refer to Exhibit 11.6.The future price of the stock in year 5 is
A) $113.40
B) $122.47
C) $132.27
D) $142.85
E) $154.35
Q2) The infinite period dividend discount model (DDM)can be used to value a supernormal growth company.
A)True
B)False
Q3) Refer to Exhibit 11.3.What will be the value of these securities in one year if the required return declines to 8 percent?
A) $899.43
B) $862.50
C) $869.88
D) $918.93
E) $946.98
Q4) The risk premium is impacted by business risk,financial risk,and liquidity risk.
A)True
B)False
Page 13
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Chapter 12: Macroanalysis and Microvaluation of the Stock Market
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Q1) It is important to analyze the economies and security markets before analyzing alternative industries or companies.
A)True
B)False
Q2) Changes in the dividend payout ratio are positively related to changes in the retention rate.
A)True
B)False
Q3) There is a negative relationship between the capacity utilization rate and the profit margin.
A)True
B)False
Q4) Which of the following variables was considered <b>not</b> significant in explaining stock returns?
A) Industrial production
B) Changes in the risk premium
C) Consumption
D) Twists in the yield curve
E) Inflation
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Chapter 13: Industry Analysis
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Q1) Refer to Exhibit 13.4.Calculate the intrinsic value of the Furniture Manufacturing Industry today.
A) $573
B) $596
C) $900
D) $936
E) $989
Q2) The capital goods industry typically outperforms other sectors during a recession.
A)True
B)False
Q3) Assuming the U.S.dollar is strong relative to the Euro,it will be easier for the U.S.paper industry to export to Germany.
A)True
B)False
Q4) When considering inputs,you would evaluate an industry's prospects based on those of its raw material suppliers,labor force,etc.
A)True
B)False
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Chapter 14: Company Analysis and Stock Valuation
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Sample Questions
Q1) What is the implied growth duration of Jones Industries given the following: \(\begin{array}{lcc}
& \text { SEP Industrials } & \text { Jones Industries } \\
\text { P/E Ratios } & 12 & 15 \\
\text { Average Growth (\%) } & 6.0 & 10.0 \\
\text { Dividend Yield } & .05 & .03 \end{array}\)
A) 7.2 years
B) 10.9 years
C) 12.5 years
D) 13.9 years
E) 15.2 years
Q2) Refer to Exhibit 14.10.What is Left-Aid Corporation's expected sustainable growth rate?
A) 11.9%
B) 18.7%
C) 22.1%
D) 27.7%
E) 30.0%
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16
Chapter 15: Equity Portfolio Management Stragtegies
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Sample Questions
Q1) In returns-based style analysis a coefficient of determination of 95% would suggest that
A) The portfolio manager outperformed 95% of his peers.
B) The portfolio manager was outperformed by 95% of his peers.
C) 95% of the portfolio return variability could be attributed to portfolio style.
D) 95% of the portfolio return variability could be attributed to stock selection skills.
E) 5% of the portfolio return variability could be attributed to portfolio style.
Q2) An active portfolio manager sold $90 million of stocks in a year.If the portfolio had an average value of $110 million in assets under management what is the portfolio turnover ratio?
A) 22.2%
B) 81.8%
C) 90.0%
D) 110.0%
E) 122.2%
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Chapter 16: Technical Analysis
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Q1) Which of the following is <b>not</b> considered an assumption of technical analysis?
A) Market value is determined solely by supply and demand.
B) Supply and demand are governed by both rational and irrational factors.
C) Security prices tend to move in trends that persist for an appreciable length of time.
D) Stock prices follow a random walk.
E) Changes in trend are caused by the shifts in supply and demand relationships.
Q2) A technical analyst might use credit balances in brokerage accounts as follows:
A) Sell stock when credit balances rise
B) Buy stock when credit balances rise
C) Sell stock when credit balances decline
D) b and c
E) None of the above
Q3) An increase in debit balances in brokerage accounts is viewed by technicians as a bullish sign.
A)True
B)False
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Chapter 17: Bond Fundamentals
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Q1) Which of the following statements is <b>not</b> true regarding bond ratings?
A) The ratings assigned are meant to indicate the probability of default for the bond issuer.
B) The bonds assigned one of the top four rating classes are considered investment grade bonds.
C) Once a rating is assigned to an issue it cannot be changed for the first two years after which it is reviewed on a regular basis.
D) Bonds rated BB and below are referred to as high yield or "junk" bonds.
E) The rating agencies modify the ratings with + and - signs or numbers after the letters.
Q2) You purchase a 9 3/4s February $10,000 par Treasury Note at 101:11 and hold it for exactly one year at which time you sell it.What is your rate of return if your selling price is 101:17?
A) 8.14%
B) 8.75%
C) 9.75%
D) 9.81%
E) 10.47%
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Page 19
Chapter 18: The Analysis and Valuation of Bonds
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Q1) Suppose the current 7 year rate is 8% and the current 6 year rate is 6%.What is the one year forward rate for six years?
A) 16.33%
B) 18.22%
C) 20.82%
D) 14.65%
E) 15.14%
Q2) An interest rate is the price of loanable funds.
A)True
B)False
Q3) Which of the following is <b>not</b> a risk premium component of bonds?
A) Bond quality
B) Term to maturity of the bond
C) Indenture provisions
D) Foreign bond risk
E) All of the above are risk premium components of bonds.
Q4) For a given change in yield bond price volatility is inversely related to term to maturity.
A)True
B)False
Page 20
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Chapter 19: Bond Portfolio Management Strategies
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Sample Questions
Q1) An example of an active strategy for bond management would be
A) Buy and hold.
B) Credit analysis.
C) Indexing.
D) Classical immunization.
E) Horizon matching.
Q2) Refer to Exhibit 19.7.Calculate the value of swap out of Bond A into Bond B.
A) 0.41%
B) 1.73%
C) 0.23%
D) 0.00%
E) 0.51%
Q3) Horizon matching is a combination of
A) Cash-matching dedication and interest rates swaps.
B) Cash-matching dedication and immunization.
C) Interest rate swaps and immunization.
D) Enhanced indexing and immunization.
E) Enhanced indexing and interest rate swaps.
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Chapter 20: An Introduction to Derivative Markets and Securities
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Q1) In the two state option pricing model,which of the following does <b>not </b>influence the option price?
A) Past stock price
B) Up and down factors u and d
C) The risk free rate
D) The exercise price
E) Current stock price
Q2) Refer to Exhibit 20.2.Calculate the current value of one contract.
A) $100,000
B) $103,600.5
C) $103,187.5
D) $102,306.3
E) $104,293.5
Q3) Which of the following statements is </b>true</b>?
A) The buyer of a futures contract is said to be long futures.
B) The seller of a futures contract is said to be short futures.
C) The seller of a futures contract is said to be long futures.
D) The buyer of a futures contract is said to be short futures.
E) Choices a and b
Page 22
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Chapter 21: Forward and Futures Contracts
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Q1) Refer to Exhibit 21.11.Assume that a month later the equity portfolio has a market value of $9,500,000 and the stock index future is priced at 1300 with a multiplier of 250.Calculate the profit on the equity position.
A) $100,000
B) $200,000
C) -$200,000
D) -$500,000
E) -$600,000
Q2) Refer to Exhibit 21.5.If the futures contract was currently available for 1050,indicate the appropriate strategy that would earn an arbitrage profit.
A) Long futures, and short the index.
B) Short futures and long the index.
C) Long futures and long the index.
D) Short futures and short the index.
E) None of the above.
Q3) In the cost of carry model the inclusion of storage costs will increase the futures price.
A)True
B)False
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Page 23
Chapter 22: Option Contracts
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Q1) Risk management is the driving force behind the futures options market.
A)True
B)False
Q2) Refer to Exhibit 22.5.Estimate n,the number of call options that must be written.
A) -1.4286
B) -2.9286
C) -2.8571
D) -2.5714
E) -1.1111
Q3) If the hedge ratio is 0.50,this indicates that the portfolio should hold
A) Two shares of stock for every call option written.
B) One share of stock for every two call options written.
C) Two shares of stock for every call option purchased.
D) One share of stock for every two call options purchased.
E) Two call options for every put option written.
Q4) Credit risk in the options market is only a concern to the option seller.
A)True
B)False
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Chapter 23: Swap Contracts,convertible Securities,and
Other Embedded Derivatives
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Q1) The common stock of BioTech Industries pays a dividend of $1 per share and has a current market price of $27 per share.The convertible bond is selling for $1100.The payback or breakeven time for the bond is
A) 1.75 years.
B) 2.89 years.
C) 3.20 years.
D) 3.60 years.
E) 4.32 years.
Q2) Refer to Exhibit 23.10.Suppose that 3-month LIBOR is 4.0% on the rate determination day,and the contract specified settlement in arrears at month 6,describe the transaction that occurs between the dealer and TexMex.
A) The dealer is obligated to pay TexMex $61,881.
B) The dealer is obligated to pay TexMex $61,500.
C) TexMex is obligated to pay the dealer $247,524.
D) TexMex is obligated to pay the dealer $246,000.
E) None of the above
Q3) Forward rate agreements usually require substantial collateral.
A)True
B)False
Page 25
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Chapter 24: Professional Money Management, alternative
Assets, and Industry Ethics
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Q1) In the case of private management firms
A) Investors deal with a fund company and do not have separate accounts tailored to their specific needs.
B) Investors deal with a fund company and have separate accounts tailored to their specific needs.
C) Investors deal with an asset manager and do not have separate accounts tailored to their specific needs.
D) Investors deal with an asset manager have separate accounts tailored to their specific needs.
E) None of the above.
Q2) Open-end and closed-end investment companies are similar in that both companies will repurchase shares on demand.
A)True
B)False
Q3) The offering price for a share of a load fund equals the net asset value of the share.
A)True
B)False
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Chapter 25: Evaluation of Portfolio Performance
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Q1) The typical proxy for the market portfolio is the S&P 500 Index because it is diversified and price weighted.
A)True
B)False
Q2) In the evaluation of bond portfolio performance,the analysis effect refers to
A) The difference in portfolio duration and index duration.
B) The extra return attributable to acquiring bonds that are temporarily mispriced relative to risk.
C) Short-run changes in the portfolio during a specific period.
D) The differential return from changing duration of the portfolio during a specific period.
E) None of the above
Q3) In evaluating bond performance,the Lehman Brothers Index is an appropriate risk measure.
A)True
B)False
Q4) Treynor's performance measure implicitly assumes a completely diversified portfolio.
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.1.The coefficient of variation of this investment is
A) -0.06
B) -0.65
C) 6.60
D) 16.53
E) 165.10
Q2) 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
Q3) Refer to Exhibit 1A.1.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
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Chapter 27: Investment and Retirement Plans
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Q1) The retirement plan that promises to pay a specific benefit to its beneficiaries is
A) A defined contribution plan.
B) A defined benefit pension plan.
C) A non-contribution pension plan.
D) An actuarial pension plan.
E) Supplemental Retirement Account (SRA).
Q2) Endowment funds
A) Are formed from the contributions to charitable and educational institutions.
B) Are attractive investments for individuals with low liquidity needs.
C) Usually have very short investment horizons.
D) Provide retirement benefits for public employees.
E) Provide death benefits for its contributor's survivors.
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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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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Q1) 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
Q2) 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
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Chapter 30: Portfolio Optimization with Negative
Correlation: Finding Minimum Variance and Weight
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Source URL: https://quizplus.com/quiz/24349
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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