Introduction to Investments Exam Bank
Course Introduction
Introduction to Investments provides students with a foundational understanding of the principles and practices of investing. The course covers key topics such as types of financial securities (stocks, bonds, mutual funds, and derivatives), risk and return analysis, diversification, asset allocation, and portfolio management. Students will explore financial markets and instruments, learn about investment strategies, and examine factors influencing investment decisions. By emphasizing analytical tools and real-world case studies, the course equips students with the skills necessary to make informed investment choices and understand the dynamics of the investment environment.
Recommended Textbook Essentials of Investments 8th Edition by Zvi Bodie
Available Study Resources on Quizplus
22 Chapters
1830 Verified Questions
1830 Flashcards
Source URL: https://quizplus.com/study-set/3415
Page 2
Chapter 1: Investments: Background and Issues
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/67807
Sample Questions
Q1) The historical average rate of return on the large company stocks since 1926 has been
A) 5%
B) 8%
C) 12%
D) 20%
Answer: C
Q2) Security selection refers to _________.
A) choosing specific securities within each asset-class
B) deciding how much to invest in each asset-class
C) deciding how much to invest in the market portfolio versus the riskless asset
D) deciding how much to hedge
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Asset Classes and Financial Instruments
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/67808
Sample Questions
Q1) Which of the following are not characteristic of common stock ownership?
A) Residual claimant
B) Unlimited liability
C) Voting rights
D) Limited life of the security
Answer: B
Q2) A bond issued by the State of Alabama is priced to yield 6.25%.If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of _________.
A) 4.50%
B) 7.25%
C) 8.68%
D) none of the above
Answer: C
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Securities Markets
Available Study Resources on Quizplus for this Chatper
90 Verified Questions
90 Flashcards
Source URL: https://quizplus.com/quiz/67809
Sample Questions
Q1) Most European markets,including Euronext,use a/an _____________________.
A) specialist trading system
B) electronic trading system
C) continuous auction market
D) direct search market
Answer: B
Q2) Specialists try to maintain a narrow bid-ask spread because _______.
I.If the spread is too large they will not participate in as many trades,losing commission income
II.The exchange requires specialists to maintain price continuity
III.Specialists are non-profit entities designed to facilitate market transactions rather than make a profit
A) I only
B) I and II only
C) II and III only
D) I, II and III
Answer: B
To view all questions and flashcards with answers, click on the resource link above.
Page 5
Chapter 4: Mutual Funds and Other Investment Companies
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/67810
Sample Questions
Q1) You pay $21,600 to the Laramie Fund which has a NAV of $18.00 per share at the beginning of the year.The fund deducted a front-end load of 4%.The securities in the fund increased in value by 10% during the year.The fund's expense ratio is 1.3% and is deducted from year end asset values.What is your rate of return on the fund if you sell your shares at the end of the year?
A) 4.35%
B) 4.23%
C) 6.45%
D) 5.63%
Q2) In the 1970 study,Malkiel found that mutual funds that do well in one period,have an approximately ________ chance of doing well in the subsequent ear period.
A) 33%
B) 52%
C) 65%
D) 85%
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Risk and Return: Past and Prologue
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/67811
Sample Questions
Q1) During the 1926 to 2008 period the geometric mean return on Treasury bills was
A) 5.31%
B) 5.56%
C) 9.34%
D) 11.43%
Q2) In the mean-standard deviation graph,the line that connects the risk-free rate and the optimal risky portfolio,P,is called _________.
A) the capital allocation line
B) the indifference curve
C) the investor's utility line
D) the security market line
Q3) Treasury bills are paying a 4% rate of return.A risk averse investor with a risk aversion of A = 3 should invest in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ______.
A) 8.67%
B) 9.84%
C) 12.64%
D) 14.68%
To view all questions and flashcards with answers, click on the resource link above.
Page 7
Chapter 6: Efficient Diversification
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/67812
Sample Questions
Q1) Decreasing the number of stocks in a portfolio from 50 to 10 would likely
A) increase the systematic risk of the portfolio
B) increase the unsystematic risk of the portfolio
C) increase the return of the portfolio
D) decrease the variation in returns the investor faces in any one year
Q2) Which one of the following stock return statistics fluctuates the most over time?
A) Covariance of returns
B) Variance of returns
C) Average return
D) Correlation coefficient
Q3) The expected rate of return of a portfolio of risky securities is _________.
A) the sum of the securities' covariances
B) the sum of the securities' variances
C) the weighted sum of the securities' expected returns
D) the weighted sum of the securities' variances
To view all questions and flashcards with answers, click on the resource link above.
Chapter 7: Capital Asset Pricing and Arbitrage Pricing
Theory
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/182032
Sample Questions
Q1) According to the capital asset pricing model,a fairly priced security will plot
A) above the security market line
B) along the security market line
C) below the security market line
D) at no relation to the security market line
Q2) In his famous critique of the CAPM,Roll argued that the CAPM ______________.
A) is not testable because the true market portfolio can never be observed
B) is of limited use because systematic risk can never be entirely eliminated
C) should be replaced by the APT
D) should be replaced by the Fama French 3 factor model
Q3) According to the CAPM,what is the market risk premium given an expected return on a security of 13.6%,a stock beta of 1.2,and a risk free interest rate of 4.0%?
A) 4.0%
B) 4.8%
C) 6.6%
D) 8.0%
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: The Efficient Market Hypothesis
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/67814
Sample Questions
Q1) Fundamental analysis determines that the price of a firm's stock is too low,given its intrinsic value.The information used in the analysis is available to all market participants,yet the price does not seem to react.The stock does not trade on a major exchange.What concept might explain the ability to produce excess returns on this stock?
A) January effect
B) Neglected firm effect
C) P/E effect
D) Reversal effect
Q2) When the market risk premium rises,stock prices will ________.
A) rise
B) fall
C) recover
D) have excess volatility
Q3) Fundamental analysis is likely to yield best results for _______.
A) NYSE stocks
B) neglected stocks
C) stocks that are frequently in the news
D) fast growing companies
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Behavioral Finance and Technical Analysis
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/67815
Sample Questions
Q1) During a period when prices have been rising the _________ will be _______ the current price.
A) relative strength index; declining with B) relative strength index; declining faster than C) moving average; above D) moving average; below
Q2) Which of the following is not a sentiment indicator?
A) Confidence index
B) Short interest
C) Odd-lot trading
D) Put-call ratio
Q3) On a particular day,there were odd-lot sales of 830,000 on the NYSE and 746,000 odd-lot purchases.The odd-lot trading index is __________.
A) 0.43
B) 0.90
C) 0.77
D) 1.11
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Bond Prices and Yields
Available Study Resources on Quizplus for this Chatper
93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/182033
Sample Questions
Q1) Consider the liquidity preference theory of the term structure of interest rates.On average,one would expect investors to require _________.
A) a higher yield on short term bonds than long term bonds
B) a higher yield on long term bonds than short term bonds
C) the same yield on both short term bonds and long term bonds
D) the liquidity preference theory cannot be used to make any of the other statements.
Q2) To earn a high rating from the bond rating agencies,a company would want to have
I.a low times interest earned ratio
II.a low debt to equity ratio
III.a high quick ratio
A) I only
B) II and III only
C) I and III only
D) I, II and III
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Managing Bond Portfolios
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/67817
Sample Questions
Q1) Rank the interest sensitivity of the following from most sensitive to an interest rate change to the least sensitive.
I.8% coupon,noncallable 20 year maturity,par bond
II.9% coupon,currently callable 20 year maturity,premium bond
III.Zero coupon,30 year maturity bond
A) I, II, III
B) II, III, I
C) III, I, II
D) III, II, I
Q2) A fixed income portfolio manager sets a minimum acceptable rate of return on the bond portfolio at 5% per year over the next 4 years.The portfolio is currently worth $10 million.One year later interest rates are at 6%.What is the portfolio value trigger point at this time that would require him to immunize the portfolio?
A) $12,155,063
B) $10,205,625
C) $9,627,948
D) $10,500,000
To view all questions and flashcards with answers, click on the resource link above. Page 13
Chapter 12: Macroeconomic and Industry Analysis
Available Study Resources on Quizplus for this Chatper
89 Verified Questions
89 Flashcards
Source URL: https://quizplus.com/quiz/67818
Sample Questions
Q1) An example of a highly cyclical industry is _________.
A) the automobile industry
B) the tobacco industry
C) the pharmaceutical industry
D) the utility industry
Q2) Characteristics 4 and 5 would indicate that the industry is in the _________ stage.
A) start-up
B) consolidation
C) maturity
D) relative decline
Q3) Firm A produces gadgets.The price of gadgets is $2 each.Firm A has total fixed costs of $1,000,000 and variable costs of $1.00 per gadget.The corporate tax rate is 40%.If the economy is strong,the firm will sell 2,000,000 gadgets.If the economy enters a recession it will sell only half as many gadgets.If the economy enters a recession,the after-tax profit of Firm A will be _________.
A) $0
B) $90,000
C) $180,000
D) $270,000
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Equity Valuation
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/182038
Sample Questions
Q1) Sanders,Inc.,paid a $4.00 dividend per share last year and is expected to continue to pay out 60% of its earnings as dividends for the foreseeable future.If the firm is expected to generate a 13% return on equity in the future,and if you require a 15% return on the stock,the value of the stock is _________.
A) $26.67
B) $35.19
C) $42.94
D) $59.89
Q2) Value stocks are more likely to have a PEG ratio _____.
A) less than one
B) equal to one
C) greater than one
D) less than zero
Q3) Brevik Builders has an expected ROE of 25%.Its dividend growth rate will be __________ if it follows a policy of paying 30% of earning in the form of dividends.
A) 5.0%
B) 15.0%
C) 17.5%
D) 45.0%
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Financial Statement Analysis
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/67820
Sample Questions
Q1) The highest possible value for the interest burden ratio is ______ and this occurs when the firm _________.
A) 0; uses as much debt as possible
B) 1; uses debt to the point where ROA = interest cost of debt
C) 1; uses no interest bearing debt
D) -1; pays down its existing debts
Q2) What is the net cash provided by operating activities of Haven Hardware?
A) ($30,000)
B) $220,000
C) $320,000
D) $780,000
Q3) A firm has a ROE of 20% and a market-to-book ratio of 2.38.Its P/E ratio is
A) 8.40
B) 11.90
C) 17.62
D) 47.60
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Options Markets
Available Study Resources on Quizplus for this Chatper
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/67821
Sample Questions
Q1) Which of the following strategies makes a profit if the stock price declines and loses money when the stock price increases?
A) Long call and short put
B) Long call and long put
C) Short call and short put
D) Short call and long put
Q2) Which one of the following is the ticker symbol for the CBOE option contract on the S&P100 index?
A) SPX
B) DJX
C) CME
D) OEX
Q3) Exercise prices for listed stock options usually occur in increments of ____,and bracket the current stock price.
A) $1
B) $5
C) $20
D) $25
To view all questions and flashcards with answers, click on the resource link above. Page 17
Chapter 16: Option Valuation
Available Study Resources on Quizplus for this Chatper
85 Verified Questions
85 Flashcards
Source URL: https://quizplus.com/quiz/67822
Sample Questions
Q1) If you know that a call option will be profitably exercised then the Black-Scholes model price will simplify to _______.
A) S<sub>0</sub> - X
B) X - S<sub>0</sub>
C) S<sub>0</sub> - PV(X)
D) PV(X) - S<sub>0</sub>
Q2) The price of a stock put option is __________ correlated with the stock price and __________ correlated with the exercise price.
A) negatively; negatively
B) negatively; positively
C) positively; negatively
D) positively; positively
Q3) The delta of a put option on a stock is always __________.
A) between zero and -1
B) between -1 and 1
C) positive but less than 1
D) greater than 1
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Futures Markets and Risk Management
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/67823
Sample Questions
Q1) The time on Friday with simultaneous expirations of S&P index futures,S&P index options and options on some individual stocks is commonly called the _______.
A) mad minute
B) double-witching hour
C) happy hour
D) triple-witching hour
Q2) The price of a corn futures contract is $2.65 per bushel when the contract is issued and the commodity spot price is $2.55.When the contract expires,the two prices are identical.What principle is represented by this price behavior?
A) Convergence
B) Margin
C) Basis
D) Volatility
Q3) Margin requirements for futures contracts can be met by ______________.
A) cash only
B) cash or highly marketable securities such as Treasury bills
C) cash or any marketable securities
D) cash or warehouse receipts for an equivalent quantity of the underlying commodity
To view all questions and flashcards with answers, click on the resource link above.
Chapter 18: Portfolio Performance Evaluation
Available Study Resources on Quizplus for this Chatper
87 Verified Questions
87 Flashcards
Source URL: https://quizplus.com/quiz/67824
Sample Questions
Q1) The appraisal ratio is equal to the stock's ____ divided by its ______.
A) diversifiable risk; beta
B) beta; alpha
C) alpha; beta
D) alpha; diversifiable risk
Q2) What phrase might be used as a substitute for the Treynor-Black model developed in 1973?
A) Solely active management
B) Enhanced index approach
C) Passive management
D) Random selection
Q3) An attribution analysis will NOT likely contain which of the following components?
A) Asset allocation
B) Index returns
C) Risk free returns
D) Security selection
To view all questions and flashcards with answers, click on the resource link above. Page 20
Chapter 19: Globalization and International Investing
Available Study Resources on Quizplus for this Chatper
70 Verified Questions
70 Flashcards
Source URL: https://quizplus.com/quiz/67825
Sample Questions
Q1) After one year,the exchange rate is unchanged and the share price is 55.What is the pound-denominated return?
A) 14%
B) 10%
C) 9.3%
D) 7.1%
Q2) The risk free rate in the US is 2.5% and the risk free rate in Europe is 3.2%.If the spot rate of dollars per euro is 1.32,what is the likely forward rate in terms of dollars per euro?
A) 1.30
B) 1.31
C) 1.32
D) 1.33
Q3) Generally speaking,countries with ______ capitalization of equities have ________.
A) larger; higher GDP
B) smaller; wealthier
C) larger; smaller GDP
D) larger; higher growth countries
To view all questions and flashcards with answers, click on the resource link above.
21
Chapter 20: Hedge Funds
Available Study Resources on Quizplus for this Chatper
60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/67826
Sample Questions
Q1) The fastest growing category of hedge funds are feeder funds.These funds invest in ________.
A) other hedge funds
B) convertible securities and preferred stock
C) equities and bonds
D) managed futures and options
Q2) According to research conducted by Hasanhodic and Lo (2007),average returns of equity hedge funds are __________ the S&P 500 index.
A) equal to
B) considerably higher than
C) slightly lower than
D) slightly higher than
Q3) You believe that the spread between the September S&P 500 future and S&P 500 index is too large and will soon correct.This is an example of ______________.
A) pairs trading
B) convergence play
C) statistical arbitrage
D) long/short equity hedge
To view all questions and flashcards with answers, click on the resource link above.
22
Chapter 21: Taxes,inflation,and Investment Strategy
Available Study Resources on Quizplus for this Chatper
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/67827
Sample Questions
Q1) A saver who expects to have a higher tax rate after retirement would prefer a ______.
A) Roth IRA
B) traditional IRA
C) 401k plan
D) 403b plan
Q2) No taxes are paid on withdrawals made during retirement from a _________.
A) traditional IRA
B) Roth IRA
C) 401k
D) 403b plan
Q3) How many years of Social Security contributions count for determination of benefits?
A) 25
B) 35
C) 45
D) All yearly contributions count
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Investors and the Investment Process
Available Study Resources on Quizplus for this Chatper
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/67828
Sample Questions
Q1) When used in the context of investment decision making,the term "liquidity" refers to
A) the ease and speed with which an asset can be sold at any value possible
B) the ease and speed with which an asset can be sold without having to discount the value
C) an aspect of monetary policy
D) the proportion of short-term to long-term investments held in an investor's portfolio
Q2) A life insurance firm wants to minimize its interest rate risk and it is planning on paying out $250,000 in five years.Which one of the following investments best matches its goal?
A) High yield utility stocks
B) 5-year zero coupon bonds
C) 10-year coupon bonds
D) Money market investments rolled over as needed
Q3) Earnings on variable life and universal life insurance policies are ___________.
A) never taxed
B) taxed only at the capital gains tax rate
C) not taxed until the money is withdrawn
D) not taxed at the federal level but are taxed at the state level
To view all questions and flashcards with answers, click on the resource link above.
Page 24