Investment Analysis
Exam Bank
Course Introduction
Investment Analysis is a foundational course that explores the principles, techniques, and tools used to evaluate various investment opportunities in financial markets. Students learn how to analyze stocks, bonds, mutual funds, and other securities, developing skills in risk assessment, portfolio construction, asset valuation, and performance measurement. The course covers both fundamental and technical analysis, efficient market theory, and introduces concepts such as diversification, asset allocation, and behavioral finance. By the end of the course, students will be equipped to make informed investment decisions and understand contemporary issues affecting global financial markets.
Recommended Textbook Fundamentals of Investments 8th Edition by Bradford
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Page 2
Jordan
Chapter 1: A Brief History of Risk and Return
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Sample Questions
Q1) One year ago,you purchased 300 shares of stock at a cost of $6,000.The stock paid an annual dividend of $1.10 per share.Today,you sold those shares for $22.50 each.What is the capital gains yield on this investment?
A) 9.96 percent
B) 10.52 percent
C) 12.50 percent
D) 13.81 percent
E) 14.75 percent
Answer: C
Q2) You purchased a stock eight months ago for $36 a share.Today,you sold that stock for $41.50 a share.The stock pays no dividends.What was your annualized rate of return?
A) 23.32 percent
B) 24.77 percent
C) 25.70 percent
D) 26.03 percent
E) 27.67 percent
Answer: A
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3
Chapter 2: The Investment Process
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Sample Questions
Q1) You recently purchased 200 shares of stock at a cost per share of $32.50.The initial margin requirement on this stock is 75 percent and the maintenance margin is 50 percent.The stock is currently valued at $35.00 a share.What is your current margin position? Ignore margin interest.
A) 73.01 percent
B) 73.83 percent
C) 74.95 percent
D) 75.69 percent
E) 76.79 percent
Answer: E
Q2) An investor with a long position in a security will make money:
A) if the price of the security increases.
B) if the price of the security declines.
C) if the price of the security remains stable.
D) only if the security has been purchased on margin.
E) only by shorting the security.
Answer: A
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Chapter 3: Overview of Security Types
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Sample Questions
Q1) What is the current price of a $1,000 face value Alpha Industrial bond?
A) $986.67
B) $991.04
C) $994.02
D) $998.23
E) $1,000.00
Answer: C
Q2) Which one of the following is the best definition of a money market instrument?
A) corporate debt that matures in 90 days or less
B) bank savings account
C) investment issued by a financial institution that matures in 30 days or less
D) investment issued by a financial institution that matures in one year or less
E) debt issued by the government or a corporation that matures in one year or less
Answer: E
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Chapter 4: Mutual Funds and Other Investment Companies
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Sample Questions
Q1) Trading symbols for mutual funds end in which letter?
A) M
B) F
C) X
D) Z
E) Q
Q2) A tax exempt money market fund has an annual return of 3.76 percent.What is your equivalent taxable rate if you are in a 28 percent marginal tax bracket?
A) 3.15 percent
B) 3.38 percent
C) 5.22 percent
D) 6.11 percent
E) 6.81 percent
Q3) A 12b-1 fee is a fee charged by a mutual fund:
A) at the time shares are issued.
B) if shares are sold within a stated period of time.
C) to cover trading costs.
D) to pay the fund's managers.
E) to cover marketing costs.
Q4) Which type of investor is most apt to purchase municipal bond funds and why?
Page 6
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Chapter 5: The Stock Market
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Sample Questions
Q1) The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:
A) underwriting.
B) capitalizing.
C) securing.
D) brokering.
E) deploying.
Q2) NASDAQ dealers post which one of the following in addition to their bid and ask prices?
A) commission rates
B) front-end load charges
C) number of shares they will commit to buy or sell
D) total trades for the day
E) trading fees
Q3) Stock market indexes:
A) are all computed using the same methodology.
B) all react the same to a change in the price of a particular stock.
C) all cover the same market sectors.
D) are all price-weighted.
E) vary in the type of stocks included.
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Chapter 6: Common Stock Valuation
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Sample Questions
Q1) Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually.The discount rate is 15 percent.What will the value of this stock be 5 years from today?
A) $6.96
B) $7.04
C) $7.10
D) $7.18
E) $7.25
Q2) America Boats plans to pay a $2.10 a share dividend at the end of each of the next 2 years.At the end of year 3,it will pay a final liquidating dividend of $13 a share.After that,the company plans to close its doors permanently.What is the current value of this stock at a discount rate of 12 percent?
A) $9.89
B) $10.26
C) $11.54
D) $12.80
E) $13.50
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8
Chapter 7: Stock Price Behavior and Market Efficiency
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Sample Questions
Q1) You analyze a firm's financial statements and invest based upon the results of this analysis.Which form of market efficiency must exist if you are able to earn excess profits on these investments?
A) weak-form
B) historical-form
C) semi-strong form
D) full-form
E) mild-form
Q2) Which one of the following returns is computed as the observed return minus the expected return?
A) visible
B) distinct
C) abnormal
D) subjective
E) efficient
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Chapter 8: Behavioral Finance and the Psychology of Investing
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Sample Questions
Q1) A survey of 55 of your fellow classmates determines that 16 of them are bullish on the market while the remainder is bearish.What is the market sentiment index for this group of individuals?
A) 0.28
B) 0.33
C) 0.44
D) 0.61
E) 0.71
Q2) Peter hesitates when it comes to picking an individual stock to purchase as he feels that he will later realize that a different stock would have been a better investment.Peter is suffering from:
A) money illusion.
B) frame dependence.
C) regret aversion.
D) risk-taking.
E) mental accounting.
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Chapter 9: Interest Rates
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Sample Questions
Q1) Which one of the following features applies to a U.S.Treasury bill?
A) U.S. agency debt
B) pure discount security
C) taxable at the state level
D) semi-annual interest payments
E) annual interest payments
Q2) You want to earn a real rate of return of 4.00 percent at a time when the inflation rate is 2.05 percent.What is the approximate nominal rate which you must earn?
A) 5.75 percent
B) 5.95 percent
C) 6.05 percent
D) 6.15 percent
E) 6.25 percent
Q3) Which one of the following best describes a real interest rate?
A) current rate on a U.S. Treasury bill
B) nominal rate minus the risk-premium on an individual security
C) market return minus the risk-free rate
D) nominal rate minus inflation
E) historical rate rather than a projected rate
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Chapter 10: Bond Prices and Yields
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Sample Questions
Q1) Which combination of bond characteristics causes a bond to be most sensitive to changes in market interest rates?
I.low coupon rates
II.high coupon rates
III.short time to maturity
IV.long time to maturity
A) III only
B) I and III only
C) I and IV only
D) II and III only
E) II and IV only
Q2) You own a bond that pays semiannual interest payments of $38.The bond is callable in 2 years at a premium of $76.What is the callable bond price if the yield to call is 7.9 percent?
A) $995.46
B) $1,016.86
C) $1,059.64
D) $1,124.87
E) $1,220.87
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Chapter 11: Diversification and Risky Asset Allocation
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Sample Questions
Q1) You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities.Which one of the following statements is correct regarding this graph?
A) Risk-taking investors should select the minimum variance portfolio.
B) Risk-averse investors should select the portfolio with the lowest rate of return.
C) Some portfolios will be efficient while others will not.
D) The minimum variance portfolio will have the lowest portfolio expected return of any of the possible portfolios.
E) All possible portfolios will graph as efficient portfolios.
Q2) If the future return on a security is known with absolute certainty,then the risk premium on that security should be equal to:
A) zero.
B) the risk-free rate.
C) the market rate.
D) the market rate minus the risk-free rate.
E) the risk-free rate plus one-half the market rate.
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Chapter 12: Return,Risk,and the Security Market Line
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Sample Questions
Q1) The risk-free rate is 4.0 percent and the expected return on the market is 8 percent.Stock A has a beta of 1.35.For a given year,Stock A returned 12.0 percent while the market returned 8.80 percent.The systematic portion of Stock A's unexpected return was ________ percent and the unsystematic portion was ________ percent.
A) 0.80; 1.30
B) 0.90; 1.40
C) 1.08; 1.52
D) 1.40; 0.90
E) 4.62; 1.41
Q2) A stock has a beta of 1.58 and an expected return of 16.2 percent.The risk-free rate is 3.8 percent.What is the market risk premium?
A) 7.85 percent
B) 10.01 percent
C) 11.72 percent
D) 12.50 percent
E) 13.40 percent
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Chapter 13: Performance Evaluation and Risk Management
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Sample Questions
Q1) A fund has an alpha of 0.73 percent and a tracking error of 4.9 percent.What is the fund's information ratio?
A) 0.112
B) 0.135
C) 0.149
D) 0.208
E) 0.229
Q2) A portfolio has an average return of 12.4 percent,a standard deviation of 15.8 percent,and a beta of 1.35.The risk-free rate is 2.6 percent.What is the Sharpe ratio?
A) 0.49
B) 0.52
C) 0.62
D) 0.71
E) 0.75
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Page 15
Chapter 14: Futures Contracts
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Sample Questions
Q1) You own a 6-month futures contract on U.S.Treasury notes.The underlying notes have a duration of 3.87 years.What is the duration of the futures contract?
A) 3.37 years
B) 3.67 years
C) 3.87 years
D) 4.12 years
E) 4.37 years
Q2) Which one of the following is a contract managed by an organized exchange that allows a buyer and seller to agree on a price today for an exchange of goods that will occur sometime in the future?
A) futures contract
B) spot market
C) cash market
D) forward contract
E) discounted contract
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Chapter 15: Stock Options
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Sample Questions
Q1) Which one of the following is a bull call spread?
A) buying a $30 call and selling a $35 call on the same stock
B) selling a $30 call and buying a $35 call on the same stock
C) buying a $30 call and selling a $25 call on the same stock
D) selling a $30 call and buying a $35 put
E) buying a $30 call and selling a $35 put
Q2) Which of the following issue exchange-listed option contracts?
I.CBOE
II.SEC
III.OCC
IV.NASDAQ
A) III only
B) IV only
C) I and III only
D) II and IV only
E) I, II, and III only
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Chapter 16: Option Valuation
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Sample Questions
Q1) A stock is currently priced at $44 a share while the $45 call option is priced at $1.22.The call option delta is 0.86.What is the approximate call price if the stock increases in value to $45?
A) $0.12
B) $0.26
C) $0.96
D) $1.98
E) $2.08
Q2) Stock prices and call option prices are:
A) unrelated.
B) negatively correlated.
C) directly related.
D) perfectly related.
E) inversely related.
Q3) Which option price(s)will increase when the interest rate increases?
A) both the call and put
B) call only
C) put only
D) neither the call nor the put
E) Answer cannot be determined from the information provided.
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Chapter 17: Projecting Cash Flow and Earnings
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Q1) Pro forma financial statements are statements based on which one of the following?
A) projected future income, cash flows, and other non-cash items
B) historical revenue and expenses
C) historical asset and liability values
D) current period cash flows
E) current period revenues and expenses
Q2) A firm has total equity of $61,600 and total liabilities of $18,900.Current assets are $44,700 and current liabilities are $15,200.What is the value of the net fixed assets?
A) $8,300
B) $10,600
C) $29,500
D) $35,800
E) $42,700
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Chapter 18: Corporate and Government Bonds
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Sample Questions
Q1) Which one of the following terms is defined as debt issued without specific collateral pledged as security?
A) unsecured debt
B) indenture
C) vanilla bond
D) naked bond
E) risk-free bond
Q2) Which of the following are common characteristics associated with corporate bonds?
I.specified cash flows
II.equity ownership
III.call feature
IV.set maturity date
A) I and II only
B) I and IV only
C) II and III only
D) I, II, and IV only
E) I, III, and IV only
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Chapter 19: Global Economic Activity and Industry Analysis
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Q1) If the nominal GDP was reported at $141.8 billion and real GDP was reported at $138.4 billion,what was the inflation rate for the period?
A) 1.54%
B) 1.92%
C) 2.46%
D) 2.67%
E) 2.81%
Q2) You invest $50,000 in Germany when the exchange rate is $1.35/ .Your investment gains 13%,and you subsequently exchange the euros back into dollars at a rate of $1.40/ .What is your total percentage return on this investment?
A) 16.48%
B) 16.89%
C) 17.19%
D) 17.35%
E) 17.85%
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Chapter 20: Mortgage-Backed Securities
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Q1) After month 30,assuming that prepayments remain within the PAC collar,the holders of a PAC bond will receive which one of the following payments?
A) a fixed principal payment only
B) a fixed interest payment only
C) a fixed principal payment plus a declining interest payment
D) a declining principal payment only
E) a declining principal payment and a declining interest payment
Q2) A mortgage pool is divided into A,B,C,and Z-tranches based on the textbook example.Which tranche will have the longest life?
A) A-tranche
B) B-tranche
C) C-tranche
D) Z-tranche
E) All tranches will have equal lives.
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