Investment Analysis
Exam Review
Course Introduction
Investment Analysis explores the fundamental principles and techniques used to evaluate different investment opportunities, including stocks, bonds, mutual funds, and alternative investments. The course covers topics such as risk and return, portfolio theory, asset valuation, financial markets, and security analysis. Students learn to assess market trends, perform quantitative analysis, and make informed investment decisions using real-world data and financial tools. By the end of the course, students will be equipped with the critical skills needed to analyze investment options and construct diversified portfolios that meet specific financial goals.
Recommended Textbook Fundamentals of Investing 11th Edition by Lawrence
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15 Chapters
1588 Verified Questions
1588 Flashcards
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Page 2
J. Gitman
Chapter 1: The Investment Environment
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76 Verified Questions
76 Flashcards
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Sample Questions
Q1) Which of the following is an example of a tangible asset.
A) Bonds
B) mutual funds
C) real estate
D) stocks
Answer: C
Q2) Jobs in which of the following fields require an understanding of the investment environment?
I.Commercial banking.
II.Corporate finance.
III.Financial planning.
IV.Insurance.
A) I and IV only
B) I, II and IV only
C) II, III and IV only
D) I, II, III and IV
Answer: D
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Page 3
Chapter 2: Securities Markets and Transactions
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Jim purchased 100 shares of stock at a price of $32 a share.He utilized his 80% margin account to make the purchase.What is Jim's initial equity in this investment?
A) -$640
B) $640
C) $2,560
D) $3,200
Answer: C
Q2) The price an individual investor will pay to purchase a stock in the OTC market is the A) spread.
B) ask price.
C) bid price.
D) broker price.
Answer: B
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Page 4
Chapter 3: Investment Information and Securities
Transactions
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Holding securities in street name
A) makes the trading of securities easier and more efficient for individual investors.
B) allows the brokerage firm to sell securities without the customers approval.
C) enables the brokerage firm to collect the stock dividends as compensation for their services.
D) means that the brokerage firm actually owns the securities.
Answer: A
Q2) America Online, Yahoo! Finance and the Motley Fool are all classified as
A) subscription services.
B) comparative data sources.
C) financial portals.
D) institutional news sites.
Answer: C
Q3) A stop-loss order is activated once the stock reaches the specified price.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Return and Risk
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108 Flashcards
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Sample Questions
Q1) The holding period return should not be used when analyzing investments with unequal holding periods.
A)True
B)False
Q2) Most investors are risk-seeking.
A)True
B)False
Q3) A capital loss is computed by
A) subtracting the original cost of an investment from the proceeds received from the sale of that investment minus any income from the investment.
B) subtracting the original cost of an investment from the proceeds received from the sale of that investment plus any income from the investment.
C) subtracting the proceeds received from the sale of an investment from the original cost of the investment.
D) subtracting the original cost of an investment from the proceeds received from the sale of that investment.
Q4) Explain the similarities and differences between the holding period return and the internal rate of return.
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Chapter 5: Modern Portfolio Concepts
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Sample Questions
Q1) When the Capital Asset Pricing Model is depicted graphically, the result is the
A) standard deviation line.
B) coefficient of variation line.
C) security market line.
D) alpha-beta line.
Q2) Analysts commonly use the ________ to measure market return.
A) the Dow Jones Industrial Average
B) the rate of return on 10 year Treasury bonds
C) some large, mainstream company such as General Electric
D) the Standard & Poors 500 Index
Q3) Explain what beta measures and how investors can use beta.
Q4) The beta of the market is
A) -1.0.
B) 0.0.
C) 1.0.
D) undefined.
Q5) A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.
A)True
B)False
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Chapter 6: Common Stocks
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116 Flashcards
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Sample Questions
Q1) Different classes of stock generally have either different voting rights or different dividends.
A)True
B)False
Q2) Over the long term, the capital gain on most stocks will exceed the dividend income.
A)True
B)False
Q3) Stock which has been issued and subsequently reacquired by the issuing corporation is called
A) letter stock.
B) treasury stock.
C) classified stock.
D) book stock.
Q4) A stock's market value would normally be higher than it's book value.
A)True
B)False
Q5) The technology bubble of the 1990s lasted about 18 months.
A)True
B)False
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Chapter 7: Analyzing Common Stocks
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Banks can use the times interest earned ratio as a measure of a borrower's ability to repay their loan.
A)True
B)False
Q2) For a company to remain in business for the long term, cash flow from operations must generally be a positive number.
A)True
B)False
Q3) The PEG ratio
A) preferred by investors is equal to 2.0 or higher.
B) compares the price/earnings ratio to the rate of growth of the company's earnings.
C) is a measure of a firm's liquidity.
D) measures the ability of a firm's assets to generate growth for the firm.
Q4) A comparison of a firm's current financial ratios to those of prior years allows one to
A) accurately predict the future performance of a firm.
B) see how a firm's performance compares to that of a competitor.
C) see trends that are developing.
D) determine if the firm is performing better than the overall industry.
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Page 9
Chapter 8: Stock Valuation
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) The common stock of Peachtree Paper, Inc., is currently selling for $40 a share.A dividend of $2.00 per share was just paid.You are estimating that this dividend will grow at a constant rate of 10%.
(a)Using the constant growth DVM model, what is your required rate of return if $40 is a reasonable trading price? (Show all work.)
(b)If Peachtree Papers is a new company that produces a relatively unknown product, is the constant growth model a good valuation method for a potential investor to use?
Justify your answer.
Q2) The intrinsic value of a stock provides a purchase price for the stock
A) that is reasonable given the associated level of risk.
B) which will assuredly yield the anticipated capital gain.
C) which will guarantee the expected rate of return.
D) that is always below the market value but yet yields the expected rate of return.
Q3) Higher rates of growth and lower debt levels contribute to higher P/E ratios.
A)True
B)False
Q4) How can you determine the current value of a non-dividend paying stock?
Q5) Explain how the time value of money concept is used in stock valuation.
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Chapter 9: Market Efficiency, Behavioral Finance, and Technical Analysis
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Investors who live in cities with NFL teams should be especially happy when their team wins the Super Bowl.
A)True
B)False
Q2) Technical analysis is used for which of the following purposes?
I.Deciding when to enter the market.
II.Deciding whether to sell a stock.
III.Deciding which stocks to buy.
IV.Deciding whether basic economic conditions are favorable for investing.
A) I and II only
B) II and III only
C) I, II and III only
D) I, II, III and IV
Q3) One type of chart designed to keep track of emerging price patterns which has no time dimension and uses a series of X's and O's is known as a
A) bear-and-bull chart.
B) point-and-figure chart.
C) peak-and-trough chart.
D) flagged movement chart.
11
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Chapter 10: Fixed-Income Securities
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) As investors approach retirement age, they should hold more bonds and less stock.
A)True
B)False
Q2) An increase in the market rate of return on an outstanding bond will
A) increase the coupon rate.
B) decrease the coupon rate.
C) increase the bond price.
D) decrease the bond price.
Q3) Bonds are typically a good investment choice for an individual who is seeking long-term preservation of capital.
A)True
B)False
Q4) A note is generally defined as debt with an initial term to maturity of A) zero to two years.
B) one year or less.
C) two to ten years.
D) ten to thirty years.
Q5) Define zero-coupon bonds and list some advantages and some disadvantages of these instruments.
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Chapter 11: Bond Valuation
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112 Flashcards
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Sample Questions
Q1) The risk premium component of a bond's market interest rate is related to the characteristics of the particular bond and its issuer.
A)True
B)False
Q2) The price of a bond with an 8% coupon rate paid semi-annually and a par value of $1,000, and fifteen years to maturity is the present value of
A) 15 payments of $40 at 6 month intervals plus $1,000 received at the end of the fifteenth year.
B) 15 payments of $80 at 6 month intervals plus $1,000 received at the end of the fifteenth year.
C) 30 payments of $40 at 6 month intervals plus $1,000 received at the end of the fifteenth year.
D) 30 payments of $80 at 1 year intervals plus $1,000 received at the end of the 30th year.
Q3) According to the expectations hypothesis, if investors anticipate higher rates of inflation in the future, the yield curve will be downsloping.
A)True
B)False
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Page 13
Chapter 12: Mutual Funds: Professionally Managed Portfolios
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113 Flashcards
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Sample Questions
Q1) The maximum average maturity of the holdings within a money market account must be 6 months or less.
A)True
B)False
Q2) Which of the following characteristics apply to closed-end mutual funds?
I.unlimited number of outstanding shares
II.transactions between shareholders
III.market prices may be higher or lower than NAV
IV.fund repurchase of shares at any time
A) I and IV only
B) II and III only
C) I, II and III only
D) II, III and IV only
Q3) A unit investment trust
A) engages in short-term trading within a particular sector.
B) offers a low-cost, diversified portfolio.
C) is an unmanaged portfolio of securities.
D) is used only for fixed-income securities.
Q4) Explain why closed-end funds can sell at prices other than the fund's NAV.
Q5) What are the primary disadvantages of owning mutual fund shares?
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Chapter 13: Managing Your Own Portfolios
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) When using a constant dollar plan?
A) gains from the speculative portion of the portfolio are transferred to the safe portion of the portfolio.
B) the amount of money in the speculative portion of the portfolio should decline over time.
C) the percentage of funds in the speculative portion of the portfolio should increase over time.
D) the ratio of safe funds to speculative funds remains constant over time.
Q2) The S&P 500 Stock Composite Index and the NASDAQ Composite Index can be used to represent the stock market as a whole.
A)True
B)False
Q3) The two primary media for warehousing liquidity are
A) money market mutual funds and money market deposit accounts.
B) certificates of deposit and short-term bond funds.
C) certificates of deposit and long-term bond funds.
D) short-term bond funds and asset allocation funds.
Q4) Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management.Briefly explain the two plans.
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Chapter 14: Options: Puts and Calls
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) The option premium is the price of the option.
A)True
B)False
Q2) Amy owns 100 shares of ABC stock with a cost basis of $35 a share.The stock is currently trading at $54 a share.Amy believes the price of ABC stock will fall to $45 a share in the near future but over the longer term of 3 to 5 years, increase in value to $75 a share.Amy would like to benefit from the expected near-term decline if it occurs.Therefore, Amy writes a covered call at a strike price of $55 and a premium of $2.
(a)How will the covered call help Amy profit if the expected price decline occurs?
(b)What is the maximum loss Amy can incur from the call?
(c)What is the maximum profit Amy can incur from the call?
Q3) Jason purchased a six-month put on ABC stock at a cost of $100.The strike price was $15.At what market price does Jason just break-even on this investment? Ignore transaction costs and taxes.
A) $15
B) $16
C) $14
D) Cannot be determined from the information provided
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Chapter 15: Commodities and Financial Futures
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) Which one of the following statements is correct if a speculator short sells a commodity or financial futures contract?
A) The speculator expects to profit from a decline in the price of the contract.
B) The speculator stands to make an unlimited amount of profit since there is no limit to how high the price of the underlying commodity or financial instrument can rise.
C) The speculator is hoping to gain some of the benefit derived from the volatile price while limiting his/her exposure to loss.
D) The speculator may be hedging if the underlying commodity is not in the speculator's possession.
Q2) The amount paid at the time a futures contract is sold
A) represents the maximum loss for the buyer of the contract.
B) represents the maximum profit for the buyer of the contract.
C) is simply a refundable security deposit.
D) is the total value of the goods being traded in the future.
Q3) All futures contracts are traded on a margin basis.
A)True
B)False
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