Investment Analysis
Mock Exam
Course Introduction
Investment Analysis explores the fundamental principles and techniques used to evaluate various investment vehicles and make informed financial decisions. The course covers topics such as risk and return analysis, portfolio theory, asset valuation, and security analysis. Students will learn how to assess stocks, bonds, and alternative investments by applying quantitative and qualitative methodologies, as well as understand market efficiency and behavioral finance concepts. By the end, students are equipped with the analytical tools necessary to construct and manage diversified investment portfolios in alignment with specific financial goals and risk tolerances.
Recommended Textbook
Fundamentals of Investment Management, 10e by Geoffrey A. Hirt
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Page 2
Chapter 1: The Investment Setting
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Sample Questions
Q1) What is the risk-free rate in an environment where the real rate is 3% and inflation is running at 3%? Use either method found in chapter one.
A)14.5% or just 14%
B)10.21% or just 10%
C)6.09% or just 6%
D)9.09% or just 9%
E)0%
Answer: C
Q2) A public utility is likely to appeal to an income-oriented, conservative investor.
A)True
B)False
Answer: True
Q3) Mutual funds are a form of direct equity claims.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Security Markets
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Sample Questions
Q1) When investment bankers underwrite a security, they usually guarantee purchase of the securities at a fixed price for the selling firm.
A)True
B)False
Answer: True
Q2) Secondary markets provide everything except:
A)illiquidity.
B)efficiency.
C)continuity.
D)competition.
Answer: A
Q3) One of the functions of a specialist is:
A)to manipulate price continuity.
B)to change quotation spreads.
C)to measure market depth as needed.
D)to execute special orders for floor brokers.
Answer: D
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Page 4
Chapter 3: Participating in the Market
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Sample Questions
Q1) The Wilshire 5000 index includes all stocks on the New York and American Stock Exchanges, and most active NASDAQ issues.
A)True
B)False
Answer: True
Q2) If a stock is sold short, the equity in the investor's account will go up if the stock
A)price goes down.
B)price goes up.
C)is split 2 for 1.
D)A and C
Answer: A
Q3) The NYSE sets margin requirements.
A)True
B)False Answer: False
Q4) If you short a stock and the price goes up, your net equity value will go up.
A)True
B)False Answer: False
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Chapter 4: Investment Companies: Mutual Funds,
Exchange-Traded Funds, Closed-End Funds, and Unit
Investment Trusts
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Sample Questions
Q1) The smart investor will compare the portfolio of a fund to its stated objectives.
A)True
B)False
Q2) Actually, the term mutual fund applies specifically to open-end investment companies, although closed-end funds are sometimes loosely labeled as mutual funds as well.
A)True
B)False
Q3) One disadvantage of investing through mutual funds is
A)that they provide time savings.
B)that there are more than 8,100 to choose from.
C)the professional management.
D)too much diversification.
Q4) A back-end load fund has:
A)no charge upon purchase, but a fixed charge upon sale.
B)a smaller charge on purchase, and another small charge again on sale.
C)no charge upon purchase, and a declining charge, based on time owned, on sale.
D)Two of the above
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Chapter 5: Economic Activity
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Sample Questions
Q1) Since the stock market is the most accurate and reliable of the ten leading indicators,
A)investors need indicators which provide more lead time than the stock market.
B)investors are able to reduce or eliminate uncertainty about trading stocks.
C)investors are unable to forecast changes in stock prices.
D)None of the above
Q2) During recessions, it is common for imports to increase because people buy more cheap foreign goods.
A)True
B)False
Q3) The fact that many studies have found a significant relationship between the money supply and stock prices has been quite helpful to investors.
A)True
B)False
Q4) Surpluses have a tendency to reduce economic growth.
A)True
B)False
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7
Chapter 6: Industry Analysis
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Sample Questions
Q1) The pharmaceutical industry has to be concerned about the competition from generic versions of their drugs during the first 5 years after the release of a new drug.
A)True
B)False
Q2) Patents are important to the pharmaceutical industry because they:
A)protect companies from low-cost generic drugs.
B)keep other drug companies from developing competitive drugs for the same disease.
C)allow the companies to earn a high enough rate of return in the early years of a drug to continue research and development efforts on new drugs.
D)A and C
Q3) Industry life cycles predict an industry's sensitivity to the economy.
A)True
B)False
Q4) Due to intense needs for capital to fund growth, Stage I companies rarely pay cash dividends.
A)True
B)False
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Chapter 7: Valuation of the Individual Firm
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Sample Questions
Q1) Dividend models are best suited for those companies that are in the:
A)introduction phase of the life cycle.
B)expansion phase of the life cycle.
C)maturity phase of the life cycle.
D)Both B and C
Q2) Under a non-constant growth model, the growth rate (g) is varied from time period to time period.
A)True
B)False
Q3) One basic problem with the application of the Capital Asset Pricing Model when computing K<sub>e</sub> is that
A)(K<sub>m</sub>- R<sub>F</sub>) is not observable in the market.
B)the analyst needs to forecast dividends for next year.
C)beta is a historical number.
D)the risk-free rate changes every day.
Q4) The first step in using the income-statement method of estimating earnings per share (EPS) is to develop an accurate sales forecast.
A)True
B)False
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Chapter 8: Financial Statement Analysis
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Sample Questions
Q1) Which of the following is not an Asset-utilization ratio:
A)Receivable turnover
B)Fixed-asset turnover
C)Quick ratio
D)Total assets turnover
E)All of the above are Asset-utilization ratios
Q2) Which of the following is NOT a key ratio in the prediction of bankruptcy, as developed by Edward Altman?
A)Debt-to-equity ratio
B)Current ratio
C)Retained earnings as a percent of total assets
D)Total assets
E)EBIT to total assets
Q3) To examine the long-term performance over a number of years, one would use fundamental analysis.
A)True
B)False
Q4) The liquidity ratios measure how quickly a firm can dispose of inventory.
A)True
B)False
Page 10
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Chapter 9: Efficient Markets and Anomalies
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Sample Questions
Q1) Under-pricing of new stock issues helps ensure the investment banker that the issue will be fully subscribed to at the initial market price.
A)True
B)False
Q2) The stock price of an acquisition candidate changes dramatically prior to announcement because of:
A)the candidate's estimated cost of capital.
B)the high premium offered for the stock of the candidate.
C)information leaks.
D)More than one of the above
Q3) Anomalies related to the semi-strong form of the efficient market hypothesis indicate that:
A)the market is truly efficient.
B)high returns are very difficult to achieve.
C)the market is less than perfectly efficient.
D)public information is almost useless.
Q4) The strong form of the EMH is generally confirmed by research evidence.
A)True
B)False
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Chapter 10: Behavioral Finance and Technical Analysis
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Sample Questions
Q1) Mutual fund cash positions and trading by insiders are not generally reliable indicators of market health or activity.
A)True
B)False
Q2) A support level signals new demand.
A)True
B)False
Q3) A ratio of the total short sales positions on an exchange to average daily exchange volume for the month is normally
A)between 0-.5
B)between 1.0-2.0
C)between 2.0-3.0
D)over 3.0
Q4) While the Dow Jones Industrial Average may be weighted toward large firms, a __________ indicator may be used to examine all stocks on an exchange.
A)Key
B)Contrary opinion
C)Breadth of the market
D)More than one of the above
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Chapter 11: Bond and Fixed-Income Fundamentals
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Sample Questions
Q1) There is evidence that the bond market may be less efficient than the stock market.
A)True
B)False
Q2) An important feature of the GNMA (GinnieMae) pass-through certificate is that there is no principal balance at maturity.
A)True
B)False
Q3) A Treasury bill is a long-term obligation of the federal government.
A)True
B)False
Q4) Income bonds are highly favored by corporations, because they provide the benefits of tax-deductible interest payments, without the contractual obligations of most debt instruments.
A)True
B)False
Q5) Large or jumbo CDs are $100,000 or greater in size.
A)True
B)False
Q6) What is the dollar value of a U.S. government bond quoted at 98 8/32?
Page 13
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Chapter 12: Principles of Bond Valuation and Investment
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Sample Questions
Q1) The anticipated realized yield represents the return over the holding period.
A)True
B)False
Q2) What will happen to the market value of a bond if interest rates increase?
A)The market value will decrease
B)The market value will increase
C)The market value will increase or decrease, depending on the general economic climate
D)The market value should remain level
Q3) Interest rate changes affect low-quality issues to a greater degree than high-quality issues.
A)True
B)False
Q4) The impact of interest rate changes on bond prices can be magnified by:
A)investing in speculative high-risk high-yield bonds.
B)investing in higher-quality corporate bonds.
C)investing in short-term bonds.
D)More than one of the above
Q5) What would be the current yield of a 6% coupon bond priced at $950?
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Chapter 13: Convertible Securities and Warrants
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Sample Questions
Q1) The premium of warrants tends to decrease as the stock price rises.
A)True
B)False
Q2) Why are warrants less desirable than convertible debentures as financing devices for the creation of new common stock?
A)There is no device for forcing investors to exercise warrants
B)The conversion of convertible securities erases debt on the balance sheet
C)Warrants increase the equity of a firm when exercised, but there is no change in the debt
D)All of the above
Q3) What is the percentage downside risk on a bond with market value of $900, conversion value of $800, and pure bond value of $650?
A)66.7%
B)27.7%
C)55.6%
D)None of the above
Q4) The amount of downside risk cannot vary.
A)True
B)False
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Chapter 14: Put and Call Options
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Sample Questions
Q1) All of the following are advantages of buying call options instead of stock EXCEPT: A)options represent an opportunity to control shares of stock without making a large dollar commitment.
B)commissions on stock trading are greater than those on options trading.
C)options can be quite conservative and used to reduce risk.
D)All of the above are advantages
Q2) The International Securities Exchange:
A)is an electronic communication network dealing in options.
B)has taken significant market share from the Chicago Board Options Exchange.
C)started trading options in 2000.
D)All of the above are true
Q3) Long-term equity anticipation securities (LEAPS) are nothing more than a long-term option.
A)True
B)False
Q4) A put is an option to buy 100 shares of common stock at a specified price for a given period of time.
A)True
B)False
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Chapter 15: Commodities and Financial Futures
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Sample Questions
Q1) The high risk in commodities contracts is due primarily to the volatility of price movements.
A)True
B)False
Q2) A speculator purchases a 37,000-pound contract for coffee for $1.08 per pound with an initial margin requirement of 7%. The price goes up to $1.13 in three months. What is the annualized gain?
A)252.8%
B)264.4%
C)51.2%
D)63.2%
E)66.1%
Q3) Because of price movement limitations, the commodities market is not always in equilibrium.
A)True B)False
Q4) Margin maintenance requirements usually run 5-10% of the initial margin.
A)True B)False
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Chapter 16: Stock Index Futures and Options
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Sample Questions
Q1) An investor bought a March S&P 500 Index futures contract in December for $1,490.05. After six months the contract value went up to $1,539.95. The contract has a multiplier of 250. With an initial margin of $20,000, what is the annualized percent return on margin?
A)25.28%
B)29.8%
C)30.8%
D)120.64%
E)124.76%
Q2) One of the major uses of a stock index future is the ability:
A)to use it to hedge.
B)to make an unlimited amount of money.
C)to increase risk.
D)All of the above
Q3) The Mini S&P 500 contract is made up of different stocks than the traditional S&P 500 contract.
A)True
B)False
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18
Chapter 17: A Basic Look at Portfolio Management and Capital Market Theory
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Sample Questions
Q1) The security market line shows the risk-return trade-off for an individual security.
A)True
B)False
Q2) If the _____ of any individual stock is known, an investor can use the _____ to determine the expected rate of return on that stock.
A)Beta; capital market line
B)Beta; security market line
C)Standard deviation; capital market line
D)None of the above
Q3) Systematic risk is rewarded with a premium in the marketplace because:
A)risk is particular to the stock or industry.
B)it represents a random occurrence which could not have been foreseen.
C)it is associated with market movements which cannot be eliminated through diversification.
D)None of the above
Q4) By picking stocks that are not perfectly correlated, unsystematic risk may be eliminated.
A)True
B)False
19
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Chapter 18: Duration and Bond Portfolio Management
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Q1) As the maturity or duration of a bond increases, the impact on price of any changes in interest rates increases at a decreasing rate.
A)True
B)False
Q2) The only difference between the simple weighted average life of a bond and duration of a bond is:
A)the timing of interest payments.
B)that duration involves the present value of individual cash flows.
C)that duration involves the using of the stated value of individual cash flows.
D)None of the above
Q3) Terminal wealth analysis for a zero-coupon bond is irrelevant.
A)True
B)False
Q4) The duration of a 20-year zero-coupon bond is equal to the maturity, regardless of the market rate.
A)True
B)False
Q5) Compute the duration for a bond with an 8% coupon rate, maturing in five years. A discount rate of 10% should be applied.
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Chapter 19: International Securities Markets
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Sample Questions
Q1) An investment in Mexico produces a return of 80%. However, the Mexican peso has just declined by 45%, relative to the dollar. The previous value of the peso was $.0066. The adjusted return on the investment is a(n):
A)42% gain.
B)8.5% loss.
C)1.0% loss.
D)None of the above
Q2) Even though Korea and China have markets bigger than some markets in developed countries, they are considered to be emerging markets because they have low per-capita gross domestic product.
A)True
B)False
Q3) U.S. multinational corporations are highly correlated with United States financial markets and therefore do not reduce portfolio risk to the same extent as investing in foreign corporations.
A)True
B)False
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21
Chapter 20: Investments in Real Assets
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Sample Questions
Q1) Compared to other investments, which of the following is not a disadvantage of investing in real assets?
A)The initial amount of money is usually large
B)The absence of a relatively efficient, liquid market
C)High transaction and incidental costs
D)All of the above are disadvantages
Q2) A negative aspect of diamond investments is the relatively high cost of buying and selling them.
A)True
B)False
Q3) In a blind pool arrangement, funds are provided to the general partner to select properties for investment.
A)True
B)False
Q4) Collectible items are considered to be real assets.
A)True
B)False
Q5) In a real estate syndicate, a general partner has limited liability.
A)True
B)False
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Chapter 21: Alternative Investments: Private Equity and Hedge Funds
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Sample Questions
Q1) Kohlberg Kravis and Roberts (KKR) is best known as a:
A)hedge fund.
B)buy-out fund.
C)no-load fund.
D)core-satellite funD.
Q2) The first hedge fund was created in 1949 by:
A)Dow Jones.
B)William P. Standard.
C)Alfred Jones.
D)Michael Milken.
Q3) A corporate venture capital fund is:
A)a fund operated by private investors.
B)a fund operated by a corporation.
C)a fund operated for a non-profit.
D)None of the above
Q4) Other types of hedge funds deal in areas like:
A)collectible football cards.
B)artwork masterpieces.
C)currencies and commodities.
D)collectible muscle cars.
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Chapter 22: Measuring Risks and Returns of Portfolio Managers
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Q1) Asset allocation is generally ________________ stock selection. A)less important than B)more important than C)of equal importance to D)none of the above are true
Q2) The Jensen study indicates that mutual fund managers tend to have very superior performances.
A)True
B)False
Q3) Most funds show a positive performance compared to a market average. A)True B)False
Q4) A portfolio manager with a beta less than one should be expected to provide higher returns than the market.
A)True
B)False
Q5) When the U.S. T-bill rate is 5.75%, the excess returns on a portfolio earning 14% would be 8.25%.
A)True B)False
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Chapter 23: A Comprehensive Analysis for Real Estate
Investment Decisions
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Sample Questions
Q1) An apartment complex has net operating income of $15,000, depreciation of $8,000, and interest expense of $13,000. The tax rate is 30%. a) What is taxable income or loss?
B) What is the tax shield benefit or tax owed?
Q2) A duplex was purchased for $120,000, and depreciation of $3,300 has been taken for the last seven years. The net proceeds from the sale of the property were $135,000. A) Assuming the property qualifies for capital gains treatment at a 15% rate, what is the tax owed?
B) What are the net funds from the sale?
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25
Chapter 24: The Makeup of Institutional Investors
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Q1) ___________ represent permanent capital funds that are donated to universities, churches, or civic organizations.
A)Trusts
B)Endowments
C)Commingled funds
D)Annuities
Q2) Which of the following are NOT examples of institutional investors?
A)Mutual funds and pension funds
B)Insurance companies
C)Commercial banks
D)All of the above are institutional investors
Q3) The largest category of institutional investors is:
A)foundations.
B)personal trusts.
C)mutual savings banks.
D)pension funds.
Q4) Foundations represent profitable organizations set up to accomplish social, educational, or charitable purposes.
A)True
B)False
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