Investment Management Exam Practice Tests - 1159 Verified Questions
Investment Management Exam
Practice Tests
Course Introduction
Investment Management explores the principles and practices involved in making informed investment decisions in financial markets. The course covers key topics such as portfolio theory, asset allocation, risk analysis, valuation of stocks and bonds, mutual funds, and alternative investments. Students will learn about efficient markets, behavioral finance, and the role of financial intermediaries. Through case studies and real-world scenarios, the course emphasizes the development of practical skills required to construct and manage investment portfolios to meet a variety of financial goals and risk preferences.
Recommended Textbook
Investments An Introduction 9th Edition by
Herbert B. Mayo
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24 Chapters
1159 Verified Questions
1159 Flashcards
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Page 2
Chapter 1: An Introduction to Investments
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Sample Questions
Q1) By accepting more risk,the investor will increase the realized return.
A)True
B)False Answer: False
Q2) Which of the following is an investment as defined by an economist?
A) equipment
B) land
C) stock
D) savings account
Answer: A
Q3) Investors may reduce risk by constructing diversified portfolios but not eliminate risk.
A)True
B)False Answer: True
Q4) Unsystematic risk considers how firms finance their assets and the nature of their operations.
A)True
B)False Answer: True
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Chapter 2: The Creation of Financial Assets
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Sample Questions
Q1) Commercial paper is
A) a short-term unsecured debt of a corporation
B) a short-term secured debt of a corporation
C) a long-term unsecured debt of a corporation
D) a long-term secured debt of a corporation
Answer: A
Q2) Treasury bills have no risk of default but risk of loss of interest payments.
A)True
B)False
Answer: False
Q3) Commercial banks issue
1)demand deposits (checking accounts)
2)negotiable certificates of deposit
3)money market accounts
A)1 and 2
B)1 and 3
C)2 and 3
D)all of these choices
Answer: D
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Page 4
Available
Chapter 3: Securities Markets
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60 Flashcards
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Sample Questions
Q1) The P/E ratio is the price of the stock divided by earnings per share.
A)True
B)False
Answer: True
Q2) If the quote on stock is reduced,that implies
1)supply exceeded demand
2)demand exceeded supply
3)the price was too high
4)the price was too low
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Answer: A
Q3) The maintenance margin requirement sets the minimum an investor must remit to purchase a stock.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Time Value of Money
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Sample Questions
Q1) The present value of a dollar
1)increases as the interest rate increases
2)decreases as the interest rate increases
3)increases as the time period increases
4)decreases as the time period increases
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Q2) The future value of an annuity is
1)larger the higher the rate of interest
2)smaller the higher the rate of interest
3)larger the greater the number of years
4)smaller the greater the number of years
A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4
Q3) An investor expects the price of a stock to double after eight years.What is the expected annual rate of growth?
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Chapter 5: The Tax Environment
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37 Flashcards
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Sample Questions
Q1) Barbara
sold Stock A for a $6,000 short-term loss
sold Stock B for a $2,000 long-term gain
Q2) A Keogh plan is a pension plan for an individual not covered by a pension plan at place of employment.
A)True
B)False
Q3) Examples of capital gains include sales of
1)IRA accounts
2)stocks sold for a profit
3)real estate sold for a profit
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q4) A small firm may offer a Roth IRA instead of a 401(k).
A)True
B)False
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Page 7
Chapter 6: Risk and Portfolio Management
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43 Flashcards
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Sample Questions
Q1) If the return on two stocks is highly and positively correlated ,combining these stocks will reduce the risk associated with the portfolio.
A)True
B)False
Q2) For diversification to reduce risk,
A) the returns on the individual securities should be highly correlated
B) the prices of the stocks should be stable
C) the returns on the individual securities should be negatively correlated
D) one firm should offer dividends and the other should offer capital gains
Q3) It is the anticipated or expected return that induces an investor to buy a stock.
A)True
B)False
Q4) The numerical value of beta for the market equals 1.
A)True
B)False
Q5) What is the expected return on a stock that pays a 4 percent annual dividend and whose price is expected to appreciate annually at 6 percent?
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Page 8
Chapter 7: Investment Companies: Mutual Funds
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Sample Questions
Q1) An index fund seeks to duplicate an aggregate measure of the market or a segment of the market.
A)True
B)False
Q2) Dividends are the primary source of returns from an investment in a mutual fund.
A)True
B)False
Q3) If the individual seeks to reduce risk,that investor should not acquire which of the following types of funds?
A) money market mutual fund
B) sector fund
C) balanced fund
D) index fund
Q4) Mutual fund A earned 10 percent while B earned 8 percent.The standard deviations of the returns were 10 percent and 7 percent,respectively.According to the Sharpe ratio,which fund performed better?
Q5) The shares of load mutual funds sell for a discount from their net asset value. A)True
B)False
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Chapter 8: Closed-End Investment Companies
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Sample Questions
Q1) Closed-end investment companies with beta coefficients less than 1.0
A) have outperformed the market
B) have underperformed the market
C) have more systematic risk than the market
D) have less systematic risk than the market
Q2) The first exchange-traded funds were a type of index fund.
A)True
B)False
Q3) A closed-end investment company is not a "mutual fund."
A)True
B)False
Q4) Compared to selecting individual stocks,ETFs ease the process of constructing a well-diversified portfolio.
A)True
B)False
Q5) Asset allocation determines the proportion of a portfolio that should be invested in various classes of assets.
A)True
B)False
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Chapter 9: The Valuation of Common Stock
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Sample Questions
Q1) A low price to sales ratio suggests
A) the firm is generating cash
B) the firm has no earnings
C) the stock valuation is too high
D) the stock may be undervalued
Q2) Securities prices tend to adjust slowly as new information is disseminated in an inefficient market.
A)True
B)False
Q3) Most stockholders have cumulative voting rights.
A)True
B)False
Q4) The risk-adjusted required rate of return includes
1)the firm's earnings
2)the firm's beta coefficient
3)the treasury bill rate (i.e.,the risk-free rate)
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
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Chapter 10: Investment Returns and Aggregate Measures
of Stock Markets
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Sample Questions
Q1) Studies of rates of return on large stocks suggest
A) the average return is about 7.4 percent annually
B) over a period of years, the rate is approximately 10 percent
C) equity investors rarely sustain losses
D) dividends account for over half the return
Q2) According to the Ibbotson Associates studies of investment returns,larger stocks in the S&P earned higher returns than the smaller companies.
A)True
B)False
Q3) Studies of realized rates of return assume that investors do not reinvest dividend income.
A)True
B)False
Q4) Aggregate measures of stock prices include dividend income. A)True
B)False
Q5) The Wilshire stock index is more broad based than the S&P 500 stock index.
A)True B)False
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Chapter 11: Dividends: Past, present, and Future
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39 Flashcards
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Sample Questions
Q1) Which of the following occurs when a 10 percent stock dividend is paid?
A) the firm's retained earnings decrease
B) the firm's equity is increased
C) the stock's par value is decreased
D) the stock's price is increased
Q2) Stock dividends reduce the firm's total equity.
A)True
B)False
Q3) If a firm is liquidated,
1)it ceases to exist
2)stockholders receive the firm's assets after liabilities are paid
3)stockholders pay any applicable capital gains taxes
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q4) The liquidation of a corporation is not subject to federal capital gains taxation.
A)True
B)False
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Chapter 12: The Macroeconomic Environment for Investment Decisions
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Sample Questions
Q1) Gross domestic product (GDP)is the sum of spending on consumer goods,government spending,and investing in stocks and bonds.
A)True
B)False
Q2) An easy monetary policy increases the cost of credit.
A)True
B)False
Q3) If investors anticipate an increase in the rate of inflation,they also anticipate lower interest rates.
A)True
B)False
Q4) If the Federal Reserve lowers the target federal funds rate,
A) the discount rate rises
B) liquidity in the banking system is increased
C) security prices fall
D) required reserves are also decreased
Q5) An increase in stock prices is a lagging indicator of economic activity.
A)True
B)False
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Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) The statement of cash flow places emphasis on management's ability to retire debt.
A)True
B)False
Q2) The comparability of the individual investor's ratio computations with industry averages is reduced by the age of industry averages.
A)True
B)False
Q3) The quick ratio excludes inventory,plant,and equipment.
A)True
B)False
Q4) If accounts receivable are collected more rapidly,the average collection period is reduced.
A)True
B)False
Q5) Coverage ratios may be used to measure the safety of debt and other fixed obligations.
A)True
B)False
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Chapter 14: Behavioral Finance and Technical Analysis
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31 Flashcards
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Sample Questions
Q1) Behavioral finance suggests that
A) investors are not informed
B) individuals make rational investment decisions
C) investors may be subject to bias which leads to excessive buying or selling of stocks
D) emotion plays only a minor role in security selection
Q2) Even if technical analysis is accurately predicted,commissions may consume any excess return the investor earns.
A)True
B)False
Q3) Insider purchases of stock are considered bullish.
A)True
B)False
Q4) If a moving average of the Dow Jones industrial average crosses the Dow Jones industrial average,
A) the direction of security prices has changed
B) stock prices will stabilize
C) stock prices will go through a period of fluctuation
D) the investor should take profits
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Page 16
Chapter 15: The Bond Market
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61 Flashcards
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Sample Questions
Q1) A call feature is an option while a sinking fund requires a mandatory payment by the firm.
A)True
B)False
Q2) Since bonds are legal obligations,their prices are determined when issued and do not change.
A)True
B)False
Q3) Risk to bondholders comes from
1)possibility of default
2)higher interest rates
3)higher inflation
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q4) Calculation of the returns earned on a high-yield security should include the sale price of the bond as well as interest received.
A)True
B)False
Page 17
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Chapter 16: The Valuation of Fixed-Income Securities
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Sample Questions
Q1) Since preferred stock is equity,it cannot have a sinking fund.
A)True
B)False
Q2) The value of a bond depends on the 1)coupon rate
2)terms of the indenture
3)maturity date
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q3) The smaller the duration,the more volatile the bond's price.
A)True
B)False
Q4) A bond is more likely to be called after interest rates have fallen.
A)True
B)False
Q5) As interest rates increase,the prices of existing bonds increase.
A)True
B)False
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Chapter 17: Government Securities
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Sample Questions
Q1) Municipal bonds are not registered with the SEC.
A)True
B)False
Q2) Municipal bonds are often examples of serial bonds.
A)True
B)False
Q3) Sources of risk to investors who purchase federal government bonds include
1)reinvestment rate risk
2)risk of default
3)interest rate risk
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q4) Treasury bills are long-term federal government securities sold at a discount.
A)True
B)False
Q5) Ginnie Mae bonds are secured by private mortgages.
A)True
B)False
Page 19
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Chapter 18: Convertible Bonds and Convertible Preferred Stock
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Sample Questions
Q1) The premium paid over a convertible bond's value as debt tends to decline as the price of the stock rises.
Q3) If the price of common stock falls,the value of a convertible preferred stock will also tend to fall.
A)True
B)False
Q4) Convertible bonds are often subordinated to the firm's other debt.
A)True B)False
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Chapter 19: An Introduction to Options
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Sample Questions
Q1) The intrinsic value of a call option is the strike price minus the stock's price.
A)True
B)False
Q2) Holders of calls do not receive the cash dividends paid to the company's stockholders.
A)True
B)False
Q3) Stock index options permit investors to establish a position in the market without having to select individual stocks.
A)True
B)False
Q4) The price of a call option is often more volatile than the price of the underlying stock. A)True
B)False
Q5) The owner of a call option does not receive any dividends paid by the firm. A)True
B)False
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Page 21
Chapter 20: Option Valuation and Strategies
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Sample Questions
Q1) An investor cannot buy and sell two different call options with the same expiration dates.
A)True B)False
Q2) According to put-call parity,if a stock is overvalued,the investor should sell the stock short,sell the put,buy the call,and buy the bond.
A)True B)False
Q3) If an investor sells a stock short,that individual reduces the risk of loss by
A) buying a put
B) buying a call
C) entering a limit order to sell the stock if its price declines
D) increasing the collateral with the broker
Q4) Put-call parity suggests that the sum of the
A) prices of a stock and call equal zero
B) prices of a put and a call equal zero
C) sum of the prices of a stock, a call, a put, and a bond equal zero
D) sum of the prices of a stock and a put be equal to the prices of a call and a discounted bond
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Chapter 21: Commodity and Financial Futures
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Sample Questions
Q1) If a firm expects to buy a commodity in the future,it may hedge against a price increase by taking a short position in the futures contract.
A)True
B)False
Q2) A position in a futures contract is canceled (offset)by entering into the opposite position.
A)True
B)False
Q3) An individual with a large stock portfolio can hedge the position by
A) buying a stock index futures
B) selling a stock index futures
C) selling the stocks
D) maintaining the position
Q4) The maximum daily price increase that is permitted in futures markets is
A) the daily limit
B) the daily range
C) $1 per contract
D) 5% per contract
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Chapter 22: Investing in Foreign Securities
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Sample Questions
Q1) Because of differences in the units of trading,investors may not be able to completely hedge their positions.
A)True B)False
Q2) Anticipation that the value of a currency will rise results in the spot price exceeding the futures price.
A)True B)False
Q3) From the viewpoint of international currency flows,foreign investments in plant and equipment are no different from investments in foreign securities.
A)True
B)False
Q4) If American investors buy German stocks,they may sustain losses if the Euro is devalued.
A)True B)False
Q5) Foreign travel is recorded in the current account of the balance of payments. A)True B)False
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Chapter 23: Investing in Nonfinancial Assets: Collectibles, resources, and Real Estate
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Sample Questions
Q1) The cost of investing in collectibles may include 1.insurance
2)the spread between the bid and ask
3)commissions
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q2) The Canadian Maple Leaf is a pure silver coin.
A)True
B)False
Q3) Hedge funds are primarily open to high net worth investors and financial institutions such as pension plans.
A)True
B)False
Q4) Purchasers of gold futures contracts
A) do not have to meet margin requirements
B) run the risk of government intervention altering the supply and demand for gold
C) are considered to be unleveraged positions
D) have less speculative positions
25
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Chapter 24: Portfolio Planning and Management in an Efficient Market Context
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Sample Questions
Q1) The process of financial planning requires the individual to 1.establish financial goals
2)identify and quantify the value of his or her assets
3)hire professional financial advisors
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q2) Possible investment objectives may include 1.capacity to meet financial emergencies
2)preservation of capital
3)desire to finance retirement
A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all of these choices
Q3) If an investor believes that financial markets are inefficient,that argues for the individual to pursue a more active portfolio strategy.
A)True
B)False
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