Investment Management Exam Preparation Guide
Course Introduction
Investment Management explores the principles and practices involved in making informed investment decisions to achieve specific financial objectives. The course covers the fundamentals of portfolio theory, asset allocation, risk assessment, and valuation of various asset classes including equities, bonds, and alternative investments. Students learn about market efficiency, behavioral finance, and the regulatory environment affecting investment vehicles. Through case studies and analytical tools, the course equips students with practical skills for portfolio construction, performance evaluation, and the application of investment strategies in both individual and institutional contexts.
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 are true concerning institutional investors?
I.Institutional investors are professionals who manage money for other people.
II.Banks, insurance companies and mutual funds are all institutional investors.
III.Institutional investors are individuals who invest indirectly through financial institutions.
IV.Institutional investors invest large sums of money.
A) I and II only
B) I, II and IV only
C) II, III and IV only
D) I, II, III and IV
Answer: B
Q2) Investors can postpone or avoid income taxes by investing through Individual Retirement Accounts.
A)True
B)False
Answer: True
Q3) Discuss the general investment philosophy and the types of investments preferred by investors in each phase of the life cycle.
Answer: 11ea7efd_8e7f_ff14_b9ea_0169d2f72f58_TB3854_00
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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) The NYSE has listing requirements that include a minimum
I.number of outstanding shares.
II.amount of pre-tax earnings.
III.market value of publicly held shares.
IV.number of shareholders owning 100 shares or more.
A) I and IV only
B) I, II and III only
C) II, III and IV only
D) I, II, III and IV
Answer: D
Q2) Margin trading requires the borrowing of securities.
A)True
B)False
Answer: False
Q3) Most commodity futures are traded on the NYSE Amex.
A)True
B)False
Answer: False
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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) Over-the-counter market activity is reflected in the
A) Standard & Poor's composite index.
B) Nasdaq index.
C) AMEX composite index.
D) financials index.
Answer: B
Q2) David opens a cash account with a brokerage firm.He buys 100 shares of GIA Co.stock at $30 a share.His broker charges a commission of $35.Which of the following statements concerning this transaction is correct?
A) Daniel must have $3,035 in cash in his account on the day the trade is made.
B) Daniel must have $2,965 in cash in his account on the day the trade is made.
C) Daniel must have $3,035 in cash in his account within three business days.
D) Daniel must have $2,965 in cash in his account within five business days.
Answer: C
Q3) Investing online is usually less expensive than traditional methods.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Return and Risk
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Jessica bought a stock at a price of $11.50.She received a $.75 dividend and sold the stock for $12.50.What is Jessica's capital gain on this investment?
A) $0.25
B) $0.75
C) $1.00
D) $1.75
Q2) To compute the present value of $1,000 annuity received at the end of each of the next three years and discounted at the rate of 5% per year, you should enter the following variables into a financial calculator
A) N=3, i=5, PMT=1000
B) N=3, i=5, FV=3000
C) N=3, i=15, PMT=1000
D) N=1, i=5, PMT=3000
Q3) The maximum rate of return that can be earned for a given rate of interest occurs when interest is compounded
A) annually.
B) daily.
C) monthly.
D) continuously.
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Page 6
Chapter 5: Modern Portfolio Concepts
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) The opportunities to earn excess returns in foreign investments continue to grow.
A)True
B)False
Q2) OKAY stock has a beta of 0.73.The market as a whole is expected to decline by 20% thereby causing OKAY stock to
A) decline by 14.6%.
B) decline by 20.7%.
C) increase by 14.6%.
D) increase by 20.7%.
Q3) The efficient frontier
A) is represented by the rightmost boundary of the feasible set of portfolios.
B) represents the best attainable tradeoff between risk and return.
C) includes all feasible sets of portfolios based on risk and return characteristics.
D) provides the highest level of risk for the lowest level of return.
Q4) Betas must be positive numbers.
A)True
B)False
Q5) Explain what beta measures and how investors can use beta.
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Chapter 6: Common Stocks
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Which of the following are characteristics of small cap stocks?
I.strong balance sheets
II.annual revenues less than $250 million
III.potential for high returns along with high risk
IV.potentially dramatic changes in their earnings
A) III and IV only
B) II and III only
C) I, III and IV only
D) II, III and IV only
Q2) Factors considered in making a decision on a firm's dividend include the I.cash position of the firm.
II.firm's growth prospects.
III.the expectations of the shareholders.
IV.restrictive covenants in loan agreements.
A) II and IV only
B) I, II and IV only
C) I, II and III only
D) I, II, III and IV
Q3) Why do some companies split their stock?
Q4) Explain why every stock portfolio should include some defensive stocks.
Page 8
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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) If a firm has an equity multiplier of 3, this means that the firm has $3 in equity for every $1 in long-term debt.
A)True
B)False
Q2) The intrinsic value of a security is based on the I.amount of risk.
II.current market value of the security.
III.discount rate applicable to the security.
IV.estimated future cash flows from the security.
A) I and III only
B) III and IV only
C) I, II and III only
D) I, III and IV only
Q3) In seeking potential stock investments, most analysts look for companies that have PEG ratios that are equal to or less than one.
A)True
B)False
Q4) Briefly describe and discuss both industry analysis and fundamental analysis.
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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 dividend valuation model (DVM)is very sensitive to the growth rate (g)being used, because it affects both the model's numerator and its denominator.
A)True
B)False
Q2) Companies with high P/E ratios tend to also have high dividend payout ratios.
A)True
B)False
Q3) The primary reason an investor should look at the past performance of a company is to gain insight into the future direction and profitability of the firm.
A)True
B)False
Q4) High price/sales multiples go with high profit margins.
A)True
B)False
Q5) A firm with a price to sales ratio of 1 would usually be considered A) overvalued.
B) correctly valued.
C) near bankruptcy.
D) undervalued.
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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) Market bubbles such as the technology bubble of the 1990's and the housing bubble of 2004-2007 are best explained by
A) the efficient market hypothesis.
B) behavioral finance and economics.
C) rational expectations theory.
D) anomaly theory.
Q2) The tendency of investors to blame others for their failures and take personal credit for their successes is referred to as
A) loss aversion.
B) representativeness.
C) narrow framing.
D) biased self-attribution.
Q3) The Dow theory holds that a change in the primary trend has occurred when a rise or fall in the Dow Jones Industrial Averages is confirmed by a similar movement in A) the S&P 500 Index.
B) the Dow Jones Transportation Average.
C) the market volatility index (VIX).
D) the NASDAQ 100 Index.
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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) An American investor who holds euro-denominated bonds will profit if the euro weakens against the dollar.
A)True
B)False
Q2) Bond prices are stable over any five- to ten-year period.
A)True
B)False
Q3) Which one of the following statements correctly describes the unique feature of GNMA pass-through securities?
A) The interest income on a GNMA is exempt from state and federal tax.
B) GNMAs consistently have lives of 25-30 years.
C) GNMAs are backed by the full faith and credit of the issuing state.
D) GNMAs pay income to holders on a monthly basis.
Q4) Which one of the following variables has the greatest effect on bond prices?
A) economic growth
B) interest rates
C) inflation
D) stock market returns
Q5) From the viewpoint of a U.S.resident, describe the merits of investing in foreign bonds.
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Chapter 11: Bond Valuation
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Rank the following taxable bonds from lowest yielding to highest yielding.
I.U.S.Treasury bonds
II.Corporate bonds
III.Agency bonds
A) I, II, III
B) II, I, III
C) III, II, I
D) I, III, II
Q2) When the weighted-average duration of an investor's bond portfolio is exactly equal to the investor's desired investment horizon, then the bond portfolio is said to be immunized.
A)True
B)False
Q3) A $1,000, 7% annual coupon bond matures in three years.The bond is currently priced at $974.23 and has a YTM of 8.0%.What is the Macaulay duration?
A) 1.95 years
B) 2.60 years
C) 2.81 years
D) 3.00 years
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Page 13
Chapter 12: Mutual Funds: Professionally Managed Portfolios
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) The purchase price of a closed-end mutual fund is equivalent to the net asset value of the fund.
A)True
B)False
Q2) The longer you intend to hold a fund, the more willing you should be to accept a front-end load charge in exchange for lower annual management and 12(b)-1 fees.
A)True
B)False
Q3) Both the performance of the overall stock market as well as the skills of the mutual fund manager affect the performance of a mutual fund.
A)True
B)False
Q4) To participate in an automatic investment plan, investors must allow the investment company to have access to a bank account or their paycheck.
A)True
B)False
Q5) What are the primary disadvantages of owning mutual fund shares?
Page 14
Q6) Explain why closed-end funds can sell at prices other than the fund's NAV.
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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) Which one of the following statements is correct if a portfolio has a Jensen measure of return of zero?
A) The portfolio has a total return of zero percent.
B) The portfolio earned exactly its expected return on a risk-adjusted basis.
C) The portfolio outperformed the market on a risk-adjusted basis.
D) The market provides a better return on a risk-adjusted basis.
Q2) Which of the following statements about Jensen's measure are correct?
I.Through its use of the capital asset pricing model, Jensen's measure automatically adjusts for market return.
II.In general, the higher the Jensen's measure, the better a portfolio has performed. III.Jensen's measure is referred to as alpha.
IV.A positive Jensen's measure indicates an investment has underperformed the market on a risk-adjusted basis.
A) I and IV only
B) I, II and III only
C) II and III only
D) I, III and IV only
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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) Lew paid $300 to purchase a call on Delta stock with a strike price of $25.What does the market price of Delta have to be for Lew to break-even on his option investment? Ignore transaction costs and taxes.
A) $22
B) $25
C) $28
D) Cannot be determined from the information provided
Q2) If the Canadian dollar became stronger relative to the U.S.dollar, the price of
A) a call option on the Canadian dollar will increase.
B) a put option on the Canadian dollar will increase.
C) a call option on the Canadian dollar will decrease.
D) both the call and the put options on the Canadian dollar will decrease.
Q3) Which one of the following was the first listed exchange for stock options in the United States?
A) Stock Index Board
B) Philadelphia Board of Trade
C) New York Stock Exchange
D) Chicago Board Options Exchange
Q4) Explain how an investor can use a stock market index option to hedge a portfolio of common stocks.
Page 16
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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) Speculators are especially interested in financial futures because price volatility can lead to potentially highly profitable outcomes.
A)True
B)False
Q2) The return on a futures contract is calculated as
A) (purchase price - selling price)/purchase price.
B) (selling price - purchase price)/purchase price.
C) (purchase price - selling price)/margin deposit.
D) (selling price - purchase price)/margin deposit.
Q3) The seller of a stock-index future is obligated to deliver a specified number of shares of the underlying security.
A)True
B)False
Q4) The maximum amount that the price of a futures contract can change during the day is referred to as
A) the swing limit.
B) the maximum daily range.
C) the daily margin limit.
D) the leverage restriction.
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