Portfolio Management Test Questions
Course Introduction
Portfolio Management explores the fundamental principles and advanced practices involved in the construction, evaluation, and ongoing management of investment portfolios. The course covers key topics such as asset allocation, diversification, risk assessment, performance measurement, and the use of modern portfolio theory to optimize returns while managing risk. Students will analyze real-world cases and simulate investment decisions, gaining practical skills in selecting assets, balancing portfolios, and responding to market changes using quantitative and qualitative methods. Emphasis is placed on both traditional and contemporary investment vehicles, ethical considerations, and the impact of global economic factors on portfolio strategies.
Recommended Textbook
Investments Concepts and Applications 5th Edition by Richard Heaney
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20 Chapters
802 Verified Questions
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Page 2
Chapter 1: The Investment Decision
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Sample Questions
Q1) Under a normal distribution,what proportion of observations fall within two standard deviations of the mean?
A) 50%
B) 68%
C) 75%
D) 95%
Answer: D
Q2) Investment assets differ in risk because of:
A) cash flow uncertainty
B) time value of money uncertainty
C) uncertainty regarding the rate of inflation
D) all of the above
Answer: A
Q3) Zero volatility in returns results in identical arithmetic and geometric returns.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Australian Financial Markets
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Sample Questions
Q1) Bills of exchange and debentures are both examples of securities traded on the Australian bond markets.
A)True
B)False
Answer: False
Q2) When constructing a residential property index,it is generally not assumed that properties:
A) \(\text { have been tully renovated }\)
B) \(\text { have been sold within a reasonable time of their purchase }\)
C)\(\text { have been sold through an agent }\)
D)\(\text { are easily tenanted }\)
Answer: A
Q3) Trading on the Australian stock exchange is conducted on the CHESS system.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The International Investment Environment
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Sample Questions
Q1) An Australian investor purchases a European-based investment at a price of EUR52.50 when the exchange rate was AUD0.6500/AUD.If the exchange rate when the investment was sold was 0.6400,what must the investor sell the investment for to make a discrete return of 15%?
A) \( \$ 45.57 \)
B) \( \$ 51.69 \)
C) \( \$ 53.36 \)
D) \( \$ 59.43 \)
Answer: D
Q2) A foreign exchange rate of USD/AUD 0.9925-0.9950 indicates:
A) \(\text { that the bank will buy 1USD for AUD0.992s }\)
B) \(\text { that the bank will sell 1AUD for USDD.9925 }\)
C) \(\text { that the bank will buy 1USD for AUD } 9950\)
D) none of these answers
Answer: B
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Page 5
Chapter 4: Financial Management: Derivative Instruments
and Information Sources
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Sample Questions
Q1) The existence of intra-industry information transfer means that unexpected bad news is associated with a relative decline:
A) in the profits of the announcing firm
B) in the dividend of the announcing firm
C) in the share price of the announcing firm
D) in the share price of the announcing firm and other firms in the same industry
Q2) Which source of share price information provides access to tick data on both formal and OTC exchanges?
A) ASX
B) AGSM
C) Bloomberg
D) SIRCA
Q3) Much of the security-specific information is publicly available through sources such as the ASX and the world wide web.
A)True
B)False
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Chapter 5: Money Market Securities
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Sample Questions
Q1) The major risks of money market securities are interest rate risk,default risk and
A) Foreign exchange risk
B) Inflation risk
C) Marketability risk
D) All of these answers
Q2) Using the elasticity approach,estimate the change in the price of a $500 000 90-day bank-accepted bill when the yield increases from 5% to 6%.
A) \( \$ 240.53 \)
B) \( \$ 252.18 \)
C) \( \$ 260.12 \)
D) \( \$ 265.70 \)
Q3) The value of a bank-accepted bill with a face value of $100 000,180 days to maturity and a current yield of 4% p.a.is $98 066.
A)True
B)False
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Chapter 6: Bonds
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Sample Questions
Q1) All other things equal,a bond's duration is _________.
A)higher when the coupon rate is higher
B)lower when the coupon rate is higher
C)the same when the coupon rate is higher
D)indeterminable when the coupon rate is high
Q2) A $100 000 bond has a term to maturity of six years with half-yearly coupons set at 6% p.a.Calculate the bond price if the yield is 7.5%.
A) \( \$ 91 \quad 327.88 \)
B) \( \$ 92 \quad 447.23 \)
C) \( \$ 92 \quad 857.98 \)
D) \( \$ 93 \quad 231.96 \)
Q3) ______________ is an important characteristic of the relationship between bond prices and yields.
A)Convexity
B)Concavity
C)Complexity
D)Linearity
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8
Chapter 7: Investor Preferences and Portfolio Concepts
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Sample Questions
Q1) Once a portfolio becomes sufficiently large,the __________ is of greatest importance with respect to risk.
A) variance of individual asset returns
B) variance of assetreturns within the same industry
C) covariance between asset returns within the same industry
D) covariance between asset returns of all assets in the portfolio
Q2) According to Markowitz (1959),if all of the portfolios that satisfy the mean-variance criterion are identified,and investor preferences can be modelled,then the portfolio chosen by an investor is that combination of __________ that maximises expected utility.
A) risk-free assets
B) risky assets
C) risk-free and risky assets
D) all of the above
Q3) The typical Von Neumann-Morgenstern utility is convex.
A)True
B)False
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Page 9
Chapter 8: Risky Asset Pricing Models and the Capm
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Sample Questions
Q1) An asset has a standard deviation of 5% and a correlation with the market portfolio of 0.70.If the market has a standard deviation of 28%,what is the beta of the asset?
A) \( 0.13 \)
B) \( 0.31 \)
C) \( 0.60 \)
D) \( 0.68 \)
Q2) The beta of the market is equal to minus 1.
A)True
B)False
Q3) Testing the CAPM is difficult,as empirical tests have to rely on __________ data,whereas the CAPM is an __________ model.
A) ex-ante; ex-ante
B) ex-ante; ex-post
C) ex-post; ex-ante
D) ex-post; ex-post
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Chapter 9: Alternative Risky Asset Pricing Models
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Sample Questions
Q1) According to the CCAPM,if the expected return on the market return is 6% and the risk-free rate is 4.5%,the consumption beta of a portfolio with 6% is 3.0.
A)True
B)False
Q2) Which of the following factors did Chen,Roll and Ross (1986)include in their APT model?
A) yearly growth in industrial production
B) change in expected inflation
C) Interest rate structures
D) all of the above
Q3) Calculate the consumption beta for an asset with a variance of 10%,where the variance of consumption growth is 15% and the covariance between the growth rate in consumption and the asset is 20%.
A) \( 0.15 \)
B) \( 1.00 \)
C) \( 1.25 \)
D) \( 1.33 \)
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Page 11
Chapter 10: Concepts and Applications of Market Efficiency
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Sample Questions
Q1) The more profitable IPO investments seem to be those:
A) associated with established companies
B) of a relatively large size
C) issued in a cold market
D) all of these choices
Q2) Transaction costs of taking a short position exceed those of a long position by:
A) About 40 \%
B) About 15\%
C) About 2-3\%
D) About 4-5 \%
Q3) Bowman and Buchanan (1995)argue that there are two sets of forces at work that operate as impediments to the acceptance of efficient markets.These are:
A) market structure forces and behavioural forces
B) market structure forces and industry structure forces
C) market structure forces and international market structure forces
D) none of these choices
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Page 12
Chapter 11: Equity Valuation Models
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Sample Questions
Q1) The constant-growth dividend discount model (DDM)can be used only when the
A)growth rate is less than or equal to the required return
B)growth rate is greater than or equal to the required return
C)growth rate is less than the required return
D)growth rate is greater than the required return
Q2) Company ABC currently pays annual dividends of $0.40,and growth of these dividends is expected to be at 5% p.a.Given a cost of equity capital of 10%,what is the estimated current share price of ABC?
A) \( \$ 7.80 \)
B) \( \$ 8.40 \)
C) \( \$ 8.90 \)
D) \( \$ 9.20 \)
Q3) Most firms exhibit constant rates of growth in their dividend series. A)True B)False
Q4) The horizon value is the project life where constant growth is assumed. A)True B)False
Page 13
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Chapter 12: Macro- and Industry Analysis of Share Markets
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Sample Questions
Q1) Given a dividend payout ratio of 0.75,a required rate of return of 14.37% and a growth rate of 6%,what is the price-earnings ratio?
A) \( \quad 3.98 \% \)
B) \( \quad 6.37 \% \)
C) \( \quad 8.96 \% \)
D) \( \quad 12.34 \% \)
Q2) If the ICAPM beta is 1.2,and the world market return and risk-free rates are 14% and 6% respectively,then the expected return predicted by the ICAPM is:
A) \( 12.0\% \)
B) \( 14.8 \% \)
C) \( 15.6 \% \)
D) \( 16.4 \% \)
Q3) In studies of the predictability of GDP using the term structure by Harvey (1988),an upward sloping yield curve suggests future economic growth.
A)True
B)False
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Chapter 13: Qualitative Stock Selection
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Sample Questions
Q1) The process of fundamental analysis establishes whether the share is trading at a:
A) price level consistent and relevant to the appropriate index
B) historic level compared to the overall market
C) discount, true value or premium
D) market price that is affordable
Q2) According to technical analysis,a series of price increases supported by heavy volume,interspersed with price falls on light volume,may be indicative of a bear market.
A)True
B)False
Q3) A blue-chip share generally exhibits __________ over time.
A) little growth
B) strong growth
C) low volatility
D) strong volatility
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Chapter 14: Quantitative Company Analysis
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Sample Questions
Q1) The quick ratio measures the relationship between:
A) current assets and current liabilities
B) current assets and equity
C) very liquid current assets and current liabilities
D) very liquid current assets and equity
Q2) Operating ROA is calculated as __________,while ROE is calculated as _________.
A)EBIT/Total assets;Net profit/Total assets
B)Net profit/Total assets;EBIT/Total assets
C)EBIT/Total assets;Net profit/Equity
D)Net profit/EBIT;Sales/Total assets
Q3) Australian studies find that companies with a qualified audit report experience:
A) a negative price reaction
B) a positive price reaction
C) no abnormal price reaction
Q4) Given a receivables turnover value of 5.326,the average collection period is 68 days.
A)True
B)False
Page 16
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Chapter 15: Futures and Forward Contracts
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Sample Questions
Q1) An investor in the currency forward market who expects the Australian dollar to appreciate will gain from taking a short position.
A)True
B)False
Q2) The Sydney Futures Exchange (SFE)changed its name to the ASX Futures Exchange in which year?
A) 1972
B) 1979
C) 2001
D) 2007
Q3) Contracts for difference (CFD's)are a/an ____________ between a buyer and seller to exchange the difference in the price of an underlying asset that occurs from when the contract is ________ through to when it is closed.
A) entitlement, signed
B) obligation, finalised
C) agreement, opened
D) margin, exchanged
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Page 17
Chapter 16: Option Contracts
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Sample Questions
Q1) The most difficult parameter to estimate in the Black-Scholes model is the:
A) underlying asset price
B) risk-free rate of return
C) exercise price
D) one of the aboye
Q2) The difference between the exercise price and the underlying asset price is called the:
A) option profit
B) option value
C) immediate value
D) none of these options
Q3) Using the Black-Scholes model,the delta of a put option is:
A) \( N(d 1) \)
B) \( N(-d) \)
C) \( \mathrm{N}(\mathrm{d} 2) \)
D) \( \mathrm{N}(-\mathrm{d} 2) \)
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Page 18
Chapter 17: Advanced Issues in Options
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Sample Questions
Q1) Low exercise price options (LEPOs)are physical delivery-based __________ options with __________.
A) call; an exercise price of typically one cent
B) call; a very low exercise price
C) European-type; an exercise price of typically one cent
D) European-type; a very low exercise price
Q2) You have $500 000 invested in a property index,which has a current value of 4000.00.If a put option is available with an exercise price of 3800,standard deviation of returns is 20%,time to maturity is 6 months and risk free rate is 8% p.a. ,how many contracts are required for an exact hedge of this index? Assume an index point value of $10.00.
A) 13
B) 3
C) 40
D) 50
Q3) Warrants are not typically priced using the futures cost-of-carry model.
A)True
B)False
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Chapter 18: Alternative Investments
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Sample Questions
Q1) The seminal study of Moskowitz and Vissing-Jørgensen (2002),which has estimated rates of return to private equity in the USA over the 1990s,reports that returns to private equity over the early 1990s were 12.3% p.a.
A)True
B)False
Q2) Which type of fund has the objective to establish an overall position that is uncorrelated with traditional asset classes?
A) event-driven
B) global macro markets
C) emerging markets
D) hedge fund-of-funds
Q3) Which factor did Guo,Lev and Zhou (2005)find plays an important role in the success of a venture capital?
A) quality of the underwriter
B) product-related fundamentals
C) intellectual property fundamentals
D) all of these choices
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Page 20
Chapter 19: Portfolio Management
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Sample Questions
Q1) Which of the following factors may affect the index tracking complexities?
A) change in time to maturity
B) change in interest rates
C) change in share prices
D) all of the above
Q2) Cash matching is typically used to match coupon payments,but not face value payments at maturity.
A)True
B)False
Q3) If large yield changes are expected,it is advisable to match convexity as well as duration.
A)True B)False
Q4) Superannuation involves only personal superannuation schemes.
A)True B)False
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21
Chapter 20: Performance Evaluation of Managed Funds
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Sample Questions
Q1) Which of the following relies upon the security market line?
A) Jensen's alpha
B) Sharpe index
C) Treynor index
D) Carhart's Alpha
Q2) Blake,Elton and Gruber (1993)find that most bond funds have __________ indicating underperformance.
A) betas greater than one
B) betas less than one
C) negative alphas
D) positive alphas
Q3) Allen,Brailsford,Faff and Soucik (2005)compare performance measurement models across nine benchmark definitions using a large sample of Australian equity funds.
A)True
B)False
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Page 22