Risk Management Pre-Test
Questions
Course Introduction
Risk Management is the systematic process of identifying, assessing, and mitigating potential threats that could negatively affect an organizations assets, operations, or reputation. This course explores the theoretical and practical aspects of risk management across various sectors, including finance, healthcare, and engineering. Students learn about risk identification techniques, qualitative and quantitative risk assessment, and the development of risk response strategies. The course also covers compliance, regulatory considerations, risk communication, and the implementation of effective risk control and monitoring practices to help organizations achieve their objectives while minimizing potential losses.
Recommended Textbook
Investment Analysis and Portfolio Management 11th Edition by Frank K. Reilly
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22 Chapters
2045 Verified Questions
2045 Flashcards
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Page 2
Chapter 1: The Investment Setting
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72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/71209
Sample Questions
Q1) An individual who selects the investment that offers greater certainty when everything else is the same is known as a risk averse investor.
A)True
B)False
Answer: True
Q2) The ____ the variance of returns, everything else remaining constant, the ____ the dispersion of expectations and the ____ the risk.
A) larger, greater, lower
B) larger, smaller, higher
C) larger, greater, higher
D) smaller, greater, lower
E) smaller, greater, greater
Answer: C
Q3) Investors are willing to forgo current consumption in order to increase future consumption for a nominal rate of interest.
A)True
B)False
Answer: False
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3
Chapter 1: The Investment Setting: Part A
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6 Verified Questions
6 Flashcards
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Sample Questions
Q1) Refer to Exhibit 1A.1. The coefficient of variation of this investment is
A) -0.06.
B) -0.65.
C) 6.60.
D) 16.53.
E) 165.10.
Answer: D
Q2) Refer to Exhibit 1A.2. The expected return for project X is
A) 0.0 percent.
B) 0.5 percent.
C) 2.5 percent.
D) 5.0 percent.
E) 7.5 percent.
Answer: C
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Chapter 2: Asset Allocation and Security Selection
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77 Verified Questions
77 Flashcards
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Sample Questions
Q1) Experts suggest life insurance coverage should be seven to ten times an individual's annual salary.
A)True
B)False
Answer: True
Q2) An individual in the 15 percent tax bracket has $10,000 invested in a tax-exempt IRA account. If the individual earns 8 percent annually before taxes and inflation is 2.5 percent per year, what is the real value of the investment in 20 years?
A) $23,211
B) $28,467
C) $29,178
D) $37,276
E) $46,610
Answer: B
Q3) Return is the only important consideration when establishing investment objectives.
A)True
B)False
Answer: False
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5
Chapter 2: Asset Allocation and Security Selection: Part A
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3 Verified Questions
3 Flashcards
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Sample Questions
Q1) Refer to Exhibit 2A.1. Calculate the coefficient of correlation.
A) -0.456
B) -0.354
C) 0.000
D) 0.456
E) 3.538
Q2) Refer to Exhibit 2A.1. Calculate the covariance.
A) -32.20
B) -23.32
C) 1.00
D) 23.32
E) 32.20
Q3) What is the correlation coefficient for two assets with a covariance of .0032, if asset 1 has a standard deviation of 12 percent and asset 2 has a standard deviation of 9 percent?
A) 0.2963
B) 0.3456
C) 0.8721
D) 1.5980
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Page 6
Chapter 3: Organization and Functioning of Securities Markets
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87 Verified Questions
87 Flashcards
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Sample Questions
Q1) Refer to Exhibit 3.8. What is your total dollar return on this investment?
A) $1,000
B) $900
C) $850
D) $670
E) $520
Q2) Margin transaction involves borrowing part of the cost of an investment.
A)True
B)False
Q3) Refer to Exhibit 3.2. What is Heidi's profit if RC's price rises to $80?
A) $55,000
B) $50,000
C) $60,000
D) $68,270
E) $28,570
Q4) In recent years, there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt, and Paris.
A)True
B)False
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Chapter 4: Security Market Indexes and Index Funds
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Exchange traded funds
A) are exactly the same as index mutual funds.
B) can be bought and sold like common stocks.
C) cannot be sold short.
D) have a high management fee.
E) cannot be timed for capital gain tax realizations.
Q2) Refer to Exhibit 4.4. Calculate the average annual rate of change for this index for the five-year period using the arithmetic mean.
A) 0.28%
B) 1.28%
C) 2.80%
D) 3.58%
E) 6.38%
Q3) When constructing an index, a small percentage of the total population will provide valid indications of the behavior of the total population if the sample is properly selected. A)True
B)False
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Chapter 5: Efficient Capital Markets, Behavioral Finance, and Technical Analysis
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) Banz and Reinganum found that small firms consistently outperformed large firms. This anomaly is referred to as the
A) large firm effect.
B) size effect.
C) small firm effect.
D) earnings effect.
E) growth firm effect.
Q2) The ratio of OTC volume versus NYSE volume is a measure of ____. This ratio typically ____ at a market ____.
A) speculative activity, bottoms, peak.
B) hedging activity, bottoms, peak.
C) speculative activity, peaks, peak
D) speculative activity, bottoms, bottoms.
E) hedging activity, peaks, peak.
Q3) To take advantage of long-run price movements in an efficient market, you must do a superior job of estimating the relevant variables that cause these long-run movements.
A)True
B)False
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Chapter 6: An Introduction to Portfolio Management
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) The capital market line is the tangent line between the risk-free rate of return and the efficient frontier.
A)True
B)False
Q2) Refer to Exhibit 6.12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r<sub>1,2</sub> = .80 and w<sub>1</sub> = .60.
A) .144 and .0002
B) .144 and .0018
C) .136 and .0045
D) .136 and .0455
E) .136 and .4554
Q3) Refer to Exhibit 6.4. What is the standard deviation of this portfolio?
A) 5.02%
B) 3.88%
C) 6.21%
D) 4.04%
E) 5.64%
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10
Chapter 6: An Introduction to Portfolio Management: Part A
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2 Verified Questions
2 Flashcards
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Sample Questions
Q1) Refer to Exhibit 6A.1. Show the minimum portfolio variance for a two-stock portfolio when r<sub>1.2</sub> = 1.
A) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) -E( \(\sigma\)2)]
B) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
C) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) - E( \(\sigma\)2)]
D) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
E) None of these are correct.
Q2) Refer to Exhibit 6A.1. What weight of security 1 gives the minimum portfolio variance when r<sub>1.2</sub> = .60, E( \(\sigma\)1) = .10 and E( \(\sigma\)2) = .16?
A) .0244
B) .3679
C) .5697
D) .6309
E) .9756
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11
Chapter 6: An Introduction to Portfolio Management: Part B
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2 Flashcards
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Sample Questions
Q1) Refer to Exhibit 6B.1. What is the value of W<sub>1</sub> when r<sub>1.2</sub> = -1 and E( \(\sigma\)1) = .10 and E( \(\sigma\)2) = .12?
A) 45.46 percent
B) 50.00 percent
C) 59.45 percent
D) 54.55 percent
E) 74.55 percent
Q2) Refer to Exhibit 6B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r<sub>1.2</sub> = -1.
A) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
B) E( \(\sigma\)1) \(\div\) [E( \(\sigma\)1) - E( \(\sigma\)2)]
C) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) + E( \(\sigma\)2)]
D) E( \(\sigma\)2) \(\div\) [E( \(\sigma\)1) - E( \(\sigma\)2)]
E) None of these are correct.
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12
Chapter 7: Asset Pricing Models
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) The expected return for a stock, calculated using the CAPM, is 25 percent. The risk-free rate is 7.5 percent, and the beta of the stock is 0.80. Calculate the implied return on the market.
A) 7.50 percent
B) 13.91 percent
C) 17.50 percent
D) 21.88 percent
E) 14.38 percent
Q2) Securities with returns that lie below the security market line are undervalued. A)True
B)False
Q3) In a multifactor model, time horizon risk represents
A) unanticipated changes in the level of overall business activity.
B) unanticipated changes in investors' desired time to receive payouts.
C) unanticipated changes in short-term and long-term inflation rates.
D) unanticipated changes in the willingness of investors to take on investment risk.
E) None of these are correct.
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13
Chapter 8: Equity Valuation
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83 Verified Questions
83 Flashcards
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Sample Questions
Q1) Refer to Exhibit 8.4. The future price of the stock in year 3 is
A) $81.75.
B) $84.81.
C) $92.56.
D) $101.85.
E) $111.16.
Q2) The process of fundamental valuation requires estimates of all the following factors, EXCEPT for the
A) time pattern of returns.
B) economy's real risk-free rate.
C) risk premium for the asset.
D) times series of stock prices.
E) expected rate of inflation.
Q3) Operating margins are defined as Operating Profit/Sales
A)True
B)False
Q4) Those who employ the bottom-up approach start their search immediately at the company level.
A)True
B)False
Page 14
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Chapter 9: The Top-Down Approach to Market, Industry, and Company Analysis
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216 Verified Questions
216 Flashcards
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Sample Questions
Q1) Present value of free cash flow to equity resembles the present value of earnings concept except that it includes the capital expenditures required to maintain and grow the firm and the change in working capital required for a growing firm.
A)True
B)False
Q2) Refer to Exhibit 9.9. If the payout ratio changes to 50 percent, but there are no other changes, what will be the new P/E?
A) 3.25
B) 4.16
C) 5.75
D) 6.25
E) 7.67
Q3) All of the following factors affect the required rate of return EXCEPT
A) the economy's risk-free rate.
B) corporate business risk.
C) return on equity.
D) country risk.
E) expected rate of inflation.
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Chapter 10: The Practice of Fundamental Investing
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) The underpricing during the 1999-2000 technology bubble was above _____.
A) 18 percent
B) 30 percent
C) 25 percent
D) 66 percent
E) 55 percent
Q2) When a company acquires another public company, it typically pays a significant premium above the previous market price.
A)True
B)False
Q3) Which of the following is a document that helps potential investors understand the company?
A) Indications of interest
B) The pricing meeting
C) The registration statement
D) The road show
E) The prospectus
Q4) A successful offering is undersubscribed.
A)True
B)False
Page 16
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Chapter 11: Equity Portfolio Management Strategies
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65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/71222
Sample Questions
Q1) A fundamental tenet of the contrarian investment strategy is the notion that
A) all stock returns are mean reverting.
B) certain stocks outperform others during different stages of the business cycle.
C) value stock investing is superior to growth stock investing.
D) growth stock investing is superior to value stock investing.
E) None of these are correct.
Q2) The value investor focuses on share price in anticipation of a market correction and, possibly, improving company fundamentals.
A)True
B)False
Q3) A benchmark portfolio is defined as a passive portfolio whose average characteristics match the client's risk-return objectives.
A)True
B)False
Q4) Following an earnings momentum strategy, an investor acquires stocks that have enjoyed above-market stock price increases.
A)True
B)False
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Chapter 12: Bond Fundamentals and Valuation
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) Revenue bonds are
A) U.S. Treasury bonds backed by the full faith and credit of the issuer.
B) U.S. Treasury bonds backed by income generated form specific projects.
C) municipal bonds backed by the full faith and credit of the issuer.
D) municipal bonds backed by income generated from specific projects.
E) a type of U.S. agency security.
Q2) If the price before yields changed was $925, what is the resulting price?
A) $865.22
B) $918.66
C) $889.11
D) $1000.00
E) $1012.45
Q3) What is the current price of a zero-coupon bond with a 6 percent yield to maturity that matures in 15 years?
A) $4.17
B) $41.27
C) $417.27
D) $4,172.00
E) $41,720.00
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Chapter 13: Bond Analysis and Portfolio Management Strategies
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) The term dedication, used to describe portfolio management techniques, is referring to servicing a prescribed set of
A) interest payments.
B) assets.
C) liabilities.
D) pensioners.
E) sinking fund payments.
Q2) Refer to Exhibit 13.13. Calculate the modified duration for Bond Y.
A) 7.8
B) 4.22
C) 4.34
D) 7.5
E) 9.8
Q3) The position of a bondholder that is long a callable bond is equal to being
A) long a noncallable bond + long a call option on the bond.
B) long a noncallable bond + short a call option on the bond.
C) short a noncallable bond + long a call option on the bond.
D) short a noncallable bond + short a call option on the bond.
E) None of these are correct.
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Chapter 14: An Introduction to Derivative Markets and Securities
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Datacorp stock currently trades at $50. August call options on the stock with a strike price of $55 are priced at $5.75. October call options with a strike price of $55 are priced at $6.25. Calculate the value of the time premium between the August and October options.
A) -$0.50
B) $0
C) $0.50
D) $5
E) -$5
Q2) Refer to Exhibit 14.5. The intrinsic value for the call option with a $45 exercise price is A) $0.00.
B) $1.50.
C) $5.00.
D) $5.25.
E) $6.75.
Q3) The payoffs diagrams to both long and short positions in a forward contract are asymmetrical around the contract price.
A)True
B)False
20
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Chapter 15: Forward, Futures, and Swap Contracts
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) In the absence of arbitrage opportunities, the forward price should be equal to the spot price plus the cost of carry.
A)True
B)False
Q2) Which of the following is NOT true about interest rate swaps?
A) Payments are based on a notional principal.
B) Floating rate payers profit if interest rates fall.
C) Payments can be quarterly as well as semi-annually.
D) Parities exchange debt obligations.
E) Default risk is a possibility in the swaps market.
Q3) A backwardated futures market occurs when
A) F<sub>0,T</sub> < S<sub>0</sub>.
B) F<sub>0,T</sub> = S<sub>0</sub>.
C) F<sub>0,T</sub> > S<sub>0</sub>.
D) F<sub>0,T</sub> > E( S<sub>T</sub>).
E) F<sub>0,T</sub> > S<sub>T</sub>.
Q4) A plain vanilla swap agreement is used in similar situations as a forward rate agreement.
A)True
B)False
Page 21
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Chapter 16: Option Contracts
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Risk management is the driving force behind the futures options market.
A)True
B)False
Q2) Refer to Exhibit 16.8. If you establish a long strap using the options with an 85 exercise price, what is your dollar gain or loss if at expiration XYZ is still trading at 101 11/16?
A) $1,687.50 loss
B) $3,362.50 loss
C) $3,675.50 gain
D) $13.00 gain
E) $13.00 loss
Q3) European options can only be exercised on the expiration date.
A)True
B)False
Q4) It is a violation of the securities laws to combine option contracts to achieve a customized payoff.
A)True
B)False
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Chapter 17: Professional Money Management, Alternative
Assets, and Industry Ethics
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109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/71228
Sample Questions
Q1) Convertible arbitrage hedge funds profit from disparities in the relationship between prices for convertible bonds and fixed-income bonds.
A)True
B)False
Q2) It is quite common for investors to form a "portfolio" of managers with different capabilities.
A)True
B)False
Q3) Investment companies or mutual funds that continue to sell and repurchase shares after their initial public offerings are referred to as
A) closed-end.
B) open-end.
C) no-load.
D) load.
E) public.
Q4) A portfolio is generally managed by the board of directors of an investment company.
A)True
B)False
Page 23
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Chapter 18: Evaluation of Portfolio Performance
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) The Sharpe measure of portfolio performance divides the portfolio's risk premium by the portfolio's beta.
A)True
B)False
Q2) Treynor's performance measure implicitly assumes a completely diversified portfolio.
A)True
B)False
Q3) The cost of active management is the coefficient \(\sigma\)ER, and it is sometimes referred to as
A) market timing.
B) reward for risk.
C) excess reward.
D) excess risk.
E) tracking error.
Q4) A negative Treynor measure (negative T) for a portfolio always indicates that the portfolio would plot below the SML.
A)True
B)False
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