Risk Management Pre-Test
Questions
Course Introduction
Risk Management is a comprehensive course that introduces students to the fundamental principles and practices involved in identifying, assessing, and mitigating risks within organizations. The course covers risk analysis frameworks, qualitative and quantitative risk assessment techniques, and the strategic role of risk management in decision-making. Students explore various types of risks, including financial, operational, strategic, and compliance, while examining real-world case studies to understand risk responses and control measures. By the end of the course, participants will be equipped with the knowledge and tools necessary to develop robust risk management plans and integrate risk controls into organizational processes.
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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Chapter 1: The Investment Setting
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72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/71209
Sample Questions
Q1) The expected return is the average of all possible returns.
A)True
B)False Answer: False
Q2) The coefficient of variation is the expected return divided by the standard deviation of the expected return.
A)True
B)False Answer: False
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
Q4) The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest.
A)True
B)False Answer: True
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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 expected return from this investment is
A) -0.0752.
B) -0.0040.
C) 0.00.
D) 0.0075.
E) 0.4545.
Answer: D
Q2) An investment has a standard deviation of 12 percent and an expected return of 7 percent. What is the coefficient of variation for this investment?
A) 1.714
B) 1.372
C) 0.714
D) 0.583
E) 0.500
Answer: A
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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) An individual in the 36 percent tax bracket has $20,000 invested in a tax-exempt account. If the individual earns 10 percent annually before taxes and inflation is 3.0 percent per year, what is the real value of the investment in 10 years?
A) $31,000
B) $33,200
C) $38,614
D) $39,343
E) $47,823
Answer: C
Q2) ____ is an appropriate objective for investors who want their portfolio to grow in real terms, i.e., exceed the rate of inflation.
A) Capital preservation
B) Capital appreciation
C) Portfolio growth
D) Value additivity
E) Nominal preservation
Answer: B
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Page 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) 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
Q2) 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
Q3) Refer to Exhibit 2A.1. Calculate the covariance.
A) -32.20
B) -23.32
C) 1.00
D) 23.32
E) 32.20
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Page 6
Chapter 3: Organization and Functioning of Securities Markets
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87 Flashcards
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Sample Questions
Q1) Suppose you buy a round lot of Altman Industries stock on 50 percent margin when it is selling at $35 a share. The broker charges a 10 percent annual interest rate and commissions are 5 percent of the total stock value on both the purchase and the sale. If at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is your rate of return on the investment?
A) 15.58 percent
B) 11.84 percent
C) 14.74 percent
D) 21.84 percent
E) 28.38 percent
Q2) A good secondary market is important to the efficiency of the primary market. A)True B)False
Q3) The over-the-counter market includes all stocks not listed on one of the major exchanges but constitutes a lesser dollar value than the New York and American Exchanges combined.
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) A bond market index is easier to create than a stock market index because the universe of bonds is much broader than that of stocks.
A)True
B)False
Q2) A two for one stock split causes the divisor in a price-weighted series to decline.
A)True
B)False
Q3) The Dow Jones Industrial Average is a value weighted average.
A)True
B)False
Q4) The New York Stock Exchange Index is based on a sample of all of the New York Stock Exchange stocks.
A)True B)False
Q5) An equally weighted indicator series is also known as an unweighted indicator series.
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) For technical trading rules to generate returns that are superior to a buy-and-hold strategy, net of transaction costs, the market would have to be
A) rising.
B) falling.
C) inefficient.
D) overvalued.
E) undervalued.
Q2) A price range at which technicians feel that a significant increase in the price of the stock will be resisted is referred to as
A) supply threshold.
B) support level.
C) short interest level.
D) advancement level.
E) resistance level.
Q3) The Dow Theory contends that stock price movements are similar to the movement of tides, waves, and ripples.
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) Between 1994 and 2004, the standard deviation of the returns for the S&P 500 and the NYSE indexes were 0.27 and 0.14, respectively, and the covariance of these index returns was 0.03. What was the correlation coefficient between the two market indicators?
A) 1.26
B) 0.7937
C) 0.2142
D) 0.1111
E) 0.44
Q3) A portfolio is considered to be efficient if
A) no other portfolio offers higher expected returns with the same risk.
B) no other portfolio offers lower risk with the same expected return.
C) there is no portfolio with a higher return.
D) it is the risk-minimizing portfolio.
E) it is the risk-maximizing portfolio.
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Page 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. 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.
Q2) 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
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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) A friend has information that the stock of Zip Incorporated is going to rise from $62.00 to $65.00 per share over the next year. You know that the annual return on the S&P 500 has been 10 percent and the 90-day T-bill rate has been yielding 6 percent per year over the past 10 years. If beta for Zip is 0.9, will you purchase the stock?
A) Yes, because it is overvalued.
B) Yes, because it is undervalued.
C) No, because it is undervalued.
D) No, because it is overvalued.
E) Yes, because the expected return equals the estimated return.
Q2) Refer to Exhibit 7.9. If you know that the actual prices one year from now are stock X $55, stock Y $52, and stock Z $57, then
A) stock X is undervalued, stock Y is undervalued, and stock Z is undervalued.
B) stock X is undervalued, stock Y is overvalued, and stock Z is overvalued.
C) stock X is overvalued, stock Y is undervalued, and stock Z is undervalued.
D) stock X is undervalued, stock Y is overvalued, and stock Z is undervalued.
E) stock X is overvalued, stock Y is overvalued, and stock Z is undervalued.
Q3) The planning period for the CAPM is the same length of time for every investor.
A)True
B)False
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Page 13
Chapter 8: Equity Valuation
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83 Verified Questions
83 Flashcards
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Sample Questions
Q1) Which of the following is correct?
A) if estimated value > Market price, you should buy.
B) if estimated value > Market price, you should sell.
C) if estimated value < Market price, you should do nothing.
D) if estimated value < Market price, you should buy.
E) if estimated value > Market price, you should do nothing.
Q2) All of the following are ways in which a firm can increase its growth rate of equity earnings without any external financing EXCEPT
A) decreasing its dividend payments.
B) increasing its retention ratio.
C) increasing its return on equity (ROE).
D) increasing its return on assets (ROA).
E) All of these are correct.
Q3) Refer to Exhibit 8.4. The dividends for years 1, 2, and 3 are
A) $1.5, $2.0, and $2.05.
B) $1.64, $1.78, and $1.94.
C) $1.64, $1.94, and $2.24.
D) $1.5, $2.40, and $3.30.
E) $2.07, $2.14, and $2.21.
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Page 14
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) Compute the current earnings multiple if the dividend payout ratio for the aggregate market is 60 percent, the required rate of return is 11 percent, and the dividend growth rate is 8 percent.
A) 15
B) 20
C) 25
D) 30
E) 35
Q2) Refer to Exhibit 9.10. In the listing above, which three factors influence the capital gain component of a growth company?
A) 1, 3, and 5
B) 2, 3, and 4
C) 2, 3, and 6
D) 3, 4, and 5
E) 3, 4, and 6
Q3) An increase in the required rate of return k will increase the P/E ratio.
A)True
B)False
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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 overallotment option gives the investment bank the right to buy _____ more shares within the next _____.
A) 5 percent; 10 days
B) 30 percent; 10 days
C) 10 percent; 30 days
D) 30 percent; 15 days
E) 15 percent; 30 days
Q2) The key issues that investors seem to care about with respect to a board include all of the following, EXCEPT
A) the size of the board.
B) stratthe independence of the board.
C) how the board responds to shareholder proposals.
D) separation of the CEO and board chair positions.
E) how management is compensated.
Q3) The three goals of executive compensation are to align management's interest with the shareholders, to keep management from leaving in bad times, and to refrain from giving too much of shareholder profits to management.
A)True
B)False
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Page 16
Chapter 11: Equity Portfolio Management Strategies
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65 Verified Questions
65 Flashcards
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Sample Questions
Q1) Passive portfolio managers attempt to "beat the market" by forming portfolios capable of producing actual returns that exceed risk-adjusted expected returns.
A)True
B)False
Q2) Tracking error is defined as the degree to which the portfolio's returns deviate from those of the actual index.
A)True
B)False
Q3) The three basic techniques for constructing a passive index are: full replication, sampling, and linear programming.
A)True
B)False
Q4) A growth investor focuses on the current and future economic "story" of a company, with less regard for share valuation.
A)True B)False
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Page 17
Chapter 12: Bond Fundamentals and Valuation
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) Refer to Exhibit 12.1. What is the estimated yield on Treasury securities?
A) 4.188 percent
B) 5.428 percent
C) 5.371 percent
D) 4.132 percent
E) 4.753 percent
Q2) High-yield bonds are considered "investment" grade.
A)True
B)False
Q3) The term structure of interest rates is a dynamic function that relates the term to maturity to the yield to maturity of bonds.
A)True
B)False
Q4) Which of the following statements regarding Collateralized Debt Obligations (CDOs) is FALSE?
A) CDOs experienced rapid growth since the year 2000.
B) The assets used to back the CDOs are substantially diverse.
C) The credit quality within a CDO at the time of issue is diverse.
D) CDOs have generated significant credit and liquidity problems.
E) All of these are correct.
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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) Refer to Exhibit 13.8. The interest on one coupon for the candidate bond is
A) $70.00.
B) $3.58.
C) $3.85.
D) $8.35.
E) $5.38.
Q2) Convexity is a desirable feature of bonds because as interest rates decline, the price of a low convexity bond
A) decreases at a decreasing rate
B) decreases at an increasing rate.
C) increases at a decreasing rate.
D) increases at an increasing rate
E) decreases at a decreasing rate.
Q3) Refer to Exhibit 13.8. The value of the swap is ____ basis points in one year.
A) 0.004921
B) 0.4921
C) 4.921
D) 49.21
E) 492.1
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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) Assume that you purchased shares of a stock at a price of $35 per share. At this time, you purchased a put option with a $35 strike price of $3. The stock currently trades at $40. Calculate the dollar return on this option strategy.
A) $3
B) -$2
C) $2
D) -$3
E) $0
Q2) Refer to Exhibit 14.6. How could an investor create arbitrage profits?
A) sell the stock short, write a put, buy a call, and invest the proceeds at the risk-free rate
B) buy the stock, write a put, buy a call, and invest the proceeds at the risk-free rate
C) sell the stock short, buy a put, write a call, and invest the proceeds at the risk-free rate
D) buy the stock, write a put, buy a call, and borrow the strike price at the risk-free rate
E) sell the stock short, write a put, buy a call, and borrow the strike price at the risk-free rate.
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Page 20
Chapter 15: Forward, Futures, and Swap Contracts
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Refer to Exhibit 15.19. Indicate the market value of the swap to the WallMal Company.
A) $5,786,345
B) -$3,575,987
C) $1,289,450
D) -$1,514,900
E) $1,250,075
Q2) The goal of a hedge transaction is to increase expected returns of a fundamental holding.
A)True
B)False
Q3) Refer to Exhibit 15.12. Calculate the current price of the futures contract.
A) 1295.66
B) 1304.34
C) 1342.75
D) 1379.29
E) 1393.49
Q4) The futures exchange requires each customer to post an initial margin account.
A)True
B)False
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Chapter 16: Option Contracts
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Options on futures contracts are very popular because
A) they require the holder to purchase at a future date.
B) of their ability to create leverage.
C) the seller of the futures contract is under no obligation.
D) the amount of the underlying commodity is negotiable.
E) None of these are correct.
Q2) Which of the following is not a variable required to determine an option's value in the Black-Scholes valuation model?
A) future security price
B) exercise price
C) time to expiration
D) risk-free rate
E) security price volatility
Q3) A calendar spread requires the purchase and sale of two calls or two puts in the same stock with
A) the same expiration date but different exercise prices.
B) the same exercise price but different expiration dates.
C) different exercise prices and different expiration dates.
D) the same exercise price and the same expiration month.
E) traded in different markets.
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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) A major question in modern finance regarding closed-end investment companies is
A) why do these funds sell at a premium?
B) why do the premiums differ between funds?
C) what are the returns available to investors from funds that sell at a large discount?
D) what are the returns available to investors from funds that sell at a large premium?
E) what is the average premium?
Q2) Suppose you consider investing $1,000 in a load fund which charges a fee of 2 percent, and you expect the fund to earn 14 percent over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9 percent and charges a 1/2 percent redemption fee. Which is better and by how much?
A) funds are equal
B) load fund by $32.65
C) load fund by $50.55
D) no-load fund by $64.55
E) no-load fund by $44.30
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Page 23
Chapter 18: Evaluation of Portfolio Performance
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Refer to Exhibit 18.4. Compute the Treynor Measure for the CCC fund.
A) 5.43
B) 2.74
C) 2.19
D) 2.00
E) 1.65
Q2) The market rewards investors for bearing total risk.
A)True
B)False
Q3) For a poorly diversified portfolio the appropriate measure of portfolio performance would be
A) the Treynor measure because it evaluates portfolio performance on the basis of return and diversification.
B) the Sharpe measure because it evaluates portfolio performance on the basis of return and diversification.
C) the Treynor measure because it uses standard deviation as the risk measure.
D) the Sharpe measure because it uses beta as the risk measure.
E) the Jensen measure because it measures the risk-adjusted performance.
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