Securities Analysis Test Preparation
Course Introduction
Securities Analysis is a foundational course that delves into the evaluation and valuation of various financial instruments, such as stocks, bonds, and derivatives. Students will learn the principles and methodologies used to assess the intrinsic value of securities, including fundamental and technical analysis techniques. The course covers topics such as financial statement analysis, risk assessment, market efficiency, portfolio construction, and investment strategies. By the end of the course, students will be equipped with the analytical tools necessary to make informed investment decisions and to understand the dynamic nature of financial markets.
Recommended Textbook Investment Analysis and Portfolio Management 1st Canadian Edition by Frank
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1829 Verified Questions
1829 Flashcards
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Page 2
K. Reilly
Chapter 1: The Investment Setting
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67 Flashcards
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Sample Questions
Q1) The geometric mean of a series of returns is always larger than the arithmetic mean and the difference increases with the volatility of the series.
A)True
B)False
Answer: False
Q2) An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed, the expected rate of inflation and the uncertainty of future payments.
A)True
B)False
Answer: True
Q3) The rate of exchange between future consumption and current consumption is
A) The nominal risk-free rate.
B) The coefficient of investment exchange.
C) The pure rate of interest.
D) The consumption/investment paradigm.
E) The expected rate of return.
Answer: C
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Chapter 2: The Asset Allocation Decision
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Sample Questions
Q1) Which of the following is not a life cycle phase?
A) Discovery phase
B) Accumulation phase
C) Consolidation phase
D) Spending phase
E) Gifting phase
Answer: A
Q2) For an investor with a time horizon of 6 to 10 years and higher risk tolerance, an appropriate asset allocation strategy would be
A) 100% stocks
B) 100% cash
C) 30% cash, 50% bonds, and 20% stocks
D) 10% cash, 30% bonds, and 60% stocks
E) 100% bonds
Answer: D
Q3) The spending phase occurs when investors are relatively young.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Selecting Investments in a Global Market
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Sample Questions
Q1) Subordinated bondholders have claim to the assets of the firm only after the firm has satisfied the claims of all senior secured and debenture bondholders.
A)True
B)False
Answer: True
Q2) For a Canadian-based investor, a weaker dollar means that overall dollar based returns on overseas security investment will be higher because
A) A weaker dollar means that exports will rise.
B) A weaker dollar means that more foreign investors will by U.S. securities.
C) A weaker dollar means that the foreign currency will convert to more dollars.
D) A weaker dollar means that more investors will purchase the foreign security.
E) None of the above.
Answer: C
Q3) A call option is usually issued in conjunction with convertible bonds.
A)True
B)False
Answer: False
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Chapter 4: Securities Markets and the Economy
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Sample Questions
Q1) A pure auction market is one in which
A) Dealers provide liquidity by buying and selling shares of stock for themselves.
B) Dealers compete against each other to provide the highest bid and lowest asking prices.
C) Buyers submit bid prices to sellers.
D) Sellers submit ask prices to buyers.
E) Buyers and sellers submit bid and ask prices to a central location to be matched.
Q2) When a market is internally efficient, it means that
A) The market has price continuity.
B) The market has minimal transactions costs
C) The market has good depth
D) The market has more buyers than sellers
E) The market has more sellers than buyers
Q3) Electronic Communication Networks and Electronic Crossing Systems do provide listing services.
A)True
B)False
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Chapter 5: Efficient Capital Markets
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Sample Questions
Q1) Refer to Exhibit 5-3. What is the abnormal rate of return for Elliot during period t using only the aggregate market return (ignore differential systematic risk)?
A) 1.50
B) 1.10
C) -1.50
D) -5.10
E) -8.00
Q2) Autocorrelation and runs tests are used to test the
A) Weak-form efficient market hypothesis (EMH).
B) Semistrong-form efficient market hypothesis (EMH).
C) Strong-form efficient market hypothesis (EMH).
D) Choices a and b
E) All of the above.
Q3) The results of return prediction studies have found
A) Limited success predicting short-horizon returns.
B) Limited success predicting long-horizon returns.
C) Good success predicting long-horizon returns.
D) Choices a and b.
E) Choices a and c.
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Chapter 6: An Introduction to Portfolio Management
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85 Flashcards
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Sample Questions
Q1) Refer to Exhibit 6-13. Calculate the standard deviation for Magnum Oil.
A) 0%
B) 11%
C) 16%
D) 20%
E) 26%
Q2) A portfolio of two securities that are perfectly positively correlated has
A) A standard deviation that is the weighted average of the individual securities standard deviations.
B) An expected return that is the weighted average of the individual securities expected returns.
C) No diversification benefit over holding either of the securities independently.
D) Choices b and c
E) All of the above.
Q3) Risk is defined as the uncertainty of future outcomes.
A)True
B)False
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Chapter 7: Asset Pricing Models: Capm and Apt
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Sample Questions
Q1) Studies indicate that neither firm size nor the time interval used are important when computing beta.
A)True
B)False
Q2) If an individual owns only one security, what is the most appropriate measure of risk?
A) Standard deviation
B) Correlation
C) Beta
D) Covariance
E) All of the above.
Q3) Under the CAPM framework, the introduction of lending and borrowing at differential rates leads to a non-linear capital market line.
A)True
B)False
Q4) Since many of the assumptions made by the capital market theory are unrealistic, the theory is not applicable in the real world.
A)True
B)False
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Chapter 8: Economic and Industry Analysis
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74 Flashcards
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Sample Questions
Q1) Which of the following statements concerning the competitive environment is true?
A) High fixed costs encourage firms to produce at a low level of capacity, in order to minimize fixed cost per unit produced.
B) Low current prices relative to costs in an industry indicate low barriers to entry.
C) Substantial economies of scale do not give a current industry member an advantage over a new firm.
D) The ability to substitute another product limits the industry's profit potential.
E) Buyers and suppliers do not influence the profitability of an industry.
Q2) Structural changes occur when the economy undergoes a major organizational change or how it functions.
A)True
B)False
Q3) Assuming the Canadian dollar is strong relative to the German DM, it will be easier for the Canadian paper industry to export to Germany.
A)True
B)False
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10
Chapter 9: Company Analysis and Stock Valuation
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Sample Questions
Q1) Price-to-book value ratio cannot be used to estimate the value of firms with negative earnings or negative cash flows.
A)True
B)False
Q2) The sustainable growth rate can be calculated by taking the dividend payout ratio time return on equity (ROE).
A)True B)False
Q3) The best known measure of relative value for common stock is the P/E ratio.
A)True B)False
Q4) Refer to Exhibit 9-1. In the listing above, which three factors influence the earnings multiple for a stock?
A) 1, 4, and 5
B) 1, 4, and 6
C) 2, 4, and 6
D) 2, 5, and 6
E) 4, 5, and 6
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Chapter 10: Technical Analysis
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Sample Questions
Q1) A high put/call ratio indicates a pervasive bearish attitude by sophisticated investors so it is a bearish indicator.
A)True
B)False
Q2) According to technical analysts using mutual fund cash positions to guide investment decisions
A) A low cash ratio position is a bullish indicator.
B) A high cash position is a bullish indicator.
C) A high cash position is a bearish indicator.
D) A low cash position is neither bearish nor bullish.
E) None of the above.
Q3) The confidence index published by Barron's is the ratio of the average yield on 10 top grade corporate bonds to the
A) Average yield on 30 blue chip corporate stocks.
B) Average yield on 40 convertible corporate bonds.
C) Yield on Treasury bills.
D) Yield on intermediate-grade bonds.
E) Yield on the Scotia Capital Bond Universe Index
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12
Chapter 11: Bond Fundamentals
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Sample Questions
Q1) An 8.5% coupon bond issued by the provincial government of Nova Scotia sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after tax return to the investor as the tax-free municipal bond if the investor is in the 25% marginal tax bracket?
A) 2.13%
B) 12.25%
C) 11.33%
D) 13.53%
E) 34.71%
Q2) Refer to Exhibit 11-2. If market interest rates are constant, what will the price of the XLR Corporate bond be in three years?
A) $904.29
B) $1,097.63
C) $1,098.50
D) $1,102.85
E) $1,105.62
Q3) High-yield bonds are considered "investment" grade.
A)True
B)False
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Page 13
Chapter 12: The Analysis and Valuation of Bonds
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Sample Questions
Q1) Which of the following is not a risk premium component of bonds?
A) Bond quality
B) Term to maturity of the bond
C) Indenture provisions
D) Foreign bond risk
E) All of the above are risk premium components of bonds.
Q2) A 15-year bond has a $1,000 par value bond, a 4% coupon and a yield to maturity of 3.3%. Interest is paid annually. The bond's current yield is
A) 3.7%
B) 4.0%
C) 3.3%
D) 7.3%
E) None of the above
Q3) For a given change in yield bond price volatility is directly related to duration.
A)True
B)False
Q4) The lower a bond's yield to maturity, the greater its duration.
A)True
B)False
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Chapter 13: An Introduction to Derivative Markets and Securities
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Sample Questions
Q1) Which of the following statements is a true definition of an in-the-money option?
A) A call option in which the stock price exceeds the exercise price.
B) A call option in which the exercise price exceeds the stock price.
C) A put option in which the stock price exceeds the exercise price.
D) An index option in which the exercise price exceeds the stock price.
E) A call option in which the call premium exceeds the stock price.
Q2) What is equivalent to buying a bear spread?
A) Selling a bull spread.
B) Buying an out-of-the-money call and selling an in-the-money call on the same stock with the same exercise date.
C) Selling an out-of-the-money call and buying an in-the-money call on the same stock with a different exercise price.
D) Choices a and b
E) None of the above
Q3) Investment costs are generally higher in the derivative markets than in the corresponding cash markets.
A)True
B)False
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Chapter 14: Derivatives: Analysis and Valuation
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122 Flashcards
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Sample Questions
Q1) Refer to Exhibit 14-2. Calculate the price of the call option today (C ).
A) $7.56
B) $17.48
C) $9.26
D) $5.0
E) $17.15
Q2) The standardization of option contracts and the creation of the Options Clearing Corporation are two important results of the opening of the Chicago Board of Options Exchange.
A)True
B)False
Q3) Which of the following is an example of a commodity-linked fixed income security?
A) Cap and floor note.
B) Cash and debit.
C) Commodity debenture.
D) Bull and bear note.
E) Derivative commodity note.
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Chapter 15: Equity Portfolio Management Strategies
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Sample Questions
Q1) Style investing involves constructing portfolios in such a way to capture one or more of the characteristics of equity securities.
A)True
B)False
Q2) The following are examples of a fundamental active equity portfolio management strategy.
A) Contrarian investing.
B) Earnings momentum investing.
C) Low P/E and low P/BV investing.
D) Bottom up investing.
E) Investing on the basis of calendar effects.
Q3) If the annual geometric mean for the equity risk premium is 8.4%, what percentage of the equity risk premium is consumed by trading costs of 1.2%?
A) 7.20%
B) 9.60%
C) 9.70%
D) 10.08%
E) 14.29%
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Chapter 16: Bond Portfolio Management Strategies
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Sample Questions
Q1) In a barbell strategy
A) One half of funds are invested in short duration bonds and the test in long duration bonds.
B) Seventy five percent of funds are invested in short duration bonds and the test in long duration bonds.
C) Twenty five percent of funds are invested in short duration bonds and the test in long duration bonds.
D) An equal amount of funds are invested in a wide range of maturities.
E) None of the above.
Q2) Refer to Exhibit 16-6. The dollar investment in the candidate bond is
A) $1515.36
B) $853.50
C) $780.46
D) $779.13
E) $877.53
Q3) A bond portfolio is immunized from interest rate risk if the modified duration of the portfolio is always equal to the desired investment horizon.
A)True
B)False
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Page 18
Chapter 17: Professional Money Management, Alternative
Assets, and Industry Ethics
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Sample Questions
Q1) The returns received by the average individual investor on funds managed by investment companies will probably be superior to the average results for a specific U.S. or international market.
A)True
B)False
Q2) The offering price for a share of a load fund equals the net asset value of the share.
A)True
B)False
Q3) In the case of investment companies
A) Investors deal with a fund company and do not have separate accounts tailored to their specific needs.
B) Investors deal with a fund company and have separate accounts tailored to their specific needs.
C) Investors deal with an asset manager and do not have separate accounts tailored to their specific needs.
D) Investors deal with an asset manager have separate accounts tailored to their specific needs.
E) None of the above.
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Chapter 18: Evaluation of Portfolio Performance
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Sample Questions
Q1) Refer to Exhibit 18-7. Calculate TI's overall performance.
A) 0.0113
B) 0.1200
C) 0.0670
D) 0.0530
E) 0.0696
Q2) The measure of performance which divides the portfolio's risk premium by the portfolio's beta is the
A) Sharpe measure.
B) Jensen measure.
C) Fama measure.
D) Information Ratio.
E) Treynor measure.
Q3) Refer to Exhibit 18-10. Calculate the percentage return that can be attributed to the asset allocation decision.
A) 0.105%
B) 0.925%
C) 0.20%
D) 0.96%
E) 0.94%
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Chapter 19: Analysis of Financial Statements
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Sample Questions
Q1) Financial ratios can be used to estimate systematic risk.
A)True
B)False
Q2) Some factors that determine financial risk include interest coverage and cash flow coverage.
A)True
B)False
Q3) Determinants of market liquidity include all except the
A) Number of shares traded.
B) Dollar value of shares traded.
C) Bid-ask spread.
D) Number of security owners.
E) Market price per share.
Q4) Which of the following is not a use of financial ratios?
A) Stock valuation
B) Assigning credit quality ratings on bonds
C) Predicting insolvency
D) Identification of internal corporate variables that affect a stock's systematic risk
E) None of the above (that is, all are uses of financial ratios)
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Chapter 20: An Introduction to Security Valuation
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Sample Questions
Q1) The dividend growth models are only meaningful for companies that have a required rate of return that exceeds their dividend growth rate.
A)True
B)False
Q2) XCEL Corporation paid a dividend yesterday for $1.50. They expect to pay dividends annually at a constant 6% annual growth rate indefinitely. If the required rate of return on this investment is 12%, what is the current value of this common stock?
A) $1.50
B) $12.50
C) $13.25
D) $25.00
E) $26.50
Q3) Which of the following is not considered a basic economic force?
A) Fiscal policy
B) Monetary policy
C) Inflation
D) P/E ratio
E) None of the above (that is, all are basic economic forces)
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Chapter 21: Web Appendix: A Review of Statistics and the
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Sample Questions
Q1) The standard deviation of your expected return from this investment is
A) 0.001
B) 0.004
C) 0.124
D) 1.240
E) None of the above
Q2) The expected return from this investment is
A) -0.0752
B) -0.0040
C) 0.00
D) 0.0075
E) 0.4545
Q3) The coefficient of variation of this investment is
A) -0.06
B) -0.65
C) 6.60
D) 16.53
E) 165.10
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Chapter
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Sample Questions
Q1) The standard deviation of your expected return from this investment is
A) 0.001
B) 0.004
C) 0.124
D) 1.240
E) None of the above
Q2) The coefficient of variation of this investment is
A) -0.06
B) -0.65
C) 6.60
D) 16.53
E) 165.10
Q3) The expected return from this investment is
A) -0.0752
B) -0.0040
C) 0.00
D) 0.0075
E) 0.4545
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Chapter 23: Appendix: Objectives and Constraints of Institutional Investors
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Sample Questions
Q1) Banks face regulatory constraints at both the state and federal level.
A)True
B)False
Q2) Non-life insurance companies have somewhat unpredictable cash outflows and are therefore faced with different investment constraints than life insurance companies.
A)True
B)False
Q3) Banks typically
A) Have low liquidity needs.
B) Face very few federal and state regulatory constraints.
C) Don't have to compete for funds.
D) Have high liquidity needs and a short time horizons constraint.
E) Low investment risk.
Q4) Banks have high liquidity needs and therefore, have a short time horizon.
A)True
B)False
Q5) Many endowments are tax-exempt.
A)True
B)False
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