Security Analysis and Portfolio Management
Exam Answer Key
Course Introduction
Security Analysis and Portfolio Management is a comprehensive course that explores the principles and practices of evaluating investment securities and constructing optimal investment portfolios. Students will learn the fundamental and technical techniques for analyzing a wide range of financial instruments such as stocks, bonds, and derivatives. The course covers topics including risk and return measurement, asset pricing models, market efficiency, portfolio theory, diversification strategies, and portfolio performance evaluation. Emphasis is placed on practical tools for security valuation, portfolio optimization, and risk management, preparing students to make informed investment decisions in a dynamic financial environment.
Recommended Textbook
Essentials of Investments 8th Edition by Zvi Bodie
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22 Chapters
1830 Verified Questions
1830 Flashcards
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Chapter 1: Investments: Background and Issues
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75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/67807
Sample Questions
Q1) Security selection refers to _________.
A) choosing specific securities within each asset-class
B) deciding how much to invest in each asset-class
C) deciding how much to invest in the market portfolio versus the riskless asset
D) deciding how much to hedge
Answer: A
Q2) Suppose an investor is considering one of two investments which are identical in all respects except for risk.If the investor anticipates a fair return for the risk of the security they invest in they can expect to
A) earn no more than the Treasury bill rate on either security
B) pay less for the security that has higher risk
C) pay less for the security that has lower risk
D) earn more if interest rates are lower
Answer: B
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3
Chapter 2: Asset Classes and Financial Instruments
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85 Flashcards
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Sample Questions
Q1) Which one of the following is a true statement?
A) Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors
B) Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock
C) Preferred stockholders have voting power
D) Investors can sue managers for nonpayment of preferred dividends
Answer: B
Q2) Which of the following is not a nickname for an agency associated with the mortgage markets?
A) Fannie Mae
B) Freddie Mac
C) Sallie Mae
D) Ginnie Mae
Answer: C
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Page 4
Chapter 3: Securities Markets
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90 Verified Questions
90 Flashcards
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Sample Questions
Q1) The fully automated trade-execution system installed on the NYSE is called
A) FAX
B) Direct Plus
C) NASDAQ
D) SUPERDOT
Answer: B
Q2) Specialists try to maintain a narrow bid-ask spread because _______.
I.If the spread is too large they will not participate in as many trades,losing commission income
II.The exchange requires specialists to maintain price continuity
III.Specialists are non-profit entities designed to facilitate market transactions rather than make a profit
A) I only
B) I and II only
C) II and III only
D) I, II and III
Answer: B
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Page 5
Chapter 4: Mutual Funds and Other Investment Companies
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85 Flashcards
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Sample Questions
Q1) Consider a no-load mutual fund with $400 million in assets,50 million in debt,and 15 million shares at the start of the year; and $500 million in assets,40 million in debt,and 18 million shares at the end of the year.During the year investors have received income distributions of $0.50 per share,and capital gains distributions of $0.30 per share.Assuming that the fund carries no debt,and that the total expense ratio is 0.75%,what is the rate of return on the fund?
A) 12.09%
B) 12.99%
C) 8.25%
D) There is not sufficient information to answer this question
Q2) The greatest percentage of mutual fund assets are invested in ________.
A) bond funds
B) equity funds
C) hybrid funds
D) money market funds
Q3) Mutual funds account for roughly ______ percent of investment company assets.
A) 30
B) 50
C) 70
D) 90
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Chapter 5: Risk and Return: Past and Prologue
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83 Flashcards
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Sample Questions
Q1) Annual percentage rates can be converted to effective annual rates by means of the following formula:
A) (1 + (APR/n))n - 1
B) (APR)(n)
C) (APR/n)
D) (periodic rate)(n)
Q2) What is the geometric average return for the period?
A) 2.87%
B) 0.74%
C) 2.60%
D) 2.21%
Q3) Suppose you pay $9,800 for a $10,000 par Treasury bill maturing in two months.What is the annual percentage rate of return for this investment?
A) 2.04%
B) 12.00 %
C) 12.24%
D) 12.89%
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Chapter 6: Efficient Diversification
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Sample Questions
Q1) Adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the ______.
A) up, right
B) up, left
C) down, right
D) down, left
Q2) Reward-to-variability ratios are ________ on the ________ capital market line.
A) lower; steeper
B) higher; flatter
C) higher; steeper
D) the same; flatter
Q3) If you want to know the portfolio standard deviation for a three stock portfolio you will have to
A) calculate two covariances and one trivariance
B) calculate only two covariances
C) calculate three covariances
D) average the variances of the individual stocks
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8
Chapter 7: Capital Asset Pricing and Arbitrage Pricing
Theory
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85 Flashcards
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Sample Questions
Q1) Liquidity is a risk factor that __________.
A) has yet to be accurately measured and incorporated into portfolio management
B) is unaffected by trading mechanisms on various stock exchanges
C) has no effect on the market value of an asset
D) affects bond prices but not stock prices
Q2) Beta is a measure of ______________.
A) total risk
B) relative systematic risk
C) relative non-systematic risk
D) relative business risk
Q3) The measure of risk used in the Capital Asset Pricing Model is ___________.
A) specific risk
B) the standard deviation of returns
C) reinvestment risk
D) beta
Q4) The measure of unsystematic risk can be found from an index model as
A) residual standard deviation
B) R-square
C) degrees of freedom
D) sum of squares of the regression
9
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Chapter 8: The Efficient Market Hypothesis
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Sample Questions
Q1) You are an investment manager who is currently managing assets worth $6 billion.You believe that active management of your fund could generate between an additional one tenth of 1% return on the portfolio.If you want to make sure your active strategy adds value,how much can you spend on security analysis?
A) $12,000,000
B) $6,000,000
C) $3,000,000
D) $0
Q2) According to results by Seyhun the main reason why investors cannot earn excess returns by following inside trades after they become public is ______________.
A) risk premium
B) transaction costs
C) the SEC late disclosure rule
D) the stock reversal effect
Q3) An implication of the efficient market hypothesis is that __________.
A) high beta stocks are consistently overpriced
B) low beta stocks are consistently overpriced
C) nonzero alphas will quickly disappear
D) growth stocks are better buys than value stocks
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Page 10
Chapter 9: Behavioral Finance and Technical Analysis
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Sample Questions
Q1) The Dow Theory is a technique that attempts to identify ___________________.
A) only long-term trends in stock market prices
B) only short-term trends in stock market prices
C) both long-term and short-term trends in stock market prices
D) trends in arbitrage trading opportunities
Q2) On a particular day,there were odd-lot sales of 830,000 on the NYSE and 746,000 odd-lot purchases.The odd-lot trading index is __________.
A) 0.43
B) 0.90
C) 0.77
D) 1.11
Q3) When the market breaks through the moving average line from below,a technical analyst would probably suggest it is a good time to ___________.
A) buy the stock
B) hold the stock
C) sell the stock
D) short the stock
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Chapter 10: Bond Prices and Yields
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Sample Questions
Q1) A bond was purchased at a premium and is now selling at a discount because of a change in market interest rates.If the bond pays a 4% annual coupon,what is the likely impact on the holding period return in an investor decides to sell now?
A) Increased
B) Decreased
C) Stayed the same
D) Can not be determined
Q2) Floating rate bonds have a __________ that is adjusted with current market interest rates.
A) maturity date
B) coupon payment date
C) coupon rate
D) dividend yield
Q3) Inflation-indexed Treasury securities are commonly called ____.
A) PIKs
B) CARs
C) TIPS
D) STRIPS
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Chapter 11: Managing Bond Portfolios
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85 Flashcards
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Sample Questions
Q1) Pension fund managers can generally best bring about an effective reduction in their interest rate risk by holding ___________________.
A) long maturity bonds
B) long duration bonds
C) short maturity bonds
D) short duration bonds
Q2) Compute the duration of an 8%,5-year corporate bond with a par value of $1000 if yield to maturity of 10%.
A) 3.92
B) 4.28
C) 4.55
D) 5.00
Q3) Duration is a concept that is useful in assessing a bond's _________.
A) credit risk
B) liquidity risk
C) price volatility
D) convexity risk
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Chapter 12: Macroeconomic and Industry Analysis
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) Supply side economics tends to focus on _______________.
A) government spending
B) price controls
C) monetary policy
D) increasing productive capacity
Q2) Capital goods industries such as industrial equipment,transportation or construction would be good investments during the _____ stage of the business cycle.
A) peak
B) contraction
C) trough
D) expansion
Q3) What economic variable is most closely associated with increasing corporate profits?
A) Exchange rates
B) Inflation
C) Gross domestic product
D) Budget deficits
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Page 14
Chapter 13: Equity Valuation
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88 Flashcards
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Sample Questions
Q1) At what price would you expect ART to sell?
A) $25.00
B) $34.29
C) $42.86
D) $45.67
Q2) Gagliardi Way Corporation has an expected ROE of 15%.If it pays out 30% of it earnings as dividends,its dividend growth rate will be _____.
A) 4.5%
B) 10.5%
C) 15.0%
D) 30.0%
Q3) Each of two stocks,A and B,are expected to pay a dividend of $7 in the upcoming year.The expected growth rate of dividends is 6% for both stocks.You require a return of 10% on stock A and a return of 12% on stock B. Using the constant growth DDM, the intrinsic value of stock A _________.
A) will be higher than the intrinsic value of stock B
B) will be the same as the intrinsic value of stock B
C) will be less than the intrinsic value of stock B
D) more information is necessary to answer this question
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Page 15
Chapter 14: Financial Statement Analysis
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84 Flashcards
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Sample Questions
Q1) What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?
A) Asset turnover
B) Current ratio
C) Liquidity ratio
D) Quick ratio
Q2) The ABS company has a capital base of $100 million,an opportunity cost of capital (k)of 15%,a return on assets (ROA)of 9% and a return on equity (ROE)of 18%.What is the economic value added (EVA)for ABS?
A) $8 million
B) -$6 million
C) $3 million
D) -$4 million
Q3) A firm has an ROA of 8%,a debt/equity ratio of 0.5,its ROE is _________.
A) 4%
B) 6%
C) 8%
D) 12%
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Chapter 15: Options Markets
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88 Flashcards
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Sample Questions
Q1) a(n.______ option can only be exercised on the expiration date.
A) Mexican
B) Asian
C) American
D) European
Q2) A European put option gives its holder the right to _________.
A) buy the underlying asset at the exercise price on or before the expiration date
B) buy the underlying asset at the exercise price only at the expiration date
C) sell the underlying asset at the exercise price on or before the expiration date
D) sell the underlying asset at the exercise price only at the expiration date
Q3) __________ is the most risky transaction to undertake in the stock index option markets if the stock market is expected to fall substantially after the transaction is completed.
A) Writing an uncovered call option
B) Writing an uncovered put option
C) Buying a call option
D) Buying a put option
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Chapter 16: Option Valuation
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Sample Questions
Q1) Hedge ratios for long puts are always __________.
A) between -1 and 0
B) between 0 and 1
C) 1
D) greater than 1
Q2) A call option has an exercise price of $35 and a stock price of $36.50.If the call option is trading at $2.25,what is the time value embedded in the option?
A) $0.00
B) $0.75
C) $1.50
D) $2.25
Q3) Investor A bought a call option and Investor B bought a put option.All else equal if the interest rate increases the value of Investor A's position will ______ and the value of Investor B's position will _______.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
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18
Chapter 17: Futures Markets and Risk Management
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Sample Questions
Q1) Which one of the following contracts requires no cash to change hands when initiated?
A) Listed put option
B) Short futures contract
C) Forward contract
D) Listed call option
Q2) A person with a long position in a commodity futures contract wants the price of the commodity to ______.
A) decrease substantially
B) increase substantially
C) remain unchanged
D) increase or decrease substantially
Q3) If an asset price declines,the investor with a _______ is exposed to the largest potential loss.
A) long call option
B) long put option
C) long futures contract
D) short futures contract
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Chapter 18: Portfolio Performance Evaluation
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Sample Questions
Q1) A portfolio generates an annual return of 13%,a beta of 0.7 and a standard deviation of 17%.The market index return is 14% and has a standard deviation of 21%.What is the Sharpe measure of the portfolio if the risk free rate is 5%?
A) .3978
B) .4158
C) .4563
D) .4706
Q2) A mutual fund invests in large-capitalization stocks.Its performance should be measured against which one of the following?
A) Russell 2000 index
B) S&P 500 index
C) Wilshire 5000 index
D) Dow Jones Industrial Average
Q3) Which one of the following is largely based on forecasts of macroeconomic factors?
A) Security selection
B) Passive investing
C) Market efficiency
D) Market timing
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Chapter 19: Globalization and International Investing
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Sample Questions
Q1) If you limit your investment opportunity set to only the largest six countries in the world in terms of equity capitalization as a percentage of total global equity capital you will include about _______ of the world's equity.
A) 35%
B) 45%
C) 55%
D) 65%
Q2) Of the following,which is the most commonly used international index?
A) DJIA
B) EAFE
C) Russell 2000
D) S&P500
Q3) Which one of the following allows you to purchase stock of a specific foreign company?
A) WEBS
B) MSCI
C) ADR
D) EAFE
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Chapter 20: Hedge Funds
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Sample Questions
Q1) The one-year oil futures price should be equal to __________.
A) $68.00
B) $70.21
C) $71.25
D) $74.88
Q2) A restriction where investors cannot withdraw their funds for as long as several months or years is called __________.
A) transparency
B) a lock up period
C) a back end load
D) convertible arbitrage
Q3) A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.
A) commingled pool
B) unit trust
C) hedge fund
D) money market fund
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22
Chapter 21: Taxes,inflation,and Investment Strategy
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Sample Questions
Q1) A person in excellent health with a long life expectancy chooses a lifetime annuity.This is an example of _________.
A) moral hazard
B) adverse selection
C) a Texas hedge
D) actuarial error
Q2) A safe driver who drives faster as a result of purchased collision car insurance would be an example of the ___________ problem.
A) moral hazard
B) adverse selection
C) Texas hedge
D) actuarial error
Q3) Taxes are applied to the _______________________.
A) real value of sheltered investment income
B) nominal value of unsheltered investment income
C) nominal value of sheltered investment income
D) real value of unsheltered investment income
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Chapter 22: Investors and the Investment Process
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Sample Questions
Q1) The major asset most people have during their early working years is their
A) home
B) stock portfolio
C) earning power derived from their skills
D) bond portfolio
Q2) An investor is looking at different retirement investment choices and he is willing to accept one with upside potential even if that means sacrificing certainty.Which of the following will he most likely select?
A) Fixed annuity
B) Defined benefit plan
C) Defined contribution plan
D) Bonds invested in an IRA
Q3) A life insurance firm wants to minimize its interest rate risk and it is planning on paying out $250,000 in five years.Which one of the following investments best matches its goal?
A) High yield utility stocks
B) 5-year zero coupon bonds
C) 10-year coupon bonds
D) Money market investments rolled over as needed
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