Security Analysis Review Questions
Course Introduction
Security Analysis is a foundational course that delves into the principles and techniques used to evaluate and value financial securities, such as stocks and bonds. Through a combination of theoretical frameworks and real-world case studies, students explore topics including fundamental and technical analysis, risk assessment, market efficiency, financial statement analysis, and portfolio construction. The course emphasizes the process of making informed investment decisions, understanding the factors that impact security prices, and applying analytical methods to assess intrinsic value. By the end of the course, students are equipped with the skills to conduct thorough security evaluations and develop investment strategies based on sound financial analysis.
Recommended Textbook Principles of Investments 1st Edition by Michael Drew
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18 Chapters
1052 Verified Questions
1052 Flashcards
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Chapter 1: Investments: Background and Issues
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55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/57838
Sample Questions
Q1) Accounting scandals can often be attributed to a particular concept in the study of finance known as the ________.
A)agency problem
B)risk-return trade-off
C)allocation of risk
D)securitisation
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 bond 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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Page 3
Chapter 2: Asset Classes and Financial Instruments
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59 Verified Questions
59 Flashcards
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Sample Questions
Q1) If you thought prices of share would be rising over the next few months you may wish to ________ on the share.
A)purchase a call option
B)purchase a put option
C)sell a futures contract
D)place a short sale order
Answer: A
Q2) A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.
A)call option
B)futures contract
C)put option
D)interest rate swap
Answer: A
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Page 4
Chapter 3: Securities Markets
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/57840
Sample Questions
Q1) As a type of secondary capital raising, ________ can be conducted very quickly and has very few regulatory requirements.
A)rights issue
B)placement
C)share purchase plan
D)dividend reinvestment plan
Answer: B
Q2) The Australian Securities Exchange (ASX) is an example of ________.
A)an auction market
B)a brokered market
C)a dealer market
D)a direct search market
Answer: A
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Chapter 4: Managed Funds and Other Investment Companies
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) The main investments of growth funds are ________.
A)fixed-income securities
B)real estates
C)commodity derivatives
D)equities securities
Q2) The investment philosophy of ETFs is ________.
A)pro-active management
B)demi-active management
C)passive management
D)active management
Q3) Which of the following funds invest in shares of fast growing companies?
A)Balanced funds
B)Growth equity funds
C)REITs
D)Equity income funds
Q4) Targeted-maturity funds are ________.
A)growth funds
B)closed-end funds
C)balanced funds
D)stable funds
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Chapter 5: Risk and Return: Past and Prologue
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) You have an EAR of 9%. The equivalent APR with continuous compounding is
A)8.47%
B)8.62%
C)8.88%
D)9.42%
Q2) A portfolio with a 25% standard deviation generated a return of 15% last year when T-notes were paying 4.5%. This portfolio had a Sharpe measure of ________.
A)0.22
B)0.60
C)0.42
D)0.25
Q3) You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was ________.
A)4.00%
B)3.50%
C)7.00%
D)11.00%
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Chapter 6: Efficient Diversification
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56 Verified Questions
56 Flashcards
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Sample Questions
Q1) On a standard expected return vs. standard deviation graph investors will prefer portfolios that lie to the ________ of the current investment opportunity set.
A)left and above
B)left and below
C)right and above
D)right and below
Q2) An investor's degree of risk aversion will determine their ________.
A)optimal risky portfolio
B)risk-free rate
C)optimal mix of the risk-free asset and risky asset
D)capital allocation line
Q3) The term excess-return refers to ________.
A)returns earned illegally by means of insider trading
B)the difference between the rate of return earned and the risk-free rate
C)the difference between the rate of return earned on a particular security and the rate of return earned on other securities of equivalent risk
D)the portion of the return on a security which represents tax liability and therefore cannot be reinvested
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Chapter 7: Capital Pricing and Arbitrage Pricing Theory
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59 Verified Questions
59 Flashcards
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Sample Questions
Q1) The most significant conceptual difference between the arbitrage pricing theory (APT) and the capital asset pricing model (CAPM) is that the CAPM ________.
A)places less emphasis on market risk
B)recognises multiple unsystematic risk factors
C)recognises only one systematic risk factor
D)recognises multiple systematic risk factors
Q2) Which of the following variables do Fama and French claim do a better job explaining share returns than beta?
I. Book to market ratio
II. Unexpected change in industrial production
III. Firm size
A)I only
B)I and II only
C)I and III only
D)I, II and III
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9
Chapter 8: The Efficient Market Hypothesis and Behavioral Finance
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/182031
Sample Questions
Q1) If you believed in the reversal effect, you should ________.
A)buy bonds this period if you held shares last period
B)buy shares this period that performed poorly last period
C)buy shares this period that performed well last period
D)do nothing if you held the share last period
Q2) Behaviouralists point out that even if market prices are ________ there may be
A)distorted; limited arbitrage opportunities
B)distorted; fundamental efficiency
C)allocationally efficient; limitless arbitrage opportunities
D)distorted; allocational efficiency
Q3) You are an investment manager who is currently managing assets worth $6 billion. You believe that active management of your fund could generate 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
Page 10
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Chapter 9: Bond Prices and Yields
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) You buy a TIPS at issue at par for $1 000. The bond has a 3% coupon. Inflation turns out to be 2%, 3% and 4% over the next three years. The total annual coupon income you will receive in year three is ________.
A)$30.00
B)$33.00
C)$32.78
D)$30.90
Q2) 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)Cannot be determined
Q3) When discussing bonds, convexity relates to the ________.
A)shape of the bond price curve with respect to interest rates
B)shape of the yield curve with respect to maturity
C)slope of the yield curve with respect to liquidity premiums
D)size of the bid-ask spread
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Page 11
Chapter 10: Managing Bond Portfolios
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Because of convexity, when interest rates change the actual bond price will ________ the bond price predicted by duration.
A)always be higher than B)sometimes be higher than C)always be lower than D)sometimes be lower than
Q2) Immunisation of coupon paying bonds is not a passive strategy because ________.
I. the portfolio must be rebalanced every time interest rates change
II. the portfolio must be rebalanced over time even if interest rates don't change III. convexity implies duration based immunisation strategies don't work
A)I only
B)I and II only
C)II only
D)I, II and III
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 11: Equity Valuation
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/57848
Sample Questions
Q1) Each of two shares, 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 shares. You require a return of 10% on Share A and a return of 12% on Share B. Using the constant growth DDM, the intrinsic value of Share A ________.
A)will be higher than the intrinsic value of Share B
B)will be the same as the intrinsic value of Share B
C)will be less than the intrinsic value of Share B
D)more information is necessary to answer this question
Q2) Which one of the following is equal to the ratio of common shareholders' equity to common shares outstanding?
A)Book value per share
B)Liquidation value per share
C)Market value per share
D)Tobin's q
Q3) Value shares are more likely to have a PEG ratio ________.
A)less than one
B)equal to one
C)greater than one
D)less than zero
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Page 13
Chapter 12: Macroeconomic and Industry Analysis
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58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/182037
Sample Questions
Q1) A big increase in government spending is an example of ________.
A)a positive demand shock
B)a positive supply shock
C)a negative demand shock
D)a negative supply shock
Q2) The nominal interest rate is 10%. The real interest rate is 4%. The inflation rate must be
A)-6.00%
B)4.00%
C)5.77%
D)14.40% inflation
Q3) Which of the following is the rate at which the general level of prices for goods and services is rising?
A)The exchange rate
B)The gross domestic product growth rate
C)The inflation rate
D)The real interest rate
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14
Chapter 13: Financial Statement Analysis
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55 Verified Questions
55 Flashcards
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Sample
Questions
Q1) A firm purchases goods on credit worth $150. The same firm pays off $100 in old credit purchases. An investment is made via the purchase of a new facility and equity is issued in the amount of $300 to pay for the purchase. What is the change in net cash provided by operations?
A)$50 increase
B)$100 increase
C)$150 increase
D)$250 increase
Q2) Common-size balance sheets are prepared by dividing all quantities by ________.
A)total assets
B)total liabilities
C)shareholder's equity
D)fixed assets
Q3) Which of the following assets is most liquid?
A)Cash equivalents
B)Receivables
C)Inventories
D)Plant and equipment
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15
Chapter 14: Options and Risk Management
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/57851
Sample Questions
Q1) Before expiration the time value of an out-of-the money share option is ________.
A)equal to the share price minus the exercise price
B)equal to zero
C)negative
D)positive
Q2) In the Black-Scholes model as the share's price increases the values of N(d1) and N(d2) will ________ for a call and ________ for a put option.
A)increase; decrease
B)increase; increase
C)decrease; increase
D)decrease; decrease
Q3) The ________ is the share price minus exercise price, or the profit that could be attained by immediate exercise of an in-the-money call option.
A)intrinsic value
B)time value
C)stated value
D)discounted value
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Chapter 15: Futures and Risk Management
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/57852
Sample Questions
Q1) Forward contracts ________ traded on an organised exchange and futures contracts ________ traded on an organised exchange.
A)are; are
B)are; are not
C)are not; are D)are not; are not
Q2) Initial margin is usually set in the region of ________ of the total value of a futures contract.
A)5-15%
B)10-20%
C)15-25%
D)20-30%
Q3) Which of the following provides the profit to a short position at contract maturity?
A)Original futures price - Spot price at maturity
B)Spot price at maturity - Original futures price
C)Zero
D)Basis
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17
Chapter 16: Investors and the Investment Process
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/57853
Sample Questions
Q1) Which one of the following would be considered to be a 'cash equivalent' investment?
A)Treasury bills
B)Common stock
C)Corporate bonds
D)Real estate
Q2) In a defined benefit pension plan, the ________ bears all of the fund's investment performance risk.
A)employer
B)employee
C)fund manager
D)government
Q3) An investor with low risk aversion will likely require which of the following risk return combinations?
A)Expected return = 11%; Historical standard deviation = 12%
B)Expected return = 12%; Historical standard deviation = 14%
C)Expected return = 14%; Historical standard deviation = 18%
D)Expected return = 17%; Historical standard deviation = 21%
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18
Chapter 17: Hedge Funds
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60 Verified Questions
60 Flashcards
Source URL: https://quizplus.com/quiz/57854
Sample Questions
Q1) The difference between market neutral and long/short hedges is that market neutral hedge funds ________.
A)establish long and short position on both sides of the market to eliminate risk and to benefit from security asset mispricing, whereas long/short hedge establish positions only on one side of the market
B)allocate money to several other funds while long/short funds do not
C)invest in relatively stable proportions of shares and bonds while the proportions may vary dramatically for long/short funds
D)invest only in equities and bonds while long/short funds use only derivatives
Q2) Some argue that abnormally high returns of hedge funds are tainted by ________, which arises when unsuccessful funds cease operations leaving only successful ones.
A)reporting bias
B)survivorship bias
C)backfill bias
D)incentive bias
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Chapter 18: Portfolio Performance Evaluation
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) The contribution of security selection within asset classes to the total excess return was ________.
A)1.5%
B)2.0%
C)2.5%
D)3.5% (.12 - .10.20 + (.1700 - .1500).80 = .0200
Q2) Consider the theory of active portfolio management. Shares A and B have the same positive alpha and the same non-systematic risk. Share A has a higher beta than share B. You should want ________ in your active portfolio.
A)equal proportions of Shares A and B
B)more of Share A than Share B
C)more of Share B than Share A
D)more information is needed to answer this question
Q3) What is the contribution of asset allocation to relative performance?
A)-0.18%
B)0.18%
C)-0.15%
D)0.15%
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