Study questions for MIDTERM Exam. 23.Which index is created by first deriving the initial total market value of all stocks used in the index?

Study questions for MIDTERM Exam.

23.Which index is created by first deriving the initial total market value of all stocks used in the index?

		Equally-weighted index.
		Price-weighted index.
		Unweighted index.
		Value-weighted index.
		All of the above

24.Superior analysts are encouraged to concentrate their efforts in “middle tier” stocks. This is recommended because

		it works to minimize taxes for the client.
		only individuals deal in the middle tier stocks.
		prices may not adjust quite as rapidly for middle tier stocks as they do in the top tier; therefore, the chances of temporarily undervalued securities are greater.
		it includes companies too small to be considered by institutions.
		technical analysts never look at “middle tier” stocks.

25.A portfolio manager without superior analytical skills should

		Determine and quantify the risk preferences of a client.
		Minimize transaction costs.
		Maintain the specified risk level.
		Ensure that the portfolio is completely diversified.
		All of the above.

26.Some studies have attempted to determine whether it is possible to predict future returns for a stock based on publicly available quarterly earnings reports. The results of these studies indicate

		Stock prices adjust to reflect quarterly earnings reports.
		Stock prices do not adjust to reflect quarterly earnings reports.
		Support for the semistrong EMH.
		Stock prices adjust if earnings reports are released in January.
		Stock prices do not adjust if earnings reports are released in January.

27.Which is not an implication of the EMH?

		To do superior industry or company analysis you must understand the variables that affect returns and do a superior job of estimating these variables.
		Aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy-and-hold policy.
		A superior analyst is one who can consistently select stocks that provide positive abnormal returns on a risk-adjusted basis.
		If a portfolio manager does not have any superior analysts, he/she should consider investing funds in an index fund.
		If a portfolio manager has some superior analytical skills, they should be encouraged to concentrate in second tier stocks which have liquidity, but may be neglected.

28.A positive covariance between two variables indicates that

		the two variables move in different directions.
		the two variables move in the same direction.
		the two variables are low risk.
		the two variables are high risk.
		the two variables are risk free.

29.A positive relationship between expected return and expected risk is consistent with

		investors being risk seekers.
		investors being risk avoiders.
		investors being risk averse.
		all of the above.
		none of the above.

30.The slope of the utility curves for a strongly risk-averse investor, relative to the slope of the utility curves for a less risk-averse investor, will

		Be steeper.
		Be flatter.
		Be vertical.
		Be horizontal.
		None of the above.

31.All of the following are assumptions of the Markowitz model except

		Risk is measured based on the variability of returns.
		Investors maximize one-period expected utility.
		Investors’ utility curves demonstrate properties of diminishing marginal utility of wealth.
		Investors base decisions solely on expected return and time.
		All of the above

21.Beta is a measure of:

		Company specific risk
		Industry risk
		Diversifiable risk
		Systematic risk
		Unique risk

33.The Efficient Frontier refers to a set of portfolios that

		Have the highest expected return for a given level of risk.
		Have the lowest risk for a given level of return.
		Are dominant to all other portfolios.
		a, b, and c above are correct.
		None of the answers above are correct.

34.The market portfolio consists of all

		New York Stock Exchange stocks.
		High grade stocks and bonds.
		Stocks and bonds.
		U.S. and non-U.S. stocks and bonds.
		Risky assets.

35.The separation theorem divides decisions on ____ from decisions on ____.

		Lending, borrowing
		Risk, return
		Investing, financing
		Risky assets, risk free assets
		Buying stocks, buying bonds

36.When identifying undervalued and overvalued assets, which of the following statements is false?

		An asset is properly valued if its estimated rate of return is equal to its required rate of return.
		An asset is considered overvalued if its estimated rate of return is below its required rate of return.
		An asset is considered undervalued if its estimated rate of return is above its required rate of return.
		An asset is considered overvalued if its required rate of return is below its estimated rate of return.
		None of the above (that is, all are true statements)

37.A price range at which technicians feel that a significant increase in the price of the stock will be resisted is referred to as

		Supply threshold.
		Support level.
		Short interest level.
		Advancement level.
		Resistance level.

38.The ratio of OTC volume versus NYSE volume is a measure of ____. This ratio typically ____ at a market ____.

		Speculative activity, bottoms, peak.
		Hedging activity, bottoms, peak.
		Speculative activity, peaks, peak
		Speculative activity, bottoms, bottoms.
		None of the above.

39.A technical analyst might consider the following a bearish signal.

		The percentage of speculators in stock index futures exceeds 70%.
		The percentage of speculators in stock index futures exceeds 30%.
		The percentage of speculators in stock index futures falls to 30%.
		The percentage of speculators in stock index futures remains flat.
		None of the above.

40.Adding international investments to an all U.S. portfolio will most likely:

		Increase the overall risk of the portfolio
		Decrease the overall risk of the portfolio
		Increase the expected return of the portfolio
		Decrease the expected return of the portfolio
		None of the above

41.Investments with predetermined contractual payments are known as:

		Fixed-income
		Real estate
		Real assets
		Equities
		Low liquidity investments

42.Which of the following investments can be purchased with future contracts?

		Commodities
		T-bills
		Treasury bonds
		Eurobonds
		All of the above

43.What type of mutual fund issues “redeemable securities” meaning that the fund stands ready to buy or sell the shares at their net asset value with a transaction fee?

		No-load, closed-end fund
		No-load, open-end fund
		Load, closed-end fund
		Load, open-end fund
		None of the above

44.Municipal bonds are sold using the following method or methods:

		Competitive bid
		Negotiated sale
		Private placement
		All of the above
		None of the above

45.When a market is externally efficient, it means that

		Timely and accurate information is available
		The market is liquid
		Transaction costs are low
		Prices adjust rapidly to new information
		The number of buyers and sellers are the same

46.An individual investor’s utility curves specify the tradeoffs he or she is willing to make between

		high risk and low risk assets.
		high return and low return assets.
		covariance and correlation.
		return and risk.
		efficient portfolios.

47.As the correlation coefficient between two assets decreases, the shape of the efficient frontier

		approaches a horizontal straight line.
		bends out.
		bends in.
		approaches a vertical straight line.
		none of the above.

48.In a value weighted index

		Exchange rate fluctuations have a large impact.
		Exchange rate fluctuations have a small impact.
		Large companies have a disproportionate influence on the index.
		Small companies have an exaggerated effect on the index.
		None of the above

49.A price range at which technicians would expect a substantial increase in the demand for a stock is called

		Demand threshold.
		Resistance level.
		Support level.
		Resistance limit.
		Technical restraint.

 

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