Investments FINC 3640

Real assets in the economy include all but which one of the following?
-land
-buildings
-consumer durables
-common stock

common stock

Which of the following are financial assets?
1. Debt Securities
2. Equity Securities
3. Derivative Securities

1,2, and 3

Which of the following is an example of an agency problem?

All of the above

Which of the following is not a money market security?
-US Treasury Bill
-6-month maturity certificate of deposit
-common stocks
-all of the options

Common Stock

_________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis.

Passive

Money market securities are sometimes referred to as cash equilivants because

they are safe and marketable

The bid price of a treasury bill is:

the price at which the dealer in treasury bills is willing to buy the bill

Preferred stock is like long term debt in that _____

It promises to pay its holder a fixed stream of income each year

Which of the following is not a true statement regarding municipal bonds?

A municipal bond is a debt obligation issued by the federal government

Which one of the following statements about IPOs is not true?

IPOs generally provide superior long term performance as compared to other stocks

Private placements can be advantageous, compared to public issues, because...
1. Private placements are cheaper to market than public issues.
2. Private placements may still be sold to the general public under SEC Rule 144A.
3. Privately placed securities

1 only- Private placements are cheaper to market than public issues.

Underwritting is one of the services provided by ______

investment bankers

Purchases of new issues of stock take place_____

in the primary market

An order to buy or sell a security at the current price is a _____

market order

Advantages of investment companies to investors include all but which one of the following?

guaranteed rates of return

Which type of fund generally has the lowest average expense ratio?

indexed funds

You are considering investing in a no-load mutual fund with an annual expense ratio of .7% and an annual 12b-1 fee of .85%. You could also invest in a band CD paying 5.5% per year. What minimum annual rate of return must the fund earn to make you better o

7.05%

Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note that the firm is reporting $225 million in assets, $30 million in liabilities, and $10 million shares outstanding. What is the net asse

$19.50

The _____ measure of returns ignores compounding

arithmetic average

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2013.

1. Small Stocks
3. Large Stocks
2. Long-term bonds
4. T-Bills

In the context of the capital asset pricing model, the systematic measure of risk is captured by _______

beta

Risk that can be eliminated through diversification is called ____
-unique
-firm specific
-diversifiable
-all of these options

all of these options

Which of the following statistics cannot be negative?

Variance

The rate of return on _______ is known at the beginning of the holding period, while the rate of return on _____ is not known until the end of the holding period.

Treasury bills; risky assets

Decreasing the number of stocks in a portfolio from 50 to 10 would likely ________

increase the unsystematic risk of the portfolio

Some diversification benefits can be achieved by combining securities in a portfolio as long as the correlation between the securities is ______

Less than 1

The _______ sharpe ratio is found on the _______ capital market line.

highest; steepest

Based on CAPM, a stocks alpha measures the stocks ______

abnormal return

In a well diversified portfolio, _____ risk is negligible.

unsystematic

The correlation coefficient between two assets equals _____

their covariance divided by the product of their standard deviations

The holding period return on stock is equal to ______

the capital gain yield over the period plus the dividend yield

The market portfolio has a beta of _____

1

According to the capital asset pricing model, a security with a ______

positive alpha is considered underpriced

The complete portfolio refers to the investment in _____

the risk-free asset and the risky portfolio combined

Historical returns have generally been _______ for stocks of small firms as/than for stocks for large firms.

higher

The CAPM implies that investors require a higher return to hold highly volatile securities. (T/F)

True

The weak form of the EMH states that _____ must be reflected in the current stock price.

all past information, including security price and volume data

Proponents of the EMH typically advocate ______

a passive investment strategy

The broadest information set is included in the _______

strong-form efficiency argument

The term random walk is used in investments to refer to _____

stock price changes that are random and unpredictable

A support level is ______

A level below which the market is unlikely to fall

Assume that a company announces unexpectectedly high earnings in a particular quarter. In an efficient market one might expect ______

an abnormal price change immediately after the announcement

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be describes as using which approach?

Passive Investment

The bonds of elbow grease dishwashing company have received a rating of C by Moody's. The C rating indicated that the bonds are ______.

Junk bonds

A _______ bond gives the issuer an option to repurchase the bond before maturity at a specific price after a specific date.

callable

The duration of a 5-year zero coupon bond is _____ years.

5

The yield on tax exempt bonds is ______

Less than the yield on taxable bonds

When the market breaks through the moving average line from below, a technical analyst would probably suggest that it is a good time to ______

Buy the stock

Which one of the following is a common term for the market consensus value of the required return on equity?

market capitalization rate

All else equal, firms with higher PVGO tend to have P/E ratios that are _____ the P/E ratios of firms with lower PVGO.

higher than

The constant growth dividend discount model (DDM) can be used only when the _______.

growth rate is less than the required return

Stockholders of Dogs R Us Pet Supply expect a 12% rate of return on their stock. Management has consistently been generating a ROE of 15% over the last 5 years but now believes that ROE will be 11% for the next 5 years. Given this, the firms optional divi

100%

All else held equal, bond price sensitivity is greater when coupon rate is _______; maturity is _______; and current yield to maturity is _______.

lower; higher; higher

Form of DDM that assumes dividends will grow at a constant rate, Implies stock's value is greater if dividend per share is _______; market capitalization rate is _______; and expected growth rate of dividends is ______.

larger; lower; higher

All other things equal, a bonds duration is lower when yield to maturity is ______; maturity is ______; and coupon rate is ______.

constant; lighter; higher