EQPS Multiple Choice Questions PDF

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Marian Carcu

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finance investment multiple choice questions economics

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This document contains multiple-choice questions on investment, finance, and economics covering topics such as capital asset pricing model (CAPM), asset allocation, and market efficiency.

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Marian Carcu 1. Technical analysts believe that the security prices do not adjust rapidly True 2. For a two-stock portfolio containing stocks i and j, the correlation coefficient of returns (pi) ist equal to the square root of the covariance (cov ij). False 3. One of the assumption...

Marian Carcu 1. Technical analysts believe that the security prices do not adjust rapidly True 2. For a two-stock portfolio containing stocks i and j, the correlation coefficient of returns (pi) ist equal to the square root of the covariance (cov ij). False 3. One of the assumptions of standard capital asset pricing model (CAPM) is that investors can borrow or lend at the risk- free rate. True 4. Large-cap stocks are stocks with a high book-value (shareholders ‘equity in the balance sheet). False 5. Newly issued securities are sold in primary markets, whereas existing securities are traded in secondary markets. True 6. Tactical asset allocation is a method of investing in which investors modify their asset allocation. It can be interpreted as a short-time deviation from the long-term strategic asset allocation where fixed asset weights are considered. True 7. If a prolonged downward trend a black candle is followed by a white candle that surrounds the black candle this is called bearish engulfing. This continuation pattern signals a downward trend. False 8. In the Capital Asset Pricing Model (CAPM) the portfolios on the security market line (SML) are combinations of the risk- Free asset and the market portfolio M. True !"#"!$%! '$( )*+($ 9. The dividend payout ratio is calculated as ,+(-$. '("/$ '$( )*+($ False 10. APT models are an extension of the CAPM. The have 27 factors. False Marian Carcu 11. Investors decide to consume in the future rather than today. They hope to be compensated for inflation, the time that the funds are committed and the risk involved True 12. Only stocks that are bought on the ex-dividend day or earlier are entitled to receive the next dividend. False 13. Only stocks that are bought before the ex-dividend day or earlier are entitled to receive the next dividend. True 14. In an equally weighted index, all stocks carry equal weights, regardless of their market values. True 15. Completeness funds are passively managed portfolios designed to complement active portfolios that do not cover the entire market. True 16. Markowitz Portfolio Theory tells us that we should invest all our money into that stock that has the highest expected return for a given level of risk. False 17. According to Markowitz portfolio theory, a good portfolio is a collection of individually good assets. False 18. When entering into a forward contract, the buyer of the contract (long position) has to deposit money in a margin account while this is not necessary for the seller of the contract (short position). False 19. The real risk-free rate is published on a regular basis (in Austria: monthly) in newspapers and online-databases. False 20. Mutual funds fees: While the front-end load fee has to be paid only when mutual funds are purchased, management fees repeatedly have to be paid on an annual basis. True Marian Carcu 21. The strong form of the efficient market hypothesis contends that only insiders can systematically earn abnormal returns. False 22. Diversification with foreign securities can help to reduce portfolio risk. True 23. The nominal value of a (nominal value) share typically does not correspond to the market price of the share, nor does the book-value (i.e. shareholder´s equity as stated in the balance sheet) of these shares correspond to the market capitalization. True 24. In a pure auction market buyers and sellers submit bid- and ask-price offers for a given stock to a central location. True 25. While price indices ignore dividend payments and the value of pre-emptive rights, these are incorporated in total return indices. True 26. Active equity portfolio management is a long-term buy-and-hold strategy. False 27. Prices in efficient capital markets fully reflect all available information and rapidly (i.e. immediately) adjust to new information. True 28. If the 50-day moving average line crosses the 200-day moving average line from below on high volume, this is a bullish signal for technical analysts. True 29. If the 50-day moving average line crosses the 200-day moving average line from below on high volume, this is a bearish signal for technical analysts. False 30. In the Capital Asset Pricing Model (CAPM) the market portfolio consists of all risky assets. True Marian Carcu 31. Technicians study financial statements to detect “breakouts” i.e. the movement to a new equilibrium price. False 32. The total expense ratio (TER) for mutual funds aims to show the total costs of running expenses of a fund, expressed as a percentage of the fund´s assets. True 33. Strategic asset allocation is a long-term strategy where the weights of the different asset classes are fixed. True 34. Beta-Hedging with index futures allows to eliminate systemic risk (market risk) if we assume that the CAPM is a good model and that its parameters are correct. True 35. The Fama and French Three-Factor-Model is an extension of the CAPM that also accounts for the size and the book-to-market ratio of stocks. True 36. The goal of active portfolio management is to track a benchmark-index as close as possible. False 37. Increasing the correlation among normally distributed assets in a portfolio results in an increase of the standard deviation of the portfolio. True 38. If one has entered into a long future contract on a stock index, the margin account balance is reduced if the index rises. False 39. The capital market line is the tangent line between the risk-free rate of return and the efficient frontier. True 40. Iceberg orders are executed only after the stock price has fallen below some pre-defined threshold. False Marian Carcu 41. “Sampling” in the context of passive portfolio management is a method where all securities in an index are purchased and the weights correspond to the securities` weights in the index. False 42. If a doji appears in the early stages of an upward or downward trend, this is likely to signify a pause and not a trend reversal. True 43. Tobin separation means that if we extend the Markowitz Portfolio Theory by adding a risk-free asset, then all investors will invest only into a) the risk-free asset (long or short positions) and b) the market portfolio M. True 44. Jensen´s alpha measure is flexible enough to allow for alternative models of risk and expected return than the CAPM. True 45. A company’s business risk is computed as the standard deviation of the gross profit, divided by the mean of the gross profit, using a time series of the company’s gross profit figures. False 46. Findings by Fama and French that stock with high book-to-market ratios tended to produce larger risk adjusted returns than stocks with low book-to-market ratios challenge the efficacy of the CAPM True 47. A market is a means through which buyers and sellers are brought together to aid in the transfer of goods and/or services. True 48. A basic assumption of the Markowitz model is that investors base decisions solely on expected return and risk True 49. Income bonds are assumed as safe as debentures because they pay higher rates of interest False 50. It is essential that both the client and the portfolio manager agree on an appropriate benchmark portfolio False 51. Most experts recommend a cash reserve of at least 5 years’ worth of living expenses. False

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