Capital Market FMAC415 Reviewer Midterms PDF

Capital Market FMAC415 Reviewer Midterms 1. Susan owns five different bonds valued at P360,000 and twelve different stocks valued at P825,000 total. Which one of the following terms most applies to Susan's investment? a. b. Index c. Portfolio d. Collection e. Groupings 2. 3. W...

Capital Market FMAC415 Reviewer Midterms 1. Susan owns five different bonds valued at P360,000 and twelve different stocks valued at P825,000 total. Which one of the following terms most applies to Susan's investment? a. b. Index c. Portfolio d. Collection e. Groupings 2. 3. Which of the following is a risk that applies to most securities? a. b. Unsystematic c. Diversifiable d. Systematic e. Total 4. 5. A news flask just appeared that caused about dozen stocks to suddenly drop in value by about 20 percent. What type of risk does news flask represents? a. b. Portfolio c. Non diversifiable d. Market e. Unsystematic 6. The principle of diversification tells us that: a. Concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk. b. Concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk. c. Spreading an investment across many diverse assets will eliminate all of the systematic risk d. Spreading an investment across many diverse assets will eliminate some of the total risk 7. The expected return on a stock given various states of the economy is equal to the: a. Highest expected return given any economic state. b. Arithmetic average of the returns for each economic state. c. Summation of the individual expected rates of return. d. Weighted average of the returns for each economic state. 8. Which of the following is an example of the systematic risk? a. Investors panic causing security prices around the globe to fail precipitously. b. A flood washes away a firm's warehouse. c. A city imposes an additional one percent sales tax on all of the products d. A toymaker has to recall it's to-selling toy 9. Unsystematic risk: a. Is related to the overall economy b. Can be effectively eliminated by portfolio diversification c. Cannot be effectively eliminated by portfolio diversification d. Is also called market risk 10. Which of the following is an example of unsystematic risk? a. A national sales tax is adopted b. Inflation decreases at a national level c. An increased feeling of prosperity is felt around the globe d. Consumer spending on entertainment decreased nationally 11. Which of the following risks is irrelevant to a well-diversified investor? a. b. Systematic risk c. Unsystematic risk d. Total risk e. Systematic portion of surprise 12. Which one of the following is the best example of diversifiable risk? a. b. Interest rate increase c. Energy cost increase d. Firms sales decrease e. Taxes decrease 13. The primary purpose of portfolio diversification is to: a. b. Eliminate all risk c. Eliminate unsystematic risk d. Eliminate systematic risk e. Increase returns and risk 14. The type of risk that is not diversifiable and even affects the value of a portfolio is a. b. Purchasing power risk c. Market risk d. Nonmarket risk e. Interest rate risk 15. 16. The unique risk is also called the: a. b. Unsystematic risk c. Diversifiable risk d. Company specific risk e. All of the above 17. In a well-diversified portfolio, the type of risk remining is: a. b. Individual security risk c. Zero risk d. Unsystematic risk e. Market risk 18. Which of the following portfolios have the least risk? a. A portfolio treasury bills b. A portfolio of long-term government bonds c. A portfolio of common stocks of small firms d. A portfolio of common stocks of large firms 19. Stock A has an expected return of 20%, and stock B has an expected return of 12%. If the two stocks are combined equally in a portfolio, what would be the expected return of portfolio? a. b. 16% c. 12% d. 20% e. Need more information to answer 20. 21. According to the liquidity premium theory of interest rates, a. Long term rates are higher than the average of current and expected future short terms rates b. Investors are indifferent between different maturities if the long-term spot rates are equal to the average of current and expected future short-term rates. c. The term structure must always be upward slopping d. Investors prefer certain maturities and will not normally switch out of those maturities. 22. One of the most advantages of a long-term investment is a. b. Higher return c. Lower risk d. Higher liquidity e. Lower liquidity 23. 24. Bonds entails risk because: a. The issuing corporation may encounter economic misfortune or go bankrupt b. Interest rates may rise c. Inflation may occur d. All of the above 25. If a person requires greater return does not change when risk increases, that person is said to be a. b. Risk-taker c. Risk-neutral d. Risk-averse e. Risk-aware 26. If a person's required return does not change when risk increase, that person is said to be a. b. Risk-taker c. Risk-neutral d. Risk-averse e. Risk-aware 27. If a person's required return decreases for an increase in risk, that person is said to be f. a. Risk-taker b. Risk-neutral c. Risk-averse d. Risk-aware 28. Last year Mike bought 100 shares of Dallas corporation common stock for P53 per share. During the year he received dividends of P1.45 per share. The stock is currently selling for P60 per share. What rate of return did Mike earn over the year: a. b. 11\. 7 percent c. 14.1 percent d. 13.2 percent e. 15.9 percent 29. 30. The \_\_\_\_\_\_\_\_\_ measures the dispersion around the expected return. a. Coefficient of variation b. Chi square c. Mean d. Standard deviation 31. A collection of assets is called a(n) a. b. Grouping c. Portfolio d. Investment e. Diversity 32. combining two negatively correlated assets to reduce risk is known as a. b. Diversification c. Valuation d. Liquidation e. Risk aversion 33. The purpose of adding a low-risk investment in a portfolio is to a. b. Reduce profit c. Reduce risk d. Increase profit e. Increase risk 34. Strikes, lawsuits, regulatory actions, and increased competition are all examples of a. b. Diversifiable risk c. Non-diversifiable risk d. Economic risk e. Systematic risk 35. War, inflation, and the condition of foreign markets are all example of a. b. Diversifiable risk c. Non-diversifiable risk d. Economic risk e. Systematic risk 36. As randomly selected securities are combined to create portfolio, the \_\_\_\_\_\_\_\_\_\_ risk of the portfolio decrease until 10 to 20 securities are included. The portion of the risk eliminated is \_\_\_\_\_\_\_\_\_ risk, while that remaining is \_\_\_\_\_\_\_\_\_ risk. a. Diversifiable; non-diversifiable; total b. Relevant; irrelevant; total c. Total; diversifiable; nondiversifiable d. Total; nondiversifable; diversifiable 37. If the investment is expected to be held for a long period of time, the preferred method of calculating the expected return is a. b. Arithmetic average c. Median d. Geometric average e. Subjective estimate 38. Which of the following expresses the relationship between risk and return? a. b. Inverse relationship c. Direct relationship d. Negative relationship e. No relationship 39. The expected return of a portfolio is measured by the a. b. Variance c. Weighted average d. Standard deviation e. Beta 40. The most important consideration with respect to short term investments are a. b. Return and value c. Risk and liquidity d. Return and risk e. Growth and value 41. Jeremy Irons purchase 100 shares of Ferro, Inc. common stocks for P25 per share one year ago. During the year, ferro Inc. paid cash dividends of P2 per share. The stock is currently selling for P30 per share. If Jeremy sells all of his shares of Ferro, Inc. today, what rate of return would he realized? \_\_\_\_\_\_\_\_\_\_\_\_ 42. Ralph's Rachets corporation purchased rachets rotator one year ago for P 6,500. during the year it generated P4,000 in cash flow. If ralph sells it, he could receive P 6,100 for it. What is rachets rotator rate of return? \_\_\_\_\_\_ 43. Asset A was purchased six months ago for P 25,000 and has generated P 1,500 cash flow during that period. What is the asset's rate of return if it can be sold for P 26,750 today? \_\_\_\_\_\_\_\_\_\_\_ 44. Russo has a portfolio of three assets. Find the expected rate of return for the portfolio assuming he invests 50 percent of its money in asset A with 10 percent rate of return, 30 percent in asset B with rate of return of 20 percent, and the rest in asset C with 30 percent rate of return. \_\_\_\_\_\_\_\_\_\_\_\_\_ 45. It is a graphical representation of the term structure of interest rates at a particular point in time a. b. Cost-volume-profit graph c. Profit volume graph d. Yield curve e. Rate curve 46. It is a measure of the dispersion of set of data from its mean. a. b. Standard deviation c. Average d. Variance e. Portfolio variance