Question:

Indenture is a

A.

A detailed securities contract

B.

Abbreviated version of a securities contract

C.

Abbreviated version of a debt contract

D.

A detailed bond contract

Answer» b. Abbreviated version of a securities contract

Question:

Which of the following assumptions is common between the pricing models of CAPM and APT?

A.

A single period investment horizon

B.

The investors can freely borrow and lend at risk-free rate

C.

The investors select portfolios based on expected mean and variance of return

D.

Investors have homogeneous expectations and are expected-utility-of-wealth maximizers.

Answer» d. Investors have homogeneous expectations and are expected-utility-of-wealth maximizers.

Question:

Rosenberg and Guy found that __________helped to predict a firm’s beta.

A.

the firm’s financial characteristics

B.

the firm’s industry group

C.

firm size

D.

A, B andC all helped to predict betas.

Answer» d. A, B andC all helped to predict betas.

Question:

The holding period to qualify for a long-term capital gains is

A.

At least 6 months

B.

At least 12 months

C.

At least 18 months

D.

At most 18 months

Answer» b. At least 12 months

Question:

Which of the statements is/are false regarding Arbitrage Pricing Theory (APT)?I. APT assumes that return on any asset can be expressed as a linear function of a set of market factors or indexes. II. The arbitrage price line indicates relation between unsystematic risk and the expected return of an asset. III. While deriving the APT model, APT assumes that the error term can be reduced to zero through appropriate diversification.

A.

Only (I) above

B.

Only (II) above

C.

Only (III) above

D.

Both (I) and (II) above

Answer» b. Only (II) above

Question:

The net asset value of a mutual fund investing in stock rises with

A.

Higher stock prices

B.

Lower equity values

C.

An increased number of shares

D.

Increased liabilities

Answer» a. Higher stock prices

Question:

Empirical results regarding betas estimated from historical data indicate that

A.

betas are constant over time.

B.

betas of all securities are always greater than one.

C.

betas are always near zero.

D.

betas appear to regress toward one over time.

Answer» d. betas appear to regress toward one over time.

Question:

Which of the following statements is/are true with respect to feasible set of portfolio?I. Feasible set is also known as opportunity set. II. It represents all the portfolios that could be formed from group of N securities. III. Feasible set is also called efficient set

A.

Only (I) above

B.

Only (II) above

C.

Only (III) above

D.

Both (I) and (II) above

Answer» d. Both (I) and (II) above

Question:

The tracking error of an optimized portfolio can be expressed in terms of the ____________ of the portfolio and thus reveal ____________.

A.

return; portfolio performance

B.

total risk; portfolio performance

C.

beta; portfolio performance

D.

beta; benchmark risk

Answer» c. beta; portfolio performance

Question:

Price movement between two Information Technology stocks would generally have a ______ co-variance.

A.

zero

B.

positive

C.

negative

D.

none

Answer» d. none