Question:

Passive management is a process of holding a well diversified portfolio for

A.

Short term with buy and hold approach

B.

Long term with buy and hold approach

C.

Short term with buy and sell approach

D.

Long term with buy and sell approach

Answer» b. Long term with buy and hold approach

Question:

A purely passive strategy is defined as

A.

One that uses only index funds.

B.

One that allocates assets in fixed proportions that do not vary with market conditions.

C.

One that is mean-variance efficient.

D.

Both A and B.

Answer» b. One that allocates assets in fixed proportions that do not vary with market conditions.

Question:

If the beta of a stock is 1.8 and the overall market declines 20%, the expected return is:

A.

-36%

B.

-18%.

C.

-20%.

D.

-28%

Answer» a. -36%

Question:

Which of the following statements is true of Insured Asset Allocation?

A.

It is aimed at benefiting from short-term under pricing and over pricing of assets.

B.

In this strategy the risk tolerance of the investor are ignored.

C.

In this strategy long-term predictions regarding the capital markets are us

Answer» c. In this strategy long-term predictions regarding the capital markets are us

Question:

Which of the following is/are true if a firm has a required rate of return equal to the ROE?I. The amount of earnings retained by the firm does not affect market price or the P/E. II. The firm can increase market price and P/E by increasing the growth rate. III. The P/E ratio is inversely proportional to the ROE of the firm.

A.

Only (I) above

B.

Both (I) and (II) above

C.

Both (I) and (III) above

D.

Both (II) and (III) above

Answer» d. Both (II) and (III) above

Question:

Particulars Falcon International Triumph InternationalAverage Return (%) 10 8 Average Volatility (%) 12 15 For the portfolio to yield lower risk than the individual stocks, the correlation coefficient of stocks should be

A.

Less than 1.25

B.

Less than 0.85

C.

Less than 0.80

D.

More than 0.83

Answer» c. Less than 0.80

Question:

An investment requires a total return that comprises

A.

A real rate of return and compensation for inflation

B.

A real rate of return, compensation for inflation, and a risk premium

C.

Compensation for inflation and a risk premium

D.

A real rate of return, compensation for inflation, a risk premium, and compensation for time and effort devoted to researching alternative investments

Answer» b. A real rate of return, compensation for inflation, and a risk premium

Question:

What is the price of a stock estimated to pay a dividend of Rs.60 next year, if the dividend growth rate is 5% and the appropriate discount rate is 8%?

A.

Rs.18

B.

Rs.19

C.

Rs.20

D.

Rs.21

Answer» c. Rs.20

Question:

Higher bond prices generally signal expectations of

A.

Higher inflation

B.

Lower inflation

C.

Rising stock prices

D.

Higher risk premiums

Answer» b. Lower inflation

Question:

As the debt ratio increases,

A.

Fewer assets are debt-financed, and the ratio of debt-to-equity increases

B.

Fewer assets are debt-financed, and the ratio of debt-to-equity decreases

C.

More assets are debt-financed, and the ratio of debt-to-equity increases

D.

More assets are debt-financed, and the ratio of debt-to-equity decreases

Answer» c. More assets are debt-financed, and the ratio of debt-to-equity increases