Question:

The SML depicts the tradeoff between risk and required return for:

A.

inefficient portfolios.

B.

all assets.

C.

efficient portfolios.

D.

individual securities only.

Answer» a. inefficient portfolios.

Question:

One of the reasons a short-term trader has difficulty in beating the market is because of

A.

Risk

B.

Lack of information

C.

Large institutional investors

D.

Commissions

Answer» d. Commissions

Question:

Which of the following statements is false with respect to different features of an efficient market?

A.

Information arbitrage efficiency is said to exist, if the participants do not have any scope to reap abnormal profits using information that is of common knowledge

B.

Fundamental valuation efficiency is said to exist, if the price of an asset is neither undervalued nor overvalued

C.

Full insurance efficiency is said to exist, if participants can adopt hedging as an effective tool against possible risk in future

D.

Allocation efficiency is said to exist, if the market channelizes resources into projects where the marginal efficiency of capital adjusted for risk differences is lowest.

Answer» d. Allocation efficiency is said to exist, if the market channelizes resources into projects where the marginal efficiency of capital adjusted for risk differences is lowest.

Question:

The use of financial leverage by a firm may be measured by the

A.

ratio of debt to total assets

B.

firm’s beta coefficient

C.

firm’s retention of earnings

D.

ratio of the price of the firm’s stock price to its earnings

Answer» a. ratio of debt to total assets

Question:

Historically, the real rate of return in the U.S. economy has been

A.

1-2%

B.

2-3%

C.

3-4%

D.

4-5%

Answer» d. 4-5%

Question:

_______ measures the percentage of net income not paid to the shareholders in the form of dividends.

A.

Withholding ratio

B.

Retention ratio

C.

Preservation ratio

D.

Maintenance ratio

Answer» b. Retention ratio

Question:

Total risk for common stocks is:

A.

the sum of systematic risk and diversifiable risk.

B.

measured by beta.

C.

the sum of market risk and systematic risk.

D.

the sum of diversifiable risk and unsystematic risk

Answer» a. the sum of systematic risk and diversifiable risk.

Question:

Alpha is:

A.

the intercept of the SML line.

B.

the intercept of the CML line.

C.

the actual excess return on a portfolio during one peri

Answer» b. the intercept of the CML line.

Question:

One of the assumptions of the CAPM is that investors exhibit myopic behavior. What does this mean?

A.

They plan for one identical holding period.

B.

They are price-takers who can’t affect market prices through their trades.

C.

They are mean-variance optimizers.

D.

They have the same economic view of the world.

Answer» a. They plan for one identical holding period.

Question:

The person within the brokerage office with whom an investor will have the most contact is

A.

Authorized representative

B.

Registered representative

C.

Authorized person

D.

Registered authority

Answer» c. Authorized person