Question:

If investors do not know their investment horizons for certain

A.

the CAPM is no longer valid.

B.

the CAPM underlying assumptions are not violated.

C.

the implications of the CAPM are not violated as long as investors’ liquidity needs are not pric

Answer» c. the implications of the CAPM are not violated as long as investors’ liquidity needs are not pric

Question:

The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are

A.

Large company stocks; U.S. treasury bills

B.

Large company stocks; Long-term government bonds

C.

Small company stocks; U.S. Treasury bills

D.

Small company stocks; preferred stock

Answer» b. Large company stocks; Long-term government bonds

Question:

Fund managers generally want which of following objectives to be optimal?I. Stability of principle. II. Income. III. Growth of income. IV. Capital appreciation.

A.

Both (I) and (II) above

B.

Both (I) and (III) above

C.

Both (II) and (III) above

D.

All (I), (II), (III) and (IV) above

Answer» d. All (I), (II), (III) and (IV) above

Question:

If you were confident that the price of stock X would drop dramatically within two Months ,which of the following investment transactions would yield the highest return on your investment?

A.

Purchase stock X

B.

Sell stock X short

C.

Purchase a call on stock X

D.

Purchase a put on stock X

Answer» d. Purchase a put on stock X

Question:

Capital Market Line is firstly initiated by

A.

Mohsin

B.

Linter

C.

Markowitz

D.

William Sharpe

Answer» b. Linter

Question:

A company’s __________ provide the most accurate information to its management and shareholders about its operations.

A.

advertisements

B.

financial statements

C.

products

D.

vision statement

Answer» b. financial statements

Question:

A portfolio comprises of two stocks A and B. Stock A gives a return of 8%and stock B gives a return of 7%. Stock A has a weight of 60% in the portfolio. What is the portfolio return?

A.

9%

B.

11%

C.

10%

D.

8%

Answer» d. 8%

Question:

Consider these two investment strategies: Strategy ___ is the dominant strategy because __________.

A.

1, it is riskless

B.

1, it has the highest reward/risk ratio

C.

2, its return is at least equal to Strategy 1 and sometimes greater

D.

2, it has the highest reward/risk ratio

Answer» b. 1, it has the highest reward/risk ratio

Question:

The Security Risk Evaluation book published by Merrill Lynch uses the __________ as a proxy for the market portfolio.

A.

Dow Jones Industrial Average

B.

Dow Jones Transportation Average

C.

S&P 500 Index

D.

Wilshire 5000

Answer» c. S&P 500 Index

Question:

If generally interest rates in nation increase, a corporate bond with a fixed interest rate will usually

A.

increase in value

B.

remain unchanged

C.

decrease in value.

D.

be returned to corporation.

Answer» c. decrease in value.