investment management

9. compared to exchange-traded funds (ETFs), open-end mutual funds are typically associated with lower A. Brokerage costs B. Minimum investment amounts C. Management fees

A. Brokerage costs

as the number of stocks in a portfolio increases, the portfolio's systematic risk A. can increase or decrease B. decreases at a decreasing rate C. decreases at an increasing rate

A. can increase or decrease

which of the following limit buy orders would be the most likely to go unexecuted A. a marketable order B. an order behind the market C. an order making a new market

B. an order behind the market

7. the variance of returns is .09 for Stock A and 0.04 for stock B. the covariance between the returns of A and B is .006. the correlation of returns between A and B is A. 0.1 B. 0.2 C. 0.3

A. 0.1

. the covariance of the market's returns with the stock's returns is .008. the standard deviation of the market's returns is .08, and the standard deviation of the stock's returns is .11. what is the correlation coefficient of the returns of the stock and the returns of the market. A. 0.91 B. 1.0 C. 1.25

A. 0.91

10. according to the CAPM, what is the required rate of return for a stock with a beta of .7, when the risk-free rate is 7% and the expected market rate of return is 14% A. 11.9 B. 14.0 C. 16.8

A. 11.9

2. portion diversification is least likely to protect against losses A. during sever market turmoil B. when markets are operating normally C. when the portfolio securities have low return correlation

A. during sever market turmoil

6. a long time horizon and low liquidity requirements best describe the investment needs of a: A. endowment B. insurance company C. bank

A. endowment

12. A stock with a beta of 0.7 currently priced at $50 is expected to increase in price to $55 by year-end and pay $1 dividend. The expected market return is 15% and the risk-free rate is 8% the stock is A. overpriced, so do not buy it B. underpriced, so buy it C. properly priced, so buy it

A. overpriced, so do not buy it

7. new issue of securities are transactions in the A. primary market B. secondary market C. seasoned market

A. primary market

A stock is selling at $50. An investor's valuation model estimates its intrinsic value to be $40. Based on her estimate, she would most likely place a A. short-sale order B. stop order to buy C. market order to buy

A. short-sale order

3. which of the following asset classes has historically had the highest returns and standard deviations A. small-cap stocks B. large-cap stocks C. long-term corporate bonds

A. small-cap stocks

3. in a defined contribution pension plan A. the employee accepts the investment risk B. the plan sponsor promises a predetermined retirement income to participants C. the plan manger attempts to match the fund's assets to its liabilities

A. the employee accepts the investment risk

4. in a 5-year period, the annual returns on an investment are 5%, -3%, -4%, 2% and 6%. The standard deviation of annual returns on this investment is closest to A. 4.0% B. 4.5% C. 20.7%

B. 4.5%

5. Which of the following most likely represent an inappropriate use of an index A. As a reflection of market sentiment B. Comparing a small-cap manager against a broad market C. Using the CAPM to determine the expected return and beta

B. Comparing a small-cap manager against a broad market

5. a measure of how the returns on two risky assets move in relation to each other is the A. range B. Covariance C. Standard deviation

B. Covariance

2. A financial intermediary buys a stock and then resells it a few days later at a higher price. Which intermediary would this most likely describe? A. Broker B. Dealer C. Arbitrageur

B. Dealer

11. Which of the following available portfolios most likely falls below the efficient frontier A. Expected Return 7%, Expected Standard Deviation 14% B. Expected Return 9%, Expected Standard Deviation 26% C. Expected Return 12%, Expected Standard Deviation 22%

B. Expected Return 9%, Expected Standard Deviation 26%

a portfolio to the right of the market portfolio on the CML is A. a lending portfolio B. a borrowing portfolio C. an inefficient portfolio

B. a borrowing portfolio

1. compared to investing in a single security, diversification provides investors a way to A. increase the expected rate of return B. decrease the volatility of returns C. increase the probability of high returns

B. decrease the volatility of returns

6. which of the following statements about correlation is least accurate A. diversification reduces risk when correlation is less than 1 B. if the correlation coefficient is 0, a zero variance portfolio can be constructed C. the lower the correlation coefficient, the greater the potential benefits from diversification

B. if the correlation coefficient is 0, a zero variance portfolio can be constructed

11. the risk free rate is 6% and the expected market return is 15%. A stock with a beta of 1.2 is selling for $25 and will pay a $1 dividend at the end of the year. If the stock is priced at $30 at year-end, it is: A. overpriced, so short it B. underpriced, so buy it C. underpriced, so short it

B. underpriced, so buy it

8. which of the following statements about risk-averse investors is most accurate? A risk-averse investor A. seeks out the investment with minimum risk, while return is not a major consideration B. will take additional investment risk if sufficiently compensated for this risk C. avoids participating in global equity markets

B. will take additional investment risk if sufficiently compensated for this risk

9. according to the CAPM, what is the expected rate of return for a stock with a beta of 1.2, when the risk-free rate is 6%and the market rate of return is 12% A. 7.2% B. 12.0% C. 13.2%

C. 13.2%

The covariance of the market's returns with a stock's returns is .005 and the standard deviation of the market's returns is .05. what is the stocks beta A. 1.0 B. 1.5 C. 2.0

C. 2.0

10. Hedge funds most likely A. Have stricter reporting requirements than a typical investment firm because of their use of leverage and derivatives B. Hold equal value of long and short securities C. Are not offered for sale to the general public

C. Are not offered for sale to the general public

1. Daniel ferramosco is concerned that a long-term bond he holds might default. He therefore buys a contract that will compensate him in the case of default A. Physical derivative B. Primary derivative C. Financial derivative

C. Financial derivative

13. which of the following statements about the SML and the CML is least accurate A. Securities that plot above the SML are undervalued B. Investors expected to be compensated for systematic risk C. Securities that plot on the SML have no value to investors

C. Securities that plot on the SML have no value to investors

6. which of the following is least accurate regarding fixed income indexes? A. replicating the return on a fixed income security index is difficult for investors B. there is a great deal of heterogeneity in the composition of fixed income security indexes C. due to the large universe of fixed income security issues, data for fixed income securities are relatively easy to obtain

C. due to the large universe of fixed income security issues, data for fixed income securities are relatively easy to obtain

8. a top-down security analysis begins by: A. analyzing a firm's business prospects and quality of management B. when there is a major change in the client's constraints C. examining economic conditions

C. examining economic conditions

7. which of the following is least likely to be considered an appropriate schedule for review and updating an investment needs of a A. at regular intervals B. when there is a major change in the client's constraints C. frequently, based on the recent performance of the portfolio

C. frequently, based on the recent performance of the portfolio

5. low risk tolerance and high liquidity requirements best describe the typical investment needs of a: A. defined-benefit pension plan B. foundation C. insurance company

C. insurance company

7. most of the widely used globally security indexes are A. price-weighted B. equal-weighted C. market capitalization-weighted

C. market capitalization-weighted

4. market float of a stock is best described as its A. total outstanding shares B. shares that are available to domestic investors C. outstanding shares excluding those held by controlling shareholders

C. outstanding shares excluding those held by controlling shareholders

5. total risk equals A. unique plus diversifiable risk B. Market plus nondiversifiable risk C. systematic plus unsystematic risk

C. systematic plus unsystematic risk

4. in a defined benefit pension plan A. the employee assumes the investment risk B. the employer contributes to the employee's C. the plan sponsor promises a predetermined retirement income to participants

C. the plan sponsor promises a predetermined retirement income to participants

what is the risk measure associated with the capital market line (CML) A. Beta risk B. Unsystematic risk C. total risk

C. total risk