investments #2 exam (quizzes)

A combination of two or more assets held together is called a(n) _____. Select one: a. portfolio b. efficient frontier c. security market line d. correlation coefficient

a

A method that statisticians use to test an over or under-reaction to information on a stock's price is known as _____. Select one: a. an event study b. technical analysis c. fundamental analysis d. an anomaly

a

According to the odd lot theory, stocks with a large number of odd lot trades are _____. Select one: a. to be avoided b. to be charted together to see overall market momentum c. a sign that the market is about to change direction d. to be bought

a

An investment's _____ is the reward for investing. Select one: a. return b. interest c. dividend d. standard deviation

a

As a general rule, day traders will: Select one: a. Make sure all positions are closed out and placed in cash overnight b. Have a longer holding period than swing traders c. Hold onto positions for months or even years if necessary d. Will not use trading patterns or trading rules

a

Current assets - Current liabilities = _____. Select one: a. working capital b. operating income c. owner's equity d. capital expenditures

a

Historically, which of the following asset classes has had the highest arithmetic average return and standard deviation? Select one: a. Large company stocks b. Long-term government bonds c. U.S. Treasury bills d. Long-term corporate bonds

a

If an advance/decline line has a steep slope, the market is said to have _____. Select one: a. breathed b. a fearful bull c. breadth d. a greedy bull

a

Modern portfolio theorists would rather use beta to estimate risk than standard deviation. Why? Select one: a. They believe only systematic risk matters, and beta is a measure of systematic risk b. They believe beta is a more reliable measure of total risk c. They believe that standard deviation underestimates a diversified portfolio's risk d. The statement is false. MPT theorists despise beta as a risk measure and only use standard deviation

a

Most behavioral economists would argue that the assumptions of the CAPM: Select one: a. Are necessary for a mathematical model, but otherwise do not hold true b. Help predict future security prices c. Are a true representation of investors and investing d. Prove the model's relevance to successful investing

a

The _____ is also known as the "fear index". Select one: a. VIX b. Bull-bear ratio c. PCR d. Advance/decline line

a

Which of the following is another name for systematic risk? Select one: a. market risk b. diversifiable risk c. residual risk d. specific risk

a

Which of the following is true of an asset that has an expected annual return of 10% and a standard deviation of 20%? Select one: a. You can be reasonably certain that 68% of the time, the annual return on this asset will be between 30% and -10% b. The risk premium for this asset is 30% c. This asset's standard deviation is too high to be considered a reasonable risk premium d. This asset is likely a stock in the Dow Jones Industrial Average

a

_____ is the field of study that uses psychological theories to explain why people make irrational financial decisions. Select one: a. behavioral finance b. Cognitive finance c. MPT d. EMH

a

A bottom-up approach to fundamental analysis would begin with _____. Select one: a. the macro-economy b. the firm c. the industry d. the micro-economy

b

A(n) _____ is a graphical representation of a security's "OHLC". Select one: a. death cross b. price bar c. Elliot wave d. double top

b

Assume that 49 students write down the results of one hundred hypothetical coin tosses, but one student actually flips a coin 100 times and records the results. How might the teacher be able to correctly identify the one actual result? Select one: a. Look for the one that has "H" and "T" written rather than "Heads" and "Tails" b. Look for the one with the longest strings of Heads and the longest strings of Tails c. Look for the one with at least 25 changes from Heads to Tails d. It would be almost impossible for a teacher to correctly identify the one actual result

b

Behavioral economists generally DO NOT believe: Select one: a. That mispriced assets are difficult to exploit b. In the efficient market hypothesis c. In the random walk hypothesis d. In bounded rationality

b

If a business insider does not act on non-public information, but shares the non-public information with a friend who benefits financially on it, then _____. Select one: a. only the business insider has committed illegal insider trading b. both the business insider and the friend have participated in illegal insider trading c. only the friend who acted on the information committed illegal insider trading d. neither have committed illegal insider trading

b

If total cash flow from operating activities is greater than net income, a firm's earnings are said to be _____. Select one: a. low quality b. high quality c. liquid d. transparent

b

The _____ is the set of optimal portfolios that offer the highest expected return for a defined level of risk. Select one: a. modern portfolio b. efficient frontier c. minimum variance portfolio d. beta

b

The _____ method to valuation attempts to find the intrinsic value of a firm based on its fundamentals. Select one: a. intrinsic b. absolute c. relative d. fundamental

b

Which of the following statements describe the confirmation bias? Select one: a. I know the good stocks! b. Everybody agrees with me! c. If I do well, it is because of me! d. Give me the ball! I've got the hot hand!

b

_____ are the direct costs involved in generating revenue for a firm. Select one: a. Operating expenses b. Cost of goods sold c. Other expenses d. Investment expenses

b

_____ describes how people have a greater level of unhappiness by investment losses than they are happy about investment gains. Select one: a. Heuristics b. Prospect theory c. Equity theory d. Herd mentality

b

A _____ is a more temporary change in the price of a security than a _____ which is a change in the direction of a trend. Select one: a. reversal; retracement b. reverse; repurchase c. retracement; reversal d. repurchase; reverse

c

According to EMH, active investment managers should have a _____ chance of beating the market in any given year. Select one: a. 0% b. 25% c. 50% d. 100%

c

An asset's _____ is the return in excess of the risk-free rate that an investment is expected to yield. Select one: a. improbable return b. above-average return c. risk premium d. speculative return

c

Another term for the overall attitude or "crowd psychology" of the market is known as _____. Select one: a. momentum b. technical analysis c. investor sentiment d. a trading pattern

c

Another term used to describe a single investment's risk is its _____. Select one: a. instability b. impulsiveness c. volatility d. changeability

c

Both "groups" of behavioral economists believe: Select one: a. Market inefficiencies may not be exploitable b. In under-weighting overvalued asset classes c. In maintaining a diversified portfolio d. Market inefficiencies may be exploitable

c

If an additional risky asset class is added to an already well-diversified portfolio of assets, what happens to the efficient frontier? Select one: a. It moves down and to the left b. It moves down and to the right c. It moves up and to the left d. It moves up and to the right

c

If markets are weak form efficient, then _____. Select one: a. inside information will not be useful b. analyzing a firm's financial statements will not be useful c. technical analysis will not be useful d. fundamental analysis will not be useful

c

In order to assess a firm's management, a fundamental analyst might find the most useful information in: Select one: a. the auditor's opinion b. the income statement c. the proxy statement d. the annual report

c

Modern portfolio theory states that higher risk portfolios should _____. Select one: a. be avoided b. contain a large allocation to bonds c. be rewarded with higher returns d. have a lower beta and expected return than the market portfolio

c

The _____ assumes that active market trading means that the reward-to-risk ratio of all assets that make up the market must be the same. Select one: a. modern portfolio theory b. alpha theory c. efficient market hypothesis d. beta coefficient

c

The _____ graphs the systematic risk versus the expected return of the market portfolio and the risk-free rate. Select one: a. capital beta line b. capital allocation line c. security market line d. asset allocation line

c

The ______ quantitatively describes the risk/return trade-off and illustrates how different degrees of risk aversion will affect asset allocation. Select one: a. standard deviation line b. risk premium line c. capital allocation line d. moving average line

c

Using technical analysis, a _____ is a noticeable bias in price. Select one: a. sentiment b. trading rule c. trend d. position

c

When is it rational for an investor to choose a combination of a stock fund and a bond fund that lies below the minimum variance portfolio? Select one: a. When the investor desires the lowest possible risk b. When the investor cannot tolerate any volatility c. Never - it would be irrational d. When the investor desires the lowest possible standard deviation

c

Which of the following describes the theory that when a person is faced with uncertainty, the human assumption is that other people know more? Select one: a. Equity theory b. Gambler's fallacy c. Herd mentality d. Overconfidence

c

Which of the following is NOT an SEC requirement for a publicly-traded company? Select one: a. A 10-Q b. A 10-K c. A conference call d. A proxy statement

c

_____ attempts to use publicly available information to evaluate securities in an attempt to measure a security's intrinsic value. Select one: a. Behavioral analysis b. Inside information c. Fundamental analysis d. Technical analysis

c

_____ is also known as "alpha". Select one: a. Risk b. Anti-beta c. Excess return d. MPT

c

A theory that describes satisfaction based on relational comparisons is known as: Select one: a. Herd mentality b. Self-attribution error c. Under-confidence d. Equity theory

d

All combinations of a risk-free and a risky asset fall on the ______ line. Select one: a. efficient frontier b. asset allocation c. global security d. capital allocation

d

An increase in asset prices due to the news of an increase in asset prices is known as: Select one: a. herd mentality b. overconfidence c. investor rationality d. a market bubble

d

An insider is _____. Select one: a. an executive in an organization b. a member of the board of directors of a firm c. anyone who owns shares of stock in an organization d. anyone who possesses material information about a firm that is not publicly-known

d

Exploiting temporary price differences to earn a risk-free profit is known as _____. Select one: a. insider trading b. fiduciary duty c. capital pricing d. arbitrage

d

How often do publicly-traded firms hold an earnings press release? Select one: a. Monthly b. Semi-annually c. Annually d. Quarterly

d

If the 50-day moving average crosses through the 200-day moving average from below, then technicians may _____. Select one: a. consider this an opportunity to sell before prices plummet b. look for a new support level c. refer to this as a death cross d. refer to this as a golden cross

d

If the correlation coefficient between two assets is +1, then _____. Select one: a. The two assets could be combined together to reduce risk to zero b. The assets are perfectly negatively correlated c. There is no relationship between the two assets d. There would be no benefit from diversification by combining these assets

d

Stock A has a CV of .8 while Stock B has a CV of 1.6. Using only the CV as your decision-making criteria, which stock provides the better return for the amount of risk taken? Select one: a. Both Stock A and Stock B provide the same amount of return for the risk taken b. Impossible to determine c. Stock B d. Stock A

d

The bottoming of the business cycle is called the _____. Select one: a. expansion b. peak c. contraction d. trough

d

The key concept as to why diversification works is _____. Select one: a. Variance b. Systemic risk c. Regression d. Correlation

d

The primary difference between behavioral finance and traditional economics is the importance that behavioral finance places on the quality of _____. Select one: a. mathematics b. earnings c. models d. assumptions

d

The primary emotion in a bullish market is _____. Select one: a. joy b. fear c. anger d. greed

d

Unless the returns of an investment are identical in all periods, the _____ mean return calculation will always be higher than the _____ mean return calculation. Select one: a. Holding period; Total percentage b. Total percentage; Annualized c. Geometric; Arithmetic d. Arithmetic; Geometric

d

What is a "market anomaly"? Select one: a. Trading that takes place after the close of the market b. Unpredictable price movements due to the micro-economy c. Dark pools d. Predictable abnormal returns in the market

d

What yield calculation utilizes the formula (Pt+1 - Pt) / Pt? Select one: a. dividend b. annualized c. percentage d. capital gain

d