BUS 321 Exam 2 Questions

Someone who invests in the Vanguard Index 500 mutual fund could most accurately be described as using which approach? Active management Arbitrage Fundamental analysis Passive investment

Passive investment

Choosing stocks by searching for predictable patterns in stock prices is called ________. fundamental analysis technical analysis index management random-walk investing

technical analysis

You have a $50,000 portfolio consisting of Intel, GE, and Con Edison. You put $20,000 in Intel, $12,000 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta? 1.048 1.033 1 1.037

1.048 = (1.3*20,000/50,000)+(1*12000/50,000)+(0.8*18000/50,000)

What is the expected return on the market? 0% 5% 10% 15%

10%

Security A has an expected rate of return of 12% and a beta of 1.1. The market expected rate of return is 8%, and the risk-free rate is 5%. The alpha of the stock is 1.7% 3.7% 5.5% 8.7%

3.7% 5 + 1.1*(8-5) = 8.3 12 - 8.3 = 3.7%

Stock A has a beta of 1.2, and stock B has a beta of 1. The returns of stock A are ______ sensitive to changes in the market than are the returns of stock B. A. 20% more B. slightly more C. 20% less D. slightly less

A. 20% more

A technical analyst is most likely to be affiliated with which investment philosophy? Active management buy and hold passive investment index fund

Active management

The possibility of arbitrage arises when _____________. A) there is no consensus among investors regarding the future direction of the market, and thus trades are made arbitrarily B) mis-pricing among securities creates opportunities for riskless profits C) the SEC discovers evidence of insider trading D) None of the above

B) mis-pricing among securities creates opportunities for riskless profits

A measure of the riskiness of an asset held in isolation is _____________. A) beta B) standard deviation C) covariance D) semi-variance

B) standard deviation

The part of a stock's return that is systematic is a function of which of the following variables? I. Volatility in excess returns of the stock market II. The sensitivity of the stock's returns to changes in the stock market III. The variance in the stock's returns that is unrelated to the overall stock market

I and II only

Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect _____________.

an abnormal price change immediately following the announcement

A mutual fund that attempts to hold quantities of shares in proportion to their representation in the market is called a __________ fund. stock index hedge money market

index

Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is __________. fairly priced overpriced underpriced None of the above answers are correct

overpriced 5% + 1.15 x(15%-5%)=16.5% 16.5%>13%

When stock returns exhibit positive serial correlation, this means that __________ returns tend to follow ___________ returns. positive; positive positive; negative negative; positive positive; zero

positive; positive

A market anomaly refers to:

price behavior that differs from the behavior predicted by the efficient market hypothesis