Finance 3202

Which of the following statements about security market line is/are correct? I. Its slope is market risk premium II. Its intercept is abnormal return alpha III. It is a geographical representation of the capital asset pricing model A. I and II only

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Which of the following statements regarding indexing strategy is most likely correct? A)A market capitalization-weighted index return can be matched by purchasing each share in the index in proportion to its outstanding market value B)The returns on an equal-weighted index could be matched by purchasing an equal number of shares of each stock represented in the index C)The returns on a price-weighted index could be matched by placing equal dollar values in each stock represented in the index D)All of the above

A)A market capitalization-weighted index return can be matched by purchasing each share in the index in proportion to its outstanding market value

A top down security analysis begins by: A)Analyzing a firm's business prospects and quality of management B)Identifying the most attractive companies within each industry C)Examining economic conditions D)None of these options

A)Analyzing a firm's business prospects and quality of management

The point of tangency between the Capital Allocation Line (CAL) and the efficient frontier of risk assets most likely identifies the: A)Optimal risky portfolio B)Optimal investor portfolio C)Global minimum-variance portfolio D)None of the above

A)Optimal risky portfolio

New issues of securities are transactions in the: A)Primary market B)Secondary market C)Seasoned market D)Auction market

A)Primary market

The main functions of the financial system are to facilitate all but which one of the following? A)The achievement that most participants routinely earn high returns with low risk B)The discovery of the rates of return that equate aggregate savings with aggressive borrowings C)The achievement of the purposes for which people use the financial system D)The allocation of capital to the best uses

A)The achievement that most participants routinely earn high returns with low risk

Which of the following is not a type of investment company? A)Unit investment trusts B)Hedge funds C)Closed-end funds D)Open-end funds

B)Hedge funds

Preferred stock is like long-term debt in that_____. A)It gives the holder voting power regarding the firm's management B)It promises to pay its holder a fixed stream of income each year C)The preferred dividend is a tax-deductible expense for the firm D)In the event of bankruptcy preferred stock has equal status with debt

B)It promises to pay its holder a fixed stream of income each year

Which of the following statements about correlation is least accurate? A)Diversification reduces risk when correlation is less than one. B)Zero covariance implies there is no linear relationship between the return on two assets C)If the correlation coefficient is 0, a zero variance portfolio can be constructed. D)The lower the correlation coefficient, the greater the potential benefits from diversification

C)If the correlation coefficient is 0, a zero variance portfolio can be constructed

Which of the following is least likely an assumption of the capital asset pricing model (CAPM)? A)Security prices are not affected by investor trades B)An investor can invest as much as he or she desires in any assets C)Investors are different only with respect to their unique holding periods D)All investors analyze securities in the same way and share the economic view of the world

C)Investors are different only with respect to their unique holding periods

Which of the following is/are characteristic(s) of a money market instrument A)Liquidity B)Marketability C)Low Risk D)All of these options

D)All of these options

An investor in a T-bill earns an interest by ______. A)Receiving interest payments every 180 days B)Receiving dividend payments every 30 days C)Converting the T-bill at maturity into a higher-valued T-note D)Buying the bill at a discount from the face value to be received at maturity

D)Buying the bill at a discount from the face value to be received at maturity

A writer of _________ has the obligation to buy an asset for a specified exercise price on or before a specifed expiration date. A)Call option B)Put option C)Mortgage pass-through security D)None of the above

D)None of the Above *****

In _______, orders are executed using trading rules. A)Brokered markets B)Quote-driven markets C)Price-driven markets D)order driven markets

D)Order driven markets

You purchase XYZ stock at $45 per share. The stock is currently selling at $60. Your gains could be protected by placing a _________. A)Limit buy order B)Stop-buy order C)Market Order D)Stop-loss order

D)Stop-loss order