Midterm 1 Review

The most marketable money market security is (a) Treasury bills (b) bankers' acceptances (c) certificates of deposit (d) common stock (e) commercial paper

(a) Treasury bills

The slope of the security characteristic line —————— (a) measures the average response of an individual security's return to changes in the market return (b) cannot be negative (c) is a measure of the security's firm-specific risk (d) all of the statements about the security characteristic line are correct

(a) measures the average response of an individual security's return to changes in the market return

The risk that can be eliminated by diversification is called —————- risk, while the risk that remains even after diversification is called ——————— risk. (a) nonsystematic; market (b) nonsystematic; unique (c) systematic; market (d) firm-specific; nonsystematic

(a) nonsystematic; market

When computing the bank discount yield, you would use ——- days in the year. (a) 260 (b) 360 (c) 365 (d) 366

(b) 360

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs (a) automatically (b) by adjusting the divisor (c) by adjusting the numerator (d) by adjusting the market value weights (e) there is no adjustment. Stock splits affect the Dow since it is price-weighted

(b) by adjusting the divisor

The investment opportunity set is ———————— (a) equivalent to the efficient frontier (b) the set of all available portfolio risk-return combinations (c) the set of portfolios that minimize risk for a given expected rate of return (d) the set of portfolios ideal to the investor in question

(b) the set of all available portfolio risk-return combinations

More than ——— of all trading is believed to be initiated by computer algorithm. (a) 25% (b) 40% (c) 50% (d) 75% (e) 80%

(c) 50%

Which of the following is not a money market security? (a) U.S. Treasury bill (b) 6-month maturity certificate of deposit (c) Common stock (d) Bankers' acceptance

(c) Common stock

Active trading in markets and competition among securities analysts helps ensure that: I. Security prices approach informational efficiency II. Riskier securities are priced to offer lower potential returns III. Investors are unlikely to be able to consistently find under- or overvalued securities (a) I only (b) I and II only (c) I and III only (d) II and III only (e) all of the the above

(c) I and III only

Which of the following is not a financial intermediary? (a) a mutual fund (b) an insurance company (c) a real estate brokerage firm (d) a savings and loan company

(c) a real estate brokerage firm

Portfolio diversification benefits ————— (a) exist only when security returns are negatively correlated (b) are always available, regardless of securities' correlation coefficients (c) exist whenever security returns are less than perfectly positively correlated (d) are greater for positively correlated security returns than for negatively correlated security returns

(c) exist whenever security returns are less than perfectly positively correlated

The material wealth of society is determined by the economy's ———————-, which is a function of the economy's —————-. (a) investment bankers; financial assets (b) investment bankers; real assets (c) productive capacity; financial assets (d) productive capacity; real assets

(d) productive capacity; real assets

You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss? (a) $50 (b) $150 (c) $10,000 (d) unlimited

(d) unlimited