Unit 20 Checkpoint Exam

Over the past five years, a stock has had returns of +16%, +5%, -4%, +12% and +8%. The median of the returns is A) 8.0%. B) 9.0%. C) 7.4%. D) 8.2%.

A) 8.0%.

Which of the following measures the variability of an asset's returns over time? A) Standard deviation B) Beta C) Alpha D) Time-weighted return

A) Standard deviation

The measurement of a portfolio's actual or realized return in excess of (or deficient to) the expected return calculated by the capital asset pricing model (CAPM) is known as A) alpha. B) beta. C) internal rate of return (IRR). D) net present value (NPV).

A) alpha.

Two securities with which of the following correlation coefficients could be combined to create a theoretically risk-free portfolio? A) -0.5 B) -1.0 C) +1.0 D) 0.0

B) -1.0

A portfolio manager with a growth style would probably diversify by A) placing a portion of the portfolio into high-yield bonds. B) attempting to build a portfolio with a very high correlation. C) concentrating in stocks in one or two industries. D) devoting a portion of the portfolio to securities with a negative correlation.

D) devoting a portion of the portfolio to securities with a negative correlation.

An analyst wishes to assess the value of a fixed-income security by taking the income payments scheduled to be received over a given future period and adjusting that for the time value of money. This analytical tool is known as A) yield to maturity. B) duration. C) future value. D) discounted cash flow.

D) discounted cash flow.

Under the net present value (NPV) method of evaluating investments, an investment is attractive if the net present value of the expected returns is A) greater than the risk-adjusted return. B) equal to zero. C) less than zero. D) greater than zero.

D) greater than zero.

Portfolio A has a beta of 1.0 and has returned 8% over the past year. Portfolio B has a beta of 1.5 and, over that same period, has returned 16%. Based on this information, an analyst would conclude that portfolio B has A) positive correlation. B) zero alpha. C) negative alpha. D) positive alpha.

D) positive alpha.

A security that your client has been following has a historical average annual return of 11% and a standard deviation of 6%. Knowing this, it would be expected that 95% of the time, your client could expect a return within the range of A) +5% and +17%. B) −7% and +30%. C) −66% and +66%. D) −1% and +23%.

D) −1% and +23%.

While searching for a suitable investment for your client, you narrow the choice to the following four companies: Company A with returns over the past four years of 12%, 4%, 8%, 6% Company B with returns over the past four years of 7%, 8%, 9%, 6% Company C with returns over the past four years of 10%, 12%, -2%, 10% Company D with returns over the past four years of 15%, 20%, -8%, 3% Which of these choices has the highest volatility? A) Company B B) Company D C) Company A D) Company C

B) Company D

Which ranking lists the following bonds in order from shortest to longest duration? ABC 8s of 2050 DEF 9s of 2051 GHI 5s of 2049 JKL zeros of 2050 A) I, II, IV, III B) III, I, II, IV C) II, I, III, IV D) IV, II, I, III

C) II, I, III, IV

An investor reviewing the performance of a security reads that its returns for the past nine years are +9%, -4%, +13%, +6%, +2%, -8%, +11%, +2%, +5%. Using this information, which of the following is not a correct statement? A) The mean is 4%. B) The mode is 2%. C) The range is 11%. D) The median is 5%.

C) The range is 11%.

The best time for an investor seeking returns to purchase long-term, fixed interest rate bonds is when A) long-term interest rates are low and beginning to rise. B) short-term interest rates are high and beginning to decline. C) long-term interest rates are high and beginning to decline. D) short-term interest rates are low and beginning to rise.

C) long-term interest rates are high and beginning to decline.

In a group of returns, the central value of observations arranged in order from lowest to highest is known as the A) mean. B) range. C) median. D) mode.

C) median.

Which of the following correlations would represent two assets that tend to move in tandem with one another? A) −0.68 B) +0.16 C) −0.11 D) +0.81

D) +0.81

Some analysts use the discounted cash flow (DCF) to determine the theoretical value of a debt security. Under DCF, the bond price can be summarized as the sum of the A) present value of the par value repaid at maturity plus the future value of the coupon payments. B) future value of the par value repaid at maturity plus the future value of the coupon payments. C) present value of the par value repaid at maturity plus the present value of the coupon payments. D) future value of the par value repaid at maturity plus the present value of the coupon payments.

C) present value of the par value repaid at maturity plus the present value of the coupon payments.

A portfolio manager who is successful at market timing will A) increase the beta of the portfolio in advance of a declining market. B) decrease the beta of the portfolio in advance of a rising market. C) increase the beta of the portfolio in advance of a rising market. D) have a portfolio beta less than the beta required by the client.

C) increase the beta of the portfolio in advance of a rising market.

According to most fundamental analysts, examining a company's price-to-earnings ratio gives an indication of A) the parity price of the issuer's convertible bonds. B) the degree to how liberal the company's dividend policies are. C) how much investors value the stock as a function of the company's market price to its earnings. D) the historical support and resistance levels.

C) how much investors value the stock as a function of the company's market price to its earnings.

All of the following ratios are measures of the liquidity of a corporation except A) debt-to-equity ratio. B) current ratio. C) acid test ratio. D) quick ratio.

A) debt-to-equity ratio.

A securities analyst reviewing a corporation's financial statements notes that the enterprise has total current assets of $10 million, inventory of $4 million, cash on hand of $2 million, total current liabilities of $8 million, and net income of $15 million. The company's acid test ratio is closest to A) 1.00 to 1.00. B) 1.25 to 1.00. C) 0.75 to 1.00. D) 1.50 to 1.00.

C) 0.75 to 1.00.

If the required rate of return is less than anticipated in a present value calculation, the effect would be that the A) present value would be higher. B) future value would be lower. C) yield to maturity (YTM) would decrease. D) present value would be lower.

A) present value would be higher.

One popular method of determining the value of certain securities is discounted cash flow (DCF). Using the DCF with the current discount rate at 3%, which of the following would be expected to have the highest market value? A) U.S. Treasury bond maturing in 20 years with a 4% coupon B) XYZ Corporation mortgage bond maturing in 10 years with a coupon of 4.5% C) ABC Corporation debenture maturing in 25 years with a 5% coupon D) Bay Area Rapid Transit Authority 4% revenue bond maturing in 15 years

C) ABC Corporation debenture maturing in 25 years with a 5% coupon

If the coupon rate on a bond increases, the duration of the bond will A) remain unchanged. B) increase. C) decrease. D) change in an unpredictable fashion.

C) decrease.

The discount rate that makes the NPV of all cash flows from a security equal to zero is A) the median return. B) the cash flow adjusted return. C) the present value return. D) the internal rate of return.

D) the internal rate of return.