FIN 410 final exam

are wasting their time

Proponents of the EMH think technical analysts __________

a passive investment strategy

Proponents of the EMH typically advocate

all publicly available information

The semistrong form of the EMH states that ________ must be reflected in the current stock price.

January

The small-firm effect is strongest in which month?

all information, including inside information

The strong form of the EMH states that ________ must be reflected in the current stock price.

worst; best

The tendency when the ______ performing stocks in one period are the best performers in the next and the current ________ performers are lagging the market later is called the reversal effect.

the difference between the rate of return earned and the risk-free rate

The term excess return refers to

all past information, including security price and volume data

The weak form of the EMH states that ________ must be reflected in the current stock price.

homogeneous expectations

When all investors analyze securities in the same way and share the same economic view of the world, we say they have

No. Since all items are presented in nominal figures, the input should also use nominal data

When estimating a Sharpe ratio, would it make sense to use the average excess real return that accounts for inflation?

fall

When the market risk premium rises, stock prices will ________

Stock prices follow recurring patterns.

Which of the following beliefs would not preclude charting as a method of portfolio management

earnings forecasting

Which of the following is not a method employed by followers of technical analysis?

relative strength analysis

Which of the following is not a method employed by fundamental analysts?

The Federal Reserve increases interest rates 50 basis points

Which of the following provides the best example of a systematic-risk event?

variance

Which of the following statistics cannot be negative?

geometric average return

Which one of the following measures time-weighted returns and allows for compounding?

4%+($3.50/$50)=11%

You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was

representativeness bias

Your two best friends each tell you about a person they know who successfully started a small business. That's it, you decide; if they can do it, so can you. This is an example of _____________

index

A mutual fund that attempts to hold quantities of shares in proportion to their representation in the market is called an __________ fund.

ositive alpha is considered underpriced

According to the capital asset pricing model, a security with a _________

up; left

Adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the ______

the absence of arbitrage opportunities

An important characteristic of market equilibrium is

mental accounting

An investor holds a very conservative portfolio invested for retirement, but she takes some extra cash she earned from her year-end bonus and buys gold futures. She appears to be engaging in

optimal mix of the risk-free asset and risky asset

An investor's degree of risk aversion will determine his or her

asset A

Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and

(20%-10%)/25% = 0.40

Asset A has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?

distorted; limited arbitrage opportunities

Behaviorists point out that even if market prices are ____________, there may be _______________

requires a risk premium to take on the risk

Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor

about 10 minutes

Most of the stock price response to a corporate earnings or dividend announcement occurs within ________________

strong-form efficient

Most people would readily agree that the stock market is not ________

long-term U.S. Treasury bonds

During the 1986-2013 period, the Sharpe ratio was lowest for which of the following asset classes?

short-run; long-run

Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior

use a passive trading strategy such as purchasing an index fund or an ETF

Evidence supporting semistrong-form market efficiency suggests that investors should _________________________

techniques used to identify efficient portfolios of risky assets

Harry Markowitz is best known for his Nobel Prize-winning work on

ave the same intercept with a steeper slope; fall

If all investors become more risk averse, the SML will _______________ and stock prices will _______________.

representativeness bias

If investors overweight recent performance in forecasting the future, they are exhibiting _______

loss aversion

If the utility you derive from your next dollar of wealth increases by less than a loss of a dollar reduces it, you are exhibiting __________

semistrong

If you believe in the __________ form of the EMH, you believe that stock prices reflect all publicly available information but not information that is available only to insiders

buy stocks this period that performed poorly last period

If you believed in the reversal effect, you should

dollar-weighted return

If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the

All of the above

In a simple CAPM world which of the following statements is (are) correct? I. All investors will choose to hold the market portfolio, which includes all risky assets in the world. II. Investors' complete portfolio will vary depending on their risk aversion. III. The return per unit of risk will be identical for all individual assets. IV. The market portfolio will be on the efficient frontier, and it will be the optimal risky portfolio

unsystematic

In a well-diversified portfolio, __________ risk is negligible

beta

In the context of the capital asset pricing model, the systematic measure of risk is captured by

capital allocation line

In the mean standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called the

behavioral finance

Models of financial markets that emphasize psychological factors affecting investor behavior are called

that markets are functioning efficiently

Random price movements indicate ________

I, III, II, IV

Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926 to 2017. I. Small stocks II. Long-term bonds III. Large stocks IV. T-bills

located on the capital market line to those located on the efficient frontier

Rational risk-averse investors will always prefer portfolios

a technical

Relative strength is ______ indicator

1

Research has revealed that regardless of what the current estimate of a firm's beta is, beta will tend to move closer to ______ over time.

unique, firm-specific, diversifiable

Risk that can be eliminated through diversification is called ______ risk

20% more

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.

indicate that the market is not incorporating new information into current stock prices

Stock prices that are stable over time

highest; steepest

The _________ reward-to-variability ratio is found on the ________ capital market line.

rate of return in excess of the Treasury-bill rate

The excess return is the

Sharpe ratio

The formula [E(rp)−rf] / σp is used to calculate the

1

The market portfolio has a beta of

the difference between the return on an index fund and the return on Treasury bills

The market risk premium is defined as

sentiment

The put/call ratio is a ______ indicator.