Question 1

Diversification with foreign securities can help reduce portfolio risk.

Accepted Answer

A) True 
 B)False

Question 2

Certificates of ownership issued by a U.S.bank that represent indirect ownership of a certain number of shares of a specific foreign firm on deposit in a bank in the firm's home country are known as:

Accepted Answer

A)  American Depository Receipts (ADRs) 
B)  Exchange Traded Funds (ETFs) 
C)  Warrants 
D)  Options 
E)  Futures 
A)  American Depository Receipts (ADRs) 
B)  Exchange Traded Funds (ETFs) 
C)  Warrants 
D)  Options 
E)  Futures

Question 3

If this year is consistent with historical trends you would expect the return for small capitalization stocks to be

Accepted Answer

A)  Below common stocks and above long-term government bonds. 
B)  Below common stocks and below long-term government bonds. 
C)  Above last year's return on the same stocks. 
D)  Above common stock, long-term government, and corporate bonds. 
E)  The least variable among long-term bonds and common stocks. 
A)  Below common stocks and above long-term government bonds. 
B)  Below common stocks and below long-term government bonds. 
C)  Above last year's return on the same stocks. 
D)  Above common stock, long-term government, and corporate bonds. 
E)  The least variable among long-term bonds and common stocks.

Question 4

Government agency securities are issued by local government entities as either general obligation or revenue bonds.

Accepted Answer

A) True 
 B)False

Question 5

Yields on money market funds are often lower than yields available to individuals investing in CD's because of the fees involved.

Accepted Answer

A) True 
 B)False

Question 6

The decrease in the standard deviation of returns after adding 40 to 50 securities within a country is known as domestic diversification.

Accepted Answer

A) True 
 B)False

Question 7

Adding international investments to an all U.S.portfolio will most likely:

Accepted Answer

A)  Increase the overall risk of the portfolio 
B)  Decrease the overall risk of the portfolio 
C)  Increase the expected return of the portfolio 
D)  Decrease the expected return of the portfolio 
E)  None of the above 
A)  Increase the overall risk of the portfolio 
B)  Decrease the overall risk of the portfolio 
C)  Increase the expected return of the portfolio 
D)  Decrease the expected return of the portfolio 
E)  None of the above

Question 8

Exhibit 3.2.
Use the Information Below for the Following Problem(S)
                                                Real Retums
$\begin{array}{lc}
\text { Investment } & \text { Real Returns } \
\hline \text { Large company stock } & \text { Real Annual Return } \
\text { Small capitalization stock } & 6.50 \% \
\text { Long-term corporate bonds } & 8.60 \% \
\text { Long-term government bonds } & 3.60 \% \
\text { U.S. Treasury bills } & 2.80 \% \
\text { 1.03\% }
\end{array}$
 
The annual rate of inflation is 2.5%
-Refer to Exhibit 3.2.What is the long term Treasury bond nominal return?

Accepted Answer

A)  3.56% 
B)  5.37% 
C)  6.19% 
D)  9.16% 
E)  11.32% 
A)  3.56% 
B)  5.37% 
C)  6.19% 
D)  9.16% 
E)  11.32%

Question 9

The purchase and sale of commodities for current delivery and consumption is known as dealing in the ____ market.

Accepted Answer

A)  Futures 
B)  Spot 
C)  Money 
D)  Capital 
E)  Options 
A)  Futures 
B)  Spot 
C)  Money 
D)  Capital 
E)  Options

Question 10

An individual with only $10,000 to invest is most likely better off investing in:

Accepted Answer

A)  Mutual funds to increase the expected return 
B)  ETFs to increase the diversification 
C)  Individual equities to increase portfolio efficiency 
D)  Individual bonds and individual equities to increase efficiency 
E)  All of the above are rational choices 
A)  Mutual funds to increase the expected return 
B)  ETFs to increase the diversification 
C)  Individual equities to increase portfolio efficiency 
D)  Individual bonds and individual equities to increase efficiency 
E)  All of the above are rational choices

Question 11

What range of returns would an investor expect to achieve 99% of the time on an investment with an expected return of 11% and a standard deviation of 16%?

Accepted Answer

A)  5% to 27% 
B)  -5% to 27% 
C)  -21% to 43% 
D)  -37% to 59% 
E)  5% to 21% 
A)  5% to 27% 
B)  -5% to 27% 
C)  -21% to 43% 
D)  -37% to 59% 
E)  5% to 21%

Question 12

What is the 95 percent confidence interval for an investment with an expected return of 9 percent and a standard deviation of 15%?

Accepted Answer

A)  9% to 15% 
B)  -6% to 24% 
C)  -15% to 32% 
D)  -21% to 39% 
E)  -36% to 56% 
A)  9% to 15% 
B)  -6% to 24% 
C)  -15% to 32% 
D)  -21% to 39% 
E)  -36% to 56%

Question 13

You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%.Assuming all other factors are the same and you are in the 28% tax bracket,which bond should you choose and why?

Accepted Answer

A)  Corporate bond because the after tax yield is 6.25%. 
B)  Corporate bond because the after tax yield is 4.5%. 
C)  Municipal bond because the equivalent taxable yield is 6.3%. 
D)  Municipal bond because the equivalent taxable yield is 6.6%. 
E)  You will be indifferent between the two because the after tax yields are the same. 
A)  Corporate bond because the after tax yield is 6.25%. 
B)  Corporate bond because the after tax yield is 4.5%. 
C)  Municipal bond because the equivalent taxable yield is 6.3%. 
D)  Municipal bond because the equivalent taxable yield is 6.6%. 
E)  You will be indifferent between the two because the after tax yields are the same.

Question 14

A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%.Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 90% of the time?

Accepted Answer

A)  12.8% to 20.6% 
B)  -10.6% to 36.2% 
C)  -2.8% to 28.4% 
D)  -12.8% to 20.6% 
E)  10.6% to 36.2% 
A)  12.8% to 20.6% 
B)  -10.6% to 36.2% 
C)  -2.8% to 28.4% 
D)  -12.8% to 20.6% 
E)  10.6% to 36.2%

Question 15

If the nominal return on an investment of common stocks was 11% and inflation was 2.5% annually,what was the real return on common stock?

Accepted Answer

A)  8.3% 
B)  8.5% 
C)  9.7% 
D)  11.0% 
E)  12.6% 
A)  8.3% 
B)  8.5% 
C)  9.7% 
D)  11.0% 
E)  12.6%

Question 16

The correlation between U.S.equities and U.S.government bonds is

Accepted Answer

A)  Strongly positive. 
B)  Weakly Positive. 
C)  Strongly Negative. 
D)  Weakly Negative. 
E)  Indeterminate. 
A)  Strongly positive. 
B)  Weakly Positive. 
C)  Strongly Negative. 
D)  Weakly Negative. 
E)  Indeterminate.

Question 17

A return series has an arithmetic mean of 10.5% and standard deviation of 13%.Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 95% of the time?

Accepted Answer

A)  10.5% to 13% 
B)  -2.5% to 23.5% 
C)  -28.5% to 49.5% 
D)  -15.5% to 36.5% 
E)  0% to 36.5% 
A)  10.5% to 13% 
B)  -2.5% to 23.5% 
C)  -28.5% to 49.5% 
D)  -15.5% to 36.5% 
E)  0% to 36.5%

Question 18

A call option is usually issued in conjunction with convertible bonds.

Accepted Answer

A) True 
 B)False

Question 19

A statistic that measures how two variables tend to move together is the

Accepted Answer

A)  Coefficient of variation 
B)  Correlation coefficient 
C)  Standard deviation 
D)  Mean 
E)  Variance 
A)  Coefficient of variation 
B)  Correlation coefficient 
C)  Standard deviation 
D)  Mean 
E)  Variance

Question 20

The best way to directly acquire the shares of a foreign company is through

Accepted Answer

A)  International mutual funds. 
B)  Global mutual funds. 
C)  American Depository Receipts. 
D)  Investment in U.S. companies operating internationally. 
E)  Eurobonds. 
A)  International mutual funds. 
B)  Global mutual funds. 
C)  American Depository Receipts. 
D)  Investment in U.S. companies operating internationally. 
E)  Eurobonds.

Exam 3: The Global Market Investment Decision

Diversification with foreign securities can help reduce portfolio risk.

Certificates of ownership issued by a U.S.bank that represent indirect ownership of a certain number of shares of a specific foreign firm on deposit in a bank in the firm's home country are known as:

If this year is consistent with historical trends you would expect the return for small capitalization stocks to be

Government agency securities are issued by local government entities as either general obligation or revenue bonds.

Yields on money market funds are often lower than yields available to individuals investing in CD's because of the fees involved.

The decrease in the standard deviation of returns after adding 40 to 50 securities within a country is known as domestic diversification.

Adding international investments to an all U.S.portfolio will most likely:

The purchase and sale of commodities for current delivery and consumption is known as dealing in the ____ market.

An individual with only $10,000 to invest is most likely better off investing in:

What range of returns would an investor expect to achieve 99% of the time on an investment with an expected return of 11% and a standard deviation of 16%?

What is the 95 percent confidence interval for an investment with an expected return of 9 percent and a standard deviation of 15%?

You are trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%.Assuming all other factors are the same and you are in the 28% tax bracket,which bond should you choose and why?

A return series has an arithmetic mean of 12.8% and standard deviation of 7.8%.Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 90% of the time?

If the nominal return on an investment of common stocks was 11% and inflation was 2.5% annually,what was the real return on common stock?

The correlation between U.S.equities and U.S.government bonds is

A return series has an arithmetic mean of 10.5% and standard deviation of 13%.Assuming the returns are normally distributed what is the range of returns that an investor would expect to receive 95% of the time?

A call option is usually issued in conjunction with convertible bonds.

A statistic that measures how two variables tend to move together is the

The best way to directly acquire the shares of a foreign company is through

An Overview of the Investment Process

The Asset Allocation Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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