Question 1

Which of the following is true of the various market index series?

Accepted Answer

A)  A low correlation exists between the U.S. indexes and those of Japan. 
B)  The NYSE series have higher rates of return and risk measures than the AMEX and OTC series. 
C)  A low correlation exists between alternative series that include almost all NYSE stocks. 
D)  A low correlation exists between alternative bond series. 
E)  None of the above 
A)  A low correlation exists between the U.S. indexes and those of Japan. 
B)  The NYSE series have higher rates of return and risk measures than the AMEX and OTC series. 
C)  A low correlation exists between alternative series that include almost all NYSE stocks. 
D)  A low correlation exists between alternative bond series. 
E)  None of the above

Question 2

The major U.S.stock indexes are highly correlated.

Accepted Answer

A) True 
 B)False

Question 3

Exhibit 5.6
Use the Information Below for the Following Problem(S)
                                                                                                            Price 
$$\begin{array} { c c c c } 
\text { Stack } & \text { Number of Shares } & \text { Day T } & \text { D.y T + 1 } \
\hline Q & 5,000,000 & 80 & 95 \
R & 8,000,000 & 60 & 55 \
\text { S } & 15,000,000 & 20 & 24
\end{array}$$
-Refer to Exhibit 5.6.Compute the arithmetic mean of the price change of Stocks Q,R,and S from days T to T + 1.

Accepted Answer

A)  8.65% 
B)  10.14% 
C)  15.69% 
D)  30.42% 
E)  47.08% 
A)  8.65% 
B)  10.14% 
C)  15.69% 
D)  30.42% 
E)  47.08%

Question 4

Studies of correlations among monthly U.S.bond price index returns have found:

Accepted Answer

A)  Low correlations between investment grade bonds and high yield bonds 
B)  High correlations between investment grade bonds and high yield bonds 
C)  Low correlations between various investment grade bond indexes 
D)  Negative correlations between investment grade bonds and high yield bonds 
E)  None of the above 
A)  Low correlations between investment grade bonds and high yield bonds 
B)  High correlations between investment grade bonds and high yield bonds 
C)  Low correlations between various investment grade bond indexes 
D)  Negative correlations between investment grade bonds and high yield bonds 
E)  None of the above

Question 5

The general purpose of a market indicator series is to provide an overall indication of aggregate market changes or movements.

Accepted Answer

A) True 
 B)False

Question 6

The actual index movements are typically based on the arithmetic mean of the percent changes in price or value for the stocks in the

Accepted Answer

A)  Price-weighted index. 
B)  Unweighted index. 
C)  Value-weighted index. 
D)  All of the above 
E)  None of the above 
A)  Price-weighted index. 
B)  Unweighted index. 
C)  Value-weighted index. 
D)  All of the above 
E)  None of the above

Question 7

Studies of correlations among monthly equity price index returns have found:

Accepted Answer

A)  Low correlations between various U.S. equity indexes 
B)  High correlations between various U.S. equity indexes 
C)  High correlations between U.S. and non-U.S. equity indexes 
D)  Negative correlations between various U.S. equity indexes 
E)  None of the above 
A)  Low correlations between various U.S. equity indexes 
B)  High correlations between various U.S. equity indexes 
C)  High correlations between U.S. and non-U.S. equity indexes 
D)  Negative correlations between various U.S. equity indexes 
E)  None of the above

Question 8

Exhibit 5.2
Use the Information Below for the Following Problem(S)
 $\begin{array}{lcccccc} 
~&&\text { Stock Price } &&& \text { \# Shares } \
 & \mathbf{X} & \mathbf{Y} & \mathbf{Z} & \mathbf{X} & \mathbf{Y} & \mathbf{Z} \
 \text { Jan. } 13,2005 & 20 & 40 & 30 & 1000 & 2000 & 1000^{*} \
\text { Jan. } 14,2005 & 25 & 42 & 18 & 1000 & 2000 & 2000 \
\text { Jan. } 15,2005 & 27 & 45 & 8 & 1000^{* *} & 2000 & 2000 \
\text { Jan. } 16,2005 & 20 & 40 & 10 & 3000 & 2000 & 2000
\end{array}$ 
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
-Refer to Exhibit 5.2.Calculate a value weighted index for January 15th if the initial index value is 100.

Accepted Answer

A)  102.31 
B)  100 
C)  123.07 
D)  111.54 
E)  None of the above 
A)  102.31 
B)  100 
C)  123.07 
D)  111.54 
E)  None of the above

Question 9

Exhibit 5.5
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c c c c } 
\text { Stack } & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Shares }
\end{array} & \begin{array} { c } 
\text { 31-Dec-04 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { S1-Dec-04 } \
\text { Shares }
\end{array} \
\hline W & \$ 75.00 & 10000 & \$ 50.00 & 20000 \
X & \$ 150.00 & 5000 & \$ 65.00 & 10000 \
Y & \$ 2500 & 20000 & \$ 35.00 & 20000 \
Z & \$ 20.00 & 25000 & \$ 50.00 & 25000
\end{array}$$ 
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
-Refer to Exhibit 5.5.Calculate the percentage return in the value weighted index for the period Dec 31,2003 to Dec 31,2004.

Accepted Answer

A)  12.68% 
B)  20.00% 
C)  21.76% 
D)  33.33% 
E)  40.00% 
A)  12.68% 
B)  20.00% 
C)  21.76% 
D)  33.33% 
E)  40.00%

Question 10

Exhibit 5.5
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c c c c } 
\text { Stack } & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Shares }
\end{array} & \begin{array} { c } 
\text { 31-Dec-04 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { S1-Dec-04 } \
\text { Shares }
\end{array} \
\hline W & \$ 75.00 & 10000 & \$ 50.00 & 20000 \
X & \$ 150.00 & 5000 & \$ 65.00 & 10000 \
Y & \$ 2500 & 20000 & \$ 35.00 & 20000 \
Z & \$ 20.00 & 25000 & \$ 50.00 & 25000
\end{array}$$ 
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
-Refer to Exhibit 5.5.Calculate the unweighted index for Dec 31,2003,prior to the splits.Assume a base index value of 100.The base year is Dec 31,2003.

Accepted Answer

A)  100.0 
B)  200.0 
C)  150.0 
D)  120.0 
E)  175.0 
A)  100.0 
B)  200.0 
C)  150.0 
D)  120.0 
E)  175.0

Question 11

Exhibit 5.5
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c c c c } 
\text { Stack } & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Shares }
\end{array} & \begin{array} { c } 
\text { 31-Dec-04 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { S1-Dec-04 } \
\text { Shares }
\end{array} \
\hline W & \$ 75.00 & 10000 & \$ 50.00 & 20000 \
X & \$ 150.00 & 5000 & \$ 65.00 & 10000 \
Y & \$ 2500 & 20000 & \$ 35.00 & 20000 \
Z & \$ 20.00 & 25000 & \$ 50.00 & 25000
\end{array}$$ 
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
-Refer to Exhibit 5.5.Calculate the value weighted index for Dec 31,2003,prior to the splits.Assume a base index value of 100.The base year is Dec 31,2003.

Accepted Answer

A)  120.0 
B)  81.69 
C)  72.5 
D)  100.0 
E)  121.25 
A)  120.0 
B)  81.69 
C)  72.5 
D)  100.0 
E)  121.25

Question 12

In a value weighted index

Accepted Answer

A)  Exchange rate fluctuations have a large impact. 
B)  Exchange rate fluctuations have a small impact. 
C)  Large companies have a disproportionate influence on the index. 
D)  Small companies have an exaggerated effect on the index. 
E)  None of the above 
A)  Exchange rate fluctuations have a large impact. 
B)  Exchange rate fluctuations have a small impact. 
C)  Large companies have a disproportionate influence on the index. 
D)  Small companies have an exaggerated effect on the index. 
E)  None of the above

Question 13

Exhibit 5.2
Use the Information Below for the Following Problem(S)
 $\begin{array}{lcccccc} 
~&&\text { Stock Price } &&& \text { \# Shares } \
 & \mathbf{X} & \mathbf{Y} & \mathbf{Z} & \mathbf{X} & \mathbf{Y} & \mathbf{Z} \
 \text { Jan. } 13,2005 & 20 & 40 & 30 & 1000 & 2000 & 1000^{*} \
\text { Jan. } 14,2005 & 25 & 42 & 18 & 1000 & 2000 & 2000 \
\text { Jan. } 15,2005 & 27 & 45 & 8 & 1000^{* *} & 2000 & 2000 \
\text { Jan. } 16,2005 & 20 & 40 & 10 & 3000 & 2000 & 2000
\end{array}$ 
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
-Refer to Exhibit 5.2.Calculate a value weighted index for Jan.13th if the initial index value is 100.

Accepted Answer

A)  111.54 
B)  100 
C)  102.31 
D)  123.07 
E)  None of the above 
A)  111.54 
B)  100 
C)  102.31 
D)  123.07 
E)  None of the above

Question 14

The correlations among the U.S.investment-grade-bond series were very high because all rates of return for investment-grade bonds over time are impacted by common macroeconomic variables.

Accepted Answer

A) True 
 B)False

Question 15

A two for one stock split causes the divisor in a price-weighted series to decline.

Accepted Answer

A) True 
 B)False

Question 16

The Standard & Poor's International Index consists of 3 international,19 national,and 38 international industry indexes.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 5.1
Use the Information Below for the Following Problem(S)
                     
$\begin{array}{c}
\begin{array}{lll}
\text { Number of shares}
\end{array}
\begin{array}{lll}
\text { Glasing Prices}
\end{array}
\begin{array}{lll}
\text { (per share)} 
\end{array}
\end{array}$

$\begin{array}{cccc}
\text { Companies } & \text { outstanding } & \text { Day T } & \text { Day T + 1 } \
\hline 1 & 2,000 & \$ 30.00 & \$ 25.00 \
2 & 7,000 & 55.00 & 60.00 \
3 & 5,000 & 20.00 & 25.00 \
4 & 4.000 & 40.00 & 45.00
\end{array}$

-Refer to Exhibit 5.1.Assume that a stock price-weighted indicator consisted of the four issues with their prices.What are the values of the stock indicator for Day T and T + 1 and what is the percentage change?

Accepted Answer

A)  36.25, 38.75, 6.9% 
B)  38.75, 36.25, -6.9% 
C)  100, 106.9, 6.9% 
D)  107.48, 106.33, 1.15% 
E)  None of the above 
A)  36.25, 38.75, 6.9% 
B)  38.75, 36.25, -6.9% 
C)  100, 106.9, 6.9% 
D)  107.48, 106.33, 1.15% 
E)  None of the above

Question 18

Exhibit 5.5
Use the Information Below for the Following Problem(S)
 $$\begin{array} { c c c c c } 
\text { Stack } & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { 31-Dec-03 } \
\text { Shares }
\end{array} & \begin{array} { c } 
\text { 31-Dec-04 } \
\text { Price }
\end{array} & \begin{array} { c } 
\text { S1-Dec-04 } \
\text { Shares }
\end{array} \
\hline W & \$ 75.00 & 10000 & \$ 50.00 & 20000 \
X & \$ 150.00 & 5000 & \$ 65.00 & 10000 \
Y & \$ 2500 & 20000 & \$ 35.00 & 20000 \
Z & \$ 20.00 & 25000 & \$ 50.00 & 25000
\end{array}$$ 
Stocks W and X had 2 for 1 splits after the close on Dec 31, 2003.
-Refer to Exhibit 5.5.Calculate the price weighted series for Dec 31,2003,after the splits.

Accepted Answer

A)  72.5 
B)  100.0 
C)  119.25 
D)  121.25 
E)  81.69 
A)  72.5 
B)  100.0 
C)  119.25 
D)  121.25 
E)  81.69

Question 19

Exhibit 5.2
Use the Information Below for the Following Problem(S)
 $\begin{array}{lcccccc} 
~&&\text { Stock Price } &&& \text { \# Shares } \
 & \mathbf{X} & \mathbf{Y} & \mathbf{Z} & \mathbf{X} & \mathbf{Y} & \mathbf{Z} \
 \text { Jan. } 13,2005 & 20 & 40 & 30 & 1000 & 2000 & 1000^{*} \
\text { Jan. } 14,2005 & 25 & 42 & 18 & 1000 & 2000 & 2000 \
\text { Jan. } 15,2005 & 27 & 45 & 8 & 1000^{* *} & 2000 & 2000 \
\text { Jan. } 16,2005 & 20 & 40 & 10 & 3000 & 2000 & 2000
\end{array}$ 
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
-Refer to Exhibit 5.2.What is the divisor at the beginning of January 14th?

Accepted Answer

A)  3.0 
B)  2.5 
C)  2.2734 
D)  1.9375 
E)  None of the above 
A)  3.0 
B)  2.5 
C)  2.2734 
D)  1.9375 
E)  None of the above

Question 20

Exhibit 5.2
Use the Information Below for the Following Problem(S)
 $\begin{array}{lcccccc} 
~&&\text { Stock Price } &&& \text { \# Shares } \
 & \mathbf{X} & \mathbf{Y} & \mathbf{Z} & \mathbf{X} & \mathbf{Y} & \mathbf{Z} \
 \text { Jan. } 13,2005 & 20 & 40 & 30 & 1000 & 2000 & 1000^{*} \
\text { Jan. } 14,2005 & 25 & 42 & 18 & 1000 & 2000 & 2000 \
\text { Jan. } 15,2005 & 27 & 45 & 8 & 1000^{* *} & 2000 & 2000 \
\text { Jan. } 16,2005 & 20 & 40 & 10 & 3000 & 2000 & 2000
\end{array}$ 
*2:1 Split on Stock Z after Close on Jan. 13, 2005
**3:1 Split on Stock X after Close on Jan. 15, 2005
The base date for index calculations is January 13, 2005
-Refer to Exhibit 5.2.Calculate a price weighted average for January 14th.

Accepted Answer

A)  32 
B)  30 
C)  36.13 
D)  34 
E)  None of the above 
A)  32 
B)  30 
C)  36.13 
D)  34 
E)  None of the above

Exam 5: Security-Market Indexes

Which of the following is true of the various market index series?

The major U.S.stock indexes are highly correlated.

Exhibit 5.6 Use the Information Below for the Following Problem(S) Price Stack Number of Shares Day T D.y T + 1 Q 5,000,000 80 95 R 8,000,000 60 55 S 15,000,000 20 24 -Refer to Exhibit 5.6.Compute the arithmetic mean of the price change of Stocks Q,R,and S from days T to T + 1.

Studies of correlations among monthly U.S.bond price index returns have found:

The general purpose of a market indicator series is to provide an overall indication of aggregate market changes or movements.

The actual index movements are typically based on the arithmetic mean of the percent changes in price or value for the stocks in the

Studies of correlations among monthly equity price index returns have found:

In a value weighted index

The correlations among the U.S.investment-grade-bond series were very high because all rates of return for investment-grade bonds over time are impacted by common macroeconomic variables.

A two for one stock split causes the divisor in a price-weighted series to decline.

The Standard & Poor's International Index consists of 3 international,19 national,and 38 international industry indexes.

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

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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