Question 1

A security with the following beta would be the most attractive candidate for a portfolio (everything else the same)

Accepted Answer

A)  1.0 
B)  0.5 
C)  0.0 
D)  There would be no difference 
A)  1.0 
B)  0.5 
C)  0.0 
D)  There would be no difference C

Question 2

Home-country bias refers to

Accepted Answer

A)  Investors forgoing full diversification benefits from investing abroad 
B)  Investors not seeking good returns on domestic investments 
C)  Favoring domestic bonds over other investments 
D)  Unwillingness to use foreign investment advisers 
A)  Investors forgoing full diversification benefits from investing abroad 
B)  Investors not seeking good returns on domestic investments 
C)  Favoring domestic bonds over other investments 
D)  Unwillingness to use foreign investment advisers A

Question 3

An efficient portfolio is

Accepted Answer

A)  One selected by a certified portfolio adviser 
B)  An exchange-traded fund 
C)  A portfolio for which higher returns can be achieved only by accepting more risk 
D)  A portfolio of equally weighted domestic and foreign assets 
A)  One selected by a certified portfolio adviser 
B)  An exchange-traded fund 
C)  A portfolio for which higher returns can be achieved only by accepting more risk 
D)  A portfolio of equally weighted domestic and foreign assets C

Question 4

Under the efficient markets hypothesis

Accepted Answer

A)  Stock prices follow a random walk 
B)  All relevant information bearing on a stock's value is embedded in its price 
C)  Careful picking of stocks cannot be expected to provided better-than-market returns 
D)  All of the above 
A)  Stock prices follow a random walk 
B)  All relevant information bearing on a stock's value is embedded in its price 
C)  Careful picking of stocks cannot be expected to provided better-than-market returns 
D)  All of the above

Question 5

An investor considering a security for a portfolio will regard as important

Accepted Answer

A)  The security's return 
B)  The security's risk measured as the variability of its returns 
C)  The correlation of its returns with the returns of other securities in the portfolio 
D)  All of the above 
A)  The security's return 
B)  The security's risk measured as the variability of its returns 
C)  The correlation of its returns with the returns of other securities in the portfolio 
D)  All of the above

Question 6

Investors build a portfolio of multiple securities to

Accepted Answer

A)  Improve the returns on their investments 
B)  Avoid the consequences of inflation 
C)  Lower the risk on the funds that they have invested 
D)  Save more 
A)  Improve the returns on their investments 
B)  Avoid the consequences of inflation 
C)  Lower the risk on the funds that they have invested 
D)  Save more

Question 7

When the price of a financial asset embodies all available information bearing on its value, this reflects

Accepted Answer

A)  The Fisher effect 
B)  The term premium hypothesis 
C)  The efficient markets hypothesis 
D)  None of the above 
A)  The Fisher effect 
B)  The term premium hypothesis 
C)  The efficient markets hypothesis 
D)  None of the above

Question 8

In the pricing of a financial asset

Accepted Answer

A)  The greater the asset's beta (?), the smaller will be compensation for risk 
B)  The smaller the asset's beta (?), the smaller will be compensation for risk 
C)  Compensation for risk will be at a maximum when the asset's beta (?) is equal to zero 
D)  There is no relationship between an asset's beta (?) and compensation for risk 
A)  The greater the asset's beta (?), the smaller will be compensation for risk 
B)  The smaller the asset's beta (?), the smaller will be compensation for risk 
C)  Compensation for risk will be at a maximum when the asset's beta (?) is equal to zero 
D)  There is no relationship between an asset's beta (?) and compensation for risk

Question 9

An asset bubble

Accepted Answer

A)  Contradicts a strict version of the efficient markets hypothesis 
B)  Means that the price of an asset exceeds that implied by economic fundamentals 
C)  Can be explained by rational behavior 
D)  All of the above 
A)  Contradicts a strict version of the efficient markets hypothesis 
B)  Means that the price of an asset exceeds that implied by economic fundamentals 
C)  Can be explained by rational behavior 
D)  All of the above

Question 10

Adding foreign stocks to a portfolio

Accepted Answer

A)  Is always a bad idea 
B)  Is always a good idea 
C)  Is a good idea if the returns on these stocks are weakly correlated with the returns on the rest of the portfolio 
D)  Is a good idea if the returns on these stocks are highly correlated with the returns on the rest of the portfolio 
A)  Is always a bad idea 
B)  Is always a good idea 
C)  Is a good idea if the returns on these stocks are weakly correlated with the returns on the rest of the portfolio 
D)  Is a good idea if the returns on these stocks are highly correlated with the returns on the rest of the portfolio

Question 11

The efficient markets hypothesis implies that

Accepted Answer

A)  Above-market returns cannot be expected by an investor 
B)  Stock prices follow a random walk 
C)  Regular intramonthly patterns in stock prices cannot persist 
D)  All of the above 
A)  Above-market returns cannot be expected by an investor 
B)  Stock prices follow a random walk 
C)  Regular intramonthly patterns in stock prices cannot persist 
D)  All of the above

Question 12

A reason to hold a portfolio of S&P 500 shares is

Accepted Answer

A)  Such a portfolio achieves close to optimal gains from equity diversification 
B)  Such a portfolio has returns that approach market returns 
C)  Such a portfolio can be easily acquired through mutual funds 
D)  All of the above 
A)  Such a portfolio achieves close to optimal gains from equity diversification 
B)  Such a portfolio has returns that approach market returns 
C)  Such a portfolio can be easily acquired through mutual funds 
D)  All of the above

A security with the following beta would be the most attractive candidate for a portfolio (everything else the same)

Home-country bias refers to

An efficient portfolio is

Under the efficient markets hypothesis

An investor considering a security for a portfolio will regard as important

Investors build a portfolio of multiple securities to

When the price of a financial asset embodies all available information bearing on its value, this reflects

In the pricing of a financial asset

An asset bubble

Adding foreign stocks to a portfolio

The efficient markets hypothesis implies that

A reason to hold a portfolio of S&P 500 shares is

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

The Money Market

The Bond Market

Securitization

The Mortgage Market

The Equity Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Monetary Policy: Challenges Faced by Policymakers

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters

Exam 6: Principles of Portfolio Selection and Efficient Markets

A security with the following beta would be the most attractive candidate for a portfolio (everything else the same)

Home-country bias refers to

An efficient portfolio is

Under the efficient markets hypothesis

An investor considering a security for a portfolio will regard as important

Investors build a portfolio of multiple securities to

When the price of a financial asset embodies all available information bearing on its value, this reflects

In the pricing of a financial asset

An asset bubble

Adding foreign stocks to a portfolio

The efficient markets hypothesis implies that

A reason to hold a portfolio of S&P 500 shares is

Introduction

Overview of the Financial System

The Special Role of Commercial Banks

Factors Affecting Yields

The Money Market

The Bond Market

Securitization

The Mortgage Market

The Equity Market

Central Banking and the Federal Reserve

Monetary Policy: The Basics

Monetary Policy: Challenges Faced by Policymakers

Financial Crises

The Foreign Exchange Market and Exchange Rate Regimes

Depository Institutions

The Pricing of Financial Assets

Mutual Funds

Hedge, Venture Capital, and Private Equity Funds

Large Institutional Investors

Filters