_________ below which it is difficult for the market to fall.

An intrinsic value and a resistance level are values

The intrinsic value of an out-of-the-money call option is

The stock price minus the exercise price

In the Treynor-Black model

Portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.

Portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.

Portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.

Portfolio weight are sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers.

Portfolio weight are not sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers.

The random walk hypothesis posits that:

historical returns follow a random walk.

historical prices follow a random walk.

firm size follows a random walk.

short-run investment returns are inherently unpredictable.

The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you should

buy stock X because it is overpriced.

The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you should

buy stock X because it is overpriced.

Financial leverage may increase a corporation’s risk because

more common stock is outstanding

the firm has fixed obligations to meet

more common stock is outstanding

Which of the following statements about the mean-variance criterion is correct?

The mean return equals the riskless interest.

Investors select assets that provide the highest rate of return.

Investors select assets that provide the highest variance for the same or higher expected return.

Investors select assets that provide the lowest variance for the same or higher expected return.

The mean return equals the riskless interest.

The two components that make up the risk-free rate are

Real assets and the inflation factor

Real rate of return and capital gains

Risk-free assets and capital gains

Real rate of return and the inflation factor

Real assets and the inflation factor

Small bond issues carrying single maturity date.

Large bond issues carrying fixed maturity date

Small bond issues carrying many maturity dates.

Small bond issues carrying single maturity date.

Large bond issues carrying many maturity dates.

Which of the following statements pertaining to the Efficient Market Hypothesis (EMH) is/ are true?

Successive short run absolute price changes are independent

Market comprises of rational investors

Weak Form of EMH is also known as random walk model

Tracking error is defined as

the variance of the return of the benchmark portfolio

the difference between the returns on the overall risky portfolio versus the benchmark return.

the variance of the return of the benchmark portfolio

the variance of the return difference between the portfolio and the benchmark

the variance of the return of the actively-managed portfolio

When ranking security returns, the data shows that the annualized returns are as follows, ranked from highest return to lowest return.

Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds

Large stocks, small stocks, long-term corporate bonds, long-term government bonds, treasury bills

Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills

Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds

Treasury bills, long-term government bonds, long-term corporate bonds, large stocks, small stocks

The Security Risk Evaluation book published by Merrill Lynch uses the __________ as a proxy for the market portfolio.

Dow Jones Transportation Average

Fundamental analysis, does not concentrate on the fundamental factors affecting the company such as

the competition faced by the company,

In a well diversified portfolio

Non diversifiable risk is negligible.

unsystematic risk is negligible.

Non diversifiable risk is negligible.

A direct equity claim arises through investment in

Preferred stock and commodity futures

Bonds and other debt instruments

Common stocks, warrants and options

Preferred stock and commodity futures

411 + Mcqs in Security in Operating System Page 3 McqOptions

101.	Active portfolio management consists of __________.
A.	market timing
B.	security analysis
C.	indexing
D.	Aand B
Answer» E.

Discussion

102.	Merrill Lynch estimates the index model for a stock using regression analysis involving total returns. They estimated the intercept in the regression equation at 6% and the β at 0.5. The risk-free rate of return is 12%. The true β of the stock is ________.
A.	0%
B.	3%
C.	6%
D.	9%
Answer» B. 3%

Discussion

103.	_________ below which it is difficult for the market to fall.
A.	An intrinsic value is a value
B.	A resistance level is a value
C.	A support level is a value
D.	An intrinsic value and a resistance level are values
Answer» D. An intrinsic value and a resistance level are values

Discussion

104.	The fundamental analyst compares this intrinsic value (true worth of a security based on its fundamentals) with the
A.	Historical Market price
B.	Past intrinsic value
C.	Current market price.
D.	Expected Intrinsic value
Answer» D. Expected Intrinsic value

Discussion

105.	Which of the following is a breadth indicator?
A.	Advance-decline line.
B.	Put/call ratio.
C.	Odd-lot trading.
D.	Channel.
Answer» B. Put/call ratio.

Discussion

106.	According to the Capital Asset Pricing Model (CAPM), fairly priced securities
A.	have positive betas.
B.	have zero alphas.
C.	have negative betas.
D.	have positive alphas.
Answer» C. have negative betas.

Discussion

107.	Positive abnormal returns for corporate insiders constitute a violation of:
A.	weak form efficiency.
B.	semi-strong form efficiency.
C.	strong-form efficiency.
D.	none of these.
Answer» D. none of these.

Discussion

108.	The intrinsic value of an out-of-the-money call option is
A.	The Call Premium
B.	The stock price minus the exercise price
C.	Negative
D.	Zero
Answer» E.

Discussion

109.	In the Treynor-Black model
A.	Portfolio weight are sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.
B.	Portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.
C.	Portfolio weight are sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers.
D.	Portfolio weight are not sensitive to large alpha values which can lead to the optimal portfolio for most portfolio managers.
Answer» B. Portfolio weight are not sensitive to large alpha values which can lead to infeasible long or short position for many portfolio managers.

Discussion

110.	In a factor model, the return on a stock in a particular period will be related to _________.
A.	firm-specific events
B.	macroeconomic events
C.	the error term
D.	both A and B
Answer» E.

Discussion

111.	The random walk hypothesis posits that:
A.	historical returns follow a random walk.
B.	historical prices follow a random walk.
C.	firm size follows a random walk.
D.	short-run investment returns are inherently unpredictable.
Answer» E.

Discussion

112.	A stock with a relative strength of 3.0 will have a relative strength index of
A.	125
B.	66.67
C.	75
D.	26
Answer» D. 26

Discussion

113.	Which of the following do technical analysts believe is a lower bound on a stock’s price?
A.	Moving average.
B.	Shadow.
C.	Resistance.
D.	Support.
Answer» E.

Discussion

114.	Which of the following is/are true if a firm has a required rate of return equal to the ROE?I. The amount of earnings retained by the firm does not affect market price or the P/E. II. The firm can increase market price and P/E by increasing the growth rate. III. The P/E ratio is inversely proportional to the ROE of the firm.
A.	Only (I) above
B.	Both (I) and (II) above
C.	Both (I) and (III) above
D.	Both (II) and (III) above
Answer» E.

Discussion

115.	Other things being same, the price of American call option on a stock is positively correlated with the following factors, except
A.	The exercise price
B.	The time to expiration
C.	The stock volatility
D.	The stock price
Answer» B. The time to expiration

Discussion

116.	The person within the brokerage office with whom an investor will have the most contact is
A.	Authorized representative
B.	Registered representative
C.	Authorized person
D.	Registered authority
Answer» D. Registered authority

Discussion

117.	On November 22, 2009 the stock price of WalMart was $39.50 and the retailer stock index was 600.30. On November 25, 2009 the stock price of WalMart was $40.25 and the retailer stock index was 605.20. Consider the ratio of WalMart to the retailer index on November 22 and November 25. WalMart is _______ the retail industry and technical analysts who follow relative strength would advise _______ the stock.
A.	outperforming, buying
B.	outperforming, selling
C.	underperforming, buying
D.	underperforming, selling
Answer» C. underperforming, buying

Discussion

118.	What would the rate of return for a stock that increased in value from $60 per share to $63 per share and paid a $3.00 dividend?
A.	12%
B.	11%
C.	10%
D.	1.5%
Answer» D. 1.5%

Discussion

119.	Historically, the real rate of return in the U.S. economy has been
A.	1-2%
B.	2-3%
C.	3-4%
D.	4-5%
Answer» E.

Discussion

120.	Under ________ EMH investors cannot earn abnormal/superior profits on securities on a consistent basis.
A.	Weak-form efficient
B.	Strong form efficient
C.	Semi-strong form efficient
D.	all
Answer» D. all

Discussion

121.	What is the rate of return on a share of common stock that increased in value from $40 to $50?
A.	5%
B.	10%
C.	20%
D.	25%
Answer» E.

Discussion

122.	__________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability.
A.	Credit analysts
B.	Fundamental analysts
C.	Systems analysts
D.	Technical analysts
Answer» E.

Discussion

123.	According to the CAPM, overpriced securities have:
A.	negative betas.
B.	positive alphas.
C.	negative alphas.
D.	zero betas.
Answer» D. zero betas.

Discussion

124.	The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you should
A.	buy stock X because it is overpriced.
Answer» E.

Discussion

125.	The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to
A.	0.06.
B.	0.144.
C.	0.12.
D.	0.132
Answer» E.

Discussion

126.	The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you should
A.	buy stock X because it is overpriced.
Answer» E.

Discussion

127.	A stock that pays low or no cash dividends is
A.	EBay
B.	Duke Power
C.	AT&T
D.	All of the above
Answer» B. Duke Power

Discussion

128.	Financial leverage may increase a corporation’s risk because
A.	operating income may stabilize
B.	the firm has fixed obligations to meet
C.	more common stock is outstanding
D.	dividends must be paid
Answer» C. more common stock is outstanding

Discussion

129.	In the stock-price beta estimation for the Coca-Cola Company, the dependent variable is the:
A.	return on Coca-Cola.
B.	price of Coca-Cola stock.
C.	return on the S&P 500.
D.	value of the S&P 500 Index.
Answer» E.

Discussion

130.	Which of the following statements about the mean-variance criterion is correct?
A.	Investors select assets that provide the highest rate of return.
B.	Investors select assets that provide the highest variance for the same or higher expected return.
C.	Investors select assets that provide the lowest variance for the same or higher expected return.
D.	The mean return equals the riskless interest.
Answer» D. The mean return equals the riskless interest.

Discussion

131.	__________ is defined as the nth root of the product resulting from multiplying a series of returns together.
A.	Arithmetic mean
B.	Geometric mean
C.	Harmonic mean
D.	None of the above
Answer» C. Harmonic mean

Discussion

132.	The two components that make up the risk-free rate are
A.	Real rate of return and capital gains
B.	Risk-free assets and capital gains
C.	Real rate of return and the inflation factor
D.	Real assets and the inflation factor
Answer» D. Real assets and the inflation factor

Discussion

133.	The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure.
A.	Black-Litterman
B.	Treynor-Black
C.	Treynor-Mazuy
D.	Black-Scholes
Answer» B. Treynor-Black

Discussion

134.	Aggressive portfolio consists of bonds: stock in the ratio of
A.	60:40
B.	70:30
C.	40:60
D.	50:50
Answer» D. 50:50

Discussion

135.	Serials bonds are
A.	Large bond issues carrying fixed maturity date
B.	Small bond issues carrying many maturity dates.
C.	Small bond issues carrying single maturity date.
D.	Large bond issues carrying many maturity dates.
Answer» C. Small bond issues carrying single maturity date.

Discussion

136.	Which of the following statements pertaining to the Efficient Market Hypothesis (EMH) is/ are true?
A.	Successive short run absolute price changes are independent
B.	Market comprises of rational investors
C.	Weak Form of EMH is also known as random walk model
D.	All of (a), (b) and (c) above
Answer» E.

Discussion

137.	Tracking error is defined as
A.	the difference between the returns on the overall risky portfolio versus the benchmark return.
B.	the variance of the return of the benchmark portfolio
C.	the variance of the return difference between the portfolio and the benchmark
D.	the variance of the return of the actively-managed portfolio
Answer» B. the variance of the return of the benchmark portfolio

Discussion

138.	An order to buy or sell at the most advantageous price obtainable after the order is represented in the trading crowd.
A.	Scale order
B.	Sell ‘plus’ order
C.	Market order
D.	Day order.
Answer» D. Day order.

Discussion

139.	Which of the following helps determine the relationship between the expected return and risk for individual securities?
A.	Security market line
B.	Capital market line
C.	Markowitz model
D.	(a) and (b)
Answer» B. Capital market line

Discussion

140.	The chance of loss due to fluctuations in the stock market is:
A.	market risk.
B.	interest rate risk.
C.	business risk.
D.	inflation risk.
Answer» C. business risk.

Discussion

141.	When ranking security returns, the data shows that the annualized returns are as follows, ranked from highest return to lowest return.
A.	Large stocks, small stocks, long-term corporate bonds, long-term government bonds, treasury bills
B.	Small stocks, large stocks, long-term corporate bonds, long-term government bonds, treasury bills
C.	Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds
D.	Treasury bills, long-term government bonds, long-term corporate bonds, large stocks, small stocks
Answer» C. Small stocks, large stocks, treasury bills, long-term government bonds, long-term corporate bonds

Discussion

142.	Which one of the following is the exponential factor for a 100-day Exponential Moving Average?
A.	0.01
B.	0.2
C.	0.02
D.	0.002
Answer» D. 0.002

Discussion

143.	The Security Risk Evaluation book published by Merrill Lynch uses the __________ as a proxy for the market portfolio.
A.	Dow Jones Industrial Average
B.	Dow Jones Transportation Average
C.	S&P 500 Index
D.	Wilshire 5000
Answer» D. Wilshire 5000

Discussion

144.	Fundamental analysis, does not concentrate on the fundamental factors affecting the company such as
A.	the dividend pay-out ratio,
B.	the competition faced by the company,
C.	Price Charts and Patterns
D.	the EPS of the company
Answer» D. the EPS of the company

Discussion

145.	In a well diversified portfolio
A.	market risk is negligible.
B.	systematic risk is negligible.
C.	unsystematic risk is negligible.
D.	Non diversifiable risk is negligible.
Answer» D. Non diversifiable risk is negligible.

Discussion

146.	A long-term movement of prices, lasting from several months to years is called _________.
A.	a minor trend
B.	a primary trend
C.	an intermediate trend
D.	trend analysis
Answer» C. an intermediate trend

Discussion

147.	___________ market encompasses all securities not traded on national organizedexchanges.
A.	Primary
B.	Money
C.	Capital
D.	Over the counter
Answer» E.

Discussion

148.	If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.
A.	Semi strong
B.	strong
C.	weak
D.	semi strong, strong, and weak
Answer» B. strong

Discussion

149.	Which of the following is not among the important categories of real assets?
A.	Land and house property
B.	Art objects
C.	Units of UTI
D.	Bullion
Answer» B. Art objects

Discussion

150.	A direct equity claim arises through investment in
A.	Bonds and other debt instruments
B.	Common stocks, warrants and options
C.	Preferred stock and commodity futures
D.	Mutual funds
Answer» C. Preferred stock and commodity futures

Discussion

Explore topic-wise MCQs in Operating System.

Active portfolio management consists of __________.

Merrill Lynch estimates the index model for a stock using regression analysis involving total returns. They estimated the intercept in the regression equation at 6% and the β at 0.5. The risk-free rate of return is 12%. The true β of the stock is ________.

_________ below which it is difficult for the market to fall.

The fundamental analyst compares this intrinsic value (true worth of a security based on its fundamentals) with the

Which of the following is a breadth indicator?

According to the Capital Asset Pricing Model (CAPM), fairly priced securities

Positive abnormal returns for corporate insiders constitute a violation of:

The intrinsic value of an out-of-the-money call option is

In the Treynor-Black model

In a factor model, the return on a stock in a particular period will be related to _________.

The random walk hypothesis posits that:

A stock with a relative strength of 3.0 will have a relative strength index of

Which of the following do technical analysts believe is a lower bound on a stock’s price?

Other things being same, the price of American call option on a stock is positively correlated with the following factors, except

The person within the brokerage office with whom an investor will have the most contact is

What would the rate of return for a stock that increased in value from $60 per share to $63 per share and paid a $3.00 dividend?

Historically, the real rate of return in the U.S. economy has been

Under ________ EMH investors cannot earn abnormal/superior profits on securities on a consistent basis.

What is the rate of return on a share of common stock that increased in value from $40 to $50?

__________ focus more on past price movements of a firm's stock than on the underlying determinants of future profitability.

According to the CAPM, overpriced securities have:

The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 13 percent, you should

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to

The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 1.0 to offer a rate of return of 11 percent, you should

A stock that pays low or no cash dividends is

Financial leverage may increase a corporation’s risk because

In the stock-price beta estimation for the Coca-Cola Company, the dependent variable is the:

Which of the following statements about the mean-variance criterion is correct?

__________ is defined as the nth root of the product resulting from multiplying a series of returns together.

The two components that make up the risk-free rate are

The ____________ model allows the private views of the portfolio manager to be incorporated with market data in the optimization procedure.

Aggressive portfolio consists of bonds: stock in the ratio of

Serials bonds are

Which of the following statements pertaining to the Efficient Market Hypothesis (EMH) is/ are true?

Tracking error is defined as

An order to buy or sell at the most advantageous price obtainable after the order is represented in the trading crowd.

Which of the following helps determine the relationship between the expected return and risk for individual securities?

The chance of loss due to fluctuations in the stock market is:

When ranking security returns, the data shows that the annualized returns are as follows, ranked from highest return to lowest return.

Which one of the following is the exponential factor for a 100-day Exponential Moving Average?

The Security Risk Evaluation book published by Merrill Lynch uses the __________ as a proxy for the market portfolio.

Fundamental analysis, does not concentrate on the fundamental factors affecting the company such as

In a well diversified portfolio

A long-term movement of prices, lasting from several months to years is called _________.

___________ market encompasses all securities not traded on national organizedexchanges.

If you believe in the ________ form of the EMH, you believe that stock prices reflect all relevant information including historical stock prices and current public information about the firm, but not information that is available only to insiders.

Which of the following is not among the important categories of real assets?

A direct equity claim arises through investment in