The market risk, beta, of a security is equal to

the covariance between the security and market returns divided by the standard deviation of the market's returns.

the covariance between the security's return and the market return divided by the variance of the market's returns.

the covariance between the security and market returns divided by the standard deviation of the market's returns.

the variance of the security's returns divided by the covariance between the security and market returns.

the variance of the security's returns divided by the variance of the market's returns.

Which statement is true regarding the Capital Market Line (CML)?

The CML is the line from the risk-free rate through the market portfolio.

The CML is the best attainable capital allocation line.

The CML always has a positive slope.

The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are

Small company stocks; U.S. Treasury bills

Large company stocks; U.S. treasury bills

Large company stocks; Long-term government bonds

Small company stocks; U.S. Treasury bills

Small company stocks; preferred stock

. If a Portfolio manager consistently obtains a high Sharpe’s measure, the portfolio manager has exhibited

Above average forecasting ability

Above average selection ability

The market supports market efficiency in strong form

According to the index model, covariances among security pairs are

Due to the influence of a single common factor represented by the market index return

Extremely difficult to calculate

The critical variable in the determination of the success of the active portfolio is

Jensen’s Alpha / Systematic Risk

Jensen’s Alpha / Non-Systematic Risk

Jensen’s Alpha / Systematic Risk

"Filter rules" do not tend to be profitable because of:

the fact that no rules outperform a buy-and-hold strategy, even for short periods.

Which of the following statements is the most accurate concerning security returns over The eight decades since the 1920's?

Returns on large common stocks were very stable

Returns on long-term corporate bonds were very stable

All securities exhibited very unstable returns over the eight decades in question.

The Security Market Line (SML) is

the line that describes the expected return-beta relationship for well-diversified portfolios only.

also called the Capital Allocation Line.

the line that is tangent to the efficient frontier of all risky assets.

the line that represents the expected return-beta relationship.

Tax sheltered variable annuity is

A device for availing tax exemption in an Investment

A device for avoiding tax payment

A device deferring the payment of federal income taxes

A device for earning tax deduction.

The tracking error of an optimized portfolio can be expressed in terms of the ____________ ofthe portfolio and thus reveal ____________.

total risk; portfolio performance

Which of the following statements is true of Insured Asset Allocation?

It is aimed at benefiting from short-term under pricing and over pricing of assets.

In this strategy the risk tolerance of the investor are ignored.

In this strategy long-term predictions regarding the capital markets are us

If the dispersion around a security's return is larger

The standard deviation is smaller

Which of the following statements about arbitrage is correct?

A risk averter will never arbitrage because of the risk involved.

A risk averter will arbitrage because profits can be made with no risk and no investment.

A risk averter will never arbitrage because of the risk involved.

Arbitrage opportunity arises when profits can be made with low level of risk.

Arbitrage opportunities continue to exist in equilibrium.

Which of the following is not one of the considerations in setting investment objectives?

Current income versus capital appreciation

Risk versus safety of principal

Maximize wealth versus minimize expenses

Current income versus capital appreciation

Short versus long-term orientation

Empirical research concludes that betas for:

individual securities and large portfolios are stable.

individual securities and large portfolios are unstable.

individual securities and large portfolios are stable.

individual securities are unstable.

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality. When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________.

grossed up, grossed up, far less moderate

shrunk, shrunk, far less moderate

shrunk, shrunk, far more moderate

grossed up, grossed up, far less moderate

grossed up, grossed up, far more moderate

Because most investors are risk averse

The riskier the investment, the more the investor will pay for it

The riskier the investment, the less compensation the investor requires

Only financial institutions invest in risky assets

They will require a higher rate of return for a riskier investment

a transition from a contraction in the business cycle to the start of an expansion

a transition from an expansion in the business cycle to the start of a contraction

a transition from a contraction in the business cycle to the start of an expansion

a depression that lasts more than three years.

only something used by farmers to feed pigs and not an investment term

411 + Mcqs in Security Page 5 McqOptions

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

Discussion

202.	The return expected = ……….+ Beta portfolio (Return of Market - Risk Free Return)
A.	Standard Deviation
B.	Risk adjusted returns
C.	Risk Free Return
D.	Beta
Answer» D. Beta

Discussion

203.	The market risk, beta, of a security is equal to
A.	the covariance between the security's return and the market return divided by the variance of the market's returns.
B.	the covariance between the security and market returns divided by the standard deviation of the market's returns.
C.	the variance of the security's returns divided by the covariance between the security and market returns.
D.	the variance of the security's returns divided by the variance of the market's returns.
Answer» B. the covariance between the security and market returns divided by the standard deviation of the market's returns.

Discussion

204.	The market portfolio has a beta of:
A.	0.0
B.	–1.0
C.	1.0
D.	0.5
Answer» D. 0.5

Discussion

205.	Which statement is true regarding the Capital Market Line (CML)?
A.	The CML is the line from the risk-free rate through the market portfolio.
B.	The CML is the best attainable capital allocation line.
C.	The CML always has a positive slope.
D.	A, B, and C are true.
Answer» E.

Discussion

206.	The CAPM is founded on the following two assumptions (1) in the equilibrium every mean variance investor holds the same market portfolio and (2) the only risk the investor faces is the beta
A.	True
B.	False
C.	none
D.	all
Answer» B. False

Discussion

207.	The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are
A.	Large company stocks; U.S. treasury bills
B.	Large company stocks; Long-term government bonds
C.	Small company stocks; U.S. Treasury bills
D.	Small company stocks; preferred stock
Answer» C. Small company stocks; U.S. Treasury bills

Discussion

208.	A company's __________ provide the most accurate information to its management and shareholders about its operations.
A.	advertisements
B.	financial statements
C.	products
D.	vision statement
Answer» C. products

Discussion

209.	. If a Portfolio manager consistently obtains a high Sharpe’s measure, the portfolio manager has exhibited
A.	Above average forecasting ability
B.	Above average selection ability
C.	The market supports market efficiency in strong form
D.	Both (a) and (b) above.
Answer» E.

Discussion

210.	Stock fraud perpetrators sometimes dupe respected community (or group) leaders and these leaders unwittingly cause community members to be victimized too. This scheme is called:
A.	leader-led fraud.
B.	a cold call.
C.	affinity fra
Answer» D.

Discussion

211.	According to the index model, covariances among security pairs are
A.	Due to the influence of a single common factor represented by the market index return
B.	Extremely difficult to calculate
C.	Usually positive
D.	A and c
Answer» E.

Discussion

212.	The critical variable in the determination of the success of the active portfolio is
A.	Jensen’s Alpha / Non-Systematic Risk
B.	Jensen’s Alpha / Systematic Risk
C.	Gamma / Non-Systematic Risk
D.	Gamma / Systematic Risk
Answer» B. Jensen’s Alpha / Systematic Risk

Discussion

213.	Which of the following is/are disadvantage(s) of indexing of bond portfolio? I. Advisory fee schedule is high II. In past, returns earned by most active fund managers has much exceeded those of index portfolio III. Loss of opportunity for incremental returns.
A.	Only (I) above
B.	Only (II) above
C.	Only (III) above
D.	Both (II) and (III) above
Answer» D. Both (II) and (III) above

Discussion

214.	"Filter rules" do not tend to be profitable because of:
A.	transaction costs.
B.	market volatility.
C.	trends in stock prices.
D.	the fact that no rules outperform a buy-and-hold strategy, even for short periods.
Answer» B. market volatility.

Discussion

215.	Which of the following statements is the most accurate concerning security returns over The eight decades since the 1920's?
A.	Returns on large common stocks were very stable
B.	Returns on long-term corporate bonds were very stable
C.	Returns on long-term corporate bonds were very stable
D.	All securities exhibited very unstable returns over the eight decades in question.
Answer» E.

Discussion

216.	The Security Market Line (SML) is
A.	the line that describes the expected return-beta relationship for well-diversified portfolios only.
B.	also called the Capital Allocation Line.
C.	the line that is tangent to the efficient frontier of all risky assets.
D.	the line that represents the expected return-beta relationship.
Answer» E.

Discussion

217.	Tax sheltered variable annuity is
A.	A device for availing tax exemption in an Investment
B.	A device for avoiding tax payment
C.	A device deferring the payment of federal income taxes
D.	A device for earning tax deduction.
Answer» E.

Discussion

218.	Ms. Kiran wrote a European call option on a stock. The premium was Rs.5 per share and the market price and exercise price of the share were Rs.39 and Rs.45 respectively. If on expiry date, the price of the share was Rs. 42, the profit/loss to Ms. Kiran was
A.	Rs.3
B.	–Rs.4
C.	–Rs.5
D.	Rs.4
Answer» E.

Discussion

219.	The tracking error of an optimized portfolio can be expressed in terms of the ____________ ofthe portfolio and thus reveal ____________.
A.	return; portfolio performance
B.	total risk; portfolio performance
C.	beta; portfolio performance
D.	beta; benchmark risk
Answer» E.

Discussion

220.	Technical analyst concentrates more on price movements and ignores the fundamentals of the shares:
A.	True
B.	False
C.	Partially true
D.	all
Answer» B. False

Discussion

221.	Which of the following statements is true of Insured Asset Allocation?
A.	It is aimed at benefiting from short-term under pricing and over pricing of assets.
B.	In this strategy the risk tolerance of the investor are ignored.
C.	In this strategy long-term predictions regarding the capital markets are us
Answer» D.

Discussion

222.	Unsystematic risk is known as
A.	Non diversifiable risk
B.	Total risk
C.	Market risk
D.	Diversifiable risk
Answer» E.

Discussion

223.	If the risk free rate of return (Rf) is 7%, expected return on the market [E(Rm)] is 15%, and the return on stock X is 16%, the beta for the stock X using CAPM is
A.	0.85
B.	1.00
C.	1.14
D.	1.26
Answer» D. 1.26

Discussion

224.	The commission received by investment banker is known as
A.	Additive
B.	Differential
C.	Difference
D.	Increment
Answer» C. Difference

Discussion

225.	If the dispersion around a security's return is larger
A.	The expected return is smaller
B.	The standard deviation is smaller
C.	The stock's price is higher
D.	The security's risk is higher
Answer» B. The standard deviation is smaller

Discussion

226.	Which of the following statements about arbitrage is correct?
A.	A risk averter will arbitrage because profits can be made with no risk and no investment.
B.	A risk averter will never arbitrage because of the risk involved.
C.	Arbitrage opportunity arises when profits can be made with low level of risk.
D.	Arbitrage opportunities continue to exist in equilibrium.
Answer» B. A risk averter will never arbitrage because of the risk involved.

Discussion

227.	Wealthy investors may prefer the favorable tax treatment of investments such as
A.	Corporate bonds
B.	Municipal bonds
C.	Common stock
D.	Preferred stock
Answer» C. Common stock

Discussion

228.	Depending upon the investor’s preferences and the market opportunities an investor’s portfolio is the portfolio thatI. Maximizes her expected utility. II. Maximizes her risk. III. Minimizes both her risk and return. IV. Maximizes her expected profit.
A.	Only (I) above
B.	Only (II) above
C.	Only (III) above
D.	Only (IV) above
Answer» B. Only (II) above

Discussion

229.	Which of the following is not one of the considerations in setting investment objectives?
A.	Risk versus safety of principal
B.	Maximize wealth versus minimize expenses
C.	Current income versus capital appreciation
D.	Short versus long-term orientation
Answer» C. Current income versus capital appreciation

Discussion

230.	Mr. Zaffar has following scrips in his portfolio: Scrip Beta Proportion of investment (%) Reliance .83 .25 Infosys .8 .25 Reymond 1.4 .35 IndiaBulls 1.2 .15 If the risk free rate is 6% and return on the market is 16%, what will be the expected return on his portfolio?
A.	12.54%
B.	13.28%
C.	14.12%
D.	16.80%
Answer» E.

Discussion

231.	The ability of the investor to convert an investment into cash in a short period of time is called
A.	Short-term orientation
B.	Low investment risk
C.	Liquidity
D.	Capital appreciation
Answer» D. Capital appreciation

Discussion

232.	Empirical research concludes that betas for:
A.	individual securities and large portfolios are unstable.
B.	individual securities and large portfolios are stable.
C.	large portfolios are unstable.
D.	individual securities are unstable.
Answer» B. individual securities and large portfolios are stable.

Discussion

233.	_______ measures the percentage of net income not paid to the shareholders in the form of dividends.
A.	Withholding ratio
B.	Retention ratio
C.	Preservation ratio
D.	Maintenance ratio
Answer» C. Preservation ratio

Discussion

234.	Common stock dividends are now taxed at a maximum rate of
A.	10 percent
B.	15 percent
C.	20 percent
D.	30 percent
Answer» C. 20 percent

Discussion

235.	Which of the following statement(s) is/are true?I. A unique characteristic line is plotted for each security to determine the beta. II. For a characteristic line, the X-axis represents betas for different securities. III. The slope of the characteristic line is the difference between the market returns andrisk-free returns.
A.	Only (I) above
B.	Only (II) above
C.	Only (III) above
D.	Both (I) and (II) above
Answer» B. Only (II) above

Discussion

236.	Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality. When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________.
A.	shrunk, shrunk, far less moderate
B.	shrunk, shrunk, far more moderate
C.	grossed up, grossed up, far less moderate
D.	grossed up, grossed up, far more moderate
Answer» C. grossed up, grossed up, far less moderate

Discussion

237.	__________ refers to the highest priced transaction for an issue on a particular day.
A.	Close
B.	High
C.	Large
D.	Net change
Answer» D. Net change

Discussion

238.	A stock has an expected return of 15 percent. The market risk premium is 10 percent and the risk-free rate is 4 percent. What is the stock's beta? (C)
A.	0.50
B.	0.75
C.	1.1
D.	1.8
Answer» D. 1.8

Discussion

239.	The beta of the market portfolio is:
A.	0.5
B.	–1.0
C.	1.0
Answer» E.

Discussion

240.	Possible variation of the actual return from the expected return is termed as ?
A.	Adjusted retruns
B.	Risk
C.	Probability
D.	Systematic return
Answer» C. Probability

Discussion

241.	Under the Economic Growth and Tax Reconciliation Act of 2001, when will estate taxes be eliminated?
A.	2008
B.	2009
C.	2010
D.	2019
Answer» E.

Discussion

242.	In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is
A.	unique risk.
B.	beta.
C.	standard deviation of returns.
D.	variance of returns.
Answer» C. standard deviation of returns.

Discussion

243.	The alpha of an active portfolio is 1%. The expected return on the market index is 16%. The variance of the return on the market portfolio is 4%. The nonsystematic variance of the active portfolio is 1%. The risk-free rate of return is 8%. The beta of the active portfolio is 1.05. The optimal proportion to invest in the active portfolio is __________.
A.	48.7%
B.	50.0%
C.	51.3%
D.	100.0%
Answer» D. 100.0%

Discussion

244.	Which of the following contains the real body?
A.	Point-and-figure chart.
B.	Bar chart.
C.	Moving average chart.
D.	Candlestick chart.
Answer» E.

Discussion

245.	One of the reasons a short-term trader has difficulty in beating the market is because of
A.	Risk
B.	Lack of information
C.	Large institutional investors
D.	Commissions
Answer» E.

Discussion

246.	The most extreme form(s) of the Efficient Market Hypothesis (EMH) is
A.	Weak form
B.	Semi-Strong form
C.	Super Strong form
D.	Near Strong form
Answer» D. Near Strong form

Discussion

247.	The critical variable in the determination of the success of the active portfolio is ________.
A.	alpha/systematic risk
B.	alpha/nonsystematic risk
C.	gamma/systematic risk
D.	gamma/nonsystematic risk
Answer» C. gamma/systematic risk

Discussion

248.	Because most investors are risk averse
A.	The riskier the investment, the more the investor will pay for it
B.	The riskier the investment, the less compensation the investor requires
C.	Only financial institutions invest in risky assets
D.	They will require a higher rate of return for a riskier investment
Answer» E.

Discussion

249.	A peak is ________.
A.	a transition from an expansion in the business cycle to the start of a contraction
B.	a transition from a contraction in the business cycle to the start of an expansion
C.	a depression that lasts more than three years.
D.	only something used by farmers to feed pigs and not an investment term
Answer» B. a transition from a contraction in the business cycle to the start of an expansion

Discussion

250.	Alpha = Return of Portfolio- ………..?
A.	Beta
B.	Expected Return
C.	Standard Deviation
D.	Risk Free Return
Answer» C. Standard Deviation

Discussion

Explore topic-wise MCQs in Operating System.

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

The return expected = ……….+ Beta portfolio (Return of Market - Risk Free Return)

The market risk, beta, of a security is equal to

The market portfolio has a beta of:

Which statement is true regarding the Capital Market Line (CML)?

The CAPM is founded on the following two assumptions (1) in the equilibrium every mean variance investor holds the same market portfolio and (2) the only risk the investor faces is the beta

The two types of investments that provide the highest and lowest yields in the Ibbotson study of Stocks, Bonds, Bills and Inflation are

A company's __________ provide the most accurate information to its management and shareholders about its operations.

. If a Portfolio manager consistently obtains a high Sharpe’s measure, the portfolio manager has exhibited

Stock fraud perpetrators sometimes dupe respected community (or group) leaders and these leaders unwittingly cause community members to be victimized too. This scheme is called:

According to the index model, covariances among security pairs are

The critical variable in the determination of the success of the active portfolio is

Which of the following is/are disadvantage(s) of indexing of bond portfolio? I. Advisory fee schedule is high II. In past, returns earned by most active fund managers has much exceeded those of index portfolio III. Loss of opportunity for incremental returns.

"Filter rules" do not tend to be profitable because of:

Which of the following statements is the most accurate concerning security returns over The eight decades since the 1920's?

The Security Market Line (SML) is

Tax sheltered variable annuity is

Ms. Kiran wrote a European call option on a stock. The premium was Rs.5 per share and the market price and exercise price of the share were Rs.39 and Rs.45 respectively. If on expiry date, the price of the share was Rs. 42, the profit/loss to Ms. Kiran was

The tracking error of an optimized portfolio can be expressed in terms of the ____________ ofthe portfolio and thus reveal ____________.

Technical analyst concentrates more on price movements and ignores the fundamentals of the shares:

Which of the following statements is true of Insured Asset Allocation?

Unsystematic risk is known as

If the risk free rate of return (Rf) is 7%, expected return on the market [E(Rm)] is 15%, and the return on stock X is 16%, the beta for the stock X using CAPM is

The commission received by investment banker is known as

If the dispersion around a security's return is larger

Which of the following statements about arbitrage is correct?

Wealthy investors may prefer the favorable tax treatment of investments such as

Depending upon the investor’s preferences and the market opportunities an investor’s portfolio is the portfolio thatI. Maximizes her expected utility. II. Maximizes her risk. III. Minimizes both her risk and return. IV. Maximizes her expected profit.

Which of the following is not one of the considerations in setting investment objectives?

Mr. Zaffar has following scrips in his portfolio: Scrip Beta Proportion of investment (%) Reliance .83 .25 Infosys .8 .25 Reymond 1.4 .35 IndiaBulls 1.2 .15 If the risk free rate is 6% and return on the market is 16%, what will be the expected return on his portfolio?

The ability of the investor to convert an investment into cash in a short period of time is called

Empirical research concludes that betas for:

_______ measures the percentage of net income not paid to the shareholders in the form of dividends.

Common stock dividends are now taxed at a maximum rate of

Alpha forecasts must be ____________ to account for less-than-perfect forecasting quality. When alpha forecasts are ____________ to account for forecast imprecision, the resulting portfolio position becomes ____________.

__________ refers to the highest priced transaction for an issue on a particular day.

A stock has an expected return of 15 percent. The market risk premium is 10 percent and the risk-free rate is 4 percent. What is the stock's beta? (C)

The beta of the market portfolio is:

Possible variation of the actual return from the expected return is termed as ?

Under the Economic Growth and Tax Reconciliation Act of 2001, when will estate taxes be eliminated?

In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is

Which of the following contains the real body?

One of the reasons a short-term trader has difficulty in beating the market is because of

The most extreme form(s) of the Efficient Market Hypothesis (EMH) is

The critical variable in the determination of the success of the active portfolio is ________.

Because most investors are risk averse

A peak is ________.

Alpha = Return of Portfolio- ………..?

The tracking error of an optimized portfolio can be expressed in terms of the ofthe portfolio and thus reveal .

Alpha forecasts must be to account for less-than-perfect forecasting quality. When alpha forecasts are to account for forecast imprecision, the resulting portfolio position becomes .