sapm

Dr.G.R.Damodaran College of Science(Autonomous, affiliated to the Bharathiar University, recognized by the UGC)Re-

accredited at the 'A' Grade Level by the NAAC and ISO 9001:2008 CertifiedCRISL rated 'A' (TN) for MBA and MIB Programmes

II MBA (2012 - 2014 )SEMESTER III

ELECTIVE : EQUITY RESEARCH AND PORTFOLIO MANAGEMENT - 351W2Multiple Choice Questions.

1. the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk isA. Unique risk.B. Beta.C. Standard deviation of returns.D. Variance of returns.

ANSWER: B

2. The stock is _______________.A. small values of equal value called shares.B. expressed in terms of money .C. expressed in terms of number of shares.D. fully paid up and partly paid up shares.

ANSWER: D

3. The Security Market Line (SML) isA. 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: D

4. According to the Capital Asset Pricing Model (CAPM),A. A security with a positive alpha is considered overpriced.B. A security with a zero alpha is considered to be a good buy.C. A security with a negative alpha is considered to be a good buy.D. A security with a positive alpha is considered to be underpriced.

ANSWER: A

5. In a well diversified portfolioA. Market risk is negligible.B. Systematic risk is negligible.C. Unsystematic risk is negligible.D. Non diversifiable risk is negligible.

ANSWER: B

6. Investment made on a house property is a ________________A. financial investment.B. economic investment.C. non negotiable financial investment.D. non financial investment.

ANSWER: B

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7. According to the CAPM, the risk premium an investor expects to receive on any stock or portfolioincreases

A. Directly with alpha.B. Inversely with alpha.C. Directly with beta.D. Inversely with beta.

ANSWER: A

8. An underpriced security will plotA. On the Security Market Line.B. Below the Security Market Line.C. Above the Security Market Line.D. Either above or below the Security Market Line depending on its covariance with the market.

ANSWER: B

9. The capital asset pricing model assumesA. All investors are price takers.B. All investors have the same holding period.C. Investors pay taxes on capital gains.D. Both A and B are true.

ANSWER: C

10. The CAPM applies toA. Portfolios of securities only.B. Individual securities only.C. Efficient portfolios of securities only.D. Efficient portfolios and efficient individual securities only.

ANSWER: B

11. The risk free rate is 5 percent. The expected market rate of return is 11 percent. If you expect stockX with a beta of 2.1 to offer a rate of return of 15 percent, you should

A. Buy stock X because it is overpriced.B. Sell short stock X because it is overpriced.C. Sell stock short X because it is underpriced.D. Buy stock X because it is underpriced.

ANSWER: C

12. You invest Rs.200 in security A with a beta of 1.4 and $800 in security B with a beta of 0.3. Thebeta of the resulting portfolio is A.1.40

A. 1.00.B. 0.52.C. 1.08.D. 0.80.

ANSWER: D

13. For the CAPM that examines illiquidity premiums, if there is correlation among assets due tocommon systematic risk factors, the illiquidity premium on asset i is a function of

A. The markets volatility.B. Asset is volatility.C. The trading costs of securityD. The risk free rate.

ANSWER: A


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14. A fairly priced asset liesA. Above the security market line.B. On the security market line.C. On the capital market line.D. Above the capital market line.

ANSWER: B

15. One of the assumptions of the CAPM is that investors exhibit myopic behavior. What does thismean?

A. They plan for one identical holding period.B. They are pricetakers who cant affect market prices through their trades.C. They are mean variance optimizers.D. They have the same economic view of the world.

ANSWER: C

16. If investors do not know their investment horizons for certainA. The CAPM is no longer valid.B. The CAPM underlying assumptions are not violated.C. The implications of the CAPM are not violated as long as investors' liquidity needs are not priced.D. The implications of the CAPM are no longer useful.

ANSWER: D

17. The capital asset pricing model assumesA. All investors are price takers.B. All investors have the same holding period.C. Investors pay taxes on capital gainsD. Both A and B are true.

ANSWER: A

18. In equilibrium, the marginal price of risk for a risky security must beA. Equal to the marginal price of risk for the market portfolio.B. Greater than the marginal price of risk for the market portfolio.C. Less than the marginal price of risk for the market portfolio.D. Adjusted by its degree of non systematic risk.

ANSWER: D

19. The highly liquid security isA. mutual fund unitsB. treasury billsC. sharesD. commercial papers

ANSWER: B

20. Studies of liquidity spreads in security markets have shown thatA. Liquid stocks earn higher returns than illiquid stocks.B. Illiquid stocks earn higher returns than liquid stocks.C. Both liquid and illiquid stocks earn the same returns.D. Illiquid stocks are good investments for frequent, short term traders.

ANSWER: B

21. ___________ a relationship between expected return and risk.A. APT stipulates.B. CAPM stipulates.C. Both CAPM and APT stipulate.


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D. Neither CAPM nor APT stipulate.ANSWER: C

22. An arbitrage opportunity exists if an investor can construct a __________ investment portfolio thatwill yield a sure profit.

A. Positive.B. Negative.C. Zero.D. All of the above.

ANSWER: B

23. A _________ portfolio is a well-diversified portfolio constructed to have a beta of 1 on one of thefactors and a beta of 0 on any other factor.

A. Factor.B. Market.C. Index.D. A and B.

ANSWER: B

24. In order to avoid paying income taxes, an investment company must_____________.A. be classified as a non profit organization.B. invest only in municipal bonds.C. pass on interest, dividends, and capital gains to the stockholders.D. be registered as a closed end investment company.

ANSWER: B

25. The most popular type of investment company is a________.A. unit investment trust.B. mutual fund.C. closed end investment company.D. real estate investment trust.

ANSWER: A

26. An unmanaged fixed income security portfolio handled by an independent trustee is known asa______________.

A. junk bond fund.B. closed end investment company.C. unit investment trust.D. hedge fund.

ANSWER: D

27. A major difference between a closed-end investment company and an open-end investmentcompany is that_______________.

A. closed-end investment companies are generally much riskier.B. their security portfolios are substantially different.C. closed-end investment companies are passive investments and open-ends are not.D. closed-end companies have a more fixed capitalization.

ANSWER: B

28. Which of the following generally traded on stock exchanges?A. Unit investment trusts.B. Closed-end investment companies.C. Open-end investment companies.D. All trade on stock exchanges.


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ANSWER: D

29. A zero investment portfolio with a positive expected return arises when _________.A. An investor has downside risk only.B. The law of prices is not violated.C. The opportunity set is not tangent to the capital allocation line.D. A risk free arbitrage opportunity exists.

ANSWER: B

30. The APT differs from the CAPM because the APT _________.A. The APT differs from the CAPM because the APT _________.B. Minimizes the importance of diversification.C. Recognizes multiple unsystematic risk factors.D. Recognizes multiple systematic risk factors.

ANSWER: D

31. In terms of the risk/return relationshipA. Only factor risk commands a risk premium in market equilibrium.B. Only systematic risk is related to expected returns.C. Only nonsystematic risk is related to expected returns.D. A and B.

ANSWER: B

32. The following factors might affect stock returns.A. The business cycle.B. Interest rate fluctuations.C. Inflation rates.D. All of the above.

ANSWER: C

33. Mutual funds may be affiliated with an underwriter. This means____________.A. the underwriter has an exclusive right to distribute shares.B. the underwriter selects the securities in the portfolio.C. there is no risk to the issuer of the mutual fund.D. there is no risk to the investor of the mutual fund.

ANSWER: A

34. In the context of the Arbitrage Pricing Theory, as a well diversified portfolio becomes larger itsnonsystematic risk approaches

A. One.B. Infinity.C. Zero.D. Negative one.

ANSWER: D

35. The ___________ is a window through which the investor can see the company.A. Syndicate offer.B. IPO.C. Prospectus.D. Shelf rule.

ANSWER: C

36. Which of the following is true about the security market line (SML) derived from the APT?A. The SML has a downward slope.


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B. The SML for the APT shows expected return in relation to portfolio standard deviation.C. The SML for the APT has an intercept equal to the expected return on the market portfolio.D. The SML for the APT has an intercept equal to the expected return on the market portfolio.

ANSWER: D

37. In a factor model, the return on a stock in a particular period will be related toA. Factor risk.B. Non factor risk.C. Standard deviation of returns.D. Both A and B are true.

ANSWER: A

38. Multifactor models seek to improve the performance of the single index model byA. Modeling the systematic component of firm returns in greater detail.B. Incorporating firm specific components into the pricing model.C. Allowing for multiple economic factors to have differential effects.D. All of the above are true.

ANSWER: D

39. A computerized trading network that matches buy and sell orders electronically entered bycustomers is a___________.

A. national markets system.B. electronic communications networks.C. internet investment service.D. global investment network.

ANSWER: B

40. If an investor is attempting to buy a stock that is very volatile, it would be best to use___________.A. market order.B. limit order.C. stop-loss order.D. contingency order.

ANSWER: B

41. Investors invest more in stocks during their __________A. early career period.B. mid career level.C. retirement stage with huge money.D. all the above mentioned period.

ANSWER: A

42. Which pricing model provides no guidance concerning the determination of the risk premium onfactor portfolios?

A. The CAPM.B. The multifactor APT.C. Both the CAPM and the multifactor APT.D. Neither the CAPM nor the multifactor APT.

ANSWER: C

43. An invertor is having a portofolio with the combination of stock and bonds in the ratio of 75:25.heisA. risk averse.B. risk neutra.C. a risk taker.D. active in portfolio management.


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ANSWER: C

44. The exploitation of security mispricing in such a way that risk free economic profits may be earnedis called ___________.

A. Arbitrage.B. Capital asset pricing.C. Factoring.D. Fundamental analysis.

ANSWER: B

45. Investors should be willing to invest in riskier investments only________________.A. if the term is short.B. if there are no safe alternatives except for holding cash.C. if the expected return is adequate for the risk level.D. if they are true speculators.

ANSWER: D

46. If interest rates are expected to rise, you would expect___________.A. bond prices to fall more than stock prices.B. bond prices to rise more than stock prices.C. stock prices to fall more than bond prices.D. stock prices to rise and bond prices to fall.

ANSWER: A

47. The mutual funds that are listed in the stock exchanges are __________A. closed end funds.B. stock indexed funds.C. open end funds.D. growth schemes.

ANSWER: A

48. Political stability is the major factor concerning_______________.A. exchange risk.B. systematic risk.C. non systematic risk.D. country risk.

ANSWER: D

49. A zero investment portfolio with a positive expected return arises when _________.A. An investor has downside risk only.B. The law of prices is not violated.C. The opportunity set is not tangent to the capital allocation line.D. A risk free arbitrage opportunity exists.

ANSWER: C

50. A risk free arbitrage opportunity exists.A. A dominance argument.B. The mean variance efficiency frontier.C. A risk free arbitrage.D. The capital asset pricing model.

ANSWER: A

51. The feature of the APT that offers the greatest potential advantage over the CAPM is the______________.


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A. Use of several factors instead of a single market index to explain the risk return relationship.B. Identification of anticipated changes in production, inflation and term structure as key factors in

explaining the risk return relationshipC. Superior measurement of the risk free rate of return over historical time periods.D. Variability of coefficients of sensitivity to the apt factors for a given asset over time.

ANSWER: D

52. The following factors might affect stock returns.A. The business cycle.B. Interest rate fluctuations.C. Inflation rates.D. All of the above.

ANSWER: A

53. Portfolio A has expected return of 10Percentage and standard deviation of 19Percentage. PortfolioB has expected return of 12Percentage and standard deviation of 17Percentage. Rational investors will

A. Borrow at the risk free rate and buy A.B. Sell A short and buy B.C. Sell B short and buy A.D. Borrow at the risk free rate and buy B.

ANSWER: B

54. A professional who searches for mispriced securities in specific areas such as merger target stocks,rather than one who seeks strict (risk free) arbitrage opportunities is engaged in

A. Pure arbitrage.B. Risk arbitrage.C. Option arbitrage.D. Equilibrium arbitrage.

ANSWER: C

55. A well diversified portfolio is defined asA. One that is diversified over a large enough number of securities that the nonsystematic variance is

essentially zeroB. One that contains securities from at least three different industry sectors.C. A portfolio whose factor beta equals 1.0.D. A portfolio that is equally weighted.

ANSWER: C

56. According to treynor index, a steep slope would indicate _____________.A. the fund is yielding higher returns.B. the funds volatile return.C. the fund is sensitive to the marketD. the fund is not sensitive to the market

ANSWER: C

57. If arbitrage opportunities are to be ruled out, each well diversified portfolios expected excess returnmust be

A. Inversely proportional to the risk free rate.B. Inversely proportional to its standard deviation.C. Proportional to its weight in the market portfolio.D. Proportional to its standard deviation.

ANSWER: B

58. A major difference between real and nominal returns is that_______________.


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A. real returns adjust for inflation and nominal returns do not.B. real returns use actual cash flows and nominal returns use expected cash flows.C. real returns adjust for commissions and nominal returns do not.D. real returns show the highest possible return and nominal returns show the lowest possible return.

ANSWER: B

59. Jensens performance index gives importance ______________.A. to the asset combination.B. professional management.C. the market condition.D. predictive ability of the manger.

ANSWER: D

60. The market timer is a __________.A. professional portfolio manager.B. active portfolio manager.C. passive portfolio manager.D. none of the above.

ANSWER: B

61. Aggressive portfolio consists of bonds:stocks in the ratio of ______________.A. 60:40.B. 70:30.C. 40:60.D. 50:50.

ANSWER: C

62. Conventional theories presume that investors ____________ and behavioral finance presumes thatthey ____________.

A. Are irrational; Are irrational.B. Are rational; May not be rational.C. Are rational; Are rational.D. May not be rational; May not be rational.

ANSWER: D

63. In order to determine the expected return of a portfolio, all of the following must be Knownexcept______________.

A. probabilities of expected returns of individual assets.B. weight of each individual asset to total portfolio value.C. expected return of each individual asset.D. all of the above must be known in order to determine the expected return of a portfolio.

ANSWER: D

64. Forecasting errors are potentially important becauseA. Research suggests that people underweight recent information.B. Research suggests that people overweight recent information.C. Research suggests that people correctly weight recent information.D. Either A or B depending on whether the information was good or bad.

ANSWER: B

65. If a person gives too much weight to recent information compared to prior beliefs, they would make________ errors.

A. Framing.B. Selection bias.


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C. Overconfidence.D. Conservatism.

ANSWER: C

66. ____________ may be responsible for the prevalence of active versus passive investmentsmanagement.

A. Forecasting errors.B. Overconfidence.C. Mental accounting.D. Conservatism.

ANSWER: A

67. ________ bias means that investors are too slow in updating their beliefs in response to evidence.A. Framing.B. Regret avoidance.C. Overconfidence.D. Conservatism.

ANSWER: D

68. An example of ________ is that a person may reject an investment when it is posed in terms of risksurrounding potential gains but may accept the same investment if it is posed in terms of risksurrounding potential losses.

A. Framing.B. Regret avoidance.C. Overconfidence.D. Conservatism.

ANSWER: C

69. An example of ________ is that it is not as painful to have purchased a blue chip stock thatdecreases in value, as it is to lose money on an unknown start up firm

A. Mental accounting.B. Regret avoidance.C. Overconfidence.D. Conservatism.

ANSWER: A

70. 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: A

71. A daily fluctuation of little importance is called ____________A. A minor trend.B. A primary trend.C. An intermediate trend.D. A market trend.

ANSWER: B

72. A trin ratio of less than 1.0 is considered as a _________.A. Bearish signal.B. Bullish signal.C. Bearish signal by some technical analysts and a bullish signal by other technical analysts.


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D. Bullish signal by some fundamentalists.ANSWER: A

73. In regard to moving averages, it is considered to be a ____________ signal when market pricebreaks through the moving average from ____________.

A. Bearish; Below.B. Bullish: Below.C. Bearish; Above.D. Bullish Above.

ANSWER: C

74. Two popular moving average periods areA. 90 day and 52 week.B. 180 day and three year.C. 180 day two year.D. 200 day and 53 week.

ANSWER: C

75. Then confidence index is computed from ____________ and higher values are considered____________ signals.

A. Bond yields; Bearish.B. Odd lot trades; Bearish.C. Odd lot trades; Bullish.D. Put/call ratios; Bullish.

ANSWER: A

76. The efficient market hypothesis ____________.A. Implies that security prices properly reflect information available to investors.B. Has little empirical validity.C. Implies that active traders will find it difficult to outperform a buy and hold strategy.D. B and C.

ANSWER: D

77. Behavioral finance argues that ____________.A. Even if security prices are wrong it may be difficult to exploit them.B. The failure to uncover successful trading rules or traders cannot be taken as proof of market

efficiency.C. Investors are rational.D. A and B.

ANSWER: A

78. If prices are correct __________ and if prices are not correct __________.A. There are no easy profit opportunities; there are no easy profit opportunities.B. There are no easy profit opportunities; there are easy profit opportunities.C. There are easy profit opportunities; there are easy profit opportunities.D. There are easy profit opportunities; there are no easy profit opportunities.

ANSWER: C

79. __________ can lead investors to misestimate the true probabilities of possible events or associatedrates of return.

A. Information processing errors.B. Framing errors.C. Mental accounting errors.D. Regret avoidance.


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ANSWER: D

80. Errors in information processing can lead investors to misestimate __________.A. True probabilities of possible events and associated rates of return.B. True probabilities of possible events.C. Rates of return.D. The ability to uncover accounting manipulation.

ANSWER: C

81. Conservatism implies that investors are too __________ in updating their beliefs in response to newevidence and that they initially __________ react to news.

A. Quick; Over react.B. Quick; Under react.C. Slow; Over react.D. Slow; Under react.

ANSWER: D

82. If information processing were perfect, many studies conclude that individuals would tend to make__________ decision using that information due to __________.

A. Less than fully rational; behavioral biases.B. Fully rational; behavioral biases.C. Less than fully rational; fundamental risk.D. Fully rational; fundamental risk.

ANSWER: C

83. The expected return/beta relationship is used ___________.A. By regulatory commissions in determining the costs of capital for regulated firms.B. In court rulings to determine discount rates to evaluate claims of lost future incomes.C. To advise clients as to the composition of their portfolios.D. All of the above.

ANSWER: A

84. If a professionally managed portfolio consistently outperforms the market proxy on a risk adjustedbasis and the market is efficient, it should be concluded that _________.

A. The CAPM is invalid.B. The proxy is inadequate.C. Either the CAPM is invalid or the proxy is inadequate.D. The CAPM is valid and the proxy is adequate.

ANSWER: C

85. If a market proxy portfolio consistently beats all professionally managed portfolios on a riskadjusted basis, it may be concluded that

A. The CAPM is valid.B. The market proxy is mean/variance efficient.C. The CAPM is invalid.D. A and B.

ANSWER: D

86. Consider the regression equation: ri rf = g0 + g1bi + g2s2(ei) + eit where: ri rt = the averagedifference between the monthly return on stock i and the monthly risk free rate bi = the beta of stock is2(ei) = a measure of the nonsystematic variance of the stock i If you estimated this regression equationand the CAPM was valid, you would expect the estimated coefficient, g1 to be

A. 0.B. 1.


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C. Equal to the risk free rate of return.D. Equal to the average difference between the monthly return on the market portfolio and the

monthly risk free rate.ANSWER: B

87. Benchmark errorA. Refers to the use of an incorrect market proxy in tests of the CAPM.B. Can result in inconclusive tests of the CAPM.C. Can result in incorrect evaluation measures for portfolio managers.D. A and B.

ANSWER: B

88. The CAPM is not testable unlessA. The exact composition of the true market portfolio is known and used in the tests.B. All individual assets are included in the market proxy.C. The market proxy and the true market portfolio are highly negatively correlated.D. A and B.

ANSWER: C

89. Early tests of the CAPM involvedA. Establishing sample data.B. Estimating the security characteristic line.C. Estimating the security market lineD. All of the above.

ANSWER: A

90. Strongest evidence in support of the CAPM has come from demonstrating thatA. The market beta is equal to 1.0.B. Non systematic risk has significant explanatory power in estimating security returns.C. The average return beta relationship is highly significant.D. The intercept in tests of the excess returns beta relationship is exactly zero.

ANSWER: D

91. Tests of multifactor models indicateA. The single factor model has better explanatory power in estimating security returns.B. Macroeconomic variables have no explanatory power in estimating security returns.C. It may be possible to hedge some economic factors that affect future consumption risk with

appropriate portfolios.D. Multifactor models do not work.

ANSWER: A

92. Equity premium puzzle studies may be subject to survivorship bias becauseA. The time period covered was not long enoughB. An inappropriate index was used.C. The indexes used did not exist for the whole period of the study.D. Both U.S. and foreign data were used.

ANSWER: B

93. Trading activity by mutual funds just prior to quarterly reporting dates is known asA. Insider trading.B. Program trading.C. Passive security selection.D. Window dressing.

ANSWER: C


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94. The comparison universe is __________.A. A concept found only in astronomy.B. The set of all mutual funds in the world.C. The set of all mutual funds in the U.S.D. A set of mutual funds with similar risk characteristics to your mutual fund.

ANSWER: D

95. Most professionally managed equity funds generally __________.A. Outperform the S&P 500 index on both raw and risk adjusted return measures.B. Underperform the S&P 500 index on both raw and risk adjusted return measures.C. Outperform the S&P 500 index on raw return measures and underperform the S&P 500 index on

risk adjusted return measures.D. Underperform the S&P 500 index on raw return measures and outperform the S&P 500 index on

risk adjusted return measures.ANSWER: B

96. Suppose two portfolios have the same average return, the same standard deviation of returns, butportfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance ofportfolio A __________.

A. Is better than the performance of portfolio B.B. Is the same as the performance of portfolio B.C. Is poorer than the performance of portfolio B.D. Cannot be measured as there is no data on the alpha of the portfolio.

ANSWER: C

97. The auditors report is________________.A. guarantees accuracy.B. guarantees the quality of the earnings.C. attests that the statements are a fair presentation of financial position.D. all of the above are true.

ANSWER: A

98. Suppose the risk free return is 4Percentage. The beta of a managed portfolio is 1.2, the alpha is1Percentage, and the average return is 14Percentage. Based on Jensen's measure of portfolioperformance, you would calculate the return on the market portfolio as

A. 11.5Percentage.B. 14Percentage.C. 15Percentage.D. 16Percentage.

ANSWER: A

99. Suppose a particular investment earns an arithmetic return of 10Percentage in year 1, 20Percentagein year 2 and 30Percentage in year 3. The geometric average return for the year period will be__________.

A. Greater than the arithmetic average return.B. Equal to the arithmetic average return.C. Less than the arithmetic average return.D. Equal to the market return.

ANSWER: B

100. The key item for investors on the income statement is______________.A. sales.B. gross profit.


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C. operating expenses.D. after tax net income.

ANSWER: D

101. Which of the following represents the rate at which a company can grow from internal sources?A. return on assets.B. sustainable growth rate.C. adjusted EPS.D. return on equity.

ANSWER: B

102. The sustainable growth rate of a firm can be calculated as the product of the_________.A. return on assets and the return on equity.B. dividend payout ratio and leverage.C. retention rate and the return on equity.D. net profit margin and total sales.

ANSWER: D

103. In measuring the comparative performance of different fund managers, the preferred method ofcalculating rate of return is __________.

A. Internal rate of return.B. Arithmetic average.C. Dollar weighted.D. Time weighted.

ANSWER: B

104. I modern investment analysis, the risk for a stock is related to its_______________.A. leverage factor.B. standard deviation.C. beta coefficient.D. coefficient of variation.

ANSWER: A

105. _______ uses a computer program in an attempt to imitate the brain in analyzing securities.A. Decision trees.B. Program trading.C. Day traders.D. Neural networks.

ANSWER: D

106. Risk adjusted mutual fund performance measures have decreased in popularity becauseA. In nearly efficient markets it is extremely difficult for portfolio managers to outperform the

market.B. The measures usually result in negative performance results for the portfolio managers.C. The high rates of return earned by the mutual funds in recent years have made the measures

useless.D. A and B.

ANSWER: C

107. The M squared measureA. Considers only the return when evaluating mutual funds.B. Considers the risk adjusted return when evaluating mutual funds.C. Considers only the total risk when evaluating mutual funds.D. Considers only the market risk when evaluating mutual funds.


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ANSWER: D

108. The dollar weighted return on a portfolio is equivalent toA. The time weighted return.B. The geometric average return.C. The arithmetic average return.D. The portfolio's internal rate of return.

ANSWER: A

109. The geometric average rate of return is based onA. The markets volatility.B. The concept of expected return.C. The standard deviation of returns.D. The CAPM.

ANSWER: B

110. To determine whether portfolio performance is statistically significant requiresA. A very long observation period due to the high variance of stock returns.B. A short observation period due to the high variance of stock returns.C. A very long observation period due to the low variance of stock returns.D. A short observation period due to the low variance of stock returns.

ANSWER: C

111. If an investor has a portfolio that has constant proportions in T bills and the market portfolio, theportfolio's characteristic line will plot as a line with ___________ if the investor can time bull markets,the characteristic line will plot as a line with ___________.

A. A positive slope; a negative slope.B. A negative slope; a positive slope.C. A constant slope; a negative slope.D. A negative slope; a constant slope.

ANSWER: A

112. A Rs.1.00 investment during the eighty year period of 1926 2005 would have a terminal value ofapproximately ____________ if invested in equities and ____________ if invested by a perfect timer.

A. 4,000; 156,000.B. 2,300; 172,700.C. 3,200; 22,000.D. 2,000; 7,000.

ANSWER: D

113. Shares of several foreign firms are traded in the U.S. markets in the form ofA. ADRs.B. ECUs.C. Single country funds.D. All of the above.

ANSWER: B

114. __________ refers to the possibility of expropriation of assets, changes in tax policy, and thepossibility of restrictions on foreign exchange transactions.

A. Default risk.B. Foreign exchange risk.C. Market risk.D. Political risk.

ANSWER: C


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115. __________ are mutual funds that invest in one country only.A. ADRs.B. ECUs.C. Single country funds.D. All of the above.

ANSWER: A

116. The performance of an internationally diversified portfolio may be affected byA. Country selection.B. Currency selection.C. Stock selection.D. All of the above.

ANSWER: D

117. The __________ index is a widely used index of non U.S. stocks.A. CBOE.B. Dow Jones.C. EAFE.D. All of the above.

ANSWER: A

118. Financial intermediaries exist because small investors cannot efficiently ________.A. diversify their portfolios.B. gather all relevant information.C. assess credit risk of borrowers.D. advertise for needed investments.

ANSWER: D

119. The major concern that has been raised with respect to the weighting of countries within the EAFEindex is

A. Currency volatilities are not considered in the weighting.B. Cross correlations are not considered in the weighting.C. Inflation is not represented in the weighting.D. The weights are not proportional to the asset bases of the respective countries.

ANSWER: D

120. Financial assets ______.A. directly contribute to the countrys productive capacity..B. indirectly to the countrys productive capacity.C. contribute to the countrys productive capacity both directly and indirectly.D. do not contribute to the countrys productive capacity either directly or indirectly.

ANSWER: A

121. Investment bankers perform the following role ___________.A. market new stock and bond issues for firms.B. provide advice to the firms as to market conditions, price, etc.C. design securities with desirable properties.D. all of the above.

ANSWER: B

122. Investors seeking to avoid actively managing their portfolios will prefer which of the followingassets?

A. Common stock.


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B. Commercial bank deposits.C. Financial futures.D. Real estate.

ANSWER: B

123. Which of the following short term securities is inappropriate for an individual, desiring funds forfinancial emergencies?

A. treasury bills.B. certificates of deposit.C. financial futures.D. savings accounts.

ANSWER: C

124. The average country equity market share isA. Less than 2Percentage.B. Between 3Percentage and 4Percentage.C. Between 5Percentage and 7Percentage.D. Between 7Percentage and 8Percentage.

ANSWER: D

125. Which of the following is a reason for selecting a mutual fund?A. Its historic return.B. High tax efficiency.C. Charging 12b 1 fees instead of load fees.D. Often realizing portfolio gains.

ANSWER: D

126. Which of the following countries has an equity index that lies on the efficient frontier generated byallowing international diversification?

A. The United States.B. The United Kingdom.C. Japan.D. Norway.

ANSWER: C

127. WEBS portfoliosA. Are passively managed.B. Are shares that can be sold by investors.C. Are free from brokerage commissions.D. A and B.

ANSWER: C

128. Home bias refers toA. The tendency to vacation in your home country instead of traveling abroad.B. The tendency to believe that your home country is better than other countries.C. The tendency to give preferential treatment to people from your home country.D. The tendency to overweight investments in your home country.

ANSWER: A

129. __________ refers to strategies aimed at attaining the established rate of return requirements whilemeeting expressed risk tolerance and applicable constraints.

A. Investment constraints.B. Investment objectives.C. Investment policies.


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D. All of the above.ANSWER: D

130. One incorrect belief that is often cited as a reason for fully funded pension funds to invest inequities is

A. Stocks have higher risk.B. Bonds have lower returns.C. Stocks provide a hedge against inflation.D. Stocks have higher returns.

ANSWER: A

131. __________ in the process of asset allocation.A. Deriving the efficient portfolio frontier is a step.B. Specifying asset classes to be included in the portfolio is a step.C. Specifying the capital market expectations is a step.D. All of the above are steps.

ANSWER: D

132. Questionnaires and attitude surveys suggest that risk toleranceA. Increases with age.B. Decreases with age.C. Stays constant over the life cycle for most investors.D. Cannot be assessed.

ANSWER: A

133. __________ can be used to create a perfect inflation hedge.A. Gold.B. Real estate.C. CPI linked bonds.D. The S&P 500 index.

ANSWER: B

134. A fully funded pension plan can invest surplus assets in equities provided it reduces the proportionin equities when the value of the fund drops near the accumulated benefit obligation. This strategy isreferred to as

A. Immunization.B. Hedging.C. Diversification.D. Contingent immunization.

ANSWER: A

135. Workers who change jobs may wind up with lower pension benefits at retirement than otherwiseidentical workers who stay with the same employer, even if the employers have defined benefit planswith the same final pay benefit formula. This is referred to as

A. An accumulated benefit obligation.B. An unfunded liability.C. Immunization.D. Indexation.

ANSWER: D

136. The risk tolerance level is typically highest for __________.A. Banks.B. Fire and casualty insurance companies.C. Life insurance companies.


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D. A and B.ANSWER: A

137. The __________ the proportions of total return that is in the form of price appreciation, the__________ will be the value of the tax deferral option for taxable investors.

A. Greater, Greater.B. Greater, Lower.C. Lower, Greater.D. Cannot tell from the information given.

ANSWER: A

138. An important benefit of Keogh plans is thatA. They are not taxable until funds are withdrawn as benefits.B. They are protected against inflation.C. They are automatically insured by the federal government.D. A and B.

ANSWER: D

139. Variable life insuranceA. Combines life insurance with a tax deferred annuity.B. Provides a minimum death benefit that increases subject to investment performance.C. Can be converted to a stream of income.D. All of the above.

ANSWER: A

140. Endowment funds are held by __________.A. Charitable organizations.B. Educational institutions.C. For profit firms.D. A and B.

ANSWER: B

141. __________ center on the trade off between the return the investor wants and how much risk theinvestor is willing to assume.

A. Investment constraints.B. Investment objectives.C. Investment policies.D. All of the above.

ANSWER: A

142. The stage an individual is in his/her life cycle will affect his/her __________.A. Return requirements.B. Risk tolerance.C. Asset allocation.D. A and B.

ANSWER: D

143. A remainder man is __________.A. A stockbroker who remained working on Wall Street after the 1987 crash.B. An employee of a trustee.C. One who receives interest and dividend income from a trust during their lifetime.D. One who receives the principal of a trust when it is dissolved.

ANSWER: A


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144. __________ are boundaries that investors place on their choice of investment assets.A. Investment constraints.B. Investment objectives.C. Investment policies.D. All of the above.

ANSWER: B

145. The investment horizon is:A. The investor's expected age at death.B. The starting date for establishing investment constraints.C. Based on the investor's risk tolerance.D. The date at which the portfolio is expected to be fully or partially liquidated.

ANSWER: C

146. Liquidity is:A. The ease with which an asset can be sold.B. The ability to sell an asset for a fair price.C. The degree of inflation protection an asset provides.D. All of the above.

ANSWER: D

147. The objectives of personal trusts normally are __________ in scope than those of individualinvestors and personal trust managers typically are __________ than individual investors.

A. Broader, More risk averse.B. Broader, Less risk averse.C. More limited, More risk averse.D. More limited, Less risk averse.

ANSWER: B

148. When a company sets up a defined contribution pension plan, the __________ bears all the riskand the __________ receives all the return from the plan's assets.

A. Employee, EmployeeB. Employee, Employer.C. Employer, Employee.D. Employer, Employer.

ANSWER: D

149. Suppose that the pre tax holding period returns on two stocks are the same. Stock A has a highdividend payout policy and stock B has a low dividend payout policy. If you are an individual in a highmarginal tax bracket and do not intend to sell the stocks during the holding period, __________.

A. Stock A will have a higher after tax holding period return than stock B.B. The after tax holding period returns on stocks A and B will be the same.C. Stock B will have a higher after tax holding period return than stock A.D. It is impossible to determine which stock will have a higher after tax holding period return given

the information available.ANSWER: A

150. The prudent man law requires __________.A. Executives of companies to avoid investing in options of companies by which they are employed.B. Executives of companies to disclose their transactions in stocks of companies by which they are

employed.C. Professional investors who manage money for others to avoid all risky investments.D. Professional investors who manage money for others to constrain their investments to those that

would have been approved by the prudent investor.


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ANSWER: C

151. The longest time horizons are likely to be set byA. Banks.B. Property and casualty insurance companies.C. Pension funds.D. A and C.

ANSWER: D

152. Institutional investors will rarely invest in which of these asset classes?A. Bonds.B. Bonds.C. Cash.D. Real estate.

ANSWER: B

153. For an individual investor, the value of home ownership is likely to be viewedA. As a hedge against increases in rental rates.B. As a guarantee of availability of a particular residence.C. As a hedge against inflation.D. Both A and B.

ANSWER: B

154. Assume that at retirement you have accumulated Rs.500,000 in a variable annuity contract. Theassumed investment return is 6Percentage and your life expectancy is 15 years. What is thehypothetical constant benefit payment?

A. Rs.30,000.00.B. Rs.33,333.33.C. Rs.51,481.38.D. Rs.52,452.73.

ANSWER: C

155. The goal of fundamental analysts is to find securities_______________.A. whose intrinsic value exceeds market price.B. with a positive present value of growth opportunities.C. with high market capitalization rates.D. all of the above.

ANSWER: A

156. The first step a pension fund should take before beginning to invest is to __________.A. Establish investment objectives.B. Develop a list of investment managers with superior records to interview.C. Establish asset allocation guidelines.D. Decide between active and passive management.

ANSWER: A

157. General pension funds typically invest __________ of their funds in equity securities.A. None.B. 5-10%.C. . 15-35%.D. 40-60%.

ANSWER: B

158. The optimal portfolio on the efficient frontier for a given investor depends on


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A. The investor's degree of risk tolerance.B. The coefficient, a, which is a measure of risk aversion.C. The investor's required rate of return.D. A and C.

ANSWER: C

159. Investment objectivesA. Must be consistent with investment constraints.B. Must be in direct contrast with investment constraints.C. And investment constraints determine investment policies.D. A and B.

ANSWER: D

160. Professional financial planners shouldA. Assess their client's risk and return requirements on a one-time basis.B. Explain the investment plan to the client.C. Inform the client about the outcome of the plan.D. A, B, and C.

ANSWER: A

161. Which of the following investments does not allow the investor to choose how to allocate assets?A. Variable Life insurance policies.B. Keogh plans.C. Personal funds.D. Tax qualified defined contribution plans.

ANSWER: B

162. Pension fundsA. Accept contributions from employers, which are tax-deductible.B. Pay distributions that are taxed as ordinary income.C. Pay benefits only from the income component of the fund.D. Accept contributions from employees, which are not tax-deductible.

ANSWER: C

163. An income beneficiary is __________.A. A stockbroker who remained working on Wall Street after the 1987 crash.B. An employee of a trustee.C. One who receives interest and dividend income from a trust during their lifetime.D. One who receives the principal of a trust when it is dissolved.

ANSWER: D

164. _________ financial asset(s).A. Buildings are.B. Land is a.C. Derivatives.D. Bonds.

ANSWER: D

165. Which of the following are commonly thought to be good general investment guidelines?A. Don't try to outguess the market, buying and holding generally pays off.B. Diversify investments to spread risk.C. Investments should be highly concentrated in your company's stock.D. 401K money is best placed in money market accounts because risk is very low.

ANSWER: B


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166. The principle of duration matching isA. Used only in bond portfolio management.B. Is a useful concept for investments with target dates.C. Means matching one's assets to one's objectives.D. B and C are correct.

ANSWER: C

167. Target-date retirement fundsA. Are funds of funds diversified across stocks and bonds.B. Are inappropriate for most investors.C. Have very high fees.D. Function much like hedge funds.

ANSWER: A

168. In the Treynor-Black modelA. Portfolio weight is sensitive to large alpha values which can lead to infeasible long or short

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

position for many portfolio managers.C. Portfolio weight is sensitive to large alpha values which can lead to the optimal portfolio for most

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

most portfolio managers.ANSWER: D

169. Benchmark portfolio risk is defined asA. The return difference between the portfolio and the benchmark.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: A

170. ____________ can be used to measure forecast quality and guide in the proper adjustment offorecasts.

A. Regression analysis.B. Exponential smoothing.C. ARIMAD. Moving average models.

ANSWER: B

171. Even low-quality forecasts have proven to be valuable because R-squares of only ____________in regressions of analysts' forecasts can be used to substantially improve portfolio performance.

A. 0.656.B. 0.452.C. 0.258.D. 0.153.

ANSWER: D

172. Tracking error is defined asA. 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.


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ANSWER: A

173. If a portfolio manager consistently obtains a high Sharpe measure, the manager's forecasting ability__________.

A. Is above average.B. Is average.C. Is below average.D. Does not exist.

ANSWER: B

174. Active portfolio management consists of __________.A. Market timing.B. Security analysis.C. Indexing.D. A and B.

ANSWER: D

175. 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

176. Active portfolio managers try to construct a risky portfolio with __________.A. . A higher Sharpe measure than a passive strategy.B. A lower Sharpe measure than a passive strategy.C. The same Sharpe measure as a passive strategy.D. Very few securities.

ANSWER: A

177. The beta of an active portfolio is 1.20. The standard deviation of the returns on the market index is20%. The nonsystematic variance of the active portfolio is 1%. The standard deviation of the returns onthe active portfolio is __________.

A. 3.84%.B. 5.84%.C. 19.60%.D. 24.17%.

ANSWER: D

178. ______________ is not a characteristic of a money market instrumentA. Liquidity.B. Marketability.C. Long maturity.D. Liquidity premium.

ANSWER: C

179. The call option price is higher when___________.A. the striking price is higher than the stock price.B. the striking price is lower than the stock price.C. the option period is shorter.D. the option period is longer and the striking price is lower

ANSWER: D


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180. A purely passive strategy is defined asA. One that uses only index funds.B. One that allocates assets in fixed proportions that do not vary with market conditions.C. One that is mean-variance efficient.D. Both A and B.

ANSWER: C

181. One property of a risky portfolio that combines an active portfolio of mispriced securities with amarket portfolio is that, when optimized, its squared Sharpe measure increases by the square of theactive portfolio's

A. Sharpe ratio.B. Information ratio.C. Alpha.D. Treynor measure.

ANSWER: C

182. A purely passive strategyA. Uses only index funds.B. Uses weights that change in response to market conditions.C. Uses only risk free assets.D. Is best if there is noise in realized returns.

ANSWER: B

183. A manager who uses the mean-variance theory to construct an optimal portfolio will satisfyA. Investors with low risk-aversion coefficients.B. Investors with high risk-aversion coefficients.C. Investors with moderate risk-aversion coefficients.D. All investors, regardless of their level of risk aversion.

ANSWER: C

184. Ideally, clients would like to invest with the portfolio manager who hasA. A moderate personal risk-aversion coefficient.B. A low personal risk-aversion coefficient.C. The highest sharpe measure.D. The highest record of realized returns.

ANSWER: A

185. An active portfolio manager faces a tradeoff betweenA. Using the Sharpe measure.B. Using mean-variance analysis.C. Exploiting perceived security mispricing.D. Holding too much of the risk-free asset.

ANSWER: C

186. The ______ is a common term for the market consensus value of the required return on a stock.A. dividend payout ratio.B. intrinsic value.C. market capitalization rate.D. plowback rate.

ANSWER: C

187. Perfect timing ability is equivalent to having __________ on the market portfolio.A. A call option.B. A futures contract.


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C. A put option.D. A commodities contract.

ANSWER: C

188. Kane, Marcus, and Trippi (1999) show that the annualized fee that investor should be willing topay for active management, over and above the fee charged by a passive index fund, depends on

A. The investor's coefficient of risk aversion.B. The value of at the money calls option on the market portfolio.C. The values of out of the money call option on the market portfolio.D. The precision of the security analyst.

ANSWER: A

189. The most popular approach to forecasting the overall stock market is to use_________.A. the dividend multiplier.B. the aggregate return on assets.C. the historical ratio of book value to market value.D. the aggregate earnings multiplier.

ANSWER: D

190. The investment professionals that arrange the sale of new securities are called___________.A. arbitragers.B. traders.C. investment bankers.D. specialists.

ANSWER: C

191. According to the Treynor-Black model, the weight of a security in the active portfolio depends onthe ratio of __________ to __________.

A. The degree of mispricing; The nonsystematic risk of the security.B. The degree of mispricing; The systematic risk of the security.C. The market sensitivity of the security; The nonsystematic risk of the security.D. The nonsystematic risk of the security; The systematic risk of the security.

ANSWER: C

192. The price earnings ratio of the stock reflects___________.A. the growth of the economy.B. the market mood for the companys stockC. the earnings retained and invested in the company.D. the dividend paid out of the companys stock.

ANSWER: B

193. The Treynor-Black modelA. Considers both macroeconomic and microeconomic risks.B. Considers security selection only.C. Is relatively easy to implement.D. A and C.

ANSWER: C

194. The Black-Litterman model is geared toward ____________ while the Treynor- Black model isgeared toward ____________.

A. Security analysis; Security analysis.B. Asset allocation; Asset allocation.C. Security analysis; Asset allocation.D. Asset allocation; Security analysis.


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ANSWER: A

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

A. Black Litterman.B. Treynor Black.C. Treynor Mazuy.D. Black Scholes.

ANSWER: C

196. Which one of the following is not a money market security?A. treasury bill.B. national savings certificate.C. certificate of deposit.D. commercial paper.

ANSWER: B

197. In private placement_______________.A. shares are offered through letter of offer.B. part of the shares to the public and part to private.C. shares are offered through brokers.D. shares are offered through investment bankers.

ANSWER: A

198. Gross domestic product is a logical factor to analyse the economy in picking up a stock because itindicates______________.

A. inflation or deflation.B. the market value of assets.C. the status of the economy.D. the condition of the stock market.

ANSWER: C

199. DeBondt and Thaler believe that high P/E result from investors.A. Earnings expectations that is too extreme.B. Earnings expectations that is not extreme enough.C. Stock price expectations that is too extreme.D. Stock price expectations that is not extreme enough.

ANSWER: B

200. Arbitrageurs may be unable to exploit behavioral biases due to ____________.A. Fundamental risk.B. Implementation costs.C. Model risk.D. Conservatism.

ANSWER: A

201. Investment is theA. Net additions made to the nations capital stocks.B. Persons commitment to buy a flat or a house.C. Employment of funds on assets to earn returns.D. Employment of funds on goods and services that are used in production process.

ANSWER: C

202. Speculator is a person


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A. Who evaluates the performance of the company.B. Who uses his own funds only.C. Who is willing to take high risk for high return.D. Who considers here says and market behaviours.

ANSWER: D

203. To frame the investment policy the investor should haveA. Knowledge about the company and brokers.B. Investible funds.C. Knowledge about the investment alternatives.D. Knowledge about the markets with funds.

ANSWER: A

204. Equity shareholders rights are listed below. One of the rights is incorrectA. Right to have first claim in the case of winding of the company.B. Right to vote at the general body meeting of the company.C. Right to share profits in the form of the dividends.D. Right to receive a copy of the statutory report.

ANSWER: B

205. In the case of non voting sharesA. The rights of voting stocks and non voting stocks are similar.B. Rights and bonus issues for non voting shares can be issued in the form of voting shares.C. The non voting shares would become voting shares after a particular period of time.D. Non voting shares carry higher dividends instead of voting rights.

ANSWER: D

206. Primary and secondary marketsA. Compete with each other.B. Complement each other.C. Function independently.D. Control each other.

ANSWER: C

207. In private placementA. Shares are offered through letter of offer.B. Shares are offered through prospectus.C. Shares are offered through brokers.D. Shares are offered through investment bankers.

ANSWER: B

208. The issue can be priced at premium byA. Fixed one.B. Variable.C. Equal to 10.D. Equal to 5.

ANSWER: D

209. SEBI had made it mandatory for the companies to discloseA. The yearly annual report.B. Monthly report and annual report.C. Quarterly report and annual report.D. Monthly review and annual reports.

ANSWER: A


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210. The market maker has toA. Buy the shares.B. Sell the shares.C. Buy and sell shares.D. None of the above.

ANSWER: A

211. Compulsory delisting is due toA. Violation of listing agreement.B. Capital size is small.C. Merger.D. Thin trading.

ANSWER: D

212. The VSAT which connects the main central computer meansA. Videsh Sanchar automated trading.B. Videsh Sanchar aperture terminal.C. Very special aperture terminal.D. Very small aperture terminal.

ANSWER: D

213. According to SEBIA. All the new issues should be in the depository mode.B. All the A group shares should be traded through NSDL.C. All the B group shares should be traded through NSDL.D. All the above are true.

ANSWER: B

214. The Sensex hasA. 25 stocks.B. 30 stocks.C. 30 stocks.D. 35 stocks.

ANSWER: C

215. Dollex is the dollar equivalent toA. Nifty.B. Sensex.C. BSE 200.D. BSE 100.

ANSWER: C

216. The liquidity factor of the stock included in BSE Sensex is based onA. Average deal as a percentage of company shares outstanding.B. The average number of deal of scrip.C. Market capitalisation of the stock.D. Capital stock of the company.

ANSWER: B

217. The NSE Nifty s base periodA. 1992.B. 1993.C. 1994.


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D. 1995.ANSWER: D

218. Gross domestic product is a logical factor to analyse the economy in packing up a stock because itindicates

A. Inflation or deflation.B. The market value of assets.C. The status of the economy.D. The conditions of the stock market.

ANSWER: A

219. The fall in the interest rate is conducive to the stock market becauseA. Money may flow from the bond market to stock market.B. Corporate can borrow at easy terms.C. Brokers can do business at borrowed funds.D. B and C.

ANSWER: C

220. One of the following factors leads the activity of stock marketA. Money supply.B. Per capita income.C. Unemployment rate.D. Manufacturing and trade.

ANSWER: B

221. A growth industry is defined asA. An industry with 15% rate of growth per annum.B. An industry where demand for its product is growing.C. An industry with high capital investment.D. An industry with the average growth higher than the growth of economy.

ANSWER: D

222. Mr. A is a daring manager. He wants to increase the return of his portfolio. He should choosestocks from

A. Defensive industry.B. Industry at a growth stage.C. Industry in the maturity period.D. Industry with more export potential.

ANSWER: A

223. The rise of dividend tax from 10% to 20% in a broader sense affectsA. The investor.B. The corporate.C. The stock market.D. The financial institutions.

ANSWER: D

224. The growth in book value per share shows theA. Rise in the share price.B. Increase in the physical assets of the firm.C. Increase in the net worth.D. Growth in reserves.

ANSWER: B


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225. A common stock pay-out ratioA. Is directly related to the companys growth rate.B. Can be zero for a growth firm.C. Measures the earnings of share as a % of its market price.D. Indicates the future cash dividends to be expected.

ANSWER: C

226. The price earnings ratio of a stock reflectsA. The growth of the company.B. The market mood for the companys stock.C. The earnings retained and invested in the company.D. The dividend paid out for the companys stock.

ANSWER: D

227. The market value of the scrip is determined byA. The dividend declared by the company.B. The present status of the stock market.C. The number of floating shares.D. The interaction of demand and supply.

ANSWER: A

228. In the stock market psychologyA. Investors forget the past.B. History repeats itself.C. More faith in future prediction.D. A and B.

ANSWER: B

229. The share pricesA. More either in declining or increasing trend.B. May remain flat for a period of time.C. The movements of the share prices from a straight line.D. The increasing or decreasing move may be Zigzag.

ANSWER: C

230. Violation of a trend line meansA. Moving away from the trend line.B. Changing the direction.C. Penetration of the trend line.D. Cutting the rising trend line from above.

ANSWER: A

231. The declining market is called bear market because ofA. The hybernation period is long for bears.B. The traditional usage.C. The fur coat of the bears.D. The attacking manner of the bears.

ANSWER: B

232. A support level existsA. At a price fixed by the stock exchange brokers.B. At a price fixed by the regulatory authority of the stock exchanges.C. At a price fixed where considerable demand is created.D. At a low price where stock would be available.


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ANSWER: D

233. Technical indicators helpA. To find out the present state of the stock market.B. To estimate the growth of stock market.C. To indicate the economic activity.D. To show the direction of the overall market.

ANSWER: B

234. Overbought region indicatesA. More shares are sold.B. The supply is more.C. Potential fall in the price level.D. Potential rise in the share price.

ANSWER: C

235. The chartist believes that chartsA. Spot the current trend for buying and selling.B. Indicates the future action to be taken.C. Shows the past historic movement.D. All the above.

ANSWER: D

236. In the strong form of efficient marketA. All the available information is reflected on the price.B. All published information is reflected on the price.C. Stock price reflects past prices.D. Stock prices show the growth or fall of the company.

ANSWER: A

237. Which of the following statement defines the efficient marketA. Information is fully reflected on the stock prices.B. The stock exchange is fully automated.C. The market is monitored by the regulation authorities.D. Free entry and exit of the investors.

ANSWER: B

238. A run in the stock price isA. An interrupted sequence of either fall or rise in stock price.B. An uninterrupted sequence of either rise or fall in stock price.C. An alternative sequence of stock price movement.D. A and C.

ANSWER: D

239. One of the statements given below provides evidence for the semi strongly efficient formA. Low P/E ratio effect.B. The size effect.C. Effect of the stock split.D. Weekend effect.

ANSWER: C

240. The efficient frontier becomes a straight line through out because of theA. Introduction of risk free assets.B. Introduction of lending.


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C. Introduction of lending and borrowing.D. Introduction of borrowing.

ANSWER: C

241. The security market line describes the expected return forA. The efficient portfolio.B. The inefficient portfolio.C. All portfolios and assets.D. The efficient and inefficient portfolios.

ANSWER: B

242. The buying and selling activities of the arbitrageurA. Increases the profit.B. Brings equilibrium level.C. Creates disequilibrium.D. Reduces the profit margin.

ANSWER: A

243. According to the APT theory, an investor would try to increase returns from his portfolioA. By increasing the risk.B. By increasing the portfolio.C. By reducing the risk.D. Without increasing the portfolio funds.

ANSWER: D

244. The investors by investing in the mutual funds getA. Professional management.B. Diversification.C. Return potential.D. All the above.

ANSWER: B

245. The Sharpe index assigns the high value to funds that haveA. Low standard deviations.B. Higher returns.C. Higher risk adjusted returns.D. Higher risk premium.

ANSWER: D

246. In the Treynor index, a steep slope would indicateA. The riskless rate of return.B. The risk premium and standard deviation of funds return.C. The risk premium and beta coefficient.D. The risk premium and the standard deviation.

ANSWER: C

247. Passive management is a process of holding a well diversified portfolio forA. Short term with buy and hold approach.B. Long term with buy and hold approach.C. Short term with buy and sell approach.D. Long term with buy and sell approach.

ANSWER: B

248. The NSE Nifty index fund consists of


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A. The stocks of high market capitalisation in NSE.B. Blue chip companies stocks of the index.C. All the stocks of the Nifty index.D. Consists 90% of the stocks of the index leaving stocks of lesser importance.

ANSWER: C

249. The rupee cost averaging approach seems to work better withA. Cyclical stock price.B. Declining stock price.C. Rising stock price.D. Rising stock price with cyclical patterns.

ANSWER: B

250. In the rupee cost averaging plan when the stock prices are lowA. A prefixed amount is spent on shares.B. Higher amount of money is allocated to shares.C. Lower amount of money is allocated to shares.D. More money is spent on bonds.

ANSWER: B

Staff NameSUNDARESWARAN.T.


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