Unit – 2 Quiz

An efficient set of portfolios represented through graph is classified as an

Commercial mortgages, farm mortgages and home mortgages are categories of

Stock market value can deviate from its fundamental value because of strong

Which of the following is the most commonly used yield measure of a bond?

A liquid asset may

Which of the following statements regarding risk-averse investors is correct?

Securities with lower default risk and having highest credit quality are assigned the rating of

Default risk is measured by large traders, managers and investors with help of

A saver who is capital-risk averse is worried that interest rates in the economy might

Which of the following measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns?

Difference between actual return on stock and predicted return is considered as

If a portfolio manager consistently obtains a high Sharpe measure, the managers forecasting ability is

What is a widely used measure of growth and is used to evaluate anything that can fluctuate in value, such as assets and investments?

CAGR is used when looking at investments over any period of time, but usually for a period of at least

Beta is a measure of

Sum of market risk and diversifiable risk are classified as total risk which is equivalent to

A model which regresses return of stock against return of market is classified as

Future beta is needed to calculate in most situations is classified as

What is close to 1 indicates that the security will perform roughly in line with the market?

Diversification Strategy is used to gain market share in

Strategies such as diversification, penetration and market development are part of

Which of the following is not a typical portfolio constraint?

Which of the following are boundaries that investors place on their choice of investment assets?

Proper diversification among common stocks can

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

If an asset’s expected return plots above the security market line, the asset is

In capital markets, major suppliers of trading instruments are

Which model predicts that all investors will hold the same portfolio in equilibrium?

According to the single index model, the inflation risk is an example of the

Which of the following pricing model provides no guidance concerning the determination of the relevant risk factors?

Research from the 1970s to the 1990s found that over 90 percent of a fund’s returns over time is explained by

Which of the following is the stage when investors in their early-to-middle earning years attempt to accumulate assets to satisfy near-term needs, e.g., children’s education or down payment on a home?

A portfolio that has an expected outcome of $115 is formed by

A reward-to-volatility ratio is useful in

An amount of company retain earnings, return on equity and inflation are factors which effect

Historically, P/E ratios have tended to be

What focuses on outperforming the market in comparison to a specific benchmark such as the Standard & Poor’s 500 Index?

What mimics the investment holdings of a particular index in order to achieve similar results?

What strive for superior returns but take greater risks and entail larger fees?

When interest rates increase, the duration of a 15-year bond selling at a discount will be

If a bond manager swaps a bond for another bond with a higher yield to maturity and a longer duration, the swap is

Which of the following is a course objective of Portfolio Strategy?

The sponsor of a defined contribution pension plan is required

An investor will take as large a position as possible when an equilibrium price relationship is violated. This is an example of

Which refer to strategies aimed at attaining the established rate of return requirements while meeting expressed risk tolerance and applicable constraints?

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

The optimal portfolio on the efficient frontier for a given investor does not depend on

Which of the following is NOT part of the portfolio management process, as described by Maginn, Tuttle, McLeavy, and Pinto (2007)?

Which type of asset/liability management does NOT require the ability to forecast future interest rate levels?

If the yield curve were upward sloping, the bank could accept some interest rate risk and earn a positive interest rate spread by

An increase in cash reserve ratio will cause yield curve to

VaR is not enough to assess market risk of a portfolio. Stress testing is desirable because

The Treynor-Black model is a model that shows how an investment manager can use security analysis and statistics to construct

What is the value of a call on the expiration date, if on that date the price of the stock is $25 and the exercise price is $26?

If you were confident that the price of stock X would drop dramatically within two months, which of the following investment transactions would yield the highest return on your investment?

An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Allocation Line must

Suppose you buy a portfolio of long-dated bonds at a price of Rs.200 each. Shortly afterwards, interest rates rise by 1.5% and the market value of your bonds falls to Rs.190. This is an example of

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

If the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is 0% and the average return is 16%. Based on Jensens measure of portfolio performance, Calculate the return on the market portfolio?

Standard deviation of an asset is 2.5%. Market standard deviation is 2%. Risk free rate of return is 13%. Expected return on market portfolio is 15% and Correlation coefficient of portfolio with market is 0.8. Calculate the expected rate of return of the portfolio.

A growth oriented non dividend paying share is bought for Rs.265 and sold for Rs.390 after 4 years. The compounded annual growth rate is

When a portfolio consists of only a risky asset and a risk-free asset, increasing the fraction of the overall portfolio invested in the risky asset will

What is a statistical measurement of dispersion around an average, which, for an investment, depicts how widely the returns varied over a certain period?

When an investment opportunity set is formed with two securities that are perfectly negatively correlated, the global minimum variance portfolio has a standard deviation that is always

Suppose two portfolios have the same average return, the same standard deviation of returns, but portfolio X has a higher beta than portfolio Y. According to the Sharpe measure, the performance of portfolio X

Stock A has an expected return of 25% and a beta of 2.0. Stock B has an expected return of 18% and a beta of 1.5. The market risk premium is 8%. If the risk free rate is 7%, then

The risk free return of security A is 7%. In addition to it, you expect that the return on market would be 12%.The expected return of security A with Beta 0.60 is

Consider a graph with standard deviation on the horizontal axis and expected return on the vertical axis. The line that connects the risk-free rate and the optimal risky portfolio is called

The market risk premium is 15% and the risk-free rate is 5%. The beta of Asset D is 0.2. What is Asset D’s expected return under the CAPM?

The asset allocation which seeks to take advantage of short term movements and opportunities in investment markets is called

Which of the following refer to strategies aimed at attaining the established rate of return requirements while meeting expressed risk tolerance and applicable constraints?

What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.09?

What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.06?

The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

Security A has expected return of 10% and standard deviation of 22%. Security B has expected return of 12% and standard deviation of 29%. If the two securities have a correlation coefficient of 0.6, what is their covariance?

XYZ company has an expected ROE of 10%. The dividend growth rate will be __________ if the firm follows a policy of paying 20% of earnings in the form of dividends.

A passive strategy does not have a management team making investment decisions and can be structured as

If a bond manager swaps a bond for one that is identical in terms of coupon rate, maturity and credit quality, but offers a higher yield to maturity, the swap is called

The interest rate on a 20 year bond with face value of Rs.1000 is 8%. The expected yield to maturity is 9%. If interest received on a half yearly basis. What is the current market price of the bond?

A bond Rs.1000 with coupon of 8.5%p.a. payable semi-annually with a tenure of 20 years is currently selling at Rs.1150. What is the bond’s current yield?

Mr. Narayan invested in tradable bonds of a corporate paying annual coupon of 11%. The tenure of the bonds is 10 years and he desires to hold them till maturity. What would be the impact of declining interest rates on his cash flows during this tenure?

Which of the following strategies seeks to increase the portfolio value by reinvesting current income in addition to capital gains?

A preferred stock will pay a dividend of Rs. 1.50 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 12% on this stock. Use the constant growth DDM to calculate the intrinsic value of this preferred stock.

Which of the following are true about the interest-rate sensitivity of bonds?
(I) Bond prices and yields are inversely related.
(II) Prices of long-term bonds tend to be more sensitive to interest rate changes than prices of short-term bonds.
(III) Interest-rate risk is directly related to the bond’s coupon rate.
(IV) The sensitivity of a bond’s price to a change in its yield to maturity is inversely related to the yield to maturity at which the bond is currently selling.

If a bank has a positive dollar gap and interest rates are expected to increase in the near future, the net interest margin of the bank will

If a bank has a zero gap, it is using which of the following interest rate risk management strategies?

The problem of imperfect correlation of interest rates in the use of gap analysis can be dealt with by using

Aggressive gap management that successfully increases the net interest income of the bank may well decrease shareholder wealth, all else the same, because

What is the price of a stock estimated to pay a dividend of $.60 next year, if the dividend growth rate is 5% and the appropriate discount rate is 8%?

The common stock of TESU Corporation has been trading in a narrow range around $50 per share for months, and you believe it will stay in that range for the next 3 months. A 3-month put option with an exercise price of $50 sells for $4. A call with the same expiration date and exercise price sells for $4. What simple options strategy using a put and a call will take advantage of your belief about the stock price’s future movement?

During the past five years, the returns of a stock are:
For first year 9%, second year 5%, third year-11%, fourth year 8%, fifth year 12%. Calculate Cumulative Wealth Index, Arithmetic Mean, Geometric Mean and Standard Deviation?

You are evaluating the rankings based on performance ratios of three funds X,Y and Z. The average returns obtained from funds X,Y and Z have been 16%, 19% and 14% respectively against the market return of 13%. The standard returns of the fund returns have been 17,22 and 16 respectively versus the market return standard deviation of 15. If the beta reported of these funds is 1.2, 1.4 and 1.1 respectively and the risk free rate of return is 5.5%. What are your ranking in the order of best to worst with regards to Treynor ratio, Sharpe ratio and Jensen ratio?

Standard deviation of an asset is 2.5%. Market standard deviation is 2%. Risk free rate of return is 13%. Expected return on market portfolio is 15% and Correlation coefficient of portfolio with market is 0.8,if portfolio beta is 0.5 and risk free return is 10%, Calculate the expected rate of return of the portfolio?

What is a growth statistic that measures the compound annual return of investments over a set period of time, assuming you reinvest your profits (i.e. compounding effect)?

You are evaluating the rankings based on Treynor Ratio of three funds X,Y and Z. The average returns obtained from funds X,Y and Z have been 14%, 17% and 12% respectively against the market return of 11%. The standard deviations of fund returns have been 15%, 19% and 14% respectively versus the market return standard deviation of 13%. If the beta reported of these funds is 1.1, 1.5 and 1.0 respectively. The risk free rate of return is 6%. What are your rankings in the order of best to worst?

Which one of the following showed that the duration of a bond was a more appropriate measure of time characteristics than the term to maturity of the bond because duration considers both the repayment of capital at maturity and the size and timing of coupon payments prior to final maturity?

Clive Rodney Megabucks offers your friend, Yunyoung, an interesting gamble involving giving her the choice of the contents in one of two sealed, identical-looking boxes. One box has $20,000 in cash and the second has nothing inside. There is an equal probability that the chosen box contains cash versus nothing. Yunyoung states that she would not call off the gamble if you offered her a certain $4,999 instead of her choice of box. However, she would be indifferent if $5,000 was offered in place of the risky gamble; and she would definitely take $5,001 to call off the gamble. We would describe Yunyoung as

What is the variability of return on stocks or portfolios not explained by general market movements. It is avoidable through diversification?

The risk-free rate for the next year is 3%, and the market risk premium is expected to be 10%. The beta of Acme’s stock is 1.5. If you believe that Acme’s stock will actually return 18.2% over the next year, then according to the CAPM you should

Stock A has a beta of 1.0 and very high unique risk. If the expected return on the market is 20%, then according to the CAPM the expected return on Stock A will be

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

Your client started investing Rs. 12000 per month a year ago in an asset allocation of 30:70 in equity and debt to achieve a goal in 6 years from now for accumulating Rs.10,00,000. You realize that he would be requiring Rs. 15,00,000 for the same goal. You expect equity and debt to give returns of 11.75% p.a and 8.25% p.a respectively in the entire period of investment. You assess changing asset allocation to 65:35 in equity and debt by investing Rs. 2000 additional per month to see how closer he can reach to his goal.

An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent. His portfolio’s expected return and standard deviation are __________ and __________, respectively.

Shares of a closed-end fund are trading at a 4% premium over NAV. If NAV is $10 per share, what is the current market price of the fund’s shares?

A closed-end fund owns foreign securities with a market value of $95 million, has 5 million shares outstanding, owes its employees $500,000, and trades at a 5% discount. The net asset value per share is

A 20 year, 10% corporate bond with face value Rs.1000 and interest payable semi annually matures after 8 years. The bond is available at a yield to maturity of 8.5%.if the record date for the last coupon has just passed, at what value 36 bonds of the corporate are likely to be quoted in the market?

Your client starts investing immediately for 15 years annually Rs. 80,000 in the ratio of 70:30 in equity and debt products. You expect return from equity and debt to be 12% and 8.5% p.a. during this period. To protect the wealth, he rebalances the portfolio in 40:60 ratio of equity and debt after 15 years and invests in the same ratio annually Rs. 80,000 for the next 5 years. The return expected from equity and debt in this period is 9% p.a. and 8% p.a. What rate of return is expected on his total investments? How would this return fare when seen from average inflation of 5% during the entire period?

Diversified Portfolios had year-end assets of $279,000,000 and liabilities of $43,000,000. If Diversified NAV was $42.13, how many shares must have been held in the fund?

1 day VaR of a portfolio is Rs. 500,000 with 95% confidence level. In a period of six months (125 working days) how many times the loss on the portfolio may exceed Rs. 500,000?

Given the following information:
Interest Sensitive Assets = $300 30-day commercial paper
Interest Sensitive Liabilities = $400 90-day CDs
30-day commercial paper is 50 percent as volatile as 90-day T-bills
90-day CDs are 120 percent as volatile as 90-day T-bills
Calculate the standardized gap for the bank.