Unit 9 – Quiz

Which of the following is not one of the assumptions of portfolio theory?

Which of the following statements regarding indifference curves is not true?

Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by

Indifference curves

Different investors will estimate the inputs to the Markowitz model differently because

The assumption in calculating annuity is that every payment is

The amount of money today which is equal to series of payments in future

The positive cash flows are classified as

In the formula S = P+iP, the S is classified as

The process of loan repayment by installment payments is classified as

The risk in average individual stock can be reduced by placing an individual stock in

According to the Capital Asset Pricing Model (CAPM), a well diversified portfolio’s rate of return is a function of

Which one of the following best describes a reverse yield gap?

Market interest rates and the prices of bonds in the secondary market

Which of the following best describes liquidation value?

Which of the following methods of project evaluation do NOT discount future cash flows?

The Jensen portfolio evaluation measure

A portfolio manager’s ranking within a comparison universe may not provide a good measure of performance because

The Modigliani M2 measure and the Treynor T2 measure

Parameter Estimation problem is about

Artificial neural network used for

Internal state of neuron is called __________, is the function of the inputs the neurons receives.

Which of the following is not the promise of artificial neural network?

Which of the following is an application of NN (Neural Network)?

In the Treynor-Black model

Which of the following is another name for the required return on a stock?

Analysts commonly consider all of the following to be indicators that the market is overvalued except

The M-squared measure

Which of the following qualities does not distinguish a futures from a forward contract?

Which of the following statements about futures contracts is wrong?

To minimize default risk, futures exchanges require all contracts to be

A futures contract is

The cash price of wheat today is 410 cents per bushel, and the three-month futures price of the same is 421 cents per bushel. The basis is

Which of the following are the components of foreign capital?
1. Grants and loans
2. External commercial borrowings
3. Foreign direct investment
4. Deposits from non-residents
Select the correct answer using the codes given below.

Foreign Portfolio Investment (FPI) is investment by non-residents in Indian securities including

What refers to grouping of investment assets from international or foreign markets rather than from the domestic ones?

The funds that combine features of both open-ended and close-ended schemes are called

For issuing IDR, a company

An instrument representing ownership interest in securities of a foreign issuer is referred to as

ADRs that do not qualify or are not intended to be listed on stock exchanges are referred to as

An American Depositary Receipt is defined as a security

Since the mid-1990s, __________ has become the largest component of external financing to developing countries.

_______________ of an investment bank.

Financial intermediaries exist because small investors cannot efficiently

Investment bankers perform the following role(s)

A fixed-income security pays

An ETF

Which of the following is not true regarding the Markowitz theory?

The single-index model implies that stocks covary together only because of their common

Asset allocation is one of the most widely used applications of

The formula written as r = (1+i/m)m – 1 is used to calculate

The portion of formula used to calculate equal payment annuity [(1+i)n-1/i(1+i)n is classified as

The process of translating cash flow into equivalent dollars at common base period is considered as

Units that do not qualify for distributions, but where the income is reinvested in the trust, increasing the value of each unit are known as

If the intrinsic value of a share of common stock is less than its market value, which of the following is the most reasonable conclusion?

In the formula ke = (D1/P0) + g, what does (D1/P0) represent?

Which of the following accurately describes the behavior of bond prices?

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

If you wanted to evaluate the Seminole Fund using the M2 measure, what percent of the adjusted portfolio would need to be invested in T-Bills?

The __________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

Risk-adjusted mutual fund performance measures have decreased in popularity because

Fuzzy Set theory defines fuzzy operators. Choose the fuzzy operators from the following.

In making a judgment about a specific instance, people often fall to take into account how prevalent or frequent something is in general. This describes

The disposition effect

A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index is most likely to have

Merck is currently paying a dividend of £2. Its high dividend growth rate of 12% next year will drop to 7% for the foreseeable future. The discount rate of Merck is 13%. What is the stock price of Merck?

The Sharpe, Treynor, and Jensen portfolio performance measures are derived from the CAPM

A portfolio manager’s ranking within a comparison universe may not provide a good measure of performance because

What happens to the price of a futures contract as expiration draws closer?

You enter into a forward contract to take delivery of one million Deutsche marks three months from now. What happens to the price you will pay at expiration if marks depreciate during the contract?

Which of the following is true regarding company’s hedging for risk reduction?
a) Fluctuations in commodity prices, interest rates, or exchange rates can make planning difficult and can throw companies badly off course.
b) Financial managers look for opportunities to manage these risks, and a number of specialized instruments have been invented to help them.
c) The specialized instruments which were invented to help financial managers manage risks are collectively known as derivative instruments.

Consider the following statements:
1) Foreign investment may affect a country’s export performance adversely.
2) Inflow of foreign exchange may cause appreciation of local currency, leading to a rise in the prices of export commodities.
Which of the statements given above is/are correct?

What is the connection, if any, between comparative advantage (CA) and foreign direct investment (FDI)?

When money market instruments and debt securities with residual maturity of up to 60 days are not traded on a particular day, they shall be valued on

The FPI license is granted by a local custodian in its capacity as a Designated Depository Participants (DDP) on behalf of

Money received for purchase of shares on Indian Company by a foreign investor will be treated as foreign direct investment if

What are the funds that flow from one economy to the other with the purpose of aid or assistance to the economy as a whole?

Construction of new plants abroad requires demand forecast. Such a demand forecast does not depend on the following

The __________ refers to the orderly relationship between spot and forward currency exchange rates and the rates of interest between countries.

A disadvantage of using stock options to compensate managers is that

In the Treynor-Black model

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

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

Given the following information, calculate the expected return of Portfolio ABC. Expected return of stock A = 10%, Expected return of stock B = 15%, Expected return of stock C = 6%. 40 percent of the portfolio is invested in A, 40 percent is invested in B and 20 percent is invested in C.

The present value of cash inflows is $60,000 USD and present value of cash outflows is $55,000 USD then net present value is

The present value of cash inflows is $50,000 USD and present value of cash outflows is $55,000 USD then net present value is

You have been asked to determine the intrinsic value of a share of Quick Quilters, Inc. (QQ) common stock. The stock most recently paid a $2.00 annual dividend (D0). You expect dividends to grow at a supernormal rate of 15% for the next three years. You then expect that dividends will grow at a normal 5% rate thereafter (indefinitely). As a potential investor, you would expect to earn 10% on this investment. What is the intrinsic value of a share of QQ?

If a coupon bond sells at a large discount from par, then which of the following relationships holds true? (P0 > represents the price of a bond and YTM is the bond’s yield to maturity.)

Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%,and the average return is 18%. Based on Jensen’s measure of portfolio performance, you would calculate the return on the market portfolio as

Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%,and the average return is 14%. Based on Jensen’s measure of portfolio performance, you would calculate the return on the market portfolio as

You are evaluating a potential project which has uncertain future cash flows. The project will require an immediate outlay of $500. In year 1, cash flow will be $200 with probability 0.5, and $700 with probability 0.5. In year 2, cash flows will be $200 with probability 0.2, $400 with probability 0.6 and $700 with probability 0.2. In year three cash flows will be one of $200, $300, $400, $600 or $700 respectively, each with probability 0.2. What is the expected value of cash flows in year 2?

The standard deviation of Stock E is 30% and the standard deviation of Stock F is 50%. The covariance of Stock E with Stock F is 0.0300. Portfolio J consists of $600,000 invested in Stock E and $200,000 invested in Stock F. What is the variance of Portfolio J?

The variance of a portfolio equally divided between four uncorrelated assets with standard deviation of 5%, 15%, 20%, and 30%, respectively, is

At the end of the year, IBM will pay a £2.00 dividend per share, an increase from the current dividend of £1.50 per share. After that the dividend is expected to increase at a constant rate of 5%. If you require a 12% return on the stock, what is the value of IBM stock?

Suppose GE, which is selling at £75, will pay at the end of each year in the next two years an expected dividend of £5 per share. At the end of the second year, the stock will be either £70 or £100 with equal probability.

Corporation B is a normal-growth company that expects to earn 13% on reinvested earnings. If the company pays 30% of its earnings as dividends, what will be the stock’s dividend growth rate?

How can options, futures, and forward contracts be used to devise simple hedging strategies?
a) Options are often used by firms to limit their downside risk. For example, if you own an asset and have the option to sell it at the current price, then you have effectively insured yourself against loss.
b) Futures contracts are agreements made today to buy or sell an asset in the future. The price is fixed today, but the final payment does not occur until the delivery date. Futures contracts are highly standardized and are traded on organized exchanges. Commodity futures allow firms to fix the future price that they pay for a wide range of agricultural commodities, metals, and oil. Financial futures help firms to protect themselves against unforeseen movements in interest rates, exchange rates, and stock prices.
c) Forward contracts are equivalent to tailor-made futures contracts. For example, firms often enter into forward agreements with a bank to buy or sell foreign exchange or to fix the interest rate on a loan to be made in the future.

A listed entity shall submit a statement showing holding of securities and shareholding pattern separately for each class of securities Within 10 days of any capital restructuring of the listed entity resulting in a change exceeding __________ of the total paid-up share capital.

An unlisted company intending to be listed should have a minimum average pre-tax operating profit of rupees fifteen crore, calculated on a restated and consolidated basis, during the

Under which one of the following framework, an FPI would commit to investing a specified amount in Indian bonds for a minimum retention period of three years or more, as specified by the RBI and would need to ensure that at least 67 percent of the committed amount remained invested at all times during the period?

Assume that a Big Mac hamburger is selling for £1.99 in the United Kingdom, the same hamburger is selling for $2.71 in the United States, and the actual exchange rate (to buy $1.00 with British Pounds) is 0.63. According to ____________________, the British Pound is __________________ the US Dollar.

Cross listing refers to
a). When a home country company lists its shares in a foreign stock exchange denominated in home country currency.
b). When a home country company lists its shares in a foreign stock exchange denominated in foreign country currency.
c). When a foreign company lists its shares in domestic stock exchange denominated in foreign company’s home currency
d). When a foreign company lists its shares in domestic stock exchange denominated in domestic currency

To improve future analyst forecasts using the statistical properties of past forecasts, a regression model can be fitted to past forecasts. The intercept of the regression is a __________ coefficient, and the regression beta represents a __________ coefficient.

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