Finance multiple choice questions.

MULTIPLE CHOICE AND TRUE FALSE

1-2: A _______________ represents an ownership share in a corporation.
a. bond
b. preferred stock
c. common stock
d. All of the above.

1-3: In securities markets, the risk-return trade-off implies that assets with higher risk will offer investors _______________ expected returns.
a. higher
b. lower
c. the same
d. None of the above.

2-10: Which of the following is(are) characteristic of common stock ownership?
a. voting rights
b. double taxation
c. residual claimant
d. All of the above are characteristics of stock ownership.

2-11: Money Market securities are characterized by _______________.
a. long maturity and high liquidity
b. long maturity and low liquidity
c. short maturity and low liquidity
d. short maturity and high liquidity

3-6: You purchased ABC stock at $50 per share. The stock is currently selling at $49. Your potential loss could be reduced by placing a _______________.
a. limit-buy order
b. limit-sell order
c. market order
d. stop-loss order

3-10: You sold short 200 shares of XYZ common stock at $40 per share with an initial margin of 60%. Your initial investment was _______________.
a. $3,200
b. $4,800
c. $6,000
d. $8,000

3-12: Electronic Communication Networks are private computer networks that link _______________.
a. buyers and sellers
b. different stock exchanges
c. different stock brokers
d. global stock exchanges

5-1: Historically, which security had the lowest standard deviation?
a. U.S. large stocks
b. World bond portfolio
c. U.S. long-term Treasury bonds
d. U.S. Treasury bills

5-2: Arithmetic average returns are generally _______________ geometric average returns.
a. the same as
b. lower than
c. higher than
d. None of the above.

5-4: What is the risk premium of a stock that has an expected return of 20%, assuming the rate of return on Treasury bills is 3%?
a. 20%
b. 23%
c. 17%
d. Cannot be determined.

6-5: The maximum benefit of diversification can be achieved by combining securities in a portfolio where the correlation coefficient between the securities is ______________.
a. between 0 and -1
b. 0
c. -1
d. +1

6-10: Careful selection of different stocks from different industries can eliminate the ______________ risk of a portfolio.
a. nonsystematic
b. market
c. total
d. All of the above.

7-5: The expected return on a stock with a beta of 1.5 is 15%. If the expected risk-free rate of return is 3%, what should be the market risk premium?
a. 5%
b. 8%
c. 12%
d. 15%

7-15: The real world data always support the CAPM.
a. True
b. False

7-2i: The probability of an adverse outcome is a definition of
a) Statistics.
b) Variance.
c) Random.
d) Risk.
e) Semi-variance above the mean.

7-6i: The purpose of calculating the covariance between two stocks is to provide a(n) ________ measure of their movement together.
a) Absolute
b) Relative
c) Indexed
d) Loglinear
e) Squared

7-7i: In a two stock portfolio, if the correlation coefficient between two stocks were to decrease over time every thing else remaining constant the portfolio's risk would
a) Decrease.
b) Remain constant.
c) Increase.
d) Fluctuate positively and negatively.
e) Be a negative value.

7-10i Given a portfolio of stocks, the envelope curve containing the set of best possible combinations is known as the
a) Efficient portfolio.
b ) Utility curve.
c) Efficient frontier.
d) Last frontier.
e) Capital asset pricing model.

7-16i: A portfolio manager is considering adding another security to his portfolio. The correlations of the 5 alternatives available are listed below. Which security would enable the highest level of risk diversification?
a) 0.0
b) 0.25
c) -0.25
d) -0.75
e) 1.0

8-3: According to the strong form market efficiency, stock prices should fully reflect ______________ information.
a. all public and private
b. all public
c. all public and political
d. all political and financial

8-5: Empirical findings generally show that a typical mutual fund has a ______________.
a. positive alpha
b. negative alpha
c. zero alpha
d. return higher than the S&P 500 index

8-11: Stock prices follow a random walk because ______________.
a. investors are irrational
b. information arrives at an unpredictable manner
c. information is not efficient
d. the stock market is random

10-2: The balance sheet shows what assets the firm controls at a point in time and how it financed the assets.
a. True
b. False

10-3: The income statement indicates the flow of sales, expenses, and earnings during a period of time.
a. True
b. False

10-1i: The comparisons with which ratios should be made include the following, except
a) The firm's own past performance.
b) The firm's major competitor within the industry.
c) The firm's suppliers and customers.
d) The firm's industry or industries.
e) The aggregate economy.

10-2i: The five major classes of ratios include the following, except
a) Internal liquidity.
b) Risk analysis.
c) Growth analysis.
d) Market performance.
e) Operating performance.

10-5i: Operating performance is divided into which two subcategories of ratios?
a) Efficiency and profitability
b) Efficiency and debt
c) Profitability and growth
d) Debt and equity
e) Liquidity and leverage

11-2: ______________ is an example of a defensive industry.
a. Food producers
b. Auto manufacturers
c. Both A and B are examples.
d. Neither A nor B is an example.

11-10: When the Federal Reserve ______________ the discount rate, the money supply of the economy will increase.
a. raises
b. lowers
c. does not change
d. None of the above.

14-1: Which of the following is an advantage of option investments when compared to stock investments?
a. Options provide more leverage.
b. Options will Expire.
c. Options returns are guaranteed by the OCC.
d. All of the above are advantages.

14-5: A protective put position is equivalent to a ______________.
a. write put
b. write call
c. buy put
d. buy call

14-8: You just purchased one ABC call option contract (exercise price $30) and one ABC put option contract (exercise price $30). The call premium is $3 and the put premium is $2. Your maximum potential loss from this position is ______________.
a. $200
b. $300
c. $500
d. unlimited

15-10: Which one of the following would tend to result in a lower value of a put option?
a. Interest rates are low.
b. The volatility of the underlying stock is high.
c. There is more time remaining until the option expires.
d. The strike price is low relative to the stock price.

16-10: Margin requirements in futures trading are required for ______________.
a. long positions only
b. short positions only
c. both long and short positions
d. There are no margin requirements in futures trading.

16-12: An investor with a short position in Treasury Bonds Futures will profit if ______________.
a. interest rates decrease
b. interest rates increase
c. Both A and B.
d. Neither A nor B.

17-1: Which one of the following is a more appropriate measure for portfolio performance if you have only one mutual fund in your investment?
a. Jensen approach.
b. Sharpe measure.
c. Treynor measure.
d. Either A or C.

17-3: The Sharpe measure evaluates the reward for the ______________ risk of the portfolio.
a. market
b. nondiversifiable
c. business
d. total

18-5: Recent data shows that the benefits of passive international diversification are ______________.
a. significant
b. small
c. greater than expected
d. None of the above.

18-6: The correlation coefficients of various country stock indexes with U.S. stock index have ______________ during the period of 1999 to 2003 as compared to early periods.
a. increased
b. decreased
c. not changes
d. None of the above.

18-7: Emerging markets typically have higher total volatilities and betas of returns than developed markets.
a. True.
b. False.