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Investment Multiple Choice Questions

1.Preferred stock:
a. Is actually a form of equity
b. Pays dividends not fully taxable to U.S. corporations
c. Is normally considered a fixed-income security
d. All of the above

2. Find the tax equivalent yield of a municipal bond paying 4% for someone in the 30% tax bracket (assume this investor resides in the same state as the municipal bond). Show your work.

4. What does NASDAQ stand for? I need a word for each letter.

5. Which of the following statements about the security market line (SML) are true (only 1 is true)?
a. The SML provides a benchmark for evaluating expected investment performance
b. The SML leads all investors to invest in the same portfolio of risky assets
c. The SML is a graphic representation of the relationship between expected return and beta
d. Properly valued assets plot exactly on the SML

6. In relation to this course, what does CAPM stand for? I need one word for each letter.

7. The security market line (SML) depicts:
a. A security's expected return as a function of its systematic risk.
b. The market portfolio as the optimal portfolio of risky securities.
c. The relationship between a security's return and the return on an index.
d. The complete portfolio as a combination of the market portfolio and the risk-free asset.

8. Which of the following statements are true if the efficient market hypothesis holds (only 1 is true)?
a. It implies perfect forecasting ability
b. It implies that prices reflect all available information
c. It implies that the market is irrational
d. It implies that prices do not fluctuate

9. A market anomaly refers to:
a. An exogenous shock to the market that is sharp but not persistent
b. A price or volume event that is inconsistent with historical price or volume trends
c. A trading or pricing structure that interferes with efficient buying and selling of securities
d. Price behavior that differs from the behavior predicted by the efficient market hypothesis

10. As of the close of the stock market on Wednesday June 13, 2007; which stock had a higher price: Walmart or Target? Use the price as of 4pm EST as the price may change during after hours trading.

11. The ticker symbol for Intel is:
a. IN
b. NTL
c. INTC
d. INTEL

12. Which of the following is not considered a leading economic indicator?
a. Stock prices, 500 common stocks
b. Money supply (M2)
c. Index of consumer expectations
d. 30 year mortgage rate

13. The current Federal Reserve chairman is:
a. Alan Greenspan
b. Ben Bernanke
c. George Bush
d. Pete Rose

14. The Dow Jones Industrial Average is comprised of how many stocks?
a. 15
b. 20
c. 30
d. 100

15. The EAFE index stands for:
a. The East and Far East Index
b. European and France East Index
c. European, Australian, Far East Index
d. None of the above

16. A call option gives its holder the right to purchase an asset for a specified price, called the __________ price, on or before some specified expiration date.
a. cheap
b. set
c. exercise
d. fair

17. All stocks trade only on the New York Stock Exchange. This statement is:
a. True
b. False

18. The formula for holding period return (HPR) is:
(Ending price - Beginning Price + BLANK)
Beginning Price

Fill in the BLANK:
a. stock price
b. cash dividend
c. stock dividend
d. none of the above

19. The geometric average of the quarterly returns is equal to the single per-period return that would give the same cumulative performance as the sequence of actual returns. This statement is:

a. True
b. False

20. A mutual fund can hold all of the following:

a. bonds
b. stocks
c. cash/money market
d. all of the above

Solution Preview

1.Preferred stock:
a. Is actually a form of equity
b. Pays dividends not fully taxable to U.S. corporations
c. Is normally considered a fixed-income security
d. All of the above

Answer: d. All of the above

2. Find the tax equivalent yield of a municipal bond paying 4% for someone in the 30% tax bracket (assume this investor resides in the same state as the municipal bond). Show your work.

Equivalent yield= Yield / (1-Tax rate)= 4% / (1-0.3)= 5.71%
Answer: 5.71%

4. What does NASDAQ stand for? I need a word for each letter.

National Association of Securities Dealers Automated Quotations

5. Which of the following statements about the security market line (SML) are true (only 1 is true)?
a. The SML provides a benchmark for evaluating expected investment performance
b. The SML leads all investors to invest in the same portfolio of risky assets
c. The SML is a graphic representation of the relationship between expected return and beta
d. Properly valued assets plot exactly on the SML

Answer: c. The SML is a graphic representation of the relationship between expected return and beta

6. In relation to this course, what does ...

Solution Summary

Answers investment multiple choice questions.

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