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Multiple choice questions in Investment

1. Investors seeking to avoid actively managing their portfolios will prefer which of the following assets?
a. Common stock.
b. Commercial bank deposits.
c. Financial futures.
d. Real estate.

2. Which of the following short term securities is inappropriate for an individual desiring funds for financial emergencies?
a. Treasury bills.
b. Certificates of deposit.
c. Financial futures.
d. Savings accounts.

3. Asset allocation affects the investor's return by:
a. Altering the returns on individual assets.
b. Weighting the portfolio return by the allocation.
c. Assuring diversification.
d. Increasing the investor's use of mutual funds.

4. 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.

5. Which of the following is a consideration when selecting a mutual fund?
Portfolio turnover.
12b-1 fees.
Unrealized losses in the fund's portfolio.
a. 1 and 2.
b. 1 and 3.
c. 2 and 3.
d. All of the above.

6. Unsystematic risk is:
a. The risk associated with movements in security prices.
b. Reduced through diversification.
c. Higher when interest rates rise.
d. The risk of loss of purchasing power.

7. The expected return on an investment in stock is:
a. The expected dividend payments.
b. The anticipated capital gains.
c. The sum of expected dividends and capital gains.
d. Less than the realized return.

8. Sources of unsystematic risk include:
The firm's financing decisions.
The firm's operations.
Fluctuating market prices.
a. 1 and 2.
b. 1 and 3.
c. 2 and 3.
d. All of the above.

9. Portfolio risk encompasses:
A firm's financing decisions.
Interest rate risk.
Loss of purchasing power.
a. 1 and 2.
b. 1 and 3.
c. 2 and 3.
d. All of the above.

10. If the dispersion around a security's return is larger:
a. The expected return is smaller.
b. The standard deviation is smaller.
c. The stock's price is higher.
d. The security's risk is higher.

Solution Preview

1 Investors seeking to avoid actively managing their portfolios will prefer which of the following assets?
Answer: b. Commercial bank deposits.
Commercial bank deposits earn a fixed interest and the principal is secure. Thus there is no need for actively managing portfolios.

2. Which of the following short term securities is inappropriate for an individual desiring funds for financial emergencies?
Answer: c. Financial futures.
Financial futures are very risky and not only the money invested but ...

Solution Summary

Answers Multiple choice questions in Investment dealing with active management, short term securities, asset allocation, mutual fund, Unsystematic risk, investment in stock, Portfolio risk , dispersion around a security's return etc.

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