Portfolio Management Quiz
Câu 1: ......... is an appropriate objective for investors who want their portfolio to
grow in real terms, i.e., exceed the rate of inflation.:
a. Portfolio growth
b. Capital preservation
c. Capital appreciation
d. Value additivity
Câu 2: An asset is liquid if it can be ...... converted to cash at a price close to ......
market value.
b. quickly, fair
d. slowly, fair
a. quickly, lower c. slowly, lower
Câu 3: A 20-year-old investor tends to:
a. Invest in treasure bill
b. Invest in treasure bond
c. Use high leverage
d. Invest in dericatives contracts
Câu 4: The most of customers using personal wealth management services belong to:
a. Individual stock investors
b. High-income class
c. Low-income class
d. Middle-income class
Câu 5: Undiversifiable risk is:
a. Systematic risk
b. Default risk
c. Unsystematic risk
d. Specific risk
Câu 6: Your personal opinion is that a stock has an expected rate of return of 0.11. It
has a beta of 1.5. The risk-free rate is 0.05 and the market expected rate of return is
0.09. According to the Capital Asset Pricing Model, this security is:
a. underpriced
b. overpriced
c. fairly priced
d. Cannot be determined from data provided
Câu 7: The risk-free rate is 5%. The expected market rate of return is 15%. If you
expect a stock with a beta of 1.2 to offer a rate of return of 20%, you should:
a. sell the stock because it is underpriced.
b. buy the stock because it is overpriced.
c. sell the stock because it is overpriced.
d. buy the stock because it is underpriced.
Câu 8: If you believe in the ......... form of the efficient market hypotheses, you believe
that stock prices reflect all relevant information, including historical stock prices and
current public information about the firm, but not information that is available only
to insiders.
a. very weak
b. semistrong
c. strong
d. weak
Câu 9: The evidence of random-walk in stock price is the evidence:
a. of all forms of the Efficient Market Hypothesis
b. of the strong-form efficiency of the Efficient Market Hypothesis
c. against the weak-form efficiency of the Efficient Market Hypothesis
d. against the semistrong-form efficiency of the Efficient Market Hypothesis
Câu 10: A substitution swap is an exchange of bonds undertaken to
a. profit from apparent mispricing between two bonds.
b. change the credit risk of a portfolio.
c. reduce the duration of a portfolio.
d. extend the duration of a portfolio. (loa ̣i)
Câu 11: Assume that company X has an ROE of 15% and the plow back ratio of
40%. What should be the constant growth rate of the company?
a. 6%
b. 16%
c. 9% (loa ̣i)
d. 15%
Câu12:The capital allocation line can be described as the
a. investment opportunity set formed with two risky assets.
b. line on which lie all portfolios that offer the same utility to a particular investor.
c. investment opportunity set formed with a risky asset and a risk-free asset.
d. line on which lie all portfolios with the same expected rate of return and different
standard deviations.
Câu 13: Which of the following statements is true about risk
a. Risks are deviations from expectations. The larger the price fluctuation range, the
greater the risk.
b. Risks are deviations from expectations
c. The larger the price fluctuation range, the greater the risk
d. The larger the price fluctuation range, the smaller the risk
Câu 14: At the beginning of 2019, investor A bought FPT shares at the price of 50,000
VND/share. At the beginning of 2022, investor A sells for 75,000 VND/share. What is
the compound annual rate of return?
a.15.19%
b.15.67%
c.14.47%
d.13.12%
Câu 15: At the beginning of 2019, investor A buys a 8% coupon bond at the price of
VND 80,000. The interest payments are paid at the end of each year. At the beginning
of 2022, investor A sells at the price of VND 110,000. The par value of the bond is
VND 100,000. What is the compound annual rate of return (YTM) if the interest
payments are reinvested at the rate of 8%?
a. 19,65%
b. 18.76%
c. 20,28%
d. 22,31%
Câu 16: Asset 1 has E(R1) = 0.12 and E(Standard Deviation) = 0.04. Asset 2 has
E(R2) = 0.16 and E(Standard Deviation) = 0.06. Calculate the expected return and
expected standard deviation of a twostock portfolio when r1,2 = -0.60 and w1 = 0.75
a. 0.13 and 0.0455 (loa ̣i)
b. 0.13 and 0.0024
c. 0.12 and 0.5585
d. 0.12 and 0.0585
Câu 17: Which of the following statements is false about the Fama-French 3 factor
model?
a. Fama-French 3 factor model adds 2 more factors, namely company size and book value
to market value into the CAPM model.
b. The Fama-French 3 factor model assumes that the return of an investment portfolio
depends on the market factor, firm size factor, and book-to-market factor.
c. The Fama-French 3 factor model still holds that a high rate of return is a reward for high
risk taking
d. Fama-French 3 factor model adds 2 more factors, namely liquidity ratio and book
value to market value into the CAPM model.
Câu 18: The weak form of the efficient-market hypothesis asserts that:
a. stock prices do not rapidly adjust to new information contained in past prices or past
data, and future changes in stock prices cannot be predicted from past prices
b. future changes in stock prices cannot be predicted from past prices, and
technicians cannot expect to outperform the market
c. stock prices do not rapidly adjust to new information contained in past prices or past
data
d. future changes in stock prices cannot be predicted from past prices
Câu 19: Suppose an investor has inside information about the sudden profit of a
business, he believes that he can make a profit by buying shares at the present time to
wait until the company announces the news to sell shares. As his expectation, when
announcing the news the stock price increase. This market is:
a. Strong form of efficient market
b. Weak form and Semi strong form of efficient market
c. Semi strong form of efficient market
d. Weak form of efficient market
Câu 20: If the economy is growing, firms with high operating leverage will
experience:
a. smaller increases in profits than firms with low operating leverage (loa ̣i)
b. no change in profits
c. higher increases in profits than firms with low operating leverage
d. similar increases in profits as firms with low operating leverage
Câu 21: 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:
a. 14%
b. 12%
c. 15%
d. 16%
Câu 22: ......... focus more on past price movements of a firm's stock than on the
underlying
determinants of future profitability.
a. Technical analysts
b. Systems analysts
c. Credit analysts
d. Fundamental analysts
Câu 23: According to the mean-variance criterion, which one of the following
investments dominates all others?
a. E(r) = 0.15, σ = 0.25
b. E(r) = 0.10, σ = 0.20
c. E(r) = 0.10, σ = 0.25
d. E(r) = 0.15, σ = 0.20
Câu 24: If stock X has beta = 1.50, the level of ...... risk of X is 50 percent ...... than the
average for the entire market
a. nonsystematic, greater
b. systematic, greater
c. systematic, lower
d. nonsystematic, lower
Câu 25: Which of the following statements is false about “Duration”? (k chắ c nha)
a. “Duration” is the average maturity time of the bond (loa ̣i)
b. If the cash flow is received annually is low, and the payback period from the cash flow
will be longer, leading to an increase in “Duration”.
c. “Modified Duration” is used to measure the risk of interest rates on bond prices (loa ̣i)
d. “Duration” is the second derivative of the formula which calculates the bond price
using the discount rate
Câu 25’: Which of the following statements about duration would be FALSE?
I. Duration is a revised maturity taking into consider lifetime of a debt security's stream of
payments.
II. Duration of a 3-year zero-coupon bond is less than 3 years.
III.Durationofaportfolioofsecuritiesisthegeometricaverageofthedurationsoftheindividualsec
urities.
IV. A30-year5%couponbondhasalongerdurationthana30-year5%mortgage.
A. II and III
B. II, III, and IV
C. I, II, and III
D. I and IV
Câu 26: Company B paid a dividend of 100 VND/stock last year, and it expects to
spend 40% of its income to pay dividend next years. Assume that the expected ROE is
10%, the required rate of return is 12%, what should be the fair value of the stock of
company B?
a. 12,500 VND
b. 17,670 VND
c. 13,000 VND
d. 16,670 VND
Câu 27: There are four following investments: A has E(r) = 10%, standard deviation
(σ) = 5%; B has E(r) = 21%, σ = 11%; C has E(r) = 18%, σ = 23%; D has E(r) = 24%,
σ = 16%. According to the meanvariance criterion, which of the statements below is
correct?
a. Investment D dominates all of the other investments. (loa ̣i)
b. Investment D dominates only investment B.
c. Investment B dominates investment A. (loa ̣i)
d. Investment B dominates investment C
Câu 28: Investor A buys 100 VNM shares at the price of 80,000 VND/share. After
that, VNM pays a dividend of 30% in cash and 20% in shares. At the end of the year,
investors sell all shares at the price of 100,000 VND/share. The rate of return is:
a. 50.32 % (loa ̣i)
b. 35.54 %
c. 40.21 %
d. 53.75 %
Câu 29: In a two-stock portfolio, if the correlation coefficient between two stocks
were to decrease over time, everything else remaining constant, the portfolio's risk
would:
a. increase.
b. remain constant.
c. fluctuate positively and negatively.
d. decrease.
Câu 30: Given investments A (Expected Return = 12.2%, Standard Deviation = 7%)
and B (Expected Return = 8.8%, Standard Deviation = 5%), which one would you
prefer and why?
a. Investment B because it has the lowest absolute risk.
b. Investment A because it has the lowest relative risk.
c. Investment B because it has the lowest coefficient of variation.
d. Investment A because it has the highest expected return.
Câu 31: With respect to the formation of portfolios, which of the following statements
is most accurate?
a. Portfolios affect risk more than returns
b. All of the options are wrong
c. Portfolios affect risk less than returns
d. Portfolios affect risk and returns equally
Câu 32: Consider two securities, A and B. Security A and B have a correlation
coefficient of 0.65. Security A has standard deviation of 12, and security B has
standard deviation of 25. Calculate the covariance between these two securities.
a. 261.54
b. 461.54
c. 195
d. 300
Câu 33: Assume that you decide to invest in a portfolio of equity index XXX and
equity index YYY. The expected return and standard deviation of the equity index
XXX are 8% and 16.21%, respectively. Those for the equity index YYY are 18% and
33.11%, respectively. Given the covariance of returns between the two equity indices
is 0.5%, what should be the weight of the equity index XXX to get 12% of the
expected return of the portfolio?
a. 30%
b. 50% (loa ̣i)
c. 60%
d. 40%
Câu 34: Which of the following is considered a passive management strategy?
a. sector rotation
b. sampling
c. use of factor models
d. quantitative screens
Câu35:Measuresofriskforaninvestmentinclude:
a. variance of returns and business risk. (loa ̣i)
b. coefficient of variation of returns and financial risk.
c. variance of returns and coefficient of variation of returns.
d. business risk and financial risk.
Câu 36: Ceteris paribus, the duration of a bond is positively correlated with the
bond's:
a. All of the options are correct. b. coupon rate.
c. time to maturity.
d. yield to maturity.
Câu 37: The intercept of the best fit line formed by plotting the excess returns of a
manager’s portfolio on the excess returns of the market is best described as Jensen’s
a. Sigma
b. Beta
c. Alpha
d. All of the above are wrong
Câu 38: Which of the following is NOT considered to be an investment objective?
a. capital appreciation
b. total nominal preservation
c. current income
d. capital preservation
Câu 39: A security market index represents the:
a. Risk of a security market
b. All of the options are correct
c. Security market, market segment, or asset class
d. Security market as a whole
Câu 40: Important reasons for constructing an IPS:
a. It helps the investor decide on realistic investment goals after learning about the
financial markets and the risks of investing
b. All of the above are correct
c. Protects the client against a portfolio manager's inappropriate investments or unethical
behavior
d. It creates a standard by which to judge the performance of the portfolio manager
Câu 41: The intercept of the best fit line formed by plotting the excess returns of a
manager's portfolio on the excess returns of the market is best described as Jensen's
a. Sigma
b. Alpha
c. Beta
d. All ofthe above are wrong
Câu 42: With respect to the efficient market hypothesis, if security prices reflect only
past prices then
the market is:
a. Strong-form efficient
b. Semistrong-form efficient
c. All of the above are wrong
d. Weak-form efficient
Câu 43: We have following bonds: A coupon rate = 15%, maturity = 20 year, YTM =
10%), B (coupon rate = 15%, maturity = 15 year, YTM = 10%), C (coupon rate =
0%, maturity = 20 year, YTM = 10%), D (coupon rate = 8%, maturity = 20 year,
YTM = 10%) and E (coupon rate = 15%, maturity = 15 year, YTM = 15%). Sort in
descending "Duration" order:
a. There is no correct answer
b. D > C > A > B > E
c. C > D > A > B> E
d. A > C > D > B> E
Câu 44: Which of the following portfolio performance measures does not require
comparisons with other values?
a. Sharpe ratio
b. Treynor
c. Alpha Jensen
d. All of the above are false
Câu 45: Which of the following is the best reason for an investor to be concerned with
the composition of a portfolio?
a. Hazard elimination
b. Risk elimination
c. Avoidance of financial crises
d. Risk reduction
Câu 46: As the number of securities in a portfolio increases, the amount of systematic
risk:
a decreases.
b. changes
c. remains constant.
d. increases.
Câu 47: Firm CTD has a beta = 0.75, which of the following statements is true?
a. If the market portfolio is down 1%, the stock is up 0.75%.
b. If the market portfolio is up 1%, the stock is up 0.75%.
c. If the market portfolio is up 1%, the stock is down 0.75%.(loa ̣i)
d. CTD stock has higher volatility than VNIndex (loa ̣i)
Câu 48: The line depicting the risk and return of portfolio combinations of a risk-free
asset and any risky asset is the:
A. security market line.
B. capital allocation line. (CAL)
C. security characteristic line.
Câu 49: The portfolio of a risk-free asset and a risky asset has a better risk-return
tradeoff than investing in only one asset type because the correlation between the
risk-free asset and the risky asset is equal to:
A. −1.0.
B. 0.0.
C. 1.0.
Câu 50: With respect to capital market theory, an investor's optimal portfolio is the
combination of a riskfree asset and a risky asset with the highest:
A. expected return.
B. indifference curve.
C. capital allocation line slope
Câu 51: Highly risk-averse investors will most likely invest the majority of their
wealth in:
A. risky assets.
B. risk-free assets.
Câu 52: The capital market line, CML, is the graph of risk and return of portfolio
combinations consisting of the risk-free asset and:
a. any risky portfolio
b. the market portfolio
c. the leveraged portfolio
Câu 53: Which of the following statements most accurately defines the market
portfolio in capital market theory? The market portfolio consists of all:
a. risky assets
b. tradable assets
c. investable assets
Câu 54: With respect to capital market theory, the optimal risky portfolio:
A. is the market portfolio.
B. has the highest expected return.
C. has the lowest expected variance.
Câu 55: Relative to portfolios on the CML, any portfolio that plots above the CML is
considered:
A. inferior.
B. inefficient.
C. unachievable
Câu 56: A portfolio on the capital market line with returns greater than the returns
on the market portfolio represents a(n):
A. lending portfolio.
B. borrowing portfolio.
C. unachievable portfolio.
Câu 57: With respect to the capital market line, a portfolio on the CML with returns
less than the returns on the market portfolio represents a(n):
A. lending portfolio.
B. borrowing portfolio.
C. unachievable portfolio
Câu 58: Which of the following types of risk is most likely avoided by forming a
diversified portfolio?
A. Total risk.
B. Systematic risk.
C. Nonsystematic risk.
Câu 59: Which of the following events is most likely an example of nonsystematic
risk?
A. A decline in interest rates.
B. The resignation of chief executive officer.
C. An increase in the value of the U.S. dollar.
Câu 60: With respect to the pricing of risk in capital market theory, which of the
following statements is most accurate?
A. All risk is priced.
B. Systematic risk is priced.
C. Nonsystematic risk is priced.
Câu 61: The sum of an asset's systematic variance and its nonsystematic variance of
returns is equal to the asset's:
A. beta.
B. total risk.
C. total variance.
Câu 62: With respect to return-generating models, the intercept term of the market
model is the asset's estimated:
A. beta.
B. alpha.
C. variance.
Câu 63: With respect to return-generating models, the slope term of the market
model is an estimate of the asset's:
A. total risk.
B. systematic risk.
C. nonsystematic risk.
Câu 64: With respect to return-generating models, which of the following statements
is most accurate? Return-generating models are used to directly estimate the:
A. expected return of a security.
B. weights of securities in a portfolio.
C. parameters of the capital market line.
18. An analyst gathers the following information:
Security Expected Annual Return (%)
Expected Standard Deviation (%) Correlation between Security and the Market
Security 1 11 25 0.6
Security 2 11 20 0.7
Security 3 14 20 0.8
Market 10 15 1.0
Which security has the highest total risk?
A. Security 1.
B. Security 2.
C. Security 3
19. An analyst gathers the following information:
Security Expected Annual Return (%)
Expected Standard Deviation (%) Correlation between Security and the Market
Security 1 11 25 0.6
Security 2 11 20 0.7
Security 3 14 20 0.8
Market 10 15 1.0
Which security has the highest beta measure?
A. Security 1.
B. Security 2.
C. Security 3.
20. An analyst gathers the following information:
Security Expected
Annual Return (%) Expected
Standard Deviation (%) Correlation between Security and the Market Security 1 11 25 0.6
Security 2 11 20 0.7 Security 3 14 20 0.8 Market 10 15 1.0
Which security has the least amount of market risk?
A. Security 1.
B. Security 2.
C. Security 3.
21. With respect to capital market theory, the average beta of all assets in the market
is:
A. less than 1.0.
B. equal to 1.0.
C. greater than 1.0.
22. The slope of the security characteristic line is an asset's:
A. beta.
B. excess return.
C. risk premium.
23. The graph of the capital asset pricing model is the:
A. capital market line.
B. security market line. (SML)
C. security characteristic line.
24. With respect to capital market theory, correctly priced individual assets can be
plotted on the:
A. capital market line.
B. security market line.
C. capital allocation line.
The security market line applies to any security, efficient or not. The CAL and the CML
use the total risk of the asset (or portfolio of assets) rather than its systematic risk, which is
the only risk that is priced.
25. With respect to the capital asset pricing model, the primary determinant of
expected return of an individual asset is the:
A. asset's beta.
B. market risk premium.
C. asset's standard deviation.
26. With respect to the capital asset pricing model, which of the following values of
beta for an asset is most likely to have an expected return for the asset that is less
than the risk- free rate?
A. −0.5
B. 0.0
C. 0.5
27. With respect to the capital asset pricing model, the market risk premium is:
A. less than the excess market return.
B. equal to the excess market return.
C. greater than the excess market return.
28. An analyst gathers the following information:
Security Expected
Standard Deviation (%) Beta
Security 1 25 1.50
Security 2 15 1.40
Security 3 20 1.60
With respect to the capital asset pricing model, if the expected market risk premium is 6%
and the risk-free rate is 3%, the expected return for Security 1 is closest to:
A. 9.0%. B. 12.0%. C. 13.5%.
29. An analyst gathers the following information:
Security Expected
Standard Deviation (%) Beta
Security 1 25 1.50
Security 2 15 1.40
Security 3 20 1.60
With respect to the capital asset pricing model, if expected return for Security 2 is equal to
11.4% and the riskfree rate is 3%, the expected return for the market is closest to:
A. 8.4%.
B. 9.0%.
C. 10.3%.
30. An analyst gathers the following information:
Security Expected
Standard Deviation (%) Beta
Security 1: 25 1.50
Security 2: 15 1.40
Security 3: 20 1.60
With respect to the capital asset pricing model, if the expected market risk premium is
6% the security with the highest expected return is:
A. Security 1.
B. Security 2.
C. Security 3.
31. An analyst gathers the following information:
Security Expected Standard Deviation (%) Beta
Security 1: 25 1.50 Security 2: 15 1.40 Security 3: 20 1.60
With respect to the capital asset pricing model, a decline in the expected market return
will have the greatest impact on the expected return of:
A. Security 1. B. Security 2. C. Security 3.
32. Which of the following performance measures is consistent with the CAPM?
A. M- squared.
B. Sharpe ratio.
C. Jensen's alpha.
33. Which of the following performance measures does not require the measure to be
compared to another value?
A. Sharpe ratio.
B. Treynor ratio.
C. Jensen's alpha.
34. Analysts who have estimated returns of an asset to be greater than the expected
returns generated by the capital asset pricing model should consider the asset to be:
A. overvalued.
B. undervalued.
C. properly valued.
35. The intercept of the best fit line formed by plotting the excess returns of a
manager's portfolio on the excess returns of the market is best described as Jensen's:
A. beta.
B. ratio.
C. alpha.
36. Portfolio managers who are maximizing risk-adjusted returns will seek to invest
more in securities with:
A. lower values of Jensen's alpha.
B. values of Jensen's alpha equal to 0.
C. higher values of Jensen's alpha.
37. Portfolio managers, who are maximizing risk-adjusted returns, will seek to invest
less in securities with:
A. lower values for nonsystematic variance.
B. values of nonsystematic variance equal to 0.
C. higher values for nonsystematic variance.
1. The duration of a bond is a function of the bond's
A. coupon rate.
B. yield to maturity.
C. time to maturity.
D. All of these are correct.
5. Holding other factors constant, the interest-rate risk of a coupon bond is higher
when the bond's:
A. term-to-maturity is higher.
B. coupon rate is higher.
C. yield to maturity is higher.
D. All of these are correct.
7. Holding other factors constant, the interest-rate risk of a coupon bond is lower
when the bond's: A. term-to-maturity is lower. B. coupon rate is higher.
C. yield to maturity is lower.
D. term-to-maturity is lower and coupon rate is higher.
10.The"modifiedduration"usedbypractitionersisequaltotheMacaulayduration A.
times the change in interest rate.
B. times (one plus the bond's yield to maturity).
C. divided by (one minus the bond's yield to maturity).
D. divided by (one plus the bond's yield to maturity).
12. Given the time to maturity, the duration of a zero-coupon bond is higher when the
discount rate is
A. higher. B. lower. C. equal to the risk free rate.
D. The bond's duration is independent of the discount rate.
13. The interest-rate risk of a bond is
1. the risk related to the possibility of bankruptcy of the bond's issuer.
2. the risk that arises from the uncertainty of the bond's return caused by
changes in interest rates.
3. the unsystematic risk caused by factors unique in the bond.
4. the risk related to the possibility of bankruptcy of the bond's issuer and the risk that
arises from the uncertainty of the bond's return caused by changes in interest rates.
16. Which of the following is not true?
1. Holding other things constant, the duration of a bond increases with time to
maturity.
2. Given time to maturity, the duration of a zero-coupon decreases with yield to
maturity.
3. Given time to maturity and yield to maturity, the duration of a bond is higher when
the coupon rate is lower.
4. Duration is a better measure of price sensitivity to interest rate changes than is time
to maturity.
17. Which of the following is true?
1. Holding other things constant, the duration of a bond decreases with time to
maturity.
2. Given time to maturity, the duration of a zero-coupon increases with yield to
maturity.
3. Given time to maturity and yield to maturity, the duration of a bond is higher when
the coupon rate is lower.
4. Duration is a better measure of price sensitivity to interest rate changes than is time
to maturity.
5. Given time to maturity and yield to maturity, the duration of a bond is higher
when the coupon rate is lower, and duration is a better measure of price
sensitivity to interest rate changes than is time to maturity.
18. The duration of a 5-year zero-coupon bond is A.
smaller than 5. B. larger than 5.
C. equal to 5. D. equal to that of a 5-year 10% coupon bond.
19. The basic purpose of immunization is to A. eliminate default risk.
B. produce a zero net interest-rate risk.
C. offset price and reinvestment risk.
D. eliminate default risk and produce a zero net interest-rate risk.
E. produce a zero net interest-rate risk and offset price and reinvestment risk.
24. Which of the following bonds has the longest duration? A. An 8-year maturity, 0%
coupon bond.
B. An 8-year maturity, 5% coupon bond.
C. A 10-year maturity, 5% coupon bond.
D. A 10-year maturity, 0% coupon bond.
25. Which one of the following par value 12% coupon bonds experiences a price
change of $23 when
the market yield changes by 50 basis points? A. The bond with a duration of 6 years. B.
The bond with a duration of 5 years.
C. The bond with a duration of 2.7 years.
D. The bond with a duration of 5.15 years.
26. Which one of the following statements is true concerning the duration of a
perpetuity?
1. The duration of 15% yield perpetuity that pays $100 annually is longer than that of
a 15% yield perpetuity that pays $200 annually.
2. The duration of a 15% yield perpetuity that pays $100 annually is shorter than that
of a 15% yield perpetuity that pays $200 annually.
3. The duration of a 15% yield perpetuity that pays $100 annually is equal to
that of 15% yield perpetuity that pays $200 annually.
4. The duration of a perpetuity cannot be calculated.
27. Which one of the following statements is false concerning the duration of a
perpetuity?
A. The duration of 15% yield perpetuity that pays $100 annually is longer than that of a
15% yield perpetuity that pays $200 annually.
B. The duration of a 15% yield perpetuity that pays $100 annually is shorter than that of a
15% yield perpetuity that pays $200 annually.
C. The duration of a 15% yield perpetuity that pays $100 annually is equal to that of 15%
yield perpetuity that pays $200 annually.
D. The duration of 15% yield perpetuity that pays $100 annually is longer than that
of a 15% yield perpetuity that pays $200 annually, and the duration of a 15% yield
perpetuity that pays $100 annually is shorter than that of a 15% yield perpetuity that
pays $200 annually.
28. The two components of interest-rate risk are
A. price risk and default risk. B. reinvestment risk and systematic risk. C. call risk and
price risk. D. price risk and reinvestment risk.
29. The duration of a coupon bond
1. does not change after the bond is issued.
2. can accurately predict the price change of the bond for any interest rate change.
3. will decrease as the yield to maturity decreases.
4. All of these are correct. E. None of these is correct
30. Indexing of bond portfolios is difficult because
1. the number of bonds included in the major indexes is so large that it would be
difficult to purchase them in the proper proportions.
2. many bonds are thinly traded so it is difficult to purchase them at a fair market
price.
3. the composition of bond indexes is constantly changing.
D. All of these are correct. E. None of these is correct.
32. Duration measures
1. weighted average time until a bond's half-life.
2. weighted average time until cash flow payment.
3. the time required to make excessive profit from the investment.
4. weighted average time until a bond's half-life and the time required to make
excessive profit from the investment.
5. weighted average time until cash flow payment and the time required to make
excessive profit from the investment.
33. Duration
1. assesses the time element of bonds in terms of both coupon and term to maturity.
2. allows structuring a portfolio to avoid interest-rate risk.
3. is a direct comparison between bond issues with different levels of risk.
4. assesses the time element of bonds in terms of both coupon and term to
maturity and allows structuring a portfolio to avoid interest-rate risk.
5. assesses the time element of bonds in terms of both coupon and term to maturity
and is a direct comparison between bond issues with different levels of risk.
34. Identify the bond that has the longest duration (no calculations necessary).
A. 20-year maturity with an 8% coupon. B. 20-year maturity with a 12% coupon. C. 20year maturity with a 0% coupon. D. 10-year maturity with a 15% coupon. E. 12-year
maturity with a 12% coupon.
35. When interest rates decline, the duration of a 10-year bond selling at a premium
A. increases. B. decreases. C. remains the same.
D. increases at first, then declines. E. decreases at first, then increases.
38. One way that banks can reduce the duration of their asset portfolios is through
the use of A. fixed rate mortgages. B. adjustable rate mortgages.
C. certificates of deposit. D. short-term borrowing.
39. The duration of a bond normally increases with an increase in
A. term to maturity. B. yield to maturity.
C. coupon rate. D. All of these are correct.
40. Which one of the following is an incorrect statement concerning duration? A.
The higher the yield to maturity, the greater the duration.
2. The higher the coupon, the shorter the duration.
3. The difference in duration is small between two bonds with different coupons each
maturing in more than 15 years.
4. The duration is the same as term to maturity only in the case of zero-coupon bonds.
41. Which one of the following is a correct statement concerning duration?
1. The higher the yield to maturity, the greater the duration
2. The higher the coupon, the shorter the duration.
3. The difference in duration can be large between two bonds with different coupons
each maturing in more than 15 years.
4. The duration is the same as term to maturity only in the case of zero-coupon bonds.
5. The higher the coupon, the shorter the duration; the difference in duration
can be large between two bonds with different coupons each maturing in more
than 15 years; and the duration is the same as term to maturity only in the
case of zero-coupon bonds
42. Immunization is not a strictly passive strategy because
1. it requires choosing an asset portfolio that matches an index.
2. there is likely to be a gap between the values of assets and liabilities in most
portfolios.
C. it requires frequent rebalancing as maturities and interest rates change. D.
durations of assets and liabilities fall at the same rate.
43. Some of the problems with immunization are A.
duration assumes that the yield curve is flat.
B. duration assumes that if shifts in the yield curve occur, these shifts are parallel.
C. immunization is valid for one interest rate change only.
D. durations and horizon dates change by the same amounts with the passage of time.
E. duration assumes that the yield curve is flat, duration assumes that if shifts in the
yield curve occur, these shifts are parallel, and immunization is valid for one interest
rate change only.
44. If a bond portfolio manager believes
1. in market efficiency, he or she is likely to be a passive portfolio manager.
2. that he or she can accurately predict interest rate changes, he or she is likely to be
an active portfolio
manager.
3. that he or she can identify bond market anomalies, he or she is likely to be a passive
portfolio manager.
4. in market efficiency, he or she is likely to be a passive portfolio manager; and
that he or she can accurately predict interest rate changes, he or she is likely to
be an active portfolio manager.
5. in market efficiency, he or she is likely to be a passive portfolio manager; that he or
she can accurately predict interest rate changes, he or she is likely to be an active
portfolio manager; and that he or she can identify bond market anomalies, he or she
is likely to be a passive portfolio manager.
45. Cash flow matching on a multiperiod basis is referred to as A. immunization. B.
contingent immunization.
C. dedication. D. duration matching. E. rebalancing.
46. Immunization through duration matching of assets and liabilities may be
ineffective or inappropriate because
1. conventional duration strategies assume a flat yield curve.
2. duration matching can only immunize portfolios from parallel shifts in the yield
curve.
3. immunization only protects the nominal value of terminal liabilities and does not
allow for inflation adjustment.
4. conventional duration strategies assume a flat yield curve; and immunization only
protects the nominal value of terminal liabilities and does not allow for inflation
adjustment. E. All of these are correct.
47. The curvature of the price-yield curve for a given bond is referred to as the bond's
A. modified duration. B. immunization. C. sensitivity.
D. convexity. E. tangency.
50. A rate anticipation swap is an exchange of bonds undertaken to
A. shift portfolio duration in response to an anticipated change in interest rates.
B. shift between corporate and government bonds when the yield spread is out of line with
historical values.
A. a rate anticipation swap.
C. horizon analysis.
B. immunization.
D. an intermarket spread swap.
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C. profit from apparent mispricing between two bonds. D. change the credit risk of the
portfolio.
E. increase return by shifting into higher yield bonds.
51. An analyst who selects a particular holding period and predicts the yield curve at
the end of that holding period is engaging in
52. Interest-rate risk is important to A.
active bond portfolio managers.
B. passive bond portfolio managers.
C. both active and passive bond portfolio managers. D. neither active nor passive bond
portfolio managers. E. obsessive bond portfolio managers.
53. 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.
A. I and II B. I and III C. I, II, and IV D. II, III, and IV
54. Which of the following are false 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.
A. I B. III C. I, II, and IV D. II, III, and IV E. I, II, III, and IV
56. According to the duration concept
A. only coupon payments matter.
2. only maturity value matters.
3. the coupon payments made prior to maturity make the effective maturity of the
bond greater than its
actual time to maturity.
4. the coupon payments made prior to maturity make the effective maturity of
the bond less than its actual time to maturity. E. coupon rates don't matter.
57. Duration is important in bond portfolio management because I) it can be used in
immunization strategies.
II) it provides a gauge of the effective average maturity of the portfolio. III)
itisrelatedtotheinterestratesensitivityoftheportfolio.
IV) it is a good predictor of interest rate changes.
A. I and II B. I and III C. III and IV D. I, II, and III
58. Two bonds are selling at par value and each has 17 years to maturity. The first
bond has a coupon rate of 6% and the second bond has a coupon rate of 13%. Which
of the following is true about the durations of these bonds?
A. The duration of the higher-coupon bond will be higher.
B. The duration of the lower-coupon bond will be higher.
C. The duration of the higher-coupon bond will equal the duration of the lower-coupon
bond. D. There is no consistent statement that can be made about the durations of the
bonds.
E. The bond's durations cannot be determined without knowing the prices of the bonds.
59. Two bonds are selling at par value and each has 17 years to maturity. The first
bond has a coupon rate of 6% and the second bond has a coupon rate of 13%. Which
of the following is most false about the durations of these bonds?
1. The duration of the higher-coupon bond will be higher.
2. The duration of the lower-coupon bond will be higher.
3. The duration of the higher-coupon bond will equal the duration of the lowercoupon bond.
4. There is no consistent statement that can be made about the durations of the bonds.
5. The duration of the higher-coupon bond will be higher and will equal the
duration of the lowercoupon bond; and there is no consistent statement that
can be made about the durations of the bonds
60. Which of the following offers a bond index?
A. Merrill Lynch B. Salomon
C. Barclays Capital D. All of these are correct.
62. Which of the following two bonds is more price sensitive to changes in interest
rates?
1) A par value bond, D, with a 2-year-to-maturity and a 8% coupon rate.
2) A zero-coupon bond, E, with a 2-year-to-maturity and a 8% yield-to-maturity. A. Bond
D
because of the higher yield to maturity.
B. Bond E because of the longer duration.
C. Bond D because of the longer time to maturity.
D. Both have the same sensitivity because both have the same yield to maturity.
63. Holding other factors constant, which one of the following bonds has the smallest
price volatility?
A. 7-year, 0% coupon bond B. 7-year, 12% coupon bond C. 7 year, 14% coupon bond D.
7-year, 10% coupon bond
64. Holding other factors constant, which one of the following bonds has the smallest
price volatility?
A. 20-year, 0% coupon bond B. 20-year, 6% coupon bond C. 20 year, 7% coupon bond D.
20-year, 9% coupon bond
64. Holding other factors constant, which one of the following bonds has the smallest
price volatility?
A. 5 year, 0% coupon bond B. 5 year, 12% coupon bond
C. 5 year, 14% coupon bond D. Cannot tell from the informaton given
69. Par value bond F has a modified duration of 9. Which one of the following
statements regarding the bond is true?
A. If the market yield increases by 1% the bond's price will decrease by $90. B. If the
market yield increases by 1% the bond's price will increase by $90.
C. If the market yield increases by 1% the bond's price will decrease by $60.
D. If the market yield decreases by 1% the bond's price will increase by $60.
70. Par value bond F has a modified duration of 6. Which one of the following
statements regarding the bond is true?
A. If the market yield increases by 1% the bond's price will decrease by $90.
B. If the market yield increases by 1% the bond's price will increase by $90.
C. If the market yield increases by 1% the bond's price will decrease by $60. D. If the
market yield decreases by 1% the bond's price will increase by $60.
1. A top down analysis of a firm starts with ___________.
A. the relative value of the firm B. the absolute value of the firm C. the domestic economy
D. the global economy
E. the industry outlook
2. An example of a highly cyclical industry is _______.
A. the automobile industry B. the tobacco industry
C. the food industry D. the automobile industry and the tobacco industry E. the tobacco
industry and the food industry
3. Demand-side economics is concerned with ______.
A. government spending and tax levels B. monetary policy
C. fiscal policy D. government spending and tax levels and monetary policy E.
government spending and tax levels, monetary policy, and fiscal policy
4. The most widely used monetary tool is __________.
A. altering the discount rate
C. open market operations
7. Monetary policy is determined by
A. government budget decisions.
C. the board of Governors of the Federal Reserve System. D. congressional actions.
8. A trough is _______.
A. a transition from an expansion in the business cycle to the start of a contraction
B. a transition from a contraction in the business cycle to the start of an expansion C.
a depression that lasts more than three years
B. altering the reserve requirements D. altering marginal tax rates
B. presidential mandates.
D. only something used by farmers to feed pigs and not an investment term
9. A peak is _______.
A. a transition from an expansion in the business cycle to the start of a contraction B.
a transition from a contraction in the business cycle to the start of an expansion
C. a depression that lasts more than three years
D. only a feature of geography and not an investment term
10. If the economy is growing, firms with high operating leverage will experience
_________. A. higher increases in profits than firms with low operating leverage
B. similar increases in profits as firms with low operating leverage
C. smaller increases in profits than firms with low operating leverage D. no change in
profits
11. If the economy is shrinking, firms with high operating leverage will experience
_________. A. higher decreases in profits than firms with low operating leverage
B. similar decreases in profits as firms with low operating leverage
C. smaller decreases in profits than firms with low operating leverage D. no change in
profits
12. If the economy is growing, firms with low operating leverage will experience
_________.
A. higher increases in profits than firms with high operating leverage
B. similar increases in profits as firms with high operating leverage
C. smaller increases in profits than firms with high operating leverage D. no change in
profits
13. If the economy is shrinking, firms with low operating leverage will experience
_________.
A. higher decreases in profits than firms with high operating leverage
B. similar decreases in profits as firms with high operating leverage
C. smaller decreases in profits than firms with high operating leverage D. no change in
profits
19. A firm in an industry that is very sensitive to the business cycle will likely have a
stock beta __________.
A. greater than 1.0 B. equal to 1.0
C. less than 1.0 but greater than 0.0 D. equal to or less than 0.0
E. There is no relationship between beta and sensitivity to the business cycle.
1. Which of the following statements about duration is false?
1. Duration is a present value-weighted average of the number of years investors wait
to receive the cash flows
2. Duration can be used as a measure of riskiness of a bond portfolio
3. Duration can be used to measure the slope of a line tangent to the convex price-yield relation
4. Duration is normally inversely related to the level of coupon payment
e. Duration is normally directly related to yield to maturity
2. Market interest rates and bond prices
a. Move in the same direction
b. Move in opposite directions
c. Sometimes move in the same direction, sometimes in opposite direction d. Have no
relationship with each othe
3. The duration of a bond normally decreases with a decrease in:
a. Yield to maturity b. Inflation
c. Coupon rate d. Time to maturity
4. Yield to Maturity of a bond is
a. The discount rate at which the present value of the bond future cash flows is equal to its
par value
b. The discount rate at which the present value of the bond future cash flows is equal to its
price at issuance
c. The discount rate at which the present value of the bond future cash flows is equal
to its current price
5. Of the alternatives available, the bond that has the longest duration is the bond
with a: a. 30-year maturity and a 11% coupon b. 30-year maturity and a 6% coupon c.
20-year maturity and a 13% coupon d. 28-year maturity and a 7% coupon
6. Which of the following best describes Bond duration?
a. Duration is a measure of the sensitivity of bond price to changes in the interest rate in
the market
a. 15-year maturity, 5% coupon c. 25-year maturity, 4% coupon
10. For all bonds paying coupons, duration is a. Less than maturity
c. About equal to maturity
b. 15-year maturity, 6% coupon
d. 30-year maturity, 0% coupon
b. Greater than maturity d. Not related to maturity
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b. Duration is a measure of the sensitivity of bond price to changes in the interest rate
at which the bond is discounted
c. Duration is a measure of the sensitivity of bond price to changes in the maturity of the
bond d. none of the above
7. With regard to duration, choose the INCORRECT statement. a. Duration expands
with time to maturity but at a decreasing rate b. Yield to maturity is directly related to
duration
c. Coupon is inversely related to duration
d. Duration is a measure of bond price sensitivity to interest rate movements.
8. Which of the bonds described below will have the greatest percentage price change
if market
interest rates increase from 10% to 11%?
a. Bond A: a $1000 face value, 8% Coupon Bond, maturing in 10 years
b. Bond B: a $1000 face value, 8% Coupon Bond, maturing in 20 years
c. Bond C: a $1000 face value, 6% Coupon Bond, maturing in 20 years d. The bonds
will all change in price by the same percentage
9. Of the alternatives available, the bond that has the shortest duration is the bond
with a:
11. Own a bond that is currently selling for $985.00 and has Macaulay duration of
3.5. Current market interest rates are 9%. If market interest rates decrease to 8%,
what would you expect to happen to the price of the bond?
a. $953.66 b. $970.00 c. $1016.63 d. $1019.48
12. What is the Modified duration for a 10-year, 8% bond paying semiannually with
YTM=10% and Macaulay duration=8.9?
a. 8.64 b. 8.48 c. 8.41 d. 8.33
13. In order to have a yield to maturity greater than the coupon rate, the bond must
be: a. selling at a discount. b. selling at par.
c. selling at a premium. d. a zero coupon bond.
14. If everything is the same, except the fact that Bond A has longer maturity than
Bond B. What do you expect about the price of Bond A in comparison with Bond B?
a. Price of Bond A will be lower b. Price of Bond B will be lower
c. Price of Bond A will equal Bond B d. None is correct
15. Find the price of a 10 percent coupon bond with three years to maturity if the
yield to maturity is now 12 percent. Use semiannual discounting.
a. $1196.7 b. $950.83 c. $952.20 d. $999.80
16. All other factors equal, the -------------- of a bond, the higher the duration.
a. shorter the term to maturity b. higher the coupon rate c. higher the interest rate risk d.
lower the rating
17. You can immune a future obligation by matching ______ with a bond portfolio a.
Duration b. Convexity
c. Future cash flow d. None is correct
18. The weights of two bonds in a portfolio are 36% and 64%, the first bond has
duration = 6, the bond portfolio duration = 5, what is the duration of the second
bond?
a. 3.55 b. 3.88 c. 4.44 d. 4.66
19. What is the Duration of a Portfolio of 3 bonds with durations of 7, 8, 9 and
weights of 0.5, 0.3, 0.2
respectively?
a. 7.1 b. 7.3 c. 7.7 d. 8.2
20. The immunization strategy require that the Bond portfolio and the Obligation
must match
a. Time to maturity b. Convexity
c. Duration d. All are correct
21. Convexity is important in bond analysis because
a. the price-yield relationship is imprecise.
b. the relationship between bond maturity and interest rate changes is convex.
c. the relationship between bond price changes and duration is an approximation. d.
bonds have a convex relationship with duration.
22. The weights of two bonds in a portfolio are 45% and 55%, the first bond has
duration = 5, the bond portfolio duration = 7, what is the duration of the second
bond?
a. 8.44 b. 8.54 c. 8.64 d. 8.74
23. What are the weights of the two bonds with durations equal D1=6.9 and D2=9.3 in
order to create
a portfolio with duration equals 8?
a. W1 = 27%, W2 = 73% b. W1 = 38%, W2= 62% c. W1=46%, W2 = 54%. d. None is
correct
24. You can immune a future obligation by matching ______ with a bond portfolio a.
Macaulay Duration b. Convexity
c. Modified Duration d. Effective Duration
25. What are the weights of the two bonds with durations equal 5.5 and 13.2 in order
to create a portfolio with duration equals 10?
a. W1 = 27%, W2 = 73% b. W1 = 38%, W2= 62%
c. W1=42%, W2 = 58%
26. What is the Duration of a Portfolio of 3 bonds with durations of 3, 4, 6 and
weights of 0.3, 0.4, 0.3 respectively?
a. 4.1 b. 4.3 c. 4.7 d. 5.1
27. In order to create a better mouse trap to meet a future obligation, we need to
match
the____________ of the bond portfolio and the obligation
a. Duration and time to maturity b. Duration and interest rate risk c. Duration and
convexity d. Duration and coupon rate
28. Which of the following statements about an embedded call feature in a bond is least
accurate? The call feature:
 increases the bond's duration, increasing price risk.
29. A bond's duration is 4.5 and its convexity is 87.2. If interest rates rise 100 basis points,
the bond's
percentage price change is closest to:
 -3.63%
30. Which of the following statements concerning the price volatility of bonds is most
accurate?
 Bonds with higher coupons have lower interest rate risk. 31. When compared to
modified duration, effective duration:
 factors in how embedded options will change expected cash flows
32. Which of the following bonds is most likely to exhibit the greatest volatility due to
interest rate changes?
A bond with a:
 Low coupon and a long maturity.
33. An analyst accurately calculates that the price of an option-free bond with a 9 percent
coupon would experience a 12 percent change if market yields increase 100 basis points. If
market yields decrease 100 basis points, the bond's price would most likely:
 increase by more than 12%
34. An investor gathered the following information on two U.S. corporate bonds: Bond J is
callable with maturity of 5 years
Bond J has a par value of $10,000
Bond M is option-free with a maturity of 5 years
Bond M has a par value of $1,000
For each bond, which duration calculation should be applied?  Bond J- Effective
duration; Bond M- Modified duration
35. Which of the following statements best describes the concept of negative convexity in
bond prices? As interest rates:
 fall, the bond's price increases at a decreasing rate 36. Negative convexity is most
likely to be observed in:
 Callable bonds
37. Which of the following five-year bonds has the highest interest rate sensitivity?
 Zero-coupon bond
38. The price value of a basis point (PVBP) for an 18 year, 8% annual pay bond with a par
value of $1,000
and yield of 9% is closest to
 $0.82
39. Calculate the modified duration for a 7-year bond with the following characteristics:
Current price of $660
A price of $639 when the yield curve shifts up 50 basis points
A price of $684 when the yield curve shifts down by 50 basis points
 6.8
1. The duration of a bond is a function of the bond's 
D. All of these are correct.
11. The "modified duration" used by practitioners is equal to ______ divided by (one plus
the bond's yield to maturity).
 B. the Macaulay duration
12. Given the time to maturity, the duration of a zero-coupon bond is higher when the
discount rate is 
D. The bond's duration is independent of the discount rate.
21. The duration of a perpetuity with a yield of 8% is  A. 13.50 years.
31. You have an obligation to pay $1,488 in four years and 2 months. In which bond would
you invest your $1,000 to accumulate this amount, with relative certainty, even if the yield
on the bond declines to 9.5% immediately after you purchase the bond?  B. a 5-year;
10% coupon par value bond
36. An 8%, 30-year corporate bond was recently being priced to yield 10%. The Macaulay
duration for the bond is 10.20 years. Given this information, the bond's modified duration
would be ________.
 C. 9.27
37. An 8%, 15-year bond has a yield to maturity of 10% and duration of 8.05 years. If the
market yield
changes by 25 basis points, how much change will there be in the bond's price?
 1.85%
65. The duration of a 15-year zero-coupon bond is 
C. equal to 15.
67. The duration of a perpetuity with a yield of 10% is
 B. 11 years.
68. The duration of a perpetuity with a yield of 6% is
 C. 17.67 years
70. Par value bond GE has a modified duration of 11. Which one of the following
statements regarding the
bond is true?
 C. If the market yield increases by 1% the bond's price will decrease by $110.
71. Which of the following bonds has the longest duration?
 D. A 20-year maturity, 0% coupon bond. OR  A 12-year maturity, 0% coupon
bond
73. A 10%, 30-year corporate bond was recently being priced to yield 12%. The
Macaulay duration for the bond is 11.3 years. Given this information, the bond's modified
duration would be
 10.09
74. A 6%, 30-year corporate bond was recently being priced to yield 8%. The Macaulay
duration for the
bond is 8.4 years. Given this information, the bond's modified duration would be  7.78
75. A 9%, 16-year bond has a yield to maturity of 11% and duration of 9.25 years. If the
market yield changes by 32 basis points, how much change will there be in the bond's
price?  C. 2.67%
76. A 7%, 14-year bond has a yield to maturity of 6% and duration of 7 years. If the market
yield changes by 44 basis points, how much change will there be in the bond's price?
 B. 2.91%
77. Consider a bond selling at par with modified duration of 12 years and convexity of 265.
A 1 percent decrease in yield would cause the price to increase by 12%, according to the
duration rule. What would be the percentage price change according to the duration-withconvexity rule?
 D. 13.3%
78. Consider a bond selling at par with modified duration of 22-years and convexity of
415. A 2 percent decrease in yield would cause the price to increase by 44%, according to
the duration rule. What would be the percentage price change according to the durationwith-convexity rule?
 D. 52.3%
80. The duration of a par value bond with a coupon rate of 7% and a remaining time to
maturity of 3 years is  C. 2.81 years.
81. The duration of a par value bond with a coupon rate of 8.7% and a remaining time to
maturity of 6 years is
 E. None of these is correct.
1. The ......... phase is the stage when investors in their early-to-middle earning years
attempt to accumulate assets to satisfy fairly immediate needs (for example, a down
payment for a house) or longer-term goals (children’s college education, retirement)
a. accumulation b. gifting c. consolidation d. spending
3. Passive (indexed) portfolio management:
1. Seeks to replicate the broader market
2. Keeps costs and fees to a minimum
3. Has a lower level of risk than that of the active benchmark
4. All of the options are true
4. Which of the following statement about the ascending level of risk of return
objectives are true?
1. Current income > Capital preservation > Capital appreciation
2. Capital appreciation > Capital preservation > Current income
3. Capital appreciation > Current income > Capital preservation
4. Capital preservation > Current income > Capital appreciation
5. Investors should use a portfolio approach to:
a. Remove risk b. Eliminate risk c. Increase risk d. Reduce risk
6. Comparing to the measure of risk for an individual asset, investors should
understand two more basic concepts in statistics to compute the standard deviation of
returns for a portfolio of assets – the measure of risk for a portfolio. The two concepts
are ......... and .........
a. Correlation and beta b. Covariance and coefficient of variation
c. Covariance and correlation coefficient d. Coefficient of variation and Standard
deviation
7. Assume a 25-year-old investor holds a steady job, is a valued employee, has
adequate insurance coverage, and has enough money in the bank to provide a cash
reserve. His current long-term, highpriority investment goal is to build a retirement
fund. The most appropriate strategies for his goal are: a. Total return and/or capital
appreciation
2. Capital preservation and/or current income
3. Total return and/or current income
4. Capital preservation and/or total return
8. Diversifiable risk is also referred to as
a. systematic risk or market risk. b.
c. systematic risk or unique risk. d.
unique
risk.
unique risk or market risk.
9. Given a portfolio of stocks, the envelope curve containing the set of best possible
combinations is known as the Select one:
a. efficient portfolio. b. utility curve.
10. A reward-to-volatility ratio is useful in
c. efficient frontier. d. last frontier.
a. measuring the standard deviation of returns.
c. assessing the effects of inflation.
e. understanding how returns increase relative to risk increases.
risk or
firm-specific
b. None of the options are correct
d. analyzing returns on variable-rate bonds.
a. 0.087; 0.068
15. Beta is a measure of:
a. diversifiable risk.
c. systematic risk.
b. 0.095; 0.113 c. 0.087; 0.124 d. 0.114; 0.126
b. industry risk.
d. company specific risk.
11. If markets are efficient, the difference between the intrinsic value and market
value of a company’s security is:
a. Positive and very large b. Positive
c. Negative d. Equal to zero
12. You purchased a share of stock for $68. One year later you received $3.00 as a
dividend and sold the share for $74.50. What was your holding-period return?
a. 11.8% b. 14.0% c. 12.5% d. 13.6%
13. Assume that you decide to invest in a portfolio of 80% equity index XXX and 20%
equity index YYY. The expected return and standard deviation of the equity index
XXX are 8% and 16.21%, respectively. Those for the equity index YYY are 18% and
33.11%, respectively. What is the expected return of the above portfolio, given the
covariance of returns between the two equity indices is 0.5%?
a. 13% (loa ̣i) b. 5% c. 10% d. 16%
14. An investor invests 40% of his wealth in a risky asset with an expected rate of
return of 0.17 and a variance of 0.08 and 60% in a T-bill that pays 4.5%. His
portfolio's expected return and standard deviation are and , respectively.
16. MSN stock has beta = 1.35, which of the following statements is true?
1. If the market portfolio is up 1%, the stock is up 1.35%
2. If the market portfolio is up 1%, the stock is down 1.35%
3. The price volatility of MSN is lower than VN Index
4. A and B
18. According to the single index model, inflation risk is: a. Systematic risk b. Total
risk
c. Unsystematic risk d. Diversifiable
risk
19. The risk-free rate is 6%. The expected market rate of return is 15%. If you expect
a stock with a beta of 0.8 to offer a rate of return of 11.40%, you should:
a. sell the stock because it is overpriced. b. buy the stock because it is underpriced. c.
buy the stock because it is overpriced. d. sell the stock because it is underpriced.
20. Calculate the expected return for B Services which has a beta of 0.83 when the
risk-free rate is 0.05 and you expect the market return to be 0.12.
a. 10.81 percent b. 17.00 percent c. 16.15 percent d. 14.96 percent 21. Tests of the semistrong efficient market hypotheses (EMH) include:
1. Regression analysis
2. Testing stock price adjustment speed for company announcements
3. Testing the queuing line theory
4. Correlation test comparing stock returns with market returns
22. Proponents of the efficient market hypotheses (EMH) typically advocate: a. an
active trading strategy
2. investing in an index fund and a passive investment strategy
3. a passive investment strategy
4. investing in an index fund
23. In an efficient financial market, when negative news occurs, which of the
following is considered
an investor overreacting to new information?
1. The price dropped sharply on the day the news appeared, then fell on the following
days (loa ̣i)
2. The price dropped sharply on the day the news appeared, then increased the
following days
3. The price increased sharply on the day the news appeared, then fell on the
following days (loa ̣i)
4. The price increased sharply on the day the news appeared, then increased the
following days
24. Consider the following statements: (I) Can not make profit in a strong-form
efficient market, (II) Market price is equal to fair price in a strong-form efficient
market. Which choice is correct?
a. Only I is correct b. Both I and II are wrong
c. Only II is correct d. Both I and II are correct
25. Studies of stock price reactions to specific significant economic events are called:
a. reaction studies and drift studies b. event studies
c. reaction studies d. drift studies
26. Which bond has the longest duration?
1. Bond of 30 years maturity, coupon rate 11%
2. Bond of 30 years maturity, coupon rate 6%
3. Bond of 28 years maturity, coupon rate 0%
4. Bond of 20 years maturity, coupon rate 13%
27. Ceteris paribus, the duration of a bond is negatively correlated with the bond's: a.
yield to maturity (loa ̣i) b. coupon rate and yield to maturity
c. time to maturity d. coupon rate
28. We have following bonds: A (coupon rate = 15%, maturity = 20 year, YTM =
10%), B (coupon rate = 15%, maturity = 15 year, YTM = 10%), C (coupon rate =
0%, maturity = 20year, YTM = 10%), D (coupon rate = 8%, maturity = 20 year,
YTM = 10%) and E (coupon rate = 15%, maturity = 15 year,
YTM = 15%). Sort in descending “Duration” order:
1. D > C > A > B > E (> means greater)
2. A > C > D > B > E (> means greater)
3. There is no correct answer
4. C > D > A > B > E (> means greater)
29. Which of the following is most accurate about a bond with positive convexity?
1. Price increases when interest rates drop are greater than price decreases when
interest rates rise by the same amount.
2. The direction of change in interest rates is directly related to the change in
bond’s price. (loa ̣i)
3. The speed of increasing and decreasing in bond price is faster than that in
YTM.
4. Bond’s price declines when interest rates increase is more than its price
appreciation when interest rates decrease
30. The duration of a zero-coupon bond is:
1. Longer than the maturity of the bond.
2. Equal to the ratio between the maturity and yield to maturity of the bond.
3. Equal to the maturity of the bond
4. Equal to half of the maturity of the bond
31. Company X has announced the next dividend for its stock is 500 VND/stock. The
required rate of return is 12%, the growth rate of dividend is 8%/year. Assume that
company X follows a constant growth path forever. What is the fair price of the stock
of company X?
a. 14,250 VND b. 12,500 VND c. 11,000 VND d. 16,670 VND
32. Which of the following investment funds simulates an index?
a. Growth investment fund b. Venture capital fund c. ETF d. Value investment fund
33. When an exchange-traded fund that simulates the VN 30 index sees VNM's share
price continuously decreasing and HPG's price continuously increasing, what should
this investment fund do in its next portfolio restructuring period?
1. Increase the proportion of VNM and HPG
2. Increase the proportion of VNM and decrease HPG
3. Increase the proportion of HPG and decrease VNM
4. Decrease the proportion of VNM and HPG
34. Which of the following is NOT a technique for constructing a passive index
portfolio? Select one:
a. full replication b. quadratic programming c. sampling d. linear programming
35. WACC is the most appropriate discount rate to use when applying a .........
valuation model? a. P/E b. FCFE c. P/B d. FCFF
36. Suppose two portfolios have the same average return and the same standard
deviation of returns, but portfolio A has a higher beta than portfolio B. According to
the Treynor measure, the performance of portfolio A:
1. cannot be measured as there are no data on the alpha of the portfolio
2. is poorer than the performance of portfolio B
3. is the same as the performance of portfolio B
4. is better than the performance of portfolio B
37. Which of the following portfolio performance measures is compatible with the
CAPM? a. Alpha Jensen b. Sharpe ratio
c. M-squared d. All of the options are correct
38. Suppose two portfolios have the same average return and 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:
1. is poorer than the performance of portfolio B
2. is better than the performance of portfolio B
3. is the same as the performance of portfolio B
4. cannot be measured as there are no data on the alpha of the portfolio
39. Which of the following statements is false about the “Sharpe ratio”:
1. “Sharpe ratio” is one of the popular portfolio management metrics today
2. “Sharpe ratio” is intended to measure the risk-adjusted rate of return of an
investment
3. “Sharpe ratio” is used to compare portfolio return with target return
4. A higher “Sharpe ratio” indicates a better risk-adjusted rate of return
40. Which of the following portfolio management performance measures is used to
compare portfolio returns with target returns?
a. Roy’s Safety-First b. Treynor ratio c. Sharpe ratio d. Sortino
41. An investor compares the market price to the intrinsic value of a stock to decide
whether he should
buy the stock or not. Which of the following analysis best describes his method?
a. Strategic analysis b.Technical analysis c.Fundamental analysis d.Economic analysis
42. As an investor enters retirement time, he will tend to:
a. Willingness to take higher risks for higher returns b. Willingness to invest in derivatives
c. Willingness to invest in T-bond d. Willingness to invest in real estate
43. Which of the following statements is false about portfolio diversification?
1. Portfolio diversification depends on the financial ability of each investor
2. The more diversified the portfolio, the easier it is to beat the market
3. No matter how diversified a portfolio is, there is never zero risk
4. Portfolio diversification reduces unsystematic risk
44. Other things equal, the utility score an investor assigns to a particular portfolio:
1. will decrease as the standard deviation decreases
2. will decrease as the rate of return increases
3. will increase as the variance increases
4. will increase as the rate of return increases
45. An investor invests 30% of his wealth in a risky asset with an expected rate of
return of 0.15 and a variance of 0.04 and 70% in a T-bill that pays 6%. His portfolio's
expected return and standard deviation are ......... and ........., respectively.
a. 0.142; 0.15 b. 0.087; 0.06 c. 0.124; 0.22 d. 0.114; 0.12
46. Consider a T-bill with a rate of return of 5% and the following risky securities:
Security A has E(r) = 0.15, Variance = 0.04. Security B has E(r) = 0.10, Variance =
0.0225. Security C has E(r) = 0.12, Variance = 0.01. Security D has E(r) = 0.13;
Variance = 0.0625. From which set of portfolios, formed with the T-bill and any one
of the four risky securities, would a risk-averse investor always choose his portfolio?
1. The set of portfolios formed with the T-bill and security C.
2. The set of portfolios formed with the T-bill and security B.
3. The set of portfolios formed with the T-bill and security A. (loa ̣i)
4. The set of portfolios formed with the T-bill and security D.
47. Suppose a particular investment earns an arithmetic return of 10% in year 1,
20% in year 2, and 30% in year 3. The geometric average return for the period will
be: a. less than the arithmetic average return
2. It cannot be determined from the information given
3. greater than the arithmetic average return
4. equal to the arithmetic average return
48. According to the CAPM, the beta measures:
a. Standard deviation of the mean b. Inflation risk
c. Systematic risk d. Unsystematic risk
49. The beta of the market portfolio is:
a. 1 b. 0 c.0.5 d.2
50. The risk-free rate is 7%. The expected market rate of return is 15%. If you expect
a stock with a beta of 1.3 to offer a rate of return of 12%, you should:
a. sell the stock because it is underpriced. b. buy the stock because it is overpriced. c. buy
the stock because it is underpriced. d. sell the stock because it is overpriced.
12% < 7%+1.3(15%-7%)=17.4%
50’. The risk-free rate is 6%. The expected market rate of return is 15%. If you
expect a stock with a beta of 1.3 to offer a rate of return of 12%, you should:
a. sell the stock because it is underpriced. b. buy the stock because it is overpriced. c. buy
the stock because it is underpriced. d. sell the stock because it is overpriced.
6% + 1.3(15%-6%)=17.7% > 12%
27. A security has an expected rate of return of 0.10 and a beta of 1.1. The market
expected rate of return is 0.08 and the risk-free rate is 0.05. The alpha of the stock is
A. 1.7%. B. -1.7%. C. 8.3%. D. 5.5%. a = 10% - [5% +1.1(8% - 5%)] = 1.7%
28. Your opinion is that CSCO has an expected rate of return of 0.13. It has a beta of
1.3. The risk-free rate is 0.04 and the market expected rate of return is 0.115.
According to the Capital Asset Pricing Model, this security is
A. underpriced. B. overpriced.
C. fairly priced. D. cannot be determined from data provided 11.5% - [4% + 1.3(11.5% 4%)] = -2.25%
31. Your opinion is that Boeing has an expected rate of return of 0.112. It has a beta
of 0.92. The riskfree rate is 0.04 and the market expected rate of return is 0.10.
According to the Capital Asset Pricing Model, this security is
A. underpriced. B. overpriced.
C. fairly priced. D. cannot be determined from data provided 11.2% - [4% + 0.92(10% 4%)] = 1.68%
51. A stock has an expected rate of return of 0.10 and a beta of 1.1. The market
expected rate of return is 0.08, and the risk- free rate is 0.05. The alpha of the stock
is:
a. 3.3% b. 2.7% c. 5.7% d. 1.7%
52. Which of the following statements is false about efficient markets? Select one: ko
chắ c a. A and C
b. Stock prices will not change when random positive news occurs in a strongly efficient
market
c. Stock prices will increase sharply when random positive news appears in a strongly
efficient market d. Investors can easily make profits in the highly efficient market if they
own inside information
53. In an efficient financial market, when positive news appears, which of the
following is considered an investor overreacting to new information?
a. The price rose sharply on the day of the news and then sideways the following days
b. The price increased sharply on the day the news appeared, then decreased the
following days
c. The price increased sharply on the day the news appeared, then continued to increase the
following days d. The price dropped sharply on the day the news appeared, then fell on the
following days
54. The efficient market assumption does not include: phân vân
1. Requires a large number of competitors to enter the market with the goal of
maximizing profits
2. New information about securities is published on the market randomly and
automatically
3. Investors always have flexible investment policies that are suitable for all available
information on the market
4. Investors have access to information at the same time.
55. The basic purpose of immunization is to
a. produce a zero net-interest-rate risk and offset price and reinvestment risk. b.
eliminate default risk.
c. produce a zero net-interest-rate risk.
d. eliminate default risk and produce a zero net-interest-rate risk. 56. Which bond has the
shortest duration?
1. Bond of 30 years maturity, coupon rate 6%
2. Bond of 20 years maturity, coupon rate 13%
3. Bond of 30 years maturity, coupon rate 11%
4. Bond of 28 years maturity, coupon rate 0%
57. Assume that interest rates increase, what is a duration of a 20-year zero-coupon
bond? a. Decreases b. Increases c. Remains unchanged d. Increases then decreases
59. The most appropriate discount rate to use when applying a FCFE valuation
model is the: a. required rate of return on equity b. risk-free rate
c. WACC d. YTM
60. Company U has the required rate of return of 15%, the constant growth rate of
10%, the payout ratio of 45%. What should be the expected P/E ratio for the stock of
company U? ko bít làm
a. 4.5 times b. 10 times (loa ̣i)
c. 8.8 times d. 9 times
61. BioTech Company has an expected return on equity (ROE) of 10%. The dividend
growth rate will be ......... if the firm follows a policy of paying 40% of earnings in the
form of dividends (a dividendpayout ratio = 40%).
a. 6.0% b. 7.2% c. 3.0% d. 4.0%
62. The market price of AT stock is 55,000 VND/stock. The company has just paid a
dividend of 1,320 VND /stock. Assume that the dividend has a constant growth rate of
7%/year. What should be the required rate of return of the AT stock given that the
market price is fair?
a. 8.69% b. 9.57% c. 9.4% d. 9.24%
64. Which of the following portfolio performance measures uses the standard
deviation of active
return as a measure of risk rather than the standard deviation of the portfolio?
a. Sharpe ratio b. Roy’s Safety-First c. Sortino d. Information ratio
65. The active portfolio management:
1. All of the options are true
2. Try to beat the market
3. Try to earn a portfolio return that exceeds the return of a passive benchmark
portfolio (net of transaction costs) on a risk- adjusted basis.
4. Has a higher level of risk than that of the passive benchmark
66. The letter M in the SMART rule for building a portfolio is:
a. Money b. Motivational c. Measurable d. Model
67. Which of the following market regulations will most likely impede market
efficiency? a. All of the options are correct
2. Penalizing investors who trade with insider information
3. Allowing foreign investors trading
4. Restricting short sell
68. Which of the following statement is true regarding portfolio management?
1. The only purpose of portfolio management is to maximizing profits and does not
focus on risk (loa ̣i)
2. Portfolio management is an asset management service for clients
3. Portfolio management excludes life insurance contract management
4. Portfolio management is a service provided by a industrial company
69. Which of the following institutions will on average have the greatest need for
liquidity? Select one:
a. Financial leasing companies b. Life insurance companies. c. Investment companies d.
Banks
70. Which of the following variable is not used to measure the variance of a portfolio?
a. Variance of each asset b. Allocation weight of the two assets
c. Expected return of each asset d. Covariance of returns between the two assets
71. Which of the following statements regarding risk-averse investors is true?
1. They are willing to accept lower returns and high risk.
2. They only care about the rate of return.
3. They accept investments that are fair games.
4. They only accept risky investments that offer risk premiums over the risk-free
rate.
72. A year ago, you invested $1,000 in a savings account that pays an annual interest
rate of 9%. What is your approximate annual real rate of return if the rate of
inflation was 4% over the year?
a. 5% b. 3% c. 10% d. 7%
73. If the annual real rate of interest is 2.5% and the expected inflation rate is 3.7%,
the nominal rate
of interest would be approximately
a. 3.7%. b. -1.2%. c. 6.2%. d. 2.5%.
74. There are three scenarios of the economy (Boom, Normal and Recession). The
probability of Boom is 30% and the HPR of KMP stock in this scenario is 18%. The
probability of Normal is 50% and the
HPR in this scenario is 12%. The probability of Recession is 20% and the HPR in this
scenario is -5%. What is the expected standard deviation for KMP stock?
a. 6.91% b. 7.79% c. 8.13% d. 7.25%
Câu 74’ There are three scenarios of the economy (Boom, Normal and Recession).
The probability of Boom is 30% and the HPR of KMP stock in this scenario is 18%.
The probability of Normal is 50% and the HPR in this scenario is 12%. The
probability of Recession is 20% and the HPR in this scenario is -5%. What is the
expected holding-period return for KMP stock?
a. 11.54% b. 9.32% c. 11.63% d. 10.40%
75. Assume an investor with the following utility function: U = E(r) - (3/2)σ^2. To
maximize her expected utility, she would choose the asset with an expected rate of
return of ......... and a standard deviation of ........., respectively.
a. 10%, 15% b. 12%, 20% c. 8%, 10% d. 10%, 10%
76. A completely diversified portfolio would have a correlation with the market
portfolio that is:
1. equal to one because it has only systematic risk.
2. equal to zero because it has only unsystematic risk.
3. less than one because it has only unsystematic risk.
4. less than zero because it has only systematic risk.
77. The capital market line (CML) uses.... as a risk measurement, whereas the capital
asset pricing
model (CAPM) uses......
a. standard deviation; systematic risk b. beta; total risk
c. unsystematic risk; total risk d. standard deviation; total risk
78. Recently you have received a tip that the stock of Bubbly Incorporated is going to
rise from $57 to $61 per share over the next year. You know that the annual return
on the S&P 500 has been 9.25 percent and the 90-day T-bill rate has been yielding
3.75 percent per year over the past 10 years. If beta for Bubbly is 0.85, will you
purchase the stock?
a. No, because it is overvalued. b. Yes, because it is undervalued. c. No, because it is
undervalued. d. Yes, because it is overvalued.
79. Portfolio X has 2 stocks: stock A (beta = 0.8, weight of 40% of assets), stock B
(beta = 1.5, weight of 60% of assets), then beta of portfolio X is:
a. 1.35 b. 1.22 c. 1.50 d. 1.45
80. Proponents of the efficient market hypotheses (EMH) think technical analysts:
a. should focus on financial statements b. are wasting their time
c. should focus on support levels d. should focus on the relative strength
81. Holding other factors constant, the interest-rate risk of a coupon bond is higher
when the bond's: a. coupon rate is higher b. term to maturity is lower
c. current yield is higher d. yield to maturity is lower
82. Which of the following statements is true about “Duration”?
1. As the time to maturity increases, the “Duration” increases
2. An increase in coupon rate will increase “Duration”
3. An increase in YTM will increase “Duration”
4. There is no correct answer
83. Which of the following is not an active bond management strategy? Select one:
a. Rate anticipation swap b. Intermarket spread swap c. Substitution swap d. Bond
laddering
84. At a discount rate of 7%, the bond's market price is $107.87, Modified Duration =
2.5661. If the market interest rate increases to 7.1%, ask the new price will be:
a. 108 USD b. 107.00 USD c. 107.59 USD d. 107.32 USD
85. Which of the following statements is false about passive investing strategy?
1. Passive investment strategy offers better rate of return than active investment
strategy
2. Passive investing is an investment strategy to maximize returns by minimizing
buying and selling.
3. Passive investors do not seek to profit from short-term price movements or
market timing
4. Passive investment strategy helps traders to minimize the fees and limit the
risks that can occur with frequent trading
86. A firm has a return on equity (ROE) of 20% and follows a policy of paying 30%
of earnings in the form of dividends (a dividend-payout ratio = 30%). The firm's
anticipated growth rate of dividend is:
a. 20% b. 14% c. 10% d. 6% Downloaded by Võ Th? Y?n Nhi (yeonnie2207@gmail.com)
87. Which of the following statements is true?
1. Active investment funds have a chance to beat the market
2. Passive funds are limited to a specific index or predefined set of investments with
little or no change.
c. All of the options are correct
d. Passive funds will never beat the market, even in turbulent times because that
investment is so closely tied to the market.
88. Which of the following performance measures is most appropriate for an investor
who is not fully diversified?
a. Sharpe ratio b. Jensen’s Alpha (loa ̣i) c. All of the above are correct d. M-squared
89. A portfolio is a basket of assets that can include:
a. All of the options are true b. Stocks, bonds
c. Real estate, art d. Commodities, currencies
91. Elias is a risk-averse investor. David is a less risk-averse investor than Elias.
Therefore,
1. for the same return, David tolerates higher risk than Elias.
2. for the same return, Elias tolerates higher risk than David.
3. for the same risk, Elias requires a lower rate of return than David.
4. for the same risk, David requires a higher rate of return than Elias.
92. Which of the following statements about the correlation coefficient is FALSE?
1. The values range between -1 to +1.
2. A value of zero means that the returns are independent.
3. A value of -1 implies that the returns move in a completely opposite direction.
4. A value of +1 implies that the returns for the two stocks move together in a
completely linear manner
93. Assume that you decide to invest in a portfolio of 80% equity index XXX and 20%
equity index YYY. The expected return and standard deviation of the equity index
XXX are 8% and 16.21%, respectively. Those for the equity index YYY are 18% and
33.11%, respectively. Given the covariance of returns between the two equity indices
is 0.5%, what is the expected standard deviation of the above portfolio?
a. 42.6% b. 26.7% c. 15.1% d. 14.6% Downloaded by Võ Th? Y?n Nhi
(yeonnie2207@gmail.com)
94. Following the CAPM, we should ...... any security with an estimated return that
plots.... the SML because it is
a. buy, above, overpriced b. sell, below, underpriced
c. buy, above, underpriced d. sell, above, underpriced
95. Which of the following is the implication of the efficient market hypothesis?
a. Stock price moves for no reason b. Price reflects all available information c. Stock
price does not volatile d. Can predict accurately the future events
96. The benefits of passive investing do not include:
1. Transparency: It's always clear which assets are in an index fund
2. This investment strategy is often more difficult to implement than an active
strategy that
requires constant research and adjustment c. Low fee
d. Tax efficiency
97. In Vietnam, securities investment portfolio management is an operation of:
a. Financial companies b. Banks
c. Fund management companies d. Securities companies
98. Investors with shorter time horizons generally favor ...... liquid and ...... risky
investments because losses are harder to overcome in a short time frame
a. more, less b. less, less c. less, more d. more, more
100. Which of the following statements best describes the covariance of returns
between the two assets? a. Never equal to 0 b. Measure the level of interdependence
between the two assets.
c. Always between -1 and 1. d. Always be positive
101. The risk-free rate is 8%. The expected market rate of return is 15%. According
to the Capital Asset Pricing Model (CAPM), if you expect stock X with a beta of 1.2,
this stock offers a rate of return of .........
a. 17.50% b. 15.20% c. 14.90% d. 16.40%
101. Theoretically, the correlation coefficient between a completely diversified
porfolio and the market
porfolio should be:
a. -1.0 b. +1.0 c. 0.0 d. +0.5
102. the correlation coefficient between market return and a risk-free asset would: d.
be zero
Câu 1: Consider a 12 percent, 15-year, $1,000 par value bond that pays interest
semiannually, and its current price is $675. What is the promised yield to maturity?
a. 17.77 percent
b. 2.31 percent c. 10.23 percent d. 18.45 percent
Câu 2: A seven-year par value bond has a coupon rate of 9% (paid annually) and a
modified duration of:
a. 5.03 years
b. 7 years
c. 4.87 years d. 5.49 years
Câu 3: The weak form of the efficient market hypothesis states that:
a. successive price changes are dependent
b. successive price changes are independent
c. successive price changes depend on trading volume d. successive price changes are
biased
Câu 4: The slope of the utility curves for a strongly risk-averse investor, relative to
the slope of the utility curves for a less risk-averse investor, will:
a. be steeper b. be flatter
c. be vertical
d. be horizontal
Câu 5: Which of the following would be inconsistent with an efficient market? a. price
adjustments are biased
b. information arrives randomly and independently c. stock prices adjust rapidly to new
information d. price changes are independent
Câu 6: Prices in efficient capital markets ...... reflect all available information and ......
adjust to new information.
a. none of these are correct b. fully; gradually
c. fully; rapidly
d. slowly; randomly
Câu 7: Consider two perfectly negatively correlated risky securities A and B. A has
an expected rate of return of 10% and a standard deviation of 16%. B has an
expected rate of return of 8% and a standard deviation of 12%.The risk-free
portfolio that can be formed with the two securities will earn a(n) ...... rate of return.
a. 8.5% b. 8.9% c. 9.9% d. 9.0%
Câu 8: Par-value-bond F has a modified duration of 9. Which one of the following
statements
regarding the bond is true?
a. If the market yield increases by 1%, the bond's price will increase by $90.
b. If the market yield increases by 1%, the bond's price will decrease by $90. c. If the
market yield increases by 1%, the bond's price will decrease by $60.
d. If the market yield decreases by 1%, the bond's price will increase by $60.
Câu 9: What is the value of a 10 percent semi-annual coupon bond with a par value of
$1,000 that matures in 5 years and has a required rate of return of 9 percent?
a. $1,021.95 b. $1,039.56 c. $1,064.18 d. $1,038.90
Câu 10: The duration of a par-value bond with a coupon rate of 8% (paid annually)
and a remaining
time to maturity of 5 years is:
a. 5 years. b. 5.4 years. c. 4.31 years. d. 4.17 years.
Câu 11: Probability of each economic state and return on stock A and B for each state are
as follows: State 1 (probability of this state:20%, Return on stock A: 10%, Return on
stock:8%), State 2 (40%, 13%, 7%), State 3 (15%, 12%, 6%), State 4 (25%, 14%, 9%). The
expected rates of return of stocks A and B are:
a. 12.50%; 7.55% b. 11.68%; 6,54%
d. 10.65%; c. 13.15%; 6.00% 8.45%
Câu 12: Which of the following would be inconsistent with an efficient market? a. stock
prices adjust rapidly to new information
b. price adjustments are biased
c. information rrives randomly and independently
d. price changes are independent
Câu 13:You purchased 100 shares of GE common stock on January 1, for $29 a share. A
year later you received $1.25 in dividends per share and you sold it for $28 a share.
Calculate your holding period yield (HPY) for this investment in GE stock.
a. 0.0357 b. 0.9655 c. 0.0086 d. 0.0804
Câu 14: Probability of each economic state and return on stock A and B for each state are
as follows: State 1 (probability of this state:20%, Return on stock A: 10%, Return on
stock:8%), State 2 (40%, 13%, 7%), State 3 (20%, 12%, 6%), State 4 (20%, 9%, 10%).
Standard deviations of stocks A and B are:
a. 1.66%; 1.58% b. 3.52%; 2.45% c. 2.14%; 1.25% d. 1.62%; 1.36%
Câu 15: Which of the following is NOT a step in the portfolio management process?
a. monitor investor's needs and market conditions
b. study current financial and economic conditions
c. develop a policy statement
d. sell all assets and reinvestment proceeds at least once a year
Câu 18: The optimal risky portfolio is identified at the point of tangency between the
efficient frontier and the:
a. lowest feasible Sharpe ratio
b. middle range Sharpe ratio
c. highest feasible Sharpe ratio d. a minimum-variance portfolio
Câu 19: In a two-stock portfolio, if the correlation coefficient between two stocks
were to increase over time, everything else remaining constant, the portfolio's risk
would:
a. fluctuate positively and negatively b. increase
c. decrease d. remain constant
Câu 20:All of the following are common risk measurements EXCEPT: a. variance b.
covariance
c. beta d. standard deviation
Câu 23:As the number of securities in a portfolio increases, the amount of systematic
risk a. decreases b. remains constant
c. changes d. increases
Câu 24: Which statement is true concerning alternative efficient market hypothesis? a. The
weak hypothesis encompasses the semi-strong hypothesis
b. The semi-strong hypothesis encompasses the weak hypothesis
c. The weak hypothesis encompasses the strong hypothesis
d. The strong hypothesis relates only to public information
Câu 25: Consider a bond selling at par with modified duration of 10.6 years and
convexity of 210. A 2% decrease in yield would cause the price to increase by 21.2%
according to the duration rule. What would be the percentage price change according
to the convexity rule?
a. 10.6% b. 17.0% c. 21.2% d. 25.4%
Câu 26: The annual rates of return of Stock Z for the last four years are 0.10, 0.15, 0.05, and 0.20, respectively. Compute the geometric mean annual rate of return for
Stock Z.
a. 0.150 b. 0.096 c. 0.074 d. 0.051
Câu 27: The nominal yield of a bond is the
A. Annual coupon as a percent of the current price.
B. Annual rate earned including the capital gain or loss.
C. Rate earned giving consideration to coupon reinvestment. D. Coupon rate.
E. Promised yield to maturity.
Câu 27’: The annual interest paid on a bond relative to its prevailing market price is
called its ____.
A. Promised yield B. Yield to maturity
C. Coupon rate D. Effective yield E. Current yield
Câu 37: If the holding period is equal to the term to maturity for a corporate bond
the rate of discount represents the
A. Coupon yield. B. Effective yield.
C. Yield to call. D. Yield to maturity. E. Reinvestment rate.
Câu 28: Given an optimal risky portfolio with expected return of 6%, standard deviation of
23%, and a risk free rate of 3%, what is the slope of the best feasible CAL?
a. 0.39 b. 0.64 c. 0.08 d. 0.13
Câu 29: Probability of each economic state and return on stock A and B for each state are
as follows: State 1 (probability of this state:20%, Return on stock A: 10%, Return on
stock:8%), State 2 (40%, 13%, 7%), State 3 (15%, 12%, 6%), State 4 (25%, 9%, 10%). The
expected rates of return of stocks A and B are:
a. 13.28%; 6,76% b. 10.55%; 6.00% c. 11.25%; 7.80% d. 12.65%; 7.45%
Câu 30: If the coupon payments are NOT reinvested during the life of the issue, then the: a.
promised yield is less than the realized yield b. nominal yield declines
c. All of these are correct
d. promised yield is greater than the realized yield
Câu 31: A positive covariance between two variables indicates that:
a. the two variables move in the same direction b. the two variables are low risk
c. the two variables move in different directions d. the two variables are high risk
Câu 32: The annual rates of return of Stock Z for the last four years are 0.10, 0.15, -0.05,
and 0.20, respectively.
Compute the arithmetic mean annual rate of return for Stock Z.
a. 0.10 b. 0.03 c. 0.06 d. 0.04
Câu 34: Securities with returns that lie above the security market line (SML) are: a.
Properly valued b. Undervalued.
c. Overvalued d. None of these are correct
Câu 35: Stock A has an expected rate of return of 10% and a standard deviation of 16%.
Stock B has an expected rate of return of 8% and a standard deviation of 12%. The
correlation coefficient of returns between
Stock A and B is 0.5. The weights of A and B in the minimum variance portfolio are ......
and ......, respectively.
a. 0.45; 0.55 b. 0.52; 0.48 c. 0.23; 0.77 d. 0.17; 0.83
Câu 37: What would the after-tax yield be on an investment that offers a 6 percent fully
taxable yield? Assume a marginal tax rate of 31 percent.
a. 6.48 percent b. 2.79 percent c. 4.14 percent d. 7.20 percent
Câu 38: Consider an investment opportunity set formed with two securities that are
perfectly negatively
correlated. The global-minimum variance portfolio has a standard deviation that is always:
a. equal to the sum of the securities' standard deviations b. equal to 1
c. greater than zero d. equal to zero
Câu 39: Which of the following is correct?
a. If estimated value < market price, you should buy
b. If estimated value > market price, you should sell
c. All of these are correct
d. If estimated value > market price, you should buy
Câu 40: ...... refer(s) to the ability to convert assets to cash quickly and at a fair
market price and often increase(s) as one approaches the later stages of the
investment life cycle.
a. liquidity needs b. time horizons
c. liquidation essentials d. liquidation values
Câu 41:If you expected interest rates to fall, you would prefer to own bonds with:
a. short durations and high convexity b. short durations and low convexity
c. long durations and high convexity d. long durations and low convexity
Câu 42: You are given a two-asset portfolio with a fixed correlation coefficient. If the
weights of the two assets are varied, the expected portfolio return would be ...... and
the expected portfolio standard deviation would be .......
a. linear, elliptical b. linear, circular
c. nonlinear, circular d. nonlinear, elliptical
Câu 44: The CAPM can also be illustrated as:
a. The security market line (SML) b. The capital market line (CML) c. The security
characteristics line (SCL) d. The capital allocation line (CAL)
Câu 46: If you expected interest rates to fall, you would prefer to own bonds with: a. short
durations and high convexity
b. short durations and low convexity
c. long durations and high convexity
d. long durations and low convexity
Câu 47: An investor who wishes to form a portfolio that lies to the right of the
optimal risky
portfolio on the capital allocation line must:
A) lend some of her money at the risk-free rate and invest the remainder in the optimal
risky portfolio. B) borrow some money at the risk-free rate and invest in the optimal risky
portfolio.
C) such a portfolio cannot be formed.
D) invest only in risky securities. E) BandD
Câu 48: Consider two perfectly negatively correlated risky securities A and B. A has an
expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of
return of 8% and a standard deviation of 12%. The weights of A and B in the minimum
variance portfolio are ...... and ......, respectively.
a. 0.24; 0.76 b. 0.57; 0.43 c. 0.43; 0.57 d. 0.50; 0.50
Câu 49: The duration of a par-value bond with a coupon rate of 6.5% and a
remaining time to maturity of 4 years is
a. 3.45 years. b. 3.65 years. c. 3.85 years. d. 4.00 years.
Câu 51: An individual investor's utility curves specify the tradeoffs he or she is willing to
make between: a. high return and low return assets b. return and risk
c. high risk and low risk assets d. covariance and correlation
Câu 52: Calculate the expected return for stock A, which has a beta of 1.75 when the riskfree rate is 0.03 and you expect the market return to be 0.11:
a. 14.97 percent b. 16.25 percent c. 17.0 percent d. 11.13 percent Cau 53: Respectively,
the betas for the market portfolio and risk-free security are::
a. - 1; 1 b. 0; 1 c. 1; -1 d. 1; 0
Cau 54: Probability of each economic state and return on stock A and B for each state are
as follows: State 1 (probability of this state:20%, Return on stock A: 10%, Return on
stock:8%), State 2 (40%, 13%, 7%), State 3 (15%, 12%, 6%), State 4 (25%, 9%, 10%). The
expected rates of return of stocks A and B are:
a. 10.55%; 6.00% b. 12.65%; 7.45% c. 13.28%; 6,76% d. 11.25%; 7.80%
Câu 54: Probability of each economic state and return on stock A and B for each state are
as follows: State
1 (probability of this state:10%, Return on stock A: 10%, Return on stock:8%), State 2
(20%, 13%, 7%), State 3 (20%, 12%, 6%), State 4 (30%, 14%, 9%), State 5 (20%, 15%,
8%). Let G be the global minimum variance portfolio. The weights of A and B in G are
...... and ......, respectively.
a. 0.24; 0.76 b. 0.40; 0.60 c. 0.34; 0.66 d. 0.66; 0.34
Cau 55: Probability of each economic state and return on stock A and B for each state are
as follows: State 1 (probability of this state:20%, Return on stock A: 10%, Return on
stock:8%), State 2 (40%, 13%, 7%), State 3 (20%, 12%, 6%), State 4 (20%, 9%, 10%).
Standard deviations of stocks A and B are:
a. 2.14%; 1.25% b. 3.52%; 2.45% c. 1.62%; 1.36% d. 1.66%; 1.58%
Cau 56: Calculate the expected return for ABC Inc., which has a beta of 0.8 when the riskfree rate is 0.04 and you expect the market return to be 0.12.
a. 8.10 percent b. 9.60 percent c. 11.20 percent
d. 10.40 percent = 0.04 + 0.8(0.12-0.04)
Cau 57: Consider two perfectly negatively correlated risky securities A and B. A has an
expected rate of return of 12% and a standard deviation of 15%. B has an expected rate of
return of 7% and a standard deviation of 12%.The risk-free portfolio that can be formed
with the two securities will earn a(n) ...... rate of return.
a. 9.9% b. 7.9% c. 8.5% d. 9.2%
Cau 58: An investor constructs a portfolio with a 75 percent allocation to a stock index and
a 25 percent allocation to a risk-free asset. The expected returns on the risk-free asset and
the stock index are 3 percent and 10 percent, respectively. The standard deviation of
returns on the stock index is 14 percent. Calculate the expected standard deviation of the
portfolio.
a. 9.0 percent b. 7.5 percent c. 11.5 percent d. 10.5 percent
Cau 59: Probability of each economic state and return on stock A and B for each state are
as follows:
State 1 (probability of this state:10%, Return on stock A: 10%, Return on stock:8%), State
2 (20%, 13%,
7%), State 3 (20%, 12%, 6%), State 4 (30%, 14%, 9%), State 5 (20%, 15%, 8%).
Covariance between stocks A and B is:
a. 0.0124% b. 0.0040% c. 0.2130% d. 0.0076%
Cau 60: An efficient market requires:
1. New information regarding securities comes to the market in a random fashion
2. A large number of competing profit-maximizing participants analyze and value
securities, each independently of the others
3. Profit-maximizing investors cause security prices to adjust rapidly to reflect the
effect of new information
4. All of these are correct
Câu 13: The disadvantages of passive investing strategies include:
1. Passive investment suffers market risk
2. This investment strategy is often easier to implement than an active one, which
requires constant research and adjustment. C. Lack of flexibility
D. Suffering market risk and lack of flexibility
Câu 14: The goal of the passive portfolio manager is to minimize: A. beta B. tracking
error
C. alpha D. standard error
Câu 15: Which of the following two bonds is more price sensitive to changes in
interest rates? (I) A par value bond, X, with a 5-year year to maturity and a 10%
coupon rate: (II) A zero-coupon bond, Y, with a 5-year year to maturity and a 10%
yield to maturity.
A. Bond X because of the higher yield to maturity B. Bond X because of the longer time to
maturity C. Bond Y because of the higher coupon rate
D. Bond Y because of the longer duration
Câu 19: An investor purchased 200 stocks for $14/stock. The market price has increased
up to 50% of the purchased price. The investor has received dividends 12 times,
$0.05/each time per stock. Assume that the investor wants to sell the stocks, what is his
holding period return? HPR
A. 9.3% B. 54.3% C. 50.4% (loa ̣i) D. 50%
Câu 25: Holding other factors constant, the interest-rate risk of a coupon bond is
lower when the bond's:
A. coupon rate is lower B. term to maturity is lower C. current yield is lower D. yield to
maturity is lower
Câu 28: Which of the following is a passive bond management strategy? A. Rate
anticipation swap B. Intermarket spread swap
C. Bond laddering D. Substitution swap
Câu 30: Which of the following statements is false about the capital market line (CML)?
1. The CML shows the linear relationship between the expected rate of return and the
standard deviation of
the effective portfolio.
2. The slope of the CML is called the price of risk
3. As risk increases, the slope of CML downward
4. The slope of the CML will change depending on the investor's risk aversion
Câu 32: According to the CAPM, an overvalued stock has:
A. Positive alpha B. Negative beta C. Negative alpha D. Beta of zero
18. According to the Capital Asset Pricing Model (CAPM), underpriced securities A.
have positive betas. B. have zero alphas.
C. have negative betas. D. have positive alphas.
17. According to the Capital Asset Pricing Model (CAPM), fairly priced securities A.
have positive betas. B. have zero alphas.
C. have negative betas. D. have positive alphas.
18. In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of
risk is A. unique risk. B. beta.
C. standard deviation of returns. D. variance of returns.
E. none of the above
19. In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is A.
unique risk. B. market risk
C. standard deviation of returns. D. variance of returns.
20. According to the Capital Asset Pricing Model (CAPM) a well diversified
portfolio's rate of return is a function of
A. market risk B. unsystematic risk C. unique risk. D. reinvestment risk.
21. According to the Capital Asset Pricing Model (CAPM) a well diversified
portfolio's rate of return is a function of
A. beta risk B. unsystematic risk
C. unique risk. D. reinvestment risk
22. 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E(R) = 6% + 1.2(12 - 6) = 13.2%.
A. 0.06. B. 0.144. C. 0.12. D. 0.132
10. Which statement is not true regarding the market portfolio? A.
It includes all publicly traded financial assets.
B. It lies on the efficient frontier.
C. All securities in the market portfolio are held in proportion to their market values.
D. It is the tangency point between the capital market line and the indifference curve
12. Which statement is not true regarding the Capital Market Line (CML)? A. The
CML is the line from the risk-free rate through the market portfolio.
B. The CML is the best attainable capital allocation line.
C. The CML is also called the security market line.
D. The CML always has a positive slope.
E. The risk measure for the CML is standard deviation
21. According to the Capital Asset Pricing Model (CAPM), which one of the following
statements is false?
1. The expected rate of return on a security decreases in direct proportion to a
decrease in the risk- free rate.
2. The expected rate of return on a security increases as its beta increases. Đ
3. A fairly priced security has an alpha of zero. Đ
4. In equilibrium, all securities lie on the security market line. Đ
1. When an investment advisor attempts to determine an investor's risk tolerance,
which factor would they be least likely to assess?
A. The investor's prior investing experience B. The investor's feelings about loss
C. The level of return the investor prefers D. The investor's degree of financial security
2. The capital allocation line can be described as the?
A. Line on which lie all portfolios with the same expected rate of return and different
standard deviations B. Line on which lie all portfolios that offer the same utility to a
particular investor
C. Investment opportunity set formed with two risky assets
D. Investment opportunity set formed with a risky asset and a risk-free asset
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A. Maximizes their risk
C. Maximizes their expected profit
4. The risk that can be diversified away is?
A. Market risk C. Beta
5. Market risk is also referred to as?
A. Systematic risk, nondiversifiable risk C. Systematic risk, diversifiable risk
B. Maximizes their expected utility
D. Minimizes both their risk and return
B. Systematic risk
D. Firm specific risk
B. Unique risk, diversifiable risk
D. Unique risk, nondiversifiable risk
3. Given the capital allocation line, an investor's optimal portfolio is the portfolio
that?
6. The expected return of a portfolio of risky securities is?
1. The weighted sum of the securities' variances and covariances
2. A weighted average of the securities' returns
3. The sum of the securities' returns
4. A weighted average of the securities' returns and the weighted sum of the securities'
variances and covariances
7. For a two stock portfolio, what would be the preferred correlation coefficient
between the two stocks?
A. -1 B. +0.5 C. 0 D. +1
8. In a factor model, the return on a stock in a particular period will be related to?
A. Firm-specific events
A. Variance of returns C. Unique risk
13. In a well-diversified portfolio... A. Unsystematic risk is negligible C. Systematic
risk is negligible
B. Standard deviation of returns
D. Beta
B. Market risk is negligible
D. Nondiversifiable risk is negligible
intrinsic value P/E = ((1-b) x (1+g)) / r (discount rate) - g (dividend growth)
B. Both firm-specific and macroeconomic events
C. Neither firm-specific events nor macroeconomic events D. The error term
9. The market portfolio has a beta of?
A. 0.5 B. 1 C. 0 D. -1
10. Analysts may use regression analysis to estimate the index model for a stock.
When doing so, the slope of the regression line is an estimate of?
A. The alpha of the asset B. The variance of the asset C. The covariance of the asset D.
The beta of the asset
11. A single-index model uses ___________ as a proxy for the systematic risk factor.
A. The unemployment rate B. A market index, such as the S&P 500 C. The growth rate
in GNP D. The current account deficit
12. In the context of the Capital Asset Pricing Model, the relevant measure of risk is?
g = b (retention ratio) x ROE