Investment Analysis
Quiz #1
1. Which of the following is not a money market security?
a.
U.S. Treasury bill
b.
6-month maturity certificate of deposit
c.
common stock
d.
mortgage backed security
2. Which of the following are financial assets?
Debt securities
Equity securities
Derivative securities
a.
1 only
b.
1 and 2 only
c.
2 and 3 only
d.
1, 2, and 3
3. Asset allocation refers to _______.
a.
the allocation of the investment portfolio across broad asset classes
b.
the analysis of the value of securities
c.
the choice of specific assets within each asset class
d.
None of the choices are correct.
4. Which one of the following best describes the purpose of derivatives markets?
a.
Transferring risk from one party to another.
b.
Investing for a short time period to earn a small rate of return.
c.
Investing for retirement
d.
Earning interest income
Page | 1
5. Security selection refers to the _______.
a.
allocation of the investment portfolio across broad asset classes
b.
analysis of the broad asset classes
c.
choice of specific securities within each asset class
d.
top-down method of investing
6. _______ portfolio construction starts with selecting attractively priced securities.
a.
Bottom-up
b.
Top-down
c.
Upside-down
d.
Side-to-side
7. The value of a derivative security _______.
a.
depends on the value of another related security
b.
affects the value of a related security
c.
is unrelated to the value of a related security
d.
can be integrated only by calculus professors
8. Financial markets allow for all but which one of the following?
a.
Shift consumption through time from higher-income periods to lower.
b.
Price securities according to their riskiness.
c.
Channel funds from lenders of funds to borrowers of funds.
d.
Allow most participants to routinely earn high returns with low risk.
9. Money market securities are characterized by:
1.
Maturity less than 1 year
2.
Safety of the principal investment
3.
Low rates of return
Page | 2
a.
1 only
b.
1 and 2 only
c.
1 and 3 only
d.
1, 2, and 3
10. Suppose an investor is considering one of two investments that are identical in all respects
except for risk. If the investor anticipates a fair return for the risk of the security he invests
in, he can expect to _______.
a.
earn no more than the Treasury-bill rate on either security
b.
pay less for the security that has higher risk
c.
pay less for the security that has lower risk
d.
earn more if interest rates are lower
11. A $1,000—245-day T-bill is priced with an annualized discount of 1.5%. Calculate its market
price and its annualized bond equivalent yield based on a 365-day year.
12. A T-bill with face value $10,000 and 87 days to maturity is selling at a bank discount ask yield
of 3.4%. What is the price of the bill? What is its bond equivalent yield?
13. Which security should sell at a lower price? A 10-year Treasury bond with a 9% coupon rate
or a 10-year T-bond with a 10% coupon.
14. When computing the discount yield for a T-bill in a leap year you would use ____
days in the year.
a.
260
b.
360
c.
365
d.
366
Page | 3
15. An investor purchasing a T-bill earns interest (or a return) by
a.
Receiving interest payments every 90 days.
b.
Receiving dividend payments every 30 days.
c.
Converting the T-bill at maturity into a higher valued T-note.
d.
Buying the bill at a discount from the face value received at maturity.
16. A T-bill has 90 days to maturity and quotes with a 4.92 bid and a 4.86 ask. If the bill has a
$10,000 face value an investor could buy this bill for
a.
$10,000.00.
b.
$9,878.50.
c.
$9,877.00.
d.
$9,880.16.
17. An investment advisor has recommended purchasing gold, stocks, and bonds in equal
amounts. This recommendation reflects which part of the investment process?
a. Asset allocation
b. Investment analysis
c. Portfolio analysis
d. Security selection
18. __________ assets generate net income to the economy, and __________ assets define
allocation of income among investors.
A. Financial, financial
B. Financial, real
C. Real, financial
D. Real, real
19. In securities markets, there should be a risk-return trade-off with higher-risk assets having
_________ expected returns than lower-risk assets.
Page | 4
A. higher
B. lower
C. the same
D. The answer cannot be determined from the information given.
20.
____ is not a derivative security.
A. A share of common stock
B. A call option
C. A futures contract
D. None of the options (All of the answers are derivative securities.)
21.
__________ portfolio construction starts with selecting attractively priced securities.
A. Bottom-up
B. Top-down
C. Upside-down
D. Side-to-side
22. The value of a derivative security _________.
A. depends on the value of another related security
B. affects the value of a related security
C. is unrelated to the value of a related security
D. can be integrated only by calculus professors
23. The first step any investor should take before beginning to invest is to __________.
A. establish investment objectives
B. develop a list of investment managers with superior records to interview
C. establish asset allocation guidelines
D. decide between active management and passive management
Page | 5
24. After much investigation, an investor finds that Intel stock is currently underpriced. This is
an example of ______.
A. asset allocation
B. security analysis
C. top-down portfolio management
D. passive management
25. A passive asset allocation strategy involves _________.
A. investing in the stock of companies that are price takers
B. maintaining approximately the same proportions of a portfolio in each asset class over time
C. varying the proportions of a portfolio in each asset class in response to changing market
conditions
D. selecting individual securities in different sectors that are believed to be undervalued
26. An investor has a long time horizon and desires to earn the market rate of return. However,
the investor will need to withdraw funds each year from her investment portfolio. The
biggest constraint a planner would face with this client is a ___________ constraint.
A. tax
B. risk-tolerance
C. liquidity
D. social
Page | 6