Investments Flashcards
Which type of security market index is automatically rebalanced when the prices of its
constituent securities change?
A) Market capitalization weighted
B) Fundamentally weighted
C) Equal weighted
A) Market capitalization weighted
Which of the following index weighting methods is most likely subject to a value tilt?
A) Equal weighting
B) Fundamental weighting
C) Market-capitalization weighting
B) Fundamental weighting
Which of the following index weighting methods requires the most frequent rebalancing?
A) Price weighting
B) Equal weighting
C) Market-capitalization weighting
B) Equal weighting
The intrinsic value of an undervalued asset is:
A) less than the asset’s market value.
B) greater than the asset’s market value.
C) the value at which the asset can currently be bought or sold
B) greater than the asset’s market value.
ROE is net income over what? and not over what?
share holder’s equity (not market value)
A client is evaluating his portfolio with his consultant and would like to review the fixed income allocation. The consultant is correct to explain to the client that:
A) mortgage-backed securities are not considered fixed income investments.
B) high-yield bonds are more attractive than investment-grade corporate bonds due to
their high coupon yields.
C) currency fluctuation can have an impact on international government bond investing.
D) general obligation municipal bonds are backed by the full faith and credit of the U.S.
government.
C) currency fluctuation can have an impact on international government bond investing.
A company is considering issuing debt to raise capital for a project. Which type of option
should the company wish to consider if it wants to pay a low rate of interest and wants
holders to benefit in the company’s long-term profitability if the project pans out?
A) Call option
B) Conversion option
C) Put option
D) Extendible option
B) Conversion option
A client would like to invest in government securities and is considering bills, notes, and
bonds. With respect to U.S. government discount securities, which of the following is true?
A) Payments are made annually
B) Payments are made semiannually
C) A single payment is made at maturity
D) Payments are made quarterly
C) A single payment is made at maturity
The bond characteristics that typically are associated with a low-risk bond is:
A) high coupon, long maturity.
B) high coupon, short maturity.
C) low coupon, long maturity.
D) low coupon, short maturity.
B) high coupon, short maturity.
An investor believes that laddering her bond portfolio is a strategy she would like to use.
Her consultant would most likely assume she is worried about which of the following?
A) Yield volatility
B) Immunizing a liability
C) Creating liquidity
D) International equity markets
A) Yield volatility
If a U.S.-based investor purchases a euro-denominated ETF and the euro subsequently
depreciates in value relative to the U.S. dollar, the investor will have a total return in U.S.
dollars that is:
A) lower than the ETF’s total return.
B) higher than the ETF’s total return.
C) the same as the ETF’s total return.
A) lower than the ETF’s total return.
An investor has both domestic and foreign funds in his portfolio. If the dollar falls in relation
to his foreign fund, what is the most likely result?
A) Total return in domestic currency increases
B) Total return in domestic currency decreases
C) Portfolio correlation decreases
D) Portfolio correlation increases
A) Total return in domestic currency increases
The usefulness of a forward contract is limited by some problems. Which of the following is most likely one of those problems?
A) Once you have entered into a forward contract, it is difficult to exit from the contract.
B) Entering into a forward contract requires the long party to deposit an initial amount
with the short party.
C) If the price of the underlying asset moves adversely from the perspective of the long
party, periodic payments must be made to the short party.
A) Once you have entered into a forward contract, it is difficult to exit from the contract.
In the discounted dividends model, which of the following are not incorporated into the
discount rate?
A) Real risk-free rate
B) Risk premium for stocks
C) Return on assets
D) Expected inflation rate
C) Return on assets
For most firms, P/E ratios and risk
A) will be directly related.
B) will have an inverse relationship.
C) will be unrelated.
D) will both increase as inflation increases.
E) none of the above.
B) will have an inverse relationship.
