Security Analysis Exam Questions with Correct Answers Graded A+
B - Answers 1. Which of the investment strategies is consistent with market efficiency?
a. Active management
b. Passive management
c. Investment in firms with high P/E ratios
d. Investment in firms with low to moderate P/E ratios
A - Answers 2. Which of the following techniques of indexing give the most accurate replication of the
underlying index?
a. Full replication
b. Sampling
c. Quadratic optimization
d. All of the above
e. b and c.
B - Answers 3. In the past 10 years, majority of the emerging markets ETFs _______.
a. overperformed their benchmark indexes
b. underperformed their benchmark indexes
c. there are no emerging markets ETFs
C - Answers 4. The S&P 500 index is composed of _____________.
a. only of value stocks
b. only of growth stocks
c. both value and growth stocks.
B - Answers 5. The bogey portfolio refers to ____________ .
a. the S&P 500 index.
b. a representative portfolio of a typical client of the fund.
, c. a representative portfolio of an U.S. investor.
d. the Russel 2000 index.
e. a portfolio consisting of 20% in the risk free asset and 80% in large cap equity.
C - Answers 6. Consider the Sharpe and Treynor performance measures. When a pension fund is large
and well diversified in total and it has many managers, the __________ measure is better for evaluating
individual managers while the __________ measure is better for evaluating the manager of a small fund
with only one manager responsible for all investments that may not be fully diversified.
a. Sharpe; Sharpe
b. Sharpe; Treynor
c. Treynor; Sharpe
d. Treynor; Treynor
B - Answers 7. Suppose that over the same time period two portfolios have the same average return and
the same standard deviation of return, but portfolio A has a higher beta than portfolio B. According to
the Sharpe measure, the performance of portfolio A __________.
a. is better than the performance of portfolio B
b. is the same as the performance of portfolio B
c. is poorer than the performance of portfolio B
d. cannot be measured since there is no data on the alpha of the portfolio
D - Answers 8. Morningstar's RAR produce results, which are similar but not identical to ________.
a. Jensen's alpha
b. M2
c. the Treynor ratio
d. the Sharpe ratio
A - Answers 9. The M2 measure is a variant of ________________.
a. the Sharpe measure
b. the Treynor measure
c. Jensen's alpha
B - Answers 1. Which of the investment strategies is consistent with market efficiency?
a. Active management
b. Passive management
c. Investment in firms with high P/E ratios
d. Investment in firms with low to moderate P/E ratios
A - Answers 2. Which of the following techniques of indexing give the most accurate replication of the
underlying index?
a. Full replication
b. Sampling
c. Quadratic optimization
d. All of the above
e. b and c.
B - Answers 3. In the past 10 years, majority of the emerging markets ETFs _______.
a. overperformed their benchmark indexes
b. underperformed their benchmark indexes
c. there are no emerging markets ETFs
C - Answers 4. The S&P 500 index is composed of _____________.
a. only of value stocks
b. only of growth stocks
c. both value and growth stocks.
B - Answers 5. The bogey portfolio refers to ____________ .
a. the S&P 500 index.
b. a representative portfolio of a typical client of the fund.
, c. a representative portfolio of an U.S. investor.
d. the Russel 2000 index.
e. a portfolio consisting of 20% in the risk free asset and 80% in large cap equity.
C - Answers 6. Consider the Sharpe and Treynor performance measures. When a pension fund is large
and well diversified in total and it has many managers, the __________ measure is better for evaluating
individual managers while the __________ measure is better for evaluating the manager of a small fund
with only one manager responsible for all investments that may not be fully diversified.
a. Sharpe; Sharpe
b. Sharpe; Treynor
c. Treynor; Sharpe
d. Treynor; Treynor
B - Answers 7. Suppose that over the same time period two portfolios have the same average return and
the same standard deviation of return, but portfolio A has a higher beta than portfolio B. According to
the Sharpe measure, the performance of portfolio A __________.
a. is better than the performance of portfolio B
b. is the same as the performance of portfolio B
c. is poorer than the performance of portfolio B
d. cannot be measured since there is no data on the alpha of the portfolio
D - Answers 8. Morningstar's RAR produce results, which are similar but not identical to ________.
a. Jensen's alpha
b. M2
c. the Treynor ratio
d. the Sharpe ratio
A - Answers 9. The M2 measure is a variant of ________________.
a. the Sharpe measure
b. the Treynor measure
c. Jensen's alpha
