TEST BANK
INVESTMENTS ANALYSIS AND MANAGEMENT
,Chapter 1 Understanding Investments
Multiple Choice
1. Which Of The Following Is The Best Definition Of Wealth?
a. The Sum Of All Current And Future Income
b. The Total Of All Assets And All Income
c. The Total Of Assets And Income Less Any Liabilities
d. The Sum Of Current Income And The Present Value Of Future Income
Answer: D
Difficulty: Moderate
Ref: Establishing A Framework For Investors
2. Gold Coins Would Be Classified As:
a. Real Assets.
b. Indirect Assets.
c. Personal Assets.
d. Financial Assets.
Answer: A
Difficulty: Easy
Ref: Establishing A Framework For Investors
3. Technically, Investments Include:
a. Only Financial Assets.
b. Only Marketable Assets.
c. Financial And Real Assets That Are Marketable Or Non-Marketable.
d. Only Financial And Real Assets That Are Marketable.
Answer: C
Difficulty: Easy
Ref: Establishing A Framework For Investors
4. The Retirement Plans That Guarantee Retirees A Set Amount Of Money Each
Month Are Known As:
a. 401(K) Plans.
b. Self-Directed Plans.
c. Defined-Benefit Plans.
d. Defined-Contribution Plans.
,Answer: C
Difficulty: Moderate
Ref: Establishing A Framework For Investors
5. The Investment Professionals That Arrange The Sale Of New
Securities Are Called:
a. Arbitragers.
b. Traders.
c. Investment Bankers.
d. Specialists.
Answer: C
Difficulty: Moderate
Ref: The Importance Of Studying Investments
6. Another Name For Stockbrokers Is:
a. Specialists.
b. Financial Advisors.
c. Security Analysts.
d. Portfolio Managers.
Answer: B
Difficulty: Moderate
Ref: The Importance Of Studying Investments
7. Investment Professionals Who Take Companies Public, Arrange Mergers
And Acquisitions, And Participate In Municipal Bond Issues Are:
a. Registered Representatives.
b. Security Analysts.
c. Investment Bankers.
d. Portfolio Managers.
Answer: C
Difficulty: Moderate
Ref: The Importance Of Studying Investments
8. One Reason For The Declining Importance Of Pension Funds Is The:
a. Decrease In Pension Benefits For Workers.
b. Downsizing Of U.S. Companies.
c. Large Number Of Conversions Into Self-Directed Plans.
d. Increasing Number Of Federal Regulations That Restrict Pension Fund Portfolios.
Answer: C
Difficulty: Difficult
Ref: The Importance Of Studying Investments
,9. Most Financial Advisors Are Registered With The Securities And
Exchange Commission As:
a. Registered Representatives.
b. Registered Investment Advisors.
c. Registered Financial Planners.
d. Registered Securities Consultants.
Answer: B
Difficulty: Moderate
Ref: The Importance Of Studying Investments
10. A Chartered Financial Analyst Designation Is A(N)
a. SEC-Approved And Awarded Designation.
b. Certification Of A Successful Investing Record.
c. Professional Designation Awarded For Meeting Recognized Standards Of
Conduct And Competency.
d. Professional Designation Awarded By The Brokerage Industry.
Answer: C
Difficulty: Easy
Ref: The Importance Of Studying Investments
11. Underlying All Investments Is The Tradeoff Between:
a. Expected Return And Actual Return.
b. Low Risk And High Risk.
c. Actual Return And High Risk.
d. Expected Return And Risk.
Answer: D
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
12. Which Of The Following Investment Areas Relies Heavily On
Mathematical And Statistical Models?
a. Security Analysis
b. Portfolio Management
c. Institutional Investing
d. Retirement Planning
Answer: B
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
,13. Most Investors Are Risk Averse, Which MeAnswer:
a. They Will Assume More Risk Only If They Are Compensated By Higher
Expected Return.
b. They Will Always Invest In The Investment With The Lowest Possible Risk.
c. They Actively Seek To Minimize Their Risks.
d. They Avoid The Stock Market Due To The High Degree Of Risk.
Answer: A
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
14. Which Of The Following Would Be Considered A Risk-Free Investment?
a. Gold
b. Equity In A House
c. High-Grade Corporate Bonds
d. U.S. Treasury Bills
Answer: D
Difficulty: Easy
Ref: Understanding The Investment Decision Process
15. Security Analysis Is Most Concerned With:
a. Analysis Of The Overall Securities Market And Its Direction.
b. Valuation And Analysis Of Individual Securities.
c. Purchasing Securities At The Best Price.
d. Determination Of The Investor’s Required Return.
Answer: B
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
16. In General, The Ex Ante Risk-Return Tradeoff:
a. Slopes Upward.
b. Slopes Downward.
c. Is Flat.
d. Is Impossible To Determine.
Answer: A
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
,17. International Investing:
a. Is Only Practical For Institutional Investors.
b. Increases The Overall Risk Of A Stock Portfolio.
c. Always Leads To Higher Returns Than A Domestic Portfolio.
d. Can Reduce Risk Due To Increased Diversification.
Answer: D
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
18. Investment Decision Making Traditionally Consists Of Two Steps:
a. Investment Banking And Security Analysis.
b. Buying And Selling.
c. Risk And Expected Return.
d. Security Analysis And Portfolio Management.
Answer: D
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
19. Which Of The Following Statements Concerning Global Stock Market
Capitalization Is True?
a. The United States Accounts For Roughly 65 Percent Of Stock Market
Capitalization Worldwide.
b. The United States Accounts For Roughly 40 Percent Of Stock Market
Capitalization Worldwide.
c. The United States Accounts For Roughly 25 Percent Of Stock Market Capitalization.
d. It Is Expected That The United States Will Increase Its Future Percentage Of
Global Stock Market Capitalization.
Answer: B
Difficulty: Moderate
Ref: Important Considerations In The Investment Decision Process For Today's Investor
20. Regulation FD Applies To Disclosure Between:
a. Private Companies And Public Officials.
b. Public Companies And Investment Professionals.
c. Public Companies And Public Officials.
d. Private Companies And Investment Professionals.
Answer: B
Difficulty: Moderate
Ref: Important Considerations In The Investment Decision Process For Today's Investor
,21. Which Of The Following Statements Is True Regarding Multi-National Corporations?
a. Exxon Mobil Earns The Majority Of Its Profits From Its Overseas Operations.
b. Google Currently Derives The Majority Of Its Earnings From Outside The U.S.
c. Wal-Mart Earns The Majority Of Its Profits From Outside The U.S.
d. Coca-Cola Has No Overseas Operations And No Earnings Outside The U.S.
Answer: A
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
22. The Rise Of The Internet Has:
a. Greatly Increased The Cost Of Security Trading.
b. Significantly Democratized The Flow Of Investment Information.
c. Led To Fewer Discount Brokers.
d. Led To Large Amounts Of Security Fraud.
Answer: B
Difficulty: Moderate
Ref: Important Considerations In The Investment Decision Process For Today's Investor
23. Which Of The Following Professionals Would Be Considered An
Institutional Investor?
a. Investment Banker
b. Security Analyst
c. Stockbroker
d. Portfolio Manager
Answer: D
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
24. The Risk-Free Rate Of Return (RF) Equals:
a. 0.0%.
b. The Rate On The Bonds Of Financially Sound Corporations.
c. The Average Of The Last 3 Years’ Inflation Rate.
d. The Return On Treasury Securities.
Answer: D
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
,25. Which Of The Following Is Not A Benefit Of Geographic Diversification?
a. Gaining Exposure To Currencies Other Than The U.S. Dollar.
b. Some Global Markets Have Growth Rates Higher Than The U.S., Offering
Potentially Higher Returns.
c. Global Markets Behave Completely Independently Of U.S. Markets.
d. Many Global Markets Are Not Highly Correlated With U.S. Markets.
Answer: C
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
True-False Questions
1. A 401(K) Plan Is An Example Of A Defined-Benefit Retirement Plan.
Answer: False
Difficulty: Moderate
Ref: The Importance Of Studying Investments
2. Investors Always Seek To Minimize Their Risk Of Investing.
Answer: False
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
3. Both 401(K) Plans And Iras Are Self-Directed Retirement Plans.
Answer: True
Difficulty: Easy
Ref: Understanding The Investment Decision Process
4. The Two Major Considerations In Investing Are Return And Timing.
Answer: False
Difficulty: Easy
Ref: Understanding The Investment Decision Process
5. Risk Is Defined As The Possibility Of Loss.
Answer: False
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
6. The Minimum Actual Return Necessary To Induce Investors To Invest Is
Known As The Expected Return.
,Answer: False
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
7. Investors Unwilling To Assume Risk Should Be Satisfied With The
Rate Of Inflation As Their Investment Return.
Answer: False
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
8. Security Analysts Are Typically Employed Only At Brokerage Houses.
Answer: False
Difficulty: Moderate
Ref: Importance Of Studying Investments
9. Financial Planners Must Pass A Standardized Test And Possess
Certain Credentials.
Answer: False
Difficulty: Easy
Ref: Importance Of Studying Investments
10. Many Wall Street Jobs Tend To Be Cyclical In Nature.
Answer: True
Difficulty: Easy
Ref: Importance Of Studying Investments
11. Due To The Internet, Institutional Investors Have Gained In Importance.
Answer: False
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
Short-Answer Questions
1. Briefly Explain The Difference Between Expected Returns And Realized
Returns And Between Ex Ante Returns And Ex Post Returns.
Answer: Expected Returns Are Mean Returns Based On Probability Distributions
Dealing With The Future. Realized Returns Are The Returns That
Actually Occurred In The Past. Ex Ante Returns Are In The Future. Ex
Post Returns Are In The Past.
Difficulty: Moderate
, 2. What Are Some Of The Career Opportunities In The Investment Industry?
Answer: Investment Banker, Merger And Acquisition Specialist, Security
Traders, Sales People, Security Analyst, Portfolio Manager, Registered
Investment Advisor And Financial Planner.
Difficulty: Moderate
3. Define Risk In The Context Of Investments.
Answer: Risk Is The Chance That The Actual Return On An Investment Will
Differ From Its Expected Return.
Difficulty: Moderate
4. Will Risk-Averse Investors Ever Include Commodity Futures Or Options In
Their Portfolios? Explain.
Answer: They May Include These Items In Their Portfolios Since Risk-Averse Is
Not The Same Thing As Risk Avoidance. Risk-Averse Investors Would
Expect A Higher Return From These Assets As They Are Riskier Than
Many Other Assets.
Difficulty: Moderate
5. Martha Stewart Was Banned From Serving As An Officer Of A Public
Corporation, Sentenced To 5 Months In Prison, And Fined $30,000. Why?
Answer: Contrary To Popular Belief, She Was Not Charged With Insider Trading
But Obstruction Of Justice Due To Her Efforts To Hide Her Alleged
Insider Trading.
Difficulty: Moderate
6. A 25-Year Old College Graduate Is Participating In A 401(K) Retirement Plan
And Wishes To Minimize Risk By Eliminating Stock-Based Mutual Funds And
Other Equities From His Investment Portfolio. What Will This Probably Do To
His Ending Retirement Funds In 40 Years?
Answer: If He Minimizes Risk, Then He Will Also Minimize Return. His
Retirement Fund Will Likely Be Much Smaller Than If He Chose To
Take More Risk Over The Long Run.
Difficulty: Moderate
INVESTMENTS ANALYSIS AND MANAGEMENT
,Chapter 1 Understanding Investments
Multiple Choice
1. Which Of The Following Is The Best Definition Of Wealth?
a. The Sum Of All Current And Future Income
b. The Total Of All Assets And All Income
c. The Total Of Assets And Income Less Any Liabilities
d. The Sum Of Current Income And The Present Value Of Future Income
Answer: D
Difficulty: Moderate
Ref: Establishing A Framework For Investors
2. Gold Coins Would Be Classified As:
a. Real Assets.
b. Indirect Assets.
c. Personal Assets.
d. Financial Assets.
Answer: A
Difficulty: Easy
Ref: Establishing A Framework For Investors
3. Technically, Investments Include:
a. Only Financial Assets.
b. Only Marketable Assets.
c. Financial And Real Assets That Are Marketable Or Non-Marketable.
d. Only Financial And Real Assets That Are Marketable.
Answer: C
Difficulty: Easy
Ref: Establishing A Framework For Investors
4. The Retirement Plans That Guarantee Retirees A Set Amount Of Money Each
Month Are Known As:
a. 401(K) Plans.
b. Self-Directed Plans.
c. Defined-Benefit Plans.
d. Defined-Contribution Plans.
,Answer: C
Difficulty: Moderate
Ref: Establishing A Framework For Investors
5. The Investment Professionals That Arrange The Sale Of New
Securities Are Called:
a. Arbitragers.
b. Traders.
c. Investment Bankers.
d. Specialists.
Answer: C
Difficulty: Moderate
Ref: The Importance Of Studying Investments
6. Another Name For Stockbrokers Is:
a. Specialists.
b. Financial Advisors.
c. Security Analysts.
d. Portfolio Managers.
Answer: B
Difficulty: Moderate
Ref: The Importance Of Studying Investments
7. Investment Professionals Who Take Companies Public, Arrange Mergers
And Acquisitions, And Participate In Municipal Bond Issues Are:
a. Registered Representatives.
b. Security Analysts.
c. Investment Bankers.
d. Portfolio Managers.
Answer: C
Difficulty: Moderate
Ref: The Importance Of Studying Investments
8. One Reason For The Declining Importance Of Pension Funds Is The:
a. Decrease In Pension Benefits For Workers.
b. Downsizing Of U.S. Companies.
c. Large Number Of Conversions Into Self-Directed Plans.
d. Increasing Number Of Federal Regulations That Restrict Pension Fund Portfolios.
Answer: C
Difficulty: Difficult
Ref: The Importance Of Studying Investments
,9. Most Financial Advisors Are Registered With The Securities And
Exchange Commission As:
a. Registered Representatives.
b. Registered Investment Advisors.
c. Registered Financial Planners.
d. Registered Securities Consultants.
Answer: B
Difficulty: Moderate
Ref: The Importance Of Studying Investments
10. A Chartered Financial Analyst Designation Is A(N)
a. SEC-Approved And Awarded Designation.
b. Certification Of A Successful Investing Record.
c. Professional Designation Awarded For Meeting Recognized Standards Of
Conduct And Competency.
d. Professional Designation Awarded By The Brokerage Industry.
Answer: C
Difficulty: Easy
Ref: The Importance Of Studying Investments
11. Underlying All Investments Is The Tradeoff Between:
a. Expected Return And Actual Return.
b. Low Risk And High Risk.
c. Actual Return And High Risk.
d. Expected Return And Risk.
Answer: D
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
12. Which Of The Following Investment Areas Relies Heavily On
Mathematical And Statistical Models?
a. Security Analysis
b. Portfolio Management
c. Institutional Investing
d. Retirement Planning
Answer: B
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
,13. Most Investors Are Risk Averse, Which MeAnswer:
a. They Will Assume More Risk Only If They Are Compensated By Higher
Expected Return.
b. They Will Always Invest In The Investment With The Lowest Possible Risk.
c. They Actively Seek To Minimize Their Risks.
d. They Avoid The Stock Market Due To The High Degree Of Risk.
Answer: A
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
14. Which Of The Following Would Be Considered A Risk-Free Investment?
a. Gold
b. Equity In A House
c. High-Grade Corporate Bonds
d. U.S. Treasury Bills
Answer: D
Difficulty: Easy
Ref: Understanding The Investment Decision Process
15. Security Analysis Is Most Concerned With:
a. Analysis Of The Overall Securities Market And Its Direction.
b. Valuation And Analysis Of Individual Securities.
c. Purchasing Securities At The Best Price.
d. Determination Of The Investor’s Required Return.
Answer: B
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
16. In General, The Ex Ante Risk-Return Tradeoff:
a. Slopes Upward.
b. Slopes Downward.
c. Is Flat.
d. Is Impossible To Determine.
Answer: A
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
,17. International Investing:
a. Is Only Practical For Institutional Investors.
b. Increases The Overall Risk Of A Stock Portfolio.
c. Always Leads To Higher Returns Than A Domestic Portfolio.
d. Can Reduce Risk Due To Increased Diversification.
Answer: D
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
18. Investment Decision Making Traditionally Consists Of Two Steps:
a. Investment Banking And Security Analysis.
b. Buying And Selling.
c. Risk And Expected Return.
d. Security Analysis And Portfolio Management.
Answer: D
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
19. Which Of The Following Statements Concerning Global Stock Market
Capitalization Is True?
a. The United States Accounts For Roughly 65 Percent Of Stock Market
Capitalization Worldwide.
b. The United States Accounts For Roughly 40 Percent Of Stock Market
Capitalization Worldwide.
c. The United States Accounts For Roughly 25 Percent Of Stock Market Capitalization.
d. It Is Expected That The United States Will Increase Its Future Percentage Of
Global Stock Market Capitalization.
Answer: B
Difficulty: Moderate
Ref: Important Considerations In The Investment Decision Process For Today's Investor
20. Regulation FD Applies To Disclosure Between:
a. Private Companies And Public Officials.
b. Public Companies And Investment Professionals.
c. Public Companies And Public Officials.
d. Private Companies And Investment Professionals.
Answer: B
Difficulty: Moderate
Ref: Important Considerations In The Investment Decision Process For Today's Investor
,21. Which Of The Following Statements Is True Regarding Multi-National Corporations?
a. Exxon Mobil Earns The Majority Of Its Profits From Its Overseas Operations.
b. Google Currently Derives The Majority Of Its Earnings From Outside The U.S.
c. Wal-Mart Earns The Majority Of Its Profits From Outside The U.S.
d. Coca-Cola Has No Overseas Operations And No Earnings Outside The U.S.
Answer: A
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
22. The Rise Of The Internet Has:
a. Greatly Increased The Cost Of Security Trading.
b. Significantly Democratized The Flow Of Investment Information.
c. Led To Fewer Discount Brokers.
d. Led To Large Amounts Of Security Fraud.
Answer: B
Difficulty: Moderate
Ref: Important Considerations In The Investment Decision Process For Today's Investor
23. Which Of The Following Professionals Would Be Considered An
Institutional Investor?
a. Investment Banker
b. Security Analyst
c. Stockbroker
d. Portfolio Manager
Answer: D
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
24. The Risk-Free Rate Of Return (RF) Equals:
a. 0.0%.
b. The Rate On The Bonds Of Financially Sound Corporations.
c. The Average Of The Last 3 Years’ Inflation Rate.
d. The Return On Treasury Securities.
Answer: D
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
,25. Which Of The Following Is Not A Benefit Of Geographic Diversification?
a. Gaining Exposure To Currencies Other Than The U.S. Dollar.
b. Some Global Markets Have Growth Rates Higher Than The U.S., Offering
Potentially Higher Returns.
c. Global Markets Behave Completely Independently Of U.S. Markets.
d. Many Global Markets Are Not Highly Correlated With U.S. Markets.
Answer: C
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
True-False Questions
1. A 401(K) Plan Is An Example Of A Defined-Benefit Retirement Plan.
Answer: False
Difficulty: Moderate
Ref: The Importance Of Studying Investments
2. Investors Always Seek To Minimize Their Risk Of Investing.
Answer: False
Difficulty: Moderate
Ref: Understanding The Investment Decision Process
3. Both 401(K) Plans And Iras Are Self-Directed Retirement Plans.
Answer: True
Difficulty: Easy
Ref: Understanding The Investment Decision Process
4. The Two Major Considerations In Investing Are Return And Timing.
Answer: False
Difficulty: Easy
Ref: Understanding The Investment Decision Process
5. Risk Is Defined As The Possibility Of Loss.
Answer: False
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
6. The Minimum Actual Return Necessary To Induce Investors To Invest Is
Known As The Expected Return.
,Answer: False
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
7. Investors Unwilling To Assume Risk Should Be Satisfied With The
Rate Of Inflation As Their Investment Return.
Answer: False
Difficulty: Difficult
Ref: Understanding The Investment Decision Process
8. Security Analysts Are Typically Employed Only At Brokerage Houses.
Answer: False
Difficulty: Moderate
Ref: Importance Of Studying Investments
9. Financial Planners Must Pass A Standardized Test And Possess
Certain Credentials.
Answer: False
Difficulty: Easy
Ref: Importance Of Studying Investments
10. Many Wall Street Jobs Tend To Be Cyclical In Nature.
Answer: True
Difficulty: Easy
Ref: Importance Of Studying Investments
11. Due To The Internet, Institutional Investors Have Gained In Importance.
Answer: False
Difficulty: Difficult
Ref: Important Considerations In The Investment Decision Process For Today's Investor
Short-Answer Questions
1. Briefly Explain The Difference Between Expected Returns And Realized
Returns And Between Ex Ante Returns And Ex Post Returns.
Answer: Expected Returns Are Mean Returns Based On Probability Distributions
Dealing With The Future. Realized Returns Are The Returns That
Actually Occurred In The Past. Ex Ante Returns Are In The Future. Ex
Post Returns Are In The Past.
Difficulty: Moderate
, 2. What Are Some Of The Career Opportunities In The Investment Industry?
Answer: Investment Banker, Merger And Acquisition Specialist, Security
Traders, Sales People, Security Analyst, Portfolio Manager, Registered
Investment Advisor And Financial Planner.
Difficulty: Moderate
3. Define Risk In The Context Of Investments.
Answer: Risk Is The Chance That The Actual Return On An Investment Will
Differ From Its Expected Return.
Difficulty: Moderate
4. Will Risk-Averse Investors Ever Include Commodity Futures Or Options In
Their Portfolios? Explain.
Answer: They May Include These Items In Their Portfolios Since Risk-Averse Is
Not The Same Thing As Risk Avoidance. Risk-Averse Investors Would
Expect A Higher Return From These Assets As They Are Riskier Than
Many Other Assets.
Difficulty: Moderate
5. Martha Stewart Was Banned From Serving As An Officer Of A Public
Corporation, Sentenced To 5 Months In Prison, And Fined $30,000. Why?
Answer: Contrary To Popular Belief, She Was Not Charged With Insider Trading
But Obstruction Of Justice Due To Her Efforts To Hide Her Alleged
Insider Trading.
Difficulty: Moderate
6. A 25-Year Old College Graduate Is Participating In A 401(K) Retirement Plan
And Wishes To Minimize Risk By Eliminating Stock-Based Mutual Funds And
Other Equities From His Investment Portfolio. What Will This Probably Do To
His Ending Retirement Funds In 40 Years?
Answer: If He Minimizes Risk, Then He Will Also Minimize Return. His
Retirement Fund Will Likely Be Much Smaller Than If He Chose To
Take More Risk Over The Long Run.
Difficulty: Moderate
