FINA 3315 Exam 1 UPDATED ACTUAL
Exam Questions and CORRECT Answers
Portfolio risk is: - CORRECT ANSWER - not equal to the weighted average of the risks of
the individual securities in the portfolio.
Which of the following is unlikely to be found in an internet stock quotation? - CORRECT
ANSWER - broker's commission per 100 shares
Which of the following investments may be impacted by government actions? - CORRECT
ANSWER - corporate bonds
government bonds
stocks
There is strong evidence that investors who trade frequently outperform the market. - CORRECT
ANSWER - False
If net income rises, but the number of shares outstanding remains the same, EPS will rise. -
CORRECT ANSWER - True
The expected rate of return and standard deviations, respectively for four stocks are given below:
ABC 9%, 3%
CDE 11%, 9%
FGH 12%, 8%
IJK 14%, 10%
Which stock is clearly least desirable? - CORRECT ANSWER - CDE
Holding constant all other variables and excluding any interactions among the determinants of
value, which of the following would most likely increase a firm's price-to-earnings multiple? -
CORRECT ANSWER - The retention rate increases.
,The transaction costs of investing directly in
foreign−currency−denominated
assets can be reduced by purchasing American Depositary Shares (ADSs). - CORRECT
ANSWER - True
Which of the following statements concerning beta are correct?
I. Stock with high standard deviations of returns will always high betas.
II. The higher the beta, the higher the expected return.
III. A beta can be positive, negative, or equal to zero.
IV. A beta of .35 indicates a lower rate of risk than a beta of −0.50. - CORRECT
ANSWER - II, III, and IV Only
An exchange traded fund that invests in the stocks of large corporations is an example of -
CORRECT ANSWER - indirect investment.
Which one of the following types of risk cannot be effectively eliminated through portfolio
diversification? - CORRECT ANSWER - inflation risk
A negative beta means that on average a stock moves in the opposite direction of the market. -
CORRECT ANSWER - True
The index used to represent market returns is always assigned a beta of 1.0. - CORRECT
ANSWER - True
Although bear markets on average occur every 3 to 4 years, the timing of bear markets is very
hard to predict. - CORRECT ANSWER - True
Both modern portfolio theory and traditional portfolio management result in diversified
portfolios, but they take different approaches to diversification. - CORRECT ANSWER -
True
, Advantages of using American Depositary Receipts to participate in foreign markets include
I. lower transaction costs than for direct foreign stock purchases.
II. reduced exposure to foreign exchange risk.
III. dividends are paid in U.S. dollars.
IV. quotations are readily available from U.S. sources such as Yahoo Finance or MSN Money. -
CORRECT ANSWER - I, II and III only
When using the
constant−growth
dividend valuation model, which of the following will lower the value of the stock? - CORRECT
ANSWER - an increase in the required rate of return
The value of a stock is a function of - CORRECT ANSWER - future returns
incorrect,8.5-20
Question Help
The Highlight Company has a book value of $56.50 per share, and is currently trading at a price
of $59.00 per share. You are interested in investing in Highlight, and have just used a
present−value based stock valuation model to calculate a present (intrinsic) value of $55.00 per
share for Highlight's stock. Assuming that your calculations are correct you should - CORRECT
ANSWER - not buy the stock, because the present value is less than the market price per
share.
Traditional portfolio managers prefer well−known companies because
Exam Questions and CORRECT Answers
Portfolio risk is: - CORRECT ANSWER - not equal to the weighted average of the risks of
the individual securities in the portfolio.
Which of the following is unlikely to be found in an internet stock quotation? - CORRECT
ANSWER - broker's commission per 100 shares
Which of the following investments may be impacted by government actions? - CORRECT
ANSWER - corporate bonds
government bonds
stocks
There is strong evidence that investors who trade frequently outperform the market. - CORRECT
ANSWER - False
If net income rises, but the number of shares outstanding remains the same, EPS will rise. -
CORRECT ANSWER - True
The expected rate of return and standard deviations, respectively for four stocks are given below:
ABC 9%, 3%
CDE 11%, 9%
FGH 12%, 8%
IJK 14%, 10%
Which stock is clearly least desirable? - CORRECT ANSWER - CDE
Holding constant all other variables and excluding any interactions among the determinants of
value, which of the following would most likely increase a firm's price-to-earnings multiple? -
CORRECT ANSWER - The retention rate increases.
,The transaction costs of investing directly in
foreign−currency−denominated
assets can be reduced by purchasing American Depositary Shares (ADSs). - CORRECT
ANSWER - True
Which of the following statements concerning beta are correct?
I. Stock with high standard deviations of returns will always high betas.
II. The higher the beta, the higher the expected return.
III. A beta can be positive, negative, or equal to zero.
IV. A beta of .35 indicates a lower rate of risk than a beta of −0.50. - CORRECT
ANSWER - II, III, and IV Only
An exchange traded fund that invests in the stocks of large corporations is an example of -
CORRECT ANSWER - indirect investment.
Which one of the following types of risk cannot be effectively eliminated through portfolio
diversification? - CORRECT ANSWER - inflation risk
A negative beta means that on average a stock moves in the opposite direction of the market. -
CORRECT ANSWER - True
The index used to represent market returns is always assigned a beta of 1.0. - CORRECT
ANSWER - True
Although bear markets on average occur every 3 to 4 years, the timing of bear markets is very
hard to predict. - CORRECT ANSWER - True
Both modern portfolio theory and traditional portfolio management result in diversified
portfolios, but they take different approaches to diversification. - CORRECT ANSWER -
True
, Advantages of using American Depositary Receipts to participate in foreign markets include
I. lower transaction costs than for direct foreign stock purchases.
II. reduced exposure to foreign exchange risk.
III. dividends are paid in U.S. dollars.
IV. quotations are readily available from U.S. sources such as Yahoo Finance or MSN Money. -
CORRECT ANSWER - I, II and III only
When using the
constant−growth
dividend valuation model, which of the following will lower the value of the stock? - CORRECT
ANSWER - an increase in the required rate of return
The value of a stock is a function of - CORRECT ANSWER - future returns
incorrect,8.5-20
Question Help
The Highlight Company has a book value of $56.50 per share, and is currently trading at a price
of $59.00 per share. You are interested in investing in Highlight, and have just used a
present−value based stock valuation model to calculate a present (intrinsic) value of $55.00 per
share for Highlight's stock. Assuming that your calculations are correct you should - CORRECT
ANSWER - not buy the stock, because the present value is less than the market price per
share.
Traditional portfolio managers prefer well−known companies because
