FINA 3315 MIDTERM #1 QUESTIONS AND CORRECT
DETAILED ANSWERS (VERIFIED ANSWERS) ALREADY
GRADED A+
Commonly used multiples for determining a stock's value include
I. price to earnings.
II. price to sales.
III. price to cash flow.
IV. price to dividends. Ans✓✓✓I, II and III only
Traditional portfolio managers prefer well − known companies because
I. stocks of well − known firms tend to be less risky than stocks of lesser
− known firms.
II. individuals are more apt to purchase a mutual fund if it contains
stocks of well − known firms.
III. window dressing encourages the purchase of well − known stocks.
IV. institutional investors tend to exhibit "herd − like" behavior.
Ans✓✓✓I, II , III and IV
Combining uncorrelated assets will Ans✓✓✓decrease the overall risk
level of a portfolio.
To compute the present value of $1,000 annuity received at the end of
each of the next three years and discounted at the
rate of 5% per year, you should use which of the following EXCEL
commands? Ans✓✓✓PV
,Which one of the following types of risk cannot be effectively
eliminated through portfolio diversification? Ans✓✓✓inflation risk
Beginning investors with small amounts to invest should Ans✓✓✓buy
mutual funds or exchange traded funds (ETFs).
Which of the following is not a weighting scheme commonly used in
creating equity market indexes? Ans✓✓✓industry-weighted.
The date on which an investor must be a registered shareholder of the
firm in order to receive a dividend is called the Ans✓✓✓date of record.
Companies offering their stock to the public for the first time usually
seek the assistance of Ans✓✓✓investment bankers.
is not unusual for bear markets to occur two or more times in any given
10 year period. Ans✓✓✓True
Which of the following statements about short selling is (are) true?
I. Short selling requires an initial margin deposit.
II. Short sellers begin a transaction with a sale and end it with a
purchase.
III. Short sellers profit when the stock prices rises.
, IV. Short selling can be a risky strategy Ans✓✓✓I, II and IV only
Electronic trading systems have increased transaction costs of odd − lot
trades. Ans✓✓✓False
Which of the following best describes the relationship between a stock's
beta and the standard deviation of the stock's
returns? Ans✓✓✓The relationship depends on the correlation between
the stock's returns and the market's
returns
The market rate of return increased by 8% while the rate of return on
XYZ stock increased by 4%. The beta of XYZ stock
is Ans✓✓✓0.50.
The government is generally Ans✓✓✓a demander of funds in the
financial market
The index used to represent market returns is always assigned a beta of
1.0. Ans✓✓✓True
The best stock to own when the stock market is at a peak and is expected
to decline in value is one with a beta of Ans✓✓✓- 1.0.
DETAILED ANSWERS (VERIFIED ANSWERS) ALREADY
GRADED A+
Commonly used multiples for determining a stock's value include
I. price to earnings.
II. price to sales.
III. price to cash flow.
IV. price to dividends. Ans✓✓✓I, II and III only
Traditional portfolio managers prefer well − known companies because
I. stocks of well − known firms tend to be less risky than stocks of lesser
− known firms.
II. individuals are more apt to purchase a mutual fund if it contains
stocks of well − known firms.
III. window dressing encourages the purchase of well − known stocks.
IV. institutional investors tend to exhibit "herd − like" behavior.
Ans✓✓✓I, II , III and IV
Combining uncorrelated assets will Ans✓✓✓decrease the overall risk
level of a portfolio.
To compute the present value of $1,000 annuity received at the end of
each of the next three years and discounted at the
rate of 5% per year, you should use which of the following EXCEL
commands? Ans✓✓✓PV
,Which one of the following types of risk cannot be effectively
eliminated through portfolio diversification? Ans✓✓✓inflation risk
Beginning investors with small amounts to invest should Ans✓✓✓buy
mutual funds or exchange traded funds (ETFs).
Which of the following is not a weighting scheme commonly used in
creating equity market indexes? Ans✓✓✓industry-weighted.
The date on which an investor must be a registered shareholder of the
firm in order to receive a dividend is called the Ans✓✓✓date of record.
Companies offering their stock to the public for the first time usually
seek the assistance of Ans✓✓✓investment bankers.
is not unusual for bear markets to occur two or more times in any given
10 year period. Ans✓✓✓True
Which of the following statements about short selling is (are) true?
I. Short selling requires an initial margin deposit.
II. Short sellers begin a transaction with a sale and end it with a
purchase.
III. Short sellers profit when the stock prices rises.
, IV. Short selling can be a risky strategy Ans✓✓✓I, II and IV only
Electronic trading systems have increased transaction costs of odd − lot
trades. Ans✓✓✓False
Which of the following best describes the relationship between a stock's
beta and the standard deviation of the stock's
returns? Ans✓✓✓The relationship depends on the correlation between
the stock's returns and the market's
returns
The market rate of return increased by 8% while the rate of return on
XYZ stock increased by 4%. The beta of XYZ stock
is Ans✓✓✓0.50.
The government is generally Ans✓✓✓a demander of funds in the
financial market
The index used to represent market returns is always assigned a beta of
1.0. Ans✓✓✓True
The best stock to own when the stock market is at a peak and is expected
to decline in value is one with a beta of Ans✓✓✓- 1.0.
