Question :1) Marco owns the following portfolio of stocks. What is the expected return on his portfolio?
A) 5.5%
B) 6.6%
C) 4.7%
D) 8.0%
2) Combining uncorrelated assets will
A) increase the overall risk level of a portfolio.
B) decrease the overall risk level of a portfolio.
C) not change the overall risk level of a portfolio.
D) cause the other assets in the portfolio to become positively related.
3) The returns on the stock of DEF and GHI companies over a 4 year period are shown below:
Year DEF GHI
8% 11%
12% 9%
-5% -9%
6% 13%
From this limited data you should conclude that returns on
A) DEF and GHI are negatively correlated.
B) DEF and GHI are somewhat positively correlated.
C) DEF and GHI are perfectly positively correlated.
D) DEF and GHI are uncorrelated.
4) Which of the following represent systematic risks?
I. the president of a company suddenly resigns
II. the economy goes into a recessionary period
III. a company''s product is recalled for defects
IV. the Federal Reserve unexpectedly changes interest rates
A) I, II and IV only
B) II and IV only
C) I and III only
D) I, II and III only
5) Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?
A) inflation risk
B) labor problems
C) materials shortages
D) product recalls
6) The stock of ABC, Inc. has a beta of .80. The market rate of return is expected to increase by by 5%. Beta predicts that ABC stock should
A) increase in value by 6.25%.
B) increase in value by 4.0%.
C) decrease in value by 1.0%.
D) increase in value by .8%.
7) Which of the following factors comprise the CAPM?
I. dividend yield
II. risk-free rate of return
III. the expected rate of return on the market
IV. risk premium for the firm
A) I and III only
B) II and IV only
C) III and IV only
D) II, III and IV only
8) Small company stocks are yielding 10.7% while the U.S. Treasury bill has a 1.3% yield and a bank savings account is yielding 0.8%. What is the risk premium on small company stocks?
A) 10.7%
B) 9.4%
C) 12.0%
D) 9.9%
9) Modern portfolio theory does not consider diversifiable risk relevant because
A) it is easy to eliminate.
B) it is impossible to eliminate.
C) its effects are unpredictable.
D) its effects are too small to make a difference in portfolio returns.
10) Which of the following will always lower a portfolio''s beta?
I. Diversify among different types of securities and across industry and geographic lines.
II. Add investments with low betas to the portfolio.
III. Hold more cash or Treasury Bills in the portfolio.
IV. Reduce the percentage of the portfolio invested in high beta securities.
A) I, II and IV only
B) II, III and IV only
C) I, II and III only
D) I, II, III and IV
11) Which one of the following statements about common stock is true?
A) Common stock can provide attractive capital appreciation opportunities.
B) Dividends generally provide the greatest rate of return on common stocks.
C) Common stocks generally have a negative rate of return over a ten-year period.
D) The DJIA is the best indicator of the overall performance of common stocks.
12) The extraordinary run up in stock prices during the late 1990s primarily affected
A) energy stocks.
B) retail stocks.
C) pharmaceutical stocks.
D) technology stocks.
13) Which one of the following statements about common stock is correct?
A) Each share of stock has a specified maturity date.
B) Common stock gives stockholders first title to a share of the company''s earnings, prior to other corporate obligations.
C) Common stock typically provides higher levels of current income than do similar grade corporate bonds.
D) Each share of common stock of a given class entitles the holder to an equal ownership position and an equal vote in the corporation.
14) Rob owns 300 shares of Blackwood common stock valued at $9 a share. Blackwood has declared a 3-for-1 stock split effective tomorrow. After the split, Rob will own
A) 100 shares valued at about $27 a share.
B) 100 shares valued at about $3 a share.
C) 900 shares valued at about $27 a share.
D) 900 shares valued at about $3 a share.
15) What are the effects of a company repurchasing its own stock as Treasury shares?
A) usually negative in the short term but uncertain over the long term
B) usually positive in the short term but uncertain over the long term
C) usually positive in both the short term and the long term
D) no effect in either the short term or the long term
16) Assume the Plum Corporation has two different issues of common stock. One issue carries voting rights, and the other issue does not. In this situation, Plum is said to have issued
A) buy-back stock.
B) treasury stock.
C) OTC stock.
D) classified stock.
17) Westlake Industries has total assets of $42.5 million, total debt of $29.3 million, and $2.4 million of 6% preferred stock outstanding. If the company has 250,000 shares of common stock outstanding, its book value per share would be
A) $32.33.
B) $33.60.
C) $43.20.
D) $52.80.
18) The stock listing for a company shows a P/E of 18, a dividend yield of 2.4% and a closing price of $23.76. What is the amount of dividends per share?
A) $0.03
B) $0.57
C) $1.03
D) $1.32
19) The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex-dividend date was July 15, the date of record was July 18, and the payment date was July 28. If you had owned 100 shares of the Limberger Corporation and sold them on July 15, then
A) you would collect $10.00 in dividends, and the purchaser would not collect any dividends.
B) the purchaser would collect $10.00 in dividends, and you would not collect any dividends.
C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends.
D) neither you nor the purchaser would collect any money in dividends.
20) Which of the following best fits the description "defensive stock"?
A) Facebook
B) Walmart
C) Samsung
D) Tesla Motors
21) One of the basic premises of security analysis, and in particular fundamental analysis, is that
A) a stock''s price is based on its past cash flows rather than on anticipated future cash flows.
B) market sectors do not move in concert with business cycles.
C) all securities have an intrinsic value that their market value will approach over time.
D) a security''s risk has relatively little effect on the security''s return.
22) Rising corporate profits are likely to have the greatest effect on which of the following industrial sectors?
A) business equipment
B) defense
C) food and agriculture
D) consumer durables
23) Which of the following tend to signal that stock prices are likely to rise in the future?
I. Employment increases after several months of recession.
II. Interest rates are low compared to the recent past.
III. Major market indexes have just reached record highs.
IV. Housing starts increase after several months of decline.
A) I and II only
B) II and III only
C) I, II and IV only
D) I, II, III and IV
24) Which of the following factors are considered when analyzing an industry?
I. the nature and conditions of governmental regulations
II. the involvement and relations, if any, with labor unions
III. the development of new technologies relevant to the industry
IV. the extent of competition within the industry
A) I, II and IV only
B) II, III and IV only
C) I, II and III only
D) I, II, III and IV
25) Well managed companies rarely reach the decline stage because
A) the world''s population is growing.
B) they continuously develop new products to meet the needs of changing markets.
C) consumers remain loyal to established brands.
D) all of the above.
26) Which of the following accounting practices are potentially misleading or even fraudulent?
I. writing off goodwill as an extraordinary loss
II. using accrual rather than cash basis reporting
III. off-balance sheet liabilities
IV. recognizing revenues prematurely
A) I and II only
B) I, II and IV only
C) III and IV only
D) I, III and IV only
27) Which of the following would be typical of a Statement of Cash Flows for a healthy firm in a sustainable business?
A) Cash flow from operations is negative, cash flows from investment activities and financing activities are positive.
B) Cash flow from operations , investment activities and financing activities must all be positive.
C) Cash flow from operations is positive, cash flows from investment activities and financing activities are negative.
D) If the Statement shows a net increase in cash, the source is unimportant.
28) To determine whether a company is using leverage effectively, an analyst should consider
A) the current ratio and net working capital.
B) inventory, accounts receivable and total asset turnover ratios.
C) the debt to equity and times interest earned ratios.
D) ROA and the net profit margin.
29) Substituting EBITDA for EBIT when computing the times interest earned ratio will make the company appear
A) more leveraged.
B) less leveraged.
C) more profitable.
D) less efficient.
30) The PEG ratio
A) preferred by investors is equal to 2.0 or higher.
B) compares the price/earnings ratio to the rate of growth of the company''s earnings.
C) is a measure of a firm''s liquidity.
D) measures the ability of a firm''s assets to generate growth for the firm.
31) Which of the following contributes to high P/E ratios?
A) high dividend payout ratios
B) high rate of earnings growth
C) periods of high inflation
D) high debt ratios
32) P/E ratios could rise even as earnings fall if
A) earnings fall at a faster rate than stock prices.
B) earnings fall at a slower rate than stock prices.
C) investors expect lower stock prices to be permanent.
D) investors expect lower earnings to be permanent.
33) Columbus Co.''s sales revenue for the most recent quarter was $2.5 million and cost of goods sold was $1.5 million. If sales grow by 15% in the next quarter and all ratios remain the same, gross profit will be
A) $2.25 million.
B) $1.725 million.
C) $1.15 million.
D) $1.375 million.
34) Which one of the following is a correct equation to calculate earnings per share?
A) (ROA)(book value per share)
B) (profit margin)(total asset turnover)(equity multiplier)(book value per share)
C) (profit margin)(equity multiplier)(book value per share)
D) (profit margin)(book value per share)
35) The most uncertain value used in the Capital Asset Pricing Model is
A) beta.
B) the risk-free rate.
C) expected return on the market.
D) all are equally uncertain.
36) Heather believes that by carefully examining a company''s fundamentals and by applying the best valuation models she can identify stocks whose market prices are lower than their intrinsic values. In order for this to be true
A) she needs an accurate estimate of future earnings and dividends.
B) some stocks must be incorrectly priced.
C) betas must be stable over time.
D) P/E ratios for both the stock and the market must be stable over time.
37) The required rate of return necessary for the dividend valuation model can be estimated using
A) the Capital Asset Pricing Model.
B) comparisons to the rates of return on stocks of similar risk.
C) a subjective assessment of the return required over and above less risky investments such as government bonds.
D) any or all of the above.
38) John requires a 12% rate of return on EG stock at a time when investors, on average, are requiring an 11% rate of return on the same stock. Which of the following will happen?
A) John will have to pay more for the stock than he was willing to pay.
B) Investors with different required rates of return will pay different prices for the stock.
C) John will not be able to buy the stock unless the price changes.
D) John will buy the stock at a lower price.
39) Walpurg, Inc. paid $1.30 as an annual dividend per share last year. The company is expected to increase their annual dividends by 6% each year. How much should you pay to purchase one share of this stock if you require a 9% rate of return on this investment?
A) $45.93
B) $11.44
C) $23.39
D) $22.96
40) Which of the following statements concerning the constant-growth dividend valuation model is (are) correct?
I. One simple method of estimating the dividend growth rate is to analyze the historical pattern of dividends.
II. The expected total return equals the return from capital gains plus the return from dividends paid.
III. The model is applicable to growth firms with initially high growth rates.
IV. The intrinsic value calculated using this method can change from one investor to another if their risk-return payoffs differ.
A) I and IV only
B) II and III only
C) I, II and IV only
D) I, II and III only