1.

Business Risk is the risk associated with the amount of debt financing used by a
firm. F (Financial Risk)

2.The adage "the sooner one receives a return on a given investment, the better,"
reflects the financial concept known as the:
A. Time value of money.
B. Total Return concept
C. Historical dividend theory.
D. Expected yield factor.. A

3.Liquidity risk is defined as the risk of:

A. Having to trade a security in a broad market.
B.Not being able to sell an investment conveniently and at a reasonable price.
C. Having inflation erode the purchasing power of your investment.
D. Having declining price levels affect the reinvestment rate of your current
income steam.

4.The risk associated with a sudden and unforeseen happening that has a
significant and usually immediate effect on a firm's financial condition is called :
A. Market Risk
B. Speculation
C. Event Risk
D. Business Risk

5.Inflation tends to have a particularly negative impact on the price of

A. Real Estate.
B. Bonds
C. Gold
D. Crude Oil B

6.Inflation tends to have a favourable impact on:

A. Real Estate
B. Common Stock
C. Preferred Stock
D. Bonds
E. Options

A
7.The over-the-counter (OTC) market is a:
A. Centrally located auction market.
B. Telecommunications network connecting dealers.
C. Market solely for institutional traders.
D. geographically dispersed auction market. B
(Over-the-counter {OTC} or off-exchange trading is done directly between two
parties, without any supervision of an exchange.)

8.Including foreign investment in portfolio:

A. Decrease the overall diversification of the portfolio
B. Reduces the potential rate of return
C. Provides potential benefits from changes in currency values.
D. Limits the diversification amongst industries C
(If you choose B, you shouldn't go invest)

9.Which one of the following statements concerning the primary market is

correct?
A. A transaction in the primary market is between two private stockholders.
B. The first public sale of a company stock in a primary market is called a
seasoned new issue.
C. A private placement occurs in the primary market
D. A rights offering is a direct sale stock to an institution that participates in the
primary market.

10.Which one of the following statements concerning the primary market is

correct?
A) A transaction in the primary market is between two private stockholders.
B) The first public sale of a company's stock in the primary market is called a
seasoned new issue.
C) A rights offering is a direct sale of stock to an institution that participates in the
primary market.
D) The first public sale of a company's stock is called an IPO

11.The purchase of stock with cash in the hope or earning a capital gain is known
as :
A. Short, margined position in the stock.
B. Long position in the stock,
C. Long, margined position in the stock
D. Short position in the stock B
12.Which is the following are characteristic of short selling?
I. Borrowing shares of stock form a brokerage firm or other investors.
II. Selling shares of stock you do not own.
III. Betting the stock price will increase.
IV. Limiting losses per shares to the prices at which the stock was sold.
A. I,II,III only
B. I, II and IV only.
C. III and IV only
D. I and III Only B
13.Stocks are a(n) ______ investment representing ______ of a business.
(A) direct; ownership
(B) direct; debt
(C) indirect; ownership
(D) indirect; debt A

Debt represents funds loaned in exchange for

(A) dividend income and the repayment of the loan principal.
(B) dividend income and an ownership interest in the firm.
(C) interest income and a partial ownership interest in the firm.
(D) interest income and the repayment of the loan principal.

14.Risk can be defined as the possibility that

(A) a negative return can be expected.
(B) actual returns can vary from expected returns.
(C) expected returns will vary from past returns.
(D) actual returns will exceed past returns. A
15.The price an individual investor will pay to purchase a stock in the OTC market
is the
A) ask price.
B) spread.
C) bid price.
D) broker price. C

16.Which of the following are associated with bear markets?

I. investor pessimism
II. rising profits
III. economic slowdown
IV. rising security prices
A) I, II and III only
B) II and III only
C) I and III only
D) II, III and IV only C
(Bear sleep, bull rush)

17.Which one of the following is a major advantage of margin trading?

A) interest free loans
B) increase in potential diversification
C) increase in potential profits on a percentage basis
D) possibility of increased gains on a dollar basis B

18.Most investors are risk-averse, which means they

A) refuse to accept any financial risk.
B) gain satisfaction from the excitement of risk.
C) require an increase in return for any increase in risk.
D) invest only in government insured securities. C

19.The governmental agency that oversees the capital markets is the

A) Federal Trade Commission.
B) Securities and Exchange Commission.
C) Federal Reserve.
D) Fair Trade and Banking Agency. B

20.Stocks and bonds are traded in

A) securities and exchange commissions.
B) capital markets.
C) money markets.
D) federal trade commissions. B
(Capital Market are financial markets for the buying and selling of long-term debt
or equity-backed securities)

20.Which of the following represent investment goals?

I. setting aside enough money to meet emergencies and basic needs
II. sheltering income from taxes
III. increasing current income
IV. saving funds for retirement
A) I and IV only
B) III and IV only
C) I, III and IV only
D) II, III and IV D

21.A portfolio that offers the lowest risk for a given level of return is known as an
efficient portfolio. [True or False] T
22.The holding period is a useful way to compare investments because it considers:
A) the time value of money.
B) both income and capital gains or losses.
C) only capital gains, but not income.
D) the relative size of investments being compared. B
(HPR = [Income+[End value - Initial Value]/initial Investment )

23.Investors who limit themselves to risk free and low risk investments can avoid
purchasing power F
24.Diversifiable risk is also called systematic risk. [True or False] F
25.Betas must be positive numbers. [True or False] F
26.To obtain the maximum reduction in risk, an investor should combine assets
that:
A) have a correlation coefficient of negative one.
B) have a correlation coefficient of positive one.
C) are uncorrelated.
D) are negatively correlated. A

(Assets with +1 correlation eliminate no risk

Assets with less than +1 correlation eliminate some risk
Assets with less than 0 correlation eliminate more risk
Assets with -1 correlation eliminate all risk

27.Combining uncorrelated assets should: Select one answer :

A) Cause the other assets in the portfolio to become positively related.
B) Not change to the overall risk level of a portfolio.
C) Increase the overall risk level of portfolio.
D) Decrease the overall risk level of a portfolio.D
28,Which of the following statements about the standard deviation are correct?
I. The standard deviation is a measure of relative dispersion.
II. Standard deviations should be in conjunction with expected returns to compare
investments.
III. The standard deviation is calculated by taking the square root of the variance.
IV. The higher the standard deviation of an investment, the lower its risk.
Select one answer :
A) I and IV only.
B) II and III only.
C) I, III and IV only.
D) I, II and III only. D

29.Studies have shown that investing in different industries as well as different

countries reduces portfolio risk[True or False] T
30.Security A has a beta of .99, security B has a beta of 1.2, and security C has a
beta of -1.0. This information indicates that: Select one answer :
A) security C would be the best investment if a strong bull market is expected.
B) security C has the highest degree of market risk.
C) security B has 20% more systematic risk than the market.
D) security A has the highest degree of market risk. C ( The beta for the market
is 1.00
31.Investors can be confidently predict future returns on an investment by studying
its past

performance.[True or False] F( Investors cannot confidently predict future returns

on an investment by studying its past performance because market past
performance doesn't ensure future performance)

32.The financial concept of time value of money is dependent upon the opportunity
to earn interest over time. [True or False] T ( Time value of money indicate the

The sooner you receive a return on a given investment, the better

A dollar received today is worth more than a dollar received in the future
The sooner your money can begin earning interest, the faster it will grow)

33.Risk can be defined as uncertainty concerning the actual return that an

investment will generate.
[True or False] T
The beta of the market is: Select one answer :
A) -1.0
B) 0.0
C) 1.0 D) Unpredictable

C
34.Over the long term, a portfolio consisting of an S&P 500 index and an EAFE
index will generally produce ________ returns and have ________ risk than a
portfolio comprised solely of the S&P 500 index.
Select one answer :
A) lower; less
B) lower; more
C) higher; less
D) higher; more C
(Will have higher return due to investing on two company and have lower risk due
to diversification)

35.The required rate of return on the Daisy Corporation's common stock is 11%,
the current real rate of return in the market is 1%, and the market's risk-free rate of
return is 4%. In this case, the risk premium associated with Daisy's stock is:
Select one answer :
A) 5%.
B) 6%.
C) 8%.
D) 7%. D
(Risk premium = Required rate of return - Risk-free rate of return
= 11% - 4 %
= 7%
36.An efficient portfolio maximizes the rate of return without consideration of risk.
[True or False] F
(It is not efficient if you didn't make any consideration of risk )

37.Which one of the following types of risk cannot be effectively eliminated

through portfolio diversification? Select one answer :
A) inflation risk.
B) labor problems.
C) materials shortages.
D) product recalls n A
38.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: Select one answer :
A) -2.0.
B) -0.40.
C) 0.50.
D) 2.0. C

40.Jessica bought a stock at a price of $11.50. She received a $.75 dividend and
sold the stock for $12.50. What is Jessica's capital gain on this investment?

Select one answer :

A) $0.75
B) $1.00
C) $0.25
D) $1.75 B
(
Please take note it's Capital Gain
)

Question No. 27
41.Jessica bought a stock at a price of $11.50. She received a $.75 dividend and
sold the stock for $12.50. What is Jessica's income gain on this investment?

Select one answer :

A) $0.75
B) $1.00
C) $0.25
D) $1.75

A
42.Systematic risks: Select one answer :
A) are forces that affect all investment categories.
B) can be eliminated by investing in a variety of economic sectors.
C) are unique to certain investment vehicles.
D) result from random firm-specific events. A

43.When the Capital Asset Pricing Model is depicted graphically, the result is the:
Select one answer :
A) alpha-beta line.
B) security market line.
C) coefficient of variation line.
D) standard deviation line. B

44.The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts
the :
A) positive relationship between risk and return.
B) standard deviation between a risk premium and an investment's expected
returns.
C) exact price that an investor should be willing to pay for any given investment
D) Difference between a risk-free return and the expected rate of inflation
C
45.From the information given below use the capital assets pricing model (CAPM)
to find the required rate of return for the following securities

Security Risk-free Rate Market Return Beta

K 4% 8% 1.3
L 9% 13% 0.9
M 7% 12% -0.70
N 12% 15% 1.00
O 8% 10% 0.60

Answer accordingly
Example answer
2%,3%,4%,5%,6%

9.2%,12.6%,3.5%,15%,9.2%(K 9.2% [4%+1.3(8%-4%]L12.6% [9%+0.9(13%-

9%]M 3.5% [7%+-0.7(12%-7%]
N 15% [12%+1.0(15%-12%]O 9.2% [8%+0.60(10%-8%]
Required rate of return = Risk free rate + Beta x [Expected Market return - Risk
free Rate])

46.The price an institutional investor will pay to purchase a stock in the OTC
market is the
A) ask price.
B) spread.
C) bid price.
D) broker price.

47.The price an institutional investor will sell a stock in the OTC market is the
A) ask price.
B) spread.
C) bid price.
D) broker price.

C
48.The price an individual investor will pay to sell in the OTC market is the
A) ask price.
B) spread.
C) bid price.
D) broker price.

549.Every shareholder is a part owner of the firm and, as such, has a direct claim
on a portion of the firm's assets. True or False F

50.Stock splits may be used when a firm, believing the price of its stock is too
high, wants to enhance the stock's trading appeal. True or False T

51.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 ten-year period
D) The DJIA is the best indicator of the overall performance of common stock

52.Stock which has been issued and subsequently reacquired by the issuing
corporation is called
A) Letter Stock
B) Treasury Stock
C) Classified Stock
D) Book Stock

53. The Common stocks of the oral company have a book value of $10.80 and
market value of $ 14.30. The company pays $0.14 in dividends each quarter. What
is the dividend yield?

A) 1.0%
B) 1.3%
C) 3.9%
D) 5.2%

C
54.Companies with strong earnings but limited growth opportunities:
A) do not generally pay any dividends
B) Are called blue-chip stocks
C) Generally pay high-dividend
D) Are speculative stock

55.When a company, working with an underwriter, offers the investing public a

certain numbers of shares of its stock at a certain price, the company is making
what is known as :
A) Public Offering
B) Rights Offering
C) Stock Spin-off
D) Treasury Offering

A
56.When a corporation declares a stock split, it usually does so because:
A) the firm's retained earning are excessive
B) There are too many share outstanding
C) Investors sometimes require nontaxable returns.
D) The stock price is too high

D
57.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. It''s book value per share would be:
A) $32.33
B) $33.60
C) $43.20
D) $52.60
 C
58.A& B Research Corp specializes in the development of new products. These
products often are complete failure in the marketplace. However, if a product is
successful, it is normally a phenomenal success. The stock of A&B Research is
classified as a :

A) Speculative Stock
B) Cyclical Stock
C) Defensive Stock
D) Income Stock

A
59.You own 100 shares with a market value of Rm80 each, The company declares
a 4 for 1 split. As a results

A) Your total market value will be Rm 2,000

B) The market price will be approximately Rm 20 per share
C) You will own 25 shares
D) The company will reduce its retained earning by Rm 8,000

B
60.Bonds with one of the top four rating (Aaa through Baa, or AAA through BBB)
are designated as:
A) Split Bonds.
B) Investment grade bonds
C) illiquid bonds
D) high-yield bonds

61.Which of the following are advantages of owning bonds?

I Diversification properties
II higher long-term returns than equity holdings.
III current income
IV relatively low risk
A) I and II only
B) I, III and IV only
C) I, II and III only
D) I, II, III and IV

62.When the market rate of return exceeds the coupon rate, a bond will sell at:
A) Par
B) Face value
C) A premium
D) A discount D
(

63.Collateralized mortgage obligations are relatively safe investments except:

A) When interest rate rise.
B) when inflation is high
C) When home prices decline.
D) When mortgage holders refinance frequently

64.The _major source of risk faced by investors who purchase bonds is:
A) Purchasing Power Risk
B) Interest Rate Risk
C) Liquidity Risk
D) Event Risk

65.A single bond issue with multiple maturity dates is called a:

A) callable bond
B) premium bond
C) serial bond
D) term bond C
66.5 Under which bond provision is the issuer required to retire portions of the
bond issue prior to maturity?
A) call feature
B) refunding provision
C) Subordination clause
D) Sinking fund structure

D
66. Debt securities issued by the Federal Home Loan Bank, the Student Loan
Marketing Association and the Government National Mortgage Association are
known as:
A) Agency Bonds
B) Organizational Bonds
C) Municipal Bonds
D) Treasury Bonds

67.The Sachem Berhad issued a 6% bond three years ago a par value. The market
interest rate on comparable bonds today is 5%. The Sachem Berhad Company
bond currently pays _______ a year in interest and the bond sells at a ______

A) $60; discount
B) $60; premium
C) $50; discount
D) $50; premium

B
68.when compared with the current interest rates, if the bond is offering a higher
rate than current interest rate, it will sell at a premium. A lower than current
interest rate gets the bond at discount.)

A $1000 par value, 12-year annual bond carries a coupon rate of 7%. If the current
yield of this bond is 7.995%, its market price to the nearest dollar is ?
A) $876
B) $925
C) $1,075
D) $1.125

A
69.The required return on a bond is equal to:
A) the real rate of return plus a risk premium plus an expected inflation premium
B) the real rate of return plus the coupon rate plus an inflation rate
C) the risk-free rate plus a risk premium plus an expected inflation premium
D) the real rate plus a risk premium

A
70.Buying bonds is anticipation of an expected decline in interest rates is a risk
strategy .
True or False T

71.Which of the following risks are included in the risk premium?

I) Interest rate risk
II) liquidity risk
III) Financial risk
IV) Purchasing Power Risk

A) I and II only
B) II and III only
C) III and IV only
D) I and IV only B
72.The yield curve depicts the relationship between a bond's yield to maturity and
its:
A) duration
B) term to call
C) term to maturity
D) volatility C

73.The main purpose of a bond ladder is to

A) lessen the effects of changes in interest rate
B) achieve the highest level of capital gains possible
C) maintain a highly liquid portfolio
D) offset the effects of bond duration A

74.Based on a concept of bond duration , which one of the following statements is

correct?
A) Lower Coupons result in shorter duration
B) Longer maturities mean shorter durations
C) Higher yields (YTMs) lead to longer durations
D) Longer durations mean greater volatility D
75.Investors in hedge funds have the legal status of:
A) shareholders
B) limited partners
C) general partners
D) trustees B

76.Mutual fund investors are primarily exposed to ______ and ______ risks.
A) market; financial
B) market; inflation
C) business; financial
D) business; inflation B

77.Investors are generally well advised to avoid mutual funds with:

A) highly rated fund managers
B) low fees and high tax efficiency
C) Consistently poor historical performance
D) good performance in both up and down markets. C

78.One drawback of investing in mutual funds is the

A) annual management fee
B) lack of liquidity of fund shares
C) amount required for the initial investment
D) lack of information of the performance of the fund A

79.Which of the following are advantages offered by mutual funds?

I) professional portfolio managmeent
II) Dividend investment
III) consistent returns in excess of the overall market rate of return
IV) modest capital outlay for investors
A) I and II only
B) I and IV only
C) II, III and IV only
D) I, II and IV only D

80.A type of fund that invests in real estate and/or mortgages is known as :
A) REIT
B) ETF
C) Sector fund
D) Hedge fund A
81.The transfer agent for a mutual fund physically safeguards the securities being
bought and sold by that firm. True or False T
82.Risk-seeking investors seeking maximum capital appreciation with little, if any
current income, should invest in:
A) value funds
B) growth funds
C) aggressive growth funds
D) equity-income funds C

83.Investors should select mutual funds that match their personal investment goals
and provide the service they desire True or False T
84.Mid-cap stocks are generally classified as those with a market capitalization
between $1 and $5 billion. TrueFalse T

85.According to the efficient markets hypothesis, securities can be substantially

mispriced in the marketplace. True False F
86.The business cycle reflects economic changes only in the industrial sectors of
the economy. True False F
87.Stocks related to computers and the Internet are classified as
Select one answer :
A) blue-chip stocks
B) income stocks
C) cyclical stocks
D) tech stock
 D
88.A company has sales of $640,000, net profit after taxes of $23,000, and a total
asset turnover of 2.5. What is the return on assets?
Select one answer :
A) 3.6%
B) 4.5%
C) 8.1%
D) 9.0%

D
89.Which one of the following statements is true? Select one answer :
A) Monetary policy includes adjusting interest rates and determining the level of
government taxation.
B) Inflation has little, if any, impact on the economy or the financial markets.
C) Both consumer spending and business investment are key components of the
economy.
D) Restrictive fiscal policy tends to increase economic activity.

90.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.

C
91.A firm with a very low debt-equity ratio has a low risk of defaulting on its
loans.
True False T

92.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
Select one answer :
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.

D
93.Firms tend to repurchase shares of their outstanding stock when they view the
shares as undervalued. A) True B) False T
94.Which stage of an industry's growth cycle is most influenced by economic
events?
A) initial development
B) initial development
C) mature growth
D) rapid expansion

95.The intrinsic value of a security is based on the:

I. amount of risk.
II. current market value of the security.
III. discount rate applicable to the security.
IV. estimated future cash flows from the security

Select one answer :

A) I and III only
B) I, III and IV only
C) III and IV only
D) I, II and III only

B
96.Which stage of an industry's growth cycle offers the greatest opportunity for an
investor who is

Select one answer :

A) rapid expansion
B) stability or decline
C) mature growth
D) initial development

A
97.One characteristic of mid-cap stocks is that they

Select one answer :

A) are generally new firms with high growth potential.
B) tend to be highly volatile.
C) are fairly good-sized companies that offer attractive return opportunities
D) are traded primarily through pink sheet bids

C
98.Top-down security analysis

Select one answer :

A) starts with the fundamental analysis of a firm.
B) includes economic, industry, and fundamental analysis.
C) concentrates on the competency of the senior management of a firm.
D) centers on the past performance of a firm.

B
99.Shares of publicly traded stock can be issued either through a public offering or
a rights offering.
True False T
100.Banks can use the times interest earned ratio as a measure of a borrower's
ability to repay their loan. True False T
101.Economic factors such as a weak dollar will have a negative impact on all
industrial sectors.
True False F
102.Stock which has been issued and subsequently reacquired by the issuing
corporation is called:
Select one answer :
A) book stock
B) classified stock
C) treasury stock
D) letter stock

C
103.Which of the following are benefits related to stock ownership?
I. ease of trading
II. attractive inflation-adjusted rates of return
III. guarantee of long-term positive returns
IV. Affordability Select one answer :
A) II and IV only
B) II, III and IV only
C) I, II and IV only
D) I and III only

C
104.The inventory turnover rate for a firm is 14.5 as compared to the relevant
industry rate of 13.2. In this case, the firm is
A) generating less sales per dollar of inventory.
B) selling its inventory slower than the industry.
C) underperforming the industry.
D) averaging less days of sales in inventory than the industry.

D
105. An individual stock generally provides a

Select one answer :

A) dividend payment that ensures total protection from purchasing power risk.
B) refuge from event risk.
C) lower current income than that available from other types of investments.
D) predictable annual rate of return.

106.Which one of the following statements about common stock is correct?

Select one answer :
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 entitles the holder to an equal ownership position
and an equal vote in the corporation

D
107.The approach that first creates forecasts for the economy, then for industries,
and finally for companies is known as the ________ approach. Select one
answer :
A) macroeconomic
B) top-down
C) bottom-up
D) technical rule

B
108.Shareholders have the option of selling their rights granted via a rights
offering.
True False T
109.Some investment analysts believe that the market processes new information
so well and so quickly that securities trade very close to their intrinsic values at all
times. These analysts are said to be advocates of: Select one answer :

A) fundamental analysis
B) the efficient market hypothesis
C) sector analysis
D) the prevailing price hypothesis B