Question 1 - 97546

The opportunity to take advantage of the downward pressure on stock prices that result from end-of-the-
year tax selling is known as the:

A) end-of-the-year effect.
B) January anomaly.
C) end-of-the-year anomaly.

Question 5 - 98272

James Investments is calculating an equally weighted index on a four stock portfolio.

Stock Number of Shares Initial Cost Current Cost

W 100 5.00 5.00
X 1,000 10.00 12.50
Y 500 7.50 10.00
Z 1500 5.00 8.00

If the initial index value is 100, the current index is closest to:

A) 129.5.
B) 137.9.
C) 142.6.

Question 6 - 127379

The most appropriate benchmark for measuring the relative performance of an investment manager is:

A) an index that closely matches the manager’s investment approach.

B) a broad market index.
C) the risk-adjusted return on the market portfolio.

Question 8 - 98243

Which of the following weighting schemes will produce a downward bias on the index due to the
occurrence of stock splits by firms in the index?

A) Price-weighted series.
 B) Market-cap weighted series.
C) Equal weighted price indicator series.

Question 10 - 97245

Which of the following statements about securities markets is least accurate?

A) Initial public offerings (IPOs) are sold in the secondary market.

B) A market that features low transactions costs is said to have operational efficiency.
C) In a continuous market, a security can trade any time the market is open.

Question 12 - 140475

A buy limit order is said to be inside the market when:

A) it reaches the exchange floor and is entered in the limit book.

B) the limit is below the best bid.
C) the limit is between the best bid and the best ask.

Question 13 - 150494

Which of the following equity indexes is an example of a market capitalization weighted index?

A) MSCI All Country World Index.

B) Nikkei Stock Average.
C) Dow Jones Industrial Average.

Question 14 - 98185

Which of the following indexes is a price weighted index?

A) The New York Stock Exchange Index.

B) The Nikkei Dow Index.
C) The Standard and Poor's Index.

Question 18 - 97729

Lynne Hampton purchased 100 shares of $75 stock on margin. The margin requirement set by the
Federal Reserve Board was 40%, but Hampton’s brokerage firm requires a total margin of 50%.
Currently the stock is selling at $62 per share. What is Hampton’s return on investment before
commission and interest if she sells the stock now?

A) -40%.
B) -17%.
C) -35%.

Question 19 - 96525

Under the efficient market hypothesis (EMH), the major effort of the portfolio manager should be to:

A) minimize systematic risk in the portfolio.

B) follow a strict buy and hold strategy.
C) achieve complete diversification of the portfolio.

Question 20 - 96994

Which of the following statements about securities exchanges is NOT correct?

A) In call markets, there is only one negotiated price set to clear the market for a given stock.
B) In continuous markets, prices are set only by the auction process.
C) Securities exchanges may be structured as call markets or continuous markets.

Question 21 - 97697

Which of the following is a difference between primary and secondary capital markets?

Primary capital markets relate to the sale of new issues of bonds, preferred, and common
A)
stock, while secondary capital markets are where securities trade after their initial offering.
B) Primary markets are where stocks trade while secondary markets are where bonds trade.
Secondary capital markets relate to the sale of new issues of bonds, preferred, and common
C)
stock, while primary capital markets are where securities trade after their initial offering.

Question 23 - 127382

The measure of an asset’s value that can most likely be determined without estimation is its:

A) intrinsic value.
B) market value.
C) fundamental value.

Question 25 - 131584
When a security is added to a widely followed market index, the security’s price is most likely to:

A) decrease.
B) increase.
C) be unaffected.

Question 26 - 96873

Which of the following is least likely a characteristic of a well-functioning market?

A) Reliable information is available on price and volume.

B) Prices change significantly from one transaction to the next.
C) Prices adjust quickly when new information becomes available.

Question 28 - 98189

With regard to stock market indexes, it is least likely that:

the use of price weighting versus market value weighting produces a downward bias on the
A)
index.
B) a market-cap weighted index must be adjusted for stock splits but not for dividends.
buying 100 shares of each stock in a price-weighted index will result in a portfolio that tracks
C)
the index quite well.

Question 29 - 98206

What is the market-cap weighted index of the following three stocks assuming the beginning index value
is 100 and a base value of $150,000?

As of December 31
Company Stock Price Shares Outstanding
X $1 5,000
Y $20 2,500
Z $60 1,000
A) 77.
B) 30.
C) 100.

Question 30 - 131599

In behavioral finance theory, how is loss aversion most accurately defined? For gains and losses of equal
amounts, investors:
 A) like gains more than they dislike losses.
B) dislike losses more than they like gains.
C) dislike for losses and like for gains are proportionate.

Question 31 - 131590

Equal weighting is the most common weighting methodology for indexes of which of the following types of
assets?

A) Equities.
B) Hedge funds.
C) Fixed income securities.

Question 32 - 98229

Which of the following statements about the maintenance margin requirement is least accurate?

The purpose of the maintenance margin requirement is to protect the broker in the event of a
A)
large stock decline.
B) Generally the maintenance margin requirement is lower than the initial margin requirement.
C) The Federal Reserve sets the maximum maintenance margin.

Question 33 - 131596

Which of the following statements best describes the overreaction effect?

A) High returns over a one-year period are followed by high returns over the following year.
Low returns over a three-year period are followed by high returns over the following three
B)
years.
C) High returns over a one-year period are followed by low returns over the following three years.

Question 34 - 97216

An investor bought a stock on margin. The margin requirement was 60%, the current price of the stock is
$80, and the stock price was $50 one year ago. If margin interest is 5%, how much equity did the investor
have in the investment at year-end?

A) 67.7%.
B) 60.6%.
C) 73.8%.

Question 35 - 97602
Becky Kirk contacted her broker and placed an order to purchase 1,000 shares of Bricko Corp. stock at a
price of $60 per share. Kirk wishes to buy on margin. Assuming the margin requirement is 40%, how
much money does Kirk have to pay up front to make the purchase?

A) $24,000.
B) $60,000.
C) $36,000.

Question 37 - 98168

Which of the following statements about securities exchanges is most accurate?

A) Continuous markets are markets where trades occur 24 hours per day.
B) Call markets are markets in which the stock is only traded at specific times.
Setting a negotiated price to clear the market is a method used to set the closing price in
C)
major continuous markets.

Question 38 - 97575

Which of the following statements regarding margin accounts is most accurate?

A) The total equity in the margin account cannot fall below the initial margin requirement.
B) Margin accounts can be used to purchase securities by borrowing part of the purchase price.
C) Maintenance margin refers to the amount of funds the investor can borrow.

Question 39 - 131578

A security market index is best described as a:

A) value used to adjust nominal security prices for the effects of inflation.
B) directory of ticker symbols for the securities listed on a given market.
C) group of securities selected to represent the performance of a security market.

Question 40 - 98173

The semi-strong form of the efficient market hypothesis (EMH) asserts that stock prices:

A) fully reflect all historical price information.

B) fully reflect all relevant information including insider information.
C) fully reflect all publicly available information.

Question 41 - 98176
Which of the following statements about securities markets is least accurate?

Characteristics of a well-functioning securities market include: many buyers and sellers willing
A) to trade at below market price, low bid-ask spreads, timely information on price and volume of
past transactions, and accurate information on supply and demand.
Secondary markets, such as the over-the-counter (OTC) market, provide liquidity and price
B)
continuity.
C) A limit buy order and a stop buy order are both placed below the current market price.

Question 42 - 97369

Which of the following statements regarding primary and secondary markets is least accurate?

Prevailing market prices are determined by primary market transactions and are used in
A)
pricing new issues.
Secondary market transactions occur between two investors and do not involve the firm that
B)
originally issued the security.
C) New issues of government securities can be sold on the primary market.

Question 43 - 127380

An equity index comprised of value stocks, identified by their price-to-earnings ratios, is best described as
a:

A) style index.
B) sector index.
C) fundamental weighted index.

Question 45 - 98057

Which of the following statements about market efficiency is least accurate?

A) The strong-form EMH assumes cost free availability of all information, both public and private.
The weak-form EMH suggests that fundamental analysis will not provide excess returns while
B)
the semi-strong form suggests that technical analysis cannot achieve excess returns.
C) The semi-strong form EMH addresses market and non-market public information.

Question 46 - 98076

Which of the following is least likely an assumption behind the semistrong-form of the efficient market
hypothesis (EMH)?

A) The timing of news announcements are independent of each other.

B) A large number of profit-maximizing participants.
 C) All information is cost-free and available to everyone at the same time.

Question 47 - 127376

The measure of return on a security market index that includes any dividends or interest paid by the
securities in the index is known as the:

A) price return.
B) total return.
C) cash flow return.

Question 48 - 98108

Which of the following forms of the EMH assumes that no group of investors has monopolistic access to
relevant information?

A) Strong-form.
B) Both weak and semistrong form.
C) Weak-form.

Question 49 - 98255

In a market-capitalization weighted index firms with:

A) higher stock prices have greater impacts on the index.

B) larger market caps have lesser impacts on the index.
C) greater market caps have greater impacts on the index.

Question 50 - 98222

Use the data below to determine which of the statements is most accurate?

As of December 31
Company Stock Price Shares Outstanding
A $25 20,000
B $50 20,000
C $100 10,000
A 100% increase in the stock price of Company A will have a smaller impact on the
A)
price-weighted index than a 100% increase in the stock price of Company C.
For a given percentage change in the stock price, Company A will have a greater
B)
impact on the market-cap weighted index than Companies B or C.
For a given percentage change in the stock price, Company B will have less of an
C)
impact on the market-cap weighted index as Company C.
Question 51 - 97471

Which of the following statements about primary and secondary markets is least accurate?

A) The proceeds from a sale in the secondary market go to the issuer.

B) A primary market is a market in which new securities are sold.
C) The primary market benefits from the liquidity provided by the secondary market.

Question 52 - 131574

Jorman Inc. stock is cross-listed on exchanges in Tokyo and New York. Jorman stock is best described
as a:

A) public security.
B) private security.
C) primary market security.

Question 53 - 131586

Which type of security market index provides a measure of a market’s overall performance and
usually contains a significant portion of the market’s total value?

A) Sector indexes.
B) Style indexes.
C) Broad market indexes.

Question 54 - 97560

Sonia Fennell purchases 1,000 shares of Xpressoh Inc. for $35 per share. One year later, she sells the
stock for $42 per share. Xpressoh Inc. pays no dividends. The initial margin requirement is 50%. Fennell's
one-year return assuming an all-cash transaction, and if she buys on margin (assume she pays no
transaction or borrowing costs and has not had to post additional margin), are closest to:

All-cash 50% margin

A) 20% 80%
B) 40% 80%
C) 20% 40%

Question 55 - 98266

David Farrington is an analyst at Farrington Capital Management. He is aware that many people believe
that the capital markets are fully efficient. However, he is not convinced and would like to disprove this
claim. Which of the following statements would support Farrington in his effort to demonstrate the
limitations to fully efficient markets?
 A) Stock prices adjust to their new efficient levels within hours of the release of new information.
Processing new information entails costs and takes at least some time, so security prices are
B)
not always immediately affected.
Technical analysis has been rendered useless by many academics who have shown that
C)
analyzing market trends, past volume and trading data will not lead to abnormal returns.

Question 56 - 97261

An efficient capital market:

A) fully reflects all of the information currently available about a given security, including risk.
B) fully reflects all of the information currently available about a given security, excluding risk.
does not fully reflect all of the information currently available about a given security, including
C)
risk.

Question 57 - 98143

Which of the following statements concerning market efficiency is least accurate?

If weak-form market efficiency holds, technical analysis cannot be used to earn abnormal
A)
returns over the long-run.
B) Market efficiency assumes that individual market participants correctly estimate asset prices.
Tests of the semi-strong form of the EMH require that security returns be risk-adjusted using a
C)
market model.

Question 58 - 97515

If the efficient markets hypothesis is true, portfolio managers should do all of the following EXCEPT:

A) Minimize transaction costs.

B) Work more with clients to better quantify their risk preferences.
C) Spend more time working on security selection.

Question 59 - 127373

An objective of financial market regulation is to:

A) ensure that inside information is made public in a timely manner.

B) prevent uninformed investors from participating in financial markets.
C) reduce information gathering costs by requiring common financial reporting standards.

Question 60 - 97731
Using the following assumptions, calculate the rate of return on a margin transaction for an investor who
purchases the stock and the stock price at which the investor would have received a margin call.

 Market Price Per Share: $32

 Number of Shares Purchased: 1,000
 Holding Period: 1 year
 Ending Share Price: $34
 Initial Margin Requirement: 40%
 Maintenance margin: 25%
 Transaction and borrowing costs: $0
 The company pays no dividends

Margin Return Margin Call Price

A) 6.3% $25.60
B) 15.6% $17.07
C) 15.6% $25.60

Question 61 - 96216

A stock has a required return of 14% percent, a constant growth rate of 5% and a retention rate of 60%.
The firm’s P/E ratio should be:

A) 6.66.
B) 4.44.
C) 5.55.

Question 62 - 127422

If an analyst estimates the intrinsic value for a security that is different from its market value, the analyst
should most likely take an investment position based on this difference if:

A) the model used is not highly sensitive to its input values.

B) many analysts independently evaluate the security.
C) the security lacks a liquid market and trades infrequently.

Question 64 - 127385

An equity security that requires the firm to pay any scheduled dividends that have been missed, before
paying any dividends to common equity holders, is a:

A) participating preference share.

B) convertible preference share.
C) cumulative preference share.
Question 65 - 96231

According to the earnings multiplier model, which of the following factors is the least important in
estimating a stock’s price-to-earnings ratio? The:

A) estimated required rate of return on the stock.

B) expected dividend payout ratio.
C) historical dividend payout ratio.

Question 66 - 96386

One advantage of using price-to-book value (PBV) multiples for stock valuation is that:

A) most of the time it is close to the market value.

B) it is a stable and simple benchmark for comparison to the market price.
C) book value of a firm can never be negative.

Question 69 - 96261

REM Corp.’s return on equity (ROE) is 19.5% and its dividend payout rate is 45%. What is the
company’s implied dividend growth rate?

A) 19.5%.
B) 10.73%.
C) 8.78%.

Question 71 - 96416

An argument against using the price-to-earnings (P/E) valuation approach is that:

A) earnings can be negative.

B) research shows that P/E differences are significantly related to long-run average stock returns.
C) earnings power is the primary determinant of investment value.

Question 72 - 96215

Regarding the estimates required in the constant growth dividend discount model, which of the following
statements is most accurate?

A) Dividend forecasts are less reliable than estimates of other inputs.

B) The model is most influenced by the estimates of "k" and "g."
C) The variables "k" and "g" are easy to forecast.
Question 73 - 96209

Assuming the risk-free rate is 5% and the expected return on the market is 12%, what is the value of a
stock with a beta of 1.5 that paid a $2 dividend last year if dividends are expected to grow at a 5% rate
forever?

A) $12.50.
B) $17.50.
C) $20.00.

Question 74 - 140487

Enterprise value is most accurately described as a firm’s:

A) market value of assets minus market value of liabilities, plus cash and short-term investments.
B) market value of stock plus market value of debt, minus cash and short-term investments.
C) market value of stock plus cash and short-term investments, minus market value of debt.

Question 75 - 96271

A company’s growth rate in dividends and earnings can be estimated as the:

A) difference between the retention ratio and the return on equity.

B) product of the retention ratio and the return on equity.
C) product of the return on equity and the dividend payout ratio.

Question 78 - 127389

Global depository receipts are most likely issued:

A) outside the issuer’s home country and denominated in U.S. dollars.

outside the issuer’s home country and denominated in the exchange’s home
B)
currency.
C) in the United States and denominated in U.S. dollars.

Question 80 - 96201

Which of the following statements concerning security valuation is least accurate?

A) The best way to value a company with no current dividend but who is expected to pay
 dividends in three years is to use the temporary supernormal growth (multistage) model.
The best way to value a company with high and unsustainable growth that exceeds the
B)
required return is to use the temporary supernormal growth (multistage) model.
A firm with a $1.50 dividend last year, a dividend payout ratio of 40%, a return on equity of
C)
12%, and a 15% required return is worth $18.24.

Question 81 - 96389

Which of the following is NOT an advantage of using price-to-book value (PBV) multiples in stock
valuation?

A) Book values are very meaningful for firms in service industries.

B) Book value is often positive, even when earnings are negative.
C) PBV ratios can be compared across similar firms if accounting standards are consistent.

Question 83 - 96232

A stock is expected to pay a dividend of $1.50 at the end of each of the next three years. At the end of
three years the stock price is expected to be $25. The equity discount rate is 16 percent. What is the
current stock price?

A) $19.39.
B) $24.92.
C) $17.18.

Question 84 - 96247

A firm has a profit margin of 10%, an asset turnover of 1.2, an equity multiplier of 1.3, and an earnings
retention ratio of 0.5. What is the firm's internal growth rate?

A) 7.8%.
B) 6.7%.
C) 4.5%.

Question 88 - 96349

A stock has a required rate of return of 15%, a constant growth rate of 10%, and a dividend payout ratio
of 45%. The stock’s price-earnings ratio should be:

A) 4.5 times.
B) 3.0 times.
 C) 9.0 times.

Question 89 - 150503

An analyst estimates the intrinsic value of a stock to be equal to ¥1,567 per share. If the current market
value of the stock is ¥1,487 per share, the stock is:

A) overvalued.
B) fairly valued.
C) undervalued.

Question 90 - 150504

The rationale for using dividend discount models to value equity is that the:

A) model works well for the finite period of time over which dividends are paid.
B) intrinsic value of a stock is the present value of its future dividends.
C) inputs are easily estimated and the model’s estimates are robust.

Question 91 - 96208

What is the value of a stock that paid a $0.25 dividend last year, if dividends are expected to grow at a
rate of 6% forever? Assume that the risk-free rate is 5%, the expected return on the market is 10%, and
the stock's beta is 0.5.

A) $16.67.
B) $3.53.
C) $17.67.

Question 92 - 131603

Dividends on non-participating preference shares are typically:

A) a contractual obligation of the company.

B) a fixed percentage of par value.
C) lower than the dividends on common shares.

Question 94 - 96305

Day and Associates is experiencing a period of abnormal growth. The last dividend paid by Day was
$0.75. Next year, they anticipate growth in dividends and earnings of 25% followed by negative 5%
growth in the second year. The company will level off to a normal growth rate of 8% in year three and is