31.

Historically, sell-side equity research has

typically been _________to the target company?

a. very unfavorable
c. favorable
b. unfavorable
c. favorable
d. neutral

All of the following represent requirements for

conducting effective sector rotation, EXCEPT

a. an accurate assessment of current economic

conditions. d. expertise in technical analysis.
b. a knowledge and understanding of the phases of the
business cycle.
c. an understanding of the political environment.
d. expertise in technical analysis.

An analyst employed by a pension fund to search

for stocks for the fund to invest in would be referred
to as:

b. a buy-side analyst.
a. a sell-side analyst.
b. a buy-side analyst.
c. an institutional analyst.
d. a money manager.

A bear market is one characterized by a

decline of:

a. 10% or more.
c. 20% or more.
b. 15% or more.
c. 20% or more.
d. 25% or more.

The central focus of a security analyst's job is to:

a. ascertain the accuracy of financial statements of

selected companies.
c. forecast a specific company's
b. find growth stocks. return.
c. forecast a specific company's return.
d. determine the market demand for a specific
company's stock.
The Coffeehouse Portfolio suggests investors hold:
b. 40% bonds, 60% equities
a. 50% bonds, 50% equities (including the S&P 500, Large Cap
Value, International, Small Cap, and Small Cap Value stocks)
(including the S&P 500, Large
b. 40% bonds, 60% equities (including the S&P 500, Large Cap Cap Value, International, Small
Value, International, Small Cap, Small Cap Value, and REITs)
c. 60% bonds, 40% equities (in two index funds) Cap, Small Cap Value, and REITs)
d. 40% bonds, 60% equities (in two index funds)

Commodity ETF's are mainly used as

speculative plays by:

a. hedge fund traders.

a. hedge fund traders.
b. conservative investors.
c. mutual fund managers.
d. value investors.

For adequately diversified common stock portfolios,

market effects often account for -------- percent
and more of the variability of the portfolio's return.

d. 90
a. 60
b. 70
c. 80
d. 90

From 1989 to April 2003, the Japanese stock

market lost what percent of its value?

a. 50
d. 80
b. 60
c. 70
d. 80

____________ funds are especially popular with

momentum investors.

a. Sector
a. Sector
b. Managed
c. Global
d. Index
A general consensus of analysts is that a typical
investor should have between ___ and ______ percent of
his/her portfolio in international markets.

b. 10: 20
a. 5: 10
b. 10: 20
c. 20: 30
d. 30: 40

How can investors reasonably justify buy actively managed

funds instead of index funds?
b. the fund consistently
a. higher management fees usually suggests better performance
outperformed the market, net of
b. the fund consistently outperformed the market, net of fees, fees, and is expected to continue
and is expected to continue to do so
c. the fund outperformed the S&P 500 by 4% last year to do so
d. the portfolio manager is new and considered a star analyst

If investors in the market become more pessimistic, it

is expected that the required return will ----------.

a. decrease. b. increase.
b. increase.
c. stay the same.
d. there is not enough information to answer the
question.

If security markets are totally efficient, the

best common stock strategy to take is:

a. an asset allocation approach.

d. a passive strategy.
b. the modern portfolio theory.
c. an active strategy.
d. a passive strategy.

If security prices fully reflect all relevant information

available and usable, a securities market is said to
be:

d. efficient.
a. rational.
b. in equilibrium.
c. effective.
d. efficient.
If stock prices reflect their approximate fair value
after transactions costs are taken into account, this is
known as:

b. economic efficiency.
a. after-cost efficiency.
b. economic efficiency.
c. a market in equilibrium.
d. an efficient market.

An index fund that uses futures to hold the S&P 500

Index and invests the remainder in bonds would be
an example of:

c. an enhanced index fund.

a. a value index fund.
b. a derivatives index fund.
c. an enhanced index fund.
d. an active index fund.

Individual investors consider the investment decision:

a. based on market and economic conditions as consisting of asset

allocation. d. based on objectives,
b. based on market and economic conditions as consisting of asset
allocation and security selection.
constraints, and preferences, as
c. based on objectives, constraints, and preferences, as consisting of asset consisting of asset allocation and
allocation.

d. based on objectives, constraints, and preferences, as consisting of asset

security selection.
allocation and security selection.

Investors following a passive strategy use which of

the following as the best estimate of a security's
value?

c. current market price.

a. the dividend discount model.
b. Fisher model.
c. current market price.
d. current earnings per share.

Market timers attempt to earn excess returns by:

a. adjusting the ratio of aggressive equity securities to defensive c. varying the percentage of
equity securities.
b. shifting the mix of short-term securities to long-term portfolio assets in equity
securities.
c. varying the percentage of portfolio assets in equity securities. securities.
d. adjusting the ratio of primary market securities to capital
market securities.
The Merrill Lynch case in 2002 confirmed that many
analysts:

a. were paid too much. c. gave buy recommendations to

b. were unable to accurately pinpoint earnings.
c. gave buy recommendations to win investment banking
win investment banking business.
business.
d. shared private information about companies with
investors.

The most important decision to make when

building a diversified stock portfolio is:

d. maximization of expected
a. individual security analysis. return.
b. asset allocation.
c. minimization of market risk.
d. maximization of expected return.

One of the most famous investment advisory

services since 1965 is:

a. The Wall Street Journal

d. Value Line Investment Survey
b. Standard and Poor's Corporate Records
c. Moody's
d. Value Line Investment Survey

Passive common stock strategies attempt to

minimize:

b. transactions costs, including

a. capital losses. time spent managing the
b. transactions costs, including time spent managing
the portfolio. portfolio.
c. market risk.
d. company and industry risk.

The passive investment strategy does not try to find undervalued

stocks nor time the market. Instead, it is concerned with:

a. achieving returns available in various market sectors at

d. achieving returns available in
minimum risk.
b. achieving maximum returns available in various market
various market sectors at
sectors. minimum cost.
c. achieving minimum risk in various market sectors.
d. achieving returns available in various market sectors at
minimum cost.
The -------------- provides investors with a method
of calculating a required return for a stock.

a. dividend discount model d. Capital Asset Pricing Model

b. risk-free rate
c. Fisher model
d. Capital Asset Pricing Model

The required rate of return for a common stock is defined as the:

c. minimum expected return
a. expected return given an assumed set of probabilities and expected
cash flows on the stock. necessary to induce an investor
b. maximum expected return based on estimates of expected to purchase the stock. expected
cashflows from the stock.
return after evaluation of the risk
c. minimum expected return necessary to induce an investor to
purchase the stock. expected return after evaluation of the risk on the on the stock has been taken.
stock has been taken.

Sector rotation is

a. one form of passive investing.

b. an active strategy similar to stock selection. b. an active strategy similar to
c. an attempt to earn excess returns by varying the
percentage of assets in the
stock selection.
portfolio.
d. not dependent on an accurate assessment of current
economic conditions.

----------- shifts the weights of securities in the

portfolio to take advantage of areas expected to do
relatively better than others.

d. Sector rotation
a. Portfolio management
b. Technical analysis
c. Momentum strategy
d. Sector rotation

A significant advantage of index funds is their:

a. lower market price than other types of funds. c. tax efficiency.

b. sector rotation.
c. tax efficiency.
d. minimization of risk.
The so-called "global settlement" negotiated by the SEC, NYSE
and NASD with a number of brokerage firms was intended to:

a. ensure more disclosure of relevant information to investors.

b. separate investment banking
b. separate investment banking from analyst research. from analyst research.
c. stop the practice of buy, sell or hold recommendations in
analysts' reports.
d. all of the above

What is usually considered the biggest risk

of market timing?

d. not being in the market at

a. getting out of the market too soon critical times
b. high transactions costs
c. failing to adjust for short-term corrections
d. not being in the market at critical times

Which of the following is NOT considered a

passive equity investment:

a. investing in a sector ETF. c. investing in a multi-strategy

b. investing in a S&P 500 index mutual fund. hedge fund.
c. investing in a multi-strategy hedge fund.
d. investing in a Russell 2000 index mutual
fund.

Which of the following is TRUE regarding fluctuations in both

individual stock prices and portfolios of stocks?

a. aggregate market movements are the largest single factor

a. aggregate market movements
explaining these fluctuations
b. beta is the largest single factor explaining these fluctuations
are the largest single factor
c. standard deviation of returns is the largest single factor explaining
these
explaining these fluctuations
fluctuations
d. financial risk is the largest single factor explaining these fluctuations

Which of the following statements concerning index

funds and actively managed funds is true?

d. Index funds tend to

a. Their performance is about equal.
d. They tend to have an inverse relationship. outperform actively managed
c. Actively managed funds tend to outperform index
funds.
funds.
d. Index funds tend to outperform actively managed
funds.
Which of the following statements regarding a buy and hold
strategy are true?

d. This strategy produces lower

a. There are no selection choices to be made under this strategy.
b. This strategy is applicable only to large portfolios. transactions and search costs.
c. There is no reinvestment decision to make under this strategy.
d. This strategy produces lower transactions and search costs.

Which of the following statements regarding defensive stocks is

true?

d. They often produce necessary

a. They are often expected to have above-average future growth.
b. They often have high P/E multiples. items such as food and
c. They are expected to be adversely affected by high interest
rates. prescription drugs.
d. They often produce necessary items such as food and
prescription drugs.