Question

1- Which of the following is true regarding the Capital Asset Pricing Model (CAPM)?

A. It is a model that links the notions of risk and return
B. Uses beta, the risk-free rate and the market return to define the required return on an investment
C. As beta increases, the required return for a given investment increases
D. All of the above are true.

2- Top down approach to Traditional Security Analysis involves the following three steps in which order?

A. Economic Analysis, Industry Analysis, Fundamental Analysis
B. Economic Analysis, Fundamental Analysis, Industry Analysis
C. Industry Analysis, Fundamental Analysis, Economic Analysis
D. Country Analysis, City Analysis, Stock Analysis

3- Net Profit Margin, ROA and ROE are ratios included in which category of Financial Ratios?
A. Liquidity Ratios
B. Activity Ratios
C. Leverage Ratios
D. Profitability Ratios

4- To have an efficient market, you must have which of the following characteristics?

A. Many knowledgeable investors actively analyzing and trading stocks
B. Information that is only available to professional money managers
C. Investors react quickly and accurately to new information
D. A and C only

5- The investor behavior that allows investors to take credit for successes and blame others for failures is referred to as

A. Self-Attribution bias
B. Loss Aversion
C. Overconfidence
D. Belief Perseverance

6- Investors that use Technical Analysis tend to sell when stocks break through a line of _____.
A. Resistance
B. Support
C. High Prices
D. Low Prices

7- The single most important factor that affects bond prices in the market is?

A. Inflation Rate
B. Interest Rates
C. Stock Market
D. Federal Reserve Policy

8- The number of shares of common stock into which a convertible issue can be converted is called:

A. Conversion Price
B. Conversion Period
C. Conversion Ratio
D. Conversion Privilege

9- The pricing of bonds include the following components:

A. Future value of the annuity of annual interest income plus present value of the bond’s par value
B. Future value of the annuity of annual dividends plus future value of the bond’s par value
C. Present value of the annuity of annual dividends plus present value of the bond’s par value
D. Present value of the annuity of interest income plus present value of the bond’s par value

Duration measures which risk?

A. Liquidity risk
B. Maturity risk
C. Interest Rate risk
D. Reinvestment rate risk

Answer 1

1]  The answer is D

CAPM is a model that incorporates all of the statements. They are all true in the context of CAPM

2] The answer is A

top down approach is where first, the economic analysis of the entire economy is done. Next, the analysis if the industry in which the company operates is done. Finally, a fundamental analysis of the company (business model, management, financial statements etc.) is done.

3] The answer is D

profit margin, ROA and ROE are profitability ratios since they measure profits (numerator) as percentage of some base figure such as sales or assets (denominator)

4] The answer is D

efficient markets require that there are large and varied number of investors who bring depth and liquidity to the market. efficient markets also require that these market participants react quickly to new information. It requires that information is quickly and widely disseminated among all markets participants, and not just professional money managers. Hence B is not true. A and C are true

5]

this is self-attribution bias, when the attribution of success or failure is focused on enhancing one's self-esteem.

loss aversion is the bias of disliking losses more than liking equivalent profits

overconfidence is too much confidence about one's decision being correct

belief perseverance is the inability to change one's decision on receiving new information

6]  support

In Technical analysis, support lines are a major price level which has held up over a long time. Breaking this support line would likely cause a further fall in price, and is an indication to sell.