Investments and Portfolio Management Practice Exam

Investments and Portfolio Management Practice Exam

 

Which of the following is a primary objective of portfolio management?

A) Minimizing risk
B) Maximizing return
C) Maximizing risk
D) Maximizing market share

 

In portfolio theory, what is meant by “diversification”?

A) Combining multiple investments to reduce risk
B) Buying securities from only one industry
C) Focusing on high-risk investments
D) Reducing the number of assets in a portfolio

 

The Capital Asset Pricing Model (CAPM) is primarily used to estimate:

A) The value of a portfolio
B) The expected return on a security
C) The risk-free rate
D) The correlation between two assets

 

Which of the following is NOT a type of risk addressed in modern portfolio theory?

A) Systematic risk
B) Unsystematic risk
C) Market risk
D) Political risk

 

What does the Sharpe Ratio measure?

A) The risk-free return of a portfolio
B) The excess return per unit of risk
C) The total return of an asset
D) The correlation between two assets

 

Which of the following is an example of a systematic risk?

A) A company’s earnings report
B) A change in interest rates
C) A natural disaster
D) A new product launch

 

The Efficient Frontier represents:

A) The maximum return of any portfolio
B) The optimal risk-return trade-off in a portfolio
C) The expected returns of individual securities
D) The minimum risk for a given portfolio

 

Which of the following would most likely be used to hedge against inflation risk?

A) Treasury bills
B) Real estate investments
C) Cash equivalents
D) Stock investments in the tech sector

 

A portfolio’s beta of 1.2 implies that:

A) The portfolio is 20% less volatile than the market
B) The portfolio will always outperform the market
C) The portfolio is 20% more volatile than the market
D) The portfolio has no correlation with the market

 

What does the term “Alpha” in portfolio management represent?

A) The systematic risk of a portfolio
B) The portfolio’s expected return
C) The excess return relative to the market return
D) The correlation between two assets

 

Which of the following would most likely be included in an investor’s optimal portfolio?

A) Only high-risk assets
B) A mix of high-risk and low-risk assets
C) Only government bonds
D) Only large-cap stocks

 

A “buy and hold” investment strategy is most associated with which type of portfolio?

A) High-risk portfolio
B) Diversified portfolio
C) Short-term speculative portfolio
D) Income-focused portfolio

 

In portfolio management, which asset class typically provides the highest return over the long term?

A) Bonds
B) Real estate
C) Stocks
D) Commodities

 

The term “correlation” in portfolio theory refers to:

A) The relationship between the expected returns of two assets
B) The relationship between a portfolio and market risk
C) The relationship between risk and return in a single asset
D) The diversification benefit of two assets

 

Which of the following is a characteristic of an actively managed portfolio?

A) Passive management of assets
B) Frequent buying and selling of securities
C) An emphasis on holding securities long-term
D) A focus on minimizing transaction costs

 

The risk-return trade-off in portfolio theory suggests that:

A) Higher returns always lead to higher risks
B) Lower returns guarantee lower risks
C) The return of a portfolio is independent of risk
D) Higher returns typically come with higher risks

 

What is the primary goal of using portfolio theory in corporate investments?

A) To reduce the total number of investments
B) To maximize the firm’s market share
C) To optimize the mix of investments for risk and return
D) To minimize debt

 

Which of the following portfolio components would most likely be considered “risk-free”?

A) Treasury bonds
B) High-yield bonds
C) Equities
D) Corporate bonds

 

In the context of portfolio management, “market timing” refers to:

A) The attempt to predict market movements and adjust the portfolio accordingly
B) The strategy of holding assets for the long term
C) The use of options to hedge against portfolio risk
D) The allocation of assets across different sectors

 

The concept of “rebalancing” in portfolio management refers to:

A) Changing the asset allocation in a portfolio periodically
B) Increasing the number of assets in the portfolio
C) Selling off all assets for cash
D) Focusing only on one asset class at a time

 

The term “market efficiency” in the context of portfolio theory means:

A) The market always reflects all available information
B) Stock prices are always at their fair value
C) Only large investors can access market information
D) The market never reacts to new information

 

What is a major limitation of Modern Portfolio Theory (MPT)?

A) It assumes that investors only care about risk
B) It ignores the benefits of diversification
C) It assumes that markets are inefficient
D) It does not consider the time horizon of investments

 

A negative correlation between two assets means that:

A) The returns of the two assets move in opposite directions
B) The assets are highly dependent on each other
C) The two assets are completely unrelated
D) The returns of the two assets move in the same direction

 

What is a typical characteristic of a well-diversified portfolio?

A) Higher total risk
B) Increased likelihood of achieving market returns
C) Lack of correlation between assets
D) Holding only one asset class

 

Which of the following best describes a “tactical asset allocation” strategy?

A) A long-term strategy focusing solely on diversification
B) A short-term strategy that adjusts the portfolio based on market conditions
C) A passive approach to managing portfolios
D) A focus on maximizing dividends from investments

 

In terms of portfolio risk, the “Beta” coefficient measures:

A) The risk-free rate of return
B) The sensitivity of a portfolio to overall market movements
C) The total return of an asset
D) The correlation between two assets

 

Which of the following best explains “systematic risk”?

A) Risk unique to a specific company or industry
B) Risk that cannot be eliminated through diversification
C) Risk associated with market volatility
D) Risk that affects only bonds

 

What is the “Markowitz Efficient Frontier” used for?

A) Identifying the optimal level of risk
B) Identifying the portfolio with the highest return
C) Identifying the combination of assets that provides the highest return for a given risk level
D) Estimating the market price of an asset

 

The primary assumption behind the efficient market hypothesis (EMH) is that:

A) All investors are risk-averse
B) Stock prices always reflect all available information
C) Only professional investors can earn consistent profits
D) Market conditions are always predictable

 

In portfolio management, which of the following is a key characteristic of a “core-satellite” strategy?

A) Allocating the majority of assets in highly speculative investments
B) Holding a mix of both passive and active investments
C) Focusing solely on risk-free investments
D) Prioritizing short-term gains over long-term growth

 

 

Which of the following best describes a “concentrated” portfolio strategy?

A) A portfolio that holds a wide range of assets to minimize risk
B) A portfolio that invests in a few selected securities with higher potential return
C) A strategy that invests in only one asset class
D) A portfolio focused on low-risk, low-return investments

 

Which of the following is NOT a characteristic of an effective portfolio manager?

A) Strong understanding of market trends and economic indicators
B) Ability to predict future market movements accurately
C) Efficient risk management and diversification strategies
D) Knowledge of both fundamental and technical analysis

 

Which of the following is a benefit of investing in mutual funds?

A) Low management fees
B) Guaranteed returns
C) Diversification of investments
D) Complete control over the asset selection

 

In the context of portfolio management, “liquidity risk” refers to:

A) The risk of changes in interest rates affecting the value of assets
B) The risk of not being able to sell an asset quickly at a reasonable price
C) The risk of changes in political conditions that impact the portfolio
D) The risk associated with the portfolio’s diversification strategy

 

Which of the following is a key component of the Modern Portfolio Theory (MPT)?

A) Diversifying across assets to reduce risk
B) Focusing only on high-risk investments to maximize returns
C) Maintaining the same asset allocation at all times
D) Investing solely in government bonds for safety

 

The “required rate of return” in portfolio theory is:

A) The return a portfolio needs to generate to meet the investor’s goals
B) The return an investor expects based on historical performance
C) The return from a risk-free asset such as a Treasury bond
D) The rate at which all assets in the portfolio will grow over time

 

A portfolio manager who uses “market timing” is attempting to:

A) Predict market trends and adjust the portfolio’s allocation accordingly
B) Invest only in long-term securities
C) Diversify assets across all sectors of the economy
D) Maximize short-term returns while avoiding risks

 

Which of the following describes a “value investing” strategy?

A) Investing in stocks that are undervalued relative to their intrinsic value
B) Focusing on companies with high growth potential
C) Buying stocks based on technical analysis
D) Selecting stocks based on their popularity

 

“Market risk” is also known as:

A) Systematic risk
B) Unsystematic risk
C) Credit risk
D) Liquidity risk

 

The “modigliani-miller theorem” states that:

A) Capital structure does not affect the value of a firm in an efficient market
B) Dividend payments have a direct impact on the market value of a firm
C) Diversification can completely eliminate systematic risk
D) The cost of capital is irrelevant in determining a firm’s profitability

 

A “growth investing” strategy focuses primarily on:

A) Investing in undervalued stocks
B) Companies with high potential for future growth
C) Collecting income from dividends
D) Minimizing risk and preserving capital

 

Which of the following types of assets is most commonly included in a “defensive” portfolio?

A) High-yield corporate bonds
B) Treasury securities
C) Growth stocks
D) Commodities

 

Which of the following is a fundamental analysis tool used in evaluating a stock?

A) Moving average
B) Price-to-earnings ratio (P/E)
C) Relative strength index (RSI)
D) Bollinger Bands

 

What does the “liquidity premium” theory suggest about long-term bonds?

A) Investors require higher returns for long-term bonds to compensate for liquidity risk
B) Long-term bonds are always less risky than short-term bonds
C) Long-term bonds are more liquid than short-term bonds
D) Investors will accept lower returns for long-term bonds

 

The “efficient market hypothesis” (EMH) suggests that:

A) All available information is already reflected in stock prices
B) Investors can consistently outperform the market
C) Stocks are only influenced by macroeconomic factors
D) The market is inefficient and stocks can be easily undervalued

 

“Short selling” involves:

A) Borrowing shares to sell them, with the intent to buy them back at a lower price
B) Buying bonds with short maturities to reduce interest rate risk
C) Selling long positions to lock in profits
D) Investing in low-risk, short-term securities

 

Which of the following is a primary benefit of using exchange-traded funds (ETFs)?

A) High management fees
B) Lack of diversification
C) Ability to trade throughout the day like stocks
D) Guaranteed returns

 

What does the term “asset allocation” refer to in portfolio management?

A) Selecting individual securities for investment
B) The division of the total investment portfolio across different asset classes
C) Rebalancing the portfolio to maximize returns
D) Deciding the optimal time to buy or sell assets

 

The “modigliani-miller theorem” assumes that:

A) There are no taxes or bankruptcy costs in capital structure decisions
B) There is no cost to issuing new securities
C) The firm’s capital structure is irrelevant under certain conditions
D) All of the above

 

“Factor investing” involves:

A) Investing in stocks with the highest market capitalizations
B) Using specific factors like value, momentum, and quality to select investments
C) Focusing on short-term trends in the stock market
D) Prioritizing investments based on technical indicators

 

The “Dividend Discount Model” (DDM) is used to:

A) Calculate the expected growth rate of a stock
B) Estimate the value of a stock based on expected dividends
C) Analyze the historical performance of a stock
D) Determine the liquidity of a security

 

Which of the following is a characteristic of a “high-yield” bond?

A) Low default risk
B) High return with higher risk
C) Low return with low risk
D) Guaranteed principal repayment

 

The “treynor ratio” measures:

A) Portfolio return relative to market risk
B) The total return of an investment
C) Excess return per unit of total risk
D) The correlation between two assets

 

Which of the following portfolio strategies aims to reduce volatility while maintaining returns?

A) Tactical asset allocation
B) Dollar-cost averaging
C) Core-satellite strategy
D) Hedging with derivatives

 

“Securities lending” is primarily used to:

A) Borrow capital from a financial institution
B) Lend securities to other investors for short-selling purposes
C) Increase portfolio liquidity
D) Reduce portfolio volatility

 

Which of the following would likely be considered a “defensive” stock?

A) Technology stocks
B) Consumer staples
C) Real estate investment trusts (REITs)
D) Emerging market stocks

 

Which of the following is true about “emerging markets” investments?

A) They are typically more stable than developed markets
B) They are characterized by higher growth potential and higher risk
C) They always outperform developed markets
D) They are less volatile than global equities

 

The “beta” of an asset represents:

A) The total risk of the asset
B) The asset’s correlation with the market
C) The asset’s return relative to the risk-free rate
D) The total return of the asset over time

 

A “balanced portfolio” typically includes:

A) 100% equities
B) A mix of both stocks and bonds
C) Only government bonds
D) Only real estate investments

 

A “growth stock” is typically characterized by:

A) High dividends and low capital appreciation
B) Low volatility and stable returns
C) High potential for capital appreciation but low dividends
D) Low risk and high yields

 

 

The “Capital Asset Pricing Model” (CAPM) is used to:

A) Estimate the risk of a portfolio based on historical returns
B) Calculate the expected return of an asset given its risk
C) Evaluate the risk-free rate in a portfolio
D) Predict future stock prices based on current market conditions

 

In the context of portfolio management, “systematic risk” refers to:

A) The risk that affects individual stocks or assets
B) The overall market risk that cannot be diversified away
C) The risk associated with choosing a particular asset class
D) The risk of fluctuations in interest rates

 

“Active portfolio management” refers to:

A) A strategy where the portfolio manager buys and holds assets for the long term
B) A strategy focused on minimizing the risk through diversification
C) A strategy where the portfolio manager regularly buys and sells assets based on market predictions
D) A strategy where the portfolio manager matches the performance of a benchmark index

 

Which of the following is most likely a characteristic of a “high-beta” stock?

A) Lower market risk compared to the overall market
B) Greater potential for price volatility relative to the market
C) Stable and predictable returns over time
D) A low correlation with market movements

 

Which of the following describes “mean-variance optimization”?

A) A strategy for maximizing returns with minimum risk
B) A technique used to determine the ideal asset allocation by balancing risk and return
C) A method of timing the market based on price movements
D) A tool used to predict the future value of a portfolio based on historical data

 

The “Sharpe ratio” is used to:

A) Measure the total return of a portfolio
B) Evaluate the risk-adjusted return of a portfolio
C) Determine the correlation between a portfolio’s returns and the market
D) Calculate the expected return based on historical performance

 

“Diversification” in the context of portfolio management refers to:

A) Investing in a few high-growth stocks to maximize returns
B) Spreading investments across different asset classes to reduce risk
C) Focusing on one asset class to ensure optimal returns
D) Rebalancing a portfolio every year to maintain performance

 

A “value-at-risk” (VaR) model is used to measure:

A) The maximum potential profit from a portfolio
B) The total market risk associated with a portfolio
C) The potential loss in the value of a portfolio over a given time period, at a certain confidence level
D) The expected return from a portfolio over a period of time

 

Which of the following is an example of an “alternative investment”?

A) U.S. government bonds
B) Large-cap stocks
C) Real estate investment trusts (REITs)
D) S&P 500 index funds

 

Which of the following best describes “asset management”?

A) The process of purchasing bonds for future sale
B) Managing a portfolio of investments with the goal of achieving specific financial objectives
C) Creating and managing mutual funds for individual investors
D) Investing only in high-growth stocks to maximize returns

 

A “forward contract” is a type of:

A) Derivative contract that obligates the buyer to purchase an asset at a predetermined future date
B) Fixed-income investment that offers a fixed return over time
C) Equity-based investment that represents ownership in a company
D) Long-term loan agreement between two parties

 

A “rebalancing strategy” in portfolio management refers to:

A) Buying more of an asset that has decreased in value
B) Adjusting the portfolio’s asset allocation to maintain a desired risk level
C) Liquidating the portfolio and reinvesting all assets
D) Maintaining a constant allocation to high-risk assets

 

Which of the following is true about “exchange-traded funds” (ETFs)?

A) They cannot be traded during market hours
B) They are typically more expensive than mutual funds
C) They offer diversification and can be traded like stocks
D) They guarantee high returns in volatile markets

 

In portfolio management, “correlation” refers to:

A) The relationship between the portfolio’s total risk and return
B) The relationship between two assets’ returns
C) The risk of losing money in a portfolio
D) The diversification benefits of a portfolio

 

A portfolio’s “expected return” is calculated by:

A) Adding the expected returns of all individual assets
B) Dividing the total return by the number of assets in the portfolio
C) Weighted averaging the returns based on asset allocation
D) Calculating the highest potential return from any asset in the portfolio

 

“Capital gain” on an investment is defined as:

A) The return received from dividends
B) The income earned from interest payments
C) The profit from selling an asset at a higher price than it was purchased
D) The amount of money invested in an asset

 

Which of the following is a feature of “value investing”?

A) Buying assets based on short-term trends
B) Investing in undervalued companies with long-term growth potential
C) Focusing on stocks with high volatility for quick profits
D) Choosing assets solely based on their technical analysis

 

Which of the following portfolio strategies focuses on minimizing risk by investing in a mix of asset classes?

A) Sector rotation
B) Strategic asset allocation
C) Momentum investing
D) Technical analysis

 

“Interest rate risk” is most relevant to which type of investment?

A) Stocks
B) Bonds
C) Real estate
D) Commodities

 

A “hedging” strategy in portfolio management is primarily used to:

A) Increase the potential returns of a portfolio
B) Protect the portfolio against adverse market movements
C) Enhance the liquidity of an investment
D) Diversify the portfolio across asset classes

 

The “beta” of a stock measures:

A) The correlation between a stock’s return and the overall market’s return
B) The stock’s total risk relative to its sector
C) The company’s earnings relative to its competitors
D) The risk of an asset compared to a risk-free asset

 

Which of the following is an example of a “passive investment strategy”?

A) Actively trading stocks based on market forecasts
B) Attempting to beat the market using technical analysis
C) Investing in an index fund that tracks a market index
D) Concentrating investments in a few select high-risk assets

 

“Risk-adjusted return” is used to measure:

A) The return relative to the risk of the asset
B) The return of a portfolio compared to a benchmark
C) The return from risk-free assets
D) The total return from dividends and capital gains

 

“Behavioral finance” is a field of study that focuses on:

A) The impact of financial markets on global economies
B) The psychological influences on investors’ decision-making processes
C) The relationship between interest rates and inflation
D) The effect of government regulations on investment strategies

 

A “bull market” refers to:

A) A market characterized by declining asset prices
B) A market with high volatility and risk
C) A market where asset prices are rising
D) A market where interest rates are decreasing

 

“Sector rotation” is a strategy that involves:

A) Moving investments between different sectors based on economic cycles
B) Focusing only on one sector for the long term
C) Diversifying investments across sectors without considering economic conditions
D) Investing in a single sector with the highest returns

 

“Monte Carlo simulation” is used to:

A) Predict stock prices with high accuracy
B) Model and simulate the potential outcomes of portfolio strategies
C) Identify undervalued stocks based on historical data
D) Calculate the market risk of an individual asset

 

“Economic moats” refer to:

A) The competitive advantages that protect a company from competition
B) The process of diversifying investments across asset classes
C) The barriers to entry in financial markets
D) The methods used to assess the risk of an asset

 

Which of the following is NOT a typical feature of a “high-risk” investment?

A) Greater potential for high returns
B) Higher volatility and fluctuations in price
C) Lower correlation with market movements
D) Increased chance of loss of principal

 

“Asset allocation” is important because it:

A) Helps determine the ideal combination of stocks and bonds for a portfolio
B) Minimizes the potential returns from a portfolio
C) Focuses on selecting individual stocks with the highest returns
D) Ensures that a portfolio’s risk level is always zero

 

 

“Modern Portfolio Theory” (MPT) suggests that:

A) An investor should focus on maximizing returns from a single asset
B) The risk of a portfolio can be minimized through diversification
C) All investments should be made in high-risk, high-return assets
D) Diversification does not reduce risk in a portfolio

 

The “efficient frontier” represents:

A) The optimal mix of assets that maximizes risk
B) The set of portfolios that offer the highest return for a given level of risk
C) A portfolio with no risk at all
D) A model that predicts the future returns of assets

 

In portfolio management, “liquidity risk” refers to:

A) The potential for loss in value due to interest rate changes
B) The risk that an asset cannot be quickly sold or converted into cash
C) The risk of inflation eroding the purchasing power of returns
D) The risk of investing in long-term bonds with high volatility

 

Which of the following is a characteristic of “blue-chip stocks”?

A) High volatility with unpredictable returns
B) Stocks of well-established companies with a history of stability and reliable performance
C) Stocks that only offer capital gains with no dividends
D) Stocks that are primarily owned by venture capitalists

 

Which of the following investment vehicles is most suitable for a risk-averse investor looking for stable income?

A) Growth stocks
B) Treasury bonds
C) Venture capital
D) High-yield corporate bonds

 

In the context of portfolio management, “systematic risk” can be minimized by:

A) Diversifying within a single asset class
B) Using derivatives to hedge against market movements
C) Investing only in low-volatility stocks
D) Diversifying across multiple asset classes to reduce exposure

 

A “call option” gives the holder the right to:

A) Sell an asset at a specified price at a future date
B) Buy an asset at a specified price at a future date
C) Receive dividends on an asset
D) Participate in a company’s decision-making process

 

In the “efficient market hypothesis” (EMH), it is assumed that:

A) Investors can consistently achieve above-market returns by using technical analysis
B) All available information is fully reflected in asset prices
C) Markets are always inefficient and cannot be predicted
D) Markets only react to past price movements

 

A “money market fund” typically invests in:

A) Long-term corporate bonds
B) Government securities and short-term debt instruments
C) Stocks of small-cap companies
D) Real estate and commodities

 

Which of the following is an example of “passive portfolio management”?

A) Selecting stocks based on expected future earnings
B) Investing in an index fund that mimics the performance of a market index
C) Timing the market based on economic forecasts
D) Focusing on individual stock picking to beat the market

 

The “Arbitrage Pricing Theory” (APT) is an alternative to CAPM and suggests that:

A) Only systematic risk matters for pricing assets
B) There are multiple factors that can affect asset returns, not just market risk
C) Risk can be fully diversified away by holding a large number of assets
D) The risk-free rate is the most important factor in asset pricing

 

“Dividend yield” is calculated by:

A) Dividing the dividend by the stock’s market price
B) Adding the dividend and the capital gains
C) Dividing the stock’s earnings per share by the market price
D) Subtracting the stock’s price from the dividends paid

 

“Hedge funds” are typically characterized by:

A) A highly liquid portfolio of stocks and bonds
B) Investment strategies that involve high risk and leverage
C) Investment in government bonds and Treasury securities
D) Fixed interest income over time with no fluctuation in returns

 

In the context of asset management, “alpha” refers to:

A) The overall market return of a portfolio
B) The risk-adjusted return that exceeds the benchmark return
C) The diversification benefits provided by different asset classes
D) The capital gains generated by a portfolio

 

The primary purpose of “duration” in bond portfolio management is to:

A) Measure the potential return of a bond over time
B) Calculate the time until a bond matures
C) Evaluate the sensitivity of a bond’s price to changes in interest rates
D) Determine the bond’s yield to maturity

 

A “futures contract” allows investors to:

A) Buy or sell an asset at a predetermined price at a future date
B) Borrow funds for a specified time period at an agreed interest rate
C) Purchase stock options at a future price
D) Invest in a basket of securities with no expiration date

 

“Risk premium” refers to:

A) The return of a risk-free asset
B) The additional return earned for taking on higher risk
C) The difference between a stock’s highest and lowest price
D) The total cost of borrowing money for an investment

 

The “treynor ratio” is used to evaluate:

A) The total return of a portfolio
B) The risk-adjusted return of a portfolio based on its systematic risk (beta)
C) The maximum loss of a portfolio over time
D) The liquidity risk associated with a portfolio

 

“Real estate investment trusts” (REITs) are primarily used to:

A) Invest directly in physical real estate properties
B) Provide high-yield returns from commercial real estate investments
C) Offer liquidity in the real estate market by pooling investor funds
D) Invest in stocks of real estate management companies

 

In portfolio management, “tracking error” refers to:

A) The deviation of a portfolio’s return from its expected return
B) The degree of deviation of a portfolio’s return from its benchmark index
C) The risk of holding a large number of stocks in a portfolio
D) The risk of market fluctuations affecting asset prices

 

“Geometric mean” is used to:

A) Calculate the average return over multiple periods, accounting for compounding
B) Determine the average return in a single period
C) Measure the expected return from a single asset
D) Calculate the volatility of an asset

 

Which of the following is a key advantage of “value investing”?

A) Lower risk due to the emphasis on high-growth companies
B) Potential for above-average returns from undervalued stocks
C) Avoiding market volatility by focusing on low-risk assets
D) Guarantee of short-term profits from capital appreciation

 

Which of the following is true about the “diversification” strategy in portfolio management?

A) Diversification reduces the potential returns of a portfolio
B) Diversification always leads to higher returns
C) Diversification helps spread risk across different asset classes
D) Diversification eliminates all forms of risk in a portfolio

 

“Capital budgeting” in portfolio management involves:

A) Allocating funds across different asset classes for the long term
B) Evaluating potential investments to determine their value and profitability
C) Managing the tax implications of portfolio investments
D) Analyzing the total return of a portfolio

 

 

The “capital asset pricing model” (CAPM) suggests that the expected return of an asset is related to:

A) The risk-free rate and the asset’s beta
B) The total market return and the asset’s volatility
C) The dividend yield and the asset’s price fluctuations
D) The bond’s yield to maturity and the investor’s tax rate

 

A “bear market” is characterized by:

A) An overall decline in stock prices by 10% or more
B) A sharp increase in the prices of bonds
C) Investors buying assets due to market optimism
D) A stable market with minimal price fluctuations

 

The “Sharpe ratio” is used to:

A) Measure the average return of a portfolio over a specified period
B) Evaluate the performance of a portfolio relative to a risk-free asset
C) Assess a portfolio’s risk-adjusted return
D) Determine the maximum loss a portfolio can experience

 

“Real return” refers to the return on an investment after:

A) Accounting for changes in the investment’s market price
B) Adjusting for inflation
C) Adding dividends and interest payments
D) Subtracting management fees and transaction costs

 

“Short selling” is the practice of:

A) Buying an asset with the expectation that its price will decrease
B) Borrowing shares and selling them with the intention to repurchase at a lower price
C) Selling a stock that is not owned, expecting the price to rise
D) Holding stocks for a long period to avoid tax implications

 

“Monte Carlo simulation” is used in portfolio management to:

A) Predict future interest rates
B) Calculate the precise returns of an asset
C) Model the potential outcomes of portfolio returns based on different scenarios
D) Estimate the future price of a single asset

 

Which of the following is a characteristic of a “growth stock”?

A) Stable earnings and dividends
B) High price-to-earnings (P/E) ratio with the expectation of significant future growth
C) Low volatility and low risk
D) Issued by government organizations

 

“Foreign exchange risk” refers to:

A) The risk associated with fluctuations in stock prices in foreign markets
B) The risk of investment loss due to changes in foreign interest rates
C) The risk of currency value fluctuations affecting the returns of international investments
D) The risk that bonds issued in foreign currencies may default

 

A “mutual fund” pool investors’ money to:

A) Invest in a specific asset class only
B) Buy a diversified set of securities on behalf of investors
C) Offer only government bonds to minimize risk
D) Create a single investment portfolio with no diversification

 

“Systematic risk” is also known as:

A) Unsystematic risk
B) Market risk
C) Credit risk
D) Operational risk

 

The “risk-return trade-off” suggests that:

A) Higher risk leads to lower expected returns
B) Risk and return are inversely related
C) Investors must accept a higher risk to achieve higher returns
D) Risk and return are not related to each other

 

In the context of portfolio optimization, the “Markowitz efficient frontier” helps to:

A) Identify the best-performing stock in a portfolio
B) Find the optimal combination of assets that maximize return for a given level of risk
C) Minimize taxes on portfolio gains
D) Predict the market price of assets in the future

 

Which of the following is a primary factor that influences interest rates in the bond market?

A) The corporate governance of the bond issuer
B) The level of inflation and economic growth
C) The price-to-earnings (P/E) ratio of the issuer
D) The stock market’s daily fluctuations

 

A “portfolio manager” is responsible for:

A) Analyzing the credit risk of bonds only
B) Selecting and managing a diversified portfolio of investments for clients
C) Predicting the stock market’s direction on a daily basis
D) Limiting the portfolio to government bonds only

 

“Debt-to-equity ratio” is an indicator of:

A) A company’s profitability
B) A company’s ability to cover its operating expenses
C) The proportion of debt financing compared to equity financing
D) A company’s future growth potential

 

A “diversified portfolio” is one that:

A) Holds a large number of stocks in the same sector
B) Focuses only on high-risk investments
C) Includes assets from different sectors and classes to reduce risk
D) Holds a large portion of assets in one asset class

 

“Capital structure” refers to:

A) The mix of debt and equity a company uses to finance its operations
B) The total number of shares outstanding for a company
C) The level of dividend payouts to shareholders
D) The overall profitability of a company

 

In portfolio management, “liability-driven investing” (LDI) aims to:

A) Focus on high-risk, high-return investments to maximize growth
B) Align the portfolio’s assets with future liabilities to meet funding needs
C) Maximize stock market exposure to ensure higher returns
D) Invest in short-term bonds to reduce risk

 

“Efficient markets” are characterized by:

A) A market where asset prices do not change over time
B) A market where all available information is quickly reflected in asset prices
C) A market with a high level of government intervention
D) A market where all assets are guaranteed to provide positive returns

 

A “buy-and-hold” strategy is best suited for:

A) Traders seeking short-term profits from market fluctuations
B) Investors looking for long-term growth without frequent trading
C) Individuals seeking high-frequency trading opportunities
D) Investors looking to hedge against market volatility

 

“Leverage” in investing refers to:

A) The use of borrowed funds to amplify returns
B) The process of diversifying across multiple assets
C) The act of investing in high-risk, high-reward opportunities
D) The use of only low-risk, low-return assets in a portfolio

 

 

“Beta” in portfolio management is a measure of:

A) The total risk of a portfolio
B) The risk of a portfolio relative to the risk of the market
C) The return on investment of a portfolio
D) The correlation between a portfolio’s returns and inflation rates

 

In the context of portfolio diversification, “correlation” refers to:

A) The risk-free return rate of the portfolio
B) The relationship between the returns of two assets in the portfolio
C) The total volatility of the portfolio
D) The amount of debt financing used to fund the portfolio

 

Which of the following is a key advantage of investing in index funds?

A) Higher management fees compared to actively managed funds
B) Greater potential for beating the market consistently
C) Lower costs due to passive management and broad market exposure
D) Actively managed portfolios of high-risk stocks

 

“Dollar-cost averaging” is a strategy where an investor:

A) Invests the same amount of money at regular intervals, regardless of market conditions
B) Buys only when prices are at their lowest
C) Changes the amount invested based on market fluctuations
D) Focuses on short-term trading opportunities to maximize profit

 

The “efficient frontier” represents:

A) The highest expected return for a given level of risk
B) A collection of assets with the lowest correlation to each other
C) The optimal risk-free rate for all investors
D) The maximum number of assets in a portfolio

 

A “tax-deferred” investment account allows:

A) Immediate tax deductions on contributions but taxed on withdrawals
B) Capital gains to be taxed at a lower rate than ordinary income
C) Earnings to grow without being taxed until withdrawal
D) A tax credit for investment losses

 

A “high-yield bond” is also known as:

A) A government bond with a low interest rate
B) A bond with a rating below investment grade and higher risk of default
C) A bond issued by a corporation with a AAA rating
D) A bond with a long maturity and a low coupon rate

 

The “Treynor ratio” is used to:

A) Measure a portfolio’s total return relative to its risk
B) Calculate a portfolio’s return per unit of market risk
C) Assess the risk of an individual security
D) Determine the market’s overall efficiency

 

The “Jensen’s Alpha” is a performance measure that evaluates:

A) The return of an asset relative to the risk-free rate
B) The return of a portfolio above the expected return predicted by the CAPM
C) The volatility of a stock relative to the market
D) The growth rate of dividends in a stock portfolio

 

“Modern Portfolio Theory” (MPT) is based on the idea that:

A) Investors should focus on a single asset to maximize returns
B) The expected return of a portfolio can be increased by investing in high-risk assets only
C) A diversified portfolio can help reduce risk without sacrificing returns
D) A portfolio should be concentrated in bonds to reduce risk

 

“Asset allocation” refers to:

A) The choice of which individual stocks or bonds to include in a portfolio
B) The strategy of diversifying a portfolio by including different types of asset classes
C) The decision to invest only in government securities
D) The decision to use margin financing for buying securities

 

“Convertible bonds” are unique because they:

A) Cannot be traded on the secondary market
B) Offer the option to convert into a fixed number of shares of the issuing company’s stock
C) Provide no interest income
D) Have a fixed rate of return but no maturity date

 

A “call option” gives the holder the right to:

A) Sell an asset at a specific price within a certain time frame
B) Purchase an asset at a specific price within a certain time frame
C) Buy or sell an asset at the market price
D) Receive a dividend payment from the underlying asset

 

The “Put-Call Parity” theorem suggests that:

A) The price of a call option is always greater than the price of a put option
B) The price of a put and call option on the same asset, with the same strike price and expiration date, should have a specific relationship
C) The value of a put option is inversely related to the stock price
D) The price of options is not affected by the price of the underlying asset

 

A “hedge fund” typically:

A) Invests only in low-risk government bonds
B) Is open to all investors and has low minimum investment requirements
C) Uses advanced strategies like short selling and leverage to achieve high returns
D) Only invests in international markets

 

“Active management” in portfolio management refers to:

A) A hands-off approach where an investor does not intervene with portfolio decisions
B) The use of systematic strategies to predict the market
C) The constant buying and selling of securities in an attempt to outperform the market
D) Focusing exclusively on investing in passive index funds

 

“Tracking error” is used to measure:

A) The deviation of an investment’s return from its expected return
B) The portfolio’s divergence from a benchmark index over time
C) The correlation between two assets in a portfolio
D) The risk-free rate in the market

 

 

The “Sharpe ratio” is used to evaluate a portfolio’s:

A) Total return relative to its market risk
B) Risk-adjusted return by comparing the excess return over the risk-free rate to the portfolio’s standard deviation
C) Total return in comparison to the volatility of a single asset
D) Market correlation and beta

 

In the context of portfolio management, “systematic risk” refers to:

A) The risk specific to an individual asset
B) The risk that cannot be diversified away, affecting the entire market
C) The total risk of a portfolio
D) The risk associated with market inefficiencies

 

An investor with a “conservative” risk tolerance would most likely invest in:

A) High-yield bonds and growth stocks
B) Government bonds and dividend-paying blue-chip stocks
C) A portfolio with significant exposure to international markets
D) Cryptocurrencies and high-volatility stocks

 

“Markowitz Efficient Frontier” is used to:

A) Determine the maximum return for a given level of risk
B) Evaluate the performance of a portfolio manager
C) Predict the future returns of a single asset
D) Determine the best-performing individual stocks for a portfolio

 

A portfolio’s “total return” is the combination of:

A) Income return and capital gain return
B) Income return and risk-free rate
C) Risk-free rate and capital gain return
D) Only the capital gain return

 

“Value at Risk” (VaR) is used to measure:

A) The expected rate of return on a portfolio
B) The maximum loss a portfolio could incur over a given time period with a certain level of confidence
C) The volatility of an individual asset
D) The average return of a portfolio over a certain period

 

Which of the following is NOT a characteristic of “real estate investment trusts” (REITs)?

A) Provide investors with access to the real estate market
B) Require investors to hold their investments for long periods
C) Typically offer dividend income from the rental income of properties
D) Are traded on major stock exchanges similar to stocks

 

“Alpha” in portfolio management measures:

A) The return on a portfolio relative to its risk-free rate
B) The risk-adjusted return of a portfolio above the expected return predicted by the Capital Asset Pricing Model (CAPM)
C) The total market risk of a portfolio
D) The correlation of a portfolio’s returns to the broader market

 

The “Capital Asset Pricing Model” (CAPM) calculates:

A) The risk-free rate of return
B) The expected return on an asset based on its beta, the risk-free rate, and the market return
C) The optimal asset allocation in a portfolio
D) The correlation between assets in a portfolio

 

In portfolio management, “risk-free rate” refers to:

A) The highest return an investor can expect to earn without any risk
B) The return on an asset with zero risk of loss, typically represented by government securities
C) The return expected from a diversified portfolio
D) The return on a highly volatile asset with a high level of risk

 

Which of the following is NOT typically considered an asset class for diversification in a portfolio?

A) Stocks
B) Bonds
C) Cash
D) Real estate and commodities

 

In portfolio theory, “diversification” is important because it:

A) Reduces the total return of the portfolio
B) Minimizes the correlation between assets to lower risk
C) Increases the volatility of the portfolio
D) Ensures the portfolio contains a high proportion of low-risk assets

 

“Hedge funds” typically use leverage to:

A) Increase their risk in hopes of achieving higher returns
B) Reduce risk by diversifying the portfolio
C) Provide a steady stream of dividend income
D) Invest in short-term government bonds

 

The “income yield” of a bond is:

A) The annual coupon payment divided by the bond’s face value
B) The bond’s total return over its life
C) The capital gain from selling the bond before maturity
D) The expected return from reinvesting the coupon payments

 

Which of the following is an example of a “growth stock”?

A) A company that pays regular dividends and has a steady earnings history
B) A company that reinvests profits into expanding its business and has high growth potential
C) A company that has low volatility and is considered risk-free
D) A government bond with a long-term maturity

 

A “mutual fund” is a pool of funds that:

A) Only invests in individual stocks of high-growth companies
B) Allows investors to diversify by pooling their money with other investors to invest in various asset classes
C) Is always actively managed with a guaranteed return
D) Provides tax-free income to investors

 

“Private equity” investments generally involve:

A) Large public corporations traded on stock exchanges
B) Investments in start-up companies or firms looking to expand privately, often without public market involvement
C) The purchase of government bonds
D) Passive investments in index funds and ETFs

 

“Capital structure” in corporate finance refers to:

A) The mix of debt and equity financing used by a company
B) The number of employees in a company
C) The division of assets between different departments in a company
D) The number of shares of stock issued by a company

 

 

“Market efficiency” refers to:

A) The market’s ability to maximize returns for investors
B) The rapid movement of stock prices in response to new information
C) The relationship between interest rates and stock market performance
D) The ability of investors to outperform the market consistently

 

The “CML” (Capital Market Line) represents:

A) The line showing the relationship between the expected return and total risk of an efficient portfolio
B) The line showing the relationship between the risk-free rate and the return of government bonds
C) The line that represents all portfolios in the market, including the risk-free asset
D) A line representing the minimum return needed to compensate for systematic risk

 

Which of the following would be considered a “liquid asset”?

A) A real estate investment
B) A certificate of deposit (CD) with a fixed term
C) A stock traded on the stock market
D) A long-term bond with a 10-year maturity

 

In portfolio management, “rebalancing” refers to:

A) Adjusting the portfolio’s asset allocation in response to changes in market conditions
B) Selling off all underperforming assets to reduce risk
C) Increasing the total amount of investment by adding new funds
D) Shifting investments between different asset classes on a quarterly basis

 

The “dividend yield” of a stock is calculated by:

A) Dividing the annual dividend payment by the stock’s current price
B) Dividing the stock’s earnings by the stock price
C) Calculating the capital gain return of the stock over the last year
D) Subtracting the stock’s price-to-earnings ratio from its dividend

 

A “buy and hold” strategy involves:

A) Purchasing assets and selling them quickly based on market trends
B) Holding assets for a long time with minimal trading to achieve long-term growth
C) Actively monitoring and frequently adjusting a portfolio based on market conditions
D) Speculating in volatile securities for short-term gains

 

The “yield curve” is used to:

A) Compare the returns of different stocks within the same industry
B) Visualize the relationship between interest rates and the maturity of government bonds
C) Predict the movement of the stock market
D) Show the correlation between stocks and bonds in a portfolio

 

“Systematic risk” is also referred to as:

A) Unsystematic risk
B) Non-diversifiable risk
C) Diversifiable risk
D) Security-specific risk

 

“Duration” of a bond measures:

A) The time until the bond matures
B) The bond’s sensitivity to interest rate changes
C) The credit quality of the issuer
D) The yield to maturity of the bond

 

Which of the following is an example of “market risk”?

A) A company’s stock price falls due to poor earnings performance
B) A stock’s price increases due to a change in company management
C) An investor’s portfolio declines in value due to a market-wide economic downturn
D) A bondholder’s return is reduced due to changes in interest rates

 

A “taxable equivalent yield” is used to:

A) Compare the after-tax returns of municipal bonds to corporate bonds
B) Calculate the return on a tax-deferred investment
C) Estimate the tax liability on bond interest
D) Determine the impact of taxes on a stock portfolio

 

Which of the following best describes “inflation risk”?

A) The risk of a bond’s value declining due to changing interest rates
B) The risk that the purchasing power of returns will decrease due to rising inflation
C) The risk of losing capital invested in stocks
D) The risk associated with the performance of international markets

 

“Monte Carlo simulation” is used in portfolio management to:

A) Estimate the potential return of a portfolio
B) Assess the probability of different outcomes under various scenarios
C) Determine the tax implications of investment decisions
D) Predict short-term price movements of stocks

 

The “initial margin” requirement in a margin account refers to:

A) The percentage of the purchase price the investor must initially pay using their own funds
B) The total cost of the security to be purchased on margin
C) The minimum amount an investor can borrow for a margin transaction
D) The amount of interest paid on margin loans

 

The “Reed-Solomon model” is primarily used in:

A) Calculating the optimal portfolio for risk-averse investors
B) Pricing options in the financial market
C) Determining the optimal capital structure of a firm
D) Analyzing the correlation of securities in a portfolio

 

In portfolio management, “capital allocation” refers to:

A) The decision to reinvest returns back into the portfolio
B) The distribution of funds across various asset classes based on the investor’s risk tolerance and investment objectives
C) The allocation of resources in a company to different departments
D) The selection of individual securities to include in the portfolio

 

The “efficient market hypothesis” (EMH) states that:

A) Stocks are always overpriced in the market
B) It is impossible to consistently outperform the market by using technical or fundamental analysis
C) Government bonds provide the best risk-adjusted returns
D) All stocks are subject to the same risk and return profile

 

“Strategic asset allocation” is an investment strategy that:

A) Focuses on short-term investments to maximize immediate returns
B) Establishes a fixed allocation of assets based on long-term financial goals and risk tolerance
C) Adjusts the portfolio allocation frequently based on market conditions
D) Involves only investing in low-risk government bonds

 

“Currency risk” arises when:

A) An investor holds bonds that are sensitive to interest rate changes
B) A portfolio includes assets denominated in foreign currencies
C) An investor is exposed to the risk of inflation affecting returns
D) An investor uses margin to purchase securities

 

Which of the following describes “passive management” in portfolio theory?

A) Actively buying and selling securities to outperform the market
B) Constructing a portfolio based on the investor’s specific preferences and objectives
C) Creating a portfolio that mirrors a market index, with minimal trading
D) Taking large positions in high-risk assets to maximize returns

 

 

The “Efficient Frontier” in portfolio theory represents:

A) The point at which the risk of an individual asset is maximized
B) A line of portfolios that offers the highest expected return for each level of risk
C) The boundary between risk-free and risky assets
D) The set of portfolios that minimize risk without regard to return

 

A “low-beta” stock is typically:

A) Highly volatile and responsive to market changes
B) Not affected by changes in market conditions
C) Less volatile and moves less in response to market changes
D) A bond that moves with the interest rate

 

In portfolio theory, “correlation” refers to:

A) The difference between an asset’s expected return and its actual return
B) The relationship between the returns of two assets
C) The correlation between a portfolio’s risk and the market’s risk
D) The measure of risk for a single asset

 

The “treynor ratio” is used to measure:

A) The return on investment relative to the total risk of the portfolio
B) The risk-adjusted return based on systematic risk or market risk
C) The portfolio’s beta relative to the market’s returns
D) The excess return earned by a portfolio relative to a risk-free asset

 

“Market timing” refers to:

A) Adjusting a portfolio’s risk based on the business cycle
B) Predicting future market movements and making investment decisions based on those predictions
C) The selection of specific stocks based on industry trends
D) Allocating assets to the risk-free rate when the market is performing poorly

 

“Value at Risk” (VaR) is a measure of:

A) The expected return of an asset over a certain time period
B) The potential loss in value of an investment portfolio under normal market conditions
C) The likelihood of an asset’s price doubling over the next year
D) The ratio of the price of an option to its underlying asset

 

In portfolio management, “diversification” is used to:

A) Eliminate all risk from an investment portfolio
B) Spread investments across different asset classes to reduce unsystematic risk
C) Maximize returns by focusing on high-risk investments
D) Increase the correlation between assets to reduce total portfolio risk

 

A “short position” in a stock involves:

A) Borrowing shares and selling them with the expectation that the price will rise
B) Owning shares and holding them for long-term capital appreciation
C) Borrowing shares and selling them with the expectation that the price will fall
D) Purchasing options to buy shares at a set price

 

The “Sharpe ratio” is used to measure:

A) The rate at which a portfolio’s returns are expected to grow over time
B) The total risk of a portfolio relative to its expected return
C) The portfolio’s return in relation to the risk-free rate
D) The systematic risk of a portfolio

 

“Active management” in investment portfolios involves:

A) Following a buy-and-hold strategy with little to no trading
B) Continuously adjusting the portfolio based on market conditions to outperform the market
C) Constructing a portfolio to replicate an index’s performance
D) Allocating all funds into one asset class for maximum growth

 

“Hedging” in portfolio management is done to:

A) Increase the potential return of the portfolio by assuming higher risks
B) Minimize the risk of loss from adverse market movements
C) Focus on high-risk, high-return investments
D) Diversify the portfolio by adding international assets

 

The “Jensen’s alpha” is used to measure:

A) The excess return of a portfolio relative to its benchmark, adjusted for risk
B) The volatility of a stock relative to the market
C) The return on investment from diversifying across asset classes
D) The risk-free rate of return in a portfolio

 

In portfolio theory, “systematic risk” refers to:

A) The risk inherent in individual securities
B) Risk that can be reduced by diversification
C) Market risk that cannot be eliminated by diversification
D) Risk associated with a company’s management decisions

 

The “Merton model” is primarily used to:

A) Determine the optimal asset allocation in a portfolio
B) Estimate the probability of a company’s bankruptcy
C) Calculate the weighted average cost of capital
D) Predict stock price movements based on market trends

 

“Convertible securities” are:

A) Bonds or preferred stocks that can be converted into common stock
B) Only stocks that can be traded between companies
C) Financial instruments with fixed interest rates
D) Bonds that can only be converted into cash

 

The “information ratio” measures:

A) A portfolio’s performance relative to a risk-free asset
B) A portfolio’s risk-adjusted return in relation to the volatility of returns
C) The number of securities in the portfolio
D) The correlation of returns between different assets

 

A “closed-end fund” is different from an “open-end fund” in that:

A) It issues a fixed number of shares and is traded on the stock exchange
B) It allows investors to buy and sell shares directly from the fund at any time
C) It always provides guaranteed returns for its investors
D) It is limited to investing only in government securities

 

“Risk-free rate” refers to:

A) The rate of return on government bonds with a high default risk
B) The rate of return an investor expects from a diversified portfolio
C) The return on an investment with no risk of financial loss
D) The average return on investments in the stock market

 

In portfolio management, “performance attribution” is used to:

A) Determine the effect of various portfolio components on its overall return
B) Allocate funds to the best-performing asset classes
C) Identify opportunities for future portfolio growth
D) Calculate the total risk associated with the portfolio

 

The “Gordon Growth Model” is used to estimate:

A) The future price of a stock based on earnings estimates
B) The value of a stock based on its future dividend growth
C) The risk-free rate of return for an asset
D) The total return of a bond based on market conditions

 

 

The “Capital Asset Pricing Model” (CAPM) suggests that the expected return on a security is determined by:

A) The risk-free rate, the stock’s beta, and the market return
B) The risk-free rate and the firm’s total risk
C) The stock’s beta and its historical returns
D) The market’s expected return and the individual stock’s dividend

 

“Modern Portfolio Theory” (MPT) assumes that investors:

A) Are risk-averse and seek to maximize utility
B) Will take on any level of risk for higher returns
C) Always seek the highest returns possible
D) Invest in only one asset class to avoid diversification

 

The primary objective of “portfolio rebalancing” is to:

A) Maximize return by selling underperforming assets
B) Maintain a consistent risk profile by adjusting the asset allocation
C) Purchase more risky assets to boost returns
D) Avoid taxes by minimizing portfolio turnover

 

Which of the following is most likely to be a characteristic of a “growth stock”?

A) High dividend yield
B) Low risk and stability
C) Above-average earnings growth potential
D) Typically low market volatility

 

In a “bull market,” which of the following is most likely to occur?

A) Rising stock prices
B) A significant drop in bond prices
C) Falling interest rates
D) An economic recession

 

“Tax-efficient investing” focuses on:

A) Minimizing taxes on capital gains and income from investments
B) Investing in municipal bonds exclusively
C) Maximizing short-term gains regardless of tax consequences
D) Focusing solely on tax-free income investments

 

The “beta” of a stock measures:

A) The total risk of the stock
B) The correlation between the stock’s returns and the market’s returns
C) The historical returns of the stock
D) The volatility of the stock in relation to the economy

 

Which of the following is an example of a “systematic risk”?

A) Company-specific earnings drop
B) Government policy changes that affect the entire market
C) A stock’s price fluctuation due to demand and supply factors
D) A corporate scandal at a specific firm

 

“Diversified portfolios” are effective in reducing:

A) Systematic risk only
B) Unsystematic risk
C) Total risk
D) Portfolio returns

 

The “efficient market hypothesis” suggests that:

A) All stocks are equally risky
B) The stock market prices always reflect all available information
C) Market timing can be used to outperform the market
D) Fundamental analysis can guarantee superior returns

 

“Asset allocation” refers to:

A) The selection of individual stocks within a portfolio
B) The process of diversifying investments across different asset classes
C) The use of options and futures to hedge risk
D) The choice of investment managers for a portfolio

 

“Capital structure” refers to:

A) The proportion of debt and equity financing used by a company
B) The allocation of a company’s assets into various divisions
C) The level of reserves maintained for potential losses
D) The method used to value stock options

 

The “Modigliani-Miller theorem” suggests that:

A) A company’s value is independent of its capital structure
B) Investors should always diversify into international markets
C) Leverage always increases a firm’s value
D) Stocks and bonds are always perfect substitutes for one another

 

The “duration” of a bond is:

A) The time to maturity of a bond
B) A measure of a bond’s sensitivity to interest rate changes
C) The average coupon rate of the bond
D) The risk-free rate for long-term bonds

 

Which of the following is most likely a characteristic of a “value stock”?

A) High dividend yield
B) Low price-to-earnings (P/E) ratio
C) High growth potential
D) High beta relative to the market

 

A “futures contract” is:

A) A financial derivative that allows the holder to buy or sell an asset at a set price in the future
B) A bond issued to mature in the future
C) A type of stock option for corporate investors
D) A loan agreement between two financial institutions

 

“Asset-liability matching” is most commonly associated with:

A) Stock portfolios
B) Insurance companies and pension funds
C) Corporate stock issuance
D) International equity markets

 

The “Treynor ratio” is most appropriate for evaluating:

A) Mutual funds with large assets
B) Portfolios that are well-diversified
C) The risk-free rate of return for short-term investments
D) Individual stock returns versus a market index

 

“Systematic risk” can be reduced by:

A) Increasing leverage in a portfolio
B) Holding a more diversified portfolio
C) Reducing exposure to bonds
D) Investing in a single high-risk asset class

 

A “call option” gives the holder the right to:

A) Sell an asset at a predetermined price within a specified time
B) Buy an asset at a predetermined price within a specified time
C) Buy an asset at the current market price
D) Borrow money from the issuer of the option

 

 

The “Sharpe ratio” measures:

A) A portfolio’s performance relative to its risk
B) The rate of return on a bond relative to interest rates
C) The correlation between two assets
D) A stock’s volatility compared to the market

 

The “Efficient Frontier” represents:

A) The combination of assets that offers the highest return for a given level of risk
B) The best-performing asset in a portfolio
C) A portfolio with no risk
D) A portfolio with the lowest possible return

 

An investor who follows the “buy and hold” strategy:

A) Sells stocks that are underperforming
B) Buys securities and keeps them over the long term, ignoring short-term market fluctuations
C) Regularly rebalances the portfolio to reflect market changes
D) Frequently trades in an attempt to time the market

 

“Value at Risk” (VaR) is used to measure:

A) The potential gain of a portfolio
B) The potential loss of a portfolio under normal market conditions
C) The correlation between assets in a portfolio
D) The liquidity of a financial instrument

 

“Systematic risk” is also known as:

A) Unsystematic risk
B) Market risk
C) Total risk
D) Business risk

 

The “CML” (Capital Market Line) represents:

A) The risk-return tradeoff for efficient portfolios consisting of a risk-free asset and a portfolio of risky assets
B) The relationship between the risk-free rate and risky assets
C) The line that shows the minimum variance of a portfolio
D) The maximum return achievable for a portfolio with no risk

 

“Dividend yield” is calculated as:

A) The stock price divided by the dividend per share
B) The annual dividend payment divided by the stock price
C) The total dividend payments divided by the market value of equity
D) The earnings per share divided by the stock price

 

A “mutual fund” typically pools money from investors to:

A) Invest in foreign securities exclusively
B) Allow investors to own physical assets like real estate
C) Invest in a diversified portfolio of securities
D) Provide loans to individuals and businesses

 

“Risk-free rate” is most commonly associated with:

A) The return on government bonds
B) The return on equity in emerging markets
C) The return on stocks
D) The return on corporate bonds

 

The “Price-to-Earnings (P/E) ratio” is used to evaluate:

A) The relationship between a company’s stock price and its earnings
B) A company’s ability to repay debt
C) The historical volatility of a stock
D) A bond’s interest rate relative to its price

 

In portfolio theory, “correlation” refers to:

A) The relationship between the returns of two assets
B) The expected return of an asset
C) The risk-free rate of return
D) The standard deviation of a portfolio

 

“Foreign exchange risk” is primarily caused by:

A) The fluctuation in the exchange rates of foreign currencies
B) The interest rate differentials between two countries
C) Political instability in emerging markets
D) The economic performance of a domestic economy

 

A “bull market” is characterized by:

A) Falling stock prices
B) An increase in interest rates
C) Rising stock prices
D) A decline in bond yields

 

Which of the following would be considered a “defensive stock”?

A) A technology company with high growth potential
B) A utility company with stable earnings and dividends
C) A biotechnology firm with high risk and high returns
D) A fast-growing startup in a volatile sector

 

A “call option” allows the holder to:

A) Sell an asset at a specific price within a set time period
B) Buy an asset at a specific price within a set time period
C) Receive a dividend on the underlying asset
D) Borrow money from a broker to buy an asset

 

“Monte Carlo simulation” is commonly used in portfolio management to:

A) Determine the correlation between two assets
B) Estimate the probability of different outcomes in a portfolio
C) Calculate the risk-free rate for an asset
D) Predict the exact future performance of an asset

 

“Hedging” in investments typically refers to:

A) Making speculative investments in volatile markets
B) Reducing risk by taking offsetting positions in correlated assets
C) Investing in high-growth stocks for higher returns
D) Diversifying by buying bonds and equities from the same industry

 

“Arbitrage” refers to:

A) Risk management through diversification
B) Taking advantage of price differences in different markets for the same asset
C) The process of earning high returns on low-risk investments
D) A market condition where assets are overvalued

 

Which of the following is a disadvantage of “index investing”?

A) Higher transaction costs
B) Underperformance in volatile markets
C) Lack of diversification
D) The inability to outperform the market

 

The “maximum drawdown” of a portfolio refers to:

A) The highest return achieved over a set period
B) The largest peak-to-trough loss experienced by the portfolio
C) The annualized return of a portfolio
D) The risk-free rate subtracted from the portfolio’s return

 

 

Which of the following is a characteristic of a “high-beta” stock?

A) It moves more in line with the overall market
B) It tends to be less volatile than the market
C) It has low correlation with the market
D) It provides a higher dividend yield

 

A portfolio with a higher “alpha” value indicates:

A) It is underperforming the benchmark
B) It has higher systematic risk
C) It is outperforming the benchmark after adjusting for risk
D) It has a lower risk than the market

 

“Capital Asset Pricing Model” (CAPM) suggests that:

A) A portfolio’s returns are solely based on its past performance
B) The expected return on a security depends on its beta relative to the market
C) The risk-free rate is always the same regardless of market conditions
D) An investor’s portfolio should be 100% in risk-free assets

 

Which of the following strategies is typically used in “active portfolio management”?

A) Holding a diversified portfolio of passive index funds
B) Attempting to outperform the market by selecting specific securities
C) Focusing solely on bonds and avoiding equities
D) Reducing risk by investing in only government bonds

 

A “zero-coupon bond” is unique because it:

A) Pays interest annually
B) Is sold at a price below its face value and pays no interest
C) Pays dividends to the bondholder
D) Is always risk-free

 

The “diversification effect” in a portfolio is most beneficial when:

A) The assets in the portfolio are highly correlated
B) The portfolio contains only one asset
C) The assets in the portfolio are uncorrelated or negatively correlated
D) The portfolio only contains bonds

 

Which of the following is an example of “systematic risk”?

A) A company’s management makes poor decisions, affecting its stock price
B) A new technology disrupts an entire industry
C) An economic recession negatively impacts the entire market
D) A specific stock loses value due to poor earnings

 

“Modern Portfolio Theory” (MPT) emphasizes the importance of:

A) Selecting individual securities based on past performance
B) Reducing portfolio risk through diversification
C) Focusing exclusively on high-return assets
D) Avoiding any bonds in the portfolio

 

A “buy and hold” investor expects to:

A) Frequently rebalance the portfolio based on market trends
B) Earn consistent short-term returns through market timing
C) Achieve long-term growth by holding investments regardless of short-term market fluctuations
D) Actively manage risk by adjusting asset allocation regularly

 

“Convertible bonds” give bondholders the option to:

A) Exchange the bond for a fixed number of shares of the issuing company’s stock
B) Exchange the bond for a different type of bond
C) Demand early repayment of the principal
D) Convert the bond into another currency

 

“Real estate investment trusts” (REITs) are typically used to:

A) Invest in physical real estate properties
B) Invest in fixed-income securities issued by governments
C) Provide a tax-free source of income
D) Offer an opportunity to invest in diversified portfolios of real estate properties

 

In an efficient market, the “random walk” theory suggests that:

A) Past price movements can predict future price movements
B) Stock prices always follow predictable trends
C) Stock price changes are independent and follow a random pattern
D) Active portfolio managers consistently outperform the market

 

The “beta” coefficient of a stock is used to:

A) Measure its price-to-earnings ratio
B) Determine its level of risk relative to the overall market
C) Calculate the dividend yield
D) Assess its growth rate relative to competitors

 

The “modigliani-miller theorem” asserts that:

A) The value of a firm is unaffected by its capital structure in a perfect market
B) Only debt financing increases a firm’s value
C) A firm should always avoid debt in its capital structure
D) A firm’s value is maximized by using only equity financing

 

A “call” option provides the investor with the right to:

A) Sell an asset at a predetermined price
B) Buy an asset at a predetermined price
C) Borrow money against the asset
D) Receive dividends from the asset

 

Which of the following is true of a “put” option?

A) It gives the holder the right to buy the underlying asset
B) It is used to protect against downside risk
C) It guarantees a profit for the holder
D) It is a type of equity security

 

A “maturity matching” strategy involves:

A) Matching the duration of assets with the duration of liabilities
B) Investing in long-term bonds and short-term equities
C) Diversifying investments across different asset classes
D) Rebalancing the portfolio every year

 

“Leverage” in a portfolio refers to:

A) Using borrowed funds to increase the size of the investment position
B) The process of reducing risk through diversification
C) The use of government bonds to stabilize a portfolio
D) Allocating assets based on expected returns only

 

The “risk-free rate” is typically associated with the return on:

A) Long-term government bonds
B) Junk bonds
C) Equities from emerging markets
D) High-risk corporate debt

 

“Interest rate risk” refers to:

A) The risk of investing in a volatile market
B) The risk of losing money in a bad economic cycle
C) The risk that changes in interest rates will affect the value of fixed-income investments
D) The risk of the stock price of an equity investment dropping

 

 

Which of the following is true regarding “portfolio rebalancing”?

A) It is done to maintain a specific asset allocation strategy
B) It involves switching between stocks and bonds only
C) It is only necessary when the portfolio value decreases
D) It eliminates the need for diversification

 

The “efficient frontier” is a graph that shows:

A) The lowest possible return for a given level of risk
B) The highest return achievable for any level of risk
C) The relationship between expected return and asset correlation
D) A portfolio’s risk relative to its time horizon

 

A “Sharpe ratio” is used to:

A) Measure the volatility of an asset
B) Determine the price-to-earnings ratio of a stock
C) Evaluate the risk-adjusted return of a portfolio
D) Identify assets with the highest return potential

 

Which of the following best describes the concept of “diversification”?

A) Investing only in the highest-performing assets
B) Spreading investments across different asset classes to reduce risk
C) Investing in only one sector to maximize returns
D) Focusing on short-term investments with high liquidity

 

The “time horizon” of an investor is most important when:

A) Calculating the beta of a stock
B) Determining the appropriate risk and return balance for the portfolio
C) Deciding the correlation between assets
D) Selecting stocks with the highest dividends

 

A portfolio manager is considering two assets: one has a beta of 1.2, and the other has a beta of 0.8. The portfolio manager wants to minimize the risk. Which asset should they prefer?

A) The asset with a beta of 1.2
B) The asset with a beta of 0.8
C) Both assets should be avoided
D) Both assets should be weighted equally

 

“Market efficiency” suggests that:

A) Stocks always follow a predictable trend
B) All information is reflected in asset prices, making it impossible to consistently outperform the market
C) Stocks are only efficient in certain market conditions
D) Active management can always outperform passive investing

 

The “modigliani-miller theorem” assumes that:

A) Tax rates do not affect a firm’s capital structure
B) There is no risk in the financial markets
C) Investors have access to information that isn’t available to firms
D) Leverage always increases a firm’s value

 

The “capital market line” (CML) represents:

A) The expected returns of individual stocks
B) The risk-return trade-off of efficient portfolios of risky assets and a risk-free asset
C) The cost of capital for an individual firm
D) The relationship between short-term and long-term interest rates

 

A “high-yield” bond is typically considered to have:

A) Low credit risk and low returns
B) High credit risk and high returns
C) No credit risk, but low returns
D) Low credit risk and medium returns

 

“Hedge funds” are known for:

A) Offering guaranteed returns with minimal risk
B) Taking large, concentrated positions in a small number of securities
C) Only investing in bonds
D) Operating with very little regulation compared to mutual funds

 

“Arbitrage” in investment management refers to:

A) The practice of buying and selling the same security in different markets to profit from price discrepancies
B) The act of investing in assets with similar risk profiles
C) The process of diversifying a portfolio to reduce risk
D) The attempt to predict future stock price movements

 

A “downside risk” measure focuses on:

A) The potential loss relative to the expected return
B) The expected return of a portfolio relative to market conditions
C) The probability of earning high returns
D) The upside potential of a portfolio

 

“Black-Scholes” model is primarily used to:

A) Calculate the intrinsic value of a stock
B) Price options by considering factors such as volatility and time to expiration
C) Evaluate the risk of an entire portfolio
D) Predict future stock price movements

 

The “Treynor ratio” is similar to the Sharpe ratio but uses:

A) The market return as the benchmark
B) Total risk (standard deviation) as the denominator
C) Systematic risk (beta) as the denominator
D) The risk-free rate as the benchmark

 

The “liquidity preference theory” suggests that:

A) Investors will only invest in risk-free assets
B) Long-term securities should always yield higher returns due to their higher risk
C) Risky assets are preferred by investors in all market conditions
D) The stock market is always efficient and liquid

 

“Sector rotation” involves:

A) Investing in fixed-income securities only
B) Moving investments between different sectors of the economy based on economic cycles
C) Holding a diversified portfolio with minimal changes
D) Selecting individual stocks based on their historical performance

 

The “Yield to Maturity” (YTM) of a bond is:

A) The return an investor can expect if the bond is held until maturity
B) The coupon rate of the bond
C) The price an investor is willing to pay for the bond
D) The bond’s interest payment divided by its face value

 

A “price-to-earnings ratio” (P/E) is a common tool used to assess:

A) The market value of a bond
B) The profitability of a company in relation to its stock price
C) The correlation between a stock’s price and market returns
D) The level of a company’s diversification

 

A “risk parity” strategy involves:

A) Allocating an equal amount of capital to each asset class
B) Allocating investments based on the risk contribution of each asset class
C) Allocating more capital to bonds than equities
D) Focusing exclusively on equities

 

 

A “bull market” is characterized by:

A) A general decline in stock prices
B) A general increase in stock prices
C) High levels of volatility and risk
D) A stable market with no price fluctuations

 

The “systematic risk” of a portfolio refers to:

A) The risk that can be eliminated through diversification
B) The risk related to market-wide events affecting all investments
C) The risk specific to individual securities
D) The risk that is unpredictable and random

 

A “passive investment strategy” typically involves:

A) Trying to outperform the market by picking individual stocks
B) Investing in a diversified portfolio and mimicking the market index
C) Speculating on short-term price movements
D) Focusing solely on high-risk, high-return investments

 

A portfolio with a “negative alpha” suggests that:

A) The portfolio is underperforming compared to its expected return
B) The portfolio is outperforming the market
C) The portfolio has an optimal risk-return trade-off
D) The portfolio is achieving the same return as the market

 

Which of the following factors is typically used in the “Capital Asset Pricing Model” (CAPM)?

A) The expected return of a risky asset relative to the risk-free rate
B) The risk-free rate of return, the market return, and the asset’s beta
C) The price-to-earnings ratio of the asset
D) The market’s volatility relative to the asset’s historical return

 

The “efficient market hypothesis” (EMH) assumes that:

A) Markets are not efficient, and investors can consistently outperform them
B) Stock prices reflect all publicly available information, making it impossible to consistently beat the market
C) Investors should focus only on long-term investments
D) Markets are completely random and unpredictable

 

Which of the following statements about “mutual funds” is correct?

A) Mutual funds are not subject to diversification
B) Mutual funds typically charge higher fees compared to ETFs
C) Mutual funds are more liquid than individual stocks
D) Mutual funds always outperform the stock market

 

A “beta” of 1.0 for a stock means:

A) The stock has no risk
B) The stock’s price moves in perfect correlation with the market
C) The stock has twice the risk of the market
D) The stock is independent of market movements

 

The “price-to-book ratio” is a valuation metric used to:

A) Measure a company’s earnings potential
B) Assess the market value relative to the book value of a company’s equity
C) Evaluate a company’s debt-to-equity ratio
D) Calculate the dividend yield of a stock

 

Which of the following is the primary purpose of “portfolio diversification”?

A) To increase the expected returns of the portfolio
B) To reduce the overall risk of the portfolio
C) To focus on the best-performing assets
D) To concentrate investments in high-risk assets

 

In “mean-variance optimization”, the goal is to:

A) Maximize the portfolio’s variance
B) Minimize the variance and maximize the expected return
C) Optimize the correlation between assets
D) Focus only on maximizing returns without regard to risk

 

“Fama-French Three-Factor Model” includes all of the following factors except:

A) Market risk premium
B) Company size
C) Dividend yield
D) Book-to-market ratio

 

A “long position” in an asset means that:

A) You borrow the asset and sell it in anticipation of a price drop
B) You hold the asset with the expectation that its price will increase
C) You hedge your risk with options contracts
D) You invest only in short-term assets

 

“Modern Portfolio Theory” emphasizes:

A) The importance of holding a few high-risk assets for higher returns
B) The trade-off between risk and return and the benefits of diversification
C) The prediction of future stock price movements
D) Investing in assets that have already shown high returns

 

A “covered call” strategy involves:

A) Selling a call option on an asset that you already own
B) Purchasing a call option while holding a short position
C) Buying a call option to hedge against price declines
D) Shorting a stock to limit potential losses

 

Which of the following is a “derivative” instrument?

A) Stock
B) Mutual fund
C) Option contract
D) Treasury bond

 

The “modigliani-miller proposition” (without taxes) asserts that:

A) The capital structure of a firm does not affect its value
B) Firms should avoid using debt in their capital structure
C) The cost of equity decreases as debt increases
D) High levels of debt always reduce the value of the firm

 

“Active portfolio management” typically involves:

A) Matching the portfolio to a broad market index
B) Selecting individual securities based on market trends and forecasts
C) Buying and holding securities indefinitely
D) Focusing solely on the overall market performance

 

The “Horizon effect” in portfolio management refers to:

A) The impact of a portfolio manager’s investment time horizon on investment decisions
B) The potential benefits of holding bonds with varying maturity dates
C) The tendency to overestimate the potential returns over the long term
D) The tendency to focus only on short-term returns

 

“Risk-adjusted return” is a performance metric that:

A) Measures the overall return without considering risk
B) Evaluates the return of an asset after adjusting for its level of risk
C) Focuses solely on the upside potential of an investment
D) Is calculated using only historical data

 

 

The “Sharpe Ratio” measures:

A) The relationship between the portfolio’s return and its standard deviation
B) The return relative to the risk-free rate
C) The portfolio’s overall return without accounting for risk
D) The risk-adjusted return of an asset or portfolio

 

In the context of portfolio management, “rebalancing” refers to:

A) The process of shifting investments to minimize risk
B) The sale of all assets in the portfolio and reinvestment in a new set of assets
C) The adjustment of portfolio weights to maintain the desired asset allocation
D) The evaluation of an investor’s risk tolerance

 

“Monte Carlo simulation” in portfolio management is used to:

A) Predict the exact future price of a security
B) Model the potential outcomes of a portfolio based on random variables
C) Assess the historical returns of a portfolio
D) Ensure that the portfolio adheres to market indices

 

The “Treynor Ratio” is most useful for evaluating:

A) The risk-adjusted return of a portfolio in relation to total risk
B) The risk-adjusted return of a portfolio in relation to systematic risk
C) The expected return of a portfolio relative to the market
D) The overall performance of the portfolio without adjusting for risk

 

“Dollar-cost averaging” refers to:

A) Buying more of an asset when its price rises and less when it falls
B) Investing a fixed amount of money into an asset at regular intervals, regardless of price
C) An investment strategy based on technical analysis
D) The process of diversifying across multiple assets to reduce risk

 

“Arbitrage” in financial markets refers to:

A) The use of borrowed funds to enhance returns
B) The act of taking advantage of price differences in different markets to make a profit
C) The simultaneous purchase and sale of an asset to minimize risk
D) The strategy of investing in risk-free securities

 

“The Efficient Frontier” in portfolio theory represents:

A) The optimal portfolio that maximizes returns for a given level of risk
B) The risk-free asset at the far left of the risk-return spectrum
C) The portfolio with the lowest risk for any given return
D) The point where the portfolio’s risk is equal to its return

 

A “high beta” stock typically indicates:

A) The stock has lower volatility than the market
B) The stock is less risky than other stocks
C) The stock is expected to experience larger price swings than the market
D) The stock has no correlation with market movements

 

“Bond duration” is a measure of:

A) The total amount of time until the bond matures
B) The bond’s price sensitivity to changes in interest rates
C) The average coupon payment received by an investor
D) The bond’s yield relative to the market interest rates

 

A “real estate investment trust” (REIT) allows investors to:

A) Invest in a portfolio of bonds backed by real estate assets
B) Directly invest in individual properties for long-term capital gains
C) Pool their money to invest in a diversified portfolio of real estate properties
D) Invest exclusively in real estate stocks

 

The “diversification” benefit in portfolio theory comes from:

A) Increasing the number of assets in the portfolio, regardless of their correlation
B) Reducing portfolio risk by investing in assets that are correlated with each other
C) Choosing assets that are negatively correlated with each other to reduce overall risk
D) Focusing solely on high-growth, high-risk assets

 

The “market risk premium” is the difference between:

A) The return on a risk-free asset and the return on the market portfolio
B) The return on the market portfolio and the risk-free rate
C) The return on a portfolio and its risk-adjusted return
D) The expected return of a stock and the market’s return

 

In portfolio management, “systematic risk” refers to:

A) The risk associated with specific industries or companies
B) The risk inherent in the overall market that cannot be diversified away
C) The risk that can be reduced through diversification
D) The risk associated with short-term market fluctuations

 

In a “growth stock” portfolio, investors are typically focused on:

A) The short-term price fluctuations of stocks
B) Achieving capital gains through price appreciation rather than dividends
C) Receiving regular income from dividend payments
D) Minimizing the risk of any losses

 

“Value investing” is a strategy that involves:

A) Investing in stocks with low price-to-earnings ratios and perceived to be undervalued
B) Focusing on high-growth stocks regardless of their price-to-earnings ratio
C) Timing market cycles to buy and sell at the peak and trough
D) Investing exclusively in government bonds for safety

 

“Hedge funds” generally aim to:

A) Minimize risk and maximize returns through low-risk strategies
B) Provide liquidity and transparency to investors
C) Use advanced strategies and leverage to achieve high returns for accredited investors
D) Invest primarily in bonds and government securities

 

“Market timing” in portfolio management involves:

A) Buying and holding assets for the long term without making any changes
B) Predicting short-term market movements to buy and sell assets at the right time
C) Focusing on the underlying fundamentals of investments rather than market fluctuations
D) Diversifying across multiple asset classes and rebalancing periodically

 

In “value at risk” (VaR) models, risk is typically quantified as:

A) The potential loss that will not be exceeded with a given level of confidence over a specified time horizon
B) The potential for a portfolio to generate excessive returns
C) The total amount of risk exposure in the portfolio
D) The potential gains a portfolio might earn over a specified period

 

A “leveraged ETF” is an investment that:

A) Aims to produce returns that are a multiple of the returns of an underlying index
B) Is designed to track the performance of a fixed-rate bond portfolio
C) Invests exclusively in government bonds
D) Attempts to eliminate risk through diversification

 

“Factor investing” focuses on:

A) The underlying factors (such as value, size, momentum, etc.) that drive asset returns
B) The market’s cyclical trends to determine when to buy and sell
C) The use of leverage to magnify returns
D) Short-term trading strategies based on technical analysis

 

 

The “Capital Asset Pricing Model” (CAPM) assumes that:

A) Markets are inefficient and investors cannot earn excess returns
B) The only factor affecting an asset’s return is its risk-free rate
C) All investors have the same expectations regarding asset returns
D) The market can be predicted with certainty based on historical data

 

“Systematic risk” is also referred to as:

A) Unsystematic risk
B) Diversifiable risk
C) Market risk
D) Idiosyncratic risk

 

“Horizon analysis” in investment strategy refers to:

A) Predicting the return of an asset based on historical data
B) Estimating the total portfolio return over various time frames
C) Evaluating a portfolio’s performance against a market index
D) The evaluation of the sensitivity of a portfolio to market risks

 

“Modern Portfolio Theory” (MPT) emphasizes:

A) The maximization of returns by selecting individual high-risk securities
B) Diversification to reduce the overall risk of a portfolio
C) The avoidance of all market risks
D) Using only bonds in portfolio construction

 

A “call option” gives the holder the right to:

A) Sell an asset at a specified price within a specific time period
B) Buy an asset at a specified price within a specific time period
C) Borrow an asset from another investor
D) None of the above

 

“Asset allocation” refers to:

A) The decision-making process of buying and selling individual securities
B) The process of choosing between debt and equity securities
C) The distribution of investments across various asset classes to achieve diversification
D) The investment in a single asset to maximize returns

 

“The Efficient Market Hypothesis” (EMH) suggests that:

A) Markets always misprice assets, offering opportunities for excess returns
B) Past prices and historical information are irrelevant to current stock prices
C) All information is always reflected in asset prices, making it impossible to consistently beat the market
D) Speculation leads to short-term market efficiency but not long-term pricing

 

A “Put option” gives the holder the right to:

A) Sell an asset at a specified price within a given time period
B) Buy an asset at a specified price within a given time period
C) Borrow an asset without interest
D) Exchange an asset for cash at any time

 

“Behavioral finance” studies:

A) The economic factors that drive asset pricing
B) The systematic errors and biases in investors’ decision-making processes
C) The predictability of stock market returns based on historical trends
D) The impact of regulations on financial markets

 

In the context of portfolio management, “tracking error” is:

A) The difference between the portfolio’s return and the benchmark return
B) The risk of a portfolio relative to the risk-free rate
C) The standard deviation of the portfolio’s returns
D) The deviation of the portfolio’s performance from an expected model

 

“Risk-free rate” in portfolio theory is typically represented by:

A) The interest rate on long-term corporate bonds
B) The yield on government bonds with no default risk
C) The return on equity markets
D) The historical average return of a portfolio

 

“Drawdown” in investment management refers to:

A) The percentage decline in the value of a portfolio from its highest point to its lowest point
B) The time it takes for a portfolio to reach its target return
C) The risk-adjusted return of a portfolio
D) The diversification of the portfolio among different asset classes

 

A “dividend yield” is calculated by:

A) Dividing the total return of an asset by its price
B) Dividing the annual dividend income by the market price of the stock
C) Subtracting capital gains from dividend income
D) Adding the dividend yield to the bond’s yield

 

“Geometric mean return” is most useful when:

A) Comparing the average return of stocks in different time periods
B) Evaluating the compounded annual growth rate of an investment
C) Assessing the short-term performance of a stock
D) Analyzing the volatility of an asset’s price

 

“Risk-adjusted return” is used to:

A) Assess the return on an asset without considering its risk
B) Evaluate the total return relative to the total risk
C) Compare different assets based on their market performance
D) Maximize the return while ignoring market conditions

 

A “high-yield bond” is typically:

A) A bond with a credit rating of A or higher
B) A bond that is expected to provide low returns
C) A bond issued by companies with higher credit risk, offering higher interest rates
D) A government bond with no risk

 

“Treasury Inflation-Protected Securities” (TIPS) are designed to:

A) Provide a fixed return based on the prevailing interest rates
B) Protect investors from inflation by adjusting for changes in the Consumer Price Index (CPI)
C) Offer returns that are not affected by inflation
D) None of the above

 

The “liquidity risk” of an asset refers to:

A) The risk that the asset will lose value due to market volatility
B) The risk that the asset cannot be sold quickly without a significant price concession
C) The risk associated with holding the asset for a long period
D) The risk of default by the issuer of the asset

 

In the context of “portfolio diversification,” “correlation” refers to:

A) The number of assets in a portfolio
B) The degree to which asset returns move in relation to each other
C) The asset’s overall volatility
D) The type of assets included in the portfolio

 

“Securities lending” is a practice that involves:

A) Selling stocks to acquire higher returns
B) Borrowing stocks to enhance a portfolio’s leverage
C) Lending securities to other investors in exchange for collateral
D) Investing in high-risk, high-return assets

 

 

Which of the following best describes “alpha” in investment portfolio management?

A) A measure of the total return of a portfolio
B) The risk-adjusted return in excess of the expected return based on the portfolio’s beta
C) A measure of the risk in an investment relative to the market
D) A strategy used to minimize the risk of an asset

 

“Beta” in the context of portfolio management is:

A) A measure of the risk of an individual asset compared to the market as a whole
B) The expected return on an asset
C) The total return from both dividends and capital gains
D) A method for evaluating the risk-free rate

 

In portfolio theory, “negative correlation” between two assets means:

A) The returns of the assets tend to move in the same direction
B) The assets have no relationship to each other
C) When one asset performs well, the other tends to perform poorly
D) Both assets are equally volatile

 

“Sharpe ratio” is used to:

A) Compare the volatility of different asset classes
B) Evaluate the risk-adjusted return of a portfolio
C) Measure the correlation between two assets
D) Calculate the market value of an investment

 

A “closed-end mutual fund” differs from an “open-end mutual fund” because:

A) It does not issue new shares after its initial public offering (IPO)
B) It allows investors to buy shares at any time
C) It does not have a fixed number of shares
D) It is more liquid than open-end mutual funds

 

“Monte Carlo simulation” in investment portfolio management is used to:

A) Predict the exact future price of an asset
B) Estimate the probability of different outcomes in a portfolio’s future returns
C) Measure the market efficiency of an asset
D) Calculate a portfolio’s current value

 

“Hedge funds” are typically characterized by:

A) Their use of leverage and high-risk strategies to achieve above-average returns
B) Their investment in government bonds and blue-chip stocks
C) Their strict regulation by government agencies
D) Their focus on long-term conservative investment strategies

 

In a diversified portfolio, “unsystematic risk” can be minimized by:

A) Diversifying investments across various asset classes and industries
B) Holding a large proportion of the portfolio in government bonds
C) Investing only in high-risk assets
D) Focusing exclusively on a single industry

 

“The Efficient Frontier” in portfolio management represents:

A) A list of all possible portfolios that achieve the highest return for a given level of risk
B) The point at which a portfolio is maximally diversified
C) The best-performing asset within a portfolio
D) The set of portfolios with the least amount of risk

 

In portfolio management, “duration” is most commonly used to measure the sensitivity of:

A) A portfolio’s risk to changes in market interest rates
B) The expected return of a portfolio relative to market trends
C) The time horizon over which an investor holds an asset
D) The overall volatility of a portfolio

 

A “reverse stock split” results in:

A) A decrease in the stock’s market price
B) An increase in the stock’s market price and a decrease in the number of shares outstanding
C) A decrease in the company’s equity capital
D) The issuance of additional shares to existing shareholders

 

“Risk parity” is an investment strategy that aims to:

A) Allocate equal amounts of capital to each asset class
B) Balance the risk contribution of each asset class to the total portfolio risk
C) Invest only in low-risk assets
D) Maximize the portfolio’s return by selecting high-risk investments

 

“Real estate investment trusts” (REITs) are primarily used to:

A) Diversify a portfolio by investing in real estate without owning the properties directly
B) Speculate on the future price movements of real estate markets
C) Invest in corporate bonds backed by real estate assets
D) Focus on short-term capital gains from real estate transactions

 

The “yield to maturity” (YTM) of a bond is:

A) The total return an investor can expect to earn if the bond is held until maturity
B) The coupon rate of the bond
C) The current yield of a bond based on its market price
D) The bond’s price at maturity

 

“Futures contracts” are commonly used for:

A) Speculating on the price movement of an underlying asset
B) Providing liquidity for long-term investments
C) Protecting portfolios against inflation
D) Short-term interest rate investments

 

“Convertible bonds” can be exchanged for:

A) Shares of the issuing company’s stock at a predetermined price
B) Cash at the bond’s maturity value
C) Shares in a competing company
D) Any other bond in the same portfolio

 

“Active management” of a portfolio is characterized by:

A) The use of passive investment strategies that track market indexes
B) Continuously buying and selling assets based on market trends and predictions
C) Maintaining a fixed portfolio allocation regardless of market conditions
D) Focusing only on government bonds and treasury securities

 

“Municipal bonds” are debt securities issued by:

A) Corporations to raise capital
B) Government agencies for local or state funding
C) International governments to fund large projects
D) Foreign entities to fund economic development

 

“Capital gains” from investments are generally taxed based on:

A) The price paid for the asset
B) The holding period and the investor’s tax bracket
C) The initial dividend income
D) The portfolio’s total return

 

“Tracking error” in portfolio management refers to:

A) The difference in returns between a portfolio and its benchmark index
B) The amount of risk an asset contributes to the overall portfolio
C) The volatility of the returns from an individual asset
D) The total return from an investment strategy over time

 

 

A “bull market” refers to:

A) A market characterized by declining stock prices
B) A market characterized by rising stock prices
C) A market with no significant changes in stock prices
D) A market where bond prices outperform stock prices

 

“Modern Portfolio Theory” suggests that:

A) Investors should concentrate their investments in a few highly profitable assets
B) The risk and return of a portfolio can be optimized through diversification
C) A portfolio’s risk can be eliminated by choosing high-risk assets
D) Risk is irrelevant in portfolio management

 

A “put option” gives the holder the right to:

A) Buy an asset at a specified price
B) Sell an asset at a specified price
C) Receive dividends from an asset
D) Control an asset without owning it

 

“Systematic risk” refers to:

A) The risk associated with the individual performance of a specific asset
B) The overall risk that affects the entire market or a broad segment of the market
C) The risk that can be reduced by diversification
D) The risk associated with interest rate changes in a portfolio

 

“Price-to-earnings ratio” (P/E ratio) is used to:

A) Measure the liquidity of a company’s stock
B) Compare the relative value of a company’s stock price to its earnings
C) Calculate the dividend yield of a stock
D) Determine the market risk of an asset

 

A “call option” gives the holder the right to:

A) Buy an asset at a specified price
B) Sell an asset at a specified price
C) Purchase a stock at market value
D) Receive dividends from an asset

 

“Interest rate risk” primarily affects which type of investment?

A) Stocks
B) Bonds
C) Real estate
D) Commodities

 

A portfolio with an average return of 6% and a standard deviation of 4% is considered to have:

A) Low risk and high return
B) High risk and low return
C) Low risk and moderate return
D) High risk and high return

 

“Market efficiency” is a concept that suggests:

A) All assets should have the same price in different markets
B) Stock prices fully reflect all available information
C) Only a few investors can consistently earn excess returns
D) The market is always in a state of equilibrium

 

The “Capital Asset Pricing Model” (CAPM) is used to:

A) Determine the expected return on an asset based on its risk relative to the market
B) Calculate the total return from dividends and capital gains
C) Measure the volatility of a bond portfolio
D) Assess the risk-free rate of return

 

“Diversification” in portfolio management refers to:

A) Concentrating investments in a single asset class for maximum return
B) Spreading investments across various asset classes to reduce overall risk
C) Selecting only high-risk assets to increase returns
D) Focusing on a single industry for stability

 

“Real return” on an investment is calculated by:

A) Subtracting the risk-free rate from the nominal return
B) Adjusting the nominal return for inflation
C) Adding the inflation rate to the nominal return
D) Considering only capital gains

 

“Leverage” in investment refers to:

A) The use of borrowed funds to increase potential return
B) The practice of buying stocks on margin
C) A method of reducing portfolio risk
D) Holding multiple positions in the same asset class

 

The “Dividend Discount Model” (DDM) is used to value:

A) Real estate investments
B) Stocks of companies that pay regular dividends
C) Bonds with fixed interest payments
D) Corporate assets and liabilities

 

“Risk-adjusted return” refers to:

A) The total return of a portfolio without considering its risk
B) The return on an investment relative to the risk taken to achieve that return
C) The level of risk associated with a portfolio, irrespective of its return
D) A portfolio’s return after taxes and fees are deducted

 

The “effective interest rate” is:

A) The nominal rate of return without adjustments for compounding
B) The return after adjusting for inflation
C) The actual return on an investment after considering compounding
D) The rate at which a bond is trading in the market

 

“Asset allocation” is the process of:

A) Selecting a portfolio of individual stocks based on their potential returns
B) Distributing investments across various asset classes to achieve a balance of risk and return
C) Choosing bonds based on their credit rating
D) Investing exclusively in government securities for security

 

“Drawdown” refers to:

A) The return on investment over a specific time period
B) The peak-to-trough decline in the value of an investment or portfolio
C) The process of withdrawing funds from a portfolio
D) The ratio of income generated by an investment

 

“Value at Risk” (VaR) is a statistical technique used to measure:

A) The maximum loss expected on an investment over a given time period at a given confidence level
B) The historical returns of an asset or portfolio
C) The expected return of an asset or portfolio
D) The correlation between different assets in a portfolio

 

In portfolio theory, “efficient markets” suggest that:

A) All market participants will always agree on asset prices
B) Investors can consistently achieve superior returns by selecting undervalued assets
C) Asset prices reflect all available information and adjust quickly to new data
D) Market prices are unpredictable and do not follow any trends

 

 

The “efficient frontier” in portfolio theory represents:

A) The lowest risk portfolio
B) The portfolio with the highest possible return
C) A set of portfolios that maximize return for a given level of risk
D) A set of portfolios with the same level of risk

 

“Alpha” in portfolio management refers to:

A) The risk-adjusted return of a portfolio
B) The performance of an investment relative to its benchmark
C) The correlation between two assets
D) The diversification effect of a portfolio

 

Which of the following is NOT a characteristic of “growth investing”?

A) Focusing on companies with high potential for capital appreciation
B) Prioritizing dividends and income generation
C) Investing in companies with above-average earnings growth
D) Typically investing in younger, expanding companies

 

“Hedge funds” are typically characterized by:

A) High diversification and low risk
B) Low fees and regulated investments
C) Actively managed portfolios with high risk and high potential returns
D) Exclusively investing in government securities

 

The “Sharpe Ratio” is used to measure:

A) The return of an asset relative to its volatility
B) The overall performance of a portfolio without considering risk
C) The correlation between two asset classes
D) The return on investment over time

 

In the context of portfolio theory, “beta” measures:

A) The risk-free rate of return of an asset
B) The sensitivity of an asset’s returns to overall market returns
C) The diversification benefits of an asset
D) The liquidity of an asset

 

Which of the following is a key assumption in the “Capital Asset Pricing Model” (CAPM)?

A) Markets are perfectly inefficient
B) All investors have the same expectations about returns
C) Risk-free assets have no return
D) The market portfolio is not diversified

 

“Tactical asset allocation” involves:

A) Long-term fixed allocation to asset classes based on risk tolerance
B) Adjusting the portfolio’s asset allocation based on short-term market conditions
C) Allocating funds exclusively to low-risk, high-return investments
D) Investing in the same asset classes for extended periods

 

A “discount rate” in present value calculations represents:

A) The interest rate paid on a bond
B) The rate at which future cash flows are discounted to the present value
C) The rate of return expected on an investment
D) The rate of inflation affecting the investment

 

“Convertible bonds” are unique because they:

A) Can be exchanged for common stock at the bondholder’s discretion
B) Pay higher interest rates than regular bonds
C) Are issued exclusively by government agencies
D) Are exempt from taxation

 

“Monte Carlo simulations” in portfolio management are used to:

A) Predict future market crashes
B) Generate a range of possible outcomes based on different assumptions about risk and return
C) Determine the exact return of a portfolio
D) Calculate the risk-free rate of return

 

A “high-yield bond” typically refers to a bond:

A) Issued by a government entity with a strong credit rating
B) With a higher interest rate and lower credit rating
C) That has a fixed return and minimal risk
D) With no interest payments but high capital appreciation potential

 

In “behavioral finance,” investors are believed to:

A) Always act rationally based on available information
B) Make decisions based purely on mathematical models
C) Be influenced by psychological factors and emotions in their decision-making
D) Only make investment decisions based on market fundamentals

 

“Liquidity risk” in portfolio management refers to:

A) The risk of an investment losing value over time
B) The risk of not being able to buy or sell an asset quickly without affecting its price
C) The risk of inflation eroding the value of an investment
D) The risk of a company defaulting on its debt

 

“Real assets” in investment include:

A) Stocks and bonds
B) Bonds and mutual funds
C) Physical assets such as real estate, commodities, and infrastructure
D) Money market securities

 

“International diversification” aims to:

A) Reduce the overall risk of a portfolio by investing in foreign assets
B) Maximize returns by concentrating investments in high-growth countries
C) Ensure that a portfolio holds only domestic securities
D) Focus solely on emerging market assets

 

The “cost of equity” in the context of corporate finance refers to:

A) The rate of return required by shareholders for their investment in the firm
B) The cost of debt financing for a firm
C) The expected return on government bonds
D) The return on investments in non-public companies

 

“Rebalancing” a portfolio refers to:

A) Changing the risk profile of an investment
B) Adjusting the asset allocation to maintain the desired risk-return profile
C) Selling off all assets in a portfolio
D) Investing exclusively in one asset class

 

“Small-cap stocks” typically refer to companies with:

A) A market capitalization of more than $100 billion
B) A market capitalization between $300 million and $2 billion
C) A market capitalization of less than $300 million
D) A market capitalization between $2 billion and $10 billion

 

A “junk bond” is:

A) A government bond with a low interest rate
B) A corporate bond with a high credit rating
C) A high-risk bond with a low credit rating, offering high yields
D) A bond issued by a corporation with stable financials

 

 

A “Value at Risk” (VaR) measure is used to:

A) Calculate the minimum return an investor can expect from a portfolio
B) Assess the risk of an investment by quantifying the potential loss in value over a given time period under normal market conditions
C) Predict the return of a portfolio based on historical data
D) Measure the liquidity of an asset

 

Which of the following is a major advantage of “index investing”?

A) Ability to outperform the market consistently
B) Minimal transaction fees and low management costs
C) Active management by professional portfolio managers
D) High risk and high return potential

 

In the context of portfolio theory, “systematic risk” refers to:

A) The risk specific to an individual asset or company
B) The risk that cannot be diversified away and is related to overall market fluctuations
C) The risk of liquidity issues in a portfolio
D) The risk of changes in interest rates affecting an individual investment

 

Which of the following best describes “market efficiency” as defined in the Efficient Market Hypothesis (EMH)?

A) All securities are priced above their intrinsic value
B) All available information is fully reflected in asset prices
C) Stock prices are random and unpredictable
D) Investors can consistently achieve superior returns by analyzing market trends

 

“Diversification” in portfolio management primarily aims to:

A) Maximize returns by concentrating investments in a few assets
B) Minimize risk by spreading investments across different assets or asset classes
C) Ensure a portfolio includes only high-growth stocks
D) Focus exclusively on government bonds

 

The “price-to-earnings” (P/E) ratio is used to:

A) Measure the market value of a company relative to its earnings
B) Calculate the cost of equity for a company
C) Determine the future price of an asset
D) Compare the total debt to equity ratio of companies

 

In portfolio management, “asset allocation” refers to:

A) The strategy of determining which individual stocks to buy
B) The process of selecting the best-performing assets in the market
C) The distribution of investments across various asset classes to balance risk and return
D) The decision to invest solely in risk-free assets

 

“Duration” is a measure used to assess:

A) The profitability of a bond
B) The price sensitivity of a bond to changes in interest rates
C) The overall risk in a portfolio
D) The maturity of an asset

 

Which of the following best describes “capital market theory”?

A) It assumes that all investors are risk-neutral
B) It focuses on the relationship between the return of a portfolio and the risk-free rate
C) It helps investors identify the most efficient portfolio for a given level of risk
D) It suggests that the market is always inefficient and subject to manipulation

 

“Risk-adjusted return” is used to:

A) Measure how much return an investor will receive based on their risk level
B) Assess the total return of a portfolio
C) Predict future market movements
D) Determine the liquidity of an asset

 

“Credit risk” in bond investing refers to:

A) The risk that the issuer of the bond may not be able to make the required interest payments or repay the principal
B) The risk that the value of the bond will decline due to interest rate changes
C) The risk of inflation eroding the value of bond returns
D) The risk of the bond being sold before its maturity date

 

“Passive investing” typically involves:

A) Actively buying and selling assets to maximize returns
B) Investing in a broad market index with minimal trading activity
C) Attempting to time the market by predicting price movements
D) Focusing on high-risk, high-return assets only

 

A “leveraged buyout” (LBO) is a:

A) Purchase of a company using a significant amount of borrowed funds
B) Type of government bond that is issued with a fixed interest rate
C) Type of venture capital investment in startup companies
D) Buyout of a company by its own employees

 

Which of the following is a key feature of “exchange-traded funds” (ETFs)?

A) They are managed by individual investors
B) They offer the diversification of mutual funds but trade on exchanges like stocks
C) They are only available for government securities
D) They cannot be sold or purchased during market hours

 

The “risk-free rate” is typically represented by:

A) The return on high-yield bonds
B) The return on long-term government securities such as Treasury bonds
C) The return on corporate stocks
D) The expected return on real estate investments

 

“Systematic risk” can be mitigated through:

A) Diversification within the same asset class
B) Diversification across different asset classes and markets
C) Holding only risk-free securities in a portfolio
D) Avoiding foreign market investments

 

The “liquidity premium” theory suggests that:

A) Longer-term securities should always offer lower returns than short-term securities
B) Investors demand a higher return for assets that are less liquid and harder to sell quickly
C) There is no difference in return between liquid and illiquid securities
D) Bonds with lower credit ratings will have lower yields

 

“Private equity” investments are typically characterized by:

A) Investments in publicly traded companies only
B) High levels of regulation and transparency
C) Investing in private companies or startups with high growth potential
D) Only focusing on government bonds

 

“Market timing” in investing refers to:

A) Adjusting the portfolio based on long-term strategic decisions
B) Trying to predict and capitalize on short-term market movements
C) Allocating assets across different countries based on market conditions
D) Diversifying investments across various sectors

 

The “effective interest rate” (EIR) is used to:

A) Determine the tax impact of an investment
B) Calculate the true cost of a loan or bond when compounding is taken into account
C) Measure the correlation between asset returns
D) Compare the liquidity of different assets

 

 

In modern portfolio theory, the “efficient frontier” represents:

A) The portfolio with the highest possible return for a given level of risk
B) The set of portfolios that offer the highest expected return for a given level of risk
C) The point at which all risk in the portfolio is eliminated
D) The portfolio that guarantees a fixed return

 

“Arbitrage pricing theory” (APT) is an alternative to the Capital Asset Pricing Model (CAPM) that assumes:

A) A single factor influences asset prices
B) Asset returns are determined by a linear relationship with multiple macroeconomic factors
C) There is no relationship between risk and return
D) Markets are always inefficient and subject to manipulation

 

The primary objective of “portfolio rebalancing” is to:

A) Adjust the portfolio to match the investor’s initial asset allocation
B) Increase the number of securities in the portfolio
C) Maximize the portfolio’s short-term returns
D) Avoid investing in high-risk assets

 

The “capital market line” (CML) represents:

A) The relationship between expected return and the standard deviation of portfolios of risky assets
B) The risk-free rate of return
C) The correlation between individual asset returns
D) The market’s expected return in the next period

 

“Hedge funds” typically invest in:

A) Stocks and bonds only
B) A wide range of asset classes including stocks, bonds, derivatives, and alternative assets
C) Only government securities
D) Only high-growth technology companies

 

“Alpha” in the context of portfolio management refers to:

A) The level of risk an investor is willing to take
B) The excess return of an investment relative to the expected return based on its risk level
C) The correlation of asset returns within a portfolio
D) The overall performance of the market

 

“Beta” is a measure of:

A) The risk of an asset relative to the overall market
B) The volatility of an individual asset
C) The expected return of a portfolio
D) The correlation between two assets in a portfolio

 

Which of the following best describes “currency risk” in international investments?

A) The risk of losing money due to a downturn in global stock markets
B) The risk of losing value in an investment due to fluctuations in currency exchange rates
C) The risk that inflation will erode the real value of investments
D) The risk of company bankruptcy in international markets

 

In “modern portfolio theory,” the term “correlation” refers to:

A) The difference in returns between two or more assets
B) The relationship between the returns of two assets, indicating whether they move in the same or opposite directions
C) The standard deviation of returns for a portfolio
D) The total return of a portfolio

 

“Exchange rate risk” is most significant for:

A) Investments in government bonds
B) Investors holding assets in foreign currencies or international markets
C) Investors in municipal bonds
D) Investors in domestic mutual funds only

 

The “treynor ratio” is used to measure:

A) The excess return of a portfolio relative to its total risk
B) The risk-adjusted return of a portfolio relative to its systematic risk
C) The portfolio’s correlation with the market
D) The long-term growth of the portfolio

 

“The Sharpe ratio” is used to evaluate:

A) The expected return of a portfolio
B) The risk-adjusted return of a portfolio, considering both risk and return
C) The diversification benefits of an asset
D) The market’s risk-free return

 

“Over-the-counter” (OTC) markets are characterized by:

A) Securities traded exclusively on public exchanges like the NYSE
B) Direct trading between buyers and sellers without a centralized exchange
C) High levels of regulation and transparency
D) A focus solely on government securities

 

The “efficient market hypothesis” (EMH) suggests that:

A) Investors can consistently achieve superior returns by analyzing market trends
B) All information is reflected in asset prices, making it impossible to consistently outperform the market
C) Asset prices are influenced by government policies only
D) The market is always inefficient and subject to manipulation

 

“Real options” in portfolio management refers to:

A) Fixed-income securities that have predetermined returns
B) The right but not the obligation to make decisions regarding investments in real assets, such as real estate or infrastructure
C) The practice of investing only in government-backed securities
D) A method of hedging against currency fluctuations in international investments

 

“Systematic risk” can be reduced by:

A) Adding more assets within the same asset class
B) Diversifying across different asset classes, including international and domestic investments
C) Avoiding high-risk assets altogether
D) Concentrating on one particular sector of the market

 

“Municipal bonds” are generally considered to be:

A) Risk-free and guaranteed by the federal government
B) Issued by local and state governments and often exempt from federal taxes
C) Only available to institutional investors
D) Subject to high interest rate risk and currency fluctuations

 

A “call option” gives the holder the right to:

A) Sell an asset at a predetermined price within a specified period
B) Buy an asset at a predetermined price within a specified period
C) Receive a fixed income over a period of time
D) Buy or sell an asset at any time without restrictions

 

“Asset management” firms typically:

A) Only invest in government bonds
B) Manage a portfolio of various assets for clients based on their risk tolerance and investment goals
C) Offer short-term, speculative trading advice
D) Focus solely on high-risk, high-return investments

 

“Financial leverage” in investing refers to:

A) The use of borrowed funds to increase the potential return of an investment
B) A strategy of investing only in safe, low-risk assets
C) The process of diversifying investments across multiple sectors
D) A method of reducing the risk of an investment

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