Financial Markets and Institutions

Intermediate Financial Management

Investments

9) A portfolio consisting of four stocks is expected to produce returns of 9%, 11%, 3% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns? A) 5.00% B) 5.77% C) 25.00% D) 33.33% Answer: B Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 10) The stock of a technology company has an expected return of 15% and a standard deviation of 20%. The stock of a pharmaceutical company has an expected return of 13% and a standard deviation of 18%. A portfolio consisting of 50% invested in each stock will have an expected return of 14 % and a standard deviation A) less than the average of 20% and 18%. B) the average of 20% and 18%. C) greater than the average of 20% and 18%. D) the answer cannot be determined with the information given. Answer: A Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: New Question 11) The statement "A portfolio is less than the sum of its parts." means: A) it is less expensive to buy a group of assets than to buy those assets individually. B) portfolio returns will always be lower than the returns on individual stocks. C) a diversified group of assets will be less volatile than the individual assets within the group. D) for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components. Answer: C Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: New Question 5.2 Learning Goal 2 1) Negatively correlated assets reduce risk more than positively correlated assets. Answer: TRUE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 3 Copyright © 2014 Pearson Education, Inc. 2) Correlation is a measure of the relationship between two series of numbers. Answer: TRUE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 3) Risk can be totally eliminated by combining two assets that are perfectly positively correlated. Answer: FALSE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 4) Investing globally offers better diversification than investing only domestically. Answer: TRUE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 5) Studies have shown that investing in different industries as well as different countries reduces portfolio risk. Answer: TRUE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 6) Coefficients of correlation range from a maximum of +10 to a minimum of -10. Answer: FALSE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: New Question 7) Maximum international diversification can be achieved by investing solely in U.S. multinational corporations. Answer: FALSE Learning Outcome: F-12 Discuss the implications of systematic risk in financial markets and its role in shaping investment choices AACSB: 3 Analytic Skills Question Status: Previous Edition 4 Copyright © 2014 Pearson Education, Inc.

FIN | 334 | Investments | study guides | 9) A portfolio consisting of f

Fundamentals of Investing, 11e (Gitman/Joehnk/Smart) Chapter 15 Commodities and Financial Futures 15.1 Learning Goal 1 1) All futures contracts trade continuously between 7:30 a.m. and 2:00 p.m., Monday through Friday. Answer: FALSE Question Status: Previous Edition Learning Goal: Learning Goal 1 2) The use of futures contracts for commodities is a key method of controlling risk. Answer: TRUE Question Status: Previous Edition Learning Goal: Learning Goal 1 3) Unlike stocks and bonds, futures contracts trade only at specific times during normal working hours. Answer: TRUE Question Status: New Question Learning Goal: Learning Goal 1 4) The owner of a futures contract has the right, but not the obligation, to buy or sell at the contracted price. Answer: FALSE Question Status: New Question Learning Goal: Learning Goal 1 5) Commodity prices react to a unique set of economic, political, and international pressures, as well as to the weather. Answer: TRUE Question Status: Previous Edition Learning Goal: Learning Goal 1 6) Because a futures contract deals with very large trading units, even a modest price change in the price of the underlying commodity can have a large impact on the market value of the contract. Answer: TRUE Question Status: Previous Edition Learning Goal: Learning Goal 1 7) With a futures contract, an investor cannot lose more than the price of the contract itself. Answer: FALSE Question Status: Previous Edition Learning Goal: Learning Goal 1 1 Copyright © 2011 Pearson Education, Inc. 8) The seller of a futures contract A) has the option of canceling the contract the following day if the price is not acceptable to him/her. B) is legally bound to make delivery of the specified item on the specified day. C) receives the entire contract amount at the time the contract is made. D) must make delivery before receiving any monies on the contract. Answer: B Question Status: Previous Edition Learning Goal: Learning Goal 1 9) A futures contract I. obligates the buyer of the contract to buy a specified amount of a commodity. II. grants the buyer the right to either buy or sell a specified amount of a commodity. III. uses specified settle prices that vary with the type of commodity. IV. establishes the delivery price based on the selling price of the futures contract. A) I and III only B) I and IV only C) II and III only D) II and IV only Answer: B Question Status: Previous Edition Learning Goal: Learning Goal 1 10) The majority of trading in futures contracts takes place on I. the Chicago Mercantile Exchange II. the Chicago Board of Trade III. the American Exchange IV. the New York Mercantile Exchange A) I and III only B) II and IV only C) I, II, and IV only D) I, II, III, and IV Answer: C Question Status: New Question Learning Goal: Learning Goal 1 11) The Chicago Mercantile Exchange recently merged with A) the Chicago Board of Trade B) the American Exchange C) the New York Mercantile Exchange D) NASDAQ Answer: A Question Status: New Question Learning Goal: Learning Goal 1 2 Copyright © 2011 Pearson Education, Inc.

FIN | 334 | Investments | study guides | Fundamentals of Investing  11e

FIN | 338 | Intermediate Financial Management | exam | 

TAGs.pdf-Guide to Cengage Learning Test Bank

23) One of the most popular tools of technical analysis is A) charting. B) financial statement analysis. C) investor profiling. D) investor behavior analysis. Answer: A Question Status: Previous Edition Learning Goal: Learning Goal 5 24) Chartists advocate that A) history repeats itself. B) patterns appear that are very clear and distinctive. C) formations are less important than the direction of the latest price movement. D) a breakout below a support line is a buy signal. Answer: A Question Status: Previous Edition Learning Goal: Learning Goal 5 25) One type of chart designed to keep track of emerging price patterns which has no time dimension and uses a series of X's and O's is known as a A) bear-and-bull chart. B) point-and-figure chart. C) peak-and-trough chart. D) flagged movement chart. Answer: B Question Status: Previous Edition Learning Goal: Learning Goal 5 26) Technical analysts believe that some of the key elements of market behavior–called technical indicators-can provide valuable insights about the condition of the market. Briefly discuss each of the following indicators.  Market volume  Breadth of the market  Short-interest  Odd-lot trading Answer: Market volume reflects the level of investor interest. The market is strong when volume increases in a rising market or drops in a declining market. Breadth of the market analyzes the spread between the number of stocks that advance in price and the number that decline. The market is strong when the number of stocks advancing exceeds the number that are declining. Short interest refers to the number of stocks sold short. The future market is viewed optimistically when the level of short interest is relatively high. Odd-lot trading is used to determine the sentiment of small investors. The theory is that the best investment strategy is to do the opposite of what the small investor is doing. Question Status: Previous Edition Learning Goal: Learning Goal 5 17 Copyright © 2011 Pearson Education, Inc. 9.6 Learning Goal 6 1) The relative strength index compares a security's price relative to itself over a period of time. Answer: TRUE Question Status: Previous Edition Learning Goal: Learning Goal 6 2) Point-and-figure charts have no time dimension. Answer: TRUE Question Status: Previous Edition Learning Goal: Learning Goal 6 3) The simple moving average is a weighted average. Answer: FALSE Question Status: Previous Edition Learning Goal: Learning Goal 6 4) Point-and- figure charts and moving averages both reduce the effect of random, short-term market fluctuations. Answer: TRUE Question Status: New Question Learning Goal: Learning Goal 6 5) The mutual fund cash ratio (MFCR) compares the percentage of an investor's portfolio held in cash to the percentage held in mutual funds. Answer: FALSE Question Status: Previous Edition Learning Goal: Learning Goal 6 6) The advance/decline line is be used to time both the purchase and the sale of securities. Answer: TRUE Question Status: New Question Learning Goal: Learning Goal 6 7) Which one of the following relative strength values would most indicate that a stock is oversold? A) 120 B) 80 C) 20 D) -20 Answer: C Question Status: Previous Edition Learning Goal: Learning Goal 6 18 Copyright © 2011 Pearson Education, Inc.

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