Question 1

Which of the following statements about analysts' earnings forecasts is correct? Analysts' long-term forecasts tend to be too:

Accepted Answer

A)  high, whereas their near-term forecasts tend to be too low. 
B)  high, and their near-term forecasts also tend to be too high. 
C)  low, whereas their near-term forecasts tend to be too high. 
D)  low, and their near-term forecasts also tend to be too low. 
A)  high, whereas their near-term forecasts tend to be too low. 
B)  high, and their near-term forecasts also tend to be too high. 
C)  low, whereas their near-term forecasts tend to be too high. 
D)  low, and their near-term forecasts also tend to be too low. A

Question 2

Relative to growth stocks, value stocks generally have a lower beta.

Accepted Answer

A) True 
 B)False  True

Question 3

According to the general consensus of investment managers, what percentage of a typical investor's portfolio should be invested in international markets?

Accepted Answer

A)  5 to 10 
B)  10 to 20 
C)  20 to 30 
D)  30 to 50 
A)  5 to 10 
B)  10 to 20 
C)  20 to 30 
D)  30 to 50 D

Question 4

How is the required return utilized in stock analysis?

Accepted Answer

The required return is the minimum expec

Question 5

An investment fund describes itself as a value fund. What characteristics would you expect the fund to exhibit?

Accepted Answer

The fund would be expected to have an ab

Question 6

The Coffeehouse Portfolio suggests investors hold:

Accepted Answer

A)  50% bonds, 50% equities (including the S&P 500, Large Cap Value, International, Small Cap, and Small Cap Value stocks). 
B)  40% bonds, 60% equities (including the S&P 500, Large Cap Value, International, Small Cap, Small Cap Value, and REITs). 
C)  60% bonds, 40% equities (in two index funds). 
D)  40% bonds, 60% equities (in two index funds). 
A)  50% bonds, 50% equities (including the S&P 500, Large Cap Value, International, Small Cap, and Small Cap Value stocks). 
B)  40% bonds, 60% equities (including the S&P 500, Large Cap Value, International, Small Cap, Small Cap Value, and REITs). 
C)  60% bonds, 40% equities (in two index funds). 
D)  40% bonds, 60% equities (in two index funds).

Question 7

How could one invest indirectly in sectors and practice sector rotation?

Accepted Answer

There are sector funds that invest in st

Question 8

What is usually considered the biggest risk of market timing?

Accepted Answer

A)  Getting out of the market too soon 
B)  Generating high transactions costs 
C)  Failing to adjust for short-term corrections 
D)  Being out of the market at critical times 
A)  Getting out of the market too soon 
B)  Generating high transactions costs 
C)  Failing to adjust for short-term corrections 
D)  Being out of the market at critical times

Question 9

Momentum investing takes advantage of persistency in long-term stock performance.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following models provides investors with a method of calculating a required return for a stock?

Accepted Answer

A)  DuPont model 
B)  Risk premium model 
C)  Fisher model 
D)  Capital asset pricing model 
A)  DuPont model 
B)  Risk premium model 
C)  Fisher model 
D)  Capital asset pricing model

Question 11

Passive common stock strategies attempt to minimize:

Accepted Answer

A)  capital losses. 
B)  transactions costs, including time spent managing the portfolio. 
C)  market risk. 
D)  company and industry risk. 
A)  capital losses. 
B)  transactions costs, including time spent managing the portfolio. 
C)  market risk. 
D)  company and industry risk.

Question 12

Investors following a passive strategy use which of the following as the best estimate of a security's value?

Accepted Answer

A)  The value derived from the dividend discount model 
B)  The value derived from the Fisher model 
C)  The current market price 
D)  The estimated EPS multiplied by the appropriate P/E multiple 
A)  The value derived from the dividend discount model 
B)  The value derived from the Fisher model 
C)  The current market price 
D)  The estimated EPS multiplied by the appropriate P/E multiple

Question 13

Under new SEC rules adopted in 2002, price targets for stocks are to be shown.

Accepted Answer

A) True 
 B)False

Question 14

What is meant by the term "defensive stocks?" Give some examples.

Accepted Answer

Defensive stocks are those tha

Question 15

Security analysts receive all of their information from the management of the company.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following does not represent a requirement for conducting effective sector rotation?

Accepted Answer

A)  Developing an accurate assessment of current economic conditions. 
B)  Having a knowledge and understanding of the phases of the business cycle. 
C)  Having an understanding of the political environment. 
D)  Having expertise in technical analysis. 
A)  Developing an accurate assessment of current economic conditions. 
B)  Having a knowledge and understanding of the phases of the business cycle. 
C)  Having an understanding of the political environment. 
D)  Having expertise in technical analysis.

Question 17

One of the most famous investment advisory services since 1965 is:

Accepted Answer

A)  the Wall Street Journal. 
B)  Standard and Poor's Corporate Records. 
C)  Moody's. 
D)  the Value Line Investment Survey. 
A)  the Wall Street Journal. 
B)  Standard and Poor's Corporate Records. 
C)  Moody's. 
D)  the Value Line Investment Survey.

Question 18

Which of the following is most accurate regarding the value premium?

Accepted Answer

A)  It has been positive every year over the last 30 years. 
B)  It is derived as the return on a growth portfolio minus return on a value portfolio. 
C)  Its long-run average is negative. 
D)  It can be considered compensation for taking a contrarian approach. 
A)  It has been positive every year over the last 30 years. 
B)  It is derived as the return on a growth portfolio minus return on a value portfolio. 
C)  Its long-run average is negative. 
D)  It can be considered compensation for taking a contrarian approach.

Question 19

Historically, sell-side equity research has tended to assign:

Accepted Answer

A)  very unfavorable ratings to target companies. 
B)  unfavorable ratings to target companies. 
C)  favorable ratings to target companies. 
D)  neutral ratings to target companies. 
A)  very unfavorable ratings to target companies. 
B)  unfavorable ratings to target companies. 
C)  favorable ratings to target companies. 
D)  neutral ratings to target companies.

Question 20

The primary emphasis in fundamental security analysis is on expected sales of the company.

Accepted Answer

A) True 
 B)False

Exam 11: Common Stocks: Analysis and Strategy

Which of the following statements about analysts' earnings forecasts is correct? Analysts' long-term forecasts tend to be too:

Relative to growth stocks, value stocks generally have a lower beta.

According to the general consensus of investment managers, what percentage of a typical investor's portfolio should be invested in international markets?

How is the required return utilized in stock analysis?

An investment fund describes itself as a value fund. What characteristics would you expect the fund to exhibit?

The Coffeehouse Portfolio suggests investors hold:

How could one invest indirectly in sectors and practice sector rotation?

What is usually considered the biggest risk of market timing?

Momentum investing takes advantage of persistency in long-term stock performance.

Which of the following models provides investors with a method of calculating a required return for a stock?

Passive common stock strategies attempt to minimize:

Investors following a passive strategy use which of the following as the best estimate of a security's value?

Under new SEC rules adopted in 2002, price targets for stocks are to be shown.

What is meant by the term "defensive stocks?" Give some examples.

Security analysts receive all of their information from the management of the company.

Which of the following does not represent a requirement for conducting effective sector rotation?

One of the most famous investment advisory services since 1965 is:

Which of the following is most accurate regarding the value premium?

Historically, sell-side equity research has tended to assign:

The primary emphasis in fundamental security analysis is on expected sales of the company.

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

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