Question 1

For diversification to reduce risk,

Accepted Answer

A) the returns on the individual securities should be highly correlated 
B) the prices of the stocks should be stable 
C) the returns on the individual securities should be negatively correlated 
D) one firm should offer dividends and the other should offer capital gains 
A) the returns on the individual securities should be highly correlated 
B) the prices of the stocks should be stable 
C) the returns on the individual securities should be negatively correlated 
D) one firm should offer dividends and the other should offer capital gains C

Question 2

In an efficient securities market, the investor cannot earn, over a period of years, a return comparable to the amount of risk the individual bears.

Accepted Answer

A) True 
 B)False  False

Question 3

An implication of the efficient market hypothesis is

Accepted Answer

A) securities prices are randomly determined 
B) stock prices reflect historical information 
C) few investors can expect to outperform the market over a period of time 
D) after adjusting for risk, money market securities offer superior returns 
A) securities prices are randomly determined 
B) stock prices reflect historical information 
C) few investors can expect to outperform the market over a period of time 
D) after adjusting for risk, money market securities offer superior returns C

Question 4

Diversification reduces

Accepted Answer

A) systematic risk 
B) unsystematic risk 
C) market risk 
D) purchasing power risk 
A) systematic risk 
B) unsystematic risk 
C) market risk 
D) purchasing power risk

Question 5

The process of financial planning requires the individual to
1. establish financial goals and objectives
2. identify and quantify the value of his or her assets
3. hire professional financial advisors

Accepted Answer

A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above 
A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above

Question 6

Even if financial markets have elements of inefficiency, the individual may still be unable to outperform the market.

Accepted Answer

A) True 
 B)False

Question 7

If an investor believes that financial markets are inefficient, that argues for the individual to pursue a more active portfolio strategy.

Accepted Answer

A) True 
 B)False

Question 8

Since virtually all investments involve risk, the individual should develop a diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 9

The tendency of investors to follow a "herd" mentality helps explain financial bubbles.

Accepted Answer

A) True 
 B)False

Question 10

While the investor is able to reduce asset-specific risk, other sources of risk remain.

Accepted Answer

A) True 
 B)False

Question 11

Examples of a passive investment strategy include
1. buy-and hold
2. index mutual funds
3. specialized ETFs

Accepted Answer

A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all three 
A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all three

Question 12

Asset allocation is important to help diversify a portfolio but has little impact on the portfolio's return.

Accepted Answer

A) True 
 B)False

Question 13

Sources of risk include
1. fluctuating exchange rates
2. a firm's financing decisions
3. higher interest rates
4. loss of purchasing power

Accepted Answer

A) 1 and 2 
B) 2 and 3 
C) 2 and 4 
D) all four 
A) 1 and 2 
B) 2 and 3 
C) 2 and 4 
D) all four

Question 14

In a well-diversified portfolio, the risk associated with fluctuations in securities prices (i.e., the market)is reduced.

Accepted Answer

A) True 
 B)False

Question 15

If the financial markets were not efficient,

Accepted Answer

A) all investors would profit 
B) prices indicate the proper valuation of securities 
C) prices would adjust rapidly 
D) an investor may consistently outperform the market 
A) all investors would profit 
B) prices indicate the proper valuation of securities 
C) prices would adjust rapidly 
D) an investor may consistently outperform the market

Question 16

Possible investment objectives may include
1. capacity to meet financial emergencies
2. preservation of capital
3. desire to finance retirement

Accepted Answer

A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above 
A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above

Question 17

If financial markets are efficient, that negates the importance of financial planning.

Accepted Answer

A) True 
 B)False

Question 18

If financial markets are efficient, that suggests that

Accepted Answer

A) investors cannot earn superior returns 
B) investors cannot expect to outperform the market consistently 
C) security prices are random 
D) bearing additional risk will not increase return 
A) investors cannot earn superior returns 
B) investors cannot expect to outperform the market consistently 
C) security prices are random 
D) bearing additional risk will not increase return

Question 19

Portfolio risk encompasses
1. a firm's financing decisions
2. interest rate risk
3. loss of purchasing power

Accepted Answer

A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above 
A) 1 and 2 
B) 1 and 3 
C) 2 and 3 
D) all of the above

Question 20

An active portfolio strategy is premised on

Accepted Answer

A) the stock market being efficient 
B) the stock market being inefficient 
C) the investor's being able to obtain public information 
D) the portfolio manager's access to corporate management 
A) the stock market being efficient 
B) the stock market being inefficient 
C) the investor's being able to obtain public information 
D) the portfolio manager's access to corporate management

For diversification to reduce risk,

In an efficient securities market, the investor cannot earn, over a period of years, a return comparable to the amount of risk the individual bears.

An implication of the efficient market hypothesis is

Diversification reduces

The process of financial planning requires the individual to 1. establish financial goals and objectives 2. identify and quantify the value of his or her assets 3. hire professional financial advisors

Even if financial markets have elements of inefficiency, the individual may still be unable to outperform the market.

If an investor believes that financial markets are inefficient, that argues for the individual to pursue a more active portfolio strategy.

Since virtually all investments involve risk, the individual should develop a diversified portfolio.

The tendency of investors to follow a "herd" mentality helps explain financial bubbles.

While the investor is able to reduce asset-specific risk, other sources of risk remain.

Examples of a passive investment strategy include 1. buy-and hold 2. index mutual funds 3. specialized ETFs

Asset allocation is important to help diversify a portfolio but has little impact on the portfolio's return.

Sources of risk include 1. fluctuating exchange rates 2. a firm's financing decisions 3. higher interest rates 4. loss of purchasing power

In a well-diversified portfolio, the risk associated with fluctuations in securities prices (i.e., the market)is reduced.

If the financial markets were not efficient,

Possible investment objectives may include 1. capacity to meet financial emergencies 2. preservation of capital 3. desire to finance retirement

If financial markets are efficient, that negates the importance of financial planning.

If financial markets are efficient, that suggests that

Portfolio risk encompasses 1. a firm's financing decisions 2. interest rate risk 3. loss of purchasing power

An active portfolio strategy is premised on

An Introduction to Investments

Securities Markets

The Time Value of Money

Financial Planning, Taxation and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Funds

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs

Stock

The Valuation of Common Stock

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment Decisions

Behavioral Finance and Technical Analysis

The Bond Market

The Valuation of Fixed-Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategies

Commodity and Financial Futures

Filters

Exam 20: Financial Planning and Investing in an Efficient Market Context

For diversification to reduce risk,

In an efficient securities market, the investor cannot earn, over a period of years, a return comparable to the amount of risk the individual bears.

An implication of the efficient market hypothesis is

Diversification reduces

The process of financial planning requires the individual to 1. establish financial goals and objectives 2. identify and quantify the value of his or her assets 3. hire professional financial advisors

Even if financial markets have elements of inefficiency, the individual may still be unable to outperform the market.

If an investor believes that financial markets are inefficient, that argues for the individual to pursue a more active portfolio strategy.

Since virtually all investments involve risk, the individual should develop a diversified portfolio.

The tendency of investors to follow a "herd" mentality helps explain financial bubbles.

While the investor is able to reduce asset-specific risk, other sources of risk remain.

Examples of a passive investment strategy include 1. buy-and hold 2. index mutual funds 3. specialized ETFs

Asset allocation is important to help diversify a portfolio but has little impact on the portfolio's return.

Sources of risk include 1. fluctuating exchange rates 2. a firm's financing decisions 3. higher interest rates 4. loss of purchasing power

In a well-diversified portfolio, the risk associated with fluctuations in securities prices (i.e., the market)is reduced.

If the financial markets were not efficient,

Possible investment objectives may include 1. capacity to meet financial emergencies 2. preservation of capital 3. desire to finance retirement

If financial markets are efficient, that negates the importance of financial planning.

If financial markets are efficient, that suggests that

Portfolio risk encompasses 1. a firm's financing decisions 2. interest rate risk 3. loss of purchasing power

An active portfolio strategy is premised on

An Introduction to Investments

Securities Markets

The Time Value of Money

Financial Planning, Taxation and the Efficiency of Financial Markets

Risk and Portfolio Management

Investment Companies: Mutual Funds

Closed-End Investment Companies, Real Estate Investment Trusts Reits, and Exchange-Traded Funds Etfs

Stock

The Valuation of Common Stock

Investment Returns and Aggregate Measures of Stock Markets

The Macroeconomic Environment for Investment Decisions

Behavioral Finance and Technical Analysis

The Bond Market

The Valuation of Fixed-Income Securities

Government Securities

Convertible Bonds and Convertible Preferred Stock

An Introduction to Options

Option Valuation and Strategies

Commodity and Financial Futures

Filters