FIN630 Latest Solved MCQs Almost 500 above MCQs Which of the following bonds do not pay interest during the life of the bonds? Muni

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2 FIN630 Latest Solved MCQs Almost 500 above MCQs Which of the following bonds do not pay interest during the life of the bonds? Municipal bonds Callable bonds Convertible bonds Zero coupon bonds Ref: A zero coupon bond has a specific maturity date when it returns the bond principal, but it pays no periodic income. is a temporary restriction on program trading in a particular security or market, usually to reduce dramatic price movements. SuperDot NYSE direct Trading curb Ticker tape REFRENCE: Both trading curbs and circuit breakers are designed to reduce temporary volatility in the market. Bond prices are expressed as a percentage of: Discount value Par value

3 Future value Intrinsic value REF: Bond Characteristics Prices quoted as a % of par value. Prices quoted without accrued interest. Which of the following industry is sensitive to business cycle and price changes? Growth industry Cyclical industry Defensive industry Interest sensitive industry REF: Cyclical industries: Most affected by recessions and economic adversity. Bought to be sold. On which of the following financial statements would you expect to find assets, liabilities, and stockholders' equity? Balance sheet Income statement Statement of cash flows

4 Statement of changes in equity REF: The balance sheet shows the portfolio of assets for a corporation, as well as its liabilities and owner's equity, at one point in time Which of the following is NOT a source of Return on Equity (ROE)? Return on assets Leverage Book value per share Sales per total assets REF: ROE = ROA * Leverage ROA = Net income margin * Turnover Net income margin = Net income/sales Turnover = Sales/ Total Assets Leverage = Total Assets/Stockholder s equity Which of the following is the theories searching the patterns in randomness? Elliott wave theory Chaos theory Portfolio theory Valuation theory

5 REF: Chaos theory sees systematic behavior amidst apparent randomness. Companies that have capitalization amounts of more than $2 billion are known as. Small cap companies Mid cap companies Growth companies Large cap companies REF: Small-cap stocks: A firm with capitalization less than $500 million. Mid-cap stocks: Capitalization between $500 million and $2billion. Large-cap stocks: Capitalization more than $2 billion. What does the abbreviation SIC stands for? Standard Industrial Classification Symbolic Industry Consortium Southeastern Illinois Compendium REF: One well-known and widely used system is the Standard Industrial Classification (SIC) System based on census data and developed to classify firms on the basis of what they produce. Which of the following is known as Secondary trend in Dow Theory?

6 Wave Triangle Tide Rounded bottom REF: Primary Trend Called the tide by Dow. Others have called this a secular bull or bear market. Secondary Trend Called the waves by Dow. (weeks to month) All of the following are the forms of risk, EXCEPT: Political risks Interest rate risks Presented risks Economic risks REF: Forms of Risks Country Risks / Sovereign Risks Political Risks Interest Rate Risks Economic Risks Regional Risks Risk in specific company Inflation Risks Technical Analysis method that tries to pinpoint when a security's shares are being accumulated (being bought) or are being sold is known as.

7 Relative strength index On Balance Volume Moving average None of the given options REF: OBV attempts to detect when a financial instrument (stock, bond, etc.) is being accumulated by a large number of buyers or sold by many sellers. Traders will use an upward sloping OBV to confirm an uptrend, while a downward sloping OBV is used to confirm a downtrend In a bar chart what does the red line represents? Stock prices are getting high Stock prices are getting low Stock prices are closing Stock prices are opening REF: Blue color indicates market or share price is going up. Red color indicates market or share price is going down Leverage ratios are designed to:

8 Measure a company's capital structure Measure the quality of a company's operations Measure a company's ability to cover its short-term obligations.measure the percentage of earnings paid to shareholders REF: Ratio used to calculate the financial leverage of a company to get an idea of the company s methods of financing or to measure its ability to meet financial obligations Leverage = Long term debt / total equity means capital structure which consist both the element like equity and debt, All of the following are the characteristics of the individual investor, EXCEPT: They are characterized by their personalities They maintain relatively constant profile over time They have great freedom in what they can do with regard to investing. They define risk as losing money. REFERENCE: Individual Investors characteristics Life stage matters Risk defined as losing money Characterized by personalities Institutional Investors Maintain relatively constant profile over time. Legal and regulatory constraints

9 Well-defined and effective policy is critical. Which of the following lines depict the tradeoff between risk and expected return for individual securities? Value Market Line Capital Market Line Security Market Line Money Market Line REF: The capital market line depicts the risk-return trade-off in the financial markets in equilibrium, Investors should expect a risk premium for buying a risky asset such as a, stock. Financial instrument whose return is derived from the return on another instrument is known as a (n): Derivative security Fixed income security Equity security Money market security REF: Derivative assets get their name from the fact that their value derives from some other asset Of the following statements identify the advantage of the market measures to the investor.

10 These measures identify the population to be measured and its method These measures offer equivalents for common sizes and metric units These measures regulate the access to and cost of imports and exports These measures quickly judge the overall portfolio performance REF: Market measures are useful to investors in quickly judging their overall portfolio performance. Because stocks tend to move up or down together, the rising or falling of the market will generally indicate to the investor how he or she is likely to do Which of the following is also called the Gordon s Growth Model? Dividend discount model Binomial models finance Capital asset pricing model Black scholes model finance REF: Relationship known as the dividend discount model (DDM), also called Gordon's growth model. A company that might not have historical perspective in background but it will find a place in the future depending on the product or industry is a.

11 Value company Large cap company Small cap company Growth company REF: One of the primary goals of fundamental security analysis is to-identify the growth industries, of the near and far future. Not from pastm Growth company might not have historical perspective in background but it will find a place in the future depending on the product or industry belong Which of the following represents an unusually risky stock? Blue chip stock Growth stock Penny stock None of the given options REF: Penny stock unusually risky specially in expensive share,, and it is a low-priced, high risk common stock that has a short or erratic history of revenues and earnings The trend lines can have the following trends, EXCEPT: Upward trend Downward trend Trend range Round phase

12 REF: There are three basic kinds of trends: An Up trend where prices are generally increasing. A Down trend where prices are generally decreasing. A side ways band and moving in a Trading Range Which of the following is NOT true about technical analysis? It requires some subjective decision-making It requires much accounting information Its success would mean markets are not efficient Technical analysis is older than fundamental analysis REF: They believe that supply and demand are the determinants of security prices, so its success would means markets are efficient and investors are moving quick with information, It is also one of the oldest forms of analyzing companies. Which of the following orders are placed prior to the execution of trade? Market and stop orders Market and limit orders Stop and limit orders Stop and mitigate orders

13 REF: Market orders are to be executed as soon as possible after reaching the exchange floor. Stop orders become market order when the stop price is reached. Therefore, it is possible for the actual sales price to be different from the stop price Which of the following is a current market in which all buying and selling is done on cash or margin basis? Target market Historic market Regular market Borough market REF: A Regular Market is a current market in which all buying and selling is on cash or margin. Standard & Poor s Composite Index is composed of how many large firm stocks? REF: Standard & Poor s Composite Index: Composed of 500 large firm stocks, Indicates how much the average equity value of the 500 firms in the index has increased relative to the base period. Which of the following charts give the economic information on weekly or yearly basis?

14 Line charts Bar charts Pie charts Symbol charts REF: A Bar Chart gives you an economic data on weekly basis and yearly basis. Which of the following captures cash flows during the evaluation period? Actual diminishing returns Dollar-weighted returns Time-weighted returns Opportunity cost returns REF:Dollar-weighted returns: Captures cash flows during the evaluation period. Equivalent to internal rate of return. Equates initial value of portfolio (investment) with cash inflows or outflows and ending value of portfolio. What does the abbreviation RSI stands for? Repetitive String Instruments Relative Strength Index Rapid Succession Intrigues Review of Symbolic Inquests

15 REF: Relative Strength Index (RSI was developed by Welles Wilder as an oscillator to gauge overbought/oversold levels). Which of the following is a characteristic of cyclical stock? Their value is tied with the overall state of the national economy. They are low-priced, speculative and risky securities. They have stable earnings and no extensive liabilities None of the given options REF: A cyclical stock is one whose fortune is directly tied to the state of the overall national economy. When the economy is booming these stocks do well. During a recession they do poorly. Which of the following is referred to as risk-free bond? Government bond Municipal bond Sovereign bond Junk bond REF: U.S. government is considered to be the safest credit risk because of its power to print money. Apart from the balance sheet or retained earnings what else must the financial analyst take into consideration in fundamental analysis?

16 The assortment track record The previous track record The crowbar track record The advisor track record REF: In fundamental analysis you not only considered the balance sheet or retained earnings but you also considered the previous track record, stipulate a relationship between expected return and risk. APT CAPM Both CAPM and APT Neither CAPM nor APT REF: Similar to the CAPM, or any other asset-pricing model, APT posits a relationship between expected return and risk. Which of the following industry is sensitive to business cycle and price changes? Growth industry Cyclical industry Defensive industry Interest sensitive industry

17 REF: Cyclical industry cyclical industries are most volatile Most affected by recessions and economic adversity. Means in economy fluctuation in prices, like if demand goes up then the price of product will also goes up, so price fluctuation is clear in economy Which of the following is an income that is the source of revenue for members or brokers? Copyright fee Application fee Fixed cost fee Trading fee REF: members of the exchange may trade there, so most people need someone to make the trade for them. As a fee for their services, brokerage firms charge a commission All of the following are the causes of change in investor s circumstances, EXCEPT: Investment horizon changes Liquidity requirement changes Authority circumstance changes tax circumstances changes Regulatory considerations REF: Change in Time Horizon: Traditionally, we think of investors aging and becoming more conservative in their

18 investment approach. Change in Liquidity Requirements: A need for more current income could increase the emphasis on dividend-paying stocks, Change in Legal / Regulatory Considerations: Laws affecting investors change Regularly, whether tax laws or laws governing retirement accounts, annuities, and so Forth. In which of the following markets do the investor cannot short sell? Target market Historic market Borough market Regular market REF: A Regular Market is a current market in which all buying and selling is on cash or margin. Short selling involves selling borrowed shares. In regular market short selling is not permitted. It is permitted in future market. When Beta >1.0, it indicates that: Security is more risky than the market Security is less risky than the market Security is as risky as the market Security is not risky at all REF: If Share A s Beta = +2.0 then that Share is Twice as risky (or volatile) as the KSE Market

19 If Share B s Beta = +1.0 then that Share is Exactly as risky (or volatile) as the KSE Market If Share C s Beta = +0.5 then that Share is only Half as risky (or volatile) as the KSE Market The Beta of most Stocks ranges between and The Average Beta for All Stocks = Beta of Market = Always. Which of the following suggests that people express a different degree of emotion towards gains than towards losses? Loss aversion Prospect theory Illusion of control Anchoring Ref from investopedia: Prospect theory suggests people express a different degree of emotion towards gains than towards losses. Individuals are more stressed by prospective losses than they are happy from equal gains. A form of the EMH which states that security prices fully reflect all public and private information. Strong form efficiency Weak form efficiency Semi strong form efficiency None of the given options

20 REF: The most extreme version of the EMH is strong form efficiency. This version states that security prices fully reflect all public and private information Which of the following is an objective of a tax shelter? Eliminate tax liabilities Postpone tax liabilities as long as possible Reduce tax liabilities as much as possible Shift tax liabilities to other taxpayers REF: Retirement programs offer tax sheltering whereby any income and/or capital gains taxes are avoided until such time as the funds are withdrawn All of the following are examples of financial assets EXCEPT. Stocks Transport vehicles Bonds Bank deposits REF: Financial assets such as stocks and bonds but here motor vehicles is fixed assets which is not showing corresponding liability like fanatical assets, Which of the following equation is FALSE?

21 Total risk = general risk + specific risk Total risk = market risk + issuer risk Total risk = systematic risk + nonsystematic risk Total risk = un-diversified risk + equity risk REFRENCE: we have systematic risk and nonsystematic risk, which are additive: Total risk = General risk + Specific risk = Market risk + Issuer risk = Systematic risk + Nonsystematic risk Which of the following ratios will be used if portfolio s numerous other assets systematic risk of investment is the best? Treynor reward-to-volatility ratio Jensen's differential return ratio Jennet s return on liquidity ratio Sharpe reward-to-variability ratio REF: However for Those investors, whose portfolio constitutes only one (relatively) small part of their total assets that is, they have numerous other assets systematic risk may well be the relevant risk. In these circumstances, RVOL Is appropriate, because it considers only systematic or non diversifiable risk. Which order will be executed automatically at the current bid or ask price?

22 Limit order Market order Stop order Good till cancelled REF:With this order, the investor trusts the fair pricing function of the marketplace. The broker is to buy or sell at the best price prevailing at the moment. The key element of a market order is that the order is to be executed as soon as possible. Which of the following has the assumptions of absence of personal taxes, single-period investment and riskless borrowing or lending? Modern Portfolio Theory Capital Asset Pricing Model Binomial Options Pricing Model Arbitrage Pricing Theory Capital Asset Pricing Model All investors can borrow or lend money at the risk-free rate of return. There are no personal income taxes---investors are indifferent between capital gains

23 and dividends. 6. There is no inflation. The APT was developed in 1976 by. Lintner Modigliani and Miller Ross Sharpe Ref: Another model that has received attention is based on arbitrage pricing theory (APT) as developed by Ross and enhanced by others. In recent years, Which of the following index is also known as value weighting? Price weighting Equal weighting Base weighting Capitalization weighting Ref: Capitalization weighting is also called value weighting. This method weights components by the size of the company rather than by the value of a share. Which of the following considers the size of the company and needs no adjustment for stock splits? Price weighting Capitalization weighting

24 Equal weighting Base weighting Ref: Capitalization weighting is also called value weighting. This method weights components by the size of the company rather than by the value of a share. The practice of spreading money among different investments to reduce risk is known as. Diversification Risk aversion Securitization Sector rotation Which of the following types of bonds are usually unsecured debts maturing in years and paying semiannual interest? Municipal bonds Convertible bonds Zero coupon bonds Corporate bonds Ref: Corporate bonds are senior securities. However, within the bond.category itself there are various degrees of security. Usually unsecured debts maturing in years, paying semi-annual interest, callable, with par value of $1,000.

25 Which of the following involves an additional source of basis risk due to the difference between the asset being hedged and the asset underlying the futures? Long hedge Short hedge Cross hedge Stack hedge REF:When there is no futures contract on the asset being hedged, choose the contract whose futures price is most highly correlated with the asset price. This is known as cross hedging. Which of the following measures the sensitivity of the asset's price to interest rate movements, expressed as a number of years? Duration Yield to maturity Convexity Immunization REF: Duration is a measure of interest rate risk that considers the effects of both the coupon rate & maturity changes in bond prices. By matching the duration of their firm s assets & liabilities, managers of financial institutions can minimize exposure to interest rate risk.

26 Which of the following is the right to buy? Put option Strategic option System option Call option REF: A call option gives its owner the right to buy; it is not a promise to buy. For example, a store holding an item for you for a fee is a call option. Which of the following is NOT an example of derivative security? Futures Options Swaps Bonds REF: Derivatives Instruments Futures Contract, Forward Contract, Option contract, Swap Which of the following bonds are high yield bonds issued by companies that are considered highly speculative because of risk of default? Junk bonds Municipal bonds

27 Callable bonds Convertible bonds REF: Which of the following is the right to sell? System option Strategic option Call option Put option REF: A put option gives its owner the right to sell; it is not a promise to sell. For example, a lifetime money back guarantee policy on items sold by a company is an embedded put option. Which of the following returns are appropriate for portfolio owners? Actual diminishing returns Dollar-weighted returns Time-weighted returns Opportunity cost returns REFERENCE: K-

28 x6t_d0aj: ada/cleary/sturesource/ppt/ch22.ppt+dollarweighted+returns+returns+are+appropriate+for+portfolio+ owners&cd=2&hl=en&ct=clnk&gl=pk A form of the EMH which states that security prices fully reflect all public and private information Strong form efficiency Weak form efficiency Semi strong form efficiency None of the given options Which of the following is EXCLUDED from the reasons of investing? To obtain capital gain To supplement their money To experience an excitement To gather market information

29 All of the following are the reasons of investing, EXCEPT: Compensate inference P# 3 Capital gains Supplementing their income Excitement All of the following are the problems associated to the Dividend Discount Model, EXCEPT: This model need infinite stream of dividends This model has uncertain dividend stream This model must estimate future dividends This model requires constant earnings per share SLIDE#11 Technical Analysis method that tries to pinpoint when a security's shares are being accumulated (being bought) or are being sold is known as.

30 Relative strength index On Balance Volume Moving average None of the given options REFERENCE: Which of the following highlights expense control, and the asset and debt utilization? Trend analysis Risk analysis DuPont analysis Claims analysis REFERENCE: el.pdf Chapter 5, page number 12

31 Which of the formula is TRUE for calculating retained earnings? Retained Earnings = Net Earnings Dividends Retained Earnings = Net Earnings +long term debt Retained Earnings = Net Earnings + short term debt Retained Earnings = Net Earnings + dividend All of the following are the characteristics of the individual investor, EXCEPT: They are characterized by their personalities They maintain relatively constant profile over time P#226 They have great freedom in what they can do with regard to investing They define risk as losing money The industries that are most affected by recessions and economic adversity are termed as which of the following?

32 Growth industries Interest-sensitive industries Defensive industries All of the following are the characteristics of the institutional investor, EXCEPT: They maintain relatively constant profile over time They are subject to legal and regulatory constraints concerning investment They are more specific regarding total assets and liabilities They have great freedom in what they can do regarding investing P# 226 Which of the following ratios distinguishes between total and systematic risk?

33 Sharpe reward-to-variability ratio Treynor reward-to-volatility ratio SLIDE 39 Jensen's differential return ratio Jennet s return on liquidity ratio Which of the following considers the size of the company and needs no adjustment for stock splits? Price weighting Capitalization weighting Equal weighting Base weighting What does EMH stands for? Eastern Marine Heritage European Market Healthcare Effective Market Hypothesis European Mayor House

34 In which of the following conditions the price earning ratios will be low? When conversion and exchange rates are low When revenue and expense rates are moderate When inflation and interest rates are high When insurance and tax rates are equivalent REFERENCE: HUZAIFA SHEIKH QUIZ: Which of the following involves shifting sector weights in the portfolio? Associate rotation Sector rotation 140 Audit rotation

35 Corporate rotation Which of the following is a measure of the volatility of stock prices or returns? ROR Beta P# 111 ROI Risk premium Which of the following is an investment which is spread across various sectors of the market to limit the exposure to any one sector to thus protect against loss? Design portfolio Modeling portfolio Architecture portfolio Balanced portfolio REFERENCE:

36 Which of the following industry tend to be composed of relatively volatile and risky stocks? Growth industries Cyclical industries Defensive industries Interest sensitive industries REFERENCE: Which of the following stages of the industry life cycle offers the highest potential returns and greatest risk? Pioneering stage Stabilization stage Declining stage Expansion stage

37 REFERENCE: Performance-Business-Cycle Which of the following are the instruments whose values depend on the value of other more basic underlying variables? Contracts Derivatives Agreements Indentures REFERENCE: s.html The circuit breaker that is applied where stock prices in the market are dropping is known as which of the following? Starter

38 Floor Ceiling Simulator Which of the following item when kept constant generally gives a high bond s duration with its time to maturity? Exchange rate Flat rate Mortgage rate Coupon rate REFERENCE: Which of the following bonds are high yield bonds issued by companies that are considered highly speculative because of risk of default? Junk bonds

39 Municipal bonds Callable bonds Convertible bonds Which of the following affects the price of the bond? Market interest rate Required rate of return Interest rate risk All of the given options Which of the following make use of a divisor to adjust for stock splits? Capitalization weighting Price weighting Equal weighting Base weighting

40 Which of the following is a measure of the sensitivity of a bond's market price to interest rate movements? Yield to maturity Convexity Duration Immunization All of the following are the problems associated to the Dividend Discount Model, EXCEPT: This model need infinite stream of dividends This model has uncertain dividend stream This model must estimate future dividends This model requires constant earnings per share Which of the following ratios are of more concern for the shareholders? Liquidity and profitability

41 Liquidity and leverage Profitability and activity Profitability and leverage Which of the following must hold TRUE in case of stocks that are inversely correlated? Correlation must always be positive Correlation must always be infinite Correlation must always be negative Correlation must always be zero Muhammad Asim Ayub Which of the following risks is also referred to as the non-diversifiable risk? Nonsystematic risk Systematic risk

42 Financial risk Production risk If a company decides to issue new securities, these should be issued in: Primary market Secondary market Third market Fourth market ABC Furniture has worth $51 million. What is the other term used for this? Book value Earning per share Market value Cost per share

43 The sensitivity of a coupon bond price to a change in its yield: Is directly related to the bond's yield to maturity Is inversely related to the bond's yield to maturity Is greater for increases in yield to maturity than it is for decreases in yield to maturity Is constant regardless of whether the yield to maturity increases or decreases Which of the following is NOT a source of Return on Equity (ROE)? Return on assets Leverage Book value per share Sales per total assets Which of the following is defined as the total market value of securities in an investment company s portfolio

44 divided by the number of investing company fund shares currently outstanding? Discounted value Present value Future cash flow value Net asset value Which of the following is NOT the technical indicator? Moving Average Convergence/Divergence Relative Strength Index On Balance Volume Broadening Formation Which of the following is an objective of a tax shelter? Eliminate tax liabilities Postpone tax liabilities as long as possible

45 Reduce tax liabilities as much as possible Shift tax liabilities to other taxpayers Buying power of an investor is calculated as: Assets liabilities Equity debt balance Short term debt long tem debt Current assets current liabilities In which of the following approaches the capitalization of income is done? Present value approach Multiple of earning approach Communicative approach Integrated eclectic approach

46 In which of the following accounts the trading charges are high? Savings account System account Personal account Cash account Which of the following ratios is the benchmark based on the ex post capital market line? Treynor reward-to-volatility ratio Jensen's differential return ratio Sharpe reward-to-variability ratio Jennet s return on liquidity ratio Lahore Stock of Exchange is based market indicator. Volume slid 26

47 Capitalization Price weighting Profit Which of the following invest in undervalued stocks as determined by fundamental financial analysis? Growth funds Value funds Mutual funds Hedge funds Current yield is defined as: Internal rate of return that equates the prevailing market price with future interest and principal payments Approximate yield to call for premium bonds Coupon interest divided by the average of market and call prices

48 Coupon rate expressed as a percent of the prevailing market price Which of the following charts give the economic information on weekly or yearly basis? Line charts Bar charts Pie charts Symbol charts Which of the following pay a specified cash flow over a specific period? Fixed income Securities Junk bonds Zero coupon bonds Convertible bonds REFERENCE:

49 infixed/f html Which of the following is an income that is the source of revenue for members or brokers? Copyright fee Application fee Fixed cost fee Trading fee Which of the following statement is TRUE about yield to maturity? Yield to maturity is inversely related to bond price Yield to maturity is always less than the yield to call Yield to maturity will be less than the current yield fo Yield to maturity tends to fall with a rise in duration Which of the following index is price weighted?

50 New York Stock Exchange Composite Dow Jones Industrial Average P# 158 Standards and Poor s Index Russell 3000 Index Which of the following has the assumptions of absence of personal taxes, single-period investment and riskless borrowing or lending? Modern Portfolio Theory Capital Asset Pricing Model P# 224 Binomial Options Pricing Model Arbitrage Pricing Theory Which of the following indicates that the returns on the two securities tend to move in the same direction at the same time? rmn = +1.0 P# 210

51 rmn = -1.0 rmn =0 All of the given options Which of the following is a model of stock returns that decomposes influences on returns into a systematic factor, as measured by the return on the broad market index, and firm specific factors? Dividend discount model Single index model Capital asset pricing model Binomial models finance REFERENCE: Which of the following is result that deviates from that expected by finance theory? Equality

52 Anomaly p #150 Fairness Correlation Of the following which point will NOT be examined by the investor from the balance sheet before investing in the company? The firm s ability to meet its financial obligations The money already being invested in this company The company being overly indebted The money the firm has spent to settle shipment cost PPT 18 In which of the following cases will the buy decision be taken? Where the intrinsic value is greater than the current market price as the asset is undervalued Where the intrinsic value is lesser than the current market price as the asset is overvalued

53 Where the intrinsic value is equivalent to the current market price as the asset is acquired Where the current market price has doubled from the intrinsic value as the asset is distributed In which of the following cases will the sell decision be taken? Where the intrinsic value is greater than the current market price as the asset is undervalued Where the intrinsic value is lesser than the current market price as the asset is overvalued Where the intrinsic value is equivalent to the current market price as the asset is acquired Where the current market price has doubled from the intrinsic value as the asset is distributed Aisha Malik Which of the following is similar to stock selection?

54 Associate rotation Sector rotation PAGE# 140 Audit rotation Corporate rotation The Standard Industrial Classification codes have the divisions named as which of the following? A through K PPT 15, SLIDE #14 1 through 23 i through xviii a through h A place where trading of listed securities in the NASDAQ market is performed is known as: Primary market Secondary market Third market

55 Fourth market Which of the following is defined as a user of the market, who enters into futures contract to manage the risk of adverse price fluctuation in respect of his existing or future asset? Hedger Arbitrager Speculator Broker REFERENCE: Which of the following theory states that the news arrives randomly, and that security prices adjust rapidly and accurately to the arrival of news? Valuation theory Random walk theory Pecking order theory

56 Corporate finance theory Which of the following ratios will be used if portfolio s numerous other assets systematic risk of investment is the best? Treynor reward-to-volatility ratio P# 241 Jensen's differential return ratio Jennet s return on liquidity ratio Sharpe reward-to-variability ratio REFERENCE: khhl_levcj:foba.lakeheadu.ca/hartviksen/4179/measure. ppt+treynor+reward-tovolatility+ratio+will+be+used+if+portfolio%e2%80%99s+ numerous+other+assets+systematic+risk+of+investment+is +the+best&cd=14&hl=en&ct=clnk&gl=pk Identify the correct formula for calculating the tax burden. EBIT/Income tax expense

57 Sales/Income taxes payable Pre-tax Income/EBIT Net Income/Pre-tax Income Which of the following affects the price of the bond? Market interest rate Required rate of return Interest rate risk All of the given options Which of the following ratios distinguishes between total and systematic risk? Sharpe reward-to-variability ratio Treynor reward-to-volatility ratio Jensen's differential return ratio Jennet s return on liquidity ratio

58 Which of the following is NOT true about expansion stage? Marketplace is full of competitors Firm operations more stable, dependable Financial policies firmly established Dividends often become payable Technical Analysis method that tries to pinpoint when a security's shares are being accumulated (being bought) or are being sold is known as. Relative strength index On Balance Volume Moving average None of the given options In which of the following risks the factors are specific, unique and related to the particular industry or company?

59 Nonsystematic risk Pressure risk Odd risk Even risk Which of the following shows the relationship between two moving averages of prices? Moving Average Convergence/Divergence Relative Strength Index On Balance Volume Bollinger Bands Of the following who believes the body in motion tends to stay in motion? Institutional investors Interactive investors Growth investors

60 Accredited investor Which of the following approaches is a valuation relative to financial performance measure? Present value approach Multiple of earning approach Communicative approach Integrated eclectic approach REFERENCE: P291VykM4J:peregrin.jmu.edu/~drakepp/investments/mod ules/ch10.ppt+present+value+approach+is+a+valuation+rel ative+to+financial+performance+measure&cd=12&hl=en& ct=clnk&gl=pk Bonds and preffered stock do not ensures. A fixed income Security Ownership None of given options

61 Which of the following give pay back period of the investment made? Future cash flows Present cash flows Operating cash flows Free cash flows Which of the following is a pattern that occurs during high volatility, when a security shows great movement with little direction? Broadening Formation Relative Strength Index On Balance Volume Bollinger Bands Which of the following is a payment to owners in stock?

62 Penny stock Stock dividend Stock flicker Stock ticker Which of the following bonds may be exchanged for another asset at the owner s discretion? Municipal bonds Callable bonds Convertible bonds Zero coupon bonds All of the following are the reasons of investing, EXCEPT: Compensate inferences Capital gains Supplementing their income Excitement

63 All of the following are the levels of market efficiency, EXCEPT: Weak form Subjective form Semi-strong form Strong form Which of the following is NOT an anomaly related to efficient market hypothesis? LowPE effect The small firm effect The neglected firm effect Common size effect High-yield bonds:

64 Pay lower coupon rates than investment-grade bonds Have a lower probability of default than junk bonds Are avoided by institutional investors Are high risk bonds Which of the following compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset? Moving Average Convergence/Divergence Relative Strength Index On Balance Volume Bollinger Bands Which of the following are the required inputs of the present value approach? Discount rate and the expected cash flows Expenses paid in cash and dividends disbursed Earnings in valuing stocks and stock-in-trade Retained earnings and dividends paid out ratio On which of the following financial statements would you

65 expect to find assets, liabilities, and stockholders' equity? Balance sheet Income statement Statement of cash flows Statement of changes in equity Financial instrument whose return is derived from the return on another instrument is known as a (n): Derivative security Fixed income security Equity security Money market security Which of the following is NOT a test of semi-strong form efficiency? Stock splits Accounting changes Dividend announcements Insider transactions

66 Which of the following is the difference between the expected return and the actual return on an investment? Expected return Abnormal return Normal return Tax return Which of the following programs propagate the ethics? London Instruments Fiscal Attachment Laurel Immigration Fairness Analysis Low Income Financial Association Licensed International Financial Analyst Which of the following tests is often used to test the weak form of market efficiency? Stock splits Runs test Insider transactions Accounting changes

67 Which of the following represents an unusually risky stock? Blue chip stock Growth stock Penny stock None of the given options Bond prices are expressed as a percentage of: Discount value Par value Future value Intrinsic value All of the following are the investment alternatives, EXCEPT: Derivative assets Collateral securities Fixed income securities Equity securities Explanation: Alternative investments include hedge funds, managed futures, real estate, commodities and derivatives contracts.

68 In which of the following markets do the investor cannot short sell? Target market Historic market Borough market Regular market Apart from the balance sheet or retained earnings what else must the financial analyst take into consideration in fundamental analysis? The assortment track record The previous track record The crowbar track record The advisor track record Which of the following is an average signifying the point in time when the present value of a security is repaid? Yield to maturity Duration Convexity Immunization

69 Which of the following is a current market in which all buying and selling is done on cash or margin basis? Target market Historic market Regular market Borough market Which of the following terms is used synonymously for equity? Share Distribution Section Division If the Dow Jones Industrial Average stock splits 3 for 1 then what impact will this have on the index divisor? Index divisor will incline Index divisor remains constant Index divisor will decline Index divisor multiply The sensitivity of a coupon bond price to a change in its

70 yield: Is directly related to the bond's yield to maturity Is inversely related to the bond's yield to maturity Is greater for increases in yield to maturity than it is for decreases in yield to maturity Is constant regardless of whether the yield to maturity increases or decreases Which of the following stage offers the highest potential returns and greatest risk? Pioneering stage Expansion stage Stabilization stage Decline stage Margin accounts are mostly used by: Traders who think their long-run returns will be greater than the cost of borrowing Speculators who think their long-run returns will be greater than the cost of borrowing Investors who think their long-run returns will be greater than the cost of borrowing All of given options

71 All of the following are the problems associated to the Dividend Discount Model, EXCEPT: This model need infinite stream of dividends This model has uncertain dividend stream This model must estimate future dividends This model requires constant earnings per share In which of the following accounts the trading charges are high? Savings account System account Personal account Cash account A Financial instrument whose return is derived from the return on another instrument is known as a (n): Derivative security Fixed income security Equity security Money market security

72 In which of the following approaches the capitalization of income is done? Present value approach Multiple of earning approach Communicative approach Integrated eclectic approach Which of the following is the formula of earning per share? EPS=IRR / Market value per share EPS=ROE * Net asset value per share EPS=NPV * Retained earning value per share EPS=ROE * Book value per share The rate of return anticipated on a bond if it is held until the maturity date is known as: Discount rate Interest free rate

73 Return on equity Yield to maturity is an unmanaged fund designed to replicate as closely as possible the performance of a specified index of market activity. Index fund Reserve fund Mutual fund Pension fund Which of the following statements highlights the financial condition of a company at any single point of time? Income Statement Cash Flow Statement Balance Sheet Statement of Owner s Equity

74 Lahore Stock of Exchange is based market indicator. Volume Capitalization Price weighting Profit Which of the following is necessary in order to reduce the huge number of possible investments to a smaller number that can investigate carefully? Securing Screening Saving Discounting Which of the following equations assume a linear relationship between price and yield? Yield to maturity equation Duration equation

75 Convexity equation Immunization equation Explanation: Duration assumes a linear relationship between price and yield. However, this equation is not always accurate in predicting the change in value. This is because the PV does not generally fall linearly with increasing yield. Which of the following index is also known as value weighting? Price weighting Equal weighting Base weighting Capitalization weighting A form of the EMH which states that security prices fully reflect all relevant publicly available information is known as:

76 Strong form Weak form Semi strong form None of the given options Which of the following moves inversely to each other? Interest rates and debt to equity ratios Discount rates and P/E ratios Coupon rates and leverage ratios Interest rates and activity ratios In bottom-up approach of fundamental analysis, investors begin their analysis with: Industry Economy Market Company

77 Which of the following is the difference between the expected return and the actual return on an investment? Expected return Abnormal return Normal return Tax return Which of the following is a characteristic of cyclical stock? Their value is tied with the overall state of the national economy. They are low-priced, speculative and risky securities. They have stable earnings and no extensive liabilities None of the given options Which of the following is NOT true about technical analysis?

78 It requires some subjective decision-making It requires much accounting information Its success would mean markets are not efficient Technical analysis is older than fundamental analysis In which of the following cases support occurs? Inability to recede prior high Inability to break below prior low Inability to surpass prior low Capacity to surpass prior high Which of the following is a basket of stocks that tracks a particular sector, investment style, geographical area, or the market as a whole? Exchange traded fund Open-end fund Closed-end fund Unit investment trust

79 Which of the following hypothesis states that some stocks are priced more efficiently than others? Financial media hypothesis Financial instability hypothesis Semi-efficient market hypothesis Adaptive markets hypothesis A place where trading of listed securities in the NASDAQ market is performed is known as: Primary market Secondary market Third market Fourth market In which of the following cases resistance occurs? Inability to break below prior high Inability to break below prior low

80 Inability to surpass prior high Inability to repair beyond prior low Which of the following is the theories searching the patterns in randomness? Elliott wave theory Chaos theory Portfolio theory Valuation theory Which of the following is an income that is the source of revenue for members or brokers? Copyright fee Application fee Fixed cost fee Trading fee Which of the following bonds are high yield bonds issued by companies that are considered highly speculative because of risk of default? Junk bonds

81 Municipal bonds Callable bonds Convertible bonds Which of the following statement is not a characteristic of a line chart? It is simplest and most familiar chart It is efficient in showing more details It is an extension of a scatter graph It is created by connecting a series of points. Which of the following bonds give the issuer the right to repay the debt prior to maturity? Municipal bonds Callable bonds Convertible bonds Zero coupon bonds In order to analyze long term investment, the most suitable analysis will be. Fundamental analysis Technical analysis

82 Vertical analysis Horizontal analysis The duration of a bond: Is less than maturity for bonds paying coupon interest Is directly related to coupon yield Decreases with maturity Is greater than maturity for zero coupon bonds The interest rate stated on a bond, note or other fixed income security, expressed as a percentage of the principal (face value) is known as: Interest free rate Coupon rate Discount rate Bank rate Which of the following is a basket of shares bought for you by an asset management company? Hedge fund Managed fund Adaptation fund Mutual fund

83 Leverage ratios are designed to: Measure a company's capital structure Measure the quality of a company's operations Measure a company's ability to cover its short-term obligations Measure the percentage of earnings paid to shareholders Which of the following statements hold TRUE for ask price? It is the price at which a broker is willing to sell a certain security It is the price at which a broker is willing to buy a certain security It is the quoted price in an order to buy shares of a company It is the rate at which a dealer will buy the base currency Which of the following ratios measures a company's capital structure? Price to sales ratio Price to book value ratio

84 Leverage ratio Debt coverage ratio A company that might not have historical perspective in background but it will find a place in the future depending on the product or industry is a. Value company Large cap company Small cap company Growth company Ref: Growth company might not have historical perspective in background but it will find a place in the future depending on the product or industry belong. All of the following steps are involved in estimating the earnings stream, EXCEPT: Estimating corporate sales Estimating corporate earnings before taxes Estimating corporate liabilities and assets Estimating corporate earnings after taxes The three broad categories of financial assets are: Debt, equity and money market securities Corporate securities, derivatives and equity

85 Debt, equity and derivatives long-term debt and equity and money market securities Which of the following take place at the declining stage of the industry life cycle? Firm operations get more stable and dependable Rapid growth in demand and subsequent profits occur Costs get stable rather than decreasing or increasing Sales growth decline as new products are developed for more contents visit Which of the following ratios are of more concern for the shareholders? Liquidity and profitability Liquidity and leverage Profitability and activity Profitability and leverage Which of the following statements hold TRUE for spread? It is the price asked by a seller of securities from buyers It is the quoted price in an order to buy shares of a company It is the rate at which a dealer will buy the base currency It is the difference between the bid and ask price