Deck 2: The Global Market Investment Decision

Question 1

Which of the following statements concerning historical investment risk and return is false?

A) The geometric mean of the rates of return was always lower than the arithmetic mean of the rates of return.
B) The rates of return on long-term US government bonds were lower than on stocks.
C) Real estate investments consistently provide higher rates of return than those provided by common stock.
D) Stocks and bonds experienced results in the middle of the art and antiques series.
E) None of the above (that is, all are true statements).

Answer 1

C

Question 2

If you are considering investing in German stocks as a means to reduce the risk of your portfolio, the initial factor that you should examine is

A) the average rate of return of the portfolio when you combine your current stocks with German stocks.
B) the standard deviation of the German stocks.
C) the standard deviation of the German stocks compared to the standard deviation of your current stocks.
D) the correlation between the rates of return for German stocks and your current stocks.
E) the coefficient of variation (CV) of rates of return for German stocks versus the CV of rates of return for your current stocks.

Answer 2

D

Question 3

Which of the following is not a type of investment company?

A) money market funds
B) common stock funds
C) balanced funds
D) bond funds
E) none of the above

Answer 3

E

Question 4

Correlations between bond markets in different countries have been changing over time because

A) countries are developing closer trade and economic links.
B) countries are becoming more segmented.
C) there are fewer barriers to travel.
D) US investors are purchasing more foreign securities.
E) correlations between bond markets of different countries have been rising.

Question 5

The purchase and sale of commodities for current delivery and consumption is known as dealing in the ____ market.

A) futures
B) spot
C) money
D) capital
E) options

Question 6

A Eurobond is an international bond

A) sold by an issuer within its own country in that country's currency.
B) denominated in a currency not native to where it is issued.
C) also known as a Yankee Bond.
D) denominated in US dollars but issued by a foreign company.
E) that is sold only to European investors.

Question 7

An investor who purchases a put option:

A) has the right to buy a given stock at a specified price during a designated time period.
B) has the right to sell a given stock at a specified price during a designated time period.
C) has the obligation to buy a given stock at a specified price during a designated time period.
D) has the obligation to sell a given stock at a specified price during a designated time period.
E) Nnone of the above.

Question 8

An ETF (exchange traded fund)

A) is priced once a day at the opening of trading.
B) is priced once a day at the close of trading.
C) is priced continuously during the trading day.
D) is priced at the open and close of trading.
E) none of the above.

Question 9

All of the following are considered fixed income securities except

A) debentures.
B) Eurobonds.
C) preferred stock.
D) mutual funds.
E) Yankee bonds.

Question 10

An investor who purchases a call option:

A) has the right to buy a given stock at a specified price during a designated time period.
B) has the right to sell a given stock at a specified price during a designated time period.
C) has the obligation to buy a given stock at a specified price during a designated time period.
D) has the obligation to sell a given stock at a specified price during a designated time period.
E) none of the above.

Question 11

Senior secured bonds are

A) the most senior bonds in a firm's capital structure. b. bonds with the lowest risk of default.
C) bonds that are not backed by specific assets.
D) a and b.
E) a and c.

Question 12

An agreement that provides for the future delivery or receipt of an asset at a specified date for a specified price is a

A) Eurobonds contract.
B) futures contract.
C) put option contract.
D) call option contract.
E) warrant contract.

Question 13

In order to diversify risk an investor must have investments that have correlations with other investments in the portfolio that are

A) low positive.
B) zero.
C) negative.
D) any of the above.
E) none of the above.

Question 14

For a US based investor, a weaker dollar means that overall dollar based returns on overseas security investment will be higher because

A) a weaker dollar means that exports will rise.
B) a weaker dollar means that more foreign investors will by US securities.
C) a weaker dollar means that the foreign currency will convert to more dollars.
D) a weaker dollar means that more investors will purchase the foreign security.
E) none of the above.

Question 15

Rank the following four investments in increasing order of historical risk.

A) art, T-bills, corporate bonds, and common stock
B) T-bills, common stock, corporate bonds, art
C) corporate bonds, T-bills, common stock, art
D) common stock, corporate bonds, T-bills, art
E) T-bills, corporate bonds, common stock, art