Question 1

Classical security analysis is sometimes called
A) ABC analysis
B) EIC analysis
C) GBY analysis
D) CPI analysis

Accepted Answer

Classical security analysis is often referred to as EIC analysis, which stands for Economy, Industry, and Company analysis. This approach involves analyzing the economic environment, the specific industry, and the individual company to make investment decisions.

Question 2

The modern trend in investments is to ______ security analysis and ______ portfolio management.
A) emphasize, emphasize
B) emphasize, de-emphasize
C) de-emphasize, emphasize
D) de-emphasize, de-emphasize

Accepted Answer

The modern trend in investments is to de-emphasize security analysis due to the rise of passive investing and index funds, while emphasizing portfolio management to achieve diversification and risk management.

Question 3

Portfolio management is primarily concerned with
A) increasing return
B) reducing risk
C) predicting the future
D) explaining the past

Accepted Answer

B

Question 4

Most of the academic literature of the past two decades has supported the
A) arbitrage pricing theory
B) benefits of high PE stocks
C) usefulness of stock charts
D) efficient markets paradigm

Accepted Answer

The efficient markets paradigm has been widely supported in academic literature, suggesting that stock prices reflect all available information, making it difficult to consistently achieve higher returns than the overall market.

Question 5

"The lower the dispersion in returns, the greater the accumulated value of otherwise equal investments." This statement is
A) true
B) false
C) true for the short run, but not necessarily true for the long run
D) true for the long run, but not necessarily true for the short run

Accepted Answer

Lower dispersion in returns implies less volatility, which generally leads to a more predictable and stable growth in investment value over time, resulting in a greater accumulated value.

Question 6

______ is cheap in the investment business.
A) Risk
B) Return
C) Time
D) Talk

Accepted Answer

Talk is often considered cheap in the investment business because it is easy to make predictions or give advice without any real accountability or cost.

Question 7

Which of the following is a key concept in finance?
A) A dollar today is worth more than a dollar tomorrow
B) Regardless of anything else, the higher the stock price, the better
C) Regardless of anything else, the lower the risk, the better
D) Risk averse people will not take a risk

Accepted Answer

The concept of the time value of money states that a dollar today is worth more than a dollar tomorrow due to its potential earning capacity.

Question 8

Understanding ______ is essential to bond portfolio management.
A) convexity
B) duration
C) semi-variance
D) bond betas

Accepted Answer

Duration measures the sensitivity of a bond's price to changes in interest rates. It is an essential concept in bond portfolio management because it allows investors to manage the risk of their portfolios.

Question 9

According to the book, the first step in portfolio management is
A) setting portfolio objectives
B) formulating an investment strategy
C) learning the basic principles of finance
D) having a game plan for portfolio revision

Accepted Answer

The answer of According to the book, the first step...

Question 10

A portfolio should have both ______ and ______ objective.
A) a short term, a long term
B) a primary, a secondary
C) an initial, a final
D) an explicit, an implicit

Accepted Answer

A portfolio should have a primary objective, which is the main goal, and a secondary objective, which supports or complements the primary goal.

Question 11

One of the most consequential bits of academic research regarding portfolio construction is a paper by
A) Evans and Archer
B) Andrew and McLaughlin
C) Lawrence and Philippatos
D) Miles and Ezzell

Accepted Answer

The paper by Evans and Archer is well-known for its contribution to the understanding of portfolio diversification and the reduction of risk through the addition of more securities.

Question 12

______ is a topic in this textbook that most others omit.
A) Real estate
B) Security screening
C) Performance evaluation
D) Principles of the futures market

Accepted Answer

Security screening is a topic that most other textbooks omit.

Question 13

Real assets discussed in this book include
A) art
B) rare coins
C) timberland
D) diamonds

Accepted Answer

The answer of Real assets discussed in this book include
A)...

Question 14

Which of the following is a popular means of increasing income from a portfolio?
A) Selling bonds
B) Selling stock short
C) Buying put options
D) Option overwriting

Accepted Answer

Option overwriting involves selling call options on securities already held in a portfolio, generating additional income through the premiums received from the options sold.

Question 15

Portfolio protection was called ______ until the stock market crash in 1987.
A) portfolio insurance
B) portfolio hedging
C) dynamic hedging
D) arbitrage

Accepted Answer

Portfolio protection was commonly referred to as "portfolio insurance" before the 1987 stock market crash, which involved strategies to limit losses in a declining market.

Question 16

In this text, the chapter on contemporary issues includes all of the following except
A) tactical asset allocation
B) stock lending
C) program trading
D) put-call parity

Accepted Answer

Put-call parity is a concept related to options pricing and is not typically considered a contemporary issue in the context of asset management or trading strategies.

Question 17

A stock is a good investment if the company is
A) well-run
B) in a growing industry
C) poorly run but the stock is underpriced
D) extremely popular among investors

Accepted Answer

The answer of A stock is a good investment if...

Question 18

As an introduction, the two key concepts in finance are
A) buy low and sell high
B) the time value of money and adjustment for risk
C) be patient, but strike when the time is right
D) manage earnings and save judiciously

Accepted Answer

The time value of money and adjustment for risk are two key concepts in finance. The time value of money refers to the idea that money today is worth more than money in the future, due to the potential for earning interest or returns. Adjustment for risk refers to the idea that investments with higher risk should have higher expected returns.

Question 19

According to Chapter 1, should investors invest in stocks today?
A) Yes, because it can be a costly decision to try to time the market
B) Yes, because the economy looks good now
C) No, because the market is too high now
D) No, because the market is too volatile now

Accepted Answer

Timing the market can be challenging and costly, so investing in stocks today is generally recommended for long-term growth, regardless of current market conditions.

Quiz 1: The Process of Portfolio Management

Classical security analysis is sometimes called

The modern trend in investments is to security analysis and portfolio management.

Portfolio management is primarily concerned with

Most of the academic literature of the past two decades has supported the

"The lower the dispersion in returns, the greater the accumulated value of otherwise equal investments." This statement is

______ is cheap in the investment business.

Which of the following is a key concept in finance?

Understanding ______ is essential to bond portfolio management.

According to the book, the first step in portfolio management is

A portfolio should have both and objective.

One of the most consequential bits of academic research regarding portfolio construction is a paper by

______ is a topic in this textbook that most others omit.

Real assets discussed in this book include

Which of the following is a popular means of increasing income from a portfolio?

Portfolio protection was called ______ until the stock market crash in 1987.

In this text, the chapter on contemporary issues includes all of the following except

A stock is a good investment if the company is

As an introduction, the two key concepts in finance are

According to Chapter 1, should investors invest in stocks today?