First Exam Investment and Portfolio Management

Under the strong form of efficiency stock prices are assumed to reflect any information that may be contained in the past history of the stock prices.

• True

• False

The income objectives differ from stability of principal in that; there is no specific prescription against declines in principal values.

• True

• False

Arbitrage Price Theory was proposed by Stephen S. Rose and presented in his article ‘The arbitrage theory of Capital Asset Pricing’, published in Journal of Economic Theory in1976.

• True

• False

Market efficiency means that the price which investor is paying for financial asset (stock, bond, other security) partially reflects fair or true information about the intrinsic value of this specific asset or fairly describes the value of the company, the issuer of this security.

• True

• False

Capital market is efficient, if the prices of securities which are traded in the market react to the changes of situation immediately, fully and credibly reflect all the important information about the security’s future income and risk-related with generating this income.

• True

• False

Which one of the following types of securities has no priority in a bankruptcy proceeding?

• Convertible bond

  
  

  
  

• Senior debt

• Common stock

• Preferred stock

• Straight bond

What is the market called that allows shareholders to resell their shares to other investors?

• Primary

• Proxy

• Secondary

• Inside

• Initial

Which statement about common stockholders is incorrect?

• Common stockholders have a residual claim on the firm’s cash flows.

• Common stockholders have first claim on the firm’s assets during bankruptcy

• Common stockholders have a voting right.

• Common stockholders are the ultimate owners of a corporation.

Why is compound interest more advantageous than simple interest?

• It’s more difficult to calculate, so fewer people use compound interest, making more profits for those who do.
• Compound interest accumulates very rapidly, so you only have to save for 3 years or fewer to earn far more money.
• Compound interest is attached to the stocks with the highest risk, so you get the highest interest on them
• In compound interest, you earn interest on not only your principal, but also on the interest you’ve already made.

Rule of 72:  How many years to double my money if I get a 9% return on investment? 

• 8 years
• 7.2 year
• 7 years
• 9 years