WorksheetsSecurity Market Indexes and Equity Quiz
Total questions: 19
Worksheet time: 29mins
Security market indexes are:
constructed and managed like a portfolio of securities.
simple interchangeable tools for measuring the returns of different asset classes.
valued on a regular basis using the actual market prices of the constituent securities.
Compared to the total return version of an index, the value of the price version of the index at inception is:
less than the value of the total return version.
equal to the value of the total return version.
greater than the value of the total return version.
When creating a security market index, an index provider must first determine the:
target market.
appropriate weighting method.
number of constituent securities.
The type of index weighting system in which a stock split on one constituent security changes the weights on all the securities in the index is:
price weighting.
equal weighting.
value weighting.
An equity fund manager is considering a market index as the benchmark for his portfolio, and has the following preferences: the index should have a contrarian effect; shares held by controlling shareholders should be included; dividends should be included in the weighting of constituent securities; and the weights of constituent securities should not be arbitrarily determined by the index provider. Which of the following weightings of indexes best meets the fund manager’s preferences?
Equal
Fundamental
Float-adjusted market capitalization
If the price return of an equal-weighted index exceeds that of a market-capitalization-weighted index comprised of the same securities, the most likely explanation is:
stock splits.
dividend distributions.
outperformance of small-market-capitalization stocks.
Rebalancing an index is the process of periodically adjusting the constituent:
securities’ weights to optimize investment performance.
securities to maintain consistency with the target market.
securities’ weights to maintain consistency with the index’s weighting method.
Security market indexes can be used to calculate alphas, which are best described as:
a measure of market sentiment.
the systematic risk of a security, using the index as a proxy for the entire market.
the difference between the return of the actively managed portfolio and the return of the passive portfolio.
Equity style indexes most likely represent groups of securities classified by:
geography and sector.
value and/or growth and market capitalization.
asset class and gross domestic product (GDP) weight.
Which of the following index types has the most significant potential to suffer from survivorship bias?
Hedge fund
Government bond
Broad equity market
Which of the following statements regarding fixed-income indexes is most accurate?
Liquidity issues make it difficult for investors to easily replicate fixed-income indexes.
Rebalancing and reconstitution are the only sources of turnover in fixed-income indexes.
Fixed-income indexes representing the same target market hold similar numbers of bonds.
Commodity index values are based on:
futures contract prices.
the market price of the specific commodity.
the average market price of a basket of similar commodities.
Common shares are riskier than preference shares because common shares:
have more uncertainty around future cash flows.
do not have a guaranteed return if a company is liquidated.
rank behind debt in the distribution of assets if a company is liquidated.
All of the following are characteristics of preference shares except:
They are either callable or putable.
They generally do not have voting rights.
They do not share in the operating performance of the company.
Statutory voting means that shareholders:
vote by proxy.
have one vote per share.
with a small number of shares are in a better position than in the case of cumulative voting.
Which of the following statements most accurately describes one difference between private and public equity firms?
Private equity firms are focused more on short-term results than public firms.
Private equity firms’ regulatory and investor relations operations are less costly than those of public firms.
Private equity firms are incentivized to be more open with investors about governance and compensation than public firms.
When investing in unsponsored depository receipts, the voting rights to the shares in the trust belong to:
the depository bank.
the investors in the depository receipts.
the issuer of the shares held in the trust.
A company that is required to raise equity capital to continue to operate as a going concern is most likely doing so to:
purchase long-lived assets.
fund capital expansion projects.
improve capital adequacy ratios.
Which of the following statements is least accurate in describing a company’s market value?
Management’s decisions do not influence the company’s market value.
Increases in book value may not be reflected in the company’s market value.
Market value reflects the collective and differing expectations of investors.
