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WorksheetsFINAL EXAMINATION IN CAPITAL MARKET
Total questions: 50
Worksheet time: 25mins
1. The SEC was created primarily to:
Support banks in lending
Protect investors and maintain fair markets
Replace the role of the PSE
Manage government funds
A company has a primary SEC registration. Which statement is TRUE?
It can automatically sell securities
It automatically has authority to accept investments
It has juridical personality but still needs specific licenses for investment activities
It is guaranteed legitimate
The 1929 stock market crash led to the establishment of the SEC to prevent:
Tax evasion
Inflation
Fraud and unfair market practices
International trading
Which best describes the PSE?
A government office regulating corporate registration
A private lending institution
An investment advisory firm
A self-regulatory organization providing a centralized securities marketplace
If an investor receives “inside information” claiming guaranteed profits, which action aligns with SEC’s Do's and Don’ts?
Report or ignore the suspicious tip
Immediately buy stocks
Share the information with friends
Ask for more sensitive company data
A person offers you an investment through “recruiting five downlines.” What type of scheme does this likely represent?
Pyramid scheme
Mutual fund
Stock trading
Government bond
What should an investor review before committing to a large investment?
A flyer
A prospectus or offering circular
Social media posts about the company
Testimonials from friends
Which scenario reflects the SEC’s goal of ensuring fair markets?
Allowing companies to hide financial losses
Monitoring brokers to prevent market manipulation
Giving investment advice to traders
Promoting insider trading
A broker pressures you to invest immediately saying "tomorrow will be too late." What does SEC advise?
Accept the offer immediately
Compare with other schemes
Ask how many people already joined
Ignore pressure and take time to think
Why should investors be cautious of “too good to be true” offers?
Legitimate investments always take long to profit
SEC prohibits all types of high returns
They often indicate scams or fraudulent schemes
They are taxed higher
Interest rate is defined as:
The total amount of money borrowed
The percentage charged for the use of money
The number of loans granted per year
A penalty fee imposed by banks
Nominal interest rate refers to:
The actual stated interest rate on a loan or bond
Interest rate adjusted for inflation
The profit rate of a company
The rate set by borrowers
Real interest rate is best defined as:
The amount lenders want to receive daily
The interest rate set by banks only
The minimum interest a company must charge
Nominal interest rate adjusted for inflation
When interest rates increase, the demand for money generally:
Increases
Remains constant
Decreases
Doubles
When interest rates fall, the velocity of money typically:
Increases
Decreases
Becomes negative
Has no effect
Higher prices lead consumers to demand:
Less money
No money
Fixed amount of money
More money
A businessman holding cash to buy stocks during a price drop reflects which demand?
Transaction demand
Speculative demand
Precautionary demand
Automatic demand
Keeping money to pay bills such as electricity or tuition is part of:
Transaction demand
Speculative demand
Precautionary demand
Liquidity preference
Holding money for emergencies like sickness represents:
Speculative demand
Transaction demand
Precautionary demand
Liquidity preference
If interest rate increases, which combination is correct?
Money demand increases; velocity decreases
Money demand decreases; velocity increases
Money demand and velocity both increase
Money demand increases; prices increase
Which scenario reflects high velocity of money?
People hold cash longer
Banks freeze deposits
Prices remain unchanged
Consumers spend money quickly
Markowitz theory identifies a set of optimal portfolios known as the:
Capital market line
Efficient frontier
Security market line
Minimum-beta line
The market portfolio contains:
Only risk-free assets
Only government securities
All risky assets weighted by market value
Only high-risk stocks
Which type of risk cannot be diversified away?
Unsystematic risk
Idiosyncratic risk
Firm-specific risk
Systematic risk
Which assumption is part of Capital Market Theory?
Investors have different expectations
Transaction costs exist
Investors have homogeneous expectations
Assets cannot be divided
A portfolio lying below the efficient frontier is considered:
Optimal
Inefficient
Risk-free
Overpriced
The market is in equilibrium when:
Assets are mispriced
All investments are equally risky
All assets are correctly priced according to risk
Investors borrow at different rates
The efficient frontier consists of portfolios that provide:
The highest risk for any return
The lowest return for any risk
The maximum return for a given level of risk
Risk-free investments only
In capital market theory, investors can borrow or lend at:
Any interest rate
The market return
The risk-free rate
The inflation rate
The amount repaid to a bondholder at maturity is called:
Coupon value
Market value
Dividend
Face value
Which investment provides stability and fixed income?
Stocks
Bonds
Futures
Options
Which type of stock has fixed dividends and usually no voting rights?
Common Stock
Preferred Stock
Government Stock
Convertible Stock
In Weak Form Efficiency, which analysis is considered ineffective?
Both A and B
Fundamental Analysis
Technical Analysis
Insider Trading
Why do investors combine stocks and bonds in a portfolio?
To increase volatility
To reduce risk and smooth returns
To eliminate taxes
To avoid regulations
Which entity often issues municipal bonds?
Local governments or cities
Corporations
National governments
Foreign investors
Which form of efficiency states that even insider information is reflected in prices?
Weak form
Semi-strong form
Strong form
Traditional form
Which bond can be exchanged for a predetermined number of shares?
Municipal bond
High-yield bond
Zero-coupon bond
Convertible bond
A bond is best described as:
Ownership in a corporation
A share in company profits
A loan made by an investor to an issuer
A type of derivative
According to the Efficient Market Theory, stock prices reflect:
Only past information
Only insider information
All available information
Only investor sentiment
Which statement best describes insider trading?
Buying stocks based on rumors
Buying or selling stock using non-public, material information
Buying stocks using borrowed money
Selling stocks during a market crash
Which refers to spreading false negative information to lower a stock price?
Pump and dump
Tailgating
Trash and cash
Boiler room
A wash sale is a transaction where:
Ownership does not genuinely change
Stocks are exchanged for goods
Stocks are sold by force
Shares are purchased using insider tips
An adviser purchases shares right after recommending them to a client. This is:
Front running
Tailgating
Ghosting
Overtrading
A group attempts to drop a stock’s price by posting fake bankruptcy rumors on online forums. Their goal is to buy shares cheaply once the price collapses. Which best describes this situation?
Spreading false information
Tailgating
Touting
Concealing ownership
A broker learns confidentially that his client intends to sell a large block of shares, likely pushing prices down. Before selling the client’s shares, he sells his own first to avoid losses. This scenario is an example of:
Concealing ownership
Front running
Touting
Tailgating
An investor buys shares, then initiates a large social-media campaign spreading unverified good news about a company to artificially boost its value. He does this despite having no factual basis for the claims. This is BEST described as:
Long and Distort
Pump and Dump
Scalping
Trash and Cash
A trader spreads unverified negative rumors about a stock while simultaneously selling small batches of shares to trigger fear in the market. However, the main goal is to push prices down so he can buy the stock cheaply later. This misconduct is:
Short and Distort
Trash and Cash
Stock Basher
False Market
Which of the following best describes Short and Extort?
Short sellers borrow shares and immediately return them to the broker.
Traders artificially pump up a stock price to sell at a profit.
Investors intentionally spread positive rumors to raise stock prices.
Short sellers demand money or free shares in exchange for stopping their short-selling activities.
What is the term when traders place limit orders and cancel them almost immediately to mislead other market participants?
Pump and Dump
Spoofing
Laddering
Wash Sales
Another term for Overtrading, where brokers excessively trade to earn more commissions, is:
Churning
Front-running
Scalping
Price rigging
