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| 1 | |
Which one of the following statements is correct? |
| | A) | The total return on an investment is based solely on the return investors' expect to earn. |
| | B) | If an announcement is expected, the news contained in that announcement never affects the price of the stock to which it refers. |
| | C) | The market discounts information as soon as that information is expected. |
| | D) | Only news specifically about ABC stock will affect the price of ABC stock. |
| | E) | Whenever a firm announces quarterly earnings that reflect an increase from a prior period, the stock of that firm will increase in value. |
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| 2 | |
Which one of the following is most apt to cause the price of Toyland stock to decrease significantly? |
| | A) | a speech by the Federal Reserve Chairman wherein he states that holiday sales for the retail sector are running as predicted |
| | B) | an announcement by Toyland's CFO that the dividend this quarter will match expectations and increase by two percent over last quarter's dividend |
| | C) | a surprise announcement that the CFO of Toyland, who was disliked by Wall Street, has resigned |
| | D) | a written report by a respected Wall Street analyst that the growth rate of Toyland's sales is slowing more than anticipated previously |
| | E) | a news announcement that consumers' income rose sharply in the last quarter |
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| 3 | |
Which two of the following are most apt to be included in the expected part of a stock's return?
I. the seasonal effect of a company's sales
II. a fire at a firm's distribution center
III. the discovery of gold in a playground
IV. the passage of a new trade law increasing taxes on imported goods |
| | A) | I and II |
| | B) | III and IV |
| | C) | I and IV |
| | D) | II and III |
| | E) | I and III |
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| 4 | |
Which one of the following is the most essential if the actual return of a security is going to equal the security's expected return? |
| | A) | an unexpected return of zero |
| | B) | the lack of any news announcements concerning the company which issued the security |
| | C) | an inflation beta of zero |
| | D) | any news announcement related to the security's issuer must be unexpected |
| | E) | an expected return equal to the expected market return |
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| 5 | |
Risk can be defined as:
I. the actual return minus the expected return.
II. the surprise portion of an announcement.
III. both systematic and unsystematic.
IV. the discounted portion of an announcement. |
| | A) | I and IV only |
| | B) | II and III only |
| | C) | I, II, and III only |
| | D) | II, III, and IV only |
| | E) | I, II, III, and IV |
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| 6 | |
The risk of an investment is most related to the: |
| | A) | total return. |
| | B) | return anticipated by investors. |
| | C) | expected return. |
| | D) | surprise portion of an event. |
| | E) | announcement of the long-anticipated retirement of an executive. |
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| 7 | |
Which of the following terms refer to the same type of risk?
I. systematic
II. specific
III. idiosyncratic
IV. unsystematic |
| | A) | I and II only |
| | B) | III and IV only |
| | C) | I and III only |
| | D) | I, II, and III only |
| | E) | II, III, and IV only |
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| 8 | |
Which one of the following would generally be considered systematic risk? |
| | A) | an increase in employment by toy manufacturers |
| | B) | a decrease in the growth rate of the GDP |
| | C) | the loss of a key company executive |
| | D) | an increase in the price of a pain medication |
| | E) | a concession by a teacher's union |
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| 9 | |
Which one of the following is an example of unsystematic risk? |
| | A) | an increase in inflation |
| | B) | a reduction in the value of the dollar as compared to other key currencies |
| | C) | a decrease in interest rates by the Federal Reserve |
| | D) | a shortage of oil |
| | E) | a labor strike against a plastics firm |
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| 10 | |
Which one of the following defines unsystematic risk? |
| | A) | Ā + ε |
| | B) | ε + R |
| | C) | m + ε |
| | D) | U + m + ε |
| | E) | ε − r |
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