Ace Institute of Management

MBAe, Portfolio Management and Security Analysis

Quiz

Time: 20 mins

1. What is the expected return of a zero-beta security?

a) Market Return
b) Risk free rate of return
c) Market return minus Risk free return
d) Market return plus risk free return
e) None of the above

2. Which of the following would NOT improve the current ratio?

a) Borrow short term to finance a additional fixed asses
b) Issue Long Term debt to buy inventory
c) Sell common stock to reduce current liabilities
a) Sell fixed assets to reduce accounts payable

3. If a bond sells at a high premium, then which of the following relationships hold true? (P 0 represents the price of a
bond and YTM is the bond's yield to maturity.)
a) P0 < par and YTM > the coupon rate.
b) P0 > par and YTM > the coupon rate.
c) P0 > par and YTM < the coupon rate.
d) P0 < par and YTM < the coupon rate

4. What is the return of the security with beta equal to one ?

a) Market Return
b) Risk free rate of return
c) Market return minus Risk free return
d) Market return plus risk free return
e) None of the above

5. Which one is more secured in terms of default risk?

a) Treasury Bill
b) Government Bond
c) Corporate Bond
d) Commercial Paper

6. The distribution of rates of return for securities X and Y are given below:
State of the Probability of
Economy Occurrence X Y
Boom 0.20 10% –10%
Normal 0.60 5% 5%
Recession 0.20 0% 50%

We can conclude from the above information that security X will reduce the riskiness of a well-diversified
portfolio more than security Y
a)True
b) False

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7. For any given stock, which of the following must be true ?
a) Market value  book value  par value
b) Book value  market value  par value
c) Par value  market value  book value
d) Par value = book value  market value
e) None of the above must be true

8. An "aggressive" common stock would have a "beta"

a) equal to zero.
b) greater than one.
c) equal to one.
d) less than one.

9. This type of risk is avoidable through proper diversification.

a) portfolio risk
b) systematic risk
c) unsystematic risk
d) total risk

10. A measure of "risk per unit of expected return."

a) standard deviation
b) coefficient of variation
c) correlation coefficient
d) beta

11. The greater the beta, the ______ of the security involved. (fill up the gap with correct option)
a) greater the unavoidable risk
b) greater the avoidable risk
c) less the unavoidable risk
d) less the avoidable risk

12. A share with a higher than the average rate of return for the same risk is…?

a) Undervalued
b) Overvalued
c) Valued correctly

13. Shareholders require a return of 12%. Actual return on equity is 13%. What is the relation between market
and book values of equity?

a) Market value < book value

b) Market value > book value
c) Market value = book value

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