Question

Q. As the time until a future sum is received increases, the present value will:
1. decrease.
2. remain the same.
3. increase.
Q. A benchmark index is reconstituted when the index:
1. list has changed.
2. constituents have stock splits.
3. security weights have changed.
Q. Direct investments allow investors to:
1. reduce risk by investing in mutual funds.
2. own limited partnership interests in venture capital funds.
3. choose when to buy or sell their investments to minimise their tax liabilities.
Q. The incremental satisfaction consumers get from each additional unit of consumption is subject to the law of:
1. supply.
2. demand.
3. diminishing marginal utility.
Q. Which of the following institutional investors most likely must spend a target percentage of the portfolio annually?
1. Endowments
2. Life insurance firms
3. Property and casualty insurance firms
Q. A bank may require collateral to limit its exposure to:
1. credit risk.
2. market risk.
3. compliance risk.
Q. A bond manager uses the S&P 500 Index as a performance benchmark. The manager’s benchmark violates the criterion of:
1. clarity.
2. investability.
3. compatibility.
Q. One of the functions of internal auditors in the risk management process is to:
1. identify key risk measures.
2. establish internal risk limits.
3. advise on how to improve risk management, controls, and efficiency.
Q. One of the properties of key risk measures is that they:
1. are consistent among industries.
2. give warnings when risk levels are rising.
3. limit the amount of risky securities that can be held.
Q. Which of the following economic measures will most likely increase as a result of a general increase in the price of goods produced in a country?
1. Real GDP
2. Nominal GDP
3. Constant dollar GDP
Q. Protecting consumers of financial products from abusive practices is a goal of:
1. regulation.
2. fiscal policy.
3. capital markets.
Q. Higher level executives of an investment firm can be disciplined for the regulatory violations of lower level employees:
1. by monetary fines only.
2. due to failure to properly supervise.
3. only when criminal conduct is involved.
Q. A property of a document is that it:
1. is always standardised.
2. represents an official record.
3. exists only in written or printed form.
Q. Letters, memos and emails are best described as examples of:
1. policy documents.
2. ad hoc documents.
3. standardised documents.
Q. A register can be described as an internal document that:
1. describes an organisation’s mission, values and objectives.
2. articulates business relationships and obligations undertaken by parties.
3. contains obligations, past actions, and future or outstanding requirements.
Q. The average compound return earned per year over a multi-year period is known as the:
1. arithmetic mean return.
2. geometric average return.
3. normal distribution of returns.
Q. Standard deviation measures the:
1. average return.
2. frequency of negative returns.
3. volatility of the security’s return.
Q. Performance attribution on an active portfolio strategy is designed to:
1. measure the levels of risk within a portfolio.
2. assess from where a fund manager's performance was derived.
3. measure how well a fund manager is performing relative to an expected return.
Q. An investor holding a short position in a maturing futures contract may:
1. have to deliver the underlying asset to the holder of the long position.
2. exercise the option to sell the asset to the holder of the long position.
3. take delivery of the underlying asset from the holder of the long position.
Q. The coupon rate on a callable bond compared to an otherwise identical non-callable bond would most likely be:
1. lower.
2. equal.
3. higher.
Q. The discount rate that equates the present value of a bond's future cash flows to its market price represents the bond's:
1. yield curve.
2. current yield.
3. yield to maturity.
Q. All else being equal, which bonds typically have the widest credit spreads?
1. A-rated corporate bonds
2. AA-rated corporate bonds
3. AAA-rated corporate bonds
Q. Which of the following types of funds sells shares to the public in an initial public offering?
1. Closed-end funds
2. Exchange-traded funds
3. Open-end mutual funds
Q. Alpha is best measured by which of the following?
1. Market risk
2. A factor model
3. Peer-group benchmarks

Answer 1

Answer:

1. decrease

3. security weights have changed.

Answer 2

Answer:

1. decrease.

2. list has changed.

3. reduce risk by investing in mutual funds.

4. diminishing marginal utility.

5. Property and casualty insurance firms.

6. credit risk.

7. clarity.

8. to advise on how to improve risk management, controls, and efficiency.

9. give warnings when risk levels are rising.

10. Constant dollar GDP

11.  regulation.

12. by monetary fines only.

13. represents an official record.

14. describes an organization's mission, values and objectives.

15. average return.

16. measure how well a fund manager is performing relative to an expected return.

17. take delivery of the underlying asset from the holder of the long position.

18. higher.

19. yield to maturity.

20. A-rated corporate bonds.

21. Closed-end funds

22. Market risk.

Explanation:

1. Future inflation is also typically a possibility, which typically results in a decline in the purchasing power of the currency over time.
2. Stock splits occur among constituents. Weights for security have changed.
3. These funds carry less risk than stock plans do. However, there are little prospects for capital growth in such products.
4. According to the law of declining marginal utility, when consumption rises, the marginal utility gained from each extra unit decreases, all other things being equal.
5. Institutional investors have more sway on the market and the businesses they choose to invest in.
6. By selling loans directly or through loan securitization, banks are also able to control the credit risk associated with their loans.
7. The S&P 500 Index serves as a performance standard for bond managers. The manager's benchmark disregards Clark's criterion.
8. An independent, unbiased assurance and consulting activity is internal auditing. Its primary responsibility with reference to ERM is to give the board unbiased assurance about the effectiveness of risk management.
9. They call for the gathering and assembling of information from numerous internal and external sources.
10. The word "current dollars" refers to an individual's, a household's, or a family's income in the given year.
11. The act of controlling, or a law, rule, or order, is known as regulation. The restriction on tobacco sales is one example of a regulation. An example of a regulation is a legislation that forbids the sale of alcohol in particular locations.
12. Only monetary fines can be used as a form of discipline against higher level executives of an investment firm who violate regulations.
13. Document properties, commonly referred to as metadata, are informational elements that identify or characterize a file.
14. Memo is a brief message prepared in an informal style for information sharing among offices. A kind of verbal communication is the letter. A language's register is its degree of formality, which is governed by the situation in which it is spoken or written.
15. The geometric average return is the annual compound return that is on average earned over a number of years.
16. It reveals how much data can diverge from the investment's historical mean return. Menchero (2000) stated that the goal of performance attribution is to identify the sources of excess return, explain portfolio performance in relation to a benchmark, and link these sources to the active decisions made by the portfolio manager.
17. Delivery is mandatory for all stock F&O contracts on Indian exchanges.
18. A callable bond would generally have a higher coupon rate than an otherwise comparable non-callable bond.
19. The discount rate that compares the present value of future cash flows to the initial investment is known as the IRR for a project.
20. Credit spreads between U.S. Treasuries and other bond issuances are expressed in basis points, with a spread of 100 basis points representing a yield difference of 1%.
21. In contrast to mutual funds, which continuously sell shares, closed-end funds sell a certain number of shares during an IPO.
22. Market risk is the danger brought on by changes in commodity prices, interest rates, stock prices, and currency rates.

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