Investment Analysis and Portfolio Management Review
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Course Introduction
Investment Analysis and Portfolio Management explores the fundamental concepts and tools necessary to evaluate investment opportunities and construct diversified portfolios in various financial markets. The course covers topics such as risk and return analysis, asset allocation, security valuation, portfolio theory, and performance measurement. Students will learn to apply quantitative techniques, analyze financial statements, assess economic indicators, and implement portfolio strategies aimed at maximizing returns while managing risks. Emphasis is placed on both theoretical frameworks and real-world applications, equipping students with practical skills for effective decision-making in investment management.
Recommended Textbook
Corporate Finance Asia 1st Global Edition by Stephen Ross
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16 Chapters
1174 Verified Questions
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Page 2
Chapter 1: Introduction to Corporate Finance
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Sample Questions
Q1) Assume for a moment that the stockholders in a corporation have unlimited liability for corporate debts.If so,what impact would this have on the functioning of primary and secondary markets for common stock?
Answer: With unlimited liability,you would be very careful which stocks you invest in.In particular,you would not invest in companies you expected to be unable to satisfy their financial obligations.Both the primary and secondary markets for common stock would be severely hampered if this rule existed.It would be very difficult for a young,untested business to acquire enough capital to grow.
Q2) The primary goal of financial management is to:
A)maximize current dividends per share of the existing stock.
B)maximize the current value per share of the existing stock.
C)avoid financial distress.
D)minimize operational costs and maximize firm efficiency.
E)maintain steady growth in both sales and net earnings.
Answer: B
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3
Chapter 2: Financial Statements and Cash Flow
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Sample Questions
Q1) Your firm has net income of $198 on total sales of $1,200.Costs are $715 and depreciation is $145.The tax rate is 34%.The firm does not have interest expenses.What is the operating cash flow?
A)$93
B)$241
C)$340
D)$383
E)$485
Answer: D
Q2) Mart's Boutique has sales of $670,000 and costs of $460,000.Interest expense is $50,000 and depreciation is $55,000.The tax rate is 34%.What is the net income?
A)$35,700
B)$69,300
C)$105,000
D)$138,600
E)$210,000
Answer: B
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Chapter 3: Financial Statements Analysis and Long-Term Planning
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Sample Questions
Q1) Syed's Industries has accounts receivable of $700,inventory of $1,200,sales of $4,200,and cost of goods sold of $3,500.How long does it take Syed's to both sell its inventory and then collect the payment on the sale?
A)110 days
B)131 days
C)145 days
D)186 days
E)210 days
Answer: D
Q2) A firm has sales of $4,000,costs of $3,000,interest paid of $100,and depreciation of $400.The tax rate is 34%.What is the value of the cash coverage ratio?
A)3
B)4
C)6
D)7
E)10
Answer: E
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Chapter 5: Net Present Value and Other Investment Rules
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Sample Questions
Q1) The problem of multiple IRRs can occur when:
A)there is only one sign change in the cash flows.
B)the first cash flow is always positive.
C)the cash flows decline over the life of the project.
D)there is more than one sign change in the cash flows.
E)None of the above.
Q2) The length of time required for a project's discounted cash flows to equal the initial cost of the project is called the:
A)net present value.
B)internal rate of return.
C)payback period.
D)discounted profitability index.
E)discounted payback period.
Q3) The profitability index is the ratio of:
A)average net income to average investment.
B)internal rate of return to current market interest rate.
C)net present value of cash flows to internal rate of return.
D)net present value of cash flows to return on equity.
E)present value of cash flows to initial investment cost.
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Page 6
Chapter 8: Interest Rates and Bond Valuation
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Sample Questions
Q1) The yield to maturity is:
A)the rate that equates the price of the bond with the discounted cash flows.
B)the expected rate to be earned if held to maturity.
C)the rate that is used to determine the market price of the bond.
D)equal to the current yield for bonds priced at par.
E)All of the above.
Q2) A bond that pays interest annually yields a 7.25% rate of return.The inflation rate for the same period is 3.5%.What is the real rate of return on this bond?
A)3.50%
B)3.57%
C)3.62%
D)3.72%
E)3.75%
Q3) The annual coupon of a bond divided by its face value is called the bond's:
A)coupon.
B)face value.
C)maturity.
D)yield to maturity.
E)coupon rate.
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Page 7
Chapter 10: Risk and Return: Lessons From Market History
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Sample Questions
Q1) Over the past five years,a stock produced returns of 14%,22%,-16%,2%,and 10%.What is the probability that an investor in this stock will NOT lose more than 8% nor earn more than 21% in any one given year?
A)34%
B)68%
C)95%
D)99%
E)100%
Q2) Kids Toy Co.has had total returns over the past five years of 0%,7%,-2%,10%,and 12%.What was the arithmetic average return on this stock?
A)5.40%
B)5.50%
C)6.15%
D)6.33%
E)6.75%
Q3) Little John Industries sold for $1.90 on January 1 and ended the year at a price of $2.50.In addition,the stock paid dividends of $0.20 per share.Calculate Little John's dividend yield,capital gains yield,and total rate of return for the year.
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Chapter 11: Return and Risk: the Capital Asset Pricing Model
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Sample Questions
Q1) In the first chapter,it was stated that financial managers should act to maximize shareholder wealth.Why are the efficient markets hypothesis (EMH),the CAPM,and the SML so important in the accomplishment of this objective?
Q2) As we add more securities to a portfolio,the ____ will decrease:
A)total risk.
B)systematic risk.
C)unsystematic risk.
D)economic risk.
E)standard error.
Q3) When computing the expected return on a portfolio of stocks the portfolio weights are based on the:
A)number of shares owned in each stock.
B)price per share of each stock.
C)market value of the total shares held in each stock.
D)original amount invested in each stock.
E)cost per share of each stock held.
Q4) Explain in words what beta is and why it is important.
Q5) Why are some risks diversifiable and some nondiversifiable? Give an example of each.
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Chapter 12: An Alternative View of Risk and Return: the Arbitrage Pricing Theory
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Sample Questions
Q1) For a diversified portfolio including a large number of stocks,the:
A)weighted average expected return goes to zero.
B)weighted average of the betas goes to zero.
C)weighted average of the unsystematic risk goes to zero.
D)return of the portfolio goes to zero.
E)return on the portfolio equals the risk-free rate.
Q2) The systematic response coefficient for productivity,\(\beta\)<sub>p</sub>,would produce an unexpected change in any security return of __ \(\beta\)<sub>P</sub><sub> </sub>if the expected rate of productivity was 1.5% and the actual rate was 2.25%.
A)0.75%
B)-0.75%
C)2.25%
D)-2.25%
E)1.5%
Q3) You have a 3 factor model to explain returns.Explain what a factor represents in the context of the APT? Each factor is multiplied by a beta.What do these represent and how do they relate to the actual return?
Q4) Discuss the Fama-French three factor model;both what it means and the factors of the model.
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Chapter 14: Efficient Capital Markets and Behavioral Challenges
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Sample Questions
Q1) The hypothesis that market prices reflect all available information of every kind is called _____ form efficiency.
A)open
B)strong
C)semistrong
D)weak
E)stable
Q2) According to theory,studying historical prices in order to identify mispriced stocks will not work in markets that are _____ efficient.
I.weak form
II.semistrong form
III.strong form
A)I only
B)II only
C)I and II only
D)II and III only
E)I,II,and III
Q3) Why should a financial decision maker such as a corporate treasurer or CFO be concerned with market efficiency?
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Chapter 15: Long-Term Financing: an Introduction
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Sample Questions
Q1) The amount of loan a person or firm borrows from a lender is the:
A)creditor.
B)indenture.
C)debenture.
D)principal.
E)amortization.
Q2) If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.
A)proxy fight
B)stockholder derivative action
C)tender offer
D)vote of confidence
E)None of the above.
Q3) If a debenture is subordinated,it:
A)has a higher priority status than specified creditors.
B)is secondary to equity.
C)must give preference to the specified creditor in the event of default.
D)has been issued because the company is in default.
E)None of the above.
Q4) From this information,calculate Eaton's book value per share.
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Chapter 20: Raising Capital
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Sample Questions
Q1) A firm commitment arrangement with an investment banker occurs when:
A)the syndicate is in place to handle the issue.
B)the spread between the buying and selling price is less than one percent.
C)the issue is solidly accepted in the market evidenced by a large price increase.
D)when the investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them.
E)when the investment banker sells as much of the security as the market can bear without a price decrease.
Q2) Under the _____ method,the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue,while under the _____ method,the underwriter does not purchase the shares but merely acts as an agent.
A)best efforts;firm commitment
B)firm commitment;best efforts
C)general cash offer;best efforts
D)competitive offer;negotiated offer
E)seasoned;unseasoned
Q3) Discuss the stages of venture capital financing,defining each in detail.
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Page 13
Chapter 22: Options and Corporate Finance
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Sample Questions
Q1) Assume that you own both a May 40 put and a May 40 call on ABC stock.Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.
A)An increase in the stock price will increase the value of your put and decrease the value of your call.
B)Both a May 45 put and a May 45 call will have higher values than your May 40 options.
C)The time premiums on both your put and call are less than the time premiums on equivalent June options.
D)A decrease in the stock price will decrease the value of both of your options.
E)You cannot profit on your position as your profits on one option will be offset by losses on the other option.
Q2) What are the upper and lower bounds for an American call option? Explain what would happen in each case if the bound was violated.
Q3) How do options apply to capital budgeting? Explain and give an example.
Q4) Explain the rationale behind the statement that equity is a call option on the firm's assets.When would a shareholder allow the call to expire?
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Page 14
Chapter 23: Options and Corporate Finance: Extensions and Applications
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Sample Questions
Q1) By rewarding executives with large option positions,corporations:
A)cause the executives to hold highly undiversified portfolios.
B)put the firm in a risky position to pay off the options.
C)cause the value of the stock to fall because the options are theft.
D)are really valueless because most options are never exercised.
E)None of the above.
Q2) What is the value of a call option?
A)$4.14
B)$4.86
C)$5.13
D)$5.62
E)$6.16
Q3) What is the value of Mr.Maxim's options?
Q4) Calculate N(d<sub>2</sub>).
A).5130
B).5578
C).6085
D).7085
E).7142
Q5) Why would the company pay the executive in options as opposed to salary?
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Chapter 24: Warrants and Convertibles
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Sample Questions
Q1) What is the conversion price?
A)$25.00
B)$33.33
C)$35.00
D)$1,000.00
E)No conversion premium is given.
Q2) The exercise of warrants creates new shares which:
A)increases the total number of shares but does not affect share value.
B)increases the total number of shares which can reduce an individual share value.
C)does not change the number of shares outstanding,similar to options.
D)increases share value because cash is paid into the firm at the time of warrant exercise.
E)None of the above.
Q3) Why are warrants and convertibles issued?
Q4) Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?
Q5) Illustrate and explain how a convertible bond value is based on both debt and equity value.What is the option value?
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Chapter 25: Derivatives and Hedging Risk
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Sample Questions
Q1) On March 1,you contract to take delivery of 1 ounce of gold for $415.The agreement is good for any day up to April 1.Throughout March,the price of gold hit a low of $385 and hit a high of $435.The price settled on March 31 at $420,and on April 1<sup>st</sup> you settle your futures agreement at that price.Your net cash flow is:
A)-$30.
B)-$20.
C)-$15.
D)$5.
E)$20.
Q2) What new asset duration will immunize the balance sheet?
Q3) Which of the following terms is not part of a forward contract?
A)Making delivery
B)Taking delivery
C)Delivery instrument
D)Cash transaction
E)None of the above.
Q4) Calculate the duration of Tiger State Bank's assets and liabilities.
Q5) The futures markets are labeled as pure speculation and even gambling.Why is this an inaccurate portrayal of the market's function?
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Chapter 31: International Corporate Finance
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Sample Questions
Q1) Suppose that the one-year forward rate on pounds is $1.75£.Given no arbitrage opportunities,this implies that traders expect:
A)the spot rate to be $1.75£ in one year.
B)the spot rate to be greater than $1.75£ in one year.
C)the spot rate to be less than $1.75£ in one year.
D)the spot rate to be greater than or equal to $1.75£ in one year.
E)the spot rate to be less than or equal to $1.75£ in one year.
Q2) Remitting cash flows is a term used to describe:
A)cash flows earned in a foreign country.
B)moving cash flows from the foreign subsidiary to the parent firm.
C)forecasting the value of foreign currency one-year hence.
D)forecasting the value of U.S.currency one-year hence.
E)None of the above.
Q3) How well do you think relative purchasing power parity and uncovered interest parity behave? That is,do you think it's possible to forecast the expected future spot exchange rate accurately? What complications might you run into?
Q4) Are exchange rate changes between the U.S.dollar and the Japanese yen necessarily good or bad for Japanese automakers? Explain your reasoning.
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Page 18