Risk Management Exam Practice Tests
Course Introduction
Risk Management introduces students to the foundational principles and practices involved in identifying, assessing, and mitigating risks within organizations. The course explores both qualitative and quantitative risk assessment techniques, encompassing financial, operational, strategic, and reputational risks. Students will learn to apply risk management frameworks, develop risk response strategies, and understand the roles of risk governance and compliance in contemporary business environments. Through case studies and practical exercises, the course prepares students to make informed decisions that minimize negative impacts and capitalize on opportunities in various professional settings.
Recommended Textbook
Fundamentals of Investments 3rd Canadian Edition by Bradford Jordan
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20 Chapters
2255 Verified Questions
2255 Flashcards
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Page 2
Chapter 1: A Brief History of Risk and Return
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93 Verified Questions
93 Flashcards
Source URL: https://quizplus.com/quiz/62250
Sample Questions
Q1) You purchased a stock at the beginning of the year for $80.25. Your total return for the year was 10.2%, and the stock had a dividend yield of 1.8%. What was the end of year stock price?
A) $84.73
B) $85.02
C) $86.99
D) $88.44
E) $89.56
Answer: C
Q2) The dividend yield on a stock will be ___________, while the capital gains yield will be ___________.
A) Positive; either positive or zero
B) Positive; positive
C) Positive; negative, positive or zero
D) Positive or zero; positive or zero
E) Positive or zero; negative, positive or zero
Answer: E
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Chapter 2: Diversification and Risky Asset Allocation
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) You have a portfolio of two stocks. As you increase the weight of the lowest risk stock, the risk of your portfolio will:
A) increase.
B) decrease.
C) remain the same.
D) increase or decrease depending on the correlation.
E) decrease or remain the same.
Answer: D
Q2) What is the typical range of the variance of return for a stock portfolio?
A) 0 to 1
B) - 1 to + 1
C) 0 to + 100
D) Between the high and low values for the individual returns being used
E) No precise range exists
Answer: E
Q3) What assumptions are made about an investor when considering how they wish to allocate assets and construct their investment portfolio?
Answer: It is assumed that 1) investors prefer more return to less and that 2) investors prefer less risk to more risk.
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Page 4
Chapter 3: The Investment Process
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) You sold a stock that returned 5.6% over a 3-month period. What was your annualized rate of return?
A) 21.67%
B) 22.40%
C) 23.49%
D) 24.35%
E) 25.105%
Answer: D
Q2) The process of trying to buy specific securities that we expect to be the "winners" in the future is called _______.
A) asset allocation
B) passive investing
C) market timing
D) active investing
E) asset management
Answer: B
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Chapter 4: Overview of Security Types
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) A standardized equity option contract traded on an exchange is for _______ share(s) of stock.
A) 1
B) 10
C) 50
D) 100
E) 1,000
Q2) Money market instruments issued by a corporation
A) Are debt obligations
B) Include both debt and equity securities
C) Cannot be traded once issued
D) Are risk-free
E) Can only be resold to the original issuer
Q3) Which of the following is a difference between an American and a European option?
A) A European option can be exercised any time until maturity.
B) A call option is a European option while a put option is an American option.
C) European options have a higher price than American options.
D) European options can only be exercised at maturity.
E) A put option is a European option while a call option is an American option.
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Page 6
Chapter 5: Mutual Funds
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Which of the following fees and expenses is not directly reported to shareholders?
A) Trading costs.
B) Management fees.
C) Special fees.
D) Deferred sales charge.
E) Switch fees.
Q2) What is a soft-dollar transaction?
Q3) A mutual fund has an offer price of $63.54 and a front-end load of 4.5 percent. If there are 8.5 millions shares outstanding, what are the total assets of the fund assuming the fund has no liabilities?
A) $540,090,000
B) $565,505,000
C) $527,360,000
D) $515,780,000
E) $508,200,000
Q4) List and explain the four basic fees or expenses associated with mutual fund investing. Which expense(s) are the most important for a short-term investor? Which expense(s) are the most important to a long-term investor?
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Chapter 6: The Stock Market
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) With an order to sell 100 shares at the market price, at what price will this order be filled?
A) $64.12
B) $64.15
C) $64.16
D) $64.10
E) $64.21
Q2) To be listed on the Toronto Stock Exchange, a firm must have:
A) Net tangible assets more than $2 million
B) Pre-tax income larger than $200,000 in most recent years
C) At least $4 million in market value of publicly held shares
D) At least 1 million shares of outstanding stock held in public hands
E) All of the above
Q3) Under the provisions of a general cash offer, shares of stock are offered to:
A) underwriters on a guaranteed sale basis only.
B) current shareholders prior to being offered to the general public.
C) institutional investors only.
D) the issuer's employees on a cash purchase basis only.
E) the general public on a "first-come" basis.
Q4) What is the main advantage of a market order?
Page 8
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Chapter 7: Common Stock Valuation
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) In the constant perpetual growth model, the price of a share of stock will increase each year by the:
A) dividend yield.
B) required return.
C) dividend growth rate.
D) intrinsic value.
E) future value of dividends.
Q2) A stock just paid an annual dividend of $0.40 a share. The dividends are expected to grow at 15 percent for 5 years and then 3 percent forever. If the required return is 11 percent, what is the price of the stock?
A) $6.32
B) $8.37
C) $7.32
D) $5.18
E) $9.27
Q3) What information regarding company stocks can be regularly found in the financial pages of newspaper and on-line financial services?
Q4) What is the process of fundamental analysis?
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Chapter 8: Stock Price Behaviour and Market Efficiency
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) A(n) __________ is a method of research that studies the effect that news announcements have on stock prices.
A) Event study
B) Efficient hypothesis
C) Random walk
D) Market watch
E) Pure play
Q2) Ruth has taken two approaches to trading stocks. First, she found what she thought was a repetitive pattern in ABC Co.'s historical prices. Secondly, she found that using the financial statements of LKO Co. to compute changes in the return on equity would help predict the future stock price for that firm. She traded using both strategies. Ruth earned excess profit on market is at least __________ efficient but less than __________ efficient.
A) weak-form; mild-form
B) mild-form; semi-strong form
C) weak-form; semi-strong form
D) semi-strong form; full-form
E) semi-strong form; strong-form
Q3) List and discuss the three forms of market efficiency.
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Page 10
Chapter 9: Behavioural Finance and the Psychology of Investing
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) If the closing tick of the day is +724, this means that the:
A) DJIA ended the day up 724 basis points.
B) discount rate at the end of the day was 7.24 percent.
C) number of stocks closing on an uptick was 724.
D) number of stocks closing on an uptick exceeded those closing on a downtick by 724.
E) number of stocks closing on an uptick was 724 more than on the prior trading day.
Q2) Which of the following is a Fibonacci number
A) 12
B) 13
C) 14
D) 15
E) Cannot be determined
Q3) According to prospect theory, investors:
A) tend to always be risk-adverse.
B) tend to always be risk-taking.
C) are risk-taking when it comes to losses.
D) are risk-adverse when it comes to losses.
E) tend to risk-neutral.
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Chapter 10: Interest Rates
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) The yield curve shows the rates that a __________ will pay for various maturity ranges.
A) Large corporation
B) Municipal government
C) Bank's best customer
D) High-risk borrower
E) Default-free borrower
Q2) The extra return required by investors in long-term securities to offset the risk that the securities will decrease more in price when interest rates rise is the _________ risk premium.
A) interest rate
B) default
C) term structure
D) inflation
E) liquidity
Q3) How do coupons payments and principal of real return bonds differ from those of most other bonds?
Q4) Explain the three traditional theories regarding the term structure of interest rates and also explain modern term structure theory.
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Chapter 11: Bond Prices and Yields
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124 Verified Questions
124 Flashcards
Source URL: https://quizplus.com/quiz/62248
Sample Questions
Q1) Rebalancing a portfolio periodically so that the duration continues to match the target date is called
A) Portfolio updating
B) Dedication rematching
C) Portfolio marking
D) Portfolio matching
E) Dynamic immunization
Q2) Which one of the following measures a bond's sensitivity to changes in market interest rates?
A) yield to call
B) yield to market
C) duration
D) immunization
E) target date valuation
Q3) Reinvestment risk occurs when interest rates:
A) increase.
B) decrease.
C) remain the same.
D) increase twice.
E) Interest rates are not related to reinvestment risk.
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Chapter 12: Return, Risk and Security Management
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Compared with the capital pricing model (CAPM), one major advantage of the arbitrage pricing model (APT) is that
A) APT can deal with both portfolios and individual securities.
B) APT has an accurate risk measure.
C) APT does not require observing the market portfolio.
D) APT does not depend on expected returns.
E) none of the above
Q2) An efficient portfolio is a portfolio that does which one of the following?
A) offers the highest return for the lowest possible cost
B) provides an evenly weighted portfolio of diverse assets
C) eliminates all risk while providing an expected positive rate of return
D) lies on the vertical axis when graphing expected returns against standard deviation
E) offers the highest return for a given level of risk
Q3) Risk that affects a single company is called ______ risk.
A) Systematic
B) Market
C) Unsystematic
D) Alpha
E) Nondiversifiable
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Page 14
Chapter 13: Performance Evaluation and Risk Management
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) What is the smallest expected loss with a probability of 2.5 percent over the next two months for a portfolio with an annual expected return of 13 percent and a standard deviation of 28 percent?
A) -24.07%
B) -20.24%
C) -28.91%
D) -26.32%
E) -22.86%
Q2) In an efficient market, which of the following will be the same for every asset?
I. Treynor ratio
II. Sharpe ratio
III. Jensen's alpha
A) II only
B) I and III only
C) II and III only
D) I only
E) I, II, and III
Q3) What is the importance of value-at-risk?
Q4) What is main difference between passive and active portfolio management strategy?
Page 15
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Chapter 14: Options
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) What is the exercise price for "Quote 1"
A) $8.83
B) $20.21
C) $4.00
D) $883.00
E) None of the above
Q2) You purchase 5 call option contracts on ABC stock with a price of $3.26 and a strike price of $45. At expiration, the stock price is $51.24. What is your payoff?
A) $3,120
B) $1,630
C) $1,080
D) $1,490
E) $2,460
Q3) The primary purpose of a protective put is
A) The increase in potential gains
B) The guarantee of a higher return
C) The elimination of downside risk
D) The receipt of the option premium
E) The increase in risk and thus an increase in returns
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Page 16
Chapter 15: Option Valuation
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86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/62244
Sample Questions
Q1) Hedging a long position in a stock is best accomplished by
A) Selling a put
B) Buying a put
C) Selling a call
D) Buying a call
E) Doing nothing
Q2) When hedging an equity portfolio with stock index options, an increase in the beta of the portfolio will __________ the number of options needed to hedge the portfolio, all else the same.
A) Increase
B) Decrease
C) Not change
D) Increase only if the beta is less than one
E) Increase only if the beta is greater than one
Q3) Identify the five factors of the Black-Scholes option pricing model and identify whether each factor must increase or decrease to cause the price of a call option to increase.
Q4) Draw a graph with the option price on the vertical axis and the time to expiration on the horizontal axis. Illustrate how put and call option prices vary as the time to expiration increases.
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Chapter 16: Futures Contracts
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) The basic spot-futures parity condition is:
A) S = FT(1 + r)
B) F = S(1 + r)T
C) ST = F(1 + r)T
D) S = FT(1 + r)T
E) F = ST(1 + r)
Q2) A portfolio manager wishes to hedge a bond portfolio with a value of $750 million and duration of 12.1 years. A 10-year Canada bond futures contract that expires in seven months is quoted at 105.85, and has a $100,000 face value. If the duration of the futures contract is 7.75 years, how many contracts are needed for the hedge?
A) 11,063
B) 11,241
C) 10,732
D) 10,467
E) 10,288
Q3) What are the differences between a futures contract and a forward contract? Would you ever want to use a forward contract rather than a futures contract?
Q4) You are a bond portfolio manager. What is your greatest risk and how can you eliminate that risk?
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Chapter 17: Projecting Cash Flow and Earnings
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Sample Questions
Q1) A company has a gross margin of 58 percent and an operating margin of 29 percent. If the operating income is $20,500, what is the gross profit?
A) $42,109
B) $43,208
C) $41,000
D) $43,876
E) $44,524
Q2) The _________ approach is a method of projecting future values with the assumption that many financial statement accounts will vary in direct relation to a firm's predicted total revenue.
A) variable cost
B) linear
C) correlated
D) pro forma
E) percentage of sales
Q3) Why is the expected rate of sales growth so critical to pro forma statements?
Q4) What do operating cash flow, investment cash flow and financing cash flow measure?
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Chapter 18: Corporate Bonds
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Sample Questions
Q1) A bond which would be worth more if it were converted than it is presently in its bond form is called a(n) _________ bond.
A) in-the-money
B) Premium
C) Discount
D) out-of-the-money
E) Intrinsic
Q2) The _________ details financial information about the company issuing a bond and this document is required by various provincial Security Commissions for distribution to potential investors.
A) Debenture
B) summary sheet
C) Indenture
D) trust report
E) Prospectus
Q3) There are recent examples of corporations issuing 100-year bonds. Why would a corporation issue such long-term bonds when the interest rate risk is greater for long-term bonds?
How does interest rate risk affect the issuer?
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Page 20
Chapter 19: Government Bonds and Mortgaged-Backed Securities
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) A pool of mortgages containing default-free mortgages is called a ________ mortgage pool.
A) securitization
B) fully modified
C) secured
D) fully funded
E) prepaid
Q2) Bonds representing a claim on the cash flows of a pool of mortgages are ________. Their investment returns are based on the pool.
A) capitalized mortgages
B) mortgage pass-throughs
C) mortgage capitalization bonds
D) mortgage trusts
E) marketable mortgage certificates
Q3) Which of the following mortgages has the highest monthly payment?
A) 15-year, 6 percent
B) 15-year, 8 percent
C) 25-year, 6 percent
D) 25-year, 8 percent
E) Insufficient information.
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Chapter 20: International Portfolio Investment
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) A(n) _________ shows the price of one currency in terms of another.
A) cross rate
B) foreign exchange rate
C) e-money
D) swap
E) London Interbank Offered Rate
Q2) One British pound can buy 1.8215 US dollars today in the foreign exchange market. US dollars are expected to appreciate 5% over the next 30 days. How many US dollars will a pound buy by then?
A) 1.8165
B) 1.9126
C) 1.7304
D) 0.5779
E) 2.3582
Q3) Getting into the international markets, Canadian investors are far better off to
A) Invest in single foreign stocks
B) Trade hard currencies of emerging countries
C) Keep only a 30% foreign content in their portfolios
D) Buy international index funds
E) Focus on foreign bonds only
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