FIN 331 First Exam Practice Questions

Question 1

agreement on an asset allocation, restrictions on investments, the client's risk tolerance

Accepted Answer

investment policy statement

Question 2

The collection of investment types that you own, by asset class, by percentages

Accepted Answer

Asset allocation

Question 3

a statistical measure of the dispersion of returns for a given security or market index

Accepted Answer

Standard deviation

Question 4

These U.S. Treasury notes and bonds have an interest rate that adjusts with inflation

Accepted Answer

TIPS

Question 5

Added expected return investors expect to receive from investing in stocks, vs. risk-free rate

Accepted Answer

Equity risk premium

Question 6

The possibility that a security will decline in value because of an increase in interest rates.

Accepted Answer

interest rate risk

Question 7

Measured by standard deviation; measure of the dispersion of prices of a security or portfolio

Accepted Answer

volatility

Question 8

The extra "reward" investors receive by subjecting themselves to greater "interest rate risk"

Accepted Answer

Term risk premium

Question 9

A company's assets, minus any liabilities and intangible assets.

Accepted Answer

book value

Question 10

Involves periodically buying/selling assets in a portfolio to maintain desired asset allocation

Accepted Answer

Rebalancing

Question 11

Percentage of bond issuers that default on payment of the interest or principal on their bonds.

Accepted Answer

default rate

Question 12

the capital asset pricing model that employed the equity, price, and size risk premia

Accepted Answer

Fama-French 3-Factor Model

Question 13

markets where countries' economies transition to manufacturing; potential political instability

Accepted Answer

emerging markets

Question 14

Low price-to-book stocks usually outperform high-price-to-book stocks over 15 years or longer

Accepted Answer

Value risk premium

Question 15

The return on an investment before adjustment for inflation.

Accepted Answer

nominal return

Question 16

A type of security that signifies ownership in a corporation

Accepted Answer

Stock

Question 17

A stock index that measures the equity market returns of developed markets outside U.S./Canada.

Accepted Answer

MSCI EAFE Index

Question 18

When political events, financial problems, or natural disasters will weaken a country's economy

Accepted Answer

country risk

Question 19

A pledge to pay interest & principal on a bond issued by the government, backed by taxing power

Accepted Answer

full faith and credit

Question 20

The ability of an investor to endure a long stock market decline, before it rebounds.

Accepted Answer

risk capacity

Question 21

High-priced stock, as measured by price-earnings (p/e), price-book value (p/b), or other ratios

Accepted Answer

growth stock

Question 22

The oldest (but not the best) index of U.S. small company stocks

Accepted Answer

Russell 2000 Index

Question 23

Your home. Most advisers consider this when determining an asset allocation for you.

Accepted Answer

Personal use asset

Question 24

This index represents about 75% to 80% of total U.S. stock market capitalization.

Accepted Answer

S&P 500 Index

Question 25

The only free lunch in investing

Accepted Answer

Diversification

Question 26

A pooled investment vehicle that invests primarily in mortgages

Accepted Answer

Mortgage REIT

Question 27

Stocks that outperformed the market over the past 3 months typically continue for next 6 months

Accepted Answer

Momentum

Question 28

bonds rated BBB- or higher by Standard and Poors

Accepted Answer

investment grade bonds

Question 29

0.01% (one-hundredth of one percent)

Accepted Answer

basis point

Question 30

a statistic that measures the degree to which two securities move in relation to each other

Accepted Answer

Correlation

Question 31

Means "ownership." In the world of investments, this term refers to stock.

Accepted Answer

Equities

Question 32

An investor's financial ability to endure a potential financial loss but still achieve goals

Accepted Answer

Risk capacity

Question 33

stocks of companies with less than $300 million of market capitalization

Accepted Answer

micro-cap stocks

Question 34

When a company files bankruptcy, its debt is said to go into "_________"

Accepted Answer

default

Question 35

the susceptibility of the bond's price to fluctuations in value as interest rates rise or fall.

Accepted Answer

duration

Question 36

A client's willingness to take on risk

Accepted Answer

risk tolerance

Question 37

bonds rated BB+ or lower by Standard and Poors

Accepted Answer

high-yield bonds

Question 38

Idea that risk-averse investors seek to optimize expected return based on a given level of risk

Accepted Answer

Modern Portfolio Theory

Question 39

Stock in a company whose stock market value is generally in excess of $10 billion

Accepted Answer

large cap stock

Question 40

Measured by gross profits-to-assets, this factor has a strong predictive factor

Accepted Answer

Profitability factor

Question 41

All the best music was written prior to 1990

Accepted Answer

I plead the 5th, DEFINITELY TRUE, TRUE, ABSOLUTELY TRUE

Question 42

When increases in the cost of living reduce or eliminate the returns on a particular investment

Accepted Answer

inflation risk

Question 43

set of optimal portfolios that offers highest expected return for a defined level of risk

Accepted Answer

Efficient frontier

Question 44

return that investors require for buying stocks, over the risk-free rate of return

Accepted Answer

equity risk premium

Question 45

A measure of inflation undertaken by the U.S. Commerce Department that is updated monthly.

Accepted Answer

Consumer Price Index - Urban Areas

Question 46

CEOs and CFOs are not so smart when it comes to using cash.

Accepted Answer

investment factor

Question 47

Stocks that fall between "growth" and "value"

Accepted Answer

core stocks

Question 48

This incorporates the ERP, value, size, profitability factors and momentum

Accepted Answer

Fama-French 5-factor model

Question 49

Selling some, buying others, to get back to, or near, the portfolio's target asset allocation

Accepted Answer

rebalancing

Question 50

The first widely followed index of U.S. small cap stocks

Accepted Answer

Russell 2000 Index

Question 51

Assessing this, as a part of providing investment advice, is viewed as essential by many

Accepted Answer

risk tolerance

Question 52

The extra yield over the risk-free rate owing to default risk inherent in a corporate bond

Accepted Answer

credit risk premium

Question 53

countries with high personal income levels, good regulation of accounting & securities markets

Accepted Answer

developed markets

Question 54

When returns of foreign securities could be reduced due to rise in the value of US dollar

Accepted Answer

currency risk, exchange rate risk

Question 55

informs investors of a bond or bond portfolio's credit worthiness or risk of default.

Accepted Answer

credit quality

Question 56

A number between -1 and 1 that measures the degree to which two variables are linearly related.

Accepted Answer

correlation coefficient

Question 57

The theoretical investment with zero risk, often seen as a 30-day U.S. Treasury note

Accepted Answer

Risk-free investment

Question 58

a pool of funds collected from many investors for purpose of investing in stocks, bonds, etc

Accepted Answer

Mutual fund

Question 59

A graphical depiction of how interest rates rise or fall depending upon maturity

Accepted Answer

Yield curve

Question 60

a very good indicator that an economic recession will occur

Accepted Answer

inverted yield curve

Question 61

The risk that your bond's price might fall if interest rates rise

Accepted Answer

Interest rate risk

Question 62

fixed-income securities that have a maturity of between 4 and 10 years

Accepted Answer

intermediate-term bonds

Question 63

Ability of an investor to stick with an asset allocation in the event of a sharp fall in value

Accepted Answer

risk tolerance

Question 64

A document that outlines the goals and objectives of a client and an investment strategy

Accepted Answer

Investment Policy Statement

FIN 331 First Exam Practice Questions

Questions 71

FIN 331 First Exam Practice Questions

Questions 71