Principles of Investment: Final Exam Study Guide
2023(Multiple Choice)
1. (_________) real asset(s).
A. Land is a
B. Machines are
C. Both stocks and derivatives are
D. Knowledge is a
E. Land, machines and knowledge are
E. Land, machines and knowledge are
2. (___________) financial asset(s).
A. Buildings are
B. Land is a
C. Derivatives are
D. Government bonds are
E. Both derivatives and government bonds are
E. Both derivatives and government bonds are
3. (____________) are indirect way through which Brazilian investors can invest in
foreign companies.
A. BDRs
B. ADRs
C. T-bills
D. Euroyen Bonds
E. None of the above
A. BDRs
A Brazilian Depositary Receipt (BDR) is a negotiable instrument that represents an
ownership interest in the securities of a non-Brazilian company which must be backed
by securities issued by a non-resident publicly traded company, normally already listed
in its home or other markets.
4. Important trends changing the contemporary investment environment are:
A. globalization
B. securitization
C. bundling and unbundling
D. financial engineering
E. all of the above
E. all of the above
7. Which of the following indices is (are) market-value weighted?
I) The S&P/TSX Composite Index.
II) The Standard and Poor's Composite 500-Stock Index Response
III) The Dow Jones Industrial Average.
,A. I only
B. I and II only
C. I and III only
D. I, II, and III
E. II and III only
B. I and II only
The S&P/TSX Composite Index and The Standard and Poor's Composite 500 Stock
Index are all market-value weighted, while The Dow Jones is (....)
8. Consider the following three stocks:
Stock A: Price = $40 and 200 shares outstanding
Stock B: Price = $70 and 500 shares outstanding
Stock C: Price = $10 and 600 shares outstanding
The price-weighted index constructed with the three stocks is
A. 30.
B. 40.
C. 50.
D. 60.
E. 70.
B. 40
Sol: ($40 + $70 + $10) / 3 = 40
9. Consider the following three stocks:
Stock A: Price = $40 and 200 shares outstanding
Stock B: Price = $70 and 500 shares outstanding
Stock C: Price = $10 and 600 shares outstanding
The value-weighted index constructed with the three stocks using a divisor of 100
is
A. 1.2.
B. 1200.
C. 490.
D. 4900.
E. 38.
C. 490
Sol: The sum of the value of the three stocks divided by 100 is 490: [($40 × 200) + ($70
× 500) + ($10 × 600)] / 100 = 490
10. Consider the following three stocks:
Stock A: Price = $40 and 200 shares outstanding
Stock B: Price = $70 and 500 shares outstanding
, Stock C: Price = $10 and 600 shares outstanding
Assume at these prices that the value-weighted index constructed with the three
stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for
1?
A. 265
B. 430
C. 355
D. 490
E. 1000
D. 490 Sol: Value-weighted indexes are not affected by stock splits.
11. Which of the following are characteristics of preferred stock?
I) It pays its holder a fixed amount of income each year.
II) It gives its holder voting power in the firm.
III) Its dividends are usually cumulative.
IV) Failure to pay dividends may result in bankruptcy proceedings.
A. I, III, and IV
B. I, II, and III
C. I and III
D. I, II, and IV
E. I, II, III, and IV
C. I and III
I) It pays its holder a fixed amount of income each year.
III) Its dividends are usually cumulative.
14. Which of the following orders is most useful to short sellers who want to limit
their potential losses?
A. Limit order
B. Discretionary order
C. Limit-loss order
D. Stop-buy order
E. None of these
D. Stop-buy order
15. You want to buy 100 shares of Hotstock Inc. at the best possible price as
quickly as possible. You would most likely place a
A. stop-loss order
B. stop-buy order
C. market order
D. limit-sell order
E. limit-buy order
C. market order
(I think this C not E because the "best possible price" is what the current price is, but if
2023(Multiple Choice)
1. (_________) real asset(s).
A. Land is a
B. Machines are
C. Both stocks and derivatives are
D. Knowledge is a
E. Land, machines and knowledge are
E. Land, machines and knowledge are
2. (___________) financial asset(s).
A. Buildings are
B. Land is a
C. Derivatives are
D. Government bonds are
E. Both derivatives and government bonds are
E. Both derivatives and government bonds are
3. (____________) are indirect way through which Brazilian investors can invest in
foreign companies.
A. BDRs
B. ADRs
C. T-bills
D. Euroyen Bonds
E. None of the above
A. BDRs
A Brazilian Depositary Receipt (BDR) is a negotiable instrument that represents an
ownership interest in the securities of a non-Brazilian company which must be backed
by securities issued by a non-resident publicly traded company, normally already listed
in its home or other markets.
4. Important trends changing the contemporary investment environment are:
A. globalization
B. securitization
C. bundling and unbundling
D. financial engineering
E. all of the above
E. all of the above
7. Which of the following indices is (are) market-value weighted?
I) The S&P/TSX Composite Index.
II) The Standard and Poor's Composite 500-Stock Index Response
III) The Dow Jones Industrial Average.
,A. I only
B. I and II only
C. I and III only
D. I, II, and III
E. II and III only
B. I and II only
The S&P/TSX Composite Index and The Standard and Poor's Composite 500 Stock
Index are all market-value weighted, while The Dow Jones is (....)
8. Consider the following three stocks:
Stock A: Price = $40 and 200 shares outstanding
Stock B: Price = $70 and 500 shares outstanding
Stock C: Price = $10 and 600 shares outstanding
The price-weighted index constructed with the three stocks is
A. 30.
B. 40.
C. 50.
D. 60.
E. 70.
B. 40
Sol: ($40 + $70 + $10) / 3 = 40
9. Consider the following three stocks:
Stock A: Price = $40 and 200 shares outstanding
Stock B: Price = $70 and 500 shares outstanding
Stock C: Price = $10 and 600 shares outstanding
The value-weighted index constructed with the three stocks using a divisor of 100
is
A. 1.2.
B. 1200.
C. 490.
D. 4900.
E. 38.
C. 490
Sol: The sum of the value of the three stocks divided by 100 is 490: [($40 × 200) + ($70
× 500) + ($10 × 600)] / 100 = 490
10. Consider the following three stocks:
Stock A: Price = $40 and 200 shares outstanding
Stock B: Price = $70 and 500 shares outstanding
, Stock C: Price = $10 and 600 shares outstanding
Assume at these prices that the value-weighted index constructed with the three
stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for
1?
A. 265
B. 430
C. 355
D. 490
E. 1000
D. 490 Sol: Value-weighted indexes are not affected by stock splits.
11. Which of the following are characteristics of preferred stock?
I) It pays its holder a fixed amount of income each year.
II) It gives its holder voting power in the firm.
III) Its dividends are usually cumulative.
IV) Failure to pay dividends may result in bankruptcy proceedings.
A. I, III, and IV
B. I, II, and III
C. I and III
D. I, II, and IV
E. I, II, III, and IV
C. I and III
I) It pays its holder a fixed amount of income each year.
III) Its dividends are usually cumulative.
14. Which of the following orders is most useful to short sellers who want to limit
their potential losses?
A. Limit order
B. Discretionary order
C. Limit-loss order
D. Stop-buy order
E. None of these
D. Stop-buy order
15. You want to buy 100 shares of Hotstock Inc. at the best possible price as
quickly as possible. You would most likely place a
A. stop-loss order
B. stop-buy order
C. market order
D. limit-sell order
E. limit-buy order
C. market order
(I think this C not E because the "best possible price" is what the current price is, but if
