1. Inflation decreases your return on investment by reducing the future value of the money you receive on your investmentA)

A)False

B)True

2. According to the principals of finance, in the long-run stock prices are driven by

A)Corporate earnings

B)Interest Rates

C)Macroeconomic Conditions

D)Supply & Demand

E)Valuation

3. If you invest in a stock with a beta of 0.7, you would expect your return to be

A)Greater than that of the overall market

B)Exactly the same as the overall market

C)Lower than that of the overall market

4. If SmallCo's stock currently trades at $100 per share and BigCo announces that they will acquire SmallCo for $120 per share, what will happen to SmallCo's stock price according to the efficient market hypothesis?

A)Nothing, this is not public information

B)It will increase to $120 as soon as the announcement is made

C)It will increase gradually to $120 over several weeks

D)It will remain at $100 because the transaction may not close

5. True or False: Investors believe that transaction costs, taxes, and inflation are the enemy because when it is all said and done, they reduce the return on your investments.

A)True

B)False

6. Which of these investments would be considered the least risky?

A)Large-cap stocks

B)Commodities

C)Small-cap stocks

D)Corporate Bonds

E)Government Bonds

7. The random walk hypothesis states that

A)None of the above

B)Day-to-day stock prices move randomly and independently of each other

C)Day-to-day stock prices are driven by the Fed

D)Day-to-day stock prices move closely with each other

E)Day-to-day stock prices are driven by corporate earnings

8. True or False: Small-cap stocks are riskier than corporate bonds.

A)True

B)False

9. Which of the following is an example of asset allocation?

A)Choosing how much to invest in stocks vs. bonds

B)Choosing how much to invest in energy companies vs. utility companies

C)None of the above

D)Choosing how much to invest in Apple vs. Microsoft

10. Out of the following, who believes the MOST in behavioral finance?

A)Mutual Fund Managers

B)CFOs

C)Equity Traders

D)Finance Professors

E)Investment Bankers

11. The time value of money states that

A)A dollar today is worth less than a dollar tomorrow

B)A dollar today is worth exactly the same as a dollar tomorrow

C)A dollar today is worth more than a dollar tomorrow

12. Which two financial metrics does Warren Buffet use to analyze companies?

A)Profit Margin & Return on Assets

B)Return on Assets & Return on Investment

C)Return on Equity & Return on Investment

D)Profit Margin & Return on Equity

E)Return on Equity & Return on Assets

13. Beta is used in the capital asset model primarily as a measure of

A)Earnings growth

B)Profitability

C)Risk

D)Trading volume

E)Valuation

14. A healthcare company announces it has developed a new drug that will increase its annual revenue by 5-10% over the next three years. According to the efficient market hypothesis, the stock price will reflect this news

A)One month after the announcement

B)One week after the announcement

C)Never

D)The day of the announcement

E)One year after the announcement

15. Given the following information, which stock has the highest return?

Stock A: Current Price: $100 | Purchase Price: $85 | Dividends Paid: $3

Stock B: Current Price: $630 | Purchase Price: $545 | Dividends Paid: $20

A)Stock B

B)Stock A

16. Financial theory is based upon the assumption that investors are always

A)Risk takers

B)Risk averse

C)Irrational

17. If the principles of finance are true, which of the following are able to easily beat the returns of the capital markets?

A)Top-Bucket Analysts on Wall Street

B)None of the above, efficient capital markets are hard to beat

C)Hedge Funds

D)Warren Buffet

E)Bernie Madoff

18. The random walk hypothesis is inconsistent with the efficient market hypothesis

A)True

B)False

19. Alcoa announced in a press release that it will acquire Kaiser Aluminum for $90 per share. If the theory of efficient capital markets is correct, what happens to Kaiser Aluminums stock?

A)Gradually increases to $90 per share until the day the transaction closes

B)Immediately trades up to $90

C)Gradually increases to $90 until market close on the day of the announcement

D)None of the above

20. When Professor X started investing with a mutual fund, he had to pay a front-end load of 5% of the money he was investing. What is this front-end load of 5% an example of?

A)Transaction Costs

B)None of the above

C)Taxes

D)Bid-Ask Spread