1.Most Equity and FIS indexes are capitalisation weighted. Which of the following is not correct regarding capitalisation weighted indexes?

Group of answer choices

a,Capitalisation weighted equity indexes do not include unlisted equities while the market is a portfolio of all investments in a market.

b,Capitalisation weighted indexes are buy and hold indexes, which means once the assets in the index are allocated in the same proportion as in the index, the allocation performance will mirror the performance of the index.

c,Style based indexes use selection screens to select investments that display characteristics to a specific investment style, such as Value or Growth.

d,Capitalisation weighted equity indexes are not as diversified as the market.

e,Capitalisation weighted equity indexes include allocation to risk free assets as well

2. Which of the following statements is incorrect about Value and Growth investing?

Group of answer choices

a, Value and Growth investing result in performance better than benchmark returns.

b, Growth investments include firms with healthy short term and long term forward earnings potential.

c, Value investments include firms with depressed prices relative to their (firms') forward earnings, dividends, and sales.

d, Value may outperform or underperform growth investing depending on the quality of the fund manager, size of the fund and market conditions.

e, Growth and Value investing have a higher management fee (management cost) compared with capitalization weighted index for the same market segment (such as large capitalized equities).

3.

Which of the following statements is incorrect about Active investing

Group of answer choices

a, Active investment try to outperform their benchmark

b, Active investment strategy may focus on identifying undervalued securities.

c, Active investment strategy may be based on fundamental or technical analysis.

d, Momentum and Contrarian investing are examples of active investing but Value or Growth investing are examples of passive investing

e, Active investment strategy may focus on identifying asset classes that will perform better in future than other asset classes.

4.

The textbook uses pension funds to show that active funds underperform their benchmarks. Which of the following statements regarding the research is incorrect?

Group of answer choices

a, The research uses pension funds only invests in index funds and after management costs, the pension funds underperform the benchmark.

b, The research shows that pension funds have the ability to invest in riskier investments, not only in the equities and bonds in the benchmark.

c, The research shows that pension funds have the ability to hire analysts skilled in identifying mispriced securities.

d, Pension funds performed better than mutual funds on an after-cost basis

e, The pension funds use a composite benchmark of bonds and equities indexes. 5.

Which of the following statements is incorrect about the market?

Group of answer choices

a, Investing in the market on a capitalization weighted basis is passive investing.

b, The weighted average returns for all the investments in the market provides the returns of the market.

c, Investors can invest in the complete market by investing in indexes for all asset classes.

d, The market consists of listed and unlisted investments.

e, If an investor could invest in all investments in the market by allocating their capital on a capitalization basis, then they would receive the returns of the market.

6.

Which of the following statements is incorrect about High Yield FIS?

Group of answer choices

a, High Yield bonds have a larger coupon rate than an investment grade bond with the same maturity

b, A Junk (High Yield) bond can be re-rated as an investment grade bond before the bond matures.

c, High Yield bonds will have a lower duration than a Government bond with the same maturity.

d, High Yield bonds should perform better in economic upturns than in economic downturns.

e, High Yield bond should be avoided by investors since they come with high risk of default and no diversification benefits in a portfolio of government and investment grade bonds.

7.

Berk's (2005) model provides a framework explains how investors choose funds to invest with and how funds perform over time.

Which of the following statements is incorrect?

Group of answer choices

a, The model shows that the best fund manager has the highest capital invested with them

b, The model shows that investors use past fund performance to judge future fund performance.

c, The model shows that skills are valued in the funds management industry.

d, The model shows that the returns of the best fund will eventually underperform the benchmark, and the returns of the worst fund will eventually outperform the benchmark.

e, The model shows that there is an optimal fund size beyond which fund performance decreases.

8.

Which of the following statements is incorrect about Passive investing?

Group of answer choices

a, Passive investing incurs no security analyst cost to identify undervalued or overvalued investments.

b, Security allocation methodology in a passive investment include capitalization-based weighting, equal weighting, volume weighting, price weighting etc.

c, Passive investing requires a selection of securities from market and an allocation methodology to decide how much to invest in the securities to be included in the fund (or portfolio).

d, Passive fund (or portfolio) managers can pay index providers (such as MSCI or S&P) to obtain information (through a license) on the securities in the index, and the allocations for each security, on a daily basis.

e, Passive investing incurs no transaction cost when the fund (or portfolio) is initially formed.