9. _______

Which of the following answer choices represents a portfolio where a security either enters or leaves the

efficient set? In other words, it consists of all securities (or assets in general) that are added to the

efficient set when we move from one point to another on the efficient frontier.

A. Minimum return portfolio

B. Corner portfolio

C. Maximum risk portfolio

D. Inefficient portfolio

E. None of the answers above are correct.

10. _______

Which of the following companies is likely to pay the lowest dividend?

A. Growth stock company

B. Value stock company

C. Company with a low retention ratio

D. Company with a high payout ratio

E. All of the companies above usually pay a high dividend

11. _______

Using the constant-growth dividend discount model, comment on the following statement: If the

shareholders expected rate of return were always twice the growth rate on future dividends, than the

value of the dividend next period will always equal the current stock price times the growth rate on

future dividends.

A. True and the dividend next period would have a direct relationship to both the current stock price and

the growth rate on future dividends percent.

B. False because the dividend next period would have a direct relationship to the current stock price, but

an inverse relationship to the growth rate on future dividends.

C. True and the dividend next period would equal the current dividend plus the current growth rate on

future dividends.

D. False because the dividend next period would equal the current dividend plus the current dividend

times the growth rate on future dividends.

E. None of the above comments are correct statements.

12. _______

Following a recession, you decide to invest in a sector that has historically outperformed in the early

phase of business cycles and short a sector that has historically underperformed in the early phase of the

business cycle. Which of the following strategies makes most sense given your investment

preferences?

A. Use a market neutral strategy to go long in the Financial Sector and short the Materials Sector

B. Use a dedicated short strategy to go long in the Financial Sector and short the Energy Sector

C. Use an active extension strategy to short the Telecom Sector and go long on the IT Sector

D. Use a market neutral strategy to go long in the Financial Sector and short the Energy Sector

E. Use an active extension strategy to short the Financial Sector and go long on the Utilities Sector

13. _______

This security approach to equity valuation emphasizes fundamental analysis of individual companies.

This approach is largely based on the belief that undervalued stocks will perform well regardless of the

prospects for the industry or the broader economy.

A. Momentum Approach

B. Sector-First Approach

C. Top-Down Approach

D. Bottom-Up Approach

E. Fisher Approach

14. _______

Suppose a student, Jessica, decides to use the constant-growth dividend discount model equation to find

the return (R) on a stock even though the stock pays a constant annual dividend. Assuming her

calculations are correct, which one of the following must equal zero if a firm pays a constant annual

dividend?

A. Market value per share

B. Book value per share

C. Total return

D. Capital gains yield

E. Dividend yield