You loan a friend $5,000. There is a 15% chance your friend will pay you a 3% return, a 40% chance he will pay you a 2% return and a 45% chance he will pay you only a 1% return.

What is your expected return after one year?

• a.)
• 1.70%
• b.)
• 1.80%
• c.)
• 2.20%
• d.)
• 2.05%

Which of the following is true of portfolio diversification?

• a.)
• Diversification can reduce or eliminate both specific risk and systemic risk.
• b.)
• Diversification can eliminate or reduce specific risk or systemic risk, depending on asset class.
• c.)
• Diversification can reduce or eliminate specific risk, but not systemic risk.
• d.)
• Diversification can reduce or eliminate systemic risk, but not specific risk.

What is the effect of a merger or acquisition announcement on the stock price of a company involved in the restructuring?

• a.)
• It will likely increase because analysts add together the stock prices of the companies involved.
• b.)
• It will likely decrease because M&A announcements are a signal of market instability.
• c.)
• It could increase or decrease, depending on how analysts interpret the long term outlook of the company.
• d.)
• M&A announcements typically have little effect on the stock price of the companies involved.

The risk that your investment in a stock will lose value because of a general economic decline is known as __________.

• a.)
• model risk
• b.)
• market risk
• c.)
• interest rate risk
• d.)
• foreign investment risk

Covariance is best understood as __________.

• a.)
• the extent to which the value of a portfolio changes in relation to a benchmark index
• b.)
• the degree to which two investments' values change together
• c.)
• the sum of the risk premiums of two investments
• d.)
• the quantity by which an investment outcome deviates from its expected mean

Which of the following is true ofsystematicrisk?

• a.)
• It is uncorrelated with broader market returns.
• b.)
• Diversification holds less of a benefit for this type of risk when the number of assets within a portfolio exceeds 30.
• c.)
• It is also known as non-diversifiable risk.
• d.)
• It can be minimized when investment correlations are at zero.

A security that falls below the security market line is __________.

• a.)
• attractive for an investor
• b.)
• under-valued for its level of risk
• c.)
• unattractive for a company raising capital
• d.)
• over-valued for its level of risk

A clothing company with a subscription business model is seeking to raise capital to expand its operation. They decide to issue a small number of shares to some high-net-worth individuals that have supported the company in the past.

What type of market transaction is taking place?

• a.)
• Share buyback
• b.)
• Private placement
• c.)
• Secondary market offering
• d.)
• Auction

Ray purchased stock with an initial share price of $84, and sold it when the share price was $75. While he owned the stock, he earned $10 in dividends.

What was his total percentage return on the investment?

• a.)
• 1.33%
• b.)
• -12.00%
• c.)
• -10.71%
• d.)
• 1.19%

Which of the following is a tenet of semi-strong-form efficiency?

• a.)
• The market can be "beaten" by individual investors if enough information is collected.
• b.)
• Excess returns cannot be generated by using publicly available information to make investment choices.
• c.)
• Excess returns can be earned using investment strategies based on historical share prices.
• d.)
• Private information has an immediate effect on share prices.

Aditi's company is preparing for its IPO in the summer. The company has registered its securities with the SEC and prepared a prospectus for potential investors.

By doing so, which federal regulation is her company complying with?

• a.)
• Securities Exchange Act of 1934
• b.)
• Securities Act Amendments of 1975
• c.)
• Securities Act of 1933
• d.)
• Sarbanes-Oxley Act of 2002