BWFN3013 INVESTMENT ANALYSIS (A181)

TUTORIAL 2
Name: __________________________________ Matric No: ________________

1. Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in
kind, are called: 
A. retained earnings.
B. net income.
C. dividends.
D. redistributions.

2. The total rate of return earned on a stock comprises which two of the following?
I. current yield
II. yield to maturity
III. dividend yield
IV. capital gains yield 
A. I and II only
B. II and III only
C. II and IV only
D. III and IV only

3. A capital gain occurs when: 

A. the selling price is less than the purchase price.
B. the purchase price is less than the selling price.
C. there is no dividend paid.
D. there is no income component of return.

4. Top-down approach to security analysis includes the following except:

A. fundamental analysis.
B. SWOT analysis.
C. economic analysis.
D. industry analysis.

5. One of the basic premises of security analysis, and in particular fundamental analysis, is that

A. market sectors do not move in concert with business cycles.

B.  a security's risk has relatively little effect on the security's return.
C.  a stock's price is based on its past cash flows rather than on anticipated future cash flows.
D. all securities have an intrinsic value that their market value will approach over time.

6. The three steps in determining a stock's intrinsic value are

I. estimating the stock's future cash flows.

II. estimating the risk associated with future cash flows.
III. careful analysis of patterns in the stock's recent price history.
IV. estimating an appropriate discount rate to apply to future cash flows.
 BWFN3013 INVESTMENT ANALYSIS (A181)
TUTORIAL 2
Name: __________________________________ Matric No: ________________
A. I , II and III only
B. I, II and IV only
C. I, III and IV only
D. II, III and IV only

7. A company has sales of $640,000, net profit after taxes of $23,000, a total asset turnover of 4.17 and
an equity multiplier of 1.67. What is the return on equity?

A. 24%
B. 9.0%
C. 8.1%
D. 4.5%

8. Quick Cement has a return on assets of 8%. If it has $1.5 million in total assets and a total asset
turnover of 2, it follows that the firm must have a net profit margin of

A. 4%.
B. 6%.
C. 8%.
D. 12%.

9. JJ Industries has a P/E ratio of 18 and an EPS of $0.93. This means that JJ's stock is currently
selling for

A. $16.74 per share.

B. $17.07 per share.
C. $18.00 per share.
D. $19.35 per share.

10. Followers of the random walk hypothesis believe that

A. security analysis is the best tool to utilize when investing in the stock market.
B. the price movements of stocks are unpredictable, and therefore security analysis will not help to
predict future market behavior.
C. that traders can earn higher than normal returns by exploiting market anomalies such as the
small-firm effect.
D. support levels and resistance lines, when combined with basic chart formations, yield both buy
and sell signals.

11. There is evidence to support the contention that company insiders

A. cannot earn abnormal profits because they are not permitted to trade shares in their company's
stock without a one-month advance notice to the SEC.
B. can profit in a manner that counters the strong form of the efficient market hypothesis.
C. generally earn a profit equal to that of public investors.
D. have no distinct advantage when trading shares of their company's stock.

12. Believers in efficient markets tend to explain away market anomalies as

 BWFN3013 INVESTMENT ANALYSIS (A181)
TUTORIAL 2
Name: __________________________________ Matric No: ________________
I. random occurrences that create an illusion of causality.
II. errors resulting from inaccurate measures of risk.
III. the result of illegal price manipulation by corporate insiders.
IV. the effect of normal human emotions such as fear and greed.

A. I and II only
B. I, II and III only
C. I and III only
D. I, II, III and IV

13. The tendency of investors to blame others for their failures and take personal credit for their
successes is referred to as

A. loss aversion.
B. representativeness.
C. narrow framing.
D. self-attribution bias.

14. The tendency of investors to take greater risks after a large loss and fewer risks after a large gain can
be attributed to

A. overconfidence.
B. the "house money" effect.
C. loss aversion.
D. representativeness.

15. Which of the following are included in technical analysis?

I. charting price movements
II. tracking trading volume
III. determining the investor's risk tolerance
IV. monitoring odd-lot trading

A. I and II only
B. II and III only
C. I, II and III
D. I, II and IV

16. Which of the following are used as indicators of a strong market in the future?

I. The advance-decline spread is increasing at a time when the advances outnumber the declines.
II. The level of short interest is relatively high.
III. The net difference of odd-lot purchases minus odd-lot sales begins increasing.
IV. The trading volume increases in a declining market.

A. I and II only
B. III and IV only
C. I, II and III only
D. I, II, III and IV
 BWFN3013 INVESTMENT ANALYSIS (A181)
TUTORIAL 2
Name: __________________________________ Matric No: ________________

17. Over the last 14 trading days, the average price increase for Quincy Industries stock was $0.88 and
the average drop on down days was $0.44. The relative strength index for Quincy is

A. 2.
B. 66.67.
C. 50.
D. 33.33.

18. On a given trading day, 700 stocks advanced and 1,200 stocks declined. The volume of declining
stocks was 280 million while the volume of advancing stocks was 530 million. What is the ARMS
(a.k.a. TRIN) index value for the day?

A. 0.31
B. 0.91
C. 1.10
D. 3.24

19. In a severe recession, the major source of risk faced by investors who purchase corporate bonds is

A. purchasing power risk.

B. interest rate risk.
C. liquidity risk.
D. default risk.

20. When interest rates are falling, most of the return on bonds will come from

A. inflation gains.
B. interest income.
C. capital gains.
D. risk premiums.

21. Which of the following are true concerning bond ratings?

I. They have a greater impact on the price and yield of junk bonds than on investment grade
bonds.
II. They provide investors with a convenient way to assess the relative risk of various bond issues.
III. They are provided by an independent government agency.
IV. They have a significant effect on a bond's price and yield.

A. I and II only
B. II and IV only
C. III only
D. I, II and IV only

22. What is the current price of a $1,000, 6% coupon bond that pays interest semi-annually if the bond
matures in ten years and has a yield-to-maturity of 7.1325%?
 BWFN3013 INVESTMENT ANALYSIS (A181)
TUTORIAL 2
Name: __________________________________ Matric No: ________________

A. $567
B. $920
C. $1,030
D. $1,080

23. What is the yield-to-maturity of a $1,000, 7% semi-annual coupon bond that matures in 2 years and
currently sells for $997.07?

A. 6.87%
B. 7.04%
C. 7.16%
D. 7.31%

24. An asset allocation plan should consider which of the following factors?

I. economic outlook
II. capital preservation
III. changing investment goals
IV. investor risk tolerance

A. II only
B. II, III and IV only
C. I, III and IV only
D. I, II, III and IV

25. The holding period return (HPR)

A. reflects only capital gains and losses for investment periods of one year or less.
B. calculates the annual dividend yield on stocks or current interest yield on bonds.
C. is the most appropriate measure of returns for an investment period exceeding one year.
D. can be used to determine the actual total return on stocks, bonds, and other investments for
periods of one year or less.

26. Ella's portfolio has a beta of 1.34 and a standard deviation of 16.4%. The portfolio has a total return
of 14.8%. The market risk premium is 8.5%, while the return on the market portfolio was 12.0%.
What is the value of Sharpe's measure for Ella's portfolio?

A. 0.21
B. 0.38
C. 0.69
D. 0.90

27. Phil has a portfolio with a 13.2% total return. The beta of the portfolio is 1.48 and the standard
deviation is 13%. Currently, the risk-free rate of return is 4% and the overall market has a total
return of 11%. What is the value of Treynor's measure for Phil's portfolio?
 BWFN3013 INVESTMENT ANALYSIS (A181)
TUTORIAL 2
Name: __________________________________ Matric No: ________________
A. 2.1%
B. 6.2%
C. 7.1%
D. 8.9%

28. A portfolio has a total return of 10.5%, a beta of 0.72 and a standard deviation of 6.3%. The risk
free rate is 3.8%, the market return is 12.4%. Jensen's measure of this portfolio's performance is

A. 0.5%.
B. 4.3%.
C. 7.9%.
D. 9.3%.

29. Which of the following statements concerning put options are correct?
A. The writer of a put profits if the price of the underlying stock rises.
B. The writer of a put profits if the price of the underlying stock falls.
C. The owner of a put profits if the price of the underlying stock rises.
D. Both the owner and writer of a put profit when the price of the underlying stock falls.

30. Jason purchased a six-month put on ABC stock at a cost of $100. The strike price was $15. At what
market price does Jason just break-even on this investment?

A. $15
B. $16
C. $14
D. cannot be determined from the information provided