FIN630 MIDTERM SPRING 2011

Question No: 1 ( Marks: 1 ) - Please choose one
A self-regulatory body that licenses brokers and generally oversees the trading practices
of Over the counter(OTC) securities is known as __________ .

► Securities and Exchange Commission (SEC)
► National Association of Security Dealers (NASD)

The National Association of Securities Dealers (NASD) is a self-regulatory body that
licenses brokers and generally oversees trading practices.

PAGE # 14

http://books.google.com/books?id=cO1am2FP-
TgC&pg=PA156&lpg=PA156&dq=A+self-
regulatory+body+that+licenses+brokers+and+generally+oversees+the+trading+practices
+of+Over+the+counter(OTC)
+securities+is+known+as+National+Association+of+Security+Dealers+
(NASD)&source=bl&ots=Ba5SymmYXx&sig=Uh6q5ikFKhWV0IBpFIW34YZK5tg&hl
=en&ei=KmLGTZCkIIWbhQeckNntAw&sa=X&oi=book_result&ct=result&resnum=1
&ved=0CBQQ6AEwAA#v=onepage&q=A%20self-regulatory%20body%20that
%20licenses%20brokers%20and%20generally%20oversees%20the%20trading
%20practices%20of%20Over%20the%20counter(OTC)%20securities%20is%20known
%20as%20National%20Association%20of%20Security%20Dealers
%20(NASD)&f=false

► Initial Public Offering (IPO)
► Offered for Sale (OFS)

Question No: 2 ( Marks: 1 ) - Please choose one
The primary purpose of the liquidity ratios is to determine:

► The amount of earnings paid to shareholders
► The amount of working capital tied up in inventory
► The ability of a firm to pay off short-term obligations

Page # 82

The ratio is mainly used to give an idea of the company's ability to pay back its short-
term liabilities (debt and payables) with its short-term assets (cash, inventory,
receivables).
Or
http://highered.mcgraw-
hill.com/sites/0073405159/student_view0/chapter8/multiple_choice_quiz.html
MCQ # 12

Question No: 3 ( Marks: 1 ) - Please choose one

_________ provides an automatic execution of limit orders up to 1,099 shares at the best
bid or offer.

► SuperDOT
► NASDAQ
► Auction market
► NYSE direct

NYSE Direct+® currently provides optional automatic execution of limit orders up to
1,099 shares at the best bid or offer. The average execution time is 1 second

http://www.nyse.com/press/1075990965691.html

Question No: 4 ( Marks: 1 ) - Please choose one
Which of the following statement is FALSE about Elliot Wave Theory?

►It made extensive use of Fibonacci series
►It is based on repeating 8 waves’ cycles
►It identified three movements in security prices

PAGE # 67

Dow Theory holds that there are three components in the movement of stock prices.

►It was proposed by R.N. Elliot

Question No: 5 ( Marks: 1 ) - Please choose one
Which of the following allows you to specify the most you are willing to pay when
buying or the least you are willing to accept when selling?

► Limit order

Limit Order allows you to specify the most you are willing to pay when buying or the
least you are willing to accept when selling.

http://www.stock4today.com/order-types.htm
► Market order
► Stop order
► Good till cancelled order

Question No: 6 ( Marks: 1 ) - Please choose one

ABC Furnitures worth $51 million. What is another term for this?

Book value
Earning per share
Market value
Cost per share

Question No: 7 ( Marks: 1 ) - Please choose one
Mutual funds pool the funds of savers and can be used to buy

Shares in mutual savings banks only
A variety of financial instruments
Shares in the Federal Reserve System
None of the given options

Question No: 8 ( Marks: 1 ) - Please choose one
Stocks can be purchased for a combination of cash and borrowed funds in:

Margin account
Cash account
IRA account
Option account

Question No: 9
( Marks: 1 ) - Please choose one
Mr. A purchased a stock at Rs. 50 today that is expected to grow in future up to Rs.100, he
believes in.

►Growth investment

Handouts # 25 and 26

►Value investment
►Speculation
►None of the given options

Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following is correct option

Assets = Liabilities + Owner's Equity
Owner's Equity = Assets + Liabilities
Liabilities = Owner's Equity + Assets

Question No: 11
( Marks: 1 ) - Please choose one
Which of the following stage should be avoided by investors who are interested in capital
gains?

►Pioneering stage
►Expansion stage
►Decline stage
►Stabilization stage

http://vusr.net/courses/mcqs.php?course=fin630-investment-analysis-and-portfolio-
management&page=2#axzz1LqX5vQKU

https://encrypted.google.com/search?
hl=en&biw=800&bih=509&q=Stabilization+stage+should+be+avoided+by+investors+w
ho+are+interested+in+capital+gains&btnG=Search&aq=f&aqi=&aql=&oq=
2ND # PPT SLIDE

Question No: 12
( Marks: 1 ) - Please choose one
Leverage ratios are designed to.

►Measure a company's capital structure
►Measure the quality of a company's operations
►Measure a company's ability to cover its short-term obligations
►Measure the percentage of earnings paid to shareholders

Question No: 13 ( Marks: 1 ) - Please choose one.
When current assets exceeds current liabilities it is called:

►Gross capital
►Working capital

The working capital means the amount that current assets exceed the current liabilities.
PAGE # 83

►Net capital
►Reserved capital

Question No: 14 ( Marks: 1 ) - Please choose one

Which function of capital market facilitates transfer of money from savers to borrowers?

► Economic function

The most important function is the economic function. This mechanism facilitates the
transfer of money from savers to borrowers.
PAGE # 05
► Fair pricing function
► Exchange function
► Continuous pricing function

Question No: 15 ( Marks: 1 ) - Please choose one
Current ratio is also known as:

► Working capital ratio

Current ratio is also known as the working capital ratio

PAGE # 82
► Acid test ratio
► Debt coverage ratio
► Dividend yield ratio

Question No: 16 ( Marks: 1 ) - Please choose one
A ratio that indicates the extent to which a firm could pay its current liabilities without
relying on the sale of inventory is known as:

► Current ratio
► Quick ratio
► Inventory turnover ratio
► Debt coverage ratio

Question No: 17 ( Marks: 1 ) - Please choose one
Which of the following ratio depicts a firm’s ability to cover its short-term obligations?
► Dividend yield ratio
► Return on assets ratio
► Debt coverage ratio
► Current ratio

Question No: 18 ( Marks: 1 ) - Please choose one
If an investor wants to avoid transaction costs, which of the following strategy should he
select?

► Active strategy
► Defensive strategy
► Buy and hold strategy

Buy-And-Hold Strategy:
A buy-and-hold strategy means exactly that an investor buys stocks and basically holds
them until some future time in order to meet some objective. The emphasis is on avoiding
transaction costs, additional search costs, and so forth.
PAGE 138

► Sector rotation

The remaining MCQ are new

Question No: 31 ( Marks: 3 )
Why you as invester would prefer investing in money market mutual funds(3)

SOLUTION
• Money market mutual funds invest in portfolio of money market securities.
1. Taxable or tax-exempt.
2. Commercial paper important investment.
3. Average maturity limit: 90 days.
4. Investors pay a management fee but not a sales or redemption charge (load).
5. Not insured by the federal government

Question No: 32

RELATIONSHIP OF INTREST RATE WITH …

Question No: 32

1 QUESTION IS ABOUT FUNDANMENTAL ALANYSIS MARKS 5

( Marks: 3)

( Marks: 5 )

Question No: 32

A company is paying $0.60 in dividends and the required rate of return is 6%.Company is
selling the stocks at $12. Assume 2% growth rate. Figure out the current value of the stock.
By keeping in view your answer. Explain whether the stock is overvalued or undervalued.

( Marks: 5 )

SOLUTION

Po=D1(1+g)/(k-g)

D1=0.6
P=12
G=2%
RRR(k)=6%

=0.6(1+0.02)/(0.06-0.04)=15.3

While Po=15.3

It means stock is undervalued.