FINA 210 Lecture Notes - Lecture 3: Sample Size Determination, Capital Asset Pricing Model, Toronto Stock Exchange

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25 Apr 2016

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The market environment is one of four environments that need to be analyzed in order to assess the investment climate and market conditions. Information about the market environment can be costly to obtain. Companies own real estate for the following reasons: stocks and bonds. There are a limited number of stocks and bonds. Studies show that real estate outperforms stocks and bonds. Studies show that real estate offers higher returns with no increase in risk compared with other investments. Real estate provides higher overall returns with lower variance if one does not require a high level of liquidity: the morguard index of the toronto stock exchange. The morguard index of the toronto stock exchange (tsx) indicates high returns and low risk. The morguard index uses proxy data (appraisal values) which can cause inaccuracies because it fluctuates with market conditions. The morguard index uses quarterly appraisal values to determine returns.

Related Questions

Question 18

1. Which of the following does an efficient portfolio do?

1. Maximizes risk for a given return.

2. Minimizes risk for a given return.

3. Maximizes return for a given level of risk.

4. Minimizes return for a given level of risk.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

3 points

Question 19

1. The security market line does not:

	a.	Indicate the relationship between risk and return.
	b.	Relate the market return and beta to a stock's return.
	c.	Identify the optimal portfolio for the investor.
	d.	Use beta coefficients as a measure of risk.

3 points

Question 20

1. Mutual funds ____ realized capital gains and income (for example, dividends received):

	a.	Retain.
	b.	Reinvest.
	c.	Distribute.
	d.	Distribute or reinvest.

2 points

Question 21

1. An index fund limits its portfolio to:

	a.	High quality securities.
	b.	Stocks that respond to changes in the consumer price index.
	c.	Stocks included in an aggregate measure of stock prices.
	d.	Stocks of firms in a particular industry.

2 points

Question 22

1. Mutual funds with beta coefficients greater than 1.0:

	a.	Have outperformed the market.
	b.	Have underperformed the market.
	c.	Have more systematic risk than the market.
	d.	Have less systematic risk than the market.

3 points

Question 23

1. Which of the following will tend to cause a stock's price to fall?

1. The firms beta declines.

2. The firms beta increases.

3. The risk-free rate declines.

4. The risk-free rate increases.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

2 points

Question 24

1. The use of P/E ratios to select stocks suggests that:

	a.	High P/E stocks should be purchased.
	b.	Low P/E ratio stocks are overvalued.
	c.	A stock should be purchased if it is selling near its historic low P/E.
	d.	A stock should be purchased if it is selling near its historic high P/E.

2 points

Question 25

1. What does the efficient market hypothesis require?

1. Financial markets to be competitive.

2. Prices to adjust rapidly.

3. Prices of undervalued securities to fall.

	a.	1 and 2.
	b.	1 and 3.
	c.	2 and 3.
	d.	All of these choices.

3 points

Question 26

1. Which of the following does the strong form of the efficient market hypothesis suggest?

1. Inside information will not lead to superior investment results.

2. Inside information will lead to superior investment results.

3. Studying financial statements will not lead to superior investment results.

4. Studying financial statements will lead to superior investment results.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

3 points

Question 27

1. Which of the following is the least broad-based measure of stock prices?

	a.	NASDAQ market index.
	b.	Dow Jones industrial average.
	c.	S&P 500 stock index.
	d.	AMEX market value index.

3 points

Question 28

1. What is dollar-cost averaging?

	a.	Periodically buying a round lot of stock.
	b.	Periodically investing a specified dollar amount in a stock.
	c.	A means to increase the average cost basis.
	d.	A means to ensure a positive return.

2 points

Question 29

1. Stock dividends cause:

	a.	The price of a share of stock to rise.
	b.	The price of a share of stock to fall.
	c.	The value of the firm to rise.
	d.	The value of the firm to fall.

2 points

Question 30

1. Which of the following occurs when a stock has a two-for-one split?

	a.	The price of the stock doubles.
	b.	The firm's assets increase.
	c.	The firm's liabilities decrease.
	d.	The par value of the stock is reduced.

3 points

Question 31

1. Dividend reinvestment plans offer which of the following advantages?

1. Deferment of federal income taxes.

2. A convenient means to accumulate shares.

3. Dollar-cost averaging.

	a.	1 and 2.
	b.	1 and 3.
	c.	2 and 3.
	d.	2.

3 points

Question 32

1. When the Federal Reserve seeks to expand the money supply, it:

	a.	Sells securities.
	b.	Buy securities.
	c.	Runs a deficit.
	d.	Runs a surplus.

2 points

Question 33

1. The sum of cash, currency, and demand deposits is:

	a.	M1.
	b.	M2.
	c.	M3.
	d.	M4.

3 points

Question 34

1. If the Federal Reserve lowers the target federal funds rate:

	a.	The discount rate rises.
	b.	Liquidity in the banking system is increased.
	c.	Security prices fall.
	d.	Required reserves are also decreased.

3 points

Question 35

1. The anticipation of inflation suggests that the investor should:

	a.	Buy bonds.
	b.	Anticipate higher interest rates.
	c.	Avoid real estate investments.
	d.	Sell stocks of gold companies.

3 points

Question 36

1. The current ratio is unaffected by:

	a.	Using cash to pay a dividend.
	b.	The collection of an account receivable.
	c.	Selling inventory for a profit.
	d.	Selling bonds and using the funds to finance inventory.

2 points

Question 37

1. Which of the following are true as the debt ratio increases?

1. Fewer assets are debt financed.

2. More assets are debt financed.

3. The ratio of debt equity increases.

4. The ratio of debt equity decreases.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

2 points

Question 38

1. The technical approach suggests that future stock prices are forecasted by:

	a.	Past stock rates.
	b.	Financial ratios.
	c.	Accounting statements.
	d.	Monetary policy.

2 points

Question 39

1. The Dogs of the Dow strategy:

	a.	Forecasts the direction of the Dow Jones averages.
	b.	Suggests buying the Dow stocks with the highest dividend yields.
	c.	Outperforms the S&P 500.
	d.	Suggests buying the lowest-priced Dow stocks.

3 points

Question 40

1. Behavioral finance combines aspects from which two fields in an attempt to identify human traits that affect investment decisions?

	a.	Accounting and finance.
	b.	Finance and psychology.
	c.	Physics and finance.
	d.	Finance and marketing.

ultramarineguinea-pig196

Question 25

1. What does the efficient market hypothesis require?

1. Financial markets to be competitive.

2. Prices to adjust rapidly.

3. Prices of undervalued securities to fall.

	a.	1 and 2.
	b.	1 and 3.
	c.	2 and 3.
	d.	All of these choices.

3 points

Question 26

1. Which of the following does the strong form of the efficient market hypothesis suggest?

1. Inside information will not lead to superior investment results.

2. Inside information will lead to superior investment results.

3. Studying financial statements will not lead to superior investment results.

4. Studying financial statements will lead to superior investment results.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

3 points

Question 27

1. Which of the following is the least broad-based measure of stock prices?

	a.	NASDAQ market index.
	b.	Dow Jones industrial average.
	c.	S&P 500 stock index.
	d.	AMEX market value index.

3 points

Question 28

1. What is dollar-cost averaging?

	a.	Periodically buying a round lot of stock.
	b.	Periodically investing a specified dollar amount in a stock.
	c.	A means to increase the average cost basis.
	d.	A means to ensure a positive return.

2 points

Question 29

1. Stock dividends cause:

	a.	The price of a share of stock to rise.
	b.	The price of a share of stock to fall.
	c.	The value of the firm to rise.
	d.	The value of the firm to fall.

2 points

Question 30

1. Which of the following occurs when a stock has a two-for-one split?

	a.	The price of the stock doubles.
	b.	The firm's assets increase.
	c.	The firm's liabilities decrease.
	d.	The par value of the stock is reduced.

3 points

Question 31

1. Dividend reinvestment plans offer which of the following advantages?

1. Deferment of federal income taxes.

2. A convenient means to accumulate shares.

3. Dollar-cost averaging.

	a.	1 and 2.
	b.	1 and 3.
	c.	2 and 3.
	d.	2.

3 points

Question 32

1. When the Federal Reserve seeks to expand the money supply, it:

	a.	Sells securities.
	b.	Buy securities.
	c.	Runs a deficit.
	d.	Runs a surplus.

2 points

Question 33

1. The sum of cash, currency, and demand deposits is:

	a.	M1.
	b.	M2.
	c.	M3.
	d.	M4.

3 points

Question 34

1. If the Federal Reserve lowers the target federal funds rate:

	a.	The discount rate rises.
	b.	Liquidity in the banking system is increased.
	c.	Security prices fall.
	d.	Required reserves are also decreased.

3 points

Question 35

1. The anticipation of inflation suggests that the investor should:

	a.	Buy bonds.
	b.	Anticipate higher interest rates.
	c.	Avoid real estate investments.
	d.	Sell stocks of gold companies.

3 points

Question 36

1. The current ratio is unaffected by:

	a.	Using cash to pay a dividend.
	b.	The collection of an account receivable.
	c.	Selling inventory for a profit.
	d.	Selling bonds and using the funds to finance inventory.

2 points

Question 37

1. Which of the following are true as the debt ratio increases?

1. Fewer assets are debt financed.

2. More assets are debt financed.

3. The ratio of debt equity increases.

4. The ratio of debt equity decreases.

	a.	1 and 3.
	b.	1 and 4.
	c.	2 and 3.
	d.	2 and 4.

2 points

Question 38

1. The technical approach suggests that future stock prices are forecasted by:

	a.	Past stock rates.
	b.	Financial ratios.
	c.	Accounting statements.
	d.	Monetary policy.

2 points

Question 39

1. The Dogs of the Dow strategy:

	a.	Forecasts the direction of the Dow Jones averages.
	b.	Suggests buying the Dow stocks with the highest dividend yields.
	c.	Outperforms the S&P 500.
	d.	Suggests buying the lowest-priced Dow stocks.

3 points

Question 40

1. Behavioral finance combines aspects from which two fields in an attempt to identify human traits that affect investment decisions?

	a.	Accounting and finance.
	b.	Finance and psychology.
	c.	Physics and finance.
	d.	Finance and marketing.

cyanant553

Multiple Choice Quiz
PLS EXPLAIN ALL YOUR ANSWERS AND SHOW THE CALCULATIONS
1
A share of common stock represents:
A) A claim from a lender against a borrower.
B) A share in the company's debts.
C) A share of ownership of the company.
D) An unlimited liability to the owner of the stock.

2
The fact that common stockholders are residual claimant'smeans:
A) The stockholders have a claim against the revenue that remainsafter everyone else is paid.
B) The stockholders receive their dividends before any otherresiduals are paid.
C) The stockholders are paid any past due dividends before otherclaims are paid.
D) The stockholders are paid before the bondholders but after anytaxes are paid.

3
The concept of limited liability says a stockholder of acorporation:
A) Is liable for the corporation's liabilities, but nothingmore.
B) Cannot receive dividends that exceed his/her investment.
C) Cannot lose more than his/her investment.
D) Is only responsible for any taxes that the corporation may owebut not its other debts.

4
You have a portfolio valued at $1000. Over the next twelve monthsit loses 80% of its valuWhat return does the portfolio need to earnover the following twelve months to restore the portfolio to itsoriginal value?
A) 75%.
B) 200%.
C) 400%.
D) 25%.

5
The theory of efficient markets assumes that:
A) Prices of bonds, but not stocks, reflect all availableinformation.
B) The prices of all financial instruments reflect all availableinformation.
C) Stock prices are relatively rigid because it takes a while forinformation to efficiently move through the market.
D) The best approach to determining stock prices is to follow thechartists.

6
The notion that stock prices reflect all current availableinformation:
A) Makes the risk of holding stocks greater.
B) Indicates that mutual fund managers will not, on average,outperform market averages.
C) Says stock prices should be more rigid than they are.
D) Makes it easier to predict the movements in the price of astock.

7
Why are stock market bubbles costly for the economy?
A) They imply that the actual stock price is equal to thefundamental value of the stock.
B) They hurt consumers more than corporations.
C) They lead to a reduction in real investment in both theshort-term and long-term.
D) They lead to a misallocation of resources in both the short-termand long-term.

8
Stock market bubbles impact consumers by:
A) Encouraging greater consumption of luxury goods and greatersaving.
B) Encouraging greater consumption of luxury goods and lesssaving.
C) Encouraging more work and delaying retirement.
D) Resulting in less investment in home ownership and more intostocks.

9
If a public corporation goes bankrupt and does not have enoughassets to pay off all creditors:
A) The stockholders are personally liable for the balance.
B) The fact that stockholders are residual claimants means they mayhave to pay in additional capital to cover the obligations.
C) The stockholders receive any dividends due before the othercreditors are paid.
D) The stockholders cannot lose more than their investment.

10
The Dow Jones Industrial Average:
A) Gives equal weight to a change in the price of the stock of anycompany in the index.
B) Reflects that a 10% increase in a share of stock selling for $30will have the same affect on the index as a 10% increase in theprice of a stock selling for $60.
C) Is a value-weighted index.
D) Gives greater weight to shares with higher prices.

11
The Standard & Poor's 500 Index differs from the Dow JonesIndustrial Index because:
A) It takes into account the stock prices of 500 of the largestfirms, which is less than the DJIA.
B) It is a price-weighted index, where the DJIA is a value-weightedindex.
C) Larger firms are less important in the S&P 500 than in theDJIA.
D) It takes into account the prices of more stocks and it uses adifferent weighting scheme.

12
The theory of efficient markets implies:
A) Stock prices should be highly unpredictable.
B) The price at which stocks currently trade only reflects pastinformation.
C) Expectations do not play a role in stock prices because thisisn't real information.
D) The chartists are in fact correct that there are patterns instock prices.

13
The theory of efficient markets me
A) Professional fund managers should be able to consistently beatthe market average.
B) A professional fund manager should really not expect to beat themarket average consistently.
C) A professional fund manager who beats the market average oneyear should expected to beat the market average the nextyear.
D) A professional fund manager who beats the market average oneyear should be expected to not beat the market average the nextyear.

14
Stocks appear to present risk, yet many people have substantialparts of their wealth invested in them. This behavior could beexplained by the fact that:
A) People are irrational in their investment behavior, onlyfocusing on positive outcomes.
B) People are not very risk-averse and do not require a riskpremium for stocks.
C) Investing in stocks over the long run is not as risky asshort-term holdings.
D) People are not efficient users of information.

15
The price of a stock is currently $750 and the stock will pay a $43dividend. The interest rate is 7.5%. Based on the dividend-discountmodel, what is the expected price of this stock for nextyear?
A) $651.17.
B) $657.67.
C) $691.17.
D) $763.25.

FINA 210 Lecture Notes - Lecture 3: Sample Size Determination, Capital Asset Pricing Model, Toronto Stock Exchange

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