Question

1. "Risk' can be best defined as on the of the followings:  

a. Variability of returns and probability of financial loss

b. Chance of financial loss  

c. Variability of returns  

d. Correlation of relationship among two variables

2. Which of the following statement is NOT TRUE when we argue that the idea of riskless arbitrage is to accumulate the portfolio with following conditions :

a. Requires no net wealth invested initially  

b. Invest in the long-term securities only where risk will be higher with higher retum  

c. Bear no risk in pertfolo  

d. Still earns a profit

3. According to APT theory, the return is a function of following factor.  

a. Three factors  

b. One factor  

c. Two factors

d. Multiple factors

4. Multifactor model is based on the following background theory:  

a. Markowitz theory  

b. Arbitrage pricing theory  

c. Capital market theory

d. Strong form of efficiency

5. Which main factor mentioned in the APT model affects asset returns :

a. All risk factors  

b. Inflation factor

c. Exchange rate factor  

d. Interest rate factor

6. The difference between multifactor model and CAPM is that, the multifactor model explains the following:  

a. Extends the risk factor (systematic risk) of CAPM  

b. Neither increase nor reduce the risk factor (Systematic risk) of CAPM

c. Unchanged the risk factor (systematic riski of CAPM  

d. Reduce the risk factor (systematic risk) of CAPM

7. The January-effect anomaly in APT states one of the following statements.

a. Returns in January are less than in any other month in year

b. Returns in January are significantly larger than in any other month  

c. Returns in January are zero  

d. Returns in January must be equal to returns in any other month in year

8. Following contracts can be listed and traded in the stock exchanges:  

a. Swap contracts  

b. Future contracts  

c. Forward contracts  

d. Stock exchange contracts

9. Following is the function of cash markets:  

a. Where securities are traded against securities only  

b. Where the dealing of only cash is allowed while no other than cash item can be traded  

c. Where securities are traded against immidiate payment  

d. Where securities are tradedagainst cash within maximum 1 month period

10. At strategic risk hierarchy, following plans are discussed at executive management level:  

a. Strategic plans  

b. Corporate management plans  

c. Corporate management, strategic and operational plans  

d. Strategic and operational plans

11. Following term is used for individuals or companies who accept to take high level of risk by buying and selling of futures to earn uncertain but higher profit :

a. Risk takers  

b. Speculators

c. Hedgers  

d. Scalpels

12. One of the practical challenges that an investor faces when attempting to implement the APT is the following :

a. The model identify the risk  

b. The risk factors is defined in the model but it does not identify their identity

c. The risk factors in the model are not defined in terms of their quantity or their identity

d. The model both identify the risk and quantifies

13. For management of risk governance and accountability, following committees are responsible to manage risks and report to executive management.

a. Risk, accounting and finance committees  

b. Audit, risk and enterprise risk management committees

c. Corporate finance, accounting and corporate communication committees  

d. Risk compliance, accounting finance and Corporate communication committees

14. Which of the following assumption is not required by APT model?  

a. Capital markets are perfectly competitive  

b. Investor are risk averse  

c. Investors always prefer more wealth to less wealth with certainty

d. Investors possess quadratic utility functions

15. Multifactor model gets its name from.

a.Multiple returns

b. Multiple correlations

c. Multiple covariance

d. Multiple risk factors

16. The famous market anomalies January-effect and small firm effect are explained by which of the following model?

a. Markawitz Model

b. CAPM  

c. APT

d. capital market theory

17. The speculative risk can be best explained by the following definition:

a. That is related to the loss of long term investments

b. That is associated with the loss of any investment where return is unexpected

c. That is associated with the loss of short term investments

d. That is associated with the loss of short term and long term investments where profit is expected

18. When investors attempt to implement the APT for analysis purpose, they generally face one of the following practical challenge in solving the equation :

a. The risk factors are not defined in terms of their quantity or their identity

b. The risk factors are not defined in terms of their quality or their identity

c. The risk factors are not defined in terms of their quality or their quantity

d. The risk factors are not defined in terms of their risk factor or their identity

19. The equation for the arbitrage pricing theory suggests a relationship that should be:

a. Below the security market line as indicated in CAPM

b. Independent and not reflected in other evaluation methods

c. Similar to the security market line as indicated in CAPM

d. Differenkto the security market line as indicated in CAPM

20. Corporate risk management is best defined as one of the followings:

a. Management of irregular and challenging events for the business

b. Improve risk monitoring capacity for the business  

c. Categorize potential risk components  

d. Communicate portfolio adjustments

21. GDP, interest rate, and inflation rate factors are known as :

a. Un-systematic factors

b. Macro-economic factors  

c. Beta factor

d. Diversifiable factors

22. According to multifactor model, 'growth stocks refer to stock that have the following ratio:  

a. High Sharpe ratio

b. Those with low book to market ratios  

c. High equity ratio  

d. High book value to market price ratios

23. In a renowned past APT literature, Basu (1977) is considered one of the most reliable study in which he documented one of the main findings:

a. Low price earnings ratios are equally outperformed with high priced earning stocks  

b. High price earnings ratios are equally outperformed with high priced earning stocks  

c. High price earnings ratios are equally outperformed with low priced earming stocks  

d. Low price earnings ratios are equally outperformed with low priced eaming stocks

24. Multiple risk factors are expected to impact on returns of following assets:

a. Industrial assets

b. Agricultural commodities assets c. All assets

d. Financial assets

25. According to multifactor model, capital markets should be:  

a. Non-competitive  

b. Partially competitive  

c. Monopolistic competitive  

d. Perfectly competitive

26. In portfolio selection process when strategic plans are executed, balance portfolio phase' leads to which phase:

a. Either communicate portfolio adjustment or development of portfolio risk responses  

b. Communicate portfolio adjustment and development of portfolio risk responses  

c. Analysing portfolio risks  

d. Communicate portfolio adjustment

27. The idea of riskless arbitrage is to assemble a portfolio is one of the followings:  

a. Requires no net wealth invested initially

b. APT does not explain riskless arbitrage

c. Bears no systematic or unsystematic risk  

d. Requires no net wealth invested initially and bears no systematic or unsystematic risk

28. Option is a contract between two parties that is executed in following method:  

a This contract is useful for third party to minimize the risk and maximize the profit

b. This contract gives the right to buy or sell the contract  

c. This contract gives the obligation to buy or sell the contract  

d. This contract has nothing to do with buy or sell the contract

29. Following is the standardized payment term in Future contracts:  

a. No advance payment before maturity period as the maturity date is carried out with delivery and payment  

b. The buyer and seller need to make deposit of 100% advance as a security

c. The buyer and seller need to make deposit of 5-15% advance as a security  

d. Only buyer has the right to fix the payment of any percentage as a security

Answer 1

1. Investment risk is often defined as chances and probability of financial loss and risk is directly proportional to variability of the return.

Risk is often defined at all the probabilities which will make the investment lose its value and it is also resulting into variability in return of various securities.

All the other options are not stating the complete answers and they are not true statements about definition of Risk.

So correct answer would be option (A). Variability of Return and probability of the financial loss.