All Free Management Sciences MCQs with Answers

• A. Long-termed
• B. Short-termed
• C. Riskier
• D. Smaller

Explanation: A tighter probability distribution has observations clustered more closely around the mean, so its standard deviation is smaller.

• A. Sharpe's alpha
• B. Standard alpha's
• C. Alpha's variance
• D. Variance

Explanation: Total risk combines market risk with diversifiable risk and is commonly measured by the variance of returns, while standard deviation is…

• A. Coefficient of variation
• B. Coefficient of deviation
• C. Coefficient of standard
• D. Coefficient of return

Explanation: The coefficient of variation compares risk relative to expected return, making it useful when evaluating alternative investments with…

• A. Quoted rate
• B. Unquoted rate
• C. Steeper rate
• D. Portfolio rate

Explanation: The quoted or nominal rate combines the inflation-free real rate with an inflation premium, and may also include other risk premiums.

• A. Riskier finance
• B. Behavioral finance
• C. Premium finance
• D. Buying finance

Explanation: Behavioral finance studies how psychological factors influence the decisions of investors and managers.

• A. Diversifiable risk
• B. Market risk
• C. Stock risk
• D. Portfolio risk

Explanation: War, recessions, inflation and interest-rate changes affect most or all firms and therefore represent market, or systematic, risk.

• A. Equal to original price
• B. Equal to sum of stocks
• C. Less than original price
• D. Greater than original price

Explanation: A positive minimum-risk portfolio result is interpreted here as showing that the security can be sold at a price greater than its original…

• A. No taxes
• B. No transaction costs
• C. Fixed quantities of assets
• D. All of above

Explanation: The standard CAPM assumptions include no taxes, no transaction costs and fixed quantities of assets, along with other ideal-market…

• A. Non-linear
• B. Linear
• C. Fixed and aggregate
• D. Non-fixed and non-aggregate

Explanation: In the CAPM framework, expected return has a linear relationship with systematic risk, measured by beta.

• A. Efficient money hypothesis
• B. Efficient market hypothesis
• C. Inefficient market hypothesis
• D. Inefficient money hypothesis

Explanation: The efficient market hypothesis holds that security prices reflect available information and tend to equal their intrinsic or fair values.

• A. Regression line
• B. Probability line
• C. Scattered points
• D. Weighted line

Explanation: The CAPM characteristic line is a regression line showing the relationship between a security’s return and the market return, with its…

• A. Standard betas
• B. Varied betas
• C. Historical betas
• D. Adjusted betas

Explanation: Adjusted betas move historical beta estimates toward 1.0 because empirical research suggests that extreme betas tend to become less…

• A. Tax free pricing model
• B. Cost free pricing model
• C. Capital asset pricing model
• D. Stock pricing model

Explanation: A standard CAPM assumption is that assets are perfectly divisible and can be bought or sold freely in a liquid market.

• A. Low market to book ratio
• B. High book to market ratio
• C. High market to book ratio
• D. Low book to market ratio

Explanation: Value stocks with a high book-to-market ratio have historically earned higher average returns than low book-to-market, or growth, stocks.

• A. Given and fixed
• B. Not given and fixed
• C. Not given and variable
• D. Given and variable

Explanation: CAPM assumes that the quantities or supplies of assets are given and fixed, so investors trade claims whose total supply is predetermined.

• A. Identical and fixed returns
• B. Risk free rate of interest
• C. Fixed rate of interest
• D. Risk free expected return

Explanation: The CAPM assumes investors can borrow or lend unlimited amounts at the risk-free rate.

• A. Standard deviation
• B. Variance
• C. Aggregate risk
• D. Ineffective risk

Explanation: The capital market line measures total risk using standard deviation, which includes both systematic and unsystematic risk.

• A. Experienced
• B. Inexperienced
• C. Pessimistic
• D. Optimistic

Explanation: When market value exceeds book value, investors are pricing the stock above its accounting value and generally expressing confidence in…

• A. More risky
• B. Less risky
• C. Pessimistic
• D. Optimistic

Explanation: A high book-to-market ratio usually identifies value or distressed stocks, whose weaker market valuation is associated with greater…

• A. Attained frontier
• B. Efficient frontier
• C. Inefficient frontier
• D. Unattainable frontier

Explanation: The efficient frontier is the graph of portfolios offering the highest expected return for each level of risk, or the lowest risk for each…