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Question 1 of 10
1. Question
Which ratio helps to determine the value of stock?
Correct
The price/earnings (P/E) ratio is used to determine the value of stock. The dividend of the firm is compared to the earnings and to the proportion distributed.
Incorrect
The price/earnings (P/E) ratio is used to determine the value of stock. The dividend of the firm is compared to the earnings and to the proportion distributed.

Question 2 of 10
2. Question
Which ratio indicates the price that the market placed on earnings expectations?
Correct
The price/earnings/growth (PEG) ratio is found by dividing the P/E ratio by the estimated earnings growth rate. When the dividends are significant, the dividend yield should be added to the growth rate when calculating PEG ratio. This ratio indicates the price that the market placed on earning expectations.
Incorrect
The price/earnings/growth (PEG) ratio is found by dividing the P/E ratio by the estimated earnings growth rate. When the dividends are significant, the dividend yield should be added to the growth rate when calculating PEG ratio. This ratio indicates the price that the market placed on earning expectations.

Question 3 of 10
3. Question
What is the book value?
Correct
Book value is the equity of a stockholder divided by his or her outstanding shares. Value investors try to select stocks that are trading below book value. The price/book value is the firm’s stock price divided by its pershare book value.
Incorrect
Book value is the equity of a stockholder divided by his or her outstanding shares. Value investors try to select stocks that are trading below book value. The price/book value is the firm’s stock price divided by its pershare book value.

Question 4 of 10
4. Question
Which theory strives to understand the relationship between portfolio risk and correlation?
Correct
Portfolio theory strives to understand the relationship between portfolio risk and correlation.
Incorrect
Portfolio theory strives to understand the relationship between portfolio risk and correlation.

Question 5 of 10
5. Question
What does the market portfolio consist of, according to the capital market theory?
I. Stocks
II. Options
III. Bonds
IV. Risky AssetsCorrect
In capital market theory, there is a set of all stocks, bonds, and risky assets in existence that is known as the market portfolio.
Incorrect
In capital market theory, there is a set of all stocks, bonds, and risky assets in existence that is known as the market portfolio.

Question 6 of 10
6. Question
What is the measure of systematic risk?
Correct
The proper relationship between risk and return is systematic risk and return; beta is the measure of systematic risk.
Incorrect
The proper relationship between risk and return is systematic risk and return; beta is the measure of systematic risk.

Question 7 of 10
7. Question
Which ratio is the measure of the riskadjusted performance of a portfolio based on total risk?
Correct
The Sharpe ratio is the measure of the riskadjusted performance of a portfolio based on total risk. The measure for total risk is the standard deviation. This measure implies that a portfolio is not widely diversified.
Incorrect
The Sharpe ratio is the measure of the riskadjusted performance of a portfolio based on total risk. The measure for total risk is the standard deviation. This measure implies that a portfolio is not widely diversified.

Question 8 of 10
8. Question
Which ratio is the relative measure of the riskadjusted performance of a portfolio based on market risk?
Correct
The Treynor ratio, meanwhile, is the relative measure of the riskadjusted performance of a portfolio based on market risk, and is more appropriate for using on diversified portfolios.
Incorrect
The Treynor ratio, meanwhile, is the relative measure of the riskadjusted performance of a portfolio based on market risk, and is more appropriate for using on diversified portfolios.

Question 9 of 10
9. Question
Which ratio measures the performance of portfolio managers?
Correct
In the Jensen ratio, alpha (α) is used as an absolute measure of performance; specifically, it compares the performance of a managed portfolio with that of an unmanaged portfolio of equal risk. The Jensen ratio measures how much the realized return differs from the required return, and more generally it measures the performance of portfolio managers.
Incorrect
In the Jensen ratio, alpha (α) is used as an absolute measure of performance; specifically, it compares the performance of a managed portfolio with that of an unmanaged portfolio of equal risk. The Jensen ratio measures how much the realized return differs from the required return, and more generally it measures the performance of portfolio managers.

Question 10 of 10
10. Question
What does an investment policy do in order to create a structure for making sound investment decisions?
I. It increases professional liability by illustrating how appropriate steps were taken at all points of the portfolio management.
II. It establishes risk and return objectives.
III. It determines constraints.
IV. It establishes a set of agreedupon goals and other criteria for measuring performance.Correct
An investment policy statement does four things in order to create a structure for making sound investment decisions: it establishes risk and return objectives; it determines constraints; it establishes a set of agreedupon goals and other criteria for measuring performance; and it reduces professional liability by illustrating how appropriate steps were taken at all points of the portfolio management.
Incorrect
An investment policy statement does four things in order to create a structure for making sound investment decisions: it establishes risk and return objectives; it determines constraints; it establishes a set of agreedupon goals and other criteria for measuring performance; and it reduces professional liability by illustrating how appropriate steps were taken at all points of the portfolio management.