Problem Set on Financial Management
FN2 Module 1
Multiple Choice Questions
MULTIPLE CHOICE: Choose the one alternative that best completes the statement or answers the question.
a) Which of the following is least likely to increase market efficiency?
1) Governments relax restrictions on foreign investment
2) Corporations disseminate more information to investors
3) More new investors choose to invest in individual stocks on their own rather than invest in mutual funds
4) More stock transactions are conducted online than on the floor of an exchange
b) Which of the following would BEST achieve diversification?
1) Investing in 10 securities of companies in the same industry in Canada
2) Investing in 10 securities of companies in the same industry in Canada, the United States, and Mexico
3) Investing in 10 securities of companies in different industries in North America, Europe, and Asia
4) Investing in 10 securities of companies in different industries in Canada
c) Which of the following forms of market efficiency (if proven valid) would make government regulations prohibit trading on insider information unnecessary?
1) Weak
2) Semi-strong
3) Technical
4) Strong
d) Which of the following is consistent with the strong form of market efficiency?
1) A naive buy-and-hold strategy yields much lower returns that an active trading strategy
2) Investors who follow insider’s trading patterns always make abnormal returns
3) Professional money managers achieve results no better than the market portfolio
4) Some mutual funds perform better than others.
e) Which of the following is the BEST example of ethical behaviour?
1) ABC Corp. promised a hefty compensation package to its external auditor
2) DEF Company hired its workers from developing countries to avoid paying high wages to the local people
3) Management at JKL Inc. borrowed heavily to fund risky expansion
4) MNO executives willingly cut their own pay when their firm suffered from economic downturns
f)
Multiple Choice Questions
MULTIPLE CHOICE: Choose the one alternative that best completes the statement or answers the question.
a) Which of the following is least likely to increase market efficiency?
1) Governments relax restrictions on foreign investment
2) Corporations disseminate more information to investors
3) More new investors choose to invest in individual stocks on their own rather than invest in mutual funds
4) More stock transactions are conducted online than on the floor of an exchange
b) Which of the following would BEST achieve diversification?
1) Investing in 10 securities of companies in the same industry in Canada
2) Investing in 10 securities of companies in the same industry in Canada, the United States, and Mexico
3) Investing in 10 securities of companies in different industries in North America, Europe, and Asia
4) Investing in 10 securities of companies in different industries in Canada
c) Which of the following forms of market efficiency (if proven valid) would make government regulations prohibit trading on insider information unnecessary?
1) Weak
2) Semi-strong
3) Technical
4) Strong
d) Which of the following is consistent with the strong form of market efficiency?
1) A naive buy-and-hold strategy yields much lower returns that an active trading strategy
2) Investors who follow insider’s trading patterns always make abnormal returns
3) Professional money managers achieve results no better than the market portfolio
4) Some mutual funds perform better than others.
e) Which of the following is the BEST example of ethical behaviour?
1) ABC Corp. promised a hefty compensation package to its external auditor
2) DEF Company hired its workers from developing countries to avoid paying high wages to the local people
3) Management at JKL Inc. borrowed heavily to fund risky expansion
4) MNO executives willingly cut their own pay when their firm suffered from economic downturns
f)