FIN 466 - Quiz 1
Master Your Investment Knowledge
Test your understanding of investment principles with our comprehensive quiz designed for financial enthusiasts. Dive into key concepts such as value investing, risk management, and capital deployment strategies.
Whether you're a beginner or an experienced investor, this quiz will help you:
- Evaluate your investment knowledge
- Identify areas for improvement
- Gain confidence in your financial decision-making skills
An investment operation is one which:
Promises safety of principal and adequate return.
Offers safety of principal and as little as possible market risk
Ensures an return but risk of loss of principal is meaningful
Reduces market risk to a minimum but investment risk is large
What are the three areas of competence that are necessary for anybody to become a successful investor?
Market Efficiency, understanding the notion of investing, and valuation
Business valuation, security price forecasting and portfolio diversification
Business analysis, security analysis and the determination of an optimal commitment size relative to available investable capital
Diversification, leverage, and long/short commitments
When applying the definition of “investment” to a specific case, the standards of safety refer to:
Safety of the business issuing the securities
B. The safety given by the terms of the securities
C. The safety given by the price at which the securities can be bought
D. All of the answers
The true risks from owning a security are (mark all that apply):
The risk of buying the security at a price that is much higher than its extractable value.
The risk of a substantial reduction in the corporate extractable value
The risk of the market movements for the security
The risk of the entire tock market going into a correction
Optimal "f" or sometimes called Kelly's "f" is a formula that allows you to calculate the optimal amount of available capital to deploy on one investment as a fun
The probability o finding profitable investment opportunities
The market risk of the common stock under consideration
The “beta” of the common stock under consideration
The win to loss ratio of the יִnancial operation under consideration, I.e. How much you could make relative to what you could lose
What is the difference between “Value Investing” and “Control Investing”?
Each Discipline uses a different approach to analysis.
Value investing is exactly the same as control investing
Value investing does not operate on margin
Value is a passive activity (we do not use rights given to us) while in Control we do use the rights given to us by the securities we own or hold.
Think about the following question and answer all that apply. What follows from the deיִnition of value investing and Kelly's "f" formula?
That value investing has a high probability of making money (i.e. Low probability of losing money)
That those who use this course's value investing approach, if they follow Kelly's "f" framework will hold highly diversiיִed portfolios.
That those who use this course's value investing approach, if they follow Kelly's "f" framework will hold highly concentrated portfolios.
That the short-term performance of a portfolio managed by a value investor following this course's recommendation will have very low market volatility.
That the short-term performance of a portfolio managed by a value investor following this course's recommendation will have very high market volatility.
What do you get by owning a security?
Dividends
Coupon payments
Contractual or ownership rights
The right to vote
What gives value to a security? Answer all that apply.
Its market risk
Payments by the company that issued the security
Its marketability
Whether the security gives you control or elements of control
Graham writes that a silent partner results in a private business will be his share of "proיִts" and/or a "change in net asset value". This statement is correct all the time.
True
False
The central issue in Benjamin Graham's "Business Valuations vs. Stock Market Valuations" is:
The balance sheet value of a share of common stock
The holder of common stocks as having a double status
The impact of market fluctuations upon the investor's "true" situation
Stock prices trading almost always at prices higher than balance sheet values
Since mutual Funds are fully diversiיִed, they can achieve the largest returns possible over time
True
False
What factor in Kelly's formula does good business and security analysis affects the most? (Remember that Kelly's f formula is a fun
The win/loss ratio
The probability of יִnding a proיִtable investment
The potential market risk of the investment
The amount of available capital to deploy on the investment under consideration
The type of security used in a יִnancial operation deיִnes whether the operation is an investment operation or a speculative operation
True
False
The use of leverage is precluded when using a value investing methodology
True
False
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