CHAPTER 5SECURITY-MARKET INDICATOR SERIESTRUE/FALSE QUESTIONS(t)1The general purpose of a market indicator series is to provide an overall indication of aggregate market changes or movements.(t)2An aggregate market index can be used as a benchmark to judge the performance of professional money managers.(f)3A price weighted series is disproportionately influenced by larger capitalization companies.(f)4The Dow Jones Industrial Average is a value weighted average.(t)5A two for one stock split causes the divisor in a price-weighted series to decline.(t)6The Dow Jones Industrial Average has been criticized for being blue-chip biased.(f)7Unlike the Dow Jones Industrial Average, the Nikkei-Dow Jones Average is price weighted.(t)8A value weighted index automatically adjusts for stock splits. (f)9The New York Stock Exchange Index is based on a sample of all of the New York Stock Exchange stocks.(t)10An equally weighted indicator series is also known as an unweighted indicator series.(f)11Bond-market indicator series have been around much longer than stock-market indicator series. (f)12It is easier to construct an indicator series for bonds because of their relatively stable returns pattern.(t)13The major U.S. stock indexes are highly correlated.(t)14To solve comparability problems across countries, global equity indexes with consistent sample selection, weighting and computational procedure have been developed.(f)15There are no composite series currently available that will measure the performance of all securities (i.e. stocks and bonds) in a given country.(f)16The NYSE series should have higher rates of return and risk measures than the AMEX and OTC series.(t)17There is a high correlation between the Wilshire 5000 index and the alternative NYSE series (S&P 500 and the NYSE), representing the substantial influence of large NYSE stocks on the Wilshire 5000 index. (t)18The low correlations between the U.S. and Japan, confirm the benefit of global diversification.(t)19The correlations among the U.S. investment-grade-bond series were very high because all rates of return for investment-grade bonds over time are impacted by common macroeconomic variables.MULTIPLE CHOICE QUESTIONS(e)1Which of the following is not a use of security market indicator series?a)To use as a benchmark of individual portfolio performanceb)To develop an index portfolioc)To determine factors influencing aggregate security price movementsd)To use in the measurement of systematic riske)To use in the measurement of diversifiable risk(a)2A properly selected sample for use in constructing a market indicator series will consider the samples source, size anda)Breadth.b)Average beta.c)Value.d)Variability.e)Dividend record.(c)3The Nikkei-Dow Jones Average is composed of _ stocks listed on the first section of the Tokyo Stock Exchange.a)30b)100c)225d)500e)1000(a)4What effect does a stock substitution or stock split have on a price-weighted series?a)Index remains the same, divisor will increase/decrease.b)Divisor remains the same, index will increase/decrease.c)Index and divisor will both remain the same.d)Index and divisor will both reflect the changes (immediately).e)Not enough information is provided.(b)5Which of the following is not a value-weighted series?a)NASDAQ Industrial Indexb)Dow Jones Industrial Averagec)Wilshire 5000 Equity Indexd)American Stock Exchange Seriese)NASDAQ Composite Index(c)6An example of a value weighted stock market indicator series is thea)Dow Jones Industrial Average.b)Nikkei Dow Jones Average.c)S & P 500 Index.d)Value Line Index.e)Shearson Lehman Hutton Index.(c)7A criticism of a value weighted index is thata)They are subject to exchange rate fluctuations.b)They are not useful for the OTC market.c)Large companies have a disproportionate influence on the index.d)Small companies have an exaggerated effect on the index.e) None of the above(e)8Of the following indices, which includes the most comprehensive list of stocks?a)New York Exchange Indexb)Standard and Poors Indexc)American Stock Exchange Indexd)NASDAQ Series Indexe)Wilshire Equity Index(d)9The Value Line Composite Average is calculated using the _ of percentage price changes. a)arithmetic averageb)harmonic averagec)expected valued)geometric averagee)logarithmic average(d)10Which of the following is not a global equity indicator series?a)Morgan Stanley Capital International Indexesb)Dow Jones World Stock Index c)FT/S & P-Actuaries World Indexesd)Merrill Lynch-Wilshire World Indexese)None of the above (that is, each