All Areas 1
the principle amount of a bond that is repaid at the end of the term is called the
a. coupon
b. face value
c. maturity
d. yield to maturity
e. coupon rate
b. face value
In capital market line, the risk of efficient portfolio is measured by its____________
Standard Deviation
Yield to maturity is the discount rate that equates the sum of the present values of a bond's future cash flows with its par value
TRUE OR FALSE
FALSE
If the forecast rate of return is less than the required rate of return then the security is ____ ?
overvalued
A "random walk" occurs when:
a. Stock price changes are random but predictable.
b. Stock prices respond slowly to both new and old information.
c. Future price changes are uncorrelated with past price changes.
d. Past information is useful in predicting future prices.
c. Future price changes are uncorrelated with past price changes.
random walk reflects no other info is thus random
The issuing of new securities, mortgages, and other claims to wealth takes place in the_____________
financial markets
What is an efficient portfolio?
An efficient portfolio is any portfolio that only contains systematic risk; it contains no diversifiable risk
The risk-free security has a beta equal to ________, while the market portfolio's beta is equal to ________.
A. one; more than one.
B. one; less than one.
C. zero; one.
D. less than zero; more than zero
C. zero; one
In addition to paying for government operations, taxation may be used to _______.
A. Influence behavior
B. Redistribute wealth
C. Stabilize the economy
D. All of the Above
E. None of the above
All of the Above( Influence behavior, redistribute wealth, stabilize the economy,)
The semi-strong form of the efficient market hypothesis asserts that stock prices:
a. Fully reflect all historical price information
b. Fully reflect all publicly available information.
c. Fully reflect all relevant information including insider information.
d. May be predictable.
b. Fully reflect all publicly available information.
Public information constitutes semi-string efficiency, while the addition of private information leads to strong form efficiency.
the specified date on which the principle amount of a bond is repaid is called the
a. coupon
b. face value
c. maturity
d. yield to maturity
e. coupon rate
d. yield to maturity
Sources of risk to the investor include
A. loss of income when funds are reinvested
B. fluctuations in securities markets
C. the financing decisions of the firm
D. all of the above
E. none of the above
D. all of the above
In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is
systematic risk/market risk/beta
Capital gains refers to
a. Tax-exempt investments
b. Retirement accounts
c. Profits from the sale of an investment asset
d. Earnings from investments such as dividends or interest
e. Tax-deferred investments
c. Profits from the sale of an investment asset
In an efficient capital market, only ______ or ________ information will make stock prices move.
A. past, known
B. past, unexpected
C. new, unexpected
D. new, known
new, unexpected
The greater the beta, the______ of the security involved
A. greater the unavoidable risk
B. greater the avoidable risk
C. less the unavoidable risk
D. less the avoidable risk
A. greater the unavoidable risk
List THREE types of investors
(ALL THREE MUST BE LISTED)
risk adverse, risk loving, risk neutral
Harry Markowitz developed the theory that an efficient set of portfolios exists which represent the maximum return possible for any given level of risk
TRUE OR FALSE
TRUE
An area of finance that involves the sale or marketing of securities, the analysis of securities, and the management of investment risk through portfolio diversification is referred to as:
Investment
In an efficient market, only skilled investors will consistently find mispriced securities and earn an abnormal profit
TRUE OR FALSE
FALSE
Suppose two portfolios have the same standard deviation. Which would a rational investor choose?
The one with the highest expected return
Adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the ______.
A. up, right
B. down, left
C. down, right
D. up, left
up, left
A market portfolio includes all publicly traded financial assets, lies on the efficient frontier, and all securities in the market portfolio are held in proportion to their market values.
TRUE OR FALSE
TRUE
The most liquid asset an individual or company has is:
Cash, cash in hand
A market anomaly refers to:
a. An exogenous shock to the market that is sharp but not persistent.
b. A price or volume event that is inconsistent with historical price or volume trends.
c. A trading or pricing structure that interferes with efficient buying and selling of securities.
d. Price behavior that differs from the behavior predicted by the efficient market hypothesis
d. Price behavior that differs from the behavior predicted by the efficient market hypothesis