An efficient capital market is one in which: A) Security prices reflect available information. B) Risky securities offer a positive rate of return to investors. C) Information is distributed fairly. D) After-tax returns are equalized. E) Prices fluctuate smoothly. ANSWER A
Date: September 19th, 2020
Evidence from the 50-year period from 1950 to 1999 indicates that returns and risk (as measured by the standard deviation of returns) are positively related. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Your investment banking firm has estimated what your new issue of bonds is likely to sell for under several different economic conditions. What is the expected (average) selling price of each bond? Recession Steady Boom Probability .25 .65 .10 Bond price $970 $1,000 $1,150 A) $1,000.00 B) $1,007.50 C) $1,040.00 D) $1,100.33 ANSWER […]
Date: September 19th, 2020
As inflation pushes interest rates up, the cost of carrying inventory rises. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The Horizons Bull Plus Fund seeks daily investment results that correspond to two times (200%) the daily performance of the S&P 500 Index. If you wanted to build a portfolio out of T-Bills and the S&P Index to mimic the performance of the Bull Plus Fund, then what are the portfolio weights? Assume that the […]
Date: September 19th, 2020
If capital markets are efficient, then: A) There is no reason to believe that prices are too high or too low. B) It is not possible to make money by playing the stock market. C) Prices will adjust slowly when reacting to new information. D) Historical price trends will give you a good idea of […]
Date: September 19th, 2020
Over the 50-year period from 1950 to 1999, 3-month Treasury bills earned a positive average annual rate of return in each year. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
What advice should investors heed if markets are efficient? A) You can earn abnormally large returns by frequently buying and selling whenever you obtain new information. B) The best-informed traders always beat the market. C) Mutual funds run by expert managers consistently outperform index funds. D) Random stock picks will perform as well as a […]
Date: September 19th, 2020
A more risky stock has a higher ________. A) expected return B) standard deviation C) variance D) B and C ANSWER Answer: D Explanation: D) Standard deviation and variance essentially tell you the same thing—a stock’s volatility or risk.
Date: September 19th, 2020
Stocks A, B, C, and D have returns of 5%, 15%, 30%, and 110%, respectively. What is their standard deviation? A) 64.25% B) 56.75% C) 47.78% D) 32.05% ANSWER Answer: C Explanation: C) Mean return = (5% + 15% + 30% + 110%)/4 = 40%, so variance = [(5% – 40%)2 + (15% […]
Date: September 19th, 2020
