T/F Final exam samples

Question 1

Prefferred Stock shares are usually voting shares that come with a fixed stream of income

Answer 1

False

Question 2

Arithmetic averages tend to be smaller than geometric averages because they ignore compounding

Answer 2

False

Question 3

Idiosyncratic, firm specific, and non-diversifiable risk are all names of the same type of risk

Answer 3

False

Question 4

Portfolio risk is the weighted average of the risk of each assets stand-alone risk in the portfolio

Answer 4

False

Question 5

The minimum variance portfolio on the efficient frontier has the highest sharpe ratio

Answer 5

False

Question 6

“Excess returns as discussed in class refer to an assets returns above the market return

Answer 6

False

Question 7

If there were not limits to arbitrage for rational investers then even if a minority of investors were irrational in their trades the price would still on average reflect the availabel info about the firm

Answer 7

True

Question 8

The face value of a TIP bond changes during the life of the bond

Answer 8

True

Question 9

The difference between the flat and invoice price of a bond is larger on average, early in the life of the the bond than it is later in the life of the bond.

Answer 9

False

Question 10

IF there were a downward sloped yield curve, the expectations hypothesis would explain the curve as being caused by higher expected short term rates.

Answer 10

False

Question 11

A decrease in a bond’s yield to maturity results in a smaller price change than an increase in yield of equal magnitude

Answer 11

False

Question 12

The sensitivity of a bond’s price to a change in its yield is inversely related to the yield to maturity which the bond currently is selling.

Answer 12

True

Question 13

The duration of a zero coupon bond equals its time to maturity

Answer 13

True

Question 14

With time to maturity and Yield to maturity held constant, a bonds duration and interest rate sensitivity are higher when the coupon rate is lower

Answer 14

True

Question 15

Immunization balances price risk and credit risk.

Answer 15

False

Question 16

Other things constant, convexity in bonds is generally considered a desirable trait by investors.

Answer 16

True

Question 17

Stock prices are an example of a coincident indicator

Answer 17

False

Question 18

The market capitalization rate is the market-consensus estimate of the appropriate discount rate for a firms cash flows

Answer 18

True

Question 19

People who use the PEG ratio to identify good investments look for firms with high PEG ratios

Answer 19

False

Question 20

Using relative valuation to identify undervalued securities implicitly assumes that prices are semi strong efficient

Answer 20

False

Question 21

The modified duration of a zero coupon bond is the time to maturity for that bond.

Answer 21

False

Question 22

Immunization is achieved when the PV of the liabilities equals the PV of assets.

Answer 22

False

Question 23

Sector rotation is a strategy to invest in certain industries in certain stages of the business cycle.

Answer 23

True

Question 24

Treasury bond quotes use the bank discount method

Answer 24

False

Question 25

The invoice bond price equals the flat price except on days when coupons are paid.

Answer 25

False

Question 26

Companies with higher credit risk have to offer higher yields on their bonds to entice investors to buy them

Answer 26

True

Question 27

Credit ratings provide information about the probability of default

Answer 27

True

Question 28

Credit ratings are related to coverage, leverage, liquidity, and profitability ratios.

Answer 28

True

Question 29

When estimating the beta using stock returns the estimated beta is the asset beta because you haven't considered the capital structure of the firm.

Answer 29

False

Question 30

Investors personal risk aversion affects the identification of the tangency portfolio the efficient frontier

Answer 30

False