If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve returns, and they are exposed to relatively risk. --- lower; lower lower; higher O higher; lower O higher; higher

If investors speculate in derivative contracts rather than in the underlying asset, they will probably achieve returns, and they are exposed to relatively risk. --- lower; lower lower; higher O higher; lower O higher; higher

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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If investors speculate in derivative contracts rather than in the underlying asset, they will probably
achieve returns, and they are exposed to relatively _ risk.
lower; lower
lower; higher
higher; lower
higher; higher

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Define risk-free asset (in no more than 3 lines). [Hint: Focus on the features of the asset itself.] Is the following statement true or false. Briefly explain your answer. "There can not be a universally risk-free asset for all investors." [Hint: Think about investor's investment horizon vs. the asset's time to maturity, inflation, etc.]
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In financial risk management strategies using derivatives instrument to maximise profits. Select one: True False
In the standard model of investment management, investors care only for: a. The return and the risk of their portfolio. b. The return, the risk and the degree of ambiguity of their portfolio. c. The return of their portfolio when the market is bullish. d. The relative level of profit they will make in comparison to other investors.
describe the process of short selling. define the theoretical fair value of an asset and relate it to the concept of market efficiency. discuss and relate the concepts of arbitrage and the law of one price. describe how and why risk is transferred from hedgers to speculators in derivative markets.
STATEMENT 1: Call options' value go up if the market perceives the underlying asset to be undervalued. STATEMENT 2: Put options' increase in value is parallel to the increase of risk of an investment. Both statements are true Both statements are false Only statement 1 is true Only statement 2 is true
When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market, fixed-interest payments declines, so the market value of the investment falls. How would that drop in fair value be reflected in the investment account for a security classified as HTM? Would your answer change if the drop in fair value was due to worsened financial conditions at the investee?
1) Please indicate whether the following statements are true or false. In case of a false statement, briefly specify why the statement is false. 1. A real asset is different from a financial asset because a real asset must take a physical form. 2. In the financial market, an investor buys financial securities from dealers at the ask price and sells financial securities to dealers at the bid price. 3. Mankowitz portfolio theory assumes average investors have a utility function as an increasing and concave function of future portfolio return. 4. According to CAPM, all well-diversified portfolios on the capital market line have the same Sharpe ratio. 5. The Markowitz portfolio theory assumes that investors hold homogenous expectations about risk and returns of financial securities.
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