The goal of immunization is to A. make the effective duration of the portfolio zero В. generate a return in excess of the benchmark using factor mismatches C. earn a pre-determined return, over a specified time horizon, irrespective of interest rate changes D. provide funding of a future liability from coupon and matured principal flows

The goal of immunization is to A. make the effective duration of the portfolio zero В. generate a return in excess of the benchmark using factor mismatches C. earn a pre-determined return, over a specified time horizon, irrespective of interest rate changes D. provide funding of a future liability from coupon and matured principal flows

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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The expected value of an investment: Answer a. Is what the owner will receive when the investment is sold b. Is the sum of the payoffs c. Is the probability-weighted sum of the possible outcomes d. Cannot be determined in advance
Discounted cash flow (DCF) valuation is based on the notion that the value of an asset is the present value (PV) of the expected cash flows on that asset, discounted at a rate that reflects the riskiness of those cash flows. Specify whether the following statement about DCF valuation is true, false, or uncertain? Explain your answer assuming that all variables are constant except for the one mentioned: “As the discount rate increases, the value of an asset increases”.
An efficient portfolio is one that: Select one: a. maximises return for a given level of risk. b. maximises risk for a given level of return. c. minimises risk for a given rate of return. d. Both A and C. are efficient portfolios.
Financial advisors generally recommend that their clients allocate more to higher risk–return asset classes (like equities) if their investment horizons are long. Is this advice consistent with the basic M-V model? Does adding a shortfall constraint to the M-V model make a difference? If so, how? If not, why not? Assuming investment opportunities change over time, what type of asset return behavior would justify this advice within the M-V framework?
An investor must look not only at the over-all return of a portfolio but also the risk of that portfolio to see if the investments return compensates for the risk it takes a. it depends b. maybe c. true d.false
i need the answer quickly
Which of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from short-term investments.c. When the present value of the cashflows is discounted with the appropriate rate end this present value is positive, then the asset providing these cashflows have a value to the investor. d.Cashflows may include depreciatipon expenses and amortization costs.
The constant rupee value plan requires a. Investors to fix the expected value of their portfolio b. Investors to fix their periodical installments c. Investors to fix their rebalancing points d. All of the mentioned
A project's internal rate of return (IRR) is the discount rate YTM on a bond. The equation for calculating the IRR is: timing Project A Project B 0 1 2 CFt is the expected cash flow in Period t and cash outflows are treated as negative cash flows. There must be a change in cash flow signs to calculate the IRR. The IRR equation is simply the NPV equation solved for the particular discount rate that causes NPV to equal zero 320 255 The IRR calculation assumes that cash flows are reinvested at the IRR If the IRR is greater ✔than the project's risk-adjusted cost of capital, then the project should be accepted; however, if the IRR is less than the project's risk-adjusted cost of capital, then the project should be rejected ✓✓✓. Because of the IRR reinvestment rate assumption, when mutually exclusive projects are evaluated the IRR approach can lead to conflicting results from the NPV method. Two basic conditions can lead to conflicts between NPV and IRR: ✔ differences (earlier cash flows in…
identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing long-term solvency risk? Alternatively, can you identify the assumptions underlying the interest coverage ratio appropriate measure for analyzing short-term solvency risk?
Explain the following three variables which influence the overall rate of return on alternative investments: The real risk-free rate of return The nominal risk-free rate of return The risk premium on the investment
An investment requires a total return that comprises: O a real rate of return and compensation for inflation. a real rate of return, compensation for inflation, and a risk premium. compensation for inflation and a risk premium. a real rate of return, compensation for inflation, a risk premium, and compensation for time and effort devoted to researching alternative investments. None of the above

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