Whether the following statement is true or wrong. Briefly explain your answer. "It is impossible to have an asset that is risk-free for all investors.” [Hint: Consider the relationship between the investment period of investors and asset maturity, inflation and other factors.

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.

Funding risk is the risk that a firm will not be able to meet its short-term financial obligations when due.   Select one: True False

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.

Which of the following is TRUE?   High-risk investments always have high returns If you invest in a risky investment, you are guaranteed to have a high return.  On average, an investor will earn high returns on a low-risk investment On average across investments and over time, riskier investments have higher returns.  A high-risk investment will never have a total loss.

Which one of the following expressions about risk and returns is wrong? A. In general, one reason why a stock is riskier than a bond is that because cash flows from a bond are known and promised, whereas cash flows from a stock are neither known nor promised. B. According to CAPM model, a well-diversified portfolio will have a beta which equals to 0. C. Risk premium is the extra return provided on risky assets to compensate for risk. The difference between risky return and the risk-free return. D. Unexpected return happened because new information came to light which caused our expectations about prices and returns to change.

LO1 Show the reasons why the net present value criterion is the best way to evaluate proposed investments. LO2 Discuss the payback rule and some of its shortcomings.