Which statement is TRUE regarding the riskiness of money market instruments and capital market instruments? *       Changing economic prospects can cause very large changes in current stock values.   Distant cash flows for stocks can be known with certainty, make them riskier than money market instruments.   Money market instruments have predictable cash flows and mature in one year or less, so they are much more risky.   The prices of long-term capital market instruments are less sensitive to changes in interest rates than prices of short-term instruments.

Under the Pure Expectations Theory, if issuers expect interest rates to increase, O Two statements are correct. O borrowers will generally prefer to issue short-term securities rather than long-term securities. O the corresponding decrease in the demand for long-term funds by borrowers places downward pressure on long-term funds. O Three statements are correct. O there is downward pressure on the yield of short-term funds. O Only one statement is correct. O they will prefer to lock in the present interest rate over a long period of time.

5. Evidence that stocks that outperform the market this month also outperform the market next month would tend to disconfirm which form of the efficient capital markets hypothesis? a. the weak form b. the semi-strong form c. the strong form d. the weak and semi-strong forms e. all forms

Question 2 (a) Evaluate the following statement: "Two stocks should be viewed as equally risky because they have the same standard deviation." (b) Suppose that the relevant equilibrium model is the CAPM with unlimited borrowing and lending at a riskless rate of interest. Assuming, you discovered a security that was located below the security market line. (i) What would you conclude about the pricing of this particular security? (ii) Describe any changes you would expect to occur in its price. (c) Suppose that the relevant equilibrium model is CAPM with unlimited borrowing and lending at a riskless rate of interest. Compute the missing values (a*, b*, c*, d*, e*) in the following table, showing all intermediate steps. Expected Standard Residual Variance Asset Return Deviation Beta A 0.1 a* 0 B b* 2 0.49 C d* 1 0 D e* 0 0.36 0.08 0.12 c* 0.05

Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round to…

I 1. If news comes to the market that suggested that the world stock prices will encounter less variability (variance) for the coming years than in the past, what would this mean for an owner of a portfolio which is mostly composed of call and put options? A. This is great news less variability is less risk, which will help portfolio return B. It is unclear if this news will be beneficial or harmful to the portfolio C. This will have no effect on the portfolio as it is immunized from volatility. D. This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher. The answer is D, as options increase in value with greater volatility and with less volatility the portfolio will surely be worthless money. O This is great news less variability is less risk, which will help portfolio return O It is unclear if this news will be beneficial or harmful to the portfolio This will have no effect on the portfolio as it is immunized from…

Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky…

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.

Jolie Corp.is looking into the following transcations to change its risk profile. Which of the following transcations will for sure increase the risk-estimate of the company (and increase the borrowing interest rate) from the z-score perspective. Mark all that apply; more than one answer could be correct.     Sold held-to maturity investments for a profit     Write-off some obsolete inventory     Collect cash from accounts receivable     Buy long-term investments withcash