fin 371

Mutual funds and etfs both trade continuously so investors can trade throughout the day

False

It is a violation of the strong form of the efficient market hypothesis for a company to consistently generate large profits

False

Within the context of the CAL, it is possible to increase your portfolios Sharpe ratio by buying on margin

False

If an economy is experiencing deflation, then the real rate of return could be higher than the nominal rate

True

If 50% of mutual funds were to outperform the S&P 500 this year, then researchers could confidently reject the semi-strong form of the EMH

False

There is no way for investment companies to create value for their clients unless markets are at least somewhat inefficient

False

Investing in an asset with higher risk guarantees that you obtain a higher return

False

Investors can limit downside risk by accompanying short sales with stop/loss orders

False

Dealer markets are characterized by agents called dealers who hold an inventory of securities to buy and sell with other traders

True

US Treasury Bonds carry an implicit guarantee from the US Federal Gov.

False

Maintenance margin requirements are generally lower than initial requirements

True

Buying on margin always results in better investment returns

False

The credit spread on bonds issued by a financially distressed company should generally be higher than the credit spread on bonds issued by a financially healthy company

True

The Dow Jones Industrial Average is a value weighted average of 30 large stocks

False

According to the CAPM, the price of all publicly traded stocks will increase when the market risk premium decreases

True

The residual standard deviation of an empirical market model regression gives a measure of a stock’s unsystematic risk

True

The Fama-French 3 Factor Model builds on the CAPM by adding the HML and UMD risk factors

False

Decreasing the number of stocks in a portfolio from 50 to 10 will always increase the systematic risk of the portfolio

False

Increasing the number of assets in a portfolio helps to diversify away market risk, primarily leaving firm-specific risk

False

The efficient frontier represents the portfolios of risky assets that maximize expected return for a given risk level

True

A stock with a beta of 1.3 will have more total risk than a stock with a beta of 1.0

False

A stock with a beta of 1.0 will always have a lower required rate of return than a stock with a beta of 1.2

True

All else equal, investors will demand a higher initial YTM on bonds with a convertible feature

False

All else equal, investors are typically willing to accept lower yields on bonds with floating rates relative to bonds with fixed costs

True

When interest rates change, the bond price estimated by the duration rule will always be lower than the actual bond price

True

The writer of a put option agrees t sell shares at a predetermined price if the option is exercised

False

Longer dated options are more expensive than shorter dated options

True

The bonds of ABC Corp. have received a rating of BB+ by Moody’s. The BB+ rating indicates that bonds are considered to be investment grade

False

Consider a bond that is currently selling at a premium. If the yield on this bond is expected to remain constant until the bond’s maturity, the bond’s price will increase as it gets closer to maturity

False