Bus 320 Quiz 3 White Version
Bus 320: Quiz 3 Solutions
White version
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
In theory, if two assets have the same expected cash flows they will always have the same price.
2.
T
F
Using margin to buy stocks can negate the limited liability aspect of investing in corporations. 3.
T
F
Management of a company generally prefers non-cumulative to cumulative share voting.
4.
T
F
Since the returns of well-diversified portfolios move very much in line with the returns for all stocks in the market, portfolio betas are equal to the beta for the market which is 1.0.
5.
T
F
People who employ technical analysis when investing do not believe that markets are weak-form efficient.
6.
T
F
An investor is considering adding another investment to a portfolio. To achieve the maximum diversification benefits, the investor should add an investment that has a correlation coefficient with the existing portfolio closest to 0.
7.
T
F
If investors expected inflation to increase in the future, and they also became less risk averse, the SML would shift up and the slope would increase.
8.
T
F
Normally, the Security Market Line has an upward slope. However, at one of those unusual times when the yield curve on bonds is downward sloping, the
SML will also have a downward slope.
9.
T
F
An increase in the risk-free interest rate will increase a security's beta.
10. T
F
Combining securities that are not perfectly positively correlated helps to reduce the risk of a portfolio.
11. T
F
The addition of foreign securities to the domestic portfolio opportunity set will likely shift the efficient frontier up and to the left.
12. T
F
If markets are strong-form efficient, the expected return on each stock will be the same as the return on the market.
13. T
F
Illiquid stocks tend to have wider spreads between the bid and ask price.
14. T
F
For dividend paying stocks, prices fall in predictable ways on the ex-dividend
White version
True/False Questions: Circle the correct response. (2 points each)
1.
T
F
In theory, if two assets have the same expected cash flows they will always have the same price.
2.
T
F
Using margin to buy stocks can negate the limited liability aspect of investing in corporations. 3.
T
F
Management of a company generally prefers non-cumulative to cumulative share voting.
4.
T
F
Since the returns of well-diversified portfolios move very much in line with the returns for all stocks in the market, portfolio betas are equal to the beta for the market which is 1.0.
5.
T
F
People who employ technical analysis when investing do not believe that markets are weak-form efficient.
6.
T
F
An investor is considering adding another investment to a portfolio. To achieve the maximum diversification benefits, the investor should add an investment that has a correlation coefficient with the existing portfolio closest to 0.
7.
T
F
If investors expected inflation to increase in the future, and they also became less risk averse, the SML would shift up and the slope would increase.
8.
T
F
Normally, the Security Market Line has an upward slope. However, at one of those unusual times when the yield curve on bonds is downward sloping, the
SML will also have a downward slope.
9.
T
F
An increase in the risk-free interest rate will increase a security's beta.
10. T
F
Combining securities that are not perfectly positively correlated helps to reduce the risk of a portfolio.
11. T
F
The addition of foreign securities to the domestic portfolio opportunity set will likely shift the efficient frontier up and to the left.
12. T
F
If markets are strong-form efficient, the expected return on each stock will be the same as the return on the market.
13. T
F
Illiquid stocks tend to have wider spreads between the bid and ask price.
14. T
F
For dividend paying stocks, prices fall in predictable ways on the ex-dividend