Finance chapters 5-7

If The market is in equilibrium, which of the following conditions will exist? A. Each stock's expected return should equal its required return as seen by the marginal investor. B. all stocks should have the same expected return as seen by the marginal investor. C. all stocks should have same realized return during the coming year. D. Each stock's expected return should equal its realized return as seen by the marginal investor.

A. Each Stock's expected return should equal its required return as seen by the marginal investor.

Which of the following statements about risk is correct? A. Standalone risk of an asset is often measured by the standard deviation of its returns, and because it is difficult to forecast future states, in practice the standard deviation is often estimated using the asset's historical returns. B. Investors are risk averse, which means they would prefer treasury bills to stocks because the former is less risky than the latter. C. Apple Inc.'s stock has a lower beta than that of nvidia inc., and hence the former is a better investment choice for most investors. D. A small investor is investing in 5 stocks, and he should care only about the market risk of these securities.

A. Standalone risk of an asset is often measured by the standard deviation of its returns, and because it is difficult to forecast future states, in practice the standard deviation is often estimated using the asset's historical returns.

if the treasury yield curve is downward sloping, which of the following statements is correct? A. The Yield on a 10 year treasury bond will be less than that on a 1 year treasury bill. B. the Yield on a 10 year treasury bond will be higher than that on a 1 year t bill because of the maturity risk premium C. This indicates the inflation is expected to increase in the future D. We cannot say anything about the future of inflation

A. The yield on a 10-year treasury bond will be less than that on a 1 year treasury bill

Which of the following statements is Correct? A. Bonds typically make semiannual coupon payments which are equal to the market interest rate times the par value. B. A zero coupon bond is a bond that pays no interest and is offered at par. These bonds provide compensation to investors in the form of capital appreciation. C. The YTM is determined by the riskiness of the bond, and when the risks of the bond change, the ytm changes accordingly for all bondholders. D. The TYM of a bond is equal to its market interest rate at the time of purchase, but after the purchase, for the existing bondholders the ytm won't change while the market interest rate might change.

B. A zero coupon bond is a bond that pays no interest and is offered at par. These bonds provide compensation to investors in the form of capital appreciation.

Which of the following statements is not correct? A. Diversification will normally reduce the riskiness of a portfolio of stocks. B. An individual stock's diversifiable risk, which is measured by its beta, can be lowered by adding more stocks to the portfolio in which the stock is held. C. Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and its beta will be greater than 1. D. If an investor buys enough stocks, he or she can, through diversification, eliminate all the idiosyncratic risk, but as a general rule it will not be possible to eliminate the market risk.

B. An individual stock's diversifiable risk, which is measured by its beta, can be lowered by adding more stocks to the portfolio in which the stock is held.

Which of the following statements about risk and return is correct? A. Investors can expect higher returns from takin greater standalone risk. B. Higher expected returns are associated with greater market risk. C. if the risk-free rate rises, the required return on a stock will rise. D. If beta of a stock doubles, its required return will double.

B. Higher expected returns are associated with greater market risk.

Which of the following events would make it more likely that a company chooses to call its outstanding callable bonds? A. Inflatn rises sharply B. market interest rate falls sharply C. Market interest rate rises sharply D. The company's bonds are downgraded

B. Market Interest Rate falls sharply

Which of the following will make it more likely that a company would call its outstanding callable bonds? A. Market interest rates rise sharply. B. Market interest rates decline sharply. C. Inflation increases significantly. D. The company's financial situation deteriorates significantly.

B. Market interest rates decline sharply.

Which of the following statements regarding bonds' risk is Correct? A. generally, long-term bonds have smaller interest rate risk but greater reinvestment rate risk than short-term bonds B. Generally, long-term bonds have greater interest rate risk but smaller reinvestment rate risk than short-term bonds. C. generally, long-term bods have smaller interest rate risk and also smaller reinvestment rate risk than short-term bonds. D. Generally, long-term bonds have greater interest rate risk and also greater reinvestment risk than short-term bonds.

B. generally, long-term bonds have greater interest rate risk but smaller reinvestment rate risk than short-term bonds.

In general, which of the following would not lead to a rise in stock price? A. An increase in the expected dividends. B. An increase in the firm's expected dividend growth rate. C. An increase in the required rate of return. D. A decline in the firms risk

C. An increase in the required rate of return.

Which of the following statements is correct? A. Liquidity premiums are generally higher on Treasury bonds than on corporate bonds. B. Default risk premiums are generally lower on corporate bonds than on treasury bonds. C. An upward yield curve is "normal" because default risk premium, liquidity premium, and maturity risk premium all tend to be greater for longer-term securities. D. If the maturity risk premium were zero and interest rates are expected to decrease in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope.

C. An upward yield curve is "normal" because default risk premium, liquidity premium, and maturity risk premium all tend to be greater for longer-term securities.

A 10-year bond pays semiannual coupons, its ytm is 8%, and it currently trades at a premium which of the following statements is correct? A. The bond's coupon rate is less than 8% B. if the bonds price increases, its ytm will increase. C. If the market interest rate declines, the bond's price will increase. D. If the YTM remains at 8%, then the bond's price will remain constant over time till the maturity.

C. If the market interest rate declines, the bond's price will increase.

Which of the following statements is correct? A. A stock with a beta equal to 1 has zero market risk. B. If the returns of a firm are negatively correlated with the market return, then it has a beta that is close to zero. C. If investors become less averse to risk, the slope of the security market line will decrease. D. A stock's beta measures its diversifiable risk relative to the diversifiable risks of other firms.

C. if investors become less averse to risk, the slope of the SML will decrease.

a 10 year, 8% coupon corporate bond issued by an aaa-rated company is currently selling at par. Which of the following statements is not correct? A. the bond's market interest rate is 8% B. A 10-year treasury bond should have a yield to maturity lower than 8% C. A 10-year 10% coupon corporate bond issued by a bbd-rated company has a ytm greater than 8% D. A 10-year, 10% coupon corporate bond issued by a bbd-rated company should be selling at par, too.

D. A 10-year 10% coupon corporate bond issued by a bbd-rated company should be selling at par, too.

Which of the following statements is not correct? A. The interest rate risk is relevant only if an investor considers selling the bond prematurely. B. Maturity risk premium of a bond is the compensation to investors primarily for the interest rate risk. C. All else equal, long-term bonds have less reinvestment rate risk than short-term bonds. D. We often view Treasury securities as risk-free because they are not subject to default risk, illiquidity, or interest rate risk.

D. we often view treasury securities as risk-free because they are not subject to default risk, illiquidity, or interest rate risk.