FIN 310 - HW 5

The __________ of a bond is computed as the ratio of the annual coupon payment to the market price. A. nominal yield B. current yield C. yield to maturity D. yield to call

b

_______ bonds represent a novel way of obtaining insurance from capital markets against specified disasters. A. Asset-backed bonds B. TIPS C. Catastrophe D. Pay-in-kind

c

A __________ bond gives the issuer an option to retire the bond before maturity at a specific price after a specific date. A. callable B. coupon C. potable D. Treasury

a

Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________. A. Eurobonds B. Yankee bonds C. Samurai bonds D. foreign bonds

a

Even if the markets are efficient, professional portfolio management is still important because it provides investors with: I. Low-cost diversification II. A portfolio with a specified risk level III. Better risk-adjusted returns than an index A. I only B. I and II only C. II and III only D. I, II, and III

b

A __________ bond gives the bondholder the right to cash in the bond at maturity or extend the bond's life. A. callable B. coupon C. puttable D. Treasury

c

Evidence suggests that there may be _______ momentum and ________ reversal patterns in stock price behavior. A. short-run; short-run B. long-run; long-run C. long-run; short-run D. short-run; long run

d

Market anomaly refers to _______. A. an exogenous shock to the market that is sharp but not persistent B. a price or volume event that is inconsistent with historical price or volume trends C. a trading or pricing structure that interferes with efficient buying and selling of securities D. price behavior that differs from the behavior predicted by the efficient market hypothesis

d

Proponents of the EMH think technical analysts __________. A. should focus on relative strength B. should focus on resistance levels C. should focus on support levels D. are wasting their time

d

The bonds of Elbow Grease Dishwashing Company have received a rating of C by Moody's. The C rating indicates that the bonds are _________. A. high grade B. intermediate grade C. investment grade D. junk bonds

d

The issuer of ________ bond may choose to pay interest either in cash or in additional bonds. A. an asset-backed B. a TIPS C. a catastrophe D. a pay-in-kind

d

Everything else equal, the __________ the maturity of a bond, the greater the sensitivity of the bond's price to interest rate changes. A. longer B. shorter

a

The ___________ is the document that defines the contract between the bond issuer and the bondholder. A. indenture B. covenant agreement C. trustee agreement D. collateral statement

a

The invoice price of a bond is the ______. A. stated or flat price in a quote sheet plus accrued interest B. stated or flat price in a quote sheet minus accrued interest C. bid price D. average of the bid and ask price

a

The primary difference between Treasury notes and bonds is ________. A. maturity at issue B. default risk C. coupon rate D. tax status

a

Yields on municipal bonds are typically ___________ yields on corporate bonds of similar risk and time to maturity. A. lower than B. slightly higher than C. identical to D. twice as high as

a

Joe bought a stock at $57 per share. The price promptly fell to $55. Joe held on to the stock until it again reached $57, and then he sold it once he had eliminated his loss. If other investors do the same to establish a trading pattern, this would contradict _______. A. the strong-form EMH B. the weak-form EMH C. technical analysis D. the semistrong-form EMH

b

Stock market analysts have tended to be ___________ in their recommendations to investors. A. slightly overly optimistic B. overwhelmingly optimistic C. slightly overly pessimistic D. overwhelmingly pessimistic

b

Evidence supporting semistrong-form market efficiency suggests that investors should _________________________. A. rely on technical analysis to select securities B. rely on fundamental analysis to select securities C. use a passive trading strategy such as purchasing an index fund or an ETF D. select securities by throwing darts at the financial pages of the newspaper

c

If you are holding a premium bond, you must expect a _______ each year until maturity. If you are holding a discount bond, you must expect a _______ each year until maturity. (In each case assume that the yield to maturity remains stable over time.) A. capital gain; capital loss B. capital gain; capital gain C. capital loss; capital gain D. capital loss; capital loss

c

The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that _________. A. high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a unique risk factor B. low book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor C. either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor D. high book-to-market firms have more post-earnings drift

c

The primary objective of fundamental analysis is to identify __________. A. well-run firms B. poorly run firms C. mispriced stocks D. high P/E stocks

c

The term random walk is used in investments to refer to ______________. A. stock price changes that are random but predictable B. stock prices that respond slowly to both old and new information C. stock price changes that are random and unpredictable D. stock prices changes that follow the pattern of past price changes

c

Which of the following would violate the efficient market hypothesis? A. Intel has consistently generated large profits for years. B. Prices for stocks before stock splits show, on average, consistently positive abnormal returns. C. Investors earn abnormal returns months after a firm announces surprise earnings. D. High-earnings growth stocks fail to generate higher returns for investors than do low earnings growth stocks

c

You hold a subordinated debenture in a firm. In the event of bankruptcy you will be paid off before which one of the following? A. Mortgage bonds B. Senior debentures C. Preferred stock D. Equipment obligation bonds

c