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S&I Fall Final Study
Study Materials for Fall Final 2021
| Question | Answer |
|---|---|
| In general, securities with ____ characteristics will offer ____ yields. | favorable; lower |
| Credit (default) risk is likely to be highest for: | BBB corporate securities |
| Some financial institutions such as commercial banks typically invest only in: | investment-grade bonds |
| Credit ratings are most commonly used to indicate which financial institutions have available funds that they can lend to borrowers. | False |
| If a security can easily be converted to cash without a loss in value, it | is liquid. |
| The term structure of interest rates defines the relationship | between maturity and yield. |
| If shorter-term securities have higher annualized yields than longer-term securities, the yield curve | is downward sloping. |
| If the liquidity premium exists, a flat yield curve would be interpreted as the market expecting ____ in interest rates. | a slight decrease |
| If a yield curve is upward sloping, the investment strategy of buying long-term securities, then selling them after a short period (say, one year) is called: | riding the yield curve |
| If liquidity influences the yield curve, the forward rate underestimates the market's expectation of the future interest rate. | False |
| The yield curve for corporate bonds | typically has the same slope as the Treasury yield curve. |
| The preference for more liquid short-term securities places downward pressure on the slope of the yield curve. | False |
| Financial market participants who provide funds are called | surplus units. |
| Behavioral finance | applies psychology to financial decision making. |
| Those financial markets that facilitate the flow of short-term funds are known as: | money markets account |
| Funds are provided to the initial issuer of securities in the: | primary market |
| Which of the following is a capital market instrument? | a ten-year bond |
| The creditors in the federal funds market are: | depository institutions |
| Investors in equity securities may earn a return from | quarterly dividends (if paid) and a capital gain when they sell the securities. |
| If security prices fully reflect all available information, the markets for these securities are: | efficient |
| If markets are ____, investors could use available information ignored by the market to earn abnormally high returns. | inefficient |
| The Securities Act of 1933 | required complete disclosure of relevant financial information for publicly offered securities in the primary market. |
| Stock issued by a corporation is an example of a(n): | equity security |
| The price-earnings valuation method applies the ____ price-earnings ratio to the ____ earnings per share in order to value the firm's stock. | average industry; firm's |
| The PE method to stock valuation may result in an inaccurate valuation for a firm if errors are made in forecasting the firm's future earnings or in choosing the industry composite used to derive the PE ratio. | True |
| The limitations of the dividend discount model are more pronounced when valuing stocks | that retain most of their earnings. |
| The ____ is commonly used as a proxy for the risk-free rate in the capital asset pricing model. | Treasury bond rate |
| A beta of 1.8 implies that the stock has a risk premium of 1.8 percent. | False |
| A weak dollar may enhance the value of a U.S. firm whose sales are dependent on the U.S. economy. | True |
| The expected acquisition of a firm typically results in ____ in the target's stock price. | an increase |
| The ____ index can be used to measure risk-adjusted performance of a stock while controlling for the stock's volatility. | Sharpe |
| The ____ index can be used to measure risk-adjusted performance of a stock while controlling for the stock's beta. | Treynor |
| Stock price volatility increased during the credit crisis. | True |
| The Sharpe index measures the | excess return above the risk-free rate per unit of risk. |
| The "January effect" refers to a large | rise in the price of small stocks in January. |
| A(n) ____ is a standardized agreement to deliver or receive a specified amount of a specified financial instrument at a specified price and date. | financial futures contract |
| Interest rate futures are not available on | the S&P 500 index. |
| ____ take positions in futures to reduce their exposure to future movements in interest rates or stock prices. | Hedgers |
| Futures exchanges take buy or sell positions on futures contracts. | False |
| Financial futures contracts on U.S. securities are ____ by non-U.S. financial institutions. | are commonly traded |
| The use of financial leverage | magnifies the positive returns of futures contracts AND magnifies losses of futures contracts. |
| As applied to the futures markets, the basis is the | difference between the price of a security and the price of a futures contract on the security. |
| Systemic risk reflects the risk that a particular event could | spread adverse effects among several firms or among financial markets. |
| ____ risk is the risk that the position being hedged by a futures contract is not affected in the same manner as the instrument underlying the futures contract. | Basis |
| Trading restrictions imposed on specific stocks or stock indexes are referred to as | circuit breakers. |
| Purchasers of currency futures contracts are required to hold the contract until the settlement date and accept delivery of the foreign currency at that time. | False |
| Stock index futures are priced ____ than the stock index itself. | either higher or lower |
| How does investing in the stock market differ from putting money in a savings account at a bank? | Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases or emergencies |
| Why is compound interest more advantageous than simple interest? | Compound interest allows you to earn interest not only on the amount you have saved but also on the interest you've already earned |
| When investing in individual stocks, you should expect that | Unforeseen company events can have a dramatic impact on the stock price of a company. |
| Why is diversification a recommended investment strategy? | Diversifying your portfolio helps reduce risk. |
| How is a bond different from a stock? | A bond is a loan you give to an organization while a stock is a partial ownership in the company. |
| How can someone make money from investing in a stock? | They receive dividends from the company they bought the stock in and/or they sell the stock at a higher price than what they bought it for. |
| What is a brokerage account used for? | It’s a type of account used to buy and sell stocks, bonds, and mutual funds. |
| Why is it important for you to understand YOUR risk tolerance before you start investing? | You should tailor your investment portfolio so that it assumes an amount of risk you are comfortable with. |
| Why are Index Funds such a popular investing option? | They provide a low-cost, diversified investment option that closely matches the overall return of a given index, such as the S&P 500 |
| What is a vesting period? | The period of time it takes for shares in an employer retirement plan to be owned fully by the employee |
| As a shareholder in a public company, what are the benefits available to you? | You may receive dividends from the company if the company pays them, and you have ownership of a portion of a company |
| What is one question an investor should ask before investing in a Roth IRA or a Traditional IRA? | Do I want to pay taxes now (Roth IRA) or later (Traditional IRA)? |
| Which of the following is a money market security? | commercial paper |
Created by:
mrstephens
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