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Stack #1284591
| Question | Answer |
|---|---|
| The present value of a 5-year annuity due____the present value of a 5-year ordinary annuity. | will exceed |
| If a loan has a nominal rate of 10 percent, then the effective rate can never be | less than 10 percent |
| if there is annual compounding, then the effective, periodic, and nominal rates of interest are | all the same |
| The future value of an annuity due is always greater than the____ | future value of an otherwise identical ordinary annuity |
| Suppose that today someone offered you your choice of two equally risky annuities (i.e., they have the same interest rate), each making 5 annual payments of $5,000 to you. One is an annuity due, while the other is an ordinary annuity. If you are a ratio | annuity due |
| Izzy Stradlin has a 30-year, $100,000 amortized mortgage with a nominal interest rate of 10 percent and monthly compounding. Which of the following statements regarding his mortgage is/are true? | The proportion of the monthly payment that represents interest will be lower for the last payment than for the first payment on the loan. |
| If the required return is less than the coupon rate, a bond will sell at | a premium |
| The constant dividend growth model only holds if the stock’s exceeds the dividend growth rate. | required return, the dividend growth rate. |
| An increase in the dividend growth rate will __ a stock’s market value, all else the same. | increase |
| An increase in the required return on a stock will decrease its __ all else the same | market value |
| A bond will sell _____ when the coupon rate exceeds the required rate of return, _____ when the coupon rate is less than the required return, and _____ when the coupon rate is equal to the required return. | at a premium; at a discount; equal to the par value |
| The market price of outstanding bond issues often varies from face value because | the required rate of return has changed |
| Can the return on a portfolio ever be greater than the largest return on an individual security in the portfolio? | no |
| Can the standard deviation of a portfolio ever be greater than the largest standard deviation of an individual security in the portfolio? | no |
| In general, the lower (less positive and more negative) the correlation between asset returns, | the greater the potential diversification of risk |
| The beta coefficient of a stock is normally found by running a regression of past returns on the stock against past returns on a stock market index. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate t | |
| Market risk is always greater than diversifiable risk | not true |
| diversifiable risk vs. market risk | |
| The slope of an asset’s security market line (SML) is the _________. | market risk premium |
| If you are a risk minimizer, you should choose Stock _____ if it is to be held in isolation and Stock _____ if it is to be held as part of a well-diversifed portfolio. | with the lowest SD, highest SD |
| Market participants are able to eliminate virtually all company-specific risk if they hold a large diversified portfolio of stocks. | true |
| It is possible to have a situation where the market risk of a single stock is less than that of a well diversified portfolio | a well diversified portfolio |
| An increase in expected inflation could be expected to increase the ____t and on ___ by the same amount, other things held constant. | required return on a riskless asset, an average stock |
| If you formed a large portfolio of stocks each with a beta ___ this portfolio will have more market risk than a single stock with a beta = 0.8. | greater than 1.0 |
| Company-specific (or unsystematic) risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk. | true |
| According to the CAPM, the relevant portion of an asset’s risk attributable to market factors that affect all firms is called | systematic risk |
| According to the CAPM, an increase in nondiversifiable risk | would cause an increase in the beta and would increase the required return. |
| The proportion of the payment of a fully amortized loan that goes towards interest ___ over time. | declines |
| If portfolio weights are positive: 1) Can the return on a portfolio ever be greater than the largest return on an individual security in the portfolio? | no |
| If portfolio weights are positive: Can the standard deviation of a portfolio ever be greater than the largest standard deviation of an individual security in the portfolio? | no |
| diversfiable risk | company specific, unsystematic |
| Which of the following describes a portfolio that plots above the security market line | The security’s return to risk ratio is too high. |
| beta | a measure of an assets nondiversifiable (market) risk -slope of the line is the stock's beta |
| The x-axis represents the ___ and the y-axis represents the __ | risk (beta), expected return |
| The proportion of the payment of a fully amortized loan that goes towards interest ___ over time | declines (each payment is the same and each is part principle and part interest) As you pay off the loan, you pay less interest each payment |
| if weights are positive (for example, 60% and 40%, than the return has to be somewhere between | the individual stock's return |
| standard deviation is less than | the weighted average, so it can never be greater than the largest standard deviation of an individual security in the portfolio |
| The beta of a portfolio of stocks is always larger than the betas of all the individual stocks comprising the portfolio. why is this false | Beta of a portfolio is a weighted average so it can't be larger than the largest beta of the stocks in the portfolio |
| zero beta does NOT mean zero total risk it means zero market risk per calm. zero total risk means | standard deviation is zero |
| beta =1 earns | market rate of return (not risk free rate) |
| If investors became more averse to risk, then (1) the slope of the SML would ___, and (2) the required rate of return on HIGH-beta stocks would ___ by more than the required return on LOW-beta stocks (assuming only positive betas). | increase, increase |
| Which of the following describes a portfolio that plots below the security market line? | If it is below the line, you're not getting enough return given its risk. (risk ratio is too low) |
| interest gets smaller when principle__ | gets bigger |
| "beginning of each year" is the same as "today" in PV of annuity problems | |
| "just paid" dividend means | Do |
| It is possible to have a situation where the market risk of a single stock is less than that of a well diversified portfolio |
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