1. Which of the following statements is false?

a. Risk neutrality means that an investor are not looking at risk in an investment, just returns.

b. Risk aversion means that an investor prefer a fixed amount with certainty over a larger amount with risk.

c. Risk seeking means that an investor is willing to accept the higher risk that goes with higher payoff.

d. All of the above are false.

e. None of the above are false.

2. Which of the following statements are false?

a. All else being equal, options of the same strike will increase in price depending on the volatility of the underlying.

b. A short put option is functionally the same as a long call option.

c. According to put-call parity, if a stock is trading for a price that is at-the-money, the put and the call should be trading at the same, or very close to, the same price.

d. All of the above are false.

e. All of the above are true.

3. Weak-form efficient markets would be expected to be more volatile, more thinly traded, and with relatively wide bid-ask spreads because information about the issues being traded would be either scant or not trusted.

a. True

b. False

4.

Which of the following statements are true?

I. Because there is a limited supply of shares of any stock to be borrowed by would-be short sellers, unlimited short selling is a problematic assumption for CAPM.

II. Transaction costs continue to become smaller, so this factor is no longer considered a problem for CAPM

III. CAPM assumes that markets are efficient.

IV. One of the most important attributes of CAPM was its contribution to understanding the relationship between risk and return.

a. I, III, and IV

b. IV and I

c. II and I

d. All of the statements are true.

e. II, III, and IV