17.Beta is defined as the covariance of the asset with the market portfolio divided by the variance of the market portfolio. Intuitively, beta helps to objectively link risk with return and can be calculated by regressing excess stock returns on excess market returns. Beta can be positive, zero, or negative and is importantly, constant over time.

True

False

18.Roll argued that there is a single testable hypothesis associated with the CAPM and it is that the market portfolio is mean-variance efficient. All other arguments follow from this test and therefore are not independently testable. Roll adds that the CAPM is not testable unless we know the exact composition of the true market portfolio (i.e., all individual assets included) and use it in the tests.

True

False

19.Bond safety is often measured via credit analysis and specifically financial ratio analysis that includes coverage, leverage, liquidity, profitability, and cash flow to debt ratios. Bond indentures, oftentimes referred to as covenants, are a safeguard to protect the claims of fixed income holders.

True

False

20.Premium bond returns are a combination of below current market rate coupons and positive capital gains while discount bond returns are a combination of above market coupons and negative capital gains, essentially the reverse of the former. Discount bonds and premium bonds both mature at par.

True

False