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Are the following statements True or False? If the statement is corect, wite dows T. 1. Otherwise write down F (20 marks) a) The diversification

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Are the following statements True or False? If the statement is corect, wite dows T. 1. Otherwise write down F (20 marks) a) The diversification benefit from constructing a risky portfolio of two risky assets wilh be maximized when the correlation between returns of two risky assets is equal to zero. 12.5 marks b) The Dow Jones Industrial Average is calculated using price-weighted average which gives higher-priced shares less weight in determining performance of the index. 12.5 marks c) When the distribution of an asset return is negatively skewed and fat-tailed, then the standard deviation of the asset return overestimates its risk. [2.5 marks d) Suppose a convertible bond is issued at par value of $1,000 and is convertible into 40 shares of a firm's stock. Further, suppose the bond is zero coupon and interest rate-0. If current stock price is $30 per share, the option to convert the bond is profitable. 12.5 marks] e) Less risk-averse investors have steeper indifference curves than more risk-averse in- vestors. [2.5 marks f) Since investors are compensated for holding risk, two securities with the same vari- ance must have the same realized return. [2.5 marks g) A fixed-income security can pay variable income stream to owner of the security. 12.5 marks) h) Active investment-management strategies are based on the assumption that efficient market hypothesis holds. 2.5 marks

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