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b. Diversification will normally increase the riskiness for volatility of a porti a. True b. False The cash flows associated with common stock valuation are
b. Diversification will normally increase the riskiness for volatility of a porti a. True b. False The cash flows associated with common stock valuation are more difficult to estim than those related to bonds, because common stock represents a residual claim apa the profits of the company, whereas bonds are a contractual obligation by the company to repay lenders. aTrue b. False 8. In measuring the expected return and volatility of any investment (for example, a bond or common stock), investors typically compare the returns and volatility of the investment with those on a U.S. Treasury Bill, because U.S. Treasury Bills have a low default risk and promise a completely risk-free rate of return. a b. True False 9. Our principal objective as investors is to make investments - either by acquiring bonds. common stocks, ownership interests in businesses, or real estate that are selling for more than their intrinsic value, as calculated using fundamental valuation methods. a. True b. False 10. According to Benjamin Graham, the father of securities analysis and Warren Buffett's professor at Columbia University, "An investment operation is one which - upon thorough analysis - promises safety of principal and an adequate return. Operations not meetings these requirements are speculative." a h True False Part I: Concept questions - Answer all 10 questions. Mark your answer on the ScanTron. 11. Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fell by 1967 10-year, zero coupon bond. b 20-year, 10% coupon bond. C20-year, 5% coupon bond. d 1-year, 10% coupon bond. e 20-year, zero coupon bond
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