If Southwestern Bell's 8% coupon bonds with 10 years to maturity are selling for 96% of the par value, the yield to maturity of this issue must be higher than 8%.

True

False

1 points

QUESTION 20

Supply side economists believe that a reduction in income tax rates will make workers more willing to work at current or even slightly lower (gross-of-tax) wages. Such an effect ought to mitigate cost pressures on the inflation rate.

True

False

1 points

QUESTION 21

One way that many analysts think about the relationship between industry analysis and the business cycle is the sector rotation. The idea is to shift the portfolio more heavily into sector groups that are expected to outperform based on one's assessment of the state of the business cycle.

True

False

1 points

QUESTION 22

The stock market price index is a lagging indicator because stock prices are the present value of all the cash flows from the firms in the future.

True

False

1 points

QUESTION 23

In the constant growth rate model of common stock valuation where the plowback ratio and the return on equity (ROE) are assumed to be constant, PVGO is positive as long as the cost of capital (k) is greater than ROE.

True

False

1 points

QUESTION 24

The time value in a call option increases as the expiration gets closer.

True

False

1 points

QUESTION 25

The value of a call option decreases as the risk (or volatility) of the underlying asset increases.

True

False

1 points

QUESTION 26

Holding everything else constant, call options are more expensive in periods of high interest rates.

True

False