QUESTION 21

Two of the possible explanations of the January effect are (1) tax-loss selling hypothesis, and (2) year-end window-dressing hypothesis.

True

False

1 points

QUESTION 22

The systematic factors in the Fama-French model are firm size and book-to-market ratio as well as the market index.

True

False

1 points

QUESTION 23

It was observed in the market that the January effect is greatest for the companies with biggest price drop in the previous year.

True

False

1 points

QUESTION 24

They have observed, on average, the highest returns on Monday.

True

False

1 points

QUESTION 25

Holding maturity constant, a bond's duration is higher when the coupon rate is higher.

True

False

1 points

QUESTION 26

Consider a ten-year bond wit a 10% coupon that has a present yield to maturity of 8%. If the interest rates remain the same, one year from now the price of this bond will be lower.

True

False

1 points

QUESTION 27

Bond duration, which was originally defined as the negative of the elasticity of the bond price with respect to change in interest, is a measure of volatility of a bond price.

True

False

1 points

QUESTION 28

The slope of the Capital Allocation Line (CAL) in the mean-variance analysis is called ___.

		alpha
		beta
		Sharpe ratio
		correlation

1 points

QUESTION 29

A treasury bill pays a 6% rate of return. A risk averse investor _________ invest in a risky portfolio that pays 12% with a probability of 40% or 2% with a probability of 60% because ____________.

		might; she is rewarded a risk premium
		would not; she is not rewarded a risk premium
		would not; the risk premium is small
		cannot be determined

1 points

QUESTION 30

An investor who wishes to form a portfolio that lies to the left of the optimal risky portfolio on the Capital Allocation Line has to

		lend some of her money at the risk-free rate and invest the rest in the optimal risky portfolio.
		borrow some money at the risk-free rate and invest it in the optimal risky portfolio
		invest only in the risky securities.
		hold a portfolio which is not diversified.

1 points

QUESTION 31

If other things remain the same, diversification is more effective when

		securities returns are negatively correlated.
		securities returns are uncorrelated.
		securities returns are positively correlated.
		securities returns are high.

1 points

QUESTION 32

A measure of how much the returns of two risky assets move together is

		variance
		standard deviation
		covariance
		semi-variance

1 points

QUESTION 33

The optimal risky portfolio can be identified by finding .

		the minimum variance point on the efficient frontier
		the maximum return point on the efficient frontier
		the tangency point of the capital market line and the efficient frontier
		none of the above answers is correct.

1 points

QUESTION 34

As diversification increases, the total variance of a portfolio approaches .

		0
		1
		its systematic risk
		its unsystematic risk

1 points

QUESTION 35

CAPM asserts that portfolio returns are best explained by

		economic factors
		specific risk
		systematic risk
		diversification

1 points

QUESTION 36

The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.

		APT, CAPM
		APT, OPM
		CAPM, OPM
		CAPM, APT

1 points

QUESTION 37

Proponents of market efficiency interpret serial correlation in stock returns based on ____.

		the overreaction hypothesis
		the fads hypothesis
		the risk premium hypothesis
		the market segmentation hypothesis

1 points

QUESTION 38

A "random walk" occurs when ___________.

		stock price changes are random but predictable.
		Future price changes are not correlated with past stock price changes
		Stock prices respond slowly to both new and old information
		Past information is useful in predicting future prices.

1 points

QUESTION 39

Proponents of the EMH typically advocate .

		an investment strategy based on technical analysis
		a liberal investment strategy
		a passive investment strategy
		an aggressive investment strategy

1 points

QUESTION 40

Market researchers found that certain types of company's stocks yield abnormal returns. Which one of the following is not such a type?

		neglected firms
		low P/E ratio firms
		small firms
		firms with non-January fiscal years
		firms with low MV/BV ratio