Security market is at least semi-strongly efficient

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Reference no: EM132018105

Suppose you are 28 and married. You and your spouse file for income taxes jointly. You are in the 25% tax bracket. You are considering a few personal investment issues

Suppose you believe that the security market is at least semi-strongly efficient. Which of the following statements is correct?

a. Day trading is good because it may beat the market and it is also tax efficient.

b. Day trading is not good because it cannot beat the market and it is also tax inefficient.

c. Day trading may beat the market, but it is tax inefficient.

d. Day trading cannot beat the market, but it is tax efficient.

Suppose you believe that the security market is at least semi-strongly efficient. You are thinking about buying some mutual fund shares inside your after-tax investment account. Which of the following statements is correct?

a. Actively managed funds are good choices because they may beat the market, they are tax efficient and have lower expenses.

b. Actively managed funds are not good choices because they cannot beat the market although they are tax efficient and have lower expenses.

c. Index funds are not good choices because they are not tax efficient, their management fees are higher although actively managed funds cannot beat the market.

d. Index funds are good choices because they are tax efficient and have lower expenses and because actively managed funds cannot beat the market.

In finance, human capital of an investor is defined as the present value of all the future earnings of this person. For young investors, human capital usually constitutes a large percentage of their total wealth. Human capital is subject to mortality risk— the likelihood that the investor dies prematurely and therefore loses all the labor income of subsequent working years. The loss of an investor’s human capital is borne by his/her family. A life insurance policy provides protection against mortality risk. Which of the following is a good life policy choice for you and your spouse?

a. Buy a small life policy in the beginning and gradually increase the death benefit as you and your spouse age.

b. Buy a large life policy in the beginning and gradually reduce the death benefit as you and your spouse age.

c. Buy a life policy with the death benefit you see fit in the beginning and keep the death benefit unchanged as you and your spouse age.

d. Do not consider buying a life policy until you and your spouse retire.

While stocks, bonds, money market securities and mutual fund shares are important personal investment options, there are also other investment options and they should be considered in conjunction with securities in personal investment. For example, consider your retirement fund. One concern is, “what if I live so long after retirement that my retirement fund is not enough to support a certain lifestyle standard in the last years of my life?” This is called the longevity risk. Which one(s) of the following options can protect against the longevity risk?

a. Social security

b. Corporate pensions

c. Life annuities sold by insurance companies

d. all of the above.

Reference no: EM132018105

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