Reference no: EM13847474
Please mark the following as either True or False
1. For a given set of possible cash flows, as the required risk premium for a project increases, its price must decrease to entice investors to purchase the asset.
(Hint: What is the price and expected return (premium) relation?)
2. Eurodollars are dollar-denominated deposits at banks in European countries or European branches of American banks.
3. Except for Treasury bills, money market securities are not free of default risk.
4. Standard & Poor’s 500 is a broadly based index of 500 firms and it is a price-weighted index.
5. If an asset’s returns come from a normal distribution, then the relation between its arithmetic and geometric averages are: E[arithmetic average] = E[geometric average] – 0.5σ2.
6. Relative to a buy and hold strategy, average arithmetic returns overstate the return on a portfolio.
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Money market securities are not free of default risk
: Except for Treasury bills, money market securities are not free of default risk. Standard & Poor’s 500 is a broadly based index of 500 firms and it is a price-weighted index.
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An economic indicator is data
: An economic indicator is data, usually of macroeconomic scale, used by investors to interpret current or future investment possibilities and to judge the overall health of an economy. Identify and define five economic indicators.
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Formula of approximations of real return-rate of inflation
: The formula of the approximations of the real return becomes less accurate as the rate of inflation increases. When deciding between a risky asset (or portfolio) and a risk-free asset, the more risk averse the investor, the greater the proportion the..
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Weighted average of standard deviations of individual assets
: An investor who is in the 33% tax bracket is indifferent between a 9% tax-free muni and a 6% taxable bond. The standard deviation of a portfolio of assets is simply the weighted average of the standard deviations of the individual assets.
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What is the price and expected return relation
: For a given set of possible cash flows, as the required risk premium for a project increases, its price must decrease to entice investors to purchase the asset. (Hint: What is the price and expected return (premium) relation?) Eurodollars are dollar-..
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What is the incremental operating profit
: Bangers, Inc. is a start-up manufacturer of Australian-style frozen veggie pies located in San Antonio, Texas. The company is five years old and recently installed the manufacturing capacity to quadruple its unit sales. what is the incremental operat..
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Decrease the variance of a portfolio of assets
: To decrease the variance of a portfolio of assets, simply add assets with low/small variance. An investor who is in the 33% tax bracket is indifferent between a 9% tax-free muni and a 6% taxable bond. The standard deviation of a portfolio of assets i..
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What is your expected annualized yield on this loan
: Assume you are a mortgage lender. You have offered a borrower a mortgage loan for $600,000 with a somewhat unusual structure. What is your expected annualized yield on this loan if you believe the borrower will prepay the loan at the end of the year ..
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What is the ex ante real interest rate
: Suppose that in 2014 Julie lends Bill $1,000 to be repaid in 2015 at a nominal interest rate of 5%. Additionally, suppose Julie and Bill both expect prices to rise by 2% between 2014 and 2015. What is the ex ante real interest rate? How much money do..
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