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1) Berkshire Hathaway will not buy preferred share...




1) Berkshire Hathaway will not buy preferred shares in other companies because Warren Buffet is only interested in voting shares. True or False? 2) Warren Buffet believes that the S&P 500 will outperform the common stock of Berkshire Hathaway but that Berkshire Hathaway is a riskier investment so has more upside potential than the S&P 500. True or False? 3) If you borrow at 6 percent per year for five years and use the proceeds to buy a five year bond that has a Yield to Maturity of 8 percent your leveraged position is doomed because of credit risk. (Assume that all bonds pay interest semiannually and that all interest received is reinvested at 8% per year.) True or False? 4) According to it is possible to increase return without increasing risk if a portfolio composed of 100%bonds is rebalanced so that it is 28% stocks and 72% bonds. True or False 5) Which among the following statements is not consistent with random walk theory? a) Stock price movements do not follow any patterns or trends. b) Past price action cannot be used to predict future price movements. c) Price changes represent arbitrary departures from previous prices. d) Big "up days" in the overall market tend to be followed by big "down days." 6) No significant annual total return volatility is experienced by investors in: a) common stocks b) corporate bonds. c) Treasury bonds. d) money market instruments. 7) A well-diversified portfolio must contain at least 1,000 different financial assets. (Assume that the returns of the assets in the portfolio are not perfectly correlated.) True or False 8) My strategy for portfolio management is to read the wall street journal from 8 AM to 11 AM each morning and base my buy and sell decisions on the news I have read. It appears that I accept that markets are efficient in the strong form. True or False? 9) Firm-specific risk reflects volatility tied to: a) rising interest rates. b) falling unemployment. c) failed patent applications. d) election-year jitters. 10) If you buy the ETF with the symbol SPY every time it falls by .5 per cent and sell it every time it rises by 1 per cent you are using fundamental analysis to make your investment decisions. True or False? 11) Using the standard deviation of returns as a measure of risk then from 1926 to 2005 a portfolio of long term corporate bonds was less risky than a portfolio of large company stocks. True or False? 12) Daniel Kahnemann has argued that while some people may act irrationally; professional investors are realistic and disciplined when evaluating their ability to invest other people?s money. True or False? 13) Using the standard deviation of returns as a measure of risk then from 1926 to 2005 a portfolio of small company stocks was riskier than a portfolio of long term corporate bonds. True or False? 14) Interest rate risk is apt to be highest for holders of: a) Treasury bills. b) money market funds. c) long-term bonds with low coupon interest rates d) long-term bonds with high coupon interest rates. 15) An investment allocation is suboptimal if another portfolio composition offers: a) higher expected return b) lower systematic risk. c) lower expected return for a given level of risk d) lower risk for a given expected return. 16) An unexpected announcement by the Chairmen of the Federal Reserve is made before the NYSE opens. The announcement indicates that the US economy is likely to enter into a prolonged recession. When the stock market opens the stock indexes fall by 6 percent in the first ten minutes of trading. This extreme downward movement in stock prices illustrates that markets are inefficient. Efficient markets would have priced this information into asset prices before the announcement. True or False 17) Prices of Bonds only reflect the past while prices of equities reflect future expectations. True or False? 18) The stock market is perfectly efficient if: a) it is possible to earn a risk-free arbitrage profit by simultaneously buying and selling the same asset. b) any security offering higher historical rates of return necessarily entails greater risk c) any security offering a higher expected rate of return necessarily entails greater risk. d) only risk-free assets give a 0% expected rate of return. 19) If you buy the ETF with the ticker DOG you more exposed to market risk than firm specific risk? True or False?


Paper#5209 | Written in 18-Jul-2015

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