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1. The following excerpt from an SEC complaint...




1. The following excerpt from an SEC complaint is an example of insider trading. Keep in mind that Lee worked for S.A.C. Capital, a hedge fund and not a mutual fund. ?According to the SEC?s complaint filed in U.S. District Court for the Southern District of New York, Lee received inside information in July 2009 from a sell-side analyst familiar with nonpublic negotiations between Microsoft and Yahoo to enter into an Internet search engine partnership. Lee learned that the negotiations, previously the subject of market rumors, were moving forward and a deal could be finalized in the next two weeks. The analyst told Lee that the confidential information came from a close personal friend who worked at Microsoft. Lee thanked the analyst for the ?very specific information? and promptly purchased hundreds of thousands of shares of Yahoo stock in a portfolio that he managed on behalf of S.A.C. Capital. Lee also purchased shares of Yahoo stock in his personal trading account. When the imminent deal was reported in the press almost a week later, Yahoo?s stock price rose approximately four percent on the news and S.A.C. Capital and Lee reaped substantial (True / False ) 2. 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/ false) 3. If you buy the ETF with the ticker DOG you more exposed to market risk than firm specific risk? (true / false ) 4.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 / false ) 5. 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 / False ) 6. If investors are overconfident they believe that they can beat the market. Beating the market means to outperform the Standard and Poor?s 500. There is no evidence that investors are overconfident on average and this is why all mutual funds attempt to mimic the S&P 500. Daniel Kahneman has argued that people are surprisingly rational when it comes to investing. (true / false ) 7. Risk is only a factor in security valuation when investors do not hold a diversified portfolio. ( True / False ) 8. List the following securities by their level of credit risk (list the most risky first): Corporate Bond (rated AA), Corporate Bond (rated BB), Federal Agency Bond, Treasury Bonds. A.Treasury, Corporate (rated AA), Corporate (rated BB), Federal Agency B.Treasury, Federal Agency, Corporate (rated AA), Corporate (rated BB) C.Corporate (rated AA), Federal Agency, Corporate (rated BB), Treasury D. Corporate (rated BB), Corporate (rated AA), Federal Agency, Treasury ( I think it is D , not sure) 9. 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 / False) 10. If you own shares in SPY valued at $10,000 and you now add $10,000 worth of common stock in PH and $10,000 worth of common stock in TXT to your original portfolio the risk of your portfolio will increase. (True / False ) 11. 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 / False ) 12. The expected rate of return of a portfolio and the beta of the portfolio are positively correlated. (True / False ) 13. Interest rate risk is apt to be highest for holders of: A.Treasury bills. market funds. C.long-term bonds with low coupon interest rates. D.long-term bonds with high coupon interest rates.


Paper#6838 | Written in 18-Jul-2015

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