High 5 Investment Planning

Question 1

what kind of company would be best suited to use the constant dividend growth model?

Answer 1

a stable company or mature company with stable cash flows

Question 2

Sharpe and Treynor ratios are _____ measures

Answer 2

relative

Question 3

Jensen’s alpha is a(n) ____ measure

Answer 3

absolute

Question 4

what is the risk measure of the Sharpe ratio?

Answer 4

standard deviation

Question 5

what is the risk measure of the Treynor ratio?

Answer 5

Beta

Question 6

___ based on the theory that long term rates can be used to predict future short term rates

Answer 6

unbiased expectations theory

Question 7

approximately ___% of outcomes fall within 1 standard deviation of the mean

Answer 7

68%

Question 8

approximately ___% of outcomes fall within 2 standard deviation of the mean

Answer 8

95%

Question 9

approximately ___% of outcomes fall within 3 standard deviation of the mean

Answer 9

99%

Question 10

___ measures the number of standard deviations a data value is from the mean

Answer 10

z score

Question 11

the efficient frontier contains ___ on the y axis and ___ on the x axis

Answer 11

expected return ; standard deviation (risk)

Question 12

true or false?

the efficient market hypothesis states that day to day price changes follow a random pattern

Answer 12

true

Question 13

what are the three forms of efficient market hypothesis?

Answer 13

weak
semi strong
strong

Question 14

true or false?

the weak form of the efficient market hypothesis states that technical analysis is already included in current price

Answer 14

true

Question 15

true or false?

the weak form of the efficient market hypothesis believes fundamental analysis and insider information could help gauge prices better

Answer 15

true

Question 16

true or false?

the semi strong form of the efficient market hypothesis believes both the technical analysis and fundamental analysis and insider information are all already priced into the market

Answer 16

false, insider information is missing under semi strong form

Question 17

true or false?

the strong form of the efficient market hypothesis believes all info including fundamental analysis, technical analysis, and insider information are all already priced into the market

Answer 17

true

Question 18

how to calculate current yield on a bond?

Answer 18

coupon payment / current market price

Question 19

a zero coupon bond will have a tendency to be ___ price volatile than a bond with a 4% coupon bond

Answer 19

more

Question 20

the ___ the coupon rate of a bond, the more stable it will be when interest rates change

Answer 20

higher

Question 21

when a bond is trading at a ____ the coupon will be greater than the current yield, YTM, and YTC

Answer 21

premium

Question 22

a bond trading at par value will have a coupon rate ____ to the current yield, YTM, and YTC

Answer 22

equal

Question 23

a bond trading at a discount will have a coupon rate ____ than the current yield, YTM, and YTC

Answer 23

lower

Question 24

___ is the percentage of the original purchase that must be provided by the investor

Answer 24

initial margin

Question 25

initial margin is usually equal to ___%

Answer 25

50%

Question 26

___ is the level at which an investor will be required to add funds to the margin account

Answer 26

maintenance margin

Question 27

in regards to margins ____ is the loan amount owed to the broker

Answer 27

debit balance

Question 28

in regards to margins ____ is the value of the security less the debit balance

Answer 28

equity