Investment Planning

Question 1

What is Jensen’s Performance Index used to measure?

Answer 1

Risk Adjusted Rate of Return

Question 1

What end of the yield curve will not move too much with changes in interest rates?

Answer 1

short end of the curve (close to the handle of the whip)

Question 2

What end of the yield curve will move significantly with changes in interest rates?

Answer 2

the longer end of the curve (closer to the end of the whip)

Question 3

The longer the _____ and the lower the _____, the more sensitive to changes in rates

Answer 3

duration; coupon

Question 4

The longer the duration and the lower the coupon, the more ____ to changes in rates

Answer 4

sensitive

Question 5

The shorter the ____ and the higher the ____, the less sensitive to changes in rates.

Answer 5

duration; coupon

Question 6

The shorter the duration and the higher the coupon, the ____ to changes in rates.

Answer 6

less sensitive

Question 7

The appropriate measure to use for periods of greater than one year is _______ rate of return.

Answer 7

time weighted

Question 8

What are determinants of time premium?

Answer 8

1. Risk-free rate of return
2. Time to expiration
3. Variability of the underlying stock (as measured by standard deviation)
   The greater any or all of the three variables above, the greater the time premium.

Question 9

what two basic variables determine a stock option premium?

Answer 9

intrinsic value and time premium