Investments

Question 1

Premium bond

Answer 1

higher than par value

Question 2

Discount

Answer 2

lower than par value

Question 3

GNMAs

Answer 3

Mort. rates down, pmts. up
amt received varies per month
guaranteed by gov’t
pmts: P&I
yield on bonds = variable

Question 4

I bonds

Answer 4

int. up to 30 years
earnings based on fixed and semiannual inflation rate
edu. savings
purchase price-redemption value = taxable interest

Question 5

UIT

Answer 5

once created, no new securities purchased, and they are rarely sold

Question 6

Open end fund and no load mutual fund

Answer 6

shares purchased and redeemed DIRECTLY with issuer

Question 7

short hedge: futures contract

Answer 7

want to sell product, hedging against higher or lower prices
Short hedge: go long

Question 8

long hedge: futures contract

Answer 8

want to buy product, hedging against higher prices in future

Question 9

Call IV

Answer 9

MP-EP
in the money: MP>EP
out of the money: MP<EP

Question 10

Put IV

Answer 10

EP-MP
in the money: EP>MP
out of the money: EP<MP

Question 11

Correlation coefficient

Answer 11

Neg reduces portfolio risk
neg makes beta neg

Question 12

DDM model factors

Answer 12

Beta, div. paid, risk free return, risk of market

Question 13

Short duration bond

Answer 13

least affected by int. rate changes

Question 14

long maturity bond

Answer 14

most affected by int. rate change

Question 15

CML

Answer 15

evals diversified and margined portfolio, includes 100% T-bills
tangent point reps. portfolio with proportional % of risky assets

Question 16

EMH: strong form

Answer 16

All info reflected

Question 17

EMH: semi strong form

Answer 17

public info ONLY reflected
inside info gives better results

Question 18

EMH: weak form

Answer 18

data already reflected
fundamental analysis ONLY option

Question 19

Probability distributions

Answer 19

Normal, lognormal, uniform, triangular

Question 20

Dow Theory

Answer 20

identifies top of bull and bottom of bear market

Question 21

Arbitrage pricing theory

Answer 21

securities in different markets CANNOT differ for significant length of time, movement and return NOT explained by relationship between risk and return.
expected value of each factor is zero

Question 22

Markowitz Model

Answer 22

Standard deviation : risk measurement

Question 23

Issue of New bonds for publicly traded companies

Answer 23

when bonds selling @ premium
interest rates expected to rise
interest rates are down.

Question 24

Overvalued stock

Answer 24

price based on DDM is lower than trade price

Question 25

Undervalued stock

Answer 25

price based on DDM higher than trade price