Question

QUESTION 3

1. One of the benefits of having active financial markets is the information we can get from those markets. Questions like what is an appropriate yield to maturity on a bond or cost of equity for a given security can be determined by looking at information from financial markets on similar securities.

   True

   False

1 points   

QUESTION 4

1. One of the costs of active financial markets is that they make it more difficult to diversify and reduce risk. Risk becomes more concentrated among a few investors active.

   True

   False

Answer 1

QUESTION 3: One of the benefits of having active financial markets is the information we can get from those markets. Questions like what is an appropriate yield to maturity on a bond or cost of equity for a given security can be determined by looking at information from financial markets on similar securities.

True

False

Answer: TRUE
Active financial markets is where the demand and supply is driven by market. There are unlimited buyers and unlimited sellers for a security. In such a situation it is true that the price of any security is the market price- maximum a seller can get or minimum a buyer can buy for.

QUESTION 4:One of the costs of active financial markets is that they make it more difficult to diversify and reduce risk. Risk becomes more concentrated among a few investors active.

True

False

Answer: FALSE
In Active financial markets, a high number of investors are active and making continuous transactions. The movement of the stock prices reflect the systematic risks and it is not dependent on liquidity of the stock as we assume there are unlimited buyers and seller in an active market. Thus we can still diversify our portfolio and reduce risk.