Question

Assume a regular up and down price pattern can be found in the behaviour of an illiquid (non-highly traded) stock listed on the Toronto Stock Exchange. It is unlikely that an individual investor can profit by trading frequently because of _________.

Select one:

a. frequent brokerage commissions

b. large negative price impact for large trade sizes

c. high bid-ask costs

d. All of THESE are correct

The standard deviation of returns on a risky asset can never be negative.

Select one:

True

False

Maximization of firm value may actually not occur because ________

Select one:

a. managers may act to benefit shareholders in detriment of credit-holders.

b. controlling shareholders may make decisions that are beneficial to them at the expense of minority shareholders.

c. All of the THESE are correct.

d. managers may use their job to enrich themselves at the expense of shareholders and credit-holders.

Answer 1

Q1)Assume a regular up and down price pattern can be found in the behaviour of an illiquid (non-highly traded) stock listed on the Toronto Stock Exchange. It is unlikely that an individual investor can profit by trading frequently because of _________.

Illiquid (non highly traded )stock refers to the security which can nnot be easily traded be exchanges or sold for cash.

The following is the analysis of given option:

Particulars	Analysis
a. frequent brokerage commissions	when the stocks are illiquid it requires explicit cost i.e brokeragecommission charge because forms the smallest part
b. large negative price impact for large trade sizes	In illiquidity the price is are correlated negatively,volume and market makers and highly with volatility.
c. high bid-ask costs	There is a high bid -ask rate spread
d. All of THESE are correct	so all option is correct

Option d is correct

Q2) The standard deviation of returns on a risky asset can never be negative.

Select one:

True

False

Analysis:

Standard deviation in portfolio measures the amount that the return deviate from its mean.The standard deviation is calculated by squaring to avoid negative so the given option is true.

q3)Maximization of firm value may actually not occur because ________

Particulars	Analysis
a. managers may act to benefit shareholders in detriment of credit-holders.	As in this there will be maximisation of benefit of wealthholder and firm
b. controlling shareholders may make decisions that are beneficial to them at the expense of minority shareholders	In this type of controlling only the benefits of shareholder holding maximum holding is benefited not miniorities are neglected.ie a wrong practice.This will not benefit firms
c. All of the THESE are correct	so this option is correct
d. managers may use their job to enrich themselves at the expense of shareholders and credit-holders.	This will not help irm as only personal motive is being satisfied.

So option c is correct.