Question

In: Finance

6. T or F: Prices rise more with a decrease in yield than they fall with...

6. T or F: Prices rise more with a decrease in yield than they fall with an equivalent rise in yield.

7. T or F: If you think there will be an increase in inflation it is better to increase the duration of your bond portfolio.

8. T or F: If interest rates are about to fall, it is better to be in treasury bonds than corporate bonds.

9. T or F: The Efficient Market Hypothesis relies on everybody understanding how to correctly value assets.

10. T or F: If fundamental analysis is valid, then the weak form of the EMH is violated.

11. T or F: If markets are efficient then stock prices should never increase.

12. T or F: If there is no evidence of arbitrage then markets are efficient.

Expert Solution

Answer :

Q6. False

Q7. True

Q8. True

Q9. True

Q10. False

Q11. False

Q12. False

Explanation :

Q6. False. The bond yields tend to go up, prices tick down, and the bond yields tend to go down, prices move up. The magnitude of change is not determined with the upside or downside move.

Q7. True. Duration risk refers to the risk linked to the sensitivity of the price of a bond to a single percent interest rate change. A long-duration should occur when interest rates are falling at the time of recession, usually, interest rates and inflation have an inverse relationship.

Q8. True. The interest rate could fall at the time of recession, and investing in treasury bonds is safer at that point.

Q9. True. EMH is based on the assumption of rationality of everyone in the market.

Q10.False. The technical analysis is valid, then the weak form of EMH is violated. Fundamental analysis is for semi-strong form of EMH.

Q11.False. If the stock market are efficient the stock prices should only react to news and unexpected events.

Q12. False. Both arbitrage opportunities and market efficiency can exist together. Since, the existence of arbitrage does not lead to inefficient markets its also true vice-versa.

jeff jeffy answered 1 year ago

T/F If the Yield to Maturity > than the coupon, the price is less than par.

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