Question

1. Which of the following assets would you expect to be the most liquid?

a.Money market securities

b. Long term debt

c.Equity

d. Preferred shares

2. Which of the following is a good reason to take a firm public?

a. To reduce regulatory compliance costs

b. To reduce the amount of information leaked to competitors

c. To lower liquidity

d. To increase the number of potential equity investors

3. If you believe in the strong form efficient market hypothesis, which one of these is a bad reason to hire a money manager?

a. To optimize your portfolio for your individual risk tolerance

b. To build a portfolio with an unusually high Sharpe ratio

c. To minimize your tax liability

d. To efficiently handle the paperwork involved with your investments

4. The least defensible form of market efficiency is:

a. Weak form

b. Semistrong form

c. Strong form

d. They are all equally defensible

5. Doing event studies using the cumulative abnormal return instead of the abnormal return is a way of dealing with:

a. Information leakage

b. Serial Correlation

c. Selection biases

d. Luck

Answer 1

Answer:

Which of the following assets would you expect to be the most liquid?

Answer(A)

Money Market Securities

Money market securities are short-term investments that are highly secure and liquid. According to the Richmond Federal Reserve Bank, money market securities typically come in blocks of at least $1 million and have maturities that can be any where from one day to a year. Most have a life of 90 or fewer days, though.

2. Which of the following is a good reason to take a firm public?

Answer(D)To increase the number of potential equity investors

Analysis

The main reason companies decide to go public, however, is to raise money - a lot of money - and spread the risk of ownership among a large group of shareholders. ... One of the biggest advantages for a company to have its shares publicly traded is having their stock listed on a stock exchange.

An IPO and the result of being a public company may provide significant advantages to the company and its stockholders. These include cash infusion, ability to “mint coin,” easier future access to equity and debt markets, liquidity for pre-IPO stockholders and institutionalization of the company.

3. If you believe in the strong form efficient market hypothesis, which one of these is a bad reason to hire a money manager?

Answer(D)

Analysis

Money manager duties include reviewing financial reports, monitoring accounts, and preparing activity reports and financial forecasts. Financial managers also investigate ways to improve profitability, and analyze markets for business opportunities, such as expansion, mergers or acquisitions.

To efficiently handle the paperwork involved with your investments..this is the bad reason to hire a money manager.

4.The least defensible form of market efficiency is

Answer(A)

The weak form of market efficiency is that past price movements are not useful for predicting future prices. If all available, relevant information is incorporated into current prices, then any information relevant information that can be gleaned from past prices is already incorporated into current prices

5. Doing event studies using the cumulative abnormal return instead of the abnormal return is a way of dealing with:

Answer(C)

Selection Biases