Question

1. When an active bond portfolio manager attempts to capitalize on temporarily abnormal yields between alternative bond issues, this is referred to as Select one: a. Credit analysis b. Interest rate anticipation c. Spread analysis d. Valuation analysis e. None of the above

When an active bond portfolio manager attempts to capitalize on temporarily abnormal yields between alternative bond issues, this is referred to as

Select one:

a. Credit analysis

b. Interest rate anticipation

c. Spread analysis

d. Valuation analysis

e. None of the above

2. Which of the following factors influence an investor’s required rate of return?

Select one:

a. The economy’s real risk-free rate (RFR)

b. The expected rate of inflation (I)

c. A risk premium

d. All of the above

e. None of the above

3. Peter Lynch identifies favourable attributes of firms that may result in favorable stock performance. Which of the following is not one of these attributes?

Select one:

a. The firm can benefit from cost reductions.

b. The firm issues more shares.

c. The firm’s product is not faddish.

d. The firm has sustainable comparative advantages over its rivals.

e. The firm’s product has the potential for market stability.

Answer 1

Q1) B) interest rate anticipation

Explanation: Basic interest rate anticipation strategy involves moving between long-term government bonds and very short-term treasury bills, based on a forecast of interest rates over a certain time horizon, to provide the maximum increase in price for a portfolio.For example, if a new 10-year government bond is issued with a 6% yield, suddenly an existing 10-year government bond yielding 8% looks quite attractive. Given the new issue’s lower yield, investors will buy the higher yielding bond, pushing up its price, lowering its yield

Q2) D) all of the above

Explanation: All the factors mentioned above together forms the required rate of return of bond. Any change in above factors affect the required rate of bond.

Q3) B) The firm issues more shares

Explanation: It is the performance of the firm which results in favorable share performance . Issuance of new share does not show the performance of firm , so it does not increase the share price.

Rest of the option, contributes to the better performance of the firm. Therefore they would increase the stock price.