Question

Answer with True or False only for each of the questions.

1) Ignoring the length of maturity all debt Treasury assets are the same.

2)Bonds can be traded in both Money market and Capital market.

3)Standard and Poor ratings are more reliable that Moody’s ratings.

4)Excluding Treasury bonds, total dollar value of bond market is less than stock market.

5)In riskier economic condition TED spread would be wider.

6)Firms sell their stocks in primary market lower than its real value.

7)Brokers can sell from their own inventory as well as matching others potential sellers with buyers.

8)Limit order is safer than Market order.

9)Price of a bond significantly depends on Par value of a bond.

10)Interest rate risk of a bond depends more on the interest (coupon) the bond pays

11)A company that has bad financial condition can artificially show they have good condition to receive a good bond rating and the rating will be fixed for whole life of the bond.

12)Debt has tax benefits for companies while Equity does not have such benefits for firms.

13)Negative beta is undefined.

14)Standard deviation and beta both measure the same concept.

15)Assume all unrealistic assumptions related to CAPM holds. Still the assumption which says “all investors will buy market portfolio” seems to be unrealistic.

16)Calculation of Beta is challenging, and we cannot conclude to have a unique method of calculation.

17)It is possible for an investor to hold a portfolio below Efficient Frontier Line, but it is not an optimal portfolio.

18)Ignoring the magnitudes, Correlation is still more accurate than Covariance.

19)Diversification has no effect on systematic risk

20)AAA bonds generates more return than Aa bonds.

Answer 1

1) Ignoring the length of maturity all debt Treasury assets are the same.

TRUE

2)Bonds can be traded in both Money market and Capital market.

FALSE

3)Standard and Poor ratings are more reliable that Moody’s ratings.

FALSE

4)Excluding Treasury bonds, total dollar value of bond market is less than stock market.

TRUE

5)In riskier economic condition TED spread would be wider.

TRUE

6)Firms sell their stocks in primary market lower than its real value.

FALSE

7)Brokers can sell from their own inventory as well as matching others potential sellers with buyers.

8)Limit order is safer than Market order.

TRUE

9)Price of a bond significantly depends on Par value of a bond.

FALSE

10)Interest rate risk of a bond depends more on the interest (coupon) the bond pays

FALSE

11)A company that has bad financial condition can artificially show they have good condition to receive a good bond rating and the rating will be fixed for whole life of the bond.

FALSE

12)Debt has tax benefits for companies while Equity does not have such benefits for firms.

TRUE

13)Negative beta is undefined.

FALSE

14)Standard deviation and beta both measure the same concept.

FALSE

15)Assume all unrealistic assumptions related to CAPM holds. Still the assumption which says “all investors will buy market portfolio” seems to be unrealistic.

TRUE

16)Calculation of Beta is challenging, and we cannot conclude to have a unique method of calculation.

FALSE

17)It is possible for an investor to hold a portfolio below Efficient Frontier Line, but it is not an optimal portfolio.

TRUE

18)Ignoring the magnitudes, Correlation is still more accurate than Covariance.

TRUE

19)Diversification has no effect on systematic risk

TRUE

20)AAA bonds generates more return than Aa bonds.

FALSE

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