Question

The Abrevia pandemic has caused ups and downs in the financial market. which is the INCORRECT option(s)?

I.             A driver of the large decline in the S&P 500 index is the increase in expected dividends of listed firms.

II.            The flight-to-safety phenomenon led to an increase in government bond prices.

III.           Investors fear large fluctuations in the stock market leading to a spike in the VIX index and a decline in discount rates for stocks.

IV.          Stock market index funds are exposed to the economic risks related to the pandemic.

	A.	I and IV
	B.	I and III
	C.	II and IV
	D.	I and II
	E.	I, II, and III

Answer 1

Statement (III) Investors fear large fluctuations in the stock market leading to the spike in the VIX index and a decline in discount rates for stocks as they are pricing in, an impending recession getting triggered by this growing pandemic.

Statement (IV) is also true as Stock market index funds are exposed to the economic risks related to the pandemic as they are highly invested in the equity which is inturn exposed to economic risks.

Both statement (III) and (IV) are true.

Statement (I) A driver of the large decline in the S&P 500 is the increase in expected dividends of listed firms is false as the driver of the decline is the fear which is arising out of the pandemic and a recession is getting priced into.

Statement (II) The flight to safety phenomenon led to an increase in government bond prices which is not true as bond yield has fallen dramatically.

Both statement (I) and (II) are false.

So correct option is (D) I and II