Question

Which of these statements are true:

1. Price of a bond significantly depends on Par value of a bond.
2. Standard and Poor ratings are more reliable that Moody’s ratings.
3. AAA bonds generates more return than AA bonds.
4. Firms sell their stocks in primary market lower than its real value.
5. In riskier economic condition TED spread would be wider.
6. Negative beta is undefined.
7. Ignoring the magnitudes, Correlation is still more accurate than Covariance.
8. Limit order is safer than Market order.
9. It is possible for an investor to hold a portfolio below Efficient Frontier Line, but it is not an optimal portfolio.
10. Excluding Treasury bonds, total dollar value of bond market is less than stock market.
11. Calculation of Beta is challenging, and we cannot conclude to have a unique method of calculation.
12. Standard deviation and beta both measure the same concept.
13. Ignoring the length of maturity all debt Treasury assets are the same.
14. Bonds can be traded in both Money market and Capital market.
15. Diversification has no effect on systematic risk
16. 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.
17. Interest rate risk of a bond depends more on the interest (coupon) the bond pays
18. Debt has tax benefits for companies while Equity does not have such benefits for firms.
19. Brokers can sell from their own inventory as well as matching others potential sellers with buyers.
20. Assume all unrealistic assumptions related to CAPM holds. Still the assumption which says “all investors will buy market portfolio” seems to be unrealistic.

Answer 1

1)False-as price depends upon interest rate and credit status

2)False-Both are independent rating institute

3)True-Because there are more chances of return on AAA bond

4)False-Firm sells there shares in secondary market

5)True-the differance would be more between loan od bank and govt debt

6)False- a beta indicate inverse relation in the market

7)False-covariance is measure of corelation

8) True-as there is low risk than market

9)True-in optimal potfolio this can be possibility

10)True-as it is depends upon market

11)True-standard deviation shows differing value from market mean as beta shows volatile investment

12)false-as debt treasury asset can vary

13)Falde-only capital market

14)false-it is effecting

15)False-bonds and company condition rating changes time to time

16)True-it dependes upon bond

17)False-equity can also get tax benefit

18)False-breker cant use thier own inventory

19)False-It can be possible to buy maket portfolio