FINA 3315 Exam 2

One characteristic of bond funds is the: A.extremely aggressive trading approach. B.requirement of a minimum initial investment of $5,000 or more. B.high anticipated short − term growth potential. D.fluctuation in value in response to changing interest rates. - Correct Ans-D. fluctuation in value in response to changing interest rates. The open interest at the end of the trading day indicates the number of contracts that are open and have not been settled by delivery or by an offsetting transaction. True False - Correct Ans-True In a semi − strong efficient market, traders with non − public information would have no advantage over those who had only public information. True Flase - Correct Ans-False Which type of fund is always passively managed? A. an index fund B .a closed − end fund C. a value fund D. a growth fund - Correct Ans-A. an index fund One characteristic of most index funds is that such funds typically A. have a very low − cost structure with respect to management fees and transaction fees. B. charge high front − end loads . C. produce a large dollar amount of realized capital gains every year. D. are designed to "beat the market." - Correct Ans-A. have a very low − cost structure with respect to management fees and transaction fees. Madison believes that the leisure industry (resorts, travel, restaurants, etc.) is about to experience extraordinary growth because baby boomers are entering their retirement years. She should invest in A. an aggressive growth fund. B. a sector fund. C.a fixed income fund. D.an asset allocation fund. - Correct Ans-B. a sector fund. A bond with 14 years to maturity and a coupon rate of 6.375% has a yield-to-maturity (YTM) of 4.5%. Assuming the bond's YTM remains constant, the bond's value as it approaches maturity will most likely: A. decrease. B. remain constant. C. increase. - Correct Ans-A. decrease. Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated as A.illiquid bonds. B.split bonds. C.investment grade bonds. D.high − yield bonds. - Correct Ans-C. investment grade bonds. Which one of the following best describes "semi strong" market efficiency? A.Transactions are faster and less expensive than in the past, but not as fast or inexpensive as they could be. B.The market is generally efficient, but some anomalies remain unexplained. C.All information about a company, both private and public, is quickly reflected in its stock price. D.All public information is quickly reflected in security prices. - Correct Ans-D.All public information is quickly reflected in security prices. The odd lot trading indicator assumes that A.odd − lot traders are unsophisticated and time their decisions poorly. B.odd − lot purchases indicate that high priced stocks like Apple and Berkshire Hathaway are in demand. C.odd − lot traders are sophisticated and tend to buy at low points and sell when stocks are high. D.are good market indicators because the actions of small investors tend to confirm bearish or bullish trends. - Correct Ans-A.odd − lot traders are unsophisticated and time their decisions poorly. Trading in closed − end investment companies takes place between investors in the open market. True False - Correct Ans-True Which one of the following statements is correct? A.The market responds immediately to reflect insider information. B.Low P/E stocks tend to outperform high P/E stocks on a risk − adjusted basis. C.The weekend effect states that security prices tend to rise between Friday afternoon and Monday morning. D.The market fully anticipates the information contained in an earnings announcement prior to the actual announcement. - Correct Ans-B.Low P/E stocks tend to outperform high P/E stocks on a risk − adjusted basis. The Jefferson Company issued a 5% coupon bond four years ago at par value. The market interest rate on comparable bonds today is 6%. The Jefferson Company bond currently pays ________ a year in interest and the bond sells at a ________.