Portfolio Management Exam 2
Questions with Guaranteed Passed
Solutions.
Market - Answer means through which buyers and sellers are brought together to aid in the
transfer of goods and. Or services.
characteristics of a good market - Answer Timely and accurate info, liquidity, marketability,
price continuity, depth
Time and Accurate Info - Answer Characteristics of a market: "On past transactions and
prevailing buy and sell orders"
Marketability - Answer assets likelihood of being sold quickly; necessary not sufficient,
condition for liquidity
price continuity - Answer prices do not change much from one transaction to the next unless
substantial new information becomes available
debth - Answer many buyers and sellers willing to trade at different prices; prevent drastic
price changes
summary of market charasteristics - Answer liquidity requires marketability and price
continuity, which in turn requires depth
transaction cost - Answer lower costs make for a more efficient market (internal efficiency)
external or information efficiency - Answer prices adjusting quickly to new info; prevailing
market prices reflect all available info about asset
alpha - Answer the relationship between the required rate of return for each stock based on
its systematic risk as computed earlier, and its estimated rate of return.
expected alpha - Answer This differ-ence between estimated return and expected return is
, negative alpha - Answer the stock is overvalued
zero alpha (or nearly zero) - Answer the stock is on the Security Market Line and is properly
valued in line with its systematic risk.
Primary Markets - Answer new securities are sold:
-New issues of bonds, preferred stock, common stock are sold by governmentt units,
municipalities or companies who want to acquire new capital.
Secondary Markets - Answer outstanding securities are bought and sold
federal reserve system auctions - Answer Government bond issues to be traded relies on :
T-Bills - Answer negotiable, non-interest-bearing securities with original maturities of one year
or less
treasury notes - Answer maturities of 2-10 years
treasury bonds - Answer MORE than 10 years
1. competitive bid
2. negotiation
3. Private Placement - Answer municipal bond issues have three methods
Competitive Bid - Answer sales involve sealed bids. Bond issue is sold to bidding syndicate of
underwriters that submits big with lowest interest cost set by issuer.
Negotiated sales - Answer involve contractual arrangements between underwriters and
issuers wherein the underwriter helps the issuer prepare the bond issue and set the price and
has exclusive right to sell the issue.
private placement - Answer A primary market issue that is negotiated between the issuing
corporation and a small group of accredited investors
Questions with Guaranteed Passed
Solutions.
Market - Answer means through which buyers and sellers are brought together to aid in the
transfer of goods and. Or services.
characteristics of a good market - Answer Timely and accurate info, liquidity, marketability,
price continuity, depth
Time and Accurate Info - Answer Characteristics of a market: "On past transactions and
prevailing buy and sell orders"
Marketability - Answer assets likelihood of being sold quickly; necessary not sufficient,
condition for liquidity
price continuity - Answer prices do not change much from one transaction to the next unless
substantial new information becomes available
debth - Answer many buyers and sellers willing to trade at different prices; prevent drastic
price changes
summary of market charasteristics - Answer liquidity requires marketability and price
continuity, which in turn requires depth
transaction cost - Answer lower costs make for a more efficient market (internal efficiency)
external or information efficiency - Answer prices adjusting quickly to new info; prevailing
market prices reflect all available info about asset
alpha - Answer the relationship between the required rate of return for each stock based on
its systematic risk as computed earlier, and its estimated rate of return.
expected alpha - Answer This differ-ence between estimated return and expected return is
, negative alpha - Answer the stock is overvalued
zero alpha (or nearly zero) - Answer the stock is on the Security Market Line and is properly
valued in line with its systematic risk.
Primary Markets - Answer new securities are sold:
-New issues of bonds, preferred stock, common stock are sold by governmentt units,
municipalities or companies who want to acquire new capital.
Secondary Markets - Answer outstanding securities are bought and sold
federal reserve system auctions - Answer Government bond issues to be traded relies on :
T-Bills - Answer negotiable, non-interest-bearing securities with original maturities of one year
or less
treasury notes - Answer maturities of 2-10 years
treasury bonds - Answer MORE than 10 years
1. competitive bid
2. negotiation
3. Private Placement - Answer municipal bond issues have three methods
Competitive Bid - Answer sales involve sealed bids. Bond issue is sold to bidding syndicate of
underwriters that submits big with lowest interest cost set by issuer.
Negotiated sales - Answer involve contractual arrangements between underwriters and
issuers wherein the underwriter helps the issuer prepare the bond issue and set the price and
has exclusive right to sell the issue.
private placement - Answer A primary market issue that is negotiated between the issuing
corporation and a small group of accredited investors
