Financial Markets - Coursera All Quiz & Assignments Answer ( With Explanations)

Which of the following professions has the highest projected employment for 2024? 1 / 1 point Economist Teacher Financial Advisor Truck driver Correct • Which of the following is NOT a learning objective in this course? 1 / 1 point How we incentivize people to get things done How to make money Regulating financial markets Applying psychology and sociology to finance Correct While you may learn this as a result, learning how to making money is not a theme of the course. • According to Andrew Carnegie, what should somebody do once she is wealthy? 1 / 1 point Retire late to accumulate as much wealth as possible, and then give the wealth away Retire early and commit to philanthropy while young Throw extravagant parties to help her wealth trickle down Pass it on to her children Correct • Why is it relevant that finance tends to attract large amounts of money? 1 / 1 point Money can be used for good or evil Finance attracts people from around the globe Financial markets are a critical components of economic success All of the above Correct Lesson #2 Quiz LATEST SUBMISSION GRADE 100% • A stress test: (check all that apply) 1 / 1 point Does not look at historical returns, and looks at all the details of the portfolios and their vulnerabilities during all sorts of potential financial crises. Correct Tries to incorporate all the interconnections between financial institutions. Correct Tries to incorporate all potential economic and financial crises, such as recessions, appreciation and depreciation of currency, liquidity crisis, etc. Correct Aims to test the behavior of historical returns and their fluctuations during all sorts of potential financial crises. • A 5% 3-month Value At Risk (VaR) of $1 million represents: 1 / 1 point The likelihood of a 5% of $1 million decline in the asset over the next 3-month. A 5% decline in the value of the asset after 3 month, per each $1 million of notional. A 5% chance of the asset increasing in value by $1 million during the 3-month time frame. A 5% chance of the asset declining in value by $1 million during the 3-month time frame. Correct • In the Capital Asset Pricing Model (CAPM), a measure of systematic risk is captured by: 1 / 1 point The standard deviation of returns. The variance of returns. The Beta. The Alpha. Correct • Market (or systematic) risk whereas idiosyncratic risk 
 1 / 1 point . Is the risk for an asset to experience losses due to factors that affect the entire stock market Is the risk which is endemic to a specific asset and therefore not the market as a whole Is the risk for an asset to not be able to be traded in the market at a later time Is the risk for an asset to experience losses due to factors that affect the entire stock market Is the risk for an asset to experience losses due factors that solely affect the industry associated with the asset Is the risk which is endemic to a specific asset and therefore not the market as a whole Is the risk for an asset to experience losses due to factors that affect the entire stock market Is the risk which is endemic to the industry of the asset and therefore not the market as a whole Correct • Why might an investor not normally invest large sums of money into Walmart or Apple stock? Their stock prices are highly volatile, and thus carry a lot of risk Their stock prices closely track the S&P500 Both companies have received extensive media coverage The stock prices are very stable, making it difficult to gain large sums of money Correct 
 1 / 1 point • Why is the normal distribution not a good model of some financial data? 1 / 1 point The standard deviation is too low The standard deviation is too high Extreme events occur in it too often It does not have many outliers Correct Most values drawn from a normal distribution are within a few standard deviations of the mean. This is not the case in the S&P500 data, for example. Lession #3 Quiz LATEST SUBMISSION GRADE 100% • Which of these best describes risk pooling? 1 / 1 point Sick people are more likely to sign up for health insurance, and healthy people will not purchase the policy because this will make the premium more expensive If individual events are independent, risk can be decreased by averaging across all of the events Insurance companies must avoid situations whereby customers are incentivized to intentionally cause an incident (e.g. burning their house down) If individual events are not independent, risk can be decreased by averaging across all of the events Correct • Which of the following was NOT a factor which led to the proliferation of life insurance? 1 / 1 point Insurance salespeople Increased life expectancy Statistical data on life expectancy New sales pitches Correct Life insurance was initially designed to provide for the family if the breadwinner passed away, so increased life expectancy has started to eliminate the need for life insurance. • What happens in the United States if your insurance company goes bankrupt? 1 / 1 point There is no protection from the government against insurance company failure Consumers are insured from insurance company failure at the state level Insurance companies are partially owned by the government, and thus are not allowed to fail. Just like the FDIC protects consumers from bank failures, the federal government insures against insurance company failures Correct Insurance against insurance company failure happens at the state level. • What problem does the US Affordable Care Act (“Obamacare”) attempt to address and how does it do so? It addresses moral hazard by allowing hospitals to refuse treatment to those who cannot pay for it. It addresses selection bias by creating a healthcare system which is fully publicly- funded. It addresses moral hazard by forcing hospitals to provide emergency services to those who cannot pay for it. It addresses selection bias by forcing everybody to buy health insurance or else face a tax penalty. 
 1 / 1 point Correct Selection bias describes the phenomenon that only people who have an immediate need for insurance will be incentivized to purchase it. • One of the main reasons why many homeowners did not have flood insurance before the advent of Hurricane Katrina in 2005 was: Homeowners thought that the likelihood of a flood was too low to justify buying a flood insurance. Many homeowners were relying on the government instead. Many homeowners were not aware that flood insurance existed in the first place. 
 1 / 1 point Insurance premiums in Louisiana went up by 70% between , causing many people to cancel their insurance. Correct Lesson #4 Quiz LATEST SUBMISSION GRADE 100% • Under the “Don’t put all your eggs in one basket” analogy, the eggs represent individual investments and the basket represents the overall investment portfolio. Spreading your “eggs” around allows you to: Minimize the possibility that bad luck for a single investment adversely affects your overall portfolio. Maximize the return of your overall portfolio. Maximize the possibility that good luck for a single investment positively affects your overall portfolio. Increase the uncertainty of your overall portfolio so you can try to generate an extra return. 
 1 / 1 point Correct This is the principle of risk diversification. By spreading the “eggs”, you allow for an under-performing investment to be balanced by another and outperforming one. • Risk diversification can be better achieved: (check all that apply) 1 / 1 point By including in your portfolio all classes of assets traded in the market, independently of their risks. Correct Including all asset classes allows you to “average out” the extent of all potential sources of risk. With only low risk assets in your portfolio. With mutual funds or unit investment trusts if you hold a small number of assets. Correct Diversification for individual assets is harder since you would have to buy fraction of other assets, which could be impossible or prohibitively expensive. With only stocks in your portfolio. • Short selling, which is defined as the sale of a security that the seller has borrowed, is motivated by the belief that: The price of the security will rise. The price of the security will stay the same. Short selling is never prompted by speculation. The price of the security will decline. Correct Buying back the security at a lower price will allow you to make a profit. 
 1 / 1 point • The expected return of a portfolio is computed as and the standard deviation of a portfolio is . 
 1 / 1 point the weighted average of the expected returns of each asset in the portfolio, weighted by the investment in each asset the weighted average of the standard deviations of each individual asset the simple average of the expected returns of each asset in the portfolio NOT the weighted average of the standard deviations of each individual asset the simple average of the expected returns of each asset in the portfolio the weighted average of the standard deviations of each individual asset the weighted average of the expected returns of each asset in the portfolio, weighted by the investment in each asset NOT the weighted average of the standard deviations of each individual asset Correct • An efficient portfolio is a combination of assets which: 1 / 1 point Achieves the highest return for a given risk. Offers a risk free rate of return by minimizing the risk of the portfolio. Minimizes risk by ensuring only diversifiable risk remains. Achieves the highest possible covariance among its assets. Correct Module 1 Honors Quiz LATEST SUBMISSION GRADE 100% • Which of the following are new advancements and changes in finance? 1 / 1 point Behavioral finance Correct Banking Information technology Correct Insurance • What did Andrew Carnegie believe some people succeed in business and others don't? 1 / 1 point The business world selects for people with natural talent The business world selects for people who work hard The business world selects for people with a good education The business world selects for people who get lucky opportunities Correct • The main difference between Value at Risk and Stress Testing is: 1 / 1 point Value at Risk takes a non-statistical approach, as opposed to Stress Testing. Stress Testing takes a non-statistical approach with its scenarios analysis. Value at Risk is not a quantitative approach. There are no differences between the two approaches. Correct • According to the Capital Asset Pricing Model (CAPM), a security with: 1 / 1 point An alpha of zero is able to generate a return which greater than the market return. A positive alpha is considered overpriced, since the security outperforms the market. An alpha of zero is able to generate a return which is inferior to the market return. A positive alpha is considered underpriced, since the security outperforms the market. Correct Remember: Alpha is the constant in the linear relationship between the returns of the security and the returns of the market. • Which of the following are true about fat tail distributions? 1 / 1 point They are a good model for some financial data The mean is a good representation of the distribution They are the best choice for most types of data We must rely on the central limit theorem to gather useful information about them. Correct For example, the daily change in stock price is usually small, but some days (e.g. immediately after a market crash) it can be very large. • If an insurance company has 10000 policies, and each has 0.1 probability of making a claim, what is the standard deviation of the fraction of policies which result in a claim? 
 1 / 1 point 0.003 Correct • Why was the National Association of Insurance Commissioners created? 1 / 1 point To suggest laws that would prevent insurance corporations from becoming “too big to fail” To suggest laws that would decentralize the insurance industry To suggest laws that would decrease the complexity of insurance regulation To suggest laws that would strengthen the insurance industry Correct • Insurance is managed by employers, so if an employee is sick and loses her job, her insurance will be expensive due to preexisting conditions; by contrast, a healthy person who loses his job may not be incentivized to purchase health insurance. This is an example of Moral hazard Selection bias Pooled risk HMO Correct 
 1 / 1 point • 1 / 1 point In addition to earthquake, hurricane and terrorism, which of the following could be categorized as a “disaster” risk? Market liquidity risk A World War Bankruptcy Risk Currency Risk Correct This risk does not emerge from the market but has an impact on it. • One of the mentioned assumptions of portfolio management theory is that investors are rational. A rational investor: Invests only in fully diversified portfolios. Is always averse to risk. Invests in passive funds rather than active funds. Prefers a higher return for a given risk and prefers a lower risk for a given return Correct 
 1 / 1 point • The market portfolio, which includes all traded assets available in the market, must have a beta which is: Equal to 1 Above 1 Negative Equal to 0 Correct The expected return (systematic risk) of a market portfolio is identical to the expected return (systematic risk) of the market as a whole. 
 1 / 1 point • Among the risks associated with short selling a stock are: (check all that apply) Default risk: potential unlimited losses when buying back the stock. Correct There is no upper limit on the price of the stock. Regulatory risk: a ban on short sales can create a surge in the stock price. Correct A surge in the stock price can force the short seller to cover short positions at huge losses. Dividend risk: the short seller must provide dividend payments on the shorted stock to the entity from whom the stock has been borrowed. Correct Systematic risk: the uncertainty inherent to the market as a whole and which cannot be diversified. • Leveraging your portfolio: (check all that apply) 1 / 1 point Allows you increase your return on equity, magnifying positive (or negative) returns by borrowing money. Correct Increases your default risk by magnifying the standard deviation (risk) of your portfolio. Correct By investing more in the risky asset in order to increase your portfolio return, you bear the risk of an asset pricing crash which could prevent you from paying back the money you previously borrowed, hence going bankrupt. Does not increase the standard deviation of your portfolio, since the borrowed money is risk free and therefore has a standard deviation of zero. Increases systematic risk within your portfolio, that is the uncertainty inherent to the market as a whole and which cannot be diversified. • You are an investor who wants to form a portfolio that lies to the right of the “optimal” minimum standard deviation portfolio on the efficient frontier. You must: 
 1 / 1 point Invest only in risky securities. Borrow money at the risk-free rate, invest in the minimum standard deviation portfolio and, in addition, only in risky securities. Borrow money at the risk-free rate and invest everything in the minimum standard deviation portfolio. Invest only in risk-free securities. Correct Lesson #5 Quiz LATEST SUBMISSION GRADE 100% • While discussing what the future of financial markets will look like, the following arguments were mentioned (check all that apply): 
 1 / 1 point Financial markets are likely to stay the way they are now for the next three decades. Financial markets will evolve following simple ideas and ideals, such as the ones historically mentioned by Karl Marx or Robert Owen. It is hard to predict the nature of future financial markets, this evolution will depend on the involvement of young generations within the financial community. Correct It is hard to predict the nature of future financial markets, since human species is the product of a complex evolution. Correct • In his work, David Moss describes how investors’ psychology favored limited liability after the early 19th century New York experiment. In fact, the comparison between investors’ psychologies in the context of unlimited liability and lottery tickets is: Asymmetrical. Unlimited liability investors tend to overestimate the minimum probability of loss, whereas in lottery tickets, they overestimate the minimum probability of win. Symmetrical depending on the amount of money involved. For large amounts, both unlimited liability and lottery tickets investors tend to overestimate the minimum probability of loss. Symmetrical. Unlimited liability and lottery tickets investors tend to overestimate the minimum probability of loss. There is no such comparison between lottery tickets and unlimited liability investors. 
 1 / 1 point Correct • The introduction of inflation indexed debt was motivated by: (check all that apply) 1 / 1 point Historical examples of nominal debt being wiped out in real terms by high inflation. Correct An incentive to hedge from inflation volatility. Correct An incentive to have a debt contract fixed in real terms. Correct The idea to generate profits when inflation is equal to 0. • Why did Chile introduce the Unidad de Fomento ? 1 / 1 point To create a unit of account indexed to inflation, in order to counteract the impact of hyperinflation. To provide stimulus to the economy. To bolster international trade. To replace the peso as the official currency because of hyperinflation. Correct • The concept of equity-protected mortgages consists in: 1 / 1 point Mortgages that include house price insurance. Mortgages that include fire insurance. Mortgages that include accident insurance. Mortgages that include casualty insurance. Correct As an example, if the house price falls below the amount you owe, the mortgage debt will be corrected down. Lesson #6 Quiz LATEST SUBMISSION GRADE 100% • In the S&P 500 forecasting exercise, many subjects seemed to be subject to the representativeness heuristic. This concept of behavioral finance posits that: Most people don’t behave like forecasters, they tend to be affected by their recurring thoughts at the time. Most people don’t behave like forecasters, they tend to interpret new evidence as a confirmation of their existing beliefs or theories. Most people don’t behave like forecasters, what they saw in the past is representative of the future. Most people don’t behave like forecasters, they tend to rely too heavily on the first piece of new information offered when making decisions. 
 1 / 1 point Correct • An efficient market is defined as one in which: 1 / 1 point All participants have the same opportunity to generate the same returns. Asset prices quickly and fully reflect all available information. Asset prices are often in line with the intrinsic value. Transactions are ultimately costless. Correct • The Dividend Discount Model (or Gordon Growth Model) can be stated as follows. Let the investor’s discount rate be equal to r .If earnings equal dividends, and if dividends grow at the long-run rate g, then the price of the stock P can be written as follows: 
 1 / 1 point P = E/(r+g) P = (E*g)/(r) P = E/(r-g) P = (E*r)/(g) Correct The price is the present value of the stock’s future earnings. • Human judgment and experience can play a role in the advent of stock market crash because: Investors with an experience of financial crises are better at staying out of the market in turbulent times. A lot of people who have lived through financial crises have reported that, as a consequence of these crises and their narratives, their faiths in the market have diminished. Investors with an experience of financial crises are better at diversifying their portfolios. 
 1 / 1 point Investors with an experience of financial crises are better at exploiting profit opportunities. Correct Lesson #7 Quiz LATEST SUBMISSION GRADE 100% • Which of the following best describes the “invisible hand”? 1 / 1 point Subtle government economic interventions can lead to the inefficient allocation of resources. The free market, guided by self-interest, is mislead to inefficiently allocate resources. The free market, guided by self-interest, ensures the sufficient production of goods to meet society’s demands. Subtle government economic interventions can ensure the sufficient production of goods to meet society’s demands. Correct • What problems does prospect theory solve? (check all that apply) 1 / 1 point People can underestimate high probabilities and overestimate low probabilities Correct The weighting function shows that there is a difference between the actual probability of an event and the subjective probability People do not treat gambles as equivalent to their expected utility Correct For example, expected utility theory predicts that everyone should take a gamble with a 50% chance of winning $200 and a 50% chance of losing $100, but in practice many people do not take this gamble. People will make big gambles to avoid losses Correct The value function indicates that once people have lost a lot of money, they will be more likely to make risky gambles with the purpose of coming back to their baseline. People will often make purchases impulsively • What is the wishful thinking bias? 1 / 1 point People think that, if they hope for something strongly enough, it will be more likely to happen. People hope that their sports team or political candidate will win People do not consider the probability of the things they want most. People over-estimate probabilities of things they would like to be true. Correct For example, people over-estimate the probability that their favorite sports team or political candidate will win. • Ricardo thinks that, since society seems similar to what it was in the late 1920s, a second Great Depression is coming soon. To which cognitive bias is Ricardo falling victim? The disjunction effect Attention anomalies Representativeness heuristic The framing effect Correct Even though the probability of another Great Depression is low, current conditions seem to fit this single example. 
 1 / 1 point • What is Newcomb’s paradox? 1 / 1 point People will behave differently if playing games against a computer compared to playing them with a human opponent. People sometimes change their behavior when they learn about a prediction which has been made about the future. People prefer a small chance at winning $1 million than a high chance of winning $1000. People behave irrationally when faced with decisions which involve large sums of money. Correct • Which of the following is NOT a common trait of somebody with Antisocial Personality Disorder? Lack of desire to interact with others Heightened self-esteem 
 1 / 1 point Manipulative Lack of empathy Correct Those with Antisocial Personality Disorder like to manipulate, not avoid, others. Module 2 Honors Quiz LATEST SUBMISSION GRADE 100% • A limited liability corporation in which you are a shareholder has just gone bankrupt. The company has a large debt, that is its liabilities are far in excess of its assets. Hence, you will be called on to pay: A proportional share of all creditor claims based on the number of common shares that you own. A proportion of the total debt, which is decided at the discretion of the bankruptcy judge. An amount that could, at most, equal what you originally paid for the shares of common stock in the corporation. Nothing. Correct You are a limited liability investor, hence you are not liable for the debt of the firm. You will at most lose the value of your shares. 
 1 / 1 point • The inflation risk, which inflation indexation aims to mitigate (check all that apply) 1 / 1 point Is associated with any investment that involves cash flows over time. Correct Is the risk that the cash flow from an investment won’t be worth as much in the future because of changes in purchasing power due to inflation. Correct Is the risk that the nominal rate of return of an investment will exceed the rate of inflation. Is not the risk that there will be inflation, it is the risk that inflation will significantly fluctuate over time. Correct • The concept of human capital risk (check all that apply): 1 / 1 point Is a risk associated with the present value of all your future wages. Correct Is not correlated with professional competency. Is not correlated with the stock market. Can also be considered as a protection against inflation. Correct • The random walk hypothesis of the Efficient Market Theory posits that: 1 / 1 point Historical stock prices follow a random walk. Stock price volatility follows a random walk. Historical stock returns follow a random walk. Short-term investment returns are inherently unpredictable. Correct • Suppose a market is inefficient. As new information is received about an asset: 1 / 1 point Investors will short the stock. The volatility (standard deviation) of the stock price will increase. There will be a lag in the adjustment of the stock price. Nothing will happen. Correct In an efficient market, the stock price will be instantaneously updated after new information is received. • Investors mainly use the price-to-earnings (P/E) ratio in order to: 1 / 1 point Decide how much profit a company is likely to make in the future. Determine the optimal risk-return ratio. Decide whether a company’s shares are overpriced or underpriced. Determine the optimal price for the company’s products. Correct For instance, a high P/E ratio can imply that the shares are overpriced with respect to the company’s fundamental value. • What is the shape of the value function in prospect theory? 1 / 1 point Gains: concave up; Losses: concave up Gains: concave up, Losses: concave down Gains: concave down; Losses: concave up Gains: concave down; Losses: concave down Correct Since gains are concave up, gaining $2000 on one day has a lower value than gaining $1000 on two separate days. Since losses are concave down, losing $20000 on one day has a higher value than losing $1000 on two separate days. • Which of the following provide evidence that investors experience cognitive dissonance? 1 / 1 point Investors buy and sell stocks very rapidly Investors choose investments which already have many other investors Investors do not remember the negative performance of their investments. Correct They selectively remember when their investments were doing well. Thus, they still feel they made a good decision. Investors hold onto funds that are doing poorly Correct If they initially chose to invest in the fund, they selectively ignore evidence that their choice was wrong. • Which of the following situations are examples of the framing effect? (check all that apply) 1 / 1 point An elevator lists a maximum capacity of 2000 lbs, even though it can safely carry up to 5000 lbs. A mattress which costs $1000 is advertised as $4000 with a "75% off" sticker on it Correct Rather than buying a $1000 mattress, the customer believes she is getting a $4000 mattress for the price of a $1000 mattress. A gold coin is sold for $1000, even though it is only worth $300. A stock splits from $60 to $30 and investors are given twice as many shares Correct When it splits, investors still remember the $60 price and thus are willing to pay more for a share. • Which of the following defines the relationship of doctors to patients, but generally does not apply to the relationship of financial advisors to their clients? Patients can do their own background research on medical concepts to help them better understand their health, but finance is too complicated for clients to do this. Doctors use both data and experience/intuition when advising patients, but financial advisors must use either one or the other. Doctors have made an oath of loyalty to their patients, but financial advisors have not. Patients may seek second opinions from other doctors, but not from financial advisors. Correct 
 1 / 1 point • Which describes the concept of social contagion? 1 / 1 point Contagious diseases tend to spread in social situations. When an idea gains cultural momentum, it is more likely to be propagated throughout generations Ideas can evolve and develop in a similar way to genes, and we can use the principles of evolutionary biology to understand this development. Mathematical models of disease spread can be applied to the spread of ideas Correct Lesson #8 Quiz LATEST SUBMISSION GRADE 100% • Which of the following describes current short term interest rates? 1 / 1 point They are approximately equal to zero They are very high They are strongly negative They are changing for the first time in the last 100 years Correct • What is the Federal Funds Rate and how long does it take to mature? 1 / 1 point The longest term interest rate in the federal government, which takes one year to mature. The shortest term interest rate in the federal government, which takes one hour to mature. The shortest term interest rate in the federal government, which takes one month to mature. The shortest term interest rate in the federal government, which takes one day to mature. Correct • If you put $1000 into an account with a 20% interest rate, how much money will you have at the end of the year if interest is compounded ONCE per year? 200 
 1 / 1 point 1200 1210 1440 Correct • How do coupon bonds work? 1 / 1 point You purchase a bond for the same price you eventually sell it for, but if you have a “coupon”, you may buy it for less money. You purchase a bond for the same price you eventually sell it for, but while it reaches maturity, you may clip “coupons” off the bond and exchange them for money. You purchase a bond for the same price you eventually sell it for, but bond owners are eligible for special offers from the federal government, also known as “coupons”, which incentivize the purchase of the bonds. You purchase a bond for one price, but the final price you may sell it for depends on the type of “coupons” that are released to account for inflation. Correct • What is the main difference between a consol and an annuity ? 1 / 1 point The consol has a fixed price of $1 at inception whereas the annuity price is given by the market. A consol pays a constant quantity (coupon) forever, whereas the annuity also pays a constant quantity but only until a fixed time T called the maturity date. An annuity pays a constant quantity (coupon) forever, whereas the consol also pays a constant quantity but only until a fixed time T called the maturity date. A consol is not subject to market risk. Correct • The forward rate is: 1 / 1 point The expected rate (yield) on a bond several months or years from now. The (inflation-adjusted) rate on a bond. Equal to the yield to maturity of the bond. Equal to the nominal rate of the bond. Correct Forward rates are interest rates that can be taken in advance using term structure. • The real interest rate is calculated by: 1 / 1 point Subtracting the inflation rate from the nominal interest rate. Adding the inflation rate and the nominal interest rate. Subtracting the nominal interest rate from the inflation rate. Adding the nominal interest rate and the yield to maturity. Correct • Irving Fisher’s Debt Deflation Theory starts from the observation that: 1 / 1 point Deflation redistributed real wealth from creditors to debtors. Deflation has no impact on the real wealth of debtors. Deflation redistributed real wealth from debtors to creditors. Deflation has no impact on the real wealth of creditors. Correct Deflation raises the level of debt in real terms, shifting wealth to creditors. Lesson #9 Quiz LATEST SUBMISSION GRADE 100% • Market capitalization is calculated by using: 1 / 1 point The total number of employee of a company. The earnings of a company. The price per share and the total number of outstanding shares. The dividends of a company. Correct Market capitalization is simply the product of these two quantities. • The greater an investor’s ownership in a corporation is, the greater: 1 / 1 point is the amount of taxes to be paid by the company. is the total number of shares he/she owns with respect to the total number of shares outstanding. is the profitability of the company. is the total number of shares he/she owns. Correct • A firm must make its dividend payments to before it makes any dividend payments to its . 
 1 / 1 point preferred shareholders common shareholders its Chief Executive Officer preferred shareholders the members of the board bondholders bondholders preferred shareholders Correct • The basic corporate charter: (check all that apply) 1 / 1 point does not say that the firm ever has to raise debt. The board decides. Correct says that the firm must pay dividends during its lifetime. says that the firm must repurchase some of its shares beyond a certain threshold of issuance. does not say that the firm ever has to issue warrants, convertible debt or any other debt securities. Correct • In the Pecking Order Theory, the companies prioritize their sources of financing in the following order: 
 1 / 1 point (1) Debt, (2) Internal financing, (3) Equity. (1) Internal financing, (2) debt issuance, (3) Equity. (1) Equity, (2) Debt issuance, (3) Internal financing. (1) Equity, (2) Internal financing, (3) Debt. Correct • A dilution is: 1 / 1 point The issuance of new debt by a company. A sale of an investor’s shares. A reduction in the ownership percentage of a share of stock caused by the issuance of new shares. An increase in the ownership percentage of a share of stock caused by the issuance of new shares. Correct • A share repurchase is: (check all that apply) 1 / 1 point An alternative to paying dividends in order to return cash to investors. Correct The reverse of a dilution. Correct A program by which investors buy back their previously sold shares of a given company. A program by which a company buys backs its own shares from the marketplace or from its shareholders (at a fixed price). Correct • The price-to-earnings ratio: (check all that apply) 1 / 1 point Indicates the percentage of profit that is paid out as dividends. Shows how much an investor is willing to pay for the stock of the company for each dollar of the company’s earnings. Correct Effectively shows the number of years of earnings at which the company is valued given the current level of the share price. Correct Measures the funds provided by creditors versus the funds provided by owners. • Generally, a reduction in dividend is interpreted by investors as: 1 / 1 point A non-event. Good news, with often an increase of the stock price. Bad news, with often a drop in the stock price. A sign of future increase in profitability. Correct Usually dividend cuts or omissions are bad news, because investors infer trouble. Module 3 Honors Quiz LATEST SUBMISSION GRADE 100% • Which of the following did Eugen von Böhm-Bawerk NOT believe caused the interest rate to be a small positive number? People value money more today than they do in a year. This is approximately the rate of technological progress. There are advantages to roundaboutness. Financial knowledge and expertise accumulates at a societal level at approximately this rate. 
 1 / 1 point Correct • If you put $1000 into an account with a 20% interest rate, how much money will you have at the end of the year if interest is compounded CONTINUOUSLY? (When inputting your answer, enter your rounded answer without decimal precision and do not type in the $ dollar sign) 
 1 / 1 point 1221 Correct • Suppose that a consol has a promised payment of 6 pounds per 100 pounds notional. This consol is now traded at 150 pounds. What it the current yield to maturity of the consol? 1% 2% 
 1 / 1 point 3% 4% Correct The yield to maturity of a consol is the coupon payment divided by the price of the security, that is (6%)*100 / 150 = 4%. • You observe that on today’s yield curve, the one year rate is R1=6% and the two year rate is R2=6.5%. What is the one year forward rate one year from now ? 5% 6.5% 7% 6% Correct (1+R2)^2/(1+R1) – 1 
 1 / 1 point • A tech company can make a 3% real return on an investment. It can borrow funds to finance the investment at a nominal rate of 6% and the inflation rate is 1%. Hence: The real rate of interest is 3%. The investment will be unprofitable. The investment will be profitable. The real rate of interest is 2%. Correct The real rate of interest is 5%. Since the company can only earn 3% in real terms, the project will be unprofitable. 
 1 / 1 point • If expected inflation is less than actual inflation, then wealth will be redistributed from: 1 / 1 point Lenders to borrowers. The government to consumers. The consumers to the government. Borrowers to lenders. Correct More inflation than anticipated will decrease the value of debt in real terms, shifting wealth to borrowers. • The market capitalization of a company provides information on: 1 / 1 point The value of a company. The pension benefits provided by the company. The capital expenditures of the company. The industry the company operates in. Correct • Which of the following are true for stock splits ? (check all that apply) 1 / 1 point Market price per share is reduced after the split. Correct The total number of outstanding shares increases. Correct Proportional ownership is unchanged. Correct Retained earnings are changed. • A rationale for preferred stock: 1 / 1 point It lowers the cost of financing, as compared with debt issuance. The dividends associated with it are tax-deductible. It expands the capital base without diluting common equity. Its holder benefits from an increased ownership in the company. Correct • The Pecking Order Theory indicates that firms prefer financing to financing. 
 1 / 1 point stock; debt internal; external stock; retained earning flexible; risky Correct • If the company I invest in issues a stock dividend at 5%, the value of my original shares are by a factor . I am since I have an additional of value in the new shares. 
 1 / 1 point raised, 1.05/1, worse off, 0.05/1.05 lowered, 1/1.05, worse off, 0.05/1.05 lowered, 1/1.05, better off, 0.05/1.05 raised, 1.05/1, better off, 0.05/1.05 Correct • Which one of the following statements is correct? 1 / 1 point A cash dividend has no effect on the market value per share. A stock repurchase increases the market value per share. Stock repurchases are more tax advantageous than are cash dividends. Stock repurchases provide more income to shareholders compared to dividends. Correct • A company whose stock is selling at a price-to-earnings (P/E) ratio that is greater than the P/E ratio of the market most likely has: An anticipated earnings growth rate which is less than that of the average traded firm within the market. An unpredictable future stream of earnings. A larger dividend yield compared to the dividend yield of an average traded firm within the market. A dividend yield which is smaller than that of an average traded firm within the market. Correct 
 1 / 1 point • 14. What are the main implications of John Lintner’s dividend model? 1 / 1 point A firm should always pay a dividend equal to its EPS (earnings per share). A firm has to strike a balance. It should pay a dividend to share some of its earnings with shareholders but its dividend should not be too high, because that might lead to a cut in the dividend in a following year, which leads to a negative reaction among shareholders. If the company’s EPS is smaller than last year’s dividend, the company should engage in share repurchases. A firm should never pay any dividends. Correct Lesson #10 Quiz LATEST SUBMISSION GRADE 100% • Which of the following is FALSE of Direct Participation Programs (DPPs)? 1 / 1 point They must operate for at least some minimum amount of time. They are for accredited investors only A major example of a DPP is a real estate partnerships. They may skip corporate profits tax. Correct DPPs must have a limited lifetime. Corporations derive much of their value from the fact that they will last for a long time, which is why there are restrictions on the duration of DPPs. • If Sabine is “under water”, what can we say about her situation? 1 / 1 point The value of her home is less than the value of her mortgage. She does not have enough money to make payments on her home. She has no choice but to declare bankruptcy. She has sent her keys to the bank and abandoned her house. Correct This is the definition of being under water. • Why does the 30 year mortgage rate so closely match the 10 year treasury bond YTM? 1 / 1 point Banks intentionally track the 10 year treasury bond YTM. People could choose to finance their home with 10 year treasury bonds instead of with 30 year mortgages. There are similar psychological causes which influence both the 30 year mortgage rate and the 10 year treasury YTM. The interest rate of 30 year mortgages and the price of 10 year treasury bonds are set by the same organization. Correct 30 year mortgages usually only last about 10 years because people will sell their homes. • Who pays for private mortgage insurance on a mortgage? 1 / 1 point Thank banks Fannie Mae and Freddie Mac The homeowner The US government Correct • Before the recession in 2007, why were banks giving out mortgages to people who could not afford them? Banks had no way to verify whether people would be able to pay. Banks would resell to mortgages to CMOs, and thus they were not incentivized to make sure their mortgages were unlikely to default. CMOs were incentivized to buy mortgages which were likely to default, since these would only affect their lowest tranche. Many people faked documents in order to get a mortgage, known as a “liar loan” Correct 
 1 / 1 point Banks could make more money by offering mortgages to people who they knew could not pay for them. • Select TWO key causes of the housing bubble which crashed in 2007: 1 / 1 point Over-optimistic mortgage lending Correct Hyper-inflation Corruption within the government Fraudulent mortgage lending Correct • During the housing bubble of 2007, which of the following tended to fluctuate with home price index? The percentage of new homeowners who have been evicted from their home. The percentage of new homeowners who regretted their decision. The percentage of new homeowners who think investing in real estate is a bad long term investment. The percentage of new homeowners who think that investing in real estate is a good long term investment. 
 1 / 1 point Correct • What in 2005 indicated the housing market might be a bubble? 1 / 1 point Media was discussing a home-buying mania in the American public. Time magazine predicted that the housing market was a bubble. The expected 10 year home price appreciation dropped below the 30 year mortgage rate. Media was discussing how people were no longer purchasing houses. Correct Lesson #11 Quiz LATEST SUBMISSION GRADE 100% • Why might companies like the idea of regulation? 1 / 1 point Regulation could be used to give them a legal monopoly over a particular sector. Companies have enough money to bribe government officials to create regulation that favors them. It helps them ensure they are representing the interests of their customers. It allows them to compete on a level at which they do not have to use (potentially unethical or unfair) special tricks to avoid letting their competitors gain a competitive advantage. Correct For instance, baseball players do not like it when an umpire calls them out on foul play, but they like the fact that umpires exist because they also ensure their opponents won’t break the rules. • What is tunneling? 1 / 1 point When management of a company transfers cash from a corporate account to a personal account. Any trick that somebody in the company uses to steal money from the company. When a member of the board of directors fires a high ranking employee so that a family member can take their place. When a small group of majority shareholders in a company allow the company to be bought out for a very low price by another company in which the small group are also majority shareholders. Correct This is the definition of tunneling. • Ideally, who must the board of directors be loyal to? 1 / 1 point The government The shareholders The general public The CEO Correct • What is a fixed commission? 1 / 1 point Fixed taxes imposed on brokerages if they wished to operate in the stock market. A fixed rate charged by all brokerages to buy or sell shares on the stock market. The rate charged in order to join a trade groups. The opposite of dividends, i.e. fixed per-share prices charged by companies to shareholders. Correct Fixed commissions were only outlawed in the US in 1975 and in the UK in 1986. • Which of the following describes the contrast of federal vs state regulation in the US? 1 / 1 point Securities are primarily regulated by federal government but corporate regulation is primarily by the state governments. Securities regulation and corporate regulation are both primarily controlled by the federal government. Securities are primarily regulated by state governments but corporate regulation is primarily by the federal government. Securities regulation and corporate regulation are both primarily controlled by the state governments. Correct • What is the US Securities and Exchange Commission (SEC) NOT responsible for doing? 1 / 1 point To manage the EDGAR database. To authorize companies to be traded publicly on the stock market. To force organizations to maintain financial transparency. To provide reliable and timely information on the performance of securities. Correct The SEC does not perform this function. • Which of the following is NOT an example of insider trading? 1 / 1 point Mohammed is a secretary for a large corporation and overhears that they are about to take over a smaller corporation. He tells his wife, who purchases a large number of shares in the company immediately before the acquisition is announced. Martha receives private information about a company from her stock broker. As a result, she sells all of her shares in this company, which fall substantially in price the next day. Leah is a short sells shares for a company she used to work for and then creates a fake press release with bad news from the company. Chenxiang, the CEO of a company, directs the purchase and company-wide deployment of software written by his brother. Correct This is an example of tunneling, not insider trading. • What happened when Goodbody and Company failed? 1 / 1 point None of the retail investors lost any money. Goodbody and Company had to mail everybody their stocks before they failed. Because Goodbody and Company held the shares for their clients, people lost most or all of their stocks. People began to distrust brokerages and pulled their money out of stocks. Correct They were taken over by Merrill Lynch, who was reimbursed for $30 million in losses from the New York Stock Exchange. • Which of the following describes the Bank for International Settlements (BIS)? 1 / 1 point A bank for citizens of any country which allows them to deal in other currencies. A former financial institution which was replaced by the G20. The English name for the national bank of Switzerland, which strategically fosters relationships between banks internationally. A bank for central banks which provides an intermediary for the central banks to deal with each other. Correct Peer-graded Assignment: Financialization of Housing Review by Jan 6, 11:59 PM PST Reviews 3 left to complete Misconception about The Financialization of Housing by Vieira Harits Arkaizstammam December 11, 2020 
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 Flag this submission PROMPT How did the learner perform on this assignment? Disagree, many entrepreneurs are leaning towards the housing sector to circulate their money safely and make regular profits through the interest. In my opinion, these entrepreneurs can actually help the younger generation and the small community who are just working and building households to be able to buy houses cheaper. The increase in housing prices that occurred was caused by many economic factors, such as an increase in overall income, a decrease in interest rates, area desirability and increasing population so that housing demand continues to rise. Thus, entrepreneurs investing in the housing sector will be able to increase housing supply and stabilize housing prices. Peer-graded Assignment: Financialization of Housing Review by Jan 6, 11:59 PM PST Reviews 3 left to complete United Nations Human Rights Council's 2017 Report Review by Joanna Makhoul December 11, 2020 
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Flag this submission PROMPT How did the learner perform on this assignment? I totally agree with the right to an adequate standard of living, and on the right to non-discrimination because in recent years the housing sector has been transformed by global financial actors and unprecedented amounts of excess capital. It is no longer as we once knew it. Housing has been financialized: valued as a commodity rather than a human dwelling, it is now a means to secure and accumulate wealth rather than a place to live in dignity, to raise a family and thrive within a community. Housing has become security for financial instruments – traded and sold on global markets. It has lost its currency as a universal human right. The pace and extent to which financial corporations and funds are taking over housing and real estate and causing homelessness, displacement and unaffordability is staggering. Housing prices are no longer commensurate with household income levels, and instead are driven by demand for housing assets among global investors. When housing prices skyrocket, low and sometimes even middle-income residents are forced out of their communities by high rent or mortgage costs. When housing prices plummet, residents face mortgage foreclosure and homelessness. In developing economies, even informal settlements are subject to speculative investment. Residents are displaced and often rendered homeless to make way for luxury housing that often stands vacant. First, financialization undermines democratic governance and community accountability. Second, financialization of housing exacerbates inequality and social exclusion. And third, financialization detaches housing from its connection to communities and to the human dignity and security that are at the core of all human rights. Financial markets and global housing investments are not, in fact, beyond the control of states and international organizations. Some States and local governments have begun to develop policy responses to the financialization of housing to at least curb its excesses. A number of States have instituted restrictions on foreign purchasers of residential real estate and others have imposed taxes on vacant homes. Taxes on luxury properties have also been applied with revenues used to subsidize housing for low-income households. A number of jurisdictions have introduced a property speculation tax and others have been successful at requiring developers to include a proportion of affordable units. Some local and regional governments have affirmed the social function of housing, facilitating temporary expropriation of vacant housing and prohibiting foreclosures and evictions that would result in homelessness. While these and similar measures can mitigate the effects of the financialization of housing, a more fundamental shift is required in order for States to uphold their international human rights obligations. States must change their relationship with the financial sector to insist that markets serve the social function of housing. The obligations of States in relation to the financial sector have often been ignored or interpreted too narrowly. The assumption, bolstered by neo-liberalism, that States should simply allow markets to work according to their own rules, subject only to the requirement that private actors “do no harm” and avoid explicit violations of human rights, is simply not sufficient to meet States’ obligation to fulfil the right to adequate housing “by all appropriate means, including legislative measures.” The State must regulate, direct and engage with private market and financial actors, to ensure that the rules under which they operate and their actions are consistent with the realization of the right to adequate housing for all sectors of society. States are obliged to ensure that private investors respond to the needs of residents for secure, affordable housing and do not cater only to the wealthy. What I am suggesting is a significant change – a shift in paradigm away from prioritizing financial interests and the commodification of housing in order to retrieve what housing means in terms of human dignity and security, as a lived experience, as a HUMAN right. The Sustainable Development Goals and the New Urban Agenda provide an important opportunity for States to engage financial regulatory bodies and actors in the goal of adequate housing for all by 2030 as a human rights obligation. Indeed, meeting that goal will require such engagement. Trade and investment treaties must recognize the paramountcy of human rights and ensure that States are fully empowered to regulate and direct private investment so as to ensure the realization of the right to housing. Courts, tribunals and national and local human rights institutions must explicitly recognize and apply the paramountcy of human rights and interpret and apply domestic laws and policies related to housing and housing finance consistently with the right to adequate housing. States should review all domestic laws and policies related to foreclosure, indebtedness as well as urban planning and housing development, to ensure that no eviction is permitted when there are reasonable alternatives, and that housing is built for people who need it to live in, not for purposes of speculation and the accumulation of wealth. Emerging work in the area of business and human rights has yet to be rigorously applied to the largest sphere of global business - the sphere of housing and real estate. Financial institutions and housing investors should be encouraged to adopt guidelines that recognize the important role that they must play in the realization of the right to housing. If the New Urban Agenda and target in 11.1 of the SDG’s of adequate housing for all by 2030 is to mean anything, we must insist that human rights obligations be recalibrated to address the immense challenges of the financialization of housing and redirect the vast resources available toward the realization of the right to adequate housing! Module 4 Honors Quiz LATEST SUBMISSION GRADE 100% • Why must we consider psychological factors when speaking about housing prices? 1 / 1 point Applying certain psychological factors can increase a portfolio’s risk. Psychologists have developed mathematical formulas to accurately forecast housing prices. Without psychological factors, a larger percentage of real estate prices would be determined by construction costs. People behave in very predictable ways, so it is possible to make a lot of money by investing in real estate. Correct • Select TWO important actions of the Federal Housing Administration. 1 / 1 point Require loans to be at least 15 years. Correct Impose a sharp tax on real estate. Insure lenders against losses Correct Guarantee employment for home-owners. 3. Which of the following definitions are correct? (check all that apply) 1 / 1 point Fixed rate mortgages are mortgages where the interest rate does not change over time. Correct An adjustable rate mortgage (ARM) does not have a fixed interest rate, but increases gradually over time. Shared Appreciation Mortgages (SAMs) require you to pay some percentage of the appreciation of your house. Correct Price Level Adjusted Mortgage (PLAMs) are adjusted to inflation. Correct • Which of the following started happening to CDOs in 2007? 1 / 1 point Defaults started to affect the highest tranche CDOs replaced CMOs for mortgages. CDOs had to be bailed out by the government AAA tranches were re-rated to be of similar risk to the lowest tranche. Correct • Why are banks incentivized to offer Qualifying Residential Mortgages (QRMs)? 1 / 1 point Banks are usually in the business of initiating but not keeping mortgages, but QRMs are high enough quality that banks would want to keep them. QRMs are mortgages that are unlikely to default, so by offering them, banks can ensure that they will not lose large amounts of money from defaults. The government forces banks to offer them if they want to offer any kind of mortgage. Banks are usually in the business of initiating but not keeping mortgages, so offering QRMs allows them to sell them all to a CMO. Correct Banks are required to keep at least 5% of their non-QRMs. • Which of the following is NOT in practice a problem with regulation? 1 / 1 point Regulation can cause a monopoly if only one company can keep up with the expenses of complying with the regulations. A lot of money is lost on paperwork for complying with regulations. It may be possible to bribe corrupt regulators. Companies may be disincentivized to grow beyond a certain size to avoid extra regulations. Correct This generally goes • Which of the following correctly describes a type of hedge fund? (check all that apply) 1 / 1 point 3c1 hedge funds can take no more than 99 investors, each of whom must have an income of at least $200,000 or investable assets of at least $1,000,000. Correct 3c3 hedge funds can take up to 999 investors, each of whom must be an individual with a net worth of at least $10,000,000 or an organization with a net worth of at least $100,000,000. 3c7 hedge funds can take up to 500 investors, each of whom must be an individual with a net worth of at least $5,000,000 or an organization with a net worth of at least $25,000,000. Correct 3c8 hedge funds can take no more than 50 investors, each of whom must have an income of at least $200,000 or investable assets of at least $5,000,000. • Which is NOT true about Generally Accepted Accounting Principles (GAAP)? 1 / 1 point They are used for EDGAR. It invented the concept of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBIT) They are defined by the Financial Accounting Standards Board (FASB) It maintains official definitions of “net income” and “operating income”, Correct This is an important definition, but it is not part of GAAP • What is rating shopping? 1 / 1 point Banks only ask low-integrity rating services to rate mortgages. Banks tell rating services the rating they wanted before it was rated. Banks ask several mortgage rating services what their rating will be on a mortgage, and then pick the best rating. Banks stop caring about the rating anymore as long as they can find someone to buy it. Correct Lesson #12 Quiz LATEST SUBMISSION GRADE 100% • What is the effect of traders storing grain to wait for higher prices? 1 / 1 point It is essential in preventing grain shortages. Most shortages could have been prevented if traders had not speculated on grain prices. Most grain ends up getting moldy in storage. Traders are able to monopolize the market. Correct If grain were not stored, it would only be accessible immediately after the harvest. This ends up accommodating supply and demand. • In commodities trading, what is the role of forwards and futures? 1 / 1 point Farmers and warehouses sell exclusively in futures. Farmers sell in forwards and warehouses sell in fut