IRM

• Risk averse investors are the ones who will select the investment that offers great certainty.
• A larger range of expected returns/returns makes the investment riskier.
• • An investor typically is not completely certain of the income to be received or when it will be received.
  • Most investors require higher rates of return on investments if they perceive that there is any uncertainty about the expected rate of return.
  • True, True
• Country risk is the uncertainty of returns caused by the possibility of a major change in the political or economic environment of a country.
• The domestic return is the rate of return an investor within the country would earn.
• Common stock is the riskiest type of investment.
• • Most investors are risk averse.
  • Individuals differ in the amount of risk that they are willing to bear and the return that they require as compensation for bearing that risk.
  • True, True
• • The impact of event risk in investments tends to be isolated in most cases.
  • When an investor purchase a bond, in effect the investor borrows money from the issuer.
  • True, False
• Indirect investment is an investment in a collection of securities/properties managed by a professional investor.
• Stock dividends can be expected as return/s in a common stock.
• In March 1792, Buttonwood Agreement was compacted between stockholders and merchants on Wall Street in New York City to establish a stock exchange.
• Fixed-income securities with shorter maturities are called notes.
• Securities typically have a high degree of liquidity, which is one advantage of investing in them.
• Banks can issue certificate of deposit.
• Generally, preferred shareholders have higher claims to assets relative to common shareholders in the event of corporate liquidation.
• Option contract is an example of financial contract.
• Financial intermediaries provide services and products which help connect buyers to sellers in various ways.
• One of the most important strategies that investors used to manage risk is diversification, which means holding different types of assets in an investment portfolio.
• Institutional investors are investment professionals who earn their living by managing other people's money or fund.
• Deposit accounts and commercial papers can be considered as short-term investments.
• Capital gains occur when stock price rises above an investor's initial purchase price.
• The expense ratio is a fee charged to investors based on a percentage of the assets invested in a mutual fund.
• Hedge funds are generally open to a narrower group of investors than are mutual funds.
• When investors believe that business conditions will deteriorate, stock prices will fall even before those poor business conditions materialize.
• • Some investors choose to hold long-term investments because they simply do not want to take the risk inherent in many types of short-term investments.
  • Time value of money refers to the idea that as long as an opportunity exists to earn interest, the value of money depends on when it is received and a peso received today is worth more than a peso in the future.
  • False, True
• Price-driven system is a system wherein shares of stock are sold to the investor with the highest bid price and bought from the seller with the lowest offering price.
• An organization that conducts initial public offerings first sells its common stock to the general public.
• Trading of current or previously issued securities is the principal purpose of a secondary market.
• • A stock exchange may be physical location or electronic trading platform.
  • IPOs can be offered either in primary or secondary market.
  • True, False
• By choosing preferential allotment, shares may be issued to a certain group at a price that is different from the share price that is publicly listed.
• • There can be an agreement which the underwriter will only sell the securities on the company's behalf with no assurance that a certain sum of money will be raised.
  • The prospectus covers the essential elements of the securities to be offered, as well as the issuer's management and financial status.
  • True, True
• Securities markets can be generally categorized as primary for short-term securities. or secondary for long-term securities.
• Commercial paper is not secured by any form of collateral or by a bank and it may be short-term or long-term.
• Debt fundraising essentially involves taking out a loan.
• Liquidity risk and purchasing power risk are the risks associated with bonds.
• In rights offering,  the firm offers shares to existing stockholders on a pro-rata basis.
• Preliminary prospectus, also called as red herring, is the one which the issuer distributes to the potential investor, with a notice printed in red on the front cover indicating the tentative nature of the offer.
• Investment banker is a type of financial intermediary who focuses on assisting businesses that are issuing new securities and advising businesses on significant financial transactions.
• Both the lead underwriter and the lead investment bank put together a selling group to sell the issue on a commission basis to investors.
• The other significant area of the secondary market is the over-the-counter market, which deals in trading smaller, unlisted securities.