Quiz 1

• 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.
• 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.
• 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.

  True, False